ML20198S319
| ML20198S319 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley, 05000000 |
| Issue date: | 12/31/1985 |
| From: | Arthur J, Boyce D, Von Shack W DUQUESNE LIGHT CO. |
| To: | |
| Shared Package | |
| ML20198S250 | List: |
| References | |
| NUDOCS 8606100393 | |
| Download: ML20198S319 (48) | |
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Financialand Operating Highlights ABOUTTHECOVER DUQUESNE13GilTCOMPANY FINANCIAL Percent 1985 1984 Change Revenues from Customers (000) $868,815 $861,775 + 0.8 Revenues from Other Utilities (000) $46,049 $31,439 + 46.5 l
'Ibtalbperating Revenues (000) $914,564 $893,214 + 2.4 Netincome(000) $175,957 $156,794 + 12.2 EarningsIhrShareof CommonStock $2.26 $2.21 + 2.3 ;
Dividends PaidItrShare of Common Stock
$2.06 $2.045 + 0.7 l Book ValueIhrShare of Common Stock atYear End $ 16.36 $ 16.26 + 0.6 Shares of Common Stock Outstanding atYear End 71,488,270 64,774,591 + 10.4 Allowance for Funds Used During Construction as a Itreent of Earnings for Common Stock 64 % 60 % + 6.7 OPERATING Electric Plant (000) $4,168,993 $3,799,499
+ 9.7 MWIISales to Customers 11,008,367 11,562,846 - 4.8 MWH Sales to Other Utilities 1,980,761 1,019,308 +94.3
'Ibtal MWilSales 12,989,128 12,582,154 - 3.2 Ibak Load Megawatts 2,127 2,172
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Cost of FuelPer MillionIITU 16S.5e 165.9e + 1.6 AverageITFUIbr KWilOutput 10,633 10,682 - 0.5 AnnualSystem Generation MWil 13,599,359 12,998,429 + 4.6 CONTES"13 Ilighlights ThisIbge l
'Ib Our Stockholders 2 l IVrspectis e on 1985 4 to 17 Company Report on Financial Statements 18 Opinion oflndependent Certified Public Accountants 18 FinancialInformation 19 to 43 Service AreaMap 44 Tax Status of Common Stock Dividends 44 Form 10- K Offer 4i CAPCO 44 Hoard of Directors Inside Back Cover Company Officers Inside Hack Con r
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' u-t lh i The next' time your company thinks of opening up a new business location,
( I hope you will seriously considsr the area Duquesne Light serves. The waning of our traditional steel industry is well known. But even as ,
' our traditionci economic base of heavy industry was declining, a parallel .
Msecond economy' was rising. This second economy now employs much' .
~. larger numbers than the steelindustry. As a result, the Pittsburgh area X o is not merely economically viable, but also remarkably vigorous. ,
tT he transformation. has many sources. Some of our large corporations = ' L have become inemasingly international and diversified. Several hundmd
, high-technok>gy enterprises have developed, many of them spinning off :
~ )i 1 computerirelated technologies developed in local university research.-
Because Pittsburgh has long been one of the largest corporate and research L centers in the couatry, we have an'exceptiorially strong infrastructure of 1 technological and business support firms. There is a strong sense of com- , L munity here, and the community has had the will to bring about change. Especially exciting to me, because I have spent so much of my life teach-- . ;ing, is the productive vitality of the universities of the mgion, which am
/ keeping us on thdcutting edge of new technologies. The city of the Salk l 00110 vaccine is also ths source of a continuing flow of medical advances, isuch as those in transplant surgery. -
There's mom to business than business alone, so I will offer some obser-ivations on the personal side. From experience, I can tell you that Pittsburgh
- 1sh city with fine, safe neighborhoods for raising childmn. The public 0 schbol system is recognized nationally for its aspirations and for its
- progress--and it continues to get better, I might add. The business and intellectual community is very cosmopolitan; no matter where in the
- worki you'm from, you am likely to find your countrymen here.
lIf you're interested in furthering your own education, local universities
' and colleges offerliterally hundreds of night and weekend' courses. As for -
i the arts, all the forms are presented in Pittsburgh. j Finally, one mom intangible. As my husband and I disem ered when we e moved here, this plahe retains the old-fashioned virtue of frienoliness. Newcomersjoin in,'and fit in, as quickly as they wish. e
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To OurStockholders Sales tocustomersdmpped s Duquesne Light enters 1986, both the Company Re-Focusing Direction 4.Bpercent in 1985to11,008 economy of Southwestern Pennsylvania In order to compete with otherenergy million kilounti-hours-the and the structure of the electric utility providers and to promote growth in our service equitalentqfl982tetels. industry nationwide are in the midst of fun- area-while operating in a changing economy Industrialsalesdectrased damentalchange. and a changing industry-we must lower our 15perrent to3,522million 1985 was a crossroads year for Duquesne costs, slow down price increases and replace kilouett hours, thelouwst Light Company. The steady decline of indus- the sales we have lost. We recognize that these letelsince1962. trial sales, rates that are relatively high, and challenges demand new approaches and non-
&tenuesincrvasedless a changin g economy continued to affect the traditional thinking by Duquesne Light tha'a oneperrent, to $869 operations of the Company. The market we management.
million. This unsachieved serve is taking on a whole new composition due We are responding by re-focusing the direc-largely due toincreased rates to structural changes in the energy-intensive tion of the Company to adapt to the new realities cndincreasedsales tocmn- manufacturing industries. In 1985 we began of our market place. Like many of Pittsburgh's merrialcustomers, to undertake an evaluation of Duquesne Light's heavy industrial companies, Duquesne Light Enrnings impmtedfrom traditional method of doing business. may have to go through a " shrinking process" J2.21in 1984 to $2.26 in Steel Loss Ilits Companyliard so we can more realistically match our costs, 1985. However, appmri- For the past few years, we have told you how perations and financial policies to a signifi-mately 7% centsqfl985 the restructuring of the steelindustry has cantly lower sales base. In early 1986 we earnings uvre the tysult qfa affected Duquesne Light. Of all the electric initiated measures which represent our one-timeaccountinga4fust- utilities in this country that had a stake in the immediate response to the realities of our ment tocomply teith depreci- prosperity of the steel producers, Duquesne market.These measuresinclude: ation reserte trquirementa Light has suffered the most from their decline.
- Reducing the Company's general capital Appmrimately 64perrent qf 'Ib give you some perspective, as recently as budget (excluding units under construction) 1985earningsatuitablefor 1981 our industrial customers consumed a from $ 117 million in 1985 to $85 million in CommonStock uviv non-cash record 6,582 million kilowatt-hours. For a num. 1986. We intend to maintain this reduced enrnings attributable to ber of years leading up to that time, steel com. capital expenditure level, with adjustments AFUDC(allounneeforfunds panies not only were the major consumers of f r inflation, for the foreseeable future.
used durinyconstruction). electricity, they were placing orders for more.
- Furtherreducingcapitalexpendituresas Duquesne Light built toward steel's pmjections. the Company completes its new generating The Company owns a 13.74 percent interest capacity. Such construction expenditures, in each of two nuclear units expected to begin which totaled $128 million in 1985, are ex-operation in the next two years which were pected to decline to $ 113 million in 1986 and constructed primarily to meet steel demands to $36 million in 1987.
and the requirements of other heavy industry
- Reducing annual personnel and other oper-customers. ating costs by $ 12 million during 1986. In Ilowever, that anticipated load never materi. mid-February 1986 the Company announced alized. And not only did those projections fail alayoffof 100 union and management to materialize, actual sales to steel dropped employees-the first non coal mine related from 30 percent of all the electricity we sold layoffin Duquesne Light's history. Other in 1981 tojust 15 percent of our total sales in actions included: a salary reduction for senior 1985. It seems that the steel industry in our management; a salary freeze for upper and service area may not recover what has been lost. middle management; extension of a hirmg Sales to our other customers-the residential freeze; and elimination of paid overtime for and commercial groups-are stable or increas. D n-unionemployeesexceptinemergency ing ra9derately. For more than a decade, the situations, s,tuations i of critical com pany economy of the greater Pittsburgh area has need or extended plant outages.
been evolving from an emphasis on basic
- Placing, subject to regulatory approval, older metals to a more diversified mix of research or less efficient generating capacity into a and development, advanced technology ser- reserve status, starting with 240 megawatts vices and commercial development. Unfor. (winter rating) during the first half of 1986.
tunately, this type of diversified load growth, During the year we will continue to review while desirable in the long run, will not enable the status of our other generating facilities. Duquesne Light to offset in the near term the
- Initiating, through use of available resources, un precedented loss in our industrial load - a selective, constructive marketing program, an almost 50 percent drop in just four years. which willinclude promotion of our new eco-In fact, energy sales to our customers for 1986 nomic development rates, expanded indus-are forecast to be at the lowest level in 15 years. trial development programs and enhanced market research.
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- Continuing efforts to reduce capital costs ,,:
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through a financial restructuring program.
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In 1985, the Company began reducing a 7- $ interest costs by redeeming $ 173 million of 'n > W, . 3
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T "/? Q }Y ; - j ' high coupon debt through the issuance of $'h . ( ' .. ; i$ .l Q.f g.%"g g } securities with an average interest rate ),. ".l .~ h i J.T 1 3 q, m' H,, l almost four poir,ts lower. We will continue to ij1 e.
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i examine our financial policies and to explore 5i ' -,, 5; - % . . .
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- Continuing our aggressive program of selling i V.g dW - .
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electricity to other utilities in order to make Q .7 . .S [ h ,O V > W . efficient use of our capacity. Off-system sales , O [ V .. ).'. 7.t.? ;2 h [.4-;.; - .. e - during 1985 totaled a record 1,980,761 p, n , - ,7 m . g .. , ', , ~ . . , .. megawatt-hours- 15 percent of our gener- .if -- ; 4 ,: .; , , :. ' (',. .' -,.?'M.t ':
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j by the decli.ne of heavy industry. Duquesne Light is a mirror image of that economy.
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7Jc: ;. 9. % ~' :.N ?J u[w ,'~ a 3- . e. -% In addition to this permanent loss of heavy .
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industrial and manufacturing load in Pittsburgh, , l we believe the electric utility industry is on the [.J.;j , Q g q: ~ ' v' '. - ; *1
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verge of major change. What largely has been a -. '. monopolistic industry is coming under increas-ing competitive pressures. Electric utilities now research center. Additionally, Pittsburgh last On Dec.17,1985, Ihquesne face competition from other electric utilities, year became one of five university supercom- Light Companyannounced l that Wesley W vonSchack
- self-generation, cogeneration (production of puter centers in the United States.
electricity and thermal energy from a single As you may know, Pittsburgh was named the (right), 42, tricepmsutent, source)and municipal waste to-energy proj- mostlivablecityin Americabythe 1985 Rand- Finance Gmup, andchkf McNally Places Rated Almanac. Our annual financialofficer, nould ects (where waste is burned). While these becomepmsident andchief forces are more active in other sections of the report honors six area residents who helped country right now, they will begin to make an make that rating happen. Their stories are in- amcutiteofficer, effectite impact in our service territory in coming years. dicative of the entrepreneurship, enthusiasm, Jan.1,1986. In his neugosi-Imoking to the future, our objective is to re- compassion and spirit of cooperation that will tion, Mr. ton Schack succeeds main price competitive. Over the next several help this area work through the current John M Arthur (left), 64, u ho years we must address the effects adding new economic transformation. remains aschairman ofthe nuclear generating capacity to our system will We share that enthusiasm for the area's long- boan1. have on our prices. We must find ways to recover term pmsperity. Ilowever, the next several yeam our costs and to earn a fair return on our invest- will be the most challenging in Duquesne Light's ment without hurting the growth and develop- 105-year history. On behalf of our management ment of ourservice territory. and ik>ard of Directors, we t hank the many stock-Cutting internal costs and the other meas- holders, employees and customers who contrib-ures listed earlier are the first in a series of uted to our progress in the past and who will steps Duquesne Light will take to adapt to our help us meet the challenges which lie ahead. new business environment. We also are con-sidering other measures to keep our prices /? g
// Q down, such as phasing nuclear construction costs into our customers' bills over a period of /f Y years. The challenges are clear, and we are &
moving forward to meet them as best we can. John M. Arthur There are many positive things happening Chairman of theIkjard concerning the long-term future of our service area. Local government, university and busi-h4 I ness leaders last year submitted a $ 1.9 billion h 4 kgg
" Strategy 21" proposal to restructure the region's economy. Advanced technology firms continue to make inroads. Ground was broken Wesley W. von Schack . in 1985 on a $103 million federal computer President and Chief Executive Officer 3
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.. . . 19W Ierels as iminstnal sales </mp 15f rnviet or approximately 7% cents pt ir share ..
>. ? amiestablish m~n mintern <imilon- Imfustnal Steel Sales Continue Sharp Decline
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5 ' ! .Y , , . a&g">pp*:m', t-sales:>4J arent of 1%1 total The most sigmficant problem Duquesne laght p i r. ' .:: w e
. , # * , ,5 Sales faces is tim dramatic reduction durutg the last T. . , I ' ' ' -:9 .
4 Sales to our customers decreased 4 8 percent , four years of sales to t he local steel unjust rv in aid..d h M kl' J F. from I I .f43 milhon kilowatt hours in 1984 to 1985. we had sales of 1 ti bdiion kdowlitt lu>urs 7.ECN 'd ; h
%l 11.008 nulhon kilowatt hours m 1985 Indus trial sales dropped 151 percent to 3.522 mil hon kilowatt hours,just four years after setting to our large basic steel custonmrs. com pared to a high piant of 41 bilhon kilowatt hours m 1981 For at least 32 years prior to 1981. tImre had h(:/
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I S k[M g a record lugh of ti.582 milhon kilowatt hours been a steady mcrease m elect ricity usage by "b ff f l' . i S.y.' , l .. $. 3 e Sales to steel aiul steel related ounpanies Pit tsburgh area steel com panies henceour 1 ' - L #N ' ' '
.h continued as the main area of decline lh siden optumsni about the future and our conurit . ' .' ,O M
'y tial sales decreased by 2 4 percent to 2.848 mil ment to new gerwration llowever tne st rong [. 7[ [ $ 7' ). !,S.2[.?
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hon kilowatt hours llowever. m line with the dollar. increasing foreign unrirts. decreasing , :. (y- t ransforination of the local economy from an use of steel m auto manufact urmg ami ot her ! [ 'f
- p. uutust rial base, com mercial sales cimt uuied factors caused local steelmakers to mstitute V- g.Q [$L. ..
g on an upsw mg. uirreasing 3 3 penvnt to 4.537 major cut backs in t hew operat ions ;
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mdhon kilowatt hours an all time lugh . X.' . . -f:. . j - g' c;3 [.l' ,,9. ] .T i Ih> venues Earnings In n cent years. about 35 steel and steel related plants have ta en shut dow n in the pittsburgh .- oy'f ' f ~ 7. . v e f I)uquesne Light's revenues from custome rs area Likew ise. steel's share of t he Com pany s .%
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H rose about ono perceni . from $8ti2 nu! hon to total ein inc sales has dropped from the 1981 . L,* [ <-p,,m %N ). ?- M $869 nulhon This w as at hi ved largely due to I"Ah "t 30 percent to in percent in 1985 % g gg. j:0 * } i) increased rates and unproved sales tm onuner While comniercial load. as detailed m t he fol 37. I ? .l[.3.9 [1,' . k 6 cial cust omers low ing paragraphs. is expected to cont m ue to 34','1' ,,Cscj ; , g Earnings per share of conunon stoi k w ere grow. it s no substitute for the precipitous drop , ,.. p,, 4.i .T..,'
- in t he basic steelload 'lh offset t his large drop -. ,d't
$2 26 in 1985. compared to $2 21 in 1984. ..
d w hen t here was a low er average munber of m demand we have increased efforts to cut costs internally and to unprove efficiency. we
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1 nud year discoc.1mued creduing to mconn an has e increased sales to of her utihties. w e are .2i c-l'** - M . E '- developing marketing progr:uns anned at par j.g . , , %?,Yi J,Py ;.h h ,g allow ance for funds used durmg i onst ruct ion ofIbrry I mt 2. earmngs were lowcred by about ticular customer segments, and through our p.jf.,3 7 0 c. -d' " . . d - Q, , 11 cents per share The five cent overallim Economic Development 1)epart ment . w e con '
,7 c 9 f( ' } .;.g .z;f-l; provement from i9sa to 19s5 was aanewd. imne to rncourv mdust rms orail types to 8. ' f ; "(. g . .t <lg. . q .37 -
g; in part . Ibrough cost reductions ami auster!t y expand or locate L our sers ice territory C,(3.G . .. M g,C,' measures. meluding a hirmg freeze durmg ihe
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i fT fourth quarter Durmg 1985 the Company also ma,le a one t une accounting adjust ment to Work began m 1985 on tuo major office touers and a $ 137 nulhon hotel office ronunercial f.)-(I~"',.'I. I I/ ' ' I MN"T'* c. -N[N, ? u -.
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^b bumd loiul of t hese t h ree projects. when com in their reinvestment an ount any previously pleted. is expected to be more t tian 1%300 issued Common Stock t hey hold kilow atts in addition. milhons of dollars ar" Bomi, St ock issues being spent on renovanons of existing five f >ur net capital expemhtures for tlw year emne to lo story hmidings m t ho downtow n arca to s245 rmilion Ain>ut 2S percent of this
*s, ~
New Subway Gets off to 1%t Start ainnunt w as generated internally. The balance r - The Ibrt Ant horit \ Transit 's elect ric dow ntou n w as r;used by outside financing. including light rail t ransn subw ay began t iperation in $391nillion principal aniount of I l % percent i 7Qf July. draw ing rulership far aln a e t tutt ai tuerni tax exempt pollution control revenue tunuts for
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by Itm above groiuul t rolle> system it replacnl B'rry l' nit No 1. issued March 31.1985. by t he Ap-l \ual 30 Inulute t rips f ulw take seven tia elght ( lhlo Water he\ elopment Aut hinrity ami t he [ ( g[I ()hlo Air Quality llevelopment Authority. u Ith
" nulultes A pinsit ive side effn't 'if t ht' prt iject dhp (- , Is t ht'st untilat uin ti[ D'all'statr alul hlistness net pDuveds t)f apliDixHnately $37 U nilllia m
- d. +1opnmnt aromul t ransa lums in numy of t t tmse t x ouls are secured by an e< pial amount tiu conununities servient hv the system of t he ('ompany 's First Wrtgage Homis h t hree Suburban Commercial Growt h Also St rong nulhon shares of Common Stock issued. hum Thousarois of s<piare feet of offhv spmr are @ 1950 by t he Company. with net pro < reds being c instrui ted around Pi tstnirgh largeh t
't approximately $47 6 million. and $50 mil het w een dow ntou n arni t he (irrater Pit t shurgh hon prumipal amount of 10% percent First Internatn,nal Airport a >ne los al developer plans Wrtgage Bonds. issued. lune 3R 1985. by the
(inpany. w it h net procee ds of approximately
$20 nulhon uorth of real estate construction and development m l!Nh prunarily m the western il"3""W""
sect ion of our service area near t he airport Innovative Financings Such conunert tal grow t h i an ht found in < in ( )ct 24.1985, t he Beawr County hulust rial ot her sections of our territory as w ell t iromul 1)ewlopment Authority issued $44 25 milhon w as broken in t he smn mer < >f 19% i nn a i nne principal amount of 30 year adjustable fixed nllIlion siplare fi H it retal{ sIU ippmg mall in t he rate lax exem pt pilllullon t ont D P[ re\ ende bonds nort hern section of our ti rrnory w tuch even for Beaver Valley l' nit No 2. u ith net proceeds t uall3 w ill rn pure 10.000 kilow an s of load and of $43 5 nullion The bonds w iil bear mierest at u ill generate est unatni an nual rewn ues of t he rate of Th percent per year through ()ct 1. C a nnulon for i no pmsne i.ight iso After t ha! date, t he mie rest rate oliihe hotuts u ill be adptsted annually unless t he rate FIXAXCIXGS is fixed h3 t he t 'ompany for the remanung term Th irty ;<rcen t or on i to, A hoh/crs to Ar po rt '" of t he honds Nlders of t he bonds have the
/ m e/ cud Reno est omnt /ilo n InInnfocsi" right to tender them for mandatory purchase An/h t 's con t/ n u nni c/ tor t.s to en t cost.s. th' moler < ertam conditions
( innpa n o t"os hocA 517 t nollu.n ot o c' (m!W 1119K5 the t hmpanv amoinnred on rnfo<f, ',, onl.s n e th h u/h i n ten s/ rot, s o mi t W purchased $ 123 nmlb m privnpal amount u.scs o n udf o.stoh/c t un/ rot, i n the s ss oo"" of its First Wrtgage Bimds. representing 94 or m nolln,n ,,/ polluto m m t rol h, m d.s permnr i,f the $65 milhon principal amount of Dividend Reinvestment Plap t he ('ompany 's out standing 16 % percent bonds Approxuuatelv Sn per ent of our sto, kh.ihlers aml N pen ent ofIhe $S0 million prmetpal anh H HH iifIhe ('t Onpany s (hit 5Iandmg 16 per are part b ipat uld in Ihe (lim pan > s lI l \ Idend Neln\ t%t nWtti l'lan ln 19Y llu p msne l,ight < ent b.quis The (ionpan.v had prevniusly
.uuu uuu ed a woubl redeem $50 nullion prin issued 3 65H 923 shares of('onunon Stoi k as j) art 'if fin' p'llitt %t nu'nt Jilall, w Itll In't } $ri nt 14 Mis 'll dlID "U d ' N S ' d II MU IUN 4 I"'U l*I of approsunatelv $7,1 nu;inin Effective Ian I h"nds These t ransact ions were financed l 4W,lrtly fD du {m H141b < d $3 H) millir 4l prill l!N5. I he' l)lvlth1hl Ra'ill\ t%t nH'llt I'lal w as Jmt1h b 9 j fiii'Ila!)@ ' r }!.' <!)si ( H mf (41 ft 'l!!\ e mt e y { ( 1l h mm nild i ( )rt gage ' Huls Wu4l ill\ h h'IUls fD 411 fl\ t' j u't: 1 I;f It i f f! D 9' l H'D
- tli fi> " I - ' d uIN N ;N N ' II N "U increase t he maxmu un i>pt u nnali ash pa\ ment r*' f I I I I I"'rce n t The t ransact ion is fn yll $3.l M 4 ) tii $ 15 I M M l l w r < p Uu1e'r ,u u l fi n llh iu ' Tl"" I l Ii ' U M Ill" dllIllld! IIIIU '5I 5I 5 I'>
5n ickhohlet s p trticipat mg m Ihe I'lan in depW U"dIh % UU1h'U y.3
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r e g : E i i. ; P y h w w 4g JMNg i
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d I- REGULAmRTMATTERS and thus tn in a hetter position to bring reve
/dlle I t/(Tetts* % l( #ltJ /I F/f/ $ N 11/ ill/f '" / 'HI l i/ f,, [q tpis in lHH' w It h (1bt s It 'r a v'rlt *S 4 )[Ilt 'ar
- etfeel /dile o fu rut mmiriinernbiliore mi<les/c</ ings. t he Pl1' gave it 3 firutl approval of t he
/,'iferyij ( 'ost /dlle IPI/ ut n/ bb4 3 Ull!!h3M HlUIUd5" UIA P Illf19hJ
!!) l HX'5. a t 11111 tiled 'Idl t 'll5f t il!H'r IHlstb 1 sS l- $42.2 Milhon in Itates Added in 1985 Nil appealed ihe ('onunission's opt inn oriter ,
t in Jan 25,19M5.1he P! T entere<l a final oniel to t he state l'oninuina calt h Court I b ,w ever. - allow ing $314 nulhon of a rnpiest for a $ 12 t he smte %prenH' Court lat er rulnl t he option ? - [ lilllhon ind Tease ul annual revenue 5 flied 'n unler w as Ulvahd arul ret urned t he case to t he Oe L- A pril 27 19x 1 The onter allow ed continued
- Pt 1' Tb mhus mnve law pige mgned '
- - rn os erv by Ihe ('olopany of t he const ruction to t he inatter reconinieru!ni t hat the Pl T onler s i os s of fiiur nuclear uluts a hlt h w cre can nDMi >nu m IV $32 nullain w ho n
[; celled in 19Mn represent s all reven ues n illect nl under I he ainiht jl .19x5. I pinpicsne laght re;n hed non onier rates from J uly 15.1981. t o Jan E (j agp e'llH ilt w itIl f IH' I'l l '. II H' l )fbt t'iif II H' I "i d t sulner Ads oi at e arHliit her part ies < in a set tle j g ggi q; i pg , g g 5 Tb imner t urrently is aw alt mg final ( < du j N H Ilt 1 >f i ttir rald ' D 'i p D 'st . filt Mi t d l May lI . l' E. ' ggg g , g y q g g , g g g , , q ,g g ,g y g ,g g q. w hn h pernut ted t he (iinipans n > un pleinent a rates at all t unes were pist alol reasiinable N r 1 j pert Un! . t if $ lt I h IIlllln in . ineD'a.se in eleC' rn s E sers ice rates on Nos 1.19X n. uistead of Feb Energy Cost Rate Ibluced g % ~_ l~ [ 9Mii Ut' llatl silligIII all llh D'ast'I bb4 3 i ' 1
@=
l nulhon. iir n l pen vnt The settleinent enabled Pdh> i PD 'jn ted ieveh/.nl F.nergy < i mt Rat r < 4
' b" "
l )li< j tit 'sl u ' l .lght 18, rt M 11s t 'r ild b!lt li dlaI D 've'lll h ' f, tr p.u t iif 1987, aiol ft ir t he full s car < >f 19% I"'rn u t ending March 31.1956 TtHlnew h('H [L ( t he fuel o dn polient of a t ustidner s billi 1981 Rat e Case Contested n Mh Ihb t>ill for We as erage resnien , .
.\ll aillnlitist rar ls t' hlw jlblgi' < if t lH' I'l ( Ilas
, , _ gg 7gg g
[ fl M (inillle'IH h Mi t hat I IIH p H'siH' lagIII D 4131Hi li' g3, p, , g, g g,, g ,g,y,gg,yj s' it s i ustiiniers approxtinately $32 nulln in. puis _ a 2n 5 ercent rniin-t n in fn do t he rate in effect _- int erest . as a result of a o inunerciali usn inu'r s _' W rn ni The rnliir appeal of a 1951 rate cas" non u as due t< i ant n ipated do reases in t h.- In .\pril 1981. l hnpu sne laght h. led foi a i f d M e< qi*d < iff g $ lt Hi -I nullnin rate nu rease ,l'he Pl ( ' < Jten,I sy steni sales iif p< iw er to neighh< >rlng nt iht les IID' l linll tillis 111 t '['t n >Il li n ( Itallgt ' II s D "llD SI I' ' ,.g,,. ,g g [ggyg qg g g;g g g g, N 4 , iBE _ $til .' lilllln)fl l'IH ' alt t'Filat is t' w as t t 'sils] H 'l H i ,, ,
. g gg pg gg g ,, g g II H' llllt ial ft 1lI h 'st lt d li[) f t l M 's t li ll H )III IlN l H 'l H l , qg ,, g , g ,, y,gg,g g,ggyg _
lllM I ht lliiflil.II llls t '5i lgat it in llD 'i ss U Illb'IIH' ,g , gg gy ,gy g ,g ggg, g ( '< illll >all) [t 'It It i s illlt l llisf lfs II H ' ILIlD ' $ lI N I I , 4 ,g,4, g q g , ,,, g q. ( j p g y ; p- Illillu dl we di t e 1 *I n l f ht ' e i[ >t le dl i >Ift 'l I 41 .Illv ' ,g, ,
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we t iiuld begin i olin ting t he un 7 ase earher
; ritfM im i n >mer s riital hill
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onglas [hinfirrth heruls Westinghous'
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g g,,[,? ~ . Ehrtric as chaintuin, raises Ch ristnuts tnvs a nd As llarruis on thej?1nn he lires on, a nd cyts enenjetirally in rolved in contin u nity a[firir1 l{is latest in voircinent is a ii fW ^'1 ? resnie inission. the Pattsbu rgh Pirates baseball club uns ap
~~'Q ? jirrsale, a nd all effl>rts to raise enough rnoney to keep it hen' h<ulfailed. At the uogingof other navutims and the inayor
[)a nji>rth unrked out afina nc-ingplan n'hich airned togiro all sectors of the comin a nity a stake in the tea m. It tapped
,, ever3j sou rrejirr cash orcon-jd) cessions: tuo sets ofprivate
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in restors, the cily, ike Ek>a ni
' g: - of Education, the con nty, the state, a nd kwal corynntions.
This as yet u n n'solred elfl>rt to s keep Ihe Pimies in PitLsbu ryh is one of the best e.m mples of the stnmy sense ofcorn m u nity hen'. [htblic officials, cor-ponite leaders a nd private citizens ha ve joined ninks to keep the Pinites in Pittsbu rgh. Nice ca tch, [Jo ng. s a
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CONSTRUTION OPERATIONS lingi er 1isileg J+m er Stain on i ~r it .\
- J ni on f {f Sitstern sales itrof oresso e rien n ornjunter-mi h pen ent n onplet+ IVrnt l 'rol I pn jia res en) pu rcha,si ng a rni nieter n wfi rup systerrns for fiu l h ntilirnt ihrru l n ot J n trun n.s rin holti typottii n ost e flecitw slejos tlo'( *ornjxin ot m Significant Progress at IW PS l' nit No. " I" A ' "'I I" "" / "" C 'I^ "I Inen en Wirn n 4 Sigmfwant progress w as made iluruig lum in 3 /"" #'" /d' "/" N " "'is' U"': ""I'" " r P " "l / C h 'IN IU d' er Wilen Ibn erWration f ' int No /
the ninst ria tion <if Beaver Wile 3 lbwer Starion I'ntt No 1 of u ha h Ihopirsto laght ou ns 111 " ' * " " "^ " "" " h l"'" '" I I / " " n mgaw at ts. iir 1171 pen eut physn al plant (,WPWTIDE n >mplet n in reai hn t ui t 6 percent 'I his w ork Off System Sales at Ih' cord Level w a.s contpleted as v hn f uled .uui w iflun the t iff system sales durmg 1985 totaled estabhshed hiufget 1 SXR 761 J H H) kilow at t hours This record Approxmiately 55 percent of Ihe plant 's delivery, which amountni to 15 percent of our systems f uive been t urned ove r to our start up getmratni out put . resulted from our aggressive and test mg group The steam generators uere market uig effort m response to t he loss of hpirostatically tested .uut t he enu rgency nulust riallo;ul over t he past five years Tlus diesel generators w ere started during the ren >rd was made possible by t he excellent per month oflhvember Flushing amt hsdrostato formann of our generating units and the needs testing of t he major piping s3 stems were in pro of our neighboring utilities. There is rm guaran gress at p ar end The majority of plant systems tee w e can cont unie off sy stem sales at this and npupment w ill be testol during 1986 in level because of the changmg market for and preparalion for fuel lo;uhng m t he sprmg of supply of electric energy from our system 1957. follow ed by conunercial operation of How ever. w e will contmue our aggressive mar ('mt No 2 at about t he end iif 1987 ket mg effort and strive to maintain our pra es The pl't ' select ed a consult ant to perforin a at a compet u ive level const rm t ion m.uiagement am ht of I'mt No j Theamht u ha h began in August u ih rev mw Computerized Meter Ih ading managernent dm isn ms. t he mut 's a nt ;u al t he A reduct .on in the time rnpured to process inut t iim pan) 's i i mi ract mg prac' ices du ring n in update customer billing records is one of many st rm t u m Tlus t3 pe nf audit has hn onie nor effo n ncy unprovements gaumd through t he mal pract we tiir Ihe nm lear unlust rs I )m p msne u n o ndui lion i >f portabb nuerocom put er' laght behes es it s e fforts during i i mst rm t ion iif w ha h record. compute and store < ustomer Ihe plant haw heen prmlem and mstilmd in me ter reading mfiirmat u m in t he field This crw <if1he many fm tors w hn h have affn ted informat ion is t ransferrnl easily ami <puckly n uclear pow er a i mst rut tion projn Is i es er t he to t he ( l un pany's mam computer system past decade sui h as double dign in0at a m. high In ;uldit ton to ehnunat mg ihe daily cost iif interest rates. Un reased labor and material pn H essing volinnes of paper do< uments, i osts .uoli hanging regulanirs rnpurement s t he < um put eri/ed system reduces t he need T final an.hr repiirt is i s pectml in m ol 19% for rereads and cluninates hulky route in niks ps. perry l' nits 1 and 2 ('omput erized Purchasing System ('onst rio t u m hs The t lewlaiol r: lect ro llhum A < iimputerunt purchasing s3 stem designed nating(iimpans i>f h rrs I mt % > l . <if a hu h and programmni h3 t'ompany personnel [ I ho p msne laght < iw n ,10 megan at t s < >r il T 1 hn ame i>peratinnal m Man h 1985 Ttus new pen ent . nearni < om plehon m 19% Fuel is system helps sire;unhne our purchasmg sys w hniulni n > he hi.uini mni t he re.u tor m 19% tem provni s addit u mal mformat o m to evalu at e t he performat o e < >f verul< >rs and makes it it is estimatml hs t 'lewlamt Eln t ro t hat ah< iat six no mt hs i >f t est ing and as< em hng pi >w e r eass ni take advantage of mviiire payment dis
< < Hlflt s lt i3 ei,t iniate4l fllat sive r ( OJ H H)lntr i >lH t;tt b ul atte T h u'l h tuilric u lll ip n1pille il i ha ,e < inters w ere pn u essed t hrough t he bef< >re t he umt i an he dn larnli e munen ial
,s stem m 190 l'i mst no t o m hs t'lewlatui Elm t rn iit h rr)
I Ilit 2 i st w Ilh Il I h D jip'st a l .lgti' tlsiii nu It' NeW OinketIng PMWedures Net Muhs il T 1 p, n cut remams suspriulmi peinhng i nn ggyu. laght Ms u plenmnn4 nm corpo filf t Ile'r st ibls lis it s p iillt t iw f u t' Cu t' IH O @illW }in u14 h mW (hg a ul tii nu m-ef fn i twls i i mt n el < < >st, hs pla< mg an < iunt
,diilit s ti er i c ost s .n litw e'r h s eds ili flu t irgalll Git h >t t i < ist < I'lif e r slij n rs tv irs, llsila((s 11
d.ptrtinent or se u inin he.n ts estabh h tin u Lhl ass; aalo e u as on 6 ulnl as part i st an i,u n hiniget s .u n t arc heh t ai i i n n it abh li o i i oi .lu b nt n n o u t hd assist.u n e pn >gr.un w herch\ t aillillg il ot s \lt fli nigII . IllI\ lil illM'rall' al liil .l !! I lllli i .i!! Ill n 'NI I n 'll' W IIll II N !"' I!!I"'S
.tI H illt li.ti f i iI l'.h.h < l lli n i \ . it n 1 i 'lls iil. ' r .II li il! Il t \ i' I" l! II.IIII lg.1 t Ii ' I Ill' \IIII I II*lI Ill.lb lllN . M[
of 198:o olnpanvu nie budget s in\ol\ u g Ihe repau s u n hin a innon d de iune n I"v on t it s 1 ~ *3w 4 in'% lpr.n #1l111t % n'sillf t11 lli sa\ illgs il N t rilllo o I i .il h d illi. \ \ ll i ' WI s .In ' I I n ' n %l" il nlIll!!! \ ' 'I d Savings on St reet Light I&plarelnent U " " h h ' \ " "' h " R d " ' " ' 3 "" I" r m n t o n e _- +
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Ib nions in i nir inct hni of replacing st t eet g g ;;; g llg'll s 4 6. r f l n ' l h l:,t si'\ . t al .\ . 'a rs I h i\ i' I . willi .11 in ..nnual sa\ ings for t he < 'onipan\ ofi n el (1nsw n k lias liigh Availabihty "A h ,' . .;
- d gf OHUNH) l'ur t her eths n't u \ i hanges l lan nn' '+"'"" ""I " "'" '"' L"N" + ""' ~ f, Ih'"'"'I'I"' " " \' I"' "' 1"
W ill atlil altlin i\lillat. l\ $st l ( H H ) t t i 'lhi tillil h tl sa\ ings f oral atnlat an awahihn d'""'"I ia o ~, I"Rpen'I diI"'m ' It"[In he i nat n inal a\ c rage - Pis A Safety Award g ,, , g g gl,, s i ,, pen ent ('h w n L - We'n w orking Inore sat. l\ as u ell a '" ' uH h u $ Hudo e oim No his.m ethoent h \t u s a1: u i . L m a a i w&n d i n a e m l'i br ua n 19x:, \nnual Meet i m 1%'llfis\ l\ allhi Ele M t rl. i n".1
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ing the higheu unprou ment ni mr u a n i. ! i rat e m 19s i p oln parn t io an awrag, i i t he h"ng Term l'ly Ash Ihspimal Site pn \ nius t hn e wars).unong lbuns\ \ .ima \ neu hing n nu m a4 thsposal tai thn e'h1 f i n lit illi n 's W it Il lin in ' il hill i aln ' l'l I I.'ti I wi n k hou rs iit c\ p.isun ant nialk In 'l I"' ate"" 'en\ 1 "'," " k "*" "' N "'"'" " U " * " I" " u onnentam m i cidaNe reinisniin I nn pn sne laght e\pencin ed one lost .nu ,
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l t a t t.'r lfl\ f i n fl \ I ,Il 1 - l n illli H u l ilitii .i fl.NIII 6 - 91 New Transport at ion lluilding , y g.a i,ur n e. u n o n r n.mne r h. elni N .
.\ new Iransportation tai ihn i om pletml m m . + d . n n. hte Ni n t illl'i'l u lll i'lhdih' lIn' ( 't olll h tll\ lii llo il . . t llt n' fit l\ libillit alli n'lhlll aln l i'\ t.1o I IIn llI' .ao< ..o .m on och I p ui s chn L. I, m a . \ " " " P " ^ " " " ' " I ' 'l I I"'f"""I ' n i n in fat al 7 .[nd. n'rowSt. il tai ha m usb un e 19 ,
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l' art h because of < >ur i i,nt un o wl gi n ui perf< ir NITLEAR inann in su< h < trills. I hopiesne laght w as IWPS l' nit No.1 Achieves la coril Generat ton s"I""I I" I" t he s< >le utilit y part x r p;ir u in t lu . The (iinipany iiperaf nf Beas er Valles I ruf N< > I 9M IO'I"' at ion Table Ep Exercise. sp< maiirni I without a inajor iiutage if uraig !!M a< hn s h3 Ihe l'nicral lyuerger n 3 Managernent z\genc3 mg a recoril generat ion of noire f han 5 9 hilloin Tlus nat a mal exi ri ise. helii in I hu vrnher. w a.s kilow att luiurs for t he 3 ear Tlie unit 's unpres
'l"siMh"lI' help in teral uu t state ager n n s for siw 919 percent availabiht y one of the best inulate ;nilus w ha h wiml<lgovern re ent rs niarks ni the n omt ry for pressurunt w ater react irs ini n i t he low ering < >f it s proc h a t o m int <ieva< uatal areas m t he un hke 13 ewnt it cost s n iless t han 20 nuls per kil< iw at t he mr fiir " fd* l' 'MD al "IhC FM"I" \
the year The ost <lerrease is at t ributable RES ARfff ANDDEFELOPMEAT m.unty to the use of a new fiu l tesign w hn h "" rn pures reforhngi mee ewrv 1x nuint hs The 9 " "' '"" N " * " "Tu" *ria# "ru'""" ,' " I stain nuoj
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origmal fuelilesign respurnt .u rual refuelings "W yr enhoon The perforniaru e unin anirs usni hs man Pilot ScrubberTest th sult3 Promising agernent to evaluate f he sia cess of pri gratos S' rubbers remove sulfur <in ixo te ain t part n io operate aint m;untain t he plant properk ulates from flue gas enut tnt from e oal firnt show favorable t retuis unin ating a straih p"w er st at u ins In an effort tii rn h a e Ihe r iper im pri n einent in t he (iim pans 's abilit 3 tii atingi osts aint unprove Ihe effn 9 oc3 an<i operate t he plant effn tentiv rehabilit3 of our scrubbmg systems. ('ompans A major port nin of the plant nu nhfu ar nins personnel niiuluctml a series iif tests <turing reipurnt as a result iif f he Three Mile Islanil t he 3 ear on a pilot si rubber at our Elrama acenient haw been i ompletni M an age me nt hiwer Station Several new se rubbing ailiht n es expecta nninnu un capital ex peru hf ures w ill be anif reagent s ant i scalant s arni n pupnu.nt i < in rnpurni to mamt.un t he plant m ;u c orciaru e figurations were evaluatni as part of t he t e.,t s w it h exist uig regulator 3 rnpurenu nts The result s look pronusmg ain t of fer t he piit on The ('om pany receiwet I he highest rat mg m t zal for sigrufir ant savings The most fmorable fi," of elewn i ategories m t he an nual Nu lear inaterials w ill now he n stni on t he h.ll s< aie 16 gulatory ('omnussion Systemat n Assessment iif La ensee B rfiirinarn v repiirt Theitefn n tu s s' rubber ssstern to <leternune nuire a< i uran h w F n h causal a single low rating has suo e been Iheir unpa< t iin effi< n nr3 rehabiht 3 atul cost i orrn tml Ibwer Station Water May lleat Gieenhouse, I tuniuesne laght is helping to riuul a stu<ts to <ieter Emergency Drill Expcrtise mine t he feasihikt y of usmg w arm w ater result The Nui lear IL gulator3 < 'omnussvin part e i ing froin t he n imtensation < if f urbine eshaust patnlin Beawr Vall s l' nit No I s annual steam at Bruce Mansfo l<l lbwer Stat n in . oto of emergenn planning < trill for t he first t une iir li n al( 'Al>( 7 s i iial Gr<wl titists .ts : f u atirig Tiu NI((' , le sof ..valtianir riraiseul t f u t i,n,
'"un v for nearh3 privately ou nmi greenhouses pany s t ranung progr:un as excellent . not mg if t he st u<!v prows tii he favorable 100 p ihs t hat t he part h ipant s were <puteknowInige able < if Iheir <lutles ;ual furu t uins- ma3 he < reatal < er i he next f< iur wars lilGlile M n N\b 6 $11x h wt w i' h g
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ADMINISTRATION dollar a month voluntarily added to ti e electri Nempmsident namaf...&oqjaniattion bills of about 20,000 Duquesne Light customers completal over the past two years has added up to over von Schack Named President, CEO half a million dollars donated to the Dollar On Dec.17,1985, the Company announced Energy Fund. This non-profit group, which that Wesley W. von Schack,42, vice president, Duquesne Light helped to establish, aids low-Finance Group, and chief financial officer, income househohls with their winter heating would become president and chief executive bills. Duquesne Light donated $ 125,000 in officer, effective Jan.1,1986. In his new posi- matching funds in 1985. tion, Mr. von Schack succeeds John M. Arthur, Employees DoingTheir Part'Ibo 64, who remains as chairman of the boani. Duquesne Light wasoneof17 employee M r. von Schack also was elected to the Board pacesetter groups which set an example for of Directors. other companies in the region by raising their Heorganization Hesults United Way donation goals by 20 percent and The corporate reorganization was essentially by conducting their 1985 campaigns before the completedin 1985. Anentirelynewcorporate traditionalstart of the fund raisingeffort. Our organizational structure was designed and employees dug extra deep to meet that goal and impiemented during 1984 and 1985. Staffing donated more than $450,000. In addition, since of the new structure is nearcompletion. The March 1983, Company employees have donated reorganization will provide Duquesne Light $ 170,000 to a Salvation Army footl fund for un-with the flexibility required to respond to a employed workers through a volunteer payroll rapidly changing marketplace. deduction plan. Supporting the Community OURCUS7DMERS Our Community Relations Department New ec(momic development rulesjor indus-initiated a series of low cosuno cost energy tnal customers. . . &sidential customers add awareness and weatherization seminars
$500,000 to eneryyfu nd. . . Low-income cus-forlow-incomecustomers. Anothermajor tomers Ica rn alxm t encryu consena tion /
effort involved developing and implementing mentherkotion. a customer assistance and education program MARKETING using community-based resources. The depart-New Economic Development Rates '".ent also kept tabs on the pulse of the commu-In December, Duquesne Light intnxtuced two mty through regular contacts with various new industriale amic development rates business, civic and religious organizations. which will lower eh et ric costs for qualifying Speakem"Ibam Ibses 100,000 Mark new and existing indust rial customers. The The Corp (mite Speakers' Wam, formed in 1974 new rates are intended to stimulate industrial to help increase public awareness of the critical production and to createjobs. Issues confronting the elect ric utility industry, Economic Development Department passMe 100,M mark in attendanm Wom Adds Computer its inception t brough the end of 1985, the in 1985, our Economic Development Depar t, Speaker's Tbam , comimsed of employee volun-ment added a computer which will allow quick teers, m de 2,137 presentations to a total of updating of information concerning propeities ll6,380 customers. available for industrial and commercial devel- SilARE110LDERRELAT10NS/ opment. Duquesne Light has operated a full- COMMUNICATIONS time Economic Develepment Depart ment for 7bilfn v teln y>lume ir@nnation lim s estid>lisicL.. more than 25 years. Our representat Ives work Stock holder h@nnation Diucst. . . Cost sn eings in cooperation with kical businessmen and at annunt rmrting government officials to expand and diversify t he kical economy and to increase em ployment ,g,pg,g3g opportunitles In our service area. In 1985, the % exlmdite inquir.es, ourShareholder department worked with 160 prospective Hel uons Department established two toll free employers and secured 14 commitments to telephone numbers for use by stockholders. expand or rek>cate in our service area. The Stockholders calling from outside Ibnnsylvania result was 1,611 jobs added or retained, should use 1800 247 0400. InIbimsylvania, a except for the immediate Pittsburgh area, COMMUNITY RELATIONS stockholders should dial 1 800 367 6100 Customem Support Dollar Energy Fund Pittsburgh stockhohlers should use 393 6167. One dollar does not stretch very far. Ihtt one 16
s , w _ r s - ' StockholderInformation Digest were continuing efforts to obtain both public Shareholder Iklations has developed an and private financing for this key project. Information Digest designed to provide Advanced 1bchnology Continues Upswing answers to the questions most frequently asked Construction began on the prestigious Soft-by stockholders. While produced mainly for ware Engineering Institute-the first feder-new stockholders, a limited supply is available ally-funded research and development firm to for existing stockholders. Ti> obtain a free copy. be established in over 20 years. More than 250 write: " Stockholders Digest," P.O. Ibx 20, Jobs will be created by this project. But more Pittsburgh, PA 15230 0020. importantly, this $ 103 million computer re-Shxrcholder Helations Dept. Cost Savings search center will encourage support services, A savings of approximately $85,000 in annual spin off enterprises and the additional em ploy-meeting related costs was achieved through a ment of professionaland nonprofessional variety of methods, including sending the annual personnel. report and proxy material in one envelope via Duquesne Light now serves 331 advanced bulk rate, handling the broker proxy material technology com panies employing approxi-mailing in house arui miesigning the pmxy cani. mately 40,000 people-nearly 20 percent of in addition, Shareholder Relations began a the region's manufacturing workforce. The computerized program to eliminate duplicate annual increase in the number of new high mailings of annual reports and other informa- technology firms amiin the overall number of tional communications. 'Ib date, this program persons em ployed by this emerging indust ry has eliminated unnecessary mailings to 8,600 both have averaged 20 percent in recent years. stockholderaccounts. Since 1980, at least 80 new regional firms have In another cost-savings measure, Duquesne been founded in various advanced technology Light did not publish a 19854th Quarter ikport. fields such as robotics, elect ronics, computer Ibrtinent fourth quarter 1985 financial infor. hardware, software and automation. mation can be found in Note L to the financial A new advanced technology support center, statements, page 35. affiliated with Carnegle41ellon University, was established in the western section ofour service 100 KING 70 DIEM 1TURE area to help revive a commercial and industrial Alajor steel losses teill contin ue to q[fect economic hase racked by steel eutbacks. otemit sales...$1.9 billion pla n to mstructu m Carnegie 41ellon also is actlvely pursuing the emnomy. . . Adca nml tech imlogy Ind ust'll development of a Natlonal Center for Robotics contin ucs to gnne locally. . .Sq/lu u m /nstitute in Manufacturing and a Western Ibnnsylvania to attr.tct additional high tech nologyfirms... Biotechnology Center on a 5hacre site near Unwemlysupenumputercenter." downtown Pittsburgh which was formerly Altsburgh No. L occupied by a large steel production com plex. Plin for Hestructuring Economy Universities Acquire Supercomputer As discussed earlier, Duquesne Light has A $40 million grant fmm the National Science experienced a major kiss of steel related load. Foundation will enable a partnership between We don't anticipate sales to this market seg' Carnegie 41ellon University and the University ment to approach the record 1981 levels. This of Pittsburgh to become one of five supercom-report has discussed the many steps Duquesne puter centers in ihe nation. Capable of per-Light is taking to offset this significant decreaso forming 840 million arithmetic calculations per in demand, looking to the future, we will con- second, the supercomputer has solidified Pitts-tinue to support efforts to expand the region's burgh's standing as a leading scientific research economic base. center. Along with the Software Engineering . One such program is " Strategy 21," a $ 1.0 Institute, t he supercomputer will serve as a billion plan for restructuring the region's econ. magnet for att racting new advanced technol-omy. local government, university and busi- ogy businesses and indust ries to the area. ness leaders joined forces to pmpose St rategy I " 21, w hich is a compilation of 25 ongoing and g, rfamed the mostlivable city new economic development projects. The key- in America by RandalcNally's Places Ibted stone of the pmgram is Ihe expansion ofIhe Almanac. A totalof 329 metropolitan areas Greaterlittsburghinternational Airport-a were rated in nine quality.of life categories: $400 million project which would add substan, arts, recreatlon, economics, educatlon, t rans-tia!!y to the airport's electrical usage in addi, Imnat lon, uhne, lu'an cam and erwironment , tion to spurring a commercial building boom imusing, and clunate and terrain. in the Imraediate area. At year end, supimrters were continuing efforts to obtain both pubhe and private financing for this key project. 17
Company Report on Financial Statements W Company is responsible for the financial information and accounting control and tests of transactens to the extent re ntations contained in the financial statements and they considered necessary to provide reasonable assurance r sectens of this Annual Report. W Company believes that the financial statements are not misleading and do not that the financial statements have been prepared in conform- contain material errors. ity with generally accepted accounting principles appropriate W Boani of Directors has an Audit Committee composed in the circumstances to reflect, in all material respects, the of four non<>fficer directors which met four times in 1985. cubstance of events and transactens that should be included W Audit Committee has the following duties and responsi-ami that the other information in the Annual Report is con- bilities: (1) recommending the independent public accountants; shtent with those statements. In preparing the financial (2) reviewing the planned scope and results of their audit and statements, the Company makes informed judgments and other services to be performed;(3) reviewing the financial estimates based on currently available information about the statements and the related repert of the independent public cffects of certain events and transactons. _ accountants;(4) reviewing with the officers, internal auditors The Company maintains a system of internal accounting and the indepemient public accountants the adequacy of the control designed to provide reasonable assurance that the Company's system of internal accounting control, including Company's assets are safeguanled and that transactions are their recommendations with respect thereto; and (5) review-executed ami recorded in acconlance with established proce- ing the planned scope and results of the internal audit func-dures. hre are limits inherent in any system of internal con- tion. The independent certified public accountants and inter-trol based on the recognition that the cost of such a system nal auditors have full and free access to the Audit Committee shouki not exceed tre benefits to be derived. h system of and meet with it, with and without management being pre-internal accoun'ing control is supported by written policies sent, to discuss internal accounting control, auditing and and guidelines and is supplemented by a staff of internal financial reporting matters. c.uditors. h Company believes that the internal accounting contiol system pn)vides reasonable assurance that its assets are safeguarded and the financial information is reliable. W accompanying financial statements have been audited hy%gW $T a c. L \ y by Deloitte Haskins & Sells, independent certified public Wesley W. von Schack James 0. Ellenberger accountants, whose appointment was approved at the 1985 President, Chief Controller and Principal Annual Meeting of Stockholders. hir examination was Executive Officer and Accounting Officer made in accordance with generally accepted auditing stan- Chief Financial Officer dards and included a review of the system of internal Opinion ofIndependent Certified Public Accountants DELOMTE HASKINS & SELLS Certified Public Accountanta 2400 One PPG Place Pittsburgh, IVnnsylvania 15222 TO THE DIRECTORS AND STOCKHOLDERS OF DUQUESNE LIGHT COMPANY: Wa have examined the balance sheets of Duquesne Light tions and the changes in its financial position for each of the Comiumy an of December 31,1985 and 1984 and the related three years in the period emled December 31,1985, in con-statements of income, retained earnings, capital surplus and formity with generally accepted accounting principles con-changes in financial position for each of the three years in sistently applied during the perial except for the change, the period ended December 31,1985. Our examinations with which we concur,in 1984 in the methat of accounting wzre made in accontance with generally accepted auditing for leases as described in Note H to the financial statementa. etandards and, accontingly, included such testa of the accounting reconis and such other auditing procedures as , ws cimaidered necessary in the circumstances. In our opinion, such financial statements pn sent fairly the financial lumithm of Duquesne Light Company at 'd %' _21_ -*7 y Q l December 31,1985 and 1984 and the results of its opera. February 13,198(i l is
Duquesne Light Company Statement of' Income Year Ended December 31, (Thousands of Dollars, Except Per Share Amounts) 1985 1984 1983 OPERATING REVENUI!B: $800,345
$868,815 $861,775 Customers 46,049 31,439 10,471 Other utilities Total Operating Revenues 914,864 833,214 810,816 OPERATING EXPENSES: 234,910 192,512 Fuel 249,212 Purchased power 4,094 4,802 3,141 155,592 149,477 136,188 Other operation 60,462 73,214 65,016 Maintenance (Note K) 81,066 77,532 73,682
_ Depreciation and amortization 72,614 70,279 60,651 Taxes other than income taxes (Note K) 100,7(rl 97,266 92,954 Income taxes (Note E) 723,747 707,480 624,144 Total Operating Expenses 191,117 185,734 186,672 OPERATING INCOME (yliiER IN00ME: 72,782 60,133 50,709 Allowance for equity funds used during construction 28,267 22,666 16,760 Income taxes-credit (Note E) 5,304 - - Insurance and other recoveries (Notes K and L) 5,497 4,594 246 Other income and deductions-net 111,850 87,393 67,715 Total OtherIncome 302,967 273,127 2T>t,387 INCOME BEFOREINTERENT CHARGES INTERDrr CHARGES: 146,884 133,431 118,813 Interest on long term debt 6,357 3,611 5,736 Other interest (26,231) (20,709) (15,388) Allowance for borrowed funds used during construction, net of income taxes 127,010 116,333 100,161
'IbtalInterest Charges 175,967 156,794 145,226 NErINCOME 21,250 21.955 22,411 DIVIDENIM ON PREFERRED AND PREFERENCE STOCK
$154,707 $134,839 $122,815 EARNINGS FUR COMMON NPOCK 68,543 61,0T>l 55,883 AVERAGE NUMBER OF COMMON SHARES OUTNTANDING (000)
$2.26 $2,21 $2.20_
EARNINGS PER SHARE _OF COMMON _ STOCK _ ___ _
$2.06 $2.06 $2.00 DIVIDENDH DECLARED PER SHARE OF COMMON STUCK See Notes to Financial Statements.
l'a
Duquesne Light Company Balance Sheet As of December 31, (Thousands of Dollars) 1986 1984 ASSE'IE PROPERTY, PLANT AND EQUIPMENT: Electric plant in service $2,831,822 $2,537,398
~
Construction work in progress 1,306,182 1,077,992 Property held under capital leases (Note H) 232.209 184,109 Total 4,188,993 3,799,499 Issa accumulated depreciation and amortization 748,800 659,745 Property, Plant and Equipment-Net 3,420,133 3,139,754 (FrHER PROPERTY AND INYFKrMEN15 37,616 32,358 CURRENT ASSETS: Cash and temporary cash investmenta (at cost which approximates market) 50,963 50,416 Accounta receivable: Customers (less allowance for uncollectible accounts of $3,686 and $2,976, respectively) 80,845 70,467 _ Other (including tax claims in 1985 of $16,841) 36,157 32,094 Materials and supplies (generally at average cost): Coal 40,197 55,708 Other operating and construction 40,031 37,528 __ Other current assets 13,888 12,291 Total Current Annets 271,071 2'i8,504 DEFERRED DEBil% Idxtraordinary property losses (Note 1)) 28,501 32,526 Unamortized loss on reaaluirni debt (Note J) 37,889 - Deferrnicoal costa (Notes D and I) 14,938 22,635 Other deferrni debita 44,440 44,533
'Ibtal Deferred Dehlta 128,748 99,694
'Ibial Assets $3,864,488 $3,530,310 c.
See Notes to Financial Statementa. I i l m
1985 1984 CAPITALIZATION AND LIABILITIES CAPITA 1JZATION (Note J): Common Stock (authorized-90,000,000 and 75,000,000 shares, respectively; $ 64,775
$ 71,488 outstanding-71,488,270 and 64,774,591 shares, respectively) 900,391 804,377
_Copital Surplus 197,952 184,313 Iletained Farnings 1,169,831 1,053,465 Total Common Stockholders' Equity 156,137 156,137 _Non-redeemable Preferred and Preference Stock 119,653 127,414 _Itedeemable Preferred and Preference Stock 1,246,222 1,149,517 First Mortgage Honds 313,986 278,384 Other long term debt (9,209) (10,896) Unamortized debt discount and premium-net 2,996,620 2,754,051 Total Capitalization 142,469 119,335 OBij0AT10NS UNDER CAPITAL LEASIE (Nete 11) CURRENT IJABillTIIE: 20,700 700 _long-term debt maturing within one year (Note J) 25,582 22,029 lease obligations due within one year (Note 11) 110,185 116,262 Accounta payable 3,139 7,261 Accrued income taxes 14,646 17,363 Dafermi income taxes and other accrued taxes 36,592 35,131
, Acerued interest 38,808 42,113
_ JMien3 1s declaml _ 16,174 16,423 Sinking fund and purchase requirements (Note J) 774 9,131 _Srnt nuclear fuel i 270,477 262,539 Total Current Liabilities DITERRED CREDl'1% 185,270 165,802 Investment tax cmlita unamortized 222,633 253,389 Araimulated defermiincome taxes 5,950
~
6,243
])]iirdefermlimiita 441,902 394,385 Total Deferral Credits CGDitTMFNTS AND CONTINGFNCIIM (Notes B, D, E, F, II, I and J)
$3,854,468 $3,530,310
' Total Capitalliation and IJabilities
====.-
i 6 21
~ Duquesne Light Company ,
Statement of Changes in Financial Position 1 Year Ended Decemher 31, ('Ihousandsof Dollars) 1985 1984 1983 CASH PROVIDED FROM: Operations: Net income $175,957 $156,794 $145,226 Depreciation and amortization 109,755 92,810 79,800 Changes in working capital (see below) (2,933) 7,172 18,467 Investment tax credita unamortized 19,488 22,038 17,317 income taxes deferred-net (noncurrent portion) 30,756 28,984 21,049 Deferred coal costa 7,897 (292) (4,005) Allowance for equity and borrowed funds used during construction (99,013) (80,842) (66,097) Insurance and other recoveries (5,304) - - Total Cash Provided From Operations 235,383 226,664 211,757 Financing: Sale of bonds 289,000 50,000 110,000 lasuance of Common Stock 102,910 86,466 80,485 Obligations under capitalleases 35,911 12,258 - Nuclear fuct obligations 4,307 4,269 6,125 Construction costa reimbursed from pollution control financings 39,235 35,453 19,680 Total Cash Provided From Financing 471,383 188,446 216,290 Total Cash Provided 707,746 415,110 428,047 CASH USD) PT)R: Construction expenditures (net of allowance for equity and hormwed funds used during construction) 244,850 250.522 224,280 _ Property held under capitalleases 35,911 12,258 - _ Dividends on Capital Stock 182,318 148,419 134,628 Reductkm of long; term obligations (including current maturities) 198,935 29,197 12,935 _S ent l nuclear fuel obligations 8,357 - - _ Reduction of Prefermi and Preference Stock 7,078 4,808 4,261 Premium on reacquimi debt 35,415 - - Other-net 5,338 (6,759) 11,855 Total Cash Used 898,200 438,445 387,959 Increase (Decrease) in Cash and Temporary Cash Investments $ 9,537 $(23,335) $ 40,088 CASH PROVIDE) FROM (USD) ft)R) CHANGFE IN WORKING CAPITAI; Accounta receivable 8(14,441) $(12,942) $ (2,651,), _ Materials and supplies 137 008 952 8lJ70_ ( _)ther current asseta (1,597) 3,858 4,967 Am>unta payable (8,077) 21,232 (13,343) Accrued income taxes 4,125 (2,639) (625) Defarmi income taxes and other accrued taxes (2,717) (21067) 5,772_ _Ac med_ interest 1,461 (5,259) 10,908 Dividends declamt 3,305 4,037 4,469 Cash Provided By (Uned R>r) Changen in Working Capital 8 (2,933) $ 7,172 $ 18,467 Sco Notes to Financial Statementa. 1 i l h 22
Duquesne Light Company Statement of Retained Farnings Year Ended December 31, (Ihousands of Dollars) 1984 1983 1985 8181,313 $175,938 $165,340 BALANCE AT BEGINNING OF YEAR 175,957 _ 156,794 145,226 NrrINCOME M)R THE YEAR Total 300,1:70 332,732 310,566 DEDUCT: Cash dividends declared. Preferred Stock: 1,100 1,100 1,100 4% Series 3.75% Series 281 281 281 4.15% Series 291 291 291 4.20% Series 210 210 210 4.10% Series 246 246 246 336 336 336
$2.10 Series 2,116 2,168 2,219
$8.64 Series 2,520 2,520 2,520
$7.20 Series 2,337 2,437 2,512
$8.375 Series Preference Stock: 1,944 1,769 1,859
$7.50 Series 488 646 891
$2.75 Series 2,778 2,778 2,778
$2.315 Series 2,520 2,520 2,520
$2.10 Series 4,259 4,563 4,563
$9.125 Series Common Stock (1%r Share: 198.5-$2.06; 1984-$2.06; 1983--$2.00) 141,087 126,464 112,217 162,318 148,419 134,628
'Ibtal Cash Dividends Declared
$197,952 $184,313 $175,938 BALANCE AT END OF YEAR Statement of Capital Surplus Year Ended December 31, (thousands of Dollars) 1985 1984 1983 8804.377 $724,147 $649,376 BALANCE AT BDXilNNING OF YEAR 96,197 80,111 75,342 Premium on Common Stock issued (183) 119 (571)
Other
$900,391 $804,377 $724,147 i
BALANCE AT END OF YEAR See Notes to Financial Statementa. l l I 23 l
- Duquesne Light Company Notes to Financial Statements A. SUllOIARY OF AC(X)UNTING POLICIES pally with respect to interest charges related to CWIP.
Property, Plant and Equipment Investment tax credits are deferred and amortized over the Properties are carried at original cost and generally are sub- lives of the related facilities. ject to a first mortgage lien. Cost includes direct labor, mate. At December 31,1985 the cumulative net amount of timing rials, indirect costs and an allowance for funds used during differences for which deferred income taxes have not been construction (AFC) of properties. AFC is included in construe- provided was approximately $169 million. These timing differ-tion work in progress (CWIP) and credited to other income ences relate primarily to accelerated depreciation, certain for AFC attributable to equity funds and to interest expense taxes, the debt portion of AFC, pensions and certain other for AFC attributable to borrowed funds, net of income taxes. employee benefits. AFC is a non-cash item computed using a composite rate, Deferred Fuel Costs which is applied to the balance of CWIP and assumes that The Company defers the difference between actual fuel costs funds used for construction are provided by borrowings and and base fuel costs until the period in which such costs are by preferred, preference and common stock equity. The aver- billed to its customers through its energy cost rate. The age annual rate was 9.5%,9.4% and 9.6% in 1985,1984 and energy cost rate is based on projected costs, with provisions 1983, respectively. This procedure results in the inclusion of for subsequent adjustments to actual cost. Any overcollee-amounts in property, plant and equipment that are considered tions of revenues are refunded to customers with interest. by regulatory authorities as appropriate costs in establishing Nuclear Fuel Costs rates for utility charges to customers. The Company's share of nuclear fuel costs under lease agree-Maintenance and repairs of property are charged toand eome m,and of ret re- ments replacements replacements of minor is charged unitsto fuel expense based on the quantity of electric energy generated. In 1982 the Company began capi-ment umts of property and betterments are capitalized. The talizing acquisitions of nuclear material through a trust costa of depreciable property umts retired, plus removal . arrangement that is intended to finance a portion of the Com-cc:ts, less salvage, are charged to accumulated depreciation. pany's requirements for nuclear fuel. In 1984 all nuclear fuel Revenues leases were capitalized. Cu:tomer meters are read monthly or bimonthly and bills are Under the Nuclear Waste Policy Act of 1982 (the Act), the rendered on a monthly basis. Revenues are recorded when United States Department of Energy (DOE)is responsible billed. for the ultimate storage and disposal of spent nuclear fuel Depreciation removed from reactors. Under the Act the Company is The Company provides for depreciation of electric plant, required to pay a quarterly fee to DOE of one mill per exclusive of coal properties, on a straight-line basis deter- kilowatt hour on nuclear generation occurring after April 6, mined in a manner consistent with applicable Pennsylvania 1983 and a one-time fee for nuclear generation which law and with methods applied by the Pennsylvania Public occurred through April 6,1983.The one-time fee of approxi-Utility Commission (Commission) in the determination of mately $8.9 million was paid in June 1985. The Company depreciation in rate proceedings. Provisions for depreciation, began recovering the one-time fee in rates in February 1983. amortization and depletion of other Company property are The Company also is recovering the fees for generation after made on various bases such as amount of nuclear fuel April 6,1983 and is making payments to DOE on a quarterly burned and tons of coal mined, basis. The Company provides for decontamination and disman- Other tling costs for Heaver Valley Unit No.1 in accordance with Other property and investments are stated principally at cost, the provisions of the onlers of the Commission.The Company less accumulated depreciation where applicable. Other oper-currently estimates its share of the total cost of dismantimg ating and construction inventories are stated at average cost the Unit to be $66 million. The Company is allowed to recover and include certain general and administrative costs related through current rates annual decommissioning annuity to operating the Company's storerooms. General and admin-p yments to provide for its share of the decommissioning of istrative costs remaining in inventory at December 31,1985 the Unit's radioactive components only, the cost of which is and 1984 were $3.9 million and $4 mdlion, respectively. Debt currently estimated to be $48 million.The Company expects discount or premium and related expenses are amortized over to recover the remaining decommissioning costs through the lives of the issues to which they pertain. rates in effect subsequent to the dismantling of the Unit. The Company deposits applicable revenues m segregated Reclassifications accounts which have been established to pay for such costs, The 1984 and 1983 financial statements have been reclassified At December 31,1985 $2.5 million was meluded m such to conform with accour. ting presentations adopted during ace unts. 1985. The principal changes relate to the reclassification in the Statement of Income of sales to other utilities from "Pur-Income Taxea chased p'ower (sales)-net" to " Operating Revenues-Other Deferred income taxes are provided principally for differ- utilities (1984-$31.4 million; 1983-810.5 million) and the ences between depreciation for federal income tax purposes presentation of a cash flow Statement of Changes in Finan-end depreciation for accounting purposes, to the extent per- cial Position. mitted by the Commission for ratemaking purposes, and for fuel expense, extraordinary property losses and losses on early retirement of debt, deferred for accounting purposes but deducted currently for federal income tax purposes. In compliance with regulatory accounting, income taxes are allo-cated between operating expenses and other income, princi-a
B. EXTRAORDINARY PROPERTY ID88ES In December 1980 the Commission instituted an investiga-In 1980 the CAPCO companies cancelled the construction of tion into the reasonableness of the cost of coal supplied by four nuclear generating units, and in 1982 the Shippingport Quarto. In a 1981 Interim Order the Commission directed Atomic Power Station was removed from commercial opera- that, pending conclusion of the investigation or further order tion. The Company received approval from the Federal of the Commission, the Company limit its recovery of the cost Energy Regulatory Commission and the Commission to of Quarto coal through its energy cost rate to approximately amortize and recover from its customers its share of the the prevailing market price of similar coal rather than the accumulated construction costs of the cancelled units, which actual cost of Quarto coal. As required by the Interim Order amounted to $34.5 million, and a portion of the undepreciated and by the final Commission Order, as more fully described cost of the Shippingport station over a ten-year period which below, the Company is deferring the excess of the actual cost began January 29,1983. The unrecovered costs of the can- of Quarto coal over the cost allowed to be recovered through celled units and the Shippingport station as of December 31, its energy cost rate. 1985 were $24.4 and $4.1 million, respectively. The Commis- A Stipulation Agreement between the Company and the rion's order approving the amortization and recovery of the Commission staff which set forth a method intended to permit accumulated construction costs, which was appealed by the the eventual recovery of the unrecovered cost of Quarto coal Pennsylvania Consumer Advocate to the Pennsylvania Com- was the subject of hearings during 1983. An administrative monwealth Court, was afTirmed by the Court in 1985. Peti- law judge issued a recommended decision concluding that the tions for allowance of appeal filed by the Consumer Advocate Company was prudent in initiating and continuing the Quarto and certain intervenors with the Pennsylvania Supreme Court project and that the Stipulation Agreement was in the public are pending. See Management's Discussion and Analysis of interest and was a fair and reasonable resolution of the Financial Condition and Results of Operations-Capital investigation into the reasonableness of the cost of Quarto
, Resources and Liquidity-Accounting Matters, coal. Exceptions to the recommended decision were filed by The Company is not earning any return on the unamortized the Commission staff and the Consumer Advocate. In 1984 costs of either of the extraordinary property losses. the Commission entered its final order which (a) allowed the Company to apply the methodology of the Stipulation Agree-C. SHORT. TERM BORROWING AND REVOINING CREDIT ment retr actively to the period June 1980 through December ARRANGEMEN13 1983 and (b) required the Company to apply a revised method-At December 31,1985 the Company had a $5 million line of credit with a bank, all of which was unused. The range of I gy to Quarto coa} costs mnunenemg January 1,1984.
interest rates under this line of credit is from prime rate less .The Company be one half of one percent to a special rate as may be offered by V.ided in theission's Comm,lieves final order may that not, the underrevised certam met circumstances, permit full recovery of the deferred coal costs the bank from time to t2me. There is no commitment fee or by the scheduled exp,i ration of the Quarto coal sales agree-compensating balance requirement associated with this line g j; ments m 1999. Fluctuations in the deferred coal costs may result during this period depending on actual Quarto costs, In d ition, the Company has two revolving credit agree-market price of other coal, amount of Quarto coal burned and ments with two groups of banks totaling $225 million, availa-other factors. ble to May 15,1988 and December 15,1988 in the amounts of On January 8,1985 the Company appealed the Comm,s- i
$125 million and $100 million, respectively. At December 31, .
si n's rder to the Pennsylvam,a Commonwealth Court. On 1985 no loans were outstanding under these agreements. Under certain conditions, borrowings outstanding under the March 19,1985 the Company filed a new energy cost rate which the Commission approved on March 29,1985 and per-two agreements may be converted to term notes. Interest mitted the Company to recover about $9.8 milh,on of the rates fluctuate during the revolving and term periods, i depending on the period of borrowings, at prime rate and at accumulated deferred Quarto coal costs over a twelve-month pen d which began April 1,1980. l percentages in excess of prime, Euro-rate and certificate of ' The Cominny beheves that the balance of the deferred coal deposit rates. Interest rates under the $100 million agree-e sts was prudently incurred t.nd that it is probable that all ment clso include a component cost of funds rate. There is a or substantially all of such costs ultimately will be recovered. commitment fee of %% per annum on the average daily At December 31,1985 the unrecovered cost of Quarto coal unborrowed amount of each commitment. The commitment pa d by the Company, exclusive of the costs permitted to be fee on the $125 million agreement increases to %% per
'" " "It annum on the aveinge daily unborrowed amount upon the $11.3 milh. hrough the energy cost rate, was approxi on.
first borrowing against this commitment , , , In accordance with a 1981 Commission rate order, the cost During 1985,1984 and 1983, the maximum amount of of coal mm, ed at the Company a whollyowned Warwick mine short term borrowings outstanding was $23 million, $25.5 mil-in excess of the average market pnce of i s,milar quali coal lion and $48 million, the average amount of daily short-term borrowings outstanding was $3.6 million, $4.6 million and purchased by Penrsylvania utilities may not be passe through the energy cost rate, but may be deferred and
$12.3 million, and the weighted average daily interest rate recovered to the extent that the cost of Warwick coal falls applicable to such short-term borrowings was 8.2%,11.5%
below such market price. Such deferred costs amounted to ami 9.4%, respectis eIy. l $3.6 million at December 31,1985. Additionally, the Commis-l D. DEFERRED CUAL C08'13 sion eliminated the Warwick mine from the Company's rate The CAPCO companies have long term coal supply arrange- base for ratemaking purposes. The exclusion from rate base ments with Quarto Mining Company (Quarto), an unatTiliatal is approximately $48 million. company, to supply coal for the liruce Mansfield Plant. l u
Duquesne IJght Company Notes (conunuem E. INCOME TAXES Total income taxes in 1985,1984 and 1983 were comprised of the following componenta: 1985 19M 1983 (Thousands of Dollars) Included in operating expenses: Currently papble: Federal 8 37,765 $ 38,004 $ 33,931 State 13,230 16,042 14,295 income taxes deferred-net: Federal 29,034 16,577 22,955 State 743 4,893 5,555 Investment tax credit deferred-net 19,935 21,750 16,218 Total 100,7M 97,266 92,954 included in other income: Currently payable: Faleral (23,015) (18,060) (13,354) State (5,252) (4,606) (3,406) Total (28,287) (22,666) (16,760)
'Ibtalincome tax expense $ 72,440 $ 74,600 $ 76,194 Taxes currently _ payable-federal and state $ 22,728 $ 31,380 $ 31,466 Taxes deferml-net 29,777 21,470 28,510 investment tax credit deferml-net 19,935 21,750 16,218 Totalincome tax expense $ 72,440 $ 74,600 $ 76,194 Total income taxes were less than the amount computed applying the statutory federal income tax rate of 467. to income before income taxes. The reasons for this difference in each year were as follows:
Computal federal income tax at statutory rate $114,262 $106,441 $101,853
. Increase (decrease) in taxes resulting from:
_ Allowance for funds used during construction (45,546) (37,187) (30,405) Excess of book over tax depreciation 6,215 4,979 3,246 State income taxes, net of federal income tax benefit 4,700 8,828 8,880 Amortization of defermi investment tax cmlita (4,818) (5,750) (5,266) Other-net (2,382) (2,711) (2,114)
'Ibtalincome tax expenne $ 72,440 $ 74,600 $ 76,194 Sources of income taxes defermi and the tax effects were:
_ Excess of acceleratal over stra:ght line depreciation S 23,338 $ 24,281 $ 20,920 loss on early retirement of 1xmds expensed on tax return and defermi on Imoks 19,362 - - Fuel costa extensed on tax return and determi on books (4,149) (3,683) 9,786 Extraonlinary property losses expensed on tax return and defermionhoks (1,703) (1,703) (1,f42) Other (7,M I) 2,575 (634)
'Ibtalincome taxes deferred-net $ 29,777 $ 21,470 $ 28,510 The Company's income tax returns are settled through 1970 and income tax returns for 1971 through 1983 have been cx: mined. The Company's management believes that the settlement of federal and state taxes will not have a material effect on the Company's financial position or resulta of operations.
N
=
~
F. EMPIAYEE BElGFITS December 31, h Company has trusteed retirement plans to provide pen- 1984 -1983 sions for all employees, except coal mine employees who am flhousands of Dollars) covered under a plan administered by the United Mine Actumi present value of- - Workers of America (UMW). Since it is a multi-employer plan, accumulated plan benefits: Vested sisa,564 $189,312 - information concerning the UMW plan is not determinable by the Company and is not included in the table below.1%nsion Nonvested 7,5e6 - 11,945 - costs are funded as accrued and include amortization of most Total s184,15e ~ $201,257
=
prior service costs over 30 years and prior service costs -- related to the early retirement program over 15 years. I%n. Net assets available for benents - (at fair value) 8145,817 : $141.235 sion costs charged to expense or construction for 1985,1984 and 1983 were .$13.4 million, $14.2 million and $10.8 million, respectively. h inemase in pension costs in 1984 was due The Company is liable under federal and state laws for the l principally to the impact of the refund of employee contribu- payment of benents to coal mine employees disabled by tions m 1983 and the early retirement program supplemental " black lung" disease and to their survivors and dspendents.. benents. In 1983 the Company adopted an early retirement b estimated costs of providing such benents, including -_ program under which certain benefits are being paid from the amortization of prior service costs over the remaining esti - assets of the retirement plans. mated life of the Warwick mine, are actuarially determined Accumulated plan benefits and net assets available for ben- and accrued on the basis of mine payroll costs and are depos. (fits for the trusteed plans are presented as of the December ited with a trustee. Such costs were $1.5 million, $1.7 million - _ 31 benefitinformation dates. % assumed rate of return and $1.6 million for 1985,1984 and 1983, respectively. AtJuly - used in determining the actuarial present value of accumu- 31,1985 (the date of the latest actuarial valuation), the lated plan benents was 8% for 1984 and 5%% for 1983. The unfunded prior service cost for these disability benefits was decrease in the actuarial present value of accumulated plan approximately $3.9 million. % decrease of $14.9 million in benents as of December 31,1984 was caused primarily by the unfunded prior service cost from July 31,1984 was this change in actuarial assumptions, caused primarily by changes in the investment and assumed - claim rate assumptions. G. JOINTIJ4WNED GEIGRATING UNITS
% Company, together with other electric utilities, primarily the CAPCO companies, has an ownership interest in certain jointly-owned units. Information regarding the Company's share of such jointly-owned units as of December 31,1985 is as f:llows (Thousands of Dollars):
Company's Interest Percentage Utility Plant Accumulated Construction Unit Ownership Megawatts in Service Depreciation Work in Progress Fbrt Martin No.1 50.0 276 $ 49,527 $ 17,174 $ 2,187 CAPCO Units: Eastlake No. E 31.2 202 50,879 13,897 - 2,199 Sammis No. 7 31.2 187 72,920 13,610 587 Bruce Mansneki No.1 29.3 228 73,301 19,266 82 Bruce Mansfield No. 2 8.0 62 20,407 4,409 93 - Bruce Mansfield No. 3 13.74 110 71,775 11,496 22 Bruce Mansneld Common and Shared Facilities 64,121 16,110 -246 Beaver Valley No.1 47.5 385 371,128 74,131 5,654 Beaver Valley No. 2 13.74 114 - - 391,521 Beav:r Valley Common 1%cilities 70,900 9,193 90,320 Ivrry No. I 13.74 165 - - 406,325 IVrry No. 2 13.74 165 - - -153,798 IVrry Common Facilitim - - 163,062
'Ibtal $844,958 $179,286 $1,216,096 Under terms of the arrangements with the other owners of these jointly-owned units, the Company is required to provide its sham of financing the cost of such units. % Company's share of the direct expenses (fuel, maintenance and other operation cxpenses) of the jointly-owned units is included in the corresponding operating expenses in the Statement of Income.
27
Duquesne Light Company Notes (conunuem H. LEASliS 1. COMMITMENTS AND CONTLNGENCIES In 1984 the Company capitalized all of its capital leases. This Construction change had no impact on 1984 net income. Leased property The Company presently estimates that it will spend on con-consists of the following: struction, exclusive of nuclear fuel and AFC, $623 million dur-
**" I' ing the period 1986 through 1990, assuming construction on 1985 1984 Perry Unit No. 2 does not resume during this period.
(Thousands of Dollars) Perry Unit No. 2 Nuclear fuel $206,377 $164,001 . Electric plant (principally buildings In September 1983 several groups filed a petition with the and data processinq equipment) ' 25,832 20,108 Public Utilities Commission of Ohio (Ohio Commission) and Total 232.200 184,109 the Power Siting Board of Ohio (Board) against The Cleveland
. Irss accumulated amortization 67,711 39,192 Electric illuminating Company, Ohio Edison Company and Property held under capital The Toledo Edison Company (responde,nts) requesti,ng that leasee--net $164,498 $144,917 the Ohio Commission and the Board jomtly and/or mdividu-ally investigate the public need for Perry Unit No. 2, pres-leased property is amortized in conjunction with the amor- ently under construction by the CAPCO companies. The peti-tization of the related lease obligation. Leased nuclear fuelis tion also requested that the Ohio Commission and the Board amortized as the fuel is burned. The amortization of electric order the cessation of construction of the Unit and of the plant is based on the rental payments made. Amortization of accrual by the respondents of AFC with respect to the Unit leased property amounted to $24.9 million and $10.9 million and a declaration that the issuance of securities by the for 1985 and 1984, respectively. respondents, the proceeds of which will be used to finance lease payments in 1985,1984 and 1983 amounted to $43.6 construction of the Unit, not be approved.The respondents million, $26.2 million and $30 million, respectively, and $41.2 have filed a motion to dismiss the petition filed with the Board million, $35 million and $32 million (including deferred nuclear and an answer to the petition filed with the Ohio Commission fuel lease payments), respectively, were charged to operating requesting that the petition be dismissed.
expenses. Rental payments are made monthly during the An onier in this proceeding requiring that construction of terms of the leases based on the amount of nuclear fuel the Unit be terminated co..ld have the effect of cancelling the leased and the amount of nuclear fuel burned. Unit. In such event, the Company would seek regulatory The nuclear fuel leases may be terminated by the lessees or approval for the recovery from its customers of its then lessors with notice as defined in the agreements or by casu- investment in the Unit, together with any related cancellation alty or certain other contingencies, including default by the costs. Based on its present knowledge of the proceedings, lessees. In certain situations involving a termination, the management of the Company has no reason to believe timt lessees may be required to purchase the leased nuclear fuel at the proceedings will result in decisions adverse to the CAPCO the higher of fair market value or unamortized cost. At companies, and the Company believes that the ultimate reso-December 31,1985 the Company's share of the lessors' lution thereof will not have a material effect on the Com-unamortized cost of the leased nuclear fuel was $142.2 mil- pany's financial position. lion, and the Company expects to finance an additional $42.9 While the Company is not a party to the proceedings, it has million of such costs under current leasing arrangements. a 13.74% ownership interest in the Unit. The Unit, exclusive of The Company has certain buildings or portions thereof common facilities required for the operation of Perry Unit No. under least, including its corporate headquarters, subject to 1, is about 44% complete. The Company's net investment in renewal options and in certain cases purchase options. the Unit, including AFC and excluding common facilities Future minimum lease payments for capital leases are required for the operation of Perry Unit No.1, was approxi-related principally to building leases and the estimated usage mately $154 million at December 31,1985. of nuclear fuel, including a trust arrangement. Minimum In March 1984 the CAPCO companies agreed to minimize lease payments for operating leases are related principally to construction work and cash expenditures on Unit No. 2. The the corporate headquarters lease. Future minimum lease CAPCO companies presently are reviewing their options with payments at December 31,1985 were as follows: respect to the Unit. The alternatives include resumption of construction, with a new estimated cost and completion date, h3 1 O Qt. ng or cancellation. It is not certain when this decision will be
'nade.The Company has been accruing AFC during the con-(Thousands of Dollars) struction period. Beginning July 1,1985 the Company began 1986 $ 25,419 $ 11,153 providing a reserve against subsequent AFC accruals on the 1987 33,938 9,950 Unit until construction is resumed. At December 31,1985 the 1988 31,687 9,136 reserve amounted to $7.3 million and is included in "Construc-28,465 8,820 tion work in progress" in the Balance Sheet. This deferral of 1989 AFC did not atiect cash flow, but it reduced reported earnmgs 1990 27,13 1 7,968 by the amount of such deferral, or approximately $.11 per 1991 and thereafter 123,207 88,067 share in 1985.
Total minimum lease payments 269,870 $135.094 less amount representing interest 78,610 Quarto Mining Company (Quarto) Present value of net minimum The CAPCO com,panies have made long-tenn coal supply lemme payments $191,230 arrangements with Quarto, an unattillated company, to supply coal for the Bruce Mansfield Plant. As part of these arrange-ments the individual CAPCO companies are severally, and not
jointly, guaranteeing their proportionate shares of Quarto's request initially filed. In 1982 the Commission adopted its final debt and lease obligations incurred in connection with the order in the rate proceeding which determined that the option development and equipping of Quarto's coal properties. At rate increase of $64.2 million was just and reasonable. The December 31,1985 the Company had guaranteed the obliga- final order was appealed to the Pennsylvania Commonwealth tions of Quarto with respect to approximately $53 million of Court by a commercial customer, and in 1983 the Court indebtedness and lease obligations relating to approximately affirmed the Commission's final order. The commercial cus-
$19.5 million of capital equipment for the mines. In general, it tomer then appealed the Commonwealth Court's order to the is contemplated that the purchase prices to be paid for the Pennsylvania Supreme Court.
coal to be received under the foregoing arrangements will In 1984 the Supreme Court ruled that the Commission's include amounts sufficient to service the guaranteed 1981 option order was invalid under the applicable provisions oblig:tions. of the Pennsylvania Public Utility Code on the basis that the Under the terms of the coal supply contract, which contin- $64.2 million rate increase was a prohibited temporary rate, ues until December 31,1999 with an option to extend for ten and remanded the case to the Commission. The Company's additional years, the CAPCO companies must reimburse application for reargument with the Supreme Court was sub-Quarto for their proportionate shares of the costs of operat- sequently denied. ing the Quarto mines, including those costs associated with On November 15,1985 the Commission's administrative law mine construction, whether or not they receive coal from judge, who had been assigned to the matter on remand, with-Quarto. The Company's total payments under this contract out an evidentiary hearing issued a recommended decision amounted to $29.4 million, $30.7 million and $28.5 million for ordering a refund to the Company's customers of all revenue 1985,1984 and 1983, respectively, collected under the option rate order from July 15,1981
. The Company's estimated future minimum payments under through January 28,1982 (approximately $31.8 million), plus the coal supply contract attributable to payment of Quarto's interest.
long-term debt and lease obligations as discussed above are: The Company has filed exceptbns to the administrative law judge's recommended decision. If such exceptions are denied, Year Ending December 31' , O'housands of DcIlars) the Company will seek a stay of the Commission's order and will file an appeal with the Commonwealth Court. 38' The Company continues to believe that the option order 1987 8,025 rates, even if considered prohibited temporary rates, were at 1988 7,772 all times just and reasonable and that a refund would be inap-1989 7,520 propriate and inequitable. The Company believes that there is 1990 7,267 a reasonable possibility that no refund to its customers will be required and that, if a refund is ultimately ordered, such After 1990 *55'447 refund wouhl be based on the difference between the amounts Total $94,308 collected under the option rates and the amounts which the Company otherwise would have been authorized to collect as The current price of Quarto coal to the CAPCO companies just and reasonable under the original $100.4 million request. is based principally on the actual current production costs If a refund were based ulon thi.s difference, the Company's plus amortization of certain production expenses incurred dur- best estimate is that it would total $13 million, plus interest; ing the development period. See Note D to the financial however, offsetting credits may be available which could fur-ctatements. ther reduce any such refund either in whole or in part. Beaver Valley Replacement Pbwer in c nnecen wyanuaq mnb oMe Gmmbsbn approving a $31.4 milhon rate merease for the Company, the in 1981 the Comm.ission found that the Company had not Consumer Advocate has filed an appeal with the Common-proven that the costs of replacement power during the 1979 wealth Court with regani to the recovery of the accumulated outage of Ileaver Valley Unit No. I were prudently incurred. construction costs of four cancelled generating units (see In 1982 the Commission ordered refunds of $12.5 million plus Note B to the financial statements) and certain other issues interest over a two year period, kss a $1 million offset from involving approximately $10 million of operating expenr.es enother proceeding. The Company appealed the Commission's allowed by the Commission. While the Company also has filed order and filed an application with the Pennsylvania Common- an appeal, it believes that it is reasonably possible that the we lth Court for a stay of the final order. In 1983 the Com- Commission's onler will be upheld by the Court. Argument on monwealth Court granted the application. the appeals has been scheduled for May 1986. The Company does not agree with the Commission's onter, Although the outcome of these rate matters cannot be pre-cnd no provision has been reconled by the Company for any dicted with certainty, the Company's management is of the such refunds. Management of the Company believes that the opinion that it is reasonably possible that their ultimate reso-replacement power costs were prudently incurred and that lution will not have a material effect on the Company's finan-the eventual outcome of this matter will not have a material cial position or results of operations. See Management's Dis-effect on the Company's financial position or results of cussion and Analysis of Financial Condition and flesults of operations. Operations-Capital itesources and Liquidity-Rate Matters. Rate Mattern in 1981 the Company was permitted to increase its rates by cppnnimately $64.2 million annually in acconlance with an option onler of the Commission. in lieu of the $100.4 million 29
' Duquesne Light Company . Notes (conunuem NuclearInsurance annual tonnage, the Company would make up the shortfall -
h CAPCO companies maintain a nuclear insurance program . (plus a 63,000 ton shortfall in 1982) by purchasing additional
- to the maximum extent available. This program currently : . tons during the remaining term of the contract or by extend-pr,vides $585 million of primary and excess property insur 'ing the term of the contract.This shortfall clause was ance and $550 million of decontamination liability and excess extended to include 1985 and 1986. The contract also provides property insurance coverage for the companies' investment of that any shortfall can be sold to purchasers other than the 84 billion (at December 31,1985)in Beaver Valley Units Nos. Company. The total shortfall under the contract at December 1 and 2. The companies also have $500 million of property 31.1985 was appmximately 717,000 tons.
insurance for their investment of $5.4 billion (at December 31, The Commission has directed an outside consultant to per-1985)in Perry Unita Nos.1 and 2. An additional $85 million of form a construction management audit of Beaver Valley Unit excess property insurance and $550 million of decontamina. No. 2 to (1) determine whether project costs are reasonable - tion liability and excess pmperty insurance will become effec- and proper,(2) review and evaluate the project management t'va for Perry Unit No.1 upon commencement of fuelloading, process for the remainder of the project, and (3) identify presently scheduled for 1986. Under the current program, the opportunities to impmve the overall project management. h CAPCO companies are subject to various retrospective pre. Company is unable to predict the results of the audit or what mium adjustments in the event of accWnts at these units or action the Commission will take after completion of the audit. tt certain other utilities' nuclear plants. Based on its current The Ohio Commission has ordered h Toledo Edison Com-interest in one operating nuclear reactor, the Company's pany (Toledo Edison) to analyze the feasibility of reducing the tshare of any such assessment would be approximately CAPCO companies' generating unit construction program and
$3 million per year. Toledo Edison's participation in it. The Ohio Commission also h Company is also a member of an insurance program has ordered an investigation of the cost of Perry Unit No. I to which provides coverage for the expense of purchasing determine whether any such costs are excessive. While the replacement power during pmlonged accWntal outages of Company is not a party to these proceedings, the Pennsylva-Be:.ver Valley Unit No.1. The current policy would pmvW nia Commission is monitoring the Ohio Commission's investi-the Company with weekly payments of up to $670,000 for one gations. Continuation of the CAPCO construction program yrar after a deductible per od of 26 weeks, and up to $335,000 depends on the continued ability of each CAPCO company to for an additional year. The Company would be subject to a pmvW its share of the funds required for construction. If retmspective premium of appmximately $1.6 milli (m per year any of the companies fails to pay its share, the program could if the insurer's losses exceeded its reserves, be interrupted in whole or in part unless the sham is raised W Price-Anderson Amendments to the Atomic Energy from among the remaining companies or from another Act limit liability to third parties to $650 milli <m for each source. b Company is unable to predict what further action nuclear incant. Coverage for such liability is provided by the Ohio Commission may take in these proceedings.
$160 million of insurance and $490 million of retroactive h Company is involved in various other legal proceedings, assessments against each operating nuclear reactor. Based on in the opinion of management of the Company such legal pm-its present ownership interest in one operating reactor, the ceedings will not have a material effect on the financial posi-Company's maximum potential assessment would be $4.8 tion or results of operations of the Company, million per year.
Other in connection with coal supply arrangements for its wholly-owned generating units, the Company has contracted with an unaffiliated coal supplier to purchase a minimum of 750,000 tons of coal per year thmugh December 31,1986. In 1983 the contract was amemled to pmva that if the Company requested deliveries in 1983 and 1984 below the minimum ao
J, CAPITALIZATION December 31,1985 December 31,1984 Call Price Shams Shares 1%r Share Outstanding Amount Outstanding Amount Common Stock-41 par value (1) 71,488,270 $ 71,488,270 64.774,591 $ 64,774,591 Capital Surplus:
$907,643,839 $811,446,733 Premium on Common Stock Capital Stock expense (7,095,109) (7,536,995) 441,857 467,941 Other Total Capital Surplus $900,390,587 $804,377,679 Non-redeemable Preferred and Preference Stock:
Preferred Stock-$50 par value (cumulative)(1):
$ 51.50 549,969 8 27,498,450 M9,969 $ 27,498,450 4'k Series (2) 51.00 150,000 7,500,000 150,000 7,500,000 3.75'A Series (2) 51.73 140,000 7,000,000 140,000 7,000,000 4.15'A Series (2) 51.71 100,000 5,000,000 100,000 5,000,000 4.20'A Series (2) 51.75 120,000 6,000,000 120,000 6,000,000 4.10'A Series (2) 51.84 100,000 8,000,000 160,000 8,000,000
$2.10 Series (2) 102.50 350,000 17,500,000 350,000 17,500,000
$7.20 Series (3)
Preference Stock-81 par value (cumulative)(1): 26.00 1,200,000 1,200,000 1,200,000 1,200,000
$2.315 Series (4) 26.40 1,200,000 1,200,000 1,200,000 1,200,000
$2.10 Series (4) 80,898,450 80,898,450 Total 75,238,700 75,238,760 Premium on Non-redeemable Preferred and Preference Stock
$156,137,210 $156,137,210
'Ibtal Non. redeemable Pmferred and Preference Stock
$155,998,450 $155,998,450 Involuntary Liquidation Value Redeemable Preferred and Preference Stock:
Preferred Stock-$50 par value (cumulative) (1):
$104.00 244,872 $ 12,243,000 250,872 $ 12,543,600
$8.64 Series (3) 112.00 276,000 13,800,000 288,000 14,400,000
$8.375 Series (3)
Preference Stock-$1 par value (cumulative) (1)- 105.00 232,700 232,700 245,320 245,320
$7.50 Series (3) 26.50 165,000 165,000 192,665 _ __,_192,6 _65
$2.75 Series (4) 105.76 486,700 486,700 500,000 500,000
$9.125 Series (3) 26,908,000 '27,881,585 Total 99,250,140 105,354,240 Premium on Redeemable Preferred and Preference Stock Purchase and Sinking Ftmd Requimmenta (6,505,000) (5,821,625)
$119,653,200 $127,414,200
'Ibtal Redeemable Preferred and Prefemnce Stock
$119,653,200 $127,414,200 Involuntary Liquidation Value (1) Authorized shares: Common Stock-increased from (2) $50 per share involuntary liquidation value.
75,000,000 to 90,000,000 on May 13,1985; Preferred (3) $100 per share involuntary hquidation value. Stock.~4,000,000; and Preference Stock-8,000,000. (4) $25 per share involuntary liquidation value. 1 Common Stock Dividends may be paid on the Common Stock to the extent i The numbers of shares of Common Stock reserved at Decem- permitted by law and as declared by the Board of Directors, ber 31,1985 for issuance under the Dividend Reinvestment subject to the provisions of the Company's Restated Articles Plan and the Employee Stock Ownership Plans were 3,913,365 which restrict the payment of cash dividends or other distri-l butions on, or the purchase of, its capital stock ranking junior c and 680,263, respectively, ! The Company has paid a regular quarterly Common Stock to the Preferred Stock, dividend on January 1, April 1, July 1 and October 1 in each No dividends or distributions may be made on the Common Stock if dividends or sinking or purchase fund obligations on l year beginning in 1953 after beco:ning publicly owned. The quarterly dividend related to the first quarter of 1984 was the Preferred Stock or Preference Stock are accumulatal and l paid ct the rate of 50 cents per share. Quarterly dividends unpaid. Furthermore, the aggregate amount of junior stock l related to the last three quarters in 1984 and to each quarter payments which may be made in any 12-month period are in j of 1985 were paid at the rate of 51% cents per share. 31 i
~ Duquesne Light Company Notes (continued) general limited to (1) 50% of net income for any period of 12 than 20% or (2) 75% of net income if the effect would be to consecutive calendar months within ths 15 preceding months reduce such ratio to 20% or more but less than 25%. No porc if the effect of such payments would be to reduce the ratio of tion of Retained Earn ngs at December 31,1985 was common stockholders' equity to total capitalization to less restricted by virtue of this provision.
The following summary indicates the changes in the number of shares of Common Stock outstanding during 1985,1984 and 1983: Year Ended December 31, 1985 1984 1983 Common Stock: Shares outstanding at beginning of year 64,774,591 58,419,659 53,276,525 Issuances: ' Common Stock sales 3,000,000 2,500,000 2,475,000 Dividend reinvestment plan 3,856,923 3,793,836 2,524,40'l Employee stock ownership plans 56,756 61,096 143,7N Shares ouw" ; at end of year 71,488,270 64,774,591 58,419,659 Preferred and Preference Stock a non<umulative basis retire an additional 55,000 shares in The Preference Stock is entitled to quarterly cumulative each such year. The $9.125 Pniference Stock is subject to a dividends except that no dividends may be paid if dividends on cumulative sinking fund which will retire 33,300 shares on any series of the Preferred Stock are accumulated and January 1 in each year through 1997 at $100 per share. The unpaid. If six quarterly dividends on any series of Preference Company may on a non-cumulative basis retire an additional Stock are in default, the holders of the Preference Stock are 33,300 shares in each such year, provided that the Company cntitled to elect two directors until all dividends in arrears may not redeem through the exercise of this option more than have been paid. an aggregate of 150,000 shares. The Preferred Stock is entitled to quarterly cumulative The $8.64 Preferred Stock is subject to a non-cumulative dividends. If four quarterly dividends on any series of Pre. purchase fund under which the Company offers to purchase f:rred Stock are in default, the holders of the Preferred Stock annually up to 6,000 shares at not more than $100 per share. are entitled to elect a majority of the Board of Directors until The $8.375 Preferred Stock is subject to a cumulative sinking all dividends in arrears and current dividends have been paid. fund which will retire 12,000 shares on April 1 in each year at
. The outstanding Preference Stock and Preferred Stock gen. $100 per share. The Company may on a non-cumulative basis erally are callJ le on not less than thirty days' notice at the retire an additional 12,000 shares in each such year.
prices stated in the above table plus accrued dividends. Cer. The maximum combined aggregate sinking fund and man-tain call prices decline in future years. The 89.125 Preference datory purchase requirements for the next five years as of series is not redeemable prior to January 1,1989 through cer. December 31,1985 were as follows: tain refunding operations; however, it is otherwise redeemable Year Ending Sinking Fund and Mandatory tt $100 plus a redemption premium which decreases from December 31, Purchase Requirements
$5.76 in 1986 to $.48 in 1997.
The $7.50 Preference Stock is subject to a non-cumulative 1986 $7,805,000 purchase fund under which the Company offers to purchase 1987 7,805,000 annually at $100 per share up to 4% of the number of shares 1988 7,805,000 originally issued. The $2.75 Preference Stock is subject to a 1989 6,430 000 cumulative sinking fund which will retire 55,000 shares by 1990 6'430'000 August 1 in each year at $25 per share. The Company may on The following summary indicates the changes in the number of shares of Redeemable and Non-redeemable Preferred and Preference Stock outstanding during 1985,1984 and 1983: Year Ended December 31, 19R6 1984 1983 Preference Stock: _ Shares outstanding at beginning of y_ car 3,337,986 3,426,490 3,533,940 _ Purchases and redemptions -$2.75 Series (27,885) (77,905) (94,450)
-$7.50 Series (12,580) (10,600) (13,000)
-$9.125 Series (33,300) - -
Sharem outstanding at end of year 3,284,400 3,337,985 3,426,490 PreferndStock: Sharen outstanding at beginning of year 2,108,841 2,126,R41 2,132,841 Purrhanen-$8.375 Serien (12,000) (12,000) -
-$H.64 Serien (6,000) (6,000) (6,000)
Mharea outstanding at end of year 2,000,841 2,108.841 2,126,841 Gains on the redemption of Capital Stock are recorded in Capital Surplus; losses, to the extent they exceed cumulative gains, are charged to Retained Earnings. 32
Principal Amount Outstanding at First Mortgage Bonds (amount authorized is unlimited by indenture): December 31, 1985 1984 Series due April 1,1986(3%%) $ 20,000,000 $ 20,000,000 Series due April 1,1988 (3%%) 15,000,000 15,000,000 Series due March 1,1989 (4%%) 10,000,000 10,000,000 Series due March 1,1991(13%%) 50,000,000 50,000,000 Series due December 1,1992 (10%%) 75,000,000 - Series due June 1,1995 (10%%) 50,000,000 - Series due February 1,1996 (5%%) 22,800,000 22,800,000 Series due February 1,1997 (5%%) 24,000,000 24,600,000 Series due Februarv 1,1998 (6%%) 34,700,000 34,700,000 Series due January 1,1999 (7%) 30,000,000 30,000,000 Series due July 1,1999 (7%%) 28,947,000 28,947,000 Series due March 1,2000 (8%%) 30,000,000 30,000,000 Series due March 1,2001 G%%) 35,000,000 35,000,000 - Series due December 1,2001 G%%) 26,461,000 26,461,000, Series due June 1,2002 G%%) 28,470,000 28,470,009 Series due January 1,2003 (7%%) 32,670,000 32,670,002 Series due July 1,2003 G%%) 35,000,000 35,000,000 Series due April 1,2004 (8%%) 44,100,000 44,100,000 Series due March 1,2005 (9%%) 50,000,000 50,000,000 Series due June 1,2006 (9%) 80,000,000 80,000,000 Series due April 1,2007 (8%%) 97,400,000 97.400,000 Sedes due February 1,2009 (10%%) 100,000,000 100,000,000 Series due January 1,2010 (12%%) 60,000,000 60,000,000 Series due September 1,2010 (14%%) - - 50,000,000 Series due June 1,2011(16%) 17,966,000 80,000,000 Series due May 1,2012 (16%%) 3,777,000 65,000,000 Series due April 1,2013 (12%%) 60,000,000 60,000,000 Series due December 1,2013 (13%) 50,000,000 50,000,000 Series due February 1,2015 (11%%) 39,000,000 - Series due December 1,2015(11%%) 125,000,000 - Total 1,275,891,000 1,160,148,000 Irss: Current maturities-Series due April 1,1986 (3%%) 20,000,000 - - Current sinking fund requirements 9,668,910 10,601,480 Total First Mortgage Bonds $1,246,222,090 $1,149,546,520 In December 1985 the Company redeemed $50 million principal amount of 14 %% First Mortgage Bonds, Series due Septem-ber 1,2010, and reacquired through tender offers $62 million principal amount of 16% First Mortgage Bonds, Series due June - 1,2011, and $61.2 million principal amount of 16%% First Mortgage Bonds, Series due May 1,2012. Funds used to reacquire the bonds were obtained primarily from the proceeds of the issuance and sale of $75 million principal amount of 10%% First Mortgage Bonds, Series due December 1,1992, and $12.5 million principal amount of 11%% First Mortgage Bonds, Series due December 1,2015. The difference betw6en the purchase prices and the net carrying amounts of the bonds in the total amount of $37.9 million has been included in Deferred Debits in the Balance Sheet as " Unamortized loss on reacquired debt." The Company believes it will receive approval from the Commission to amortize and recover the loss from its customers. The Com-pany expects to reduce its annual interest expense as a result of this refinancing. y'
- Duquesne Light Company Notes (continued)
Other Iong-Term Debt:
- Pollution Control Obligations:
Average Serial Maturity or Mandatory DdA" g;"""t December {1, Date of Interest Redemption Final Issuance Rate Beginning Maturity 1985 - 1984 September 21,1972 5.49 % 1983 2002 $ 22,500,000 $ 23,000,000 June 21,1973 5.685% 1984 2003 11, ann,nnn 11,800,000 October 25,1Il3 5.755 % 1984 2003 15,000,000 15,000,000 August 13,1!rl4 7.97% 1989 2004 14,000,000 -14,000,000 April 2,1975 7.50% 1993 2005 17,000,000 17,000,000 October 29,1975 8.40% 1991 2005 18,000,000 18,000,000 September 29,1976 6.90% 1994 2011 15,000,000 15,000,000 - March 24,1981 12.00 % 2002 2011 50,000,000 50,000,000 November 1,1983 10.50% - 2013 20,500,000 20,500,000 December 19,1984 11.625% - 2014 51,000,000 51,000,000
- October 24,1985 7.75% -
2015 44,250,000 - Total 278,850,000 235,300,000 Irss current maturities 700,000 700,000 Total Pollution Control Obligations 278,150,000 234,600,000 Nuclear Fuel Obligations 26,732,384 34,614,888-5% Sinking Fund Debentures (authorized-$20,000,000) due March 1,2010 9,104,000 9,169,000 Total Other long-Term Debt $313,986384 $278,383,888 The pollution control obligations arise from arrangements Sinking fund requirements and maturities for the next five between the Company and governmental authorities whereby years for long-term debt outstanding, exclusive of nuclear the construction of certain pollution control facilities is fuel obligations, as of December 31,1985 were as follows: financed through the sale of bonds by those authorities, and
. the Company is obligated to pay to the authorities amounts Year Endin Sinking Fund December 3$, Requirements Maturities equal to the principal of and interest on such bonds.
The interest rate on the $44.25 million of pollution control 1986 $10,558,910 $20,700,000 - obligations issued on October 24,1985 is fixed at 7%% for the 1987 12,933,910 800,000 fivQ year period ending October 1,1990. After that date, the 1988 13,087,910 -15,800,000 interest rate on the bonds will be adjusted annually, unless 1989 13,408,910 10,900,000 the rate is fixed by the Company for the remaining term of 1990 13,408,910 900,000 the bonds. There is a commitment fee of %% per annum in connection with an irrevocable letter of credit which expires The sinking fund requirements in each year relate primarily on October 15,1990 which is available for the payment of cer- to the First Mortgage Bonds, which requirements may be ' i tain interest on or redemption of the bonds under certain cir- satisfied by the certification of property additions at 166%% of - l cumstances. The bonds are subject to the right of the holders the bonds required to be redeemed, and the pollution control to tender for mandatory purchase under certain conditions. obligations. The remainmg sinking fund requirement relates l The Company's share of the cost of certain pollution control to the 5% Sinking Fund Debentures. At December 31,1985 facilities at Perry Unit No. I was financed through the issu- sinking fund requirements for the 5% Debentures had been ance of $39 million of State of Ohio 11%% tax-exempt pollu- satisfied for 1986 and 1987, and the 1988 sinking fund require--
- tion control revenue bonds, Series due February 1,2015, ment had been partaally satisfied.
which are secured by an equal amount of First Mortgage Total interest costs incurred during 1985,1984 and 1983 Bonds which mature on that date. were $169 million, $152.3 million and $131.2 million, respec-The nuclear fuel obligations result from a trust arrange- tively, of which $115.6 million, $96.7 million and $73.3 million ment for the procurement of a portion of the Company's were capitalized or deferred, including AFC. requirements for nuclear fuel. Interest applicable to the trust , is capitalized and included in CWIP, at rates ranging from ('
' 1 %% to 1 %% over the trustee's commercial paper rate. Trust obligations wi'l be paid by the Company as the related nuclear fuelis withdrawn from the trust.
l l u t
3
- K. SUPPIDfENTARY INCOME STATEMENT INFORMATION Year Ended December 31, 1985 1984 1983 (Thousands of Dollars)
Maintenance 870,839 $83,914 $75,947 Amortization of extraordinary property losses 4,025 4,033- 6,099 Taxes other than payroll and income taxes: Gross receipts 38,788 38,349 35,576 Property 18,491 16,604 14,374 Capital stock 8,901 8,901 5,501 Insurance and other recoveries 5,304 - - Under the system of accounting followed by the Company, a portion of maintenance expenses and of taxes other than payroll and income taxes represents amounts charged to coal inventories. The inventory accounts are relieved and operation expense charged as the coalis used. In 1985 the Company made a one-time transfer of the excess of insurance and other reimbursements over property losses from " accumulated depreciation" to "other income". This non-recurring addition to income resulted from action by the Com-mission authorizing the Company to begin to use adjusted book depreciation reserves for ratemaking purposes. This change - increased earnings for the year ended December 31,1985 by $5.3 million, or $.075 per share. - L QUARTERLY FINANCIAL INFOILMATION (Unaudited) The following is a summary of selected quarterly financial data (Thousands of Dollars, Except Per Share Amounts): Operating Operating Net Earnings Per Quarter Ended Revenues Income Income Share March 31,1984 $223,590 $50,989 $42,611 $.63 June 30,1984 219,118 45,301 37,473 .53 September 30,1984 230,640 49,773 42,919 .61 December 31,1984 219,865 39,671 33,700 .45 March 31,1985 230,772 50,102 45,378 .61 June 30,1985 220,364 48,451 44,493 .59 September 30,1985 238.858 50,168 44,088 .55 December 31,1985 224,870 42,396 41,998 .51 During the fourth quarter of 1985, the Company made a one-time transfer of the excess of insurance and other reimbursements over property losses from " accumulated depreciation" to "other income". This non-recurring transfer increased fourth quarter earnings by $5.3 million, or $.075 per share. See Note K to the financial statements. 35
Duquesne light Company Notes (continued) M. SUPPLEMENTARY INMRMATION TO DISCIDSE THE EFFECTS OF CHANGING PRICES (Unaudited) The following supplementary information is supplied in operations, The data provided are not intended as a substitute accordance with the requirements of Statement of Financial for earnings reported on a historical basis. These disclosures Accounting Standards No. 33, " Financial Reporting and may offer some perspective of the approximate effects of infla-Changing Prices." This Statement requires adjustments to tion; however, they do not provide a precise measurement of hitorical costs to estimate the effects that changes in specific these effects. prices (current cost) have had on the Company's results of FIATEMENT OF INCOME ADJUSTED NR CHANGING PRICES ForThe Year Ended December 31,1985 (Thousands of Dollars) Conventional Current Cost Historical Average Cost 1985 Dollars Operating revenues $914,864 $914,864 - Fuel 249,212 249,212 Purchased power 4,094 4,094 Other operation and maintenance expenses 216,054 216,054 Depreciation and amortization 81,066 191,316 Taxes other than income taxes 72,614 72,614 Income taxes 100,707 100,707 Otherincome and deductions-net (111,850) (111,850) Interest charges 127,010 127,010 Totalexpenses-net 738,907 849,157 Net income (excluding adjustment of property, plant and equipment to net recoverable cost) $175,957 $ 65,707 Increase in specific prices (current cost) of property, plant and equipment held during the year * $167,577 Adjustment of property, plant and equipment to net recoverable cost 14,773 Effect of increase in general price level (179,731) Excess of increase in specific price level over increase in general prices after adjustment of property, plant and equipment to net recoverable cost 2,619 G:.in from decline in purchasing power of net amounts owed 79,483 Net $ 82,102
'At December 31,1985, current cost of property, plant and equipment (exclusive of capitalized leases) ;,et of accumulated depreciation, was $5,370,2N, while hitorical cost or net cost recoverable through depreciation was $3,257,798.
36
FIVE. YEAR COMPARISON OF SELECTED SUPPLEMENTARY FINANCIAL DATA ADJUSTED FOR EFFECIS OF CHANGING PRICES (In Thousands, Except Per Share Amounts) Year Ended December 31, 1985 1984 1983 1982 1981 Current costinformation: Income from continuing operations (excluding adjustment of property, plant and equipment to net recoverable cost)(1) $65,707 $50,099 $48,353 $25,435 $25,294 Income (loss) per share from continuing operations (after dividend requirements on preferred and preference stock)(1) 8.65 $.45 $.43 -
$(.04)
Excess of increase in general price level over increase in specific prices after adjustment of property, plant and equipment to net recoverable cost S(2,619) $(3,347) $2,865 $(256) $130,102 Net assets at year-end at net recoverable cost 31,151,251 $1,090,702 $1,034.607 $967,372 $898,058 Generalinformation: Gain from decline in purchasing power of net amounts owed $79,483 $74,674 $73,110 $69,219 $159,809 Cash dividends declared per share of common stock $2.06 $2.13 $2.16 $2.11 $2.18 Mark:t price per share of common stock at year +nd $16.25 $15.66 $14.57 $16.44 $15.68 Averageconsumerpriceindex 322.2 311.2 298.5 289.1 272.4 Historicalbasis: Operating revenues $914,864 $893,214 $810,816 $775,148 $792,479 Cash dividends declared per share of common stock $2.06 $2.06 $2.00 $1.90 $1.85 Market price per share at year-end $16.25 $15.125 $13.50 $14.75 $13.25 Tons of proven and probable coal reserves at beginning of year 22,000 23,200 25,100 26,300 28,100 Tons of coal mined 819 860 785 942 680 Average cost per ton of mined coal $35.12 $34.65 $36.59 $31.62 $35.10 (1) Amounts for 1982 are before extraordmary gain.
. The current cost of property, plant and equipment, which The Company, by holding assets such as receivables, includes land, land rights, intangible plant, property held for prepayments and inventory, suffers a loss of purchasing power future use, construction work in progress and nuclear fuel in during periods of inflation because the amount of cash received
. process, represents the estimated cost of replacing existing in the future for these items will purchase less. Conversely, by plant assets and was determined by indexing surviving plant owing monetary liabilities, primarily long-term debt, the Com-by the Handy-Whitman Index of Public Utility Construction pany benefits because the payments in the future will be made Costs. The current cost of property, plant and equipment does with nominal dollars having less purchasing power.The Com- . not include capitalized leases. The current year's provision for pany has significant amounts of long-term debt outstanding depreciation and depletion of the current cost amounts of prop- which will be paid back in dollars having less purchasing power - crty, plant and equipment was determined by applying the and, therefore, for purposes of these calculations has a net Comp:ny's composite depreciation and depletion rate to the gain from holding monetary liabilities in excess of monetary indexed plant amounts. assets. Fuel inventories, the cost of fuel used in generation, and pur- The regulatory process limits the amount of depreciation chased power have not been restated from their historical cost expense included in the Company's revenue allowance and lim-in nominal dollars. Rate regulation limits the recovery of fuel its utility plant in rate base to original cost. Such amounts pro-and purchased power costs through the operation of adjust- duce cash flows which are inadequate to replace such property ment clauses or adjustments in basic rate schedules to actual or preserve the purchasing power of common equity capital ec;ts. For this reason fuel inventories are effectively monetary previously invested. While this effect is partially mitigated by assets. the benefit derived from holding long-term debt, the Company As prescribed in Statement 33, income taxes were not has a net purchasing power loss which is experienced by the adjusted. common shareholders and can only be overcome by adequate The regulatory process limits the Company to the recovery rate relief. The Company will continue to seek rates which will cf the cost of service in its rates.Therefore, any excess of the ultimately recover the increased costs of new plant. value of plant at current cost must be reduced to the net recov:rable cost, which is historical rost. The amount of this cxcess that accumulated as a result ofinflation in the current _ year must be reduced to net recoverable cost. 37
i Duquesne Light Company f Selected Financial Data and Statistical Summary ) (Thousands of Dollars, Except Per Share Amounts) i' 1985 1984 1983 1982 1981 1980
SUMMARY
REBU133 0F OPERATIONS: Residential revenues $286,200 $280,647 $267,110 $238,496 $223,146 $196,400 Commercial revenues 335,012 314,129 290,370 263,374 243,501 209,871 Industrial revenues 225,892 244,970 221,107 225,292 300,066 250,295 Other revenues 21,851 22,029 21,758 19,300 19,516 18,178 Total revenues from customers 868,815 861,775 800,345 746,462 786,229 674,744 Revenues from other utilities 46,049 31,439 10,471 28,686 6,250 5,502 Total operating revenues 914,864 893,214 810,816 775,148 792,479 680,246 Operation and maintenance expenses 469,300 462,403 396,857 428,213 441,839 386,475 Depreciation and amortization 81,006 77,532 73,682 62,939 60,854 53,316 Taxes other than income taxes 72,614 70,279 60,651 57,476 57,694 47,637 Income taxes 72,440 74,600 76,194 53,307 57,801 50,643 Interest charges net of allowance for borrowed funds used during construction 127,010 116,333 100,161 100,344 92,968 75,629 Other income, principally allowance for equity funds used during construction 83,583 64,727 50,955 44,328 28,086 26,749 Income from continuing operations before sxtraordinary gain 175,957 156,794 145,226 117,197 109,409 93,295 loss from discontinued steam heating operations - - - 9,924(1) 538(1) 333(1) Income before extraordir.ary gain 175,957 156,794 145,226 107,273 108,871 92,962 Extraordinary gain - - - 9,609(2) - - Nat income 175,957 156,794 145,226 116,882 108,871 92,962 Dividends on Pmferrul and Preference Stock 21,250 21,955 22,411 22,701 22,976 23,353 Earnings for Commen Stock $154,707 $134,839 $122,815 $ 94,181 $ 85,895 $ 69,609 Av: rage number of common shares outstanding (000) 68,543 61,054 55,883 48,236 41,764 38,267 Earnings per share of Common Stock: Income from continuing operations $2.26 $2.21 $2.20 $1.96 $2.07 $1.83 Earnings for Common Stock 2.26 2.21 2.20 1.95 2.06 1.82 Dividends declared on Common Stock 2.06 2.06 2.00 1.90 1.85 1.80 Property, plant and equipment $4,168,993 $3,799,499 $3,293,481 $3,024,5M $2,809,753 $2,604,333 Accumulated depreciation and amortization 748,800 659,745 555,641 504,680 477,009 424,653 Property, plant and equipment-net $3,420,133 $3,139,754 $2,737,840 $2,519,874 $2,332,744 $2,179,680 Total Assets $3,854,468 $3,530,310 $3,145,811 $2,883,424 $2,668,577 $2,447,163 (1) Loss from Company's steam heating subsidiary which discontinued steam service effective May 31,1983. (2) Extraordinary gain of $9,609,000, or $.20 per Common Share, resulting from the exchange of 1,406,898 shares of Common Stock for approximately $29,852,000 prmeipal amount of First Mortgage Bonds. 38
1985 1984 1983 1982 1981 1980 CAPITALIZATION: Common Stock $ 71,488 $ 64,775 $ 58,420 $ 53,277 $ 45,303 $ 40,166 Capital Surplus 900,391 804,377 724,147 649,376 550,244 494,228 Retained Earnings 197,952 184,313 175,938 165,340 163,705 155,102 Non-redeemable Preferred and Preference Stock 156,137 156,137 156,137 156,137 156,137 156,137 Redeemable Preferred and Preference Stock 119,653 127,414 134,979 140,829 143,924 146,867 First Mortgage Bonds 1,246,222 1,149,M7 1,100,147 1,006,637 983,870 918,230 Other long-term debt 313,986 278,384 234,019 199,934 176,682 126,981 Unamortized debt discount and premium-net (9,209) (10,896) (10,967) (9,488) (9,453) (7,161) Total capitalization $2,996,620 $2,754,051 $2,572,820 $2,362,042 $2,210,412 $2,030,550 AVERAGE REVENUE PER KILOWA'IT-HOUR-ALL CUSTOMERS 7.832v 7.389v 7.215v 6.708v 5.715v 5.019v SALES OF ELECI'RICITY: Average annual residential kilowatt-hour use 5,621 5,768 5,752 5,668 5,698 5,770 Electric energy sales billed (millions of kilowatt-hours): 2,848 2,918 2,905 2,853 2,858 2,876 _ Residential Commercial 4,537 4,393 4,257 4,163 4,069 4,024 Industrial 3,522 4,148 3,717 3,902 6,582 6.272 Other 101 104 111 120 125 129 Total sales to customers 11,008 11,563 10,990 11,038 13,624 13,301 Sales to other utilities 1,981 1,019 327 917 206 175 Total sales 12,989 12,582 11,317 11,955 13,840 13,476 ENERGY SUPPLY AND PRODUCI70N DATA: Energy supply (millions of kilowatt-hours) Net generation system plants 13,590 12,983 11,900 12,352 13314 13,485 Purchased and net inadvertant 184 216 163 228 616 716 Total energy supply 13,774 13,199 12,063 12,580 14.Sj0 14,201 losses and Company use (785) (617) (746) (625) (690) (725) Net energy supply 12,989 12,582 11,317 11,955 13,810 13,476 Generating capability (thousands of kilowatts) 3,148 3,148 3,148 3,144 3,177 3,179 Peak load (thousands of kilowatts) 2,127 2,172 2,184 2,158 2,522 2,474 Cct of fuelper million BTU 168.450s 165.868, 167.140s 167.865v 159.660s 149.768v - BTU per kilowatt-hour generated 10,633 10,682 10,635 10,853 10,931 10,811 Average production cost per kilowatt-hour 2.462v 2.559v 2.541v 2.575v 2.354v 2.202v NUMBER OF CUSTOMERS-At End of Year: Residential 507,824 506,883 505,781 503,987 503,044 500,466 Commercial 49,927 49,837 49,493 49,320 48,859 48,308 Industrial 1,981 1,990 1,984 1,999 2,016 2,005 Other 1.817 1,588 1,633 1,647 1,713 1,725 Total customers 561,549 560,298 558,891 556,953 555,632 552,504 e 39
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_ [Duquesne light Company : _
% Management's; Discussion tand Analysis-ofFinanCial
- RCondition and Results 1 ofOperations-
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CAPITAL RESOURCEB AND LIQUIDITY ' Funds provided to the Company under its Dividend Rein-
- Construction . _.
vestment Plan in 1985 amounted to $54.4 million, and an addi- _ - Construction expenditures during 1985, exclusive of allow-tional $12.7 million was minvested on' January 1,1986.-
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_ ; ance for funds used during construction (AFC) and nuclesr Portions of the net proceeds from these transactions wem1.
. fuel, were $245 million. These expenditures were primarily used to pay short-term indebtedness incurred principally for 5 for the construction of two CAPCO generating units, Perry construction purposes, and the balance is being applied to -- ' Unit No.1 and Beaver Valley Unit No. 2, in addition to construction expenditures.The Company anticipates at this
- improving and expanding production, transmission and distri- time that a majority of the funds required for its 1986 con-
. bution systems and pollution control equipment. .
struction program will come from outside financing. . The Company currently estimates that it will spend, In addition to the above financings, on December 18,1985 exclusive of AFC and nuclear fuel, $198, $124, $98, $100 and_ - the Company sold $75 million of 10%% First Mortgage J $103 million for each of the years 1986 through 1990, respec- Bonds, Series due December 1,1992, and $125 million princi-tively. The foregoing estimates assume that construction of pal amount of 11%% First Mortgage Bonds, Series due
- Perry Unit No. 2 will not resume during this period. See Note December 1,2015. Proceeds from these sales were used, ;
- ~I to the financial statements. _ _
together with other funds, to reacquire $173.2 million princi-The amount which the Company must spend for its con- pal amount of the Company's outstanding high-interest First struction program is reviewed regularly and is subject to Mortgage Bonds originally issued in the early 1980's. The f 7 changes influenced by business and economic conditions and Company expects to incur lower interest costs as a result of T
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~other factors, such as escalation of labor, material and equip- this refinancing. See Note'J to the financial statements.
ment costs, rate of construction progress, the development of . The Company finances its nuclear fuel requirements pri- ~.
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- erwimnmental and nuclear safety regulations, service reliabil- ~ marily by leasing and other arrangements pursuant to which ity and system efficiencies. In addition, this review must can- it may finance up to $208 million of nuclear fuel. As of f ---
7 sider difficulties in obtaining rate increases sufficient to gen- December 31,1985 the Company's share of the cost of , - H
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erate adequate earnings, possible changes in load growth nuclear fuel financed under these arrangements was $169 : trends and, in the case of the CAPCO construction program, million, including interest, storage and other costs. _ the ability of each of the CAPCO companies to finance its In addition to the funds required for the construction pro-_ - capital mquirements. gram, $7.8 million was required in' 1985 for maturities ~ of.- long-term debt and sinking fund and purchase requirements. Fl= encina It is anticipated that $28.5 million will be required in 1986 fori
- . 'Ihe Company anticipates that funds for planned construction similar purposes.
_ ' expenditures in the next several years will be provided from - Interim financing will be through bank borrowings and : cash becoming available from operations and from the issu- sales of commercial paper. See Note C to the financial state- . ance of additional equity and debt securities to the extent ments for short-term borrowing and revolving credit arrange .
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- - mquired. 7 _ .. _ ..
ments. Variable market and general economic conditions may ,
- On' March 21,1985 the State of Ohio issued $39 million of affect the Company's selection of financing alternatives and 1 -
11%% pollution control revenue bonds, Series due February its ability to raise capital. In order to maintain earnings ade .
' 1,2015, to finance the Company's share of the cost of certain quate to finance construction expenditures and funding . _ .
. pollution control facilities at Perry Unit No.1. The bonds are requirements, the Company requires rate increases sufficient -
. secured by an equal principal amount of the Company's First ' to offset increased costs and provide a fair rate of return to -
Mortgage Bonds. _ its stockholders.
. On June 20,1985 the Company issued and sold 3 million
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The Restated Articles of the Company require that as a ~ - 4 hams of Common Stock. Net proceeds from the sale of Com- - condition for the issuance of Preferred Stock, earnings (afterJ : mon Stock were $47.6 million. Also on June 20,1985 the Com- income taxes) available for interest charges be at least 1.5 -
. pany sold $50 million of 10%% First Mortgage Bonds, Series times the sum of interest charges on all indebtedness plus - -
due June 1,1995. _ Preferred Stock dividend requirements. This restriction cur-
- On October 24,1985 the Beaver County Industrial Develop- rently precludes the Company from issuing Preferred Stock.~
ment Authority issued $44.25 million of 30-year adjustable There is no similar restriction upon the issuance of the Com - fixed-rate pollution control revenue bonds to finance the Com- pany's Preference or Common Stock. pany's share of the cost of certain pollution control facilities
- at the Beaver Valley Power Station. See Note J to the finan-
- cialstatements.
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! PIscry Unit No.2 # _ believes that there is a reasonable possibility that no refund In March 1984, the CAPCO companies agreed to minimize to its customers will be required and that, if a refund is - 'cconstruction work and cash expenditures on Perry Unit No. ultimately ordered, such refund would be based on the differ - ~' t 2. The CAPCO companies presently am reviewing their ence between the amounts collected under the option rates options with respect to the completion of the Unit. The alter- and the amounts which the Company otherwise would have - E natives include resumption of construction, with a new esti- been authorized to collect.'If a refund were based on th_is dif-
, . mated cost and completion date, or cancellation. It is not cer- ference, the Company's best estimate is that it would total tain when this decision will be made. If it is ultimately $13 million, plus interest; however, offsetting credits may be ?
- determined to cancel the Unit, the Company would seek reg-- available which could further reduce any such mfund either ; -
- ulatory approval for the recovery from its customers of its in whole or in part. See Note I to the financial statements.
" investment in the Unit ($154 million at December 31,1985), Also during 1985 the Company reached an agreement with :
j together with~any related cancellation costa. . the Commission, th'e Consumer Advocate and other parties on -
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E i The Company has been accruing AFC during the construc- a settlement of the Company's request for an increase in - ! E tion period. Beginning July 1.1_985 the Company began pro- rates which was filed in May 1985. The settlement permitted
- viding a reserve against subsequent AFC accruals on the the Company to increase its rates by $10.8 million or 1.2 per- -
L Unit until construction is resumed. This deferral amounted to cent annually effective November 1,- 1985. The Company had -- - ~ 1 $7.3 million during 1985 and is estimated to be $15.2 million in . sought an increase of $54.3 million or 6.4 percent. -
, : 1986. This deferral of AFC did not affect cash flow, but it . - ..
reduced reported earnings by $7.3 million, or $.11 per sham, ExtraJnay h,iay T- _ 7
- in 1985. See Note I to the financial statements. In 1983 the Commission approved the recovery of the Com -
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pany's share of the accumulated construction costs of four'- -- i Rate Matters 1_ _ cancelled CAPCO generating units from its customers, but
. . In 1981 the Company was permitted to increase its rates by did not allow any return on these costs. Petitions for allow :
! l $64.2 million annually in accordance with an option order of ance of appeal filed by the Consumer Advocate and certainT
. the Commission. In 1982 the Commission adopted its final - intervenors with the Pennsylvania Supreme Court are pend-
' : order in the rate proceeding which determined that the option ~ ing. See Note B to the financial statements. rate increase of $64.2 million was just and reasonable. In L 1984 the Pennsylvania Supreme Court ruled that the Com- . Deferred CoalCosts mission's 1981 option order was invalid under the applicable In a 1981 Interim Order, the Commission directed that the - _ _
-provisions of the Pennsylvania Public Utility Code on the - Company limit its recovery of the cost of Quarto coal through -
' basis that the $64.2 million rate increase was a prohibited its energy cost rate to approximately the prevailing market J temporg mte, and remanded the case to the Commission. price of similar coal rather than the actual cost of Quarto - I
,In 1985 the Commission's administrative lawjudge who ~
coal. Pursuant to such Interim Order and a Final Onler ihad been assigned to the matter recommended that the Com- entered in September 1984 the Company is deferring the ' p ny refund $31.8 million, plus interest, to its customers. The excess of the actual cost of Quarto coal over the cost being :
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Company has filed exceptions to the administrative law - recovered through its energy cost rate. See Note D to the . ~ judge's neommended decision. If such exceptions are denied, financial statements. L the Company will seek a stay of the Commission's order and ' will file an appeal with the Pennsylvania Commonwealth Beaver Valley R4 =t Pbwer _. ' CourtJ In 1981 the Commission found that the Company had not
-If the Commission confirms the administrative law judge's proven that the costs of replacement power during the 1979 recommended decision, the Company's management, its utage of Beaver Valley Unit No.1 were prudently incurred.
[ counsel and its independent auditors will have to consider the In 1982 the Commission oniered refunds of $12.5 million plus i effect of such an action on the Company's financial . interest over a two-year period. The Company has appealed I statements. ---- the Commission's order to the Pennsylvania Commonwealth The Company continues to believe that the option order Court. See Note I to the financial statements.
- rates wtre at all times just and res.sonable and that a refund i would be inappropriate and inequitable. The Company mr 41 g-r tw g-tgur - "th- tr'r r *'e-9W*9'+'y*'7ei-Nir'--W-9rr***P ww-*w--ww.4 -" "-
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j Duquesne Light Company
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NManagement's Discussion
= and Analysis of Financial Condition'andResults = ,
- tof Operations (continued) i Accounting Matters : mission does not allow these deferred costs to be completely In December 1985 the Financial Accounting Standards Board recovered within 10 years, the proposed changes to State-
' (FASB) issued Statement No. 87 which provides for changes ment 71 would require the Company to expense immediately
-in the way companies recognize and measure retirement _
all such deferred costs. If the Commission were to disallow a
- costs, requires some~ employers to record liabilities for benefit portion of the costs of the new units from rate base, the pro-obligations and specifies additional pension disclosures to be posed amendments would require the Company to record as a included in companies' annual reports. The Statement will be loss the amount of such disallowed costs.
'diective for tl.e Company in 1987. The Company has not yet Additionally, the CAPCO companies have not yet reached a
_ = dctermined the impact of the Statement on its financial state- decision as to the future of Perry Unit No. 2 (see Note I to ments; however, management of the Company expects that the financial statements). If it were decided to cancel the i the new accounting rules will not have a material effect on its Unit, the proposed amendments would require the Company financial position or results of operations. to write down its $154 million investment in the Unit to the The FASB has also proposed amendments to Statement amount determined by the Commission to be recoverable
- - No.71 which would require regulated enterprises to write through future rates. If the Commission were to disallow a
- down _the carrying value of certain abandoned assets. The return on the unamortized balance, the investment would be proposed amendments would also restrict companies' ability further adjusted to reflect the discounted value of the future to capitalize operating costs of new plants brought into rate revenues related to the recoverable amount. Both of these
~ base under phase-in plans. Additionally, the proposal would adjustments to the Company's investment would have an L require utilities to recognize as a loss any costs of a new immediate impact on earnings but would not affect cash flow.
plant disallowed from rate base. The amendments, if It is u'ncertain what action the Commission will take with 1 approved, would be effective in 1987 and would apply to all - respect to these issues. Further, the proposed amendments to then-existing and future phase-in plans, abandonments and Statement 71 have not yet been approved by the FASB, and
- disallowances.- the proposal could be modified prior to its becoming effective.
If the proposed rules had been in force during 1985, they Because of all of these uncertainties, the Company is unable -
-would have required the Company to adjust the carrying to predict what effect, if any, these proposals will have on the v::lue of its unrecovered investment of $28.5 million in four Company's financial statements.
cancelled generating units and the Shippingport Atomic
- Power Station (see Note B to the financial statements) to the Outlook discounted value of future revenues expected to recover the The extent to which funds from operations will continue to be i balance of such investment. Because this adjustment would available to pay dividends and finance the Company's capital
' hsyc been recorded retroactively, the Company's Retained needs depends upon its financial condition, earnings, business Earnings as of December 31,1985 would have been reduced prospects and other relevant factors. The Company is con-cerned about possible unfavorable decisions in rate-related
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by approximately $8 million. It is estimated that such an adjustment would not have had a significant effect on 1985's Proceedings (see Notes B, D and I to the financial state-carnings. ments), proposed changes in accounting principles (see "Ac-The Company is entering into the final stages of its current counting Matters" above), the erosion of its industrial load, construction program and will be filing requests with the the demand for electricity as compared to the Company's
- Commission to recover the costs of the Company's invest- available generating capacity, and other problems which the ments in Perry Unit No. I and Beaver Valley Unit No. 2. It is electric utility industry is experiencing in bringing new gener-likely that the Company will request the Commission to grad. ating capacity on line and fully into rate base.
. ually allow the inclusion of these units into rate base in order These issues could significantly affect the Company's cash
- to avoid sudden large increuses in rates. Such phase-in plans flow and earnings. The Company's management is consider-J will require certain operating and capital costs to be deferred ing various business and financial strategies in order to and included in rates in later years. These plans will have the address these concerns, effect of deferring cash from operations to subsequent periods and will, therefore, increase the Company's reliance
- on other sources to satisfy its cash requirements. If the Com-42
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-S REBUI;IB 0FOPERATIONS to 1984 because of the scheduled maintenance'and refueling i
_ Operating Revenues : __ _ outage of Beaver Valley Unit No. I which occurred during. 2, n
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. Operating revenues increased (decreased) in the years 1983 1984. These expenses increased in 1984 as compared to 1983 :
through 1985 over the respective preceding years, for the fol- - because of increases in various generating outage expenses.
. lowing reasons: .
Taxes --- .- c !. 1985 -1984 1983 Taxes other than income taxes increased in 1984 compared tot ~ ~ (Millions of Dollars) 1983 primarily due to increased state gross receipts taxes, _ i;1 General rate increases 8 27.3 $ 26.9 $ 88.4 which vary in direct relationship to revenues from sales to . _ customers, and as a result of increases in state capital stock . if
. Electricalconsumption (19.4) 12.8 (10.0)
Energy clause revenues .6 18.3 and public utility realty taxes principally relating to legisla- F (31.0) tive changes implemented in 1984. Fluctuations in income - =: State tax adjustment and other (1.4) - 3.4 6.5 taxes were primarily due to changes in taxable income. The effective income tax rate for 1985,1984 and 1983 was 29%, _ _ Revenues from other utilities - 14.6 21.0 (18.2) 32% and 34%, respectively. See Note E to the fmaneml . Total -
$ 21.7 $ 82.4 - $ 35.7 statements.
The operating revenues of the Company are based on rates Other _
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- cuthorized by the Commission. These rates are designed to The increases in allowance for equity and borrowed funds :
recover the Company's operating expenses, plus a rate of . used during construction were primarily due to the increased 4 - return on the investment in utility rate base. The Company cost of construction. These increases were ~ partially offset by _ -i _
. also has an energy cost rate which generally allows it to a $7.3 million deferral of AFC on Perry Unit No. 2 which. - .
. recover the difference between actual fuel costs and fuel _ began July 1,1985. See Note I to the financial statements. M =
costs included in base rates. Any overcollections of revenues During the fourth quarter of 1985, the Company made a - l_J" are refunded, with interest, to customers. one-time transfer of the excess 'of insurance and other -- f In 1985 the Company'was permitted rate increases in Jan - reimbursements over property losses from " accumulated _ - - yw _uary and November which were estimated to increase annual depreciation" to "other income". This non-recurring transfer : _5 revenues by $31.4 million and $10.8 million, respectively. In increased fourth quarter earnings by $5.3 million, or $.075- - _ ^:
' 1983 rate increases were permitted in January and Septem- ' per share. See Notes K and L to the financial statements. _ _-
ber which were estimated to increase annual revenues by The increases in other income and deductions-net in 1985 E =Z =
$106 million and $21 million, mspectively. See Note I to the - and 1984 were primarily due to increases in interest income = -- . ~ ~ ~
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financal statements. which resulted from increases in cash available for temporary The decrease in electncal consumption in 1985 was primar- investments. Interest expense for 1985,1984 and 1983 was ily due to a decrease of 15% in kilowatt-hour sales to indus- higher due to increased borrowings to finance the Company'si
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_WI trial customers. Favorable capacity situations and the capitalexpenditures. _
- requirements of neighboring utilities resulted in increased The Company has prepared information on the effects of - .[
sales to other utilities in 1985 and 1984. inflation and changing prices as prescribed by the FASB.= - ~ =3 Such information has been included in Note M to the financial - = . Operating E-i = - - statements. -. :+" ! Total operation expenses (fuel, purchased power and other TX ~ =: -
- operation) increase
- 1 in 1985 as compared to 1984, primarily Earnings Per Share - 4
. due to the increased generation of electricity which resulted The increases in earnings for Common Stock for 19A5,1984 +='
- from cubstantial increases in sales to other utilities. This had and 1983 were due to the factors discussed above; however,
! the sfrect of increasing expenses even though kilowatt-hour earnings per share of Common Stock were adversely affected
! sales to customers decreased. Total operation expenses by increases in the average number of shares outstanding, j increased in 1984 as compared to 1983 due to increases in which reduced earnings per common share by $.27, $.20 and ~ def;rred energy expenses, increased generation of electricity $.35, respectively. ! and increased administrative and general expenses, including ~ l c one time charge of $5 million for an early retirement pro-
- gram.' Maintenance expenses decreased in 1985 as compared 43 =
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1 i BUSINESS 0FTilECOMPANY FEDERALINCOMETAXSTATUS0F CAPCO Duquesne Light Companyis engaged COMMONS 10CKDIVIDENDS In 1967, Duquesne Lightjoined four in the production, transmission, distri- Duquesne Light expects all dividends otherelectric utilities to form the bution and sale of electric energy. The paid on Company stock during 1985 will Central Area PbwerCoordination - Company serves an area of approxi- be fully taxable. Ilowever, eligible indi- (CAPCO) group. mately 800 square milesin Allegheny viduals who participated in our Dividend Prior to 1980,10 generating units and Beaver counties. This area, which Heinvestment Plan during the year may were committed under the CAPCO includes the City of Pittsburgh, is lo- elect to exclude from income, for federal arrangements, which provided forjoint catedin SouthwesternIbnnsylvania tax purposes, up to $750 of the dividends ownership interests based on individual and has a population of about 1,430,000. reinvested ($ 1,500 in the case of a joint requirements. 'Ib date, seven units are The executive offices of Duquesne return). in service and three units are under Light arelocated at: construction. Duquesne Light shares
' One Oxford Centre FORM 10-KOFFER in the ownership of nine of the CAPCO 301 Grant St. If you are a holder or beneficial owner units.
Pittsburgh, PA 15279 of any class of the Company's stock as Since 1980,each CAPCO company Duquesne Light Companyis an Equal of Feb. 26,1986, the record date for the has been responsible for establishing Opportunity Employer. 1986 AnnualMeeting, the Company its ow n level of reserves and generating _ willsend you, upon requestand at no capacity needsbeyond thejointly-SERVICEAREAMAP charge, a copy of the Company's Annual owned units still under construction.
.m Report on Form 10-K filed with the Duquesne Light has a share in the W-
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Securities and Exchange Commission CAPCO unitslisted below:
"' 1 for the year 1985(including alistof
- exhibits). All requests must be made 'py.negtCompa
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mwntingto: Nuclear-1976 Nuclear-1987*
- ma, f' CorporateSecretary(17-6) [*1Pa g 8 g & ga,P" Y;8 g K3 L
. Duquesne Light Company D.L Share: 385,000 KW - D.L share:114.000 KW massen >
- - One Oxford Centre *Pennsylvanialbwercompany
%9 - .
;gy" < @ 30l Grant St. '[fgyf {fansfg2 3 m Pittsburgh, PA 15279 capacity: 780. coo Kw capacity: 780. coo Kw -
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D.L Ownership: 29.3% D L ownership: 8.0% D.L share: 228.000KW D.L share: 62.000 KW
% TRANSFERAGENTANDREGISTRAR wasmaname -
.ifanqfield #3 Common, Prefemnce and Preferred coal-1980
**-a'o= C8P8 city:800 000 KW a'r Steck- '
D L. ownership: 13.74%
,4 The FirstJersey NationalBank D.L share: 110,000 Kw
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Jersey City, NewJersey
- Ohio Edison Company FmETTE r 8am7rns #7
"""'" 07
( M, - ANNUALMEETING 0FS'IDCKIIOLDERS - g yll oo googw w, The AnnualMeeting of Stockholders O I sh E D S s y -
-g. . g g' ,
will be held at 10 a.m. , Pittsburgh time, on Tuesday, April 22,1986, in the David
*The Cleveland Electric niuminatingcompany L. Lawrence Convention Center, Pitts- N 'I M 'J -
1975-1985DIMENSIONSMAGAZINE burgh Ibnnsylvania. Na*p$*[yYiS*.o*ooxw ba"p'$*[ 1.NoooKw In mid-year 1986, the Company plans to The approximate numberof holders of Common Stock as of the Feb. 26,1986
-gpgrg.y ggos rg g publish Duquesne Light DIMENSIONS, ,,
containing in-depth information con. record date for the 1986 Annual Meeting coal-1972 was 144,000. 6 cerningthe Company. DIMENSIONS gaggy4pghg will include an 11-year statistical re- D L share: 202.ono Kw vlew and a discussion of some of the im.
- constructing and operating cornpany portant issues affecting Duquesne Light . .[**n3 ructNn*Nu1 underreview Company. Fora copy of DIMENSIONS write:
Duquesne Light Company Corporate Communications (30-5) One Oxford Centre 301 Grant St. Pittsburgh,PA 15279 44
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< ~ BOARDOFDIRECIURS . _ COMPANY 0FFICERS John M.' Arthur tg#f _(JohnM. Arthur -
- ; CleairmanoftheBoant ; Osairmanoftheikxzrd _ _
~ Wesley W, von'Schack
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Wesley W. von Schack* . hrsident. ChiefEtreutiveOffiwr _ hrsident, ChiefEncutiteOJficer
) and OsiefHuancialoffiwr . ' and ChiefRnancialoffiwr f CharlesM. Atkinson $# : CharlesM. Atkinson~
Enrutite VicePrrsident . Eurutive Vicehysident f i Henry G.' Allyn,Jr. tt L . Roger D. Beck ' R1lnvihrsident amiChiefEnrutive ^ Viuhrsident-AdministrutiveSeniws b OfficerofThePittsburyhandh1keErie Gmup - ' i ~ ikilroadCompany .
' John J. Carey
- DanielBerg *$1 . .. Vicehrsident-NuclatrGroup hystderd,&nsselaeriblytechnicinstitute - '
Clinord N.Dunn L Doreen E. Boyce $@ . . . ..- Vicehrsident-IburrSupply Group Distrtor, TheBuhlEbundation [ ..
. . . William F.Gilfillan,Jr. ---- ---
- ~ -
- John H. Demmler
- t . . .
Vicel%sident-CustomerSerias Group thrtner; kniSmith Shaw& hicClay - . 1Attormys-at-htte - - WalterT. Wardzinski ~ VicePnsulent-Isgrtland &rpomte - L Sigo Falk *5 - _ d : Comununications _ ' AsxciateDsrtrtor,IhulthSystems . .
- Aaer!cyofSouthuesternIrnnsylvania - ParlLWoolever
~'
+. _ _ .. ..- . '
-Vice Pnsident-SpecialNuclear hujects
- William H. Knocll t# ..
hesident and ChiefEncutin'e Q[ficer;
~'
Diane S. Eismont - ? AgelopCorpomtion : - _ Srrvtanj
~
1G.ChristianlNntzsch tS# .. . James 0. Ellenberger
- - Vice Otainna n qf31ellon Ba nk. N.A. a mi. : Contmiler -^
=-
^Vice Osairman and 1husurrrof3fellon .. .
_ BankCorpnution -
- Gary L. Schwass* * -
~
Eric W. Springer $$ - - Ihrtner; IIorty, Springer and 3fattern - RichardJ. Ciora
. Attorneys-at-hue ' Assistant Thusurer - -
- On Dec.17.1985, the Board of Directors elected Wesley W. von Schack a Director.. . Lawrence E Gah.e. -
t Memberof Audit Committee . .
-Assistantyussun r
- t MemberofCompensationCommittee. .. - . - -
3 Memberof Employment and Community - Joan S. Senchyshyn
.RelationsCommittee :- AssistantStrvtary J g Memb?rofNominatmgCommittee 7 Memberof Nuclear Review Committee A. William Stein
- Assistants <rntanj
- u *0n ivc; 17,1985, the ikurd of Directors
. elected Wesley W. von Schack President, effectiveJan 1.1986. In addition the Board designated Mr. von Schack Chief Executive Officer. Mr. von Schack previously was Vice President, Finance Group.
* *On Oct. 22.1985. the Board of Directors
- - _ elected Gary L Schwass Treasurer. Prior
_ to this appointment, Mr. Schwass was Executive Directorof Financialllanning and Pryects for Consumers Ibwer Company of Michi+m. _,#- + _ - .-. .
.m -
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$ fI.(fJ BULK RATE m 'jj [D h U.S. POSTAGE PAID One Oxford Centre Pittsburgh, PA Pittsburgh, PA 15279 l&rmit No.1125 l
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