ML20205H617
| ML20205H617 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley, Perry  |
| Issue date: | 03/29/1999 |
| From: | Cordisco F DUQUESNE LIGHT CO. |
| To: | NRC (Affiliation Not Assigned) |
| References | |
| NUDOCS 9904080335 | |
| Download: ML20205H617 (66) | |
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.,w_, %4 Duquesne Light Company 411 Seventh Avenue Phone (412) 393-6479 P. O. Box 1930 FAX (412) 393-6004 Mail Drop 9-430 Pittsburgh, PA 15230-1930 Frosina C. Cordisco Treasurer
} March 29,1999 Y
c U. S. Nuclear Regulatory Commission 2120 L Street NW E Washington, DC 20555 Attn.: Director of Nuclear Reactor P.egulation RE: Docket No. 50-440 - Perry Nuclear Power Plant Unit No.1 Docket No. 50-334 - Beaver Valley Power Station Unit No.1 Docket No. 50 412 - Beaver Valley Power Station Unit No. 2 Gentlemen:
L In accordance with NRC Regulation 10 CFR Section 140.21, regarding the Price-Anderson Act retrospective premium system guarantee requirements, you will find enclosed:
- 1. A copy of Duquesne Light Company's consolidated financial statements for the twelve month period ended December 31,1998;
- 2. An interna! cash flow projection, including actual 1998 data and projections for 1999. This statement indicates that $7.498 million, our portion of the $30 7 million retrospective premiums for the three subject units, would be available i for the payment of such premiums in 1999. Duquesne Light Company has a 47.5% ownership in Beaver Valley Unit No.1, a 13.74% ownership in Perry Unit No.1 and a 13.74% leasehold interest in Beaver Valley Unit No. 2. f Pursuant to Commission rules, Duquesne Ught Company has elected to utilize its financial statement as its guarantee of payment of deferred premiums. We are (
providing these statements to meet our reporting requirements for t oth Beaver Valley Unit 1 and Unit 2 and Perry Unit 1 at this time.
1
- Sincerely, ercol
. fl cc: R. E. Duckworth M. S Ackerman ' [
- ' ~
9904000335 990329 e PDR ADOCK 05000334
+ 1 _ ,
PDR g .
/
Sourca and Application of Fund 3 (in millions of dollars)
Actual Forecast Capital Requirements 1998 1999 Construction Expenditures (Excluding AFUDC and Nuclear Fuel)(1) $118 $110 Capital Additions Projected to be Leased ,
(Principally Nuclear Fuel) 13 13 Maturities and Sinking Funds 75 75 Total Capital Requirements $206 $198 Sources of Cspital Internal Sources (2)
Deferred Taxes $45 $15 investment Tax Credits (10) (3)
Depreciation and Amortization 205 226 TotalInternal Sources $240 $238 (excluding retained carnings) ,
l (1) Total AFUDC for 1999 is projected to be less than S 2 million. l (2) Changes in retained earnings have not been reflected.
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The above forecast information is based upon assumptions concerning many variables, and is subject to significant changes. Accordingly, such information represents j estimates and will be updated periodical!y. This information is provided for general information purposes only and not for any specific use or reliance.
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[CONFORMEDJ UNITED STATES SECURITIES AND EXCHANGE COMATISSION Washington, D.C. 20549 FORAl 10-K
, [X] ANNUAL REPOR f PURSUANT TO SECTION 13 OR 15(d) OF TlIE SECURITIES EXCllANGE ACT OF 1934
, For the Fiscal Year Ended December 31,1998
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF TiiE SECURITIES EXC}lANGE ACT OF 1934 For the Trancition Period From to Commission File Number 1-956 Duquesne Light Company (Exact name of registrant as specified in its charter)
Pennsylvania 25-0451600 (State or other jurisdiction of (1.R.S. Employer Identification No.)
incorporation or organization) 411 Seventh Avenue Pittsburgh, Pennsylvania 15219 (Address of principal executive of6ces)(Zip Code)
Registrant's telephone number, including area code: (412)393-6000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1914 during the precechg 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No DQE is the holder of all shares of outstanding common stock, SI par value, of Duquesne Light Company consisting of 10 shares as of February 28,1999.
[X] Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge,in definitive proxy or information statements incorporated by reference in Part til of this Form 10-K or any amendment to this Form 10-K.
Securities registered pursuant to Section 12(b)'of the Act:
I Name of each exchange Registrant Title of each class on which registered Duquesne Light Preferred Stock New York Stock Exchange Company Involuntary Series Liquidation Value .
3.75 % $50 per share l 4.00 % 550 per share ,
! 4.10% - $50 per share 4.15 % $50 per share 4.20% $50 per share
$2.10 $50 per share 8.375 % $25 per share (1)
Sinking Fund Debentures, due March 1,2010(5 %) New York Stock Exchange 7% % Quarterly Interest Bonds, due 2038 New York Stock Exchange i
(1) Issued by Duquesne Capital, L.P., and the payments of dhidends and payments on liquidath or redemption are guaranteed by Duquesne Light Company, l
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TABLE CF CONTENTS Page Page l GLOSSARY PARTI PART Ill ITEM 1. BUSINESS ITEM 9. CHANGES IN AND General 1 DISAGREEMENTS WITH .
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- Property, Plant & Equipment (PP&E) 2 ACCOUNTANTS ON ACCOUNTING Employees 3 AND FINANCIAL DISCLOSURE 46 Electric Utility Operations 3 Environmental Alatters 5 ITEM 10. DIRECTORS AND EXECUTIVE l Other 7 OFFICERS OF THE REGiftTRANT 46
! Executive Officers of the Registrant 8 ITEM 11. EXECUTIVE COMPENSATION 46 ITEM 2. PROPERTIES 9 ITEM 12. SECURsTV OWNERSHIP OF l ITEM 3. LEGAL PROCEEDINGS 10 CERTAIN BENEFICIAL OWNERS l
AND MANAGEMENT 47 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 47 PARTIl PARTIV ITEM S. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED ITEM 's 4. EXHIBITS, FINANCIAL STATEMENT SHARENOLDER MATTERS 11 SCHEDULES AND REPORTS ON FORM S-K 47 i ITEM 6. : SELECTED FINANCIAL DATA i1 SCHEDULE Il ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL SIGNATURES CONDfTION AND RESULTS OF GPERATIONS l
Results of Operations 11 Liquidity and Capital Resources 14 Rate Alatters 16 j Year 2000 18 ITEM 7A. QU/'s4TITATIVE AND
- QUALITATIVE DISCLOSURES ABOUT MARKET RISK 19 l
. ITEM S. REPORT OF INDEPENDENT j CERTIFIED PUBLIC ACCOUNTANTS; CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA; SELECTED FINANCIAL DATA 20 j l
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GLO20ARY OF T2RM3 Cw.; ^ ^'ve T>mnsition Charge (CTC) - During the -
Pennsylvania Publ6c Utsty Commission (PUC) -
electric utility restructuring from the traditional regulatory The governmental body that regulates all utilities (electric, gas, framework to customer choice, electric utilities will have the telephone, water, etc.) that do business in Pennsylvania, opportunity to recover transition costs from customers through a Power Station Exchange - Duquesne and FirstEnergy per kilowatt-hour charge.
Corporation have an agreement to exchange ownership interests Customer Choice - The Pennsylvania Electricity in certain power plants. (See " Rate Alatters" on page 16.)
Generation Customer Choice and Competition Act (see " Rate
, Peice to Compare - Duquesne wd. l provide a credit to a Alatters , on page 16) gives consumers the n. g ht to contract for . .
. customer for the PUC-determmed market price of electnc electricity at mar!.et prices from PUC-approved electne . .
generation. Customers wdl experience savings to the extent that generatic n st.ppliers, they can purchase power at a lower price from an alternative a
Decommissioning Costs - Decommissioning costs are electric generation supplier than the amount of the credit.
expenses to be incurred in connection with the entombment, Provider of Lest Resort - The local distribution utility is decontamination, dismantling, removal and disposal of iM m proviJe electricity for customers who cannot or do cructures, systems and components of a power plant that has not choose an alternative generation supplier, or whose supplier permanently ceased the production of electric energy.
fails to deliver. (See " Rate Alatters" on page 16.)
Deferred Energy Costs - In conjunction with the Energy Rate mese - The amount representing the value of assets Cost Rate Adjustment Clause, Duquesne historically recorded approved by a regulatory agency for recognition in the rates deferred energy costs to offset differences between actual energ7 charged to rate-regulated customers.
costs and the level of energy costs currently recovered from its rate-regulated electric utility customers. Regulatory Assets - Historical ratemaking practices
.. granted exclusive geographic franchises in exchange for the Distribution / Transmission - Duquesne's "electncity obligation to serve all customers. Under this system, certain delivery" business segment. Transmission is the flow of electricity prudently incurred costs were approved by the PUC and the from generatmg stat ons over high voltage lines to substations . FERC for deferral and future recovery with a return from where voltage is reduced. Distrib. .;on is the flow of electricity customers. These deferred costs were capitalized as regidatory j over lower voltage facilities to the ultimate customer (bupnesses assets by the regulated utility. i and homes).
, Restructueing Plan - Duquesne's nlan, approved by the Divestetime - Fhe selling of major assets. Duquesne PUC, for restructuring and recovery of transition costs under currently anticipates divestitut e ofits generation assets through Pennsylvania's Customer Choice Act.
an auction and the power stat' n exchange.
Stranded Costs - Stranded costs are the net present value Energy Cost Rate Adius ment Clause (ECR) -
of a utility's known or measurable costs related to electric Until Alay 29,1998, Duquesne historically recovered through generation that are not recoverable through the CTC.
the ECR, to the extent that such amounts were not included in base rates, the cost of nuclear fuel, fossil fuel and purchased Tariff - Public schedules that detail a utility's rates, ndes, power costs, senice territory and tenns of service; tariffs are filed for official Federmi Energy Regulatory Commission (FERC) -
The FERC is an independent five-member commission within T>mnestion Costs - Transition costs are the net present the United States Department of Energy. Among its many value of a utility's known or measurable costs related to electric ,
responsibilities, the FERC sets rates and charges for the generation that are recoverable through the CTC.
wholesale transportation and sale of electricity. .
Watt - A watt is the rate at which electricity is generated or Maelset Power - When one company owns a sufficiently consumed. A kilowatt (KW)is equal to 1,000 watts. A kilowatt- .
large percentage of generation, transmission, or distribution hour (KW1I)is a measure of the quantity of electricity generated capabilities in a region allowing it to set the markt . price of or consumed in one hour by one kilowatt of power. A megawatt electricity. (31W)is 1,000 kilowatts or one million watts.
osseigation to serve - Under traditional regtdation, the duty of a regulated utility to provide senice to all customers in i ts senice territory on a non-discriminatory basis.
Prrt I stem 1. Business.
General
\ Pan 1 ofthis Annual Repon on Form 10-K (Report) should he read in conjunction with Duquesne Light Company's audited i
consolidatedfinancialstatements, rhich are setforth on pages 22 throngb 45 in Part IV of this Repon. Explanations ofcertain financial and operating terms used in this Repon are saforth in a GLOSSARYat thefront of this Repon.
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- Duquesne Light Company (Duquesne) is a wholly owned subsidiary of DQE, Inc. (DQE), a multi-utility delivery and i senices company. Duquesne is engaged in the generation, transmission, distribution and sale of electric energy.
Duquesne has one wholly owned subsidiary, Alonungahela Light and Power Company, which currently holds energy-
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related investments.
On December 18,1998, the Pennsylvania Public Utility Commission (PUC) approved Duquesne's plan to divest itself ,
ofits generation assets through an auction (including an auction ofits provider oflast reson senice), and an agreement I in principle to exchange certain power stations with FirstEnergy Corporation (FirstEnergy). Final agreements governing these transactions must be approved by various regulatory agencies. Duquesne currently expects these transactions to close in late 1999 or early 2000. (See " Rate Atatters" on page 16.)
Service Territory Duquesne provides electric service to customers in the City of Pittsburgh and surrounding areas. (See " Rate Alatters" on page 16.) This territory represents app,ximately 800 square miles in southwestern Pennsylvania. The population of !
the area served by Duquesne's electric utility operations, based on 1990 census data, is approximately 1,510,000, of l whom 370,000 reside in the City of Pittsburgh. In addition to sening approximately 580,000 direct customers, !
Duquesne also sells electricity to other utilities. l Regulation Duquesne is subject to the accounting and reporting requirements of the Securities and Exchange Commission (SEC).
In addition, Duquesne's electric utility operations are subject to regulation by the PUC, including regulation under the Pennsylvania Electricity Generation Customer Choice and Competition Act (Customer Choice Act), and the Federal Energy Regulatory Commission (FERC) under the Federal Power Act with respect to rates for interstate sales, transmission of electric power, accounting and other matters. (See " Rate Alatters" on page 16.)
Duquesne's electric utility operations are also subject to regulation by the Nuclear Regulatory Commission (NRC) under the Atomic Energy Act ofl9H, as amended, with respect to the operation ofits jointly owned / leased nuclear power i I
plants, Ileaver Valley Unit 1 (llV Unit 1), lleaver Valley Unit 2 (llV Unit 2) and Perry Unit 1.
As a result of the PUC's Alay 29,1998, final order regarding Duquesne's restructuring plan under the Customer Choice Act (see " Rate Alatters" on page M), the electricity generation portion of Duquesne's business no longer meets the critcria oiStatement ofFinancial Aaounting Standards (SE4S) No. 71, Accountingfor the Ef]ects ofCertain Types of Regulati,n (SFAS No. 71). Accordingly, application of SFAS No. 71 to this portion of Duquesne's business has been discontinued and Duquesne now applies SE45 No.101, Regulated Enterpises - Accountingfor the Discontinuation of Application ofE4SB Statement No. 71 (SFAS No.101), as interpreted by Emerging Isrues lask Force 97-4, Deregulation of the Pricing ofElectricity -Issues Related to the Application ofE4SB Statements No. 71 and 101. Under SFAS No.10l, the regulatory assets and liabilities of the generation portion of Duquesne are determined on the basis of the source from which the regulated cash flows to realize such regulatory assets and settle such liabilities will be derived. Pursuant to the l PUC's final restructuring order, certain of Duquesne's generation-related regulatory assets will be recovered through a competitive transition charge (CTC) collected in connection with providing transmission and distribution senices (the electricity delivery business segment). Duquesne will continue to apply SFAS No. 71 with respect to such assets. Fixed a assets related to the generation portion of Duquesne's business have been evaluated in accordance with SE4S No.121, 1
Accountingfor the impairment ofLong-LivedAssets to Be Disposed Of(SFAS No.121). Applying SFAS No. I21 ta the non-regulated generation assets, it has been determined that Duquesne's generation assets are impaired. Ilowever, pursuant to the PUC's final restructuring order, Duquesne will recover its above-market investment in generation assets through l the CTC. Under Duquesne's phn to auction its generation assets (currently expected to close in late 1999 or early 2000), !
l the market value utilized by the PUC in determining the value of the generation assets will be the net after-tax proceeds
! received from the auction. Accordingly, the amount uf book value authorized t>y the PUC to be recovered has been reclassified on the consolidated balance sheet from property, plant and equipment to transition costs, until the auction has been completed and all approvals for the final CTC accounting have been granted. The ek ctricity delivery business segment continues to meet SFAS No. 71 criteria, and accordingly reflects regulatory assets and liabihties consistent with cost-based ratemaking regulations. The regulatory assets represent probable future revenue to Duquesne, because provisions for these costs are currently included, or are expected to be inm&d, in charges to electric utility customers l
through the ratemaking process. (See " Rate Alatters" on page 16.)
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Business Segrnents .
Ilistorically, Duquesne has been treated as a single integrated business sepnent due to its regulated operating ; '
emironment, The PUC authorized a combined rate for supplying at i delivering electricity to customers. This rate was based on Duquesne's cost of service, w hich was designed to recover Duquesne's operating expenses and investment in electric utility assets and to provide a return on the investment. As a result of the Customer Choice Act, generation of electricity will be deregulated and charged at a separate rate from the delivery of c!cctricity beginning in 1999 (five percent of customers chose alternative generation suppliers in 1998). For the purposes of complying with SE4S No.
131, Disdosures about Segments ofan Enterprise and Related Infor, nation (SFAS No.131), Duquesne is required to discluse information about its business sepnents separately. Accordingly, Duquesne has used the PUC-approved separate rates for 1999 to develop the financial infonnation of the business segments for the periods ended December 31,1998,1997 and 1996. (Additional information regarding Duquesne's business sepnents is set forth in "Results of Operations" on page 11 and " Business Sepnents and Related Information," Note N to the consolidated financial statements, on page 43,)
PPEE and Rdated Accinnulated Depreciation as ofDecensber 31, (Thousands ofDollars) 1998 1997 Accumulated Net Accumulated Net Investment Depreciation Investment hvo.amnt Depreciation Investment Electrie dchverv S1,531,116 5 522,531 51,008,585 51,528,128 5 517,654 S1,010,474 Eleuric production 2,797,800 2,491,162(a) 306,638 2,528,927 1,187,001 1,341,926 Electric p ml 130,431 64,544 65,887 334.565 192,439 142,126 Capitallcases 123,374 63,604 59,770 113,662 50,725 62,937 Other 6,419 - 6,419 5,456 - 5,4(6 7bral $4,589,140 $3,141,841 51,447,299 54,510,738 51,947.819 S2,562,919 (a) See "Restructunng Plan" dn,cussion on page 16.
Electric delivery PP& E includes: (1) high voltage transmission wires used in delivering electricity from the generating stations to substations;(2) substations and transformers;(3) lower voltage distribution wires used in delivering clectricity to customers: and (4) related poles and equipment. Electric production PP&E includes fossil and nuclear generating stations and,in 1998, an allocated portion of electric general PP&E. This ellocation was done in conjunction with the PUC restructuring order. Electric production accumulated depreciation in 1998 reflects the write-down of production
. plant values to the PUC-determined market value. (See " Restructuring Plan" discussion on paFe 16.) Electric general PP& E includes internal telecommunication equipment, vehicles and office equipment. Duquesne's capital leases are primarily associated with leased nuclear fuel and, to a lesser extent, other electric plant. Other PPN E is comprised mostly oflandfill gas recovery equipment.
Joint Interrsts in Generating Units Duquesne has various contracts with subsidiaries of FirstEnergy (Ohio Edison Company, Pennsylvania Power Company, The Cleveland Electric illuminating Company (CEI) and The 'Ibledo Edison Company), with respect to several jointly owned / leased generating units, which include provisions for coordinated maintenance responsibilities, limited and qualified mutual back-up in the event of outages, and certain capacitf and energy transactions.
In September 1995, Duquesne commenced arbitration against CEl, seeking damages, tennination of the operating agreement for Eastlake Unit 5 (Eastlake) and partition of the parties' interests in Eastlake through a sale and division of the proceeds. The arbitration demand alleged, amo ther things, the improper allocation by CEI of fuel and related '
costs: the mismanagement of the adnaistration o, aginaw coal contract in connection with the closing of the Saginaw mine, which historically supplied coal to Eastlakc; and the concealment by CEI of material information. CEI also seeks monetary damages from Duquesne for alleged unpaid joint costs in connection with the operation of Eastlake.
Duquesne removed the action to the United States District Court for the Northern District of Ohio, Eastern Division, where it is now pending. Pursuant to the agreement in principle regarding the power station exchange between Duquesne and FirstEnergy, the parties jointly sought and received, on October 26,1998, a court order staying all proceedings pending execution of definitive exchange agreements. The parties will now seek a further stay of proceedings pending the closing of the exchange. Gee " Power Station Exchange" discussion on page 17.)
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E Joint interests in Power Stations Nuclear Power Stations Beaver Valley Perry Unit i Unit 2 Unit i Duquesne
- 47.50 %
- 13.74% (a) 13.74 %
FirstEnergy 52.50 % 86.26 %
- 86.26 %
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Fossil Power Stations Sammis Bruce Alansfield Eastlake Unit 7 Unie 1 Unit 2 Unit 3 Unit 5 Duquesne 31.20 % 29.30 % 8.00 % 13.74 % 31.20 %
. FirstEnergy
- 68.80 %
- 70.70 %
- 92.00 %
- 86.26 %
- 68.80 %
' Denotes Operator (a) In 1987, Duquesne sold and leased back its 13.74 percent interest in BV Unit 2. Duquesne leased back its interest in the unit for a tenn of 29.5 years.
Ernployees At December 31,1998, Duquesne had 3,361 employees: 1,521 in the electricity generation business segment,1,258 in the electricity activery business segment and 582 in administration. Duquesne is party to a labor contract expiring in September 2001 with the International Brotherhood of Electrical Workers (IBEW), which represents approximately 2,000 of Duquesne's employees. The contract provides, among other things, employment security, income protection and 3 percent annual wage increases through September 2000. Duquesne and the IBEW have agreed on a package of additional benefits and protections for union employees affected by the divestiture of generation assets. Any buyer of generation assets currently owned by Duquesne will be required to offer work to current IBEW employees on a seniority basis, recognize the IBEW as the exclusive bargaining representative, establish comparable employee benefit plans. and assume the current labor contract.
In connecuon with the anticipated divestiture, Duquesne has developed early retirennt programs and enhanced separation packages available for eligible IBEW and management employees. Duquesne expects to recover related costs through the divestiture proceeds.
Electric Utility Operations Duquesne anticipates divesting itself ofits generation assets through the auction and the power station exchange by early 2000 and, depending on the regulatory approvals of the fmal agreements regarding the divestiture, expects certain ,
obligations related to the divested assets will be transferred to the future owners. i Duquesne's fossil plants operated at an availability factor of 80 percent in 1998 and 84 percent in 1997. Duquesne's nuclear plants operated at an availability factor of 52 percent in 1998 and 68 percent in 1997. The next refueling outage for BV Unit 1 is currently scheduled to begin in the spring of 2000. BV Unit 2 began a scheduled refueling outage on February 26,1999.The next refueling outage for Perry Unit 1 is scheduled to begin on Alarch 27,1999. The timing and duration of scheduled maintenance and refueling outages, as well as the duration of forced outages, affect the availability of power stations. Duquesne normally experiences its peak demand in the summer. The 1998 customer syster.. peak demand of 2,484 megawatts (A1W) occurred on August 7,1998.
Beaver Valley Power Station (BVPS)
BV Unit I went off-line on January 30,1998, due to an issue identified in a technical review completed by Duquesne.
BV Unit 2 went off-line on December 16.,1997, to repair the emergency air supply system to the control room. BV l , Unit 2 remained off-line due to other issues identified by a technical review, similar to that performed at BV Unit 1.
These technical reviews, held in r,onse to a 1997 commitment made by Duquesne to the NRC, have been completed.
! Duquesne was one of many utilities faced with similar issues, some of w hich date back to the initial start-up of IWPS.
l BV Unit I returned to service on August 15,1998, and IW Unit 2 returned to senice on September 28,1998.
I BVPS's two units are equipped with steam generators designed and built by Westinghouse Electric Corporation (Westinghouse). Similar to other Westinghouse nuclear plants, outside diameter stress corrosion cracking (ODSCC) has occurred in the steam generator tubes of both units. The units still have the capability to operate at 100 percent reactor power, although approximately 17 percent of BV Unit 1 and 3 percent of BV Unit 2 steam generator tubes have been removed from senice. Alargrial acceleration in the rate of ODSCC could lead to a loss in plant efficiency and significant repairs or replacement of BV Unit I steam generators.The totali. ,lacement cost of the UV Unit I steam generators is estimated at $125 million, $59 million of which would be Duquesne 3 responsibility. The earliest that the llV Unit 1 3
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steam generators could be replaced during a currently scheduled refueling outage is the fall of 2001. IW Unit 2, which was placed an service 11 years after IW Unit 1, has not yet exhibited the degree of ODSCC experienced at IW Unit 1.
It is too early in the life of IW Unit 2 to determine the extent to which ODSCC may become a problem at that unit.
Fossil Fuel Duquesne believes that sufficient coal for its coal-fired generating units will be available from various sources to sadsfy its requirements for the foreseeable future. During 1998, approximately 2.0 million tons of coal w cre consumed at Duquesne's two wholly owned coal-fired stations, Cheswick Power Station (Cheswick) and Elrama Power Station (Elrama).
Duquesne owns Warwick Aline, an underground mine located in southwestern Pennsylvania. At December 31,1998, Duquesne's net investment in the mine was $4.4 million. Duquesne estimates that, at December 31,1998, its ,
economically recoverable coal reserves at Warwick Aline were in excess of 1.4 million tons. Commencing in 1997, an unaffiliated operator began producing up to 360,000 tons of coal per year, for exclusive use at Elrama. This arrangement terminates in Alarch 2000. Duquesne purchases the remaining coal for use at Elrama on the open market. The current .
estimated liability for mine closing, including fmal site reclamation, mine water treatment and certain labor liabilities is
$47.6 million, and Duquesne has recorded a liability on the consolidated balance sheet of approximately $39.9 million toward these costs. The remaining S7.7 million will be charged to expense during 1999 and the first quarter of 2000.
During 1998,48 percent of Duquesne's coal supplies were provided by contracts, including Warwick Aline, with the remainder satisfied through purchases on the spot market. Duquesne had three long-tenn contracts in effect at December 31,1998, that,in combination with spot market purchases, are expected to furnish r adequate future coal supply. Duquesne does not anticipate any difficulty in replacing or renewing these contracts as they expire from 2000 through 2005. At December 31,1998, Duquesne's wholly owned generating units had on hand an average coal supply of 45 days.
Nuclear Fuct The cycle of production and utilization of nuclear fuel consists of(1) mining and milling of uranium ore and processing the ore into uranium concentrates, (2) converting uranium concentrates to uranium hexafluoride, (3) enriching the uranium hexafluoride, (4) fabricating fuel assemblies, (5) utilizing the nuclear fuel in the generating station reactor, and (6) storing and disposing of spent fuel.
An adequate supply of uranium is under contract to meet Duquesne's requirements for its jointly owned / leased nuclear units through 2000. An adequate supply of conversion senices through the year 2002 is also under contract.
Enrichment senices for Duquesne's joint interests in IW Units 1 and 2 and Perry Unit I will be supplied through fiscal year 1999 under a United States Enrichment Corporation (USEC) Utility Senices contract. Duquesne has terminated, at zero cost, all ofits enrichment senices requirements under this contract for the fiscal years 2000 through 2009 and is planning to secure required enrichment senices during this period from other suppliers. Duquesne continues to rc.iew on an annual basis its alternatives for enrichment senices for the years 2010 through 2014 under the USEC contract and may terminate these future years ifit can arrange more cost-effective enrichmeni senices. Fuel fabrication contracts are in place to supply relead require *nents thmugh 2005 and 2004 respectively, for IW Unit I and IW Unit 2, and for the life of plant for Perry Unit 1. Duquesne will continue to make arrangements for future uranium sut ,1y and related senices, as required. (See "& clear Fuel Leasing" discussion on page 15.)
Nuclear Decommissioning ,,,
Duquesne expects to decommission IW Unit 1, IW Unit 2 and Perry Unit i no earlier than the expiration of each plant's operating license in 2016,2027 and 2026, respectively. At the end ofits operating life, IW Unit 1 may be placed in safe storage until IW Unit 2 is ready to be decommissioned, at which time the units may be decommissioned together. ,
Based on site-specific studies conducted in 1997 for IW Unit I and IW Unit 2, and a 1997 update of the 1994 study for Perry Unit 1, Duquesne's approximate share of the total estimated decommissioning costs, incl-ling removal and decontamination costs, is $170 million, $55 million and $90 million, respectively.The amount currently being used to determine Duquesne's cost of senice related to decommissioning all three nuclear units is S224 million.
Funding for nuclear decommissioning costs is deposited in external, segregated trust accounts and invested in a portfolio of corporate common stock and debt securities, municipal bonds, certificates of d: posit and United States government securities. The market value of the aggregate trust fund balances at December 31,1998, totaled approximately $62.7 million.
As part of the power station exchange, FirstEnergy has agreed to assume the decommissioning liability for each of the nuclear plants in exchange for the balance in the decommissioning trust funds, plus the decommissioning costs expected to be collected through the CTC.
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Nuclear Insurance The Price-Anderson Amendments to the Atomic Energy Act of19mimit public liability from a single incident at a j nuclear plant to 59.8 billion. The maximum available private primary insurance of $200 million has been purchased by Duquesne. Additional protection of 59.6 billion would be provided by an assessment of up to $88.1 million per incident on each licensed nuclear unit in the United States. Duquesne's maximum total possible assessment,566.1 million, which is based on its ownership or leasehold interests in three nuclear generating units, would be limited to a maximum of
$7.5 million per incident per year. This assessment is subject to indexing for inflation and may be subject to state premium taxes. If assessments from the nuclear industry prove insufficient to pay claims, the United States Congress could impose other revenue-raising measures on the industry.
Duquesne's share ofinsurance coverage for property damage, decommissioning and decontamination liability is $1.2 billion. Duquesne would be responsible for its share of any damages in excess ofinsurase coverage. In addition, if the property damage reserves of Nuclear Electric Insurance Limited (NEIL), an industry mutual insurance company that provides a portion of this coverage, are inadequate to cover claims arising from an incident at any United States nuclett site covered by that insurer, Duquesne could be assessed retrospective premiums totaling a maximum of $7.3 million.
In addition, Duquesne participates in a NEIL program that provides insurance for the increased cost of generation and/or purchased power resulting from an accidental outage of a nuclear unit. Subject to the policy deductible, tenns and limit, the coverage provides for a weekly indenwity of the estimated incremental costs during the three-year period starting 17 waks after an accident, with no coverag thereafter.1JNFIUs losses for this program ever exceed its reserves, Duquesne could be assessed retrospective premiums totaling a maximum of $2.6 million.
Spent Nuclear Fuct Disposal The Nuc/ car Waste Policy Act of1932 established a feJeral policy for handling and disposing of spent nuclear fuel and a policy requiring the establishment of a final repository to accept spent nuclear fuel. Electric utility companies have entered into contracts with the United States Department of Energy (DOI ) for the permanent disposal of spent nuclear fuel and high-level radioactive waste in compliance with this legislation. The DOE has indicated that its repository l under these contracts will not be available for acceptance of spent nuclear fuel before 2010. The DOE has not yet !
established an interim or permanent storage facility, despite a ruling by the United States Court of Appeals for the i District of Columbia Circuit that the DOE was legally obligated to begin acceptance of spent nuclear fuel for disposal byJanuary 31,1998. Existing on-site spent nuclear fuel storage capacities at IW Unit 1, IW Unit 2 and Perry Unit I are expected to be sufficient until 201H,2012 and 2011, respectively.
In early 1997, Duquesne joined 35 other electric utilities and 46 states, state agencies and regulatory commissions in filing suit in the United States Court of Appeals for the District of Columbia Circuit against the DOE. The parties requested the court to suspend the utilities' payments into the Nuclear Waste Fund and to place future payments into an l escrow account until the DOE fulfills its obligation to accept spent nuclear fuel. The DOE had requested that the court delay litigation while it pursued alternative dispute resolution under the terms ofits contracts with the utilities. The court ruling, issued Movember 14,1997, and affirmed on rehearing Alay 5,1998, denied the relief requested by the utilities and states and permitted the DOE to pursue alternative dispute resolution, but prohibited the DOE from using its lack of a spent fuel repository as a defense. The United States Supreme Court declined to review the decision. The l
utilities' remaining remedy is to sue the DOE in federa court for money damages caused by the DOE's delay in fulfdling its obligations.
Uranium Enricinnent Obligations Nuclear reactor licensees in the United States are assessed annually for the dewntamination and decommissioning of
. DOE uranium enrichment facilities. Assessments are based on the amount of uranium a utility had processed for enrichment prior to enactment of the NationalEnergy 1%licy Act of1992 and are to be paid by such utilities over a 15-year period. At December 31,1998, Duquesne's liability for contributions was approximately 56.2 million (subject to an inflation adjustment), which will be recovered through the CTC as part of transition costs.
EnvironmentalMatters Various federal and staw authorities regulate Duquesne with respect to air and water quality and other environmental matters. Duquesne believes it is in current compliance with all matenal applicable environmental regtdation s. As f discussed above, Duquesne anticipates divesting itself ofits generation assets, and expects that environmental obligations related to divested assets will transfer to the new ou ners.
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As required by Title V of the Clean Air Act Amendments (Clean Air Act), Duquesne filed comprehensive air operating pennit applications for Cheswick, Elrama, BI and Phillips in 1995. Approvalis still pending for these applications.
Duquesne filed its Title IV Phase 11 Clean Air Act compliance plan with the PUC on .9ecember 27,1995. Duquesne also filed Title IV Phase 11 permb aglications for oxides of nitrogen (NO )x emissions from Cheswick, Elrama and Phillips with the Allegheny County Health Department and the Pennsylvania Department of Emironmental Protection (DEP) on December 23,1997. Approval is also pending for these applications.
Acid Rain Program Reguirements. Ahhough Duquesne believes it has satisfied all of the Phase I Acid Rain Program requirements of the Clean Air Act, the Phase II Acid Rain Program requires significant additional reductions of sulfur dioxide (SO,) through the end of 2000. Duquesne currently has 662 MW of nuclear capacity and 887 MW of coal capacity equipped with So, emission-reducing equipment. Through the year 2000, Duquesne will implement a combination of compliance methods that include fuel switching; increased use of, and improvements in, SO, emission-reducing equipment; and the purchase of emission allowances for those remaining stations where it is anticipated that emissions will exceed allocated SO, allowances.
Duquesne has developed, patented and installed low NOx burner technology for the Elrama boilers. These cost-effective NOx reduction syrtems instal!ed on the Elrama roof-fired boilers were specified as the benchmark for the industry for this class of boilers in the Emironmental Protection Agency's (EPA) final Group 11 rulemaking. In 1998, Duquesne installed low-cost burner modifications to existing low NOx burner technology and a new flue gas conditioning system to maximize the effects of combustion-related controls at Cheswick.
Ozone Reduaion Rcquirements. In addition to the Phase II Acid Rain Program requirements, Duquesne is responsible for NOx reduction requirements to meet the current Ozone Ambient Air Quality Standards under Title 1 of the Clean Air Act. Compliance with the current ozone standard is based on pre-1997 ozone data, asing a one-hour verage value approach. During the 1998 summer ozone season, the western Pcnnsylvania " area" achieved compliance with the one-hour ozone standard. Duquesne believes it will continue its current low NOx emission levels under the maintenance plan being established by the DEP. Duquesne further believes it will be able to meet any additional NOx reduction levels specified under the maintenance plan, through reductions required in 1999 under the Ozone Transport Commission control program described below.
In September 1998, the EPA issued additional ozone-related NOx reduction requirements under the Clean Air Act, which will affect Duquesne's power plants and will supersede reduction levels specified for 2003 by the Ozone Transport Commission control proFram. The EPA requires states in the northeast and midwest to amend their implementation plans to impose NOx allowance caps on emissions during the May to September control period. Because the DEP has only recently proposed implementation regulations, the costs of compliance cannot be determined by Duquesne at this time. Ilowever, Duquesne anticipates that compliance would require additional capital and operation costs beyond those already estimated through 2000.
Futurr Air Qualin Requirements. Duquesne is closely monitoring other future air quality programs and air emission control requirements that could result from more stringent ambient air quality and emission standards for SO. and NOx particulates and other by-products of coal combustion. In 1997, the DEP finalized a regulation to implement additional NO, control requirements that were recommended by the Ozone Transport Commission. The estimated costs to comply with this program have been included in Duquesne's capital cost estimates through the year 2000. Duquesne
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currently estimates that additional capital costs to comply with the Clean Air Act requirements through the year 2000 will be approximately $5 million. These capital costs may be reduced by short term optimization of NOx reduction systems and the purchase of NOx emission allowances.
InJuly 1997, the EPA announced new national ambient air quality standards for ozone and fine particulate matter.
To allow each state time to determine which areas may not meet the standards, and to adopt control strategies to achieve compliance, the ozone standards will not be implemented until 2004, and the fine particulate matter standards will not be implemented until 2007 or later. Because appropriate state ambient air monitoring and implementation plans have not been developed, the costs of cempliance with these new standards cannot be determined by Duquesne at this time.
In December 1997, more than 160 nations reached a preliminary agreement (Kyoto Protocol), under which, among other things, the United States would be required to reduce its Freenhouse gas emissions during the years 2008 through 2012. The Kyoto Protocol has been signed by the Clinton administration. Ilowever, until the Kyoto Protocol has been ratified by the Senate and the related greenhouse gas reduction programs have been developed, the costs of compliance cannot be determined by Duquesne at this time.
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Other. In 1992, the DEP issued Residualiliiste Management Regulations governing the generation and rr.anagement of non-hazardous residual waste, such as coal ash. Duquesne is assessing the site.; it utilizes and has developed compliance strategies that are currently under review by the DEP. Capital costs of $3.8 million were incurred by Duquesne in 1998 i to comply with these DEP regulations, llased on information currently available, approximately 54.5 million will be spent in 1999. The additional capital cost of compliance is estimated, based on current infonnation, to be approximately
$4.8 million per year for the next three years. This estimate is subject to the results of groundwater assessments and DEP final approval of compliance plans.
Under the Emergency Planning and Community Right-to-lame Act of1986, certain manufacturing and industrial companies are required to file annual toxic release inventory repons. The first submission by coal- and oil-fired electric utility l
" l generating stations is dueJuly 1,1999, to report on emissions and discharges for 1998. 'Ioxic release inventmy reporting does not involve emission reductions. Duquesne does not anticipate any material impact resulting from this requirement. l Duquesne is involved in various other environmental matters. Duquesne believes that such matters, in total, will not '
have a materially adverse effect on its financial position, results of operations or cash flows.
Other Customer Adranced Reliability System The Customer Advanced Reliability System (CARS)is a communications service that provides Duquesne with an electronic link to its customers, including the ability to read customer meters. During 1998, Duquesne's service contract l with Itron, Inc. was expanded to include additional advanced commercial and industrial customer metering capabilities l and associated software. Installation of this advanced metering subsystem commenced in 1998 and will continue during l 1999. As of December 31,1098, the base CARS system had essentially been completed, with nearly all residential meters adapted for CARS, and approximately 470.000 meters being read daily.
Retirrment Plan Measurement Assumptions l Duquesne decreased the discount rate used to determine the projected benefit obligation on Duquesne's retirement i
plans at December 31,1998, to 6.5 percent. The assumed change in compensation levels and the assumed rate of return on plan assets were also decreased to reflect current market and economic conditions. The effects of these changes on Duquesne's retirement plan obligations are reflected in the amounts shown in " Employee Benefits," Note M to the consolidated financial statements, on page 41. The resulting change in related expenses for subsequent years is not expected to be material.
Recent Accounting Pronouncement inJune 1998, the Financial Accounting Standar)s lloard issued SE4S No.133, Aucuntingfor Derivatire Instruments and Hedging Actirities (SFAS No.133). This statement establishes accounting and reporting standards 6r derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. The adoption of SFAS No.133 is not expected to have a significant impact on Duquesne's financial statements and disclosures.
Eraptpr historicalinprmation contained herein, the matten discussed in this Annual Repon on Fonn 10-K are
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finrard-looking statements : hid involve risks and unanainties induding, but not limited to, economic, competitire, gorenimental and tahnologicalfhcrors affecting Duquesne'r operations, warLets, products, servias andprices and ctherJhcrors ductosed in Duquesne's filingr :ith the Secmirics and Evchange Commission.
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i Executive Officers ofthe Registrant 1
l Set forth below are the names, ages as of Alarch 10,1999, positions and brief accounts of the business experience during the past five years of the executive officers of Duquesne.
1 Name Age Office i David D. Alarshall 46 President and Chief Executive Officer since August 1996.
President and Chief Operating Officer from February ,
1995 to August 1996. Executive Vice President from February 1992 to February 1995.
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James E. Cross 52 President, Generation Group since September 1996.
Senior Vice President - Nuclear from February 1995 to September 1996. Vice President - Nuclear from September 1994 to February 1995. Formerly Vice President, Thermal Operations, and Chief Nuclear Officer of Portland General Electric from Alay 1993 to Septernber 1994.
Victor A. Roque 52 Senior Vice President since November 1998 and General I Counsel since November 1994. Vice President from April 1995 to November 1998. Previously Vice President, General Counsel and Secretary for Orange and Rocidand Utilities from April 1989 to November 1994.
Gary L Schwass 53 Senior Vice President since February 1995 and Chief Financial Officer since July 1989. Vice President -
Finance and Principal Financial Officer from Alay 1988 to February 1995.
Gary R. lirandenberger 61 Vice President and Assistant to the President sinceJanuary 1999. Vice President - Customer Operations from Alay 1997 to December 1998.Vice President - Power Supply from August 1986 to Alay 1997.
William J. DeLeo 48 Vice President - Corporate Services since November 1998.
Vice President - Alarketing and Corporate Performance from April 1995 to November 1998. Vice President - 1 Corporate Performance and Information Services d
fromJanuary 1991 to April 1995. ,
Edward N. Neal 52 Vice President - Customer Operations sinceJanuary 1999 Assistant General Alanager - System Reliability from September 1996 tojanuary 1999. Assista-2 General Af anager - Customer Operations from Alay 1995 to September 1996. Alanager - Construction, Alaintenance and Engineering from A1ay 1994 to Alay 1995. Atanager -
Substations Department from Alarch 1990 to Alay 1994.
Alorgan K. O'Brien 38 Vice President - Finance since Novernber 1998. Vice President from October 1997 to November 1998 and Controller and Principal Accounting Officer from October 1995 to November 1998. Assistant Controller from December 1993 to October 1995.
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It m 2. PropertlOc.
Duquesne's properties consist of electric generating stations, transmission and distribution facilities, and supplemental properties and appurtenances, comprising as a w hole an integrated electric utility system, located substantially in Allegheny and Beaver counties in southwestern Pennsylvania. Substantially all of Duquesne's clectric utility properties are subject to a first mortgage lien.
Duquesne owns all or a portion of the following generating units except Beaver Valley Unit 2, which is leased. These units are used in the electricity generation business segment. Duquesne anticipates divesting itself of these units through the auction and the power station exchange by early 2000. (See " Restructuring Plan" discussion on page 16.)
. Duquesne's Share of Plant Output Capacity Year Ended
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(Alegawatts) December 31,1998 Name and Location Type Summer Winter (Alegawatt-hours)
Cheswick Coal 562 570 2,294,365 Springdale, Pa.
Elrama Coal 474 487 2,326,506 Elrama, Pa.
Sammis Unit 7 (1) Coal 187 187 1,363,910 Stratton, Ohio Eastlake Unit 5 (1) coa'. 186 186 989,035 Eastlake, Ohio Beaver Valley Unit 1 (1) Nuclear 385 385 1,328,159 Shippingport, Pa.
Beaver Valley Unit 2 (1) Nuclear 113 113 244,879 Shii ., Mgport, Pa.
Perry Unn 1 (1) Nuclear 161 164 1,400,345 North Perry, Ohio Bruce Alans 6cid Unit I (1) Coal 228 228 1,344,605 Shippingport, Pa.
Bruce Alansfield Unit 2 (1) Coal 62 62 287,293 l Shippingport, Pa.
l Bruce Alans 6cid Unit 3 (1) Coal 110 110 604,720 Shippingport, Pa.
Brunot Island Oil 166 178 5,740 Brunot Island, Pa.
'lbtal 2.634 2,670 12,189,557 1
(1) Amounts represent Duquesne's share of the unit which is owned by Duquesne in conunon with one or more i other electric utilities (or, in the cuse of Beaver Valley Unit 2, leased by Duquesne). !
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Duquesne owns 24 transmission substations (including interests in common in the step-up transfonners at Sammis Unit 7; Eastlake Unit 5; llruce Atansfield Unit 1; Beaver Valley Unit 1; Beaver Valley Unit 2; Perry Unit 1; Bruce s Alans 6 eld Unit 2; and Bruce Alans 6 eld Unit 3) and 562 distribution substations. Duquesne has 714 circuit-miles of j
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transmission lines, comprising 345,000,138,000 and 69,000 volt lines. Street lighting and distribution circuits of 23,000 l volts and less include approximately 50,000 miles oflines and cable. These facilities are used in the electricity dehvery i business segment. I Duquesne owns the Warwick Aline, including 4,849 acres owned in fee of unmined coal lands and mining rights, I located on the Alonongahela liiver in Greene County, Pennsylvania. (See " Fossil Fuel" discussion on page 4.)This property is used in the electricity generation business segment.
Additional information relating to properties is set forth in Note C, " Property, Plant and Equipment," of the consolidated 6nancial statements on page 28. The infonnation is incorporated here by reference. I
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Itern C. Lecal Proccedirca.
Eastlake Unit 5 In September 1995, Duquesne commenced arbitration against CEl, seeking damages, tennination of the operating agreement for Eastlake and partition of the parties' interests in Eastlake through a sale and division of the proceeds.'. ne arbitration demand alleged, among other things, the improper allocation by CEI of fuel and related costs; the mismanagement of the administration of the Saginaw coal contract in connection with the closing of the Saginaw mine, w hich historically supplied coal to Eastlake; and the concealment by CEI of material information. CEI also seeks monetary damages from Duquesne for alleged unpaid joint costs in connection with the operation of Eastlake.
Duquesne removed the action to the United States District Court for the Northern District of Ohio, Eastern Division,
- w here it is now pending. Pursuant to the agreement in principle regarding the power station exchange between Duquesne and FirstEnergy, the parties jointly sought and received, on October 26,1998, a court order staying all proceedings pendmg execution of definitive exchange igreements. The parties will new seek a further stay of .
proceedings pending the closing of the exchange. (See " Power Statit . Exchange" discussion on page 17.)
Thrmination ofthe ME Merger On October 5,1998, DQE announced its unilateral termination of the merger agreement with AYE. More information regarding this termination is set forth in Duquesne's Current Report on Form 8-K dated October 5,1998.
AYE promptly filed suit in the United States District Court for the Western District of Pennsylvania, seeking to compel DQE to proceed with the merger and seeking a temporary restraining order and preliminary injunction to prevent DQE from certain actions pending a trial, or in the alternative seeking an unspecified amount of money damages. On October 28,1998, the judge denied AYE's motion for the temporary restraining order and preliminary injunction. AYE appealed to the United States Court of Appeals for the Third Circuit, asking for an injunction pending the appeal and expedited
- treatment of the appeal. On November 6,199W, the Third Circuit denied the motion for an injunction and granted the motion to expedite the appeal.
On March 11,1999, the Third Circuit vacated the October 28 denial of a preliminary injunction. The Third Circuit remanded the case to the District Court for further proceedings to address certain issues, including whether AYE could l demostrate a reasonable hkelihcx>d of success on the merits, before determining whether any injunctive reliefis l
warranted. On March 12,1999, AYE filed a motion for a temporary restraining order with the district court, and a hearing was beki that same day. On March 16,1999, AYE and DQE entered into a consent agreement, which was approved by the district court on March 18. Pursuant to the consent agreement, AYE and DQE have agreed, among other things, that pending the consolidated hearing on AYE's application for a preliminary injunction and/or an
. expedited trial on the merits, both parties will give each other 10 business days' notice before taking or omitting to take any action which would prevent the merger from qualifying for " pooling ofinterests" accounting treatment. This would not prevent either party from entering into any agreement, but would require the 10 business days' notice prior to closing any transaction which prevents pooling. The consent agreement shall terminate on September 16,1999, unless earlier terminated or extended by mutual agreement or an order of the district court.
DQE continues to believe that AYE's claim is entirely without merit in light of the $1 billion disallowance ofits stranded costs, which constituted a material adverse effect under the merger agreement and entitled DQE to terminate it as of October 5,1998. DQE will continue to defend itself vigorously against AYE's claims and intends to pursue a prompt resolution of the litigation. On March 25,1999, DQE petitioned the Third Circuit for rehearing.The ultimate outcome of this suit cannot be determined at this time.
Proceedings involving Duquesne's rates are reported in item 7 under " Rate Matters."
Itern 4. Submission of Matters to a Vote Of Security Holders.
M,c applicable.
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Part ll Item 5. Market for Registrant's Common Equity and Related Shareholder Matters. l Duquesne's common stock is not publicly traded. Effective July 7,1989, Duquesne became a wholly owned subsidiary of DQE, the holding company fonned as part of a shareholder-approved restructuring. As a result of the restructuring, 1 Duquesne*s shareholders received DQE common stock in exchange for their shares of Duquesne common stock, which j were cancelled. DQE owns all of Duquesne's outstanding common stock, which consists of 10 shares. As such, this item
. is not applicable to Duquesne because all its common equity is held solely by DQE. During IW8 and 1997, Duquesne declared quarterly dividends on its common stock totaling $207 million and $129 million, respectively.
Item 6. Selected Financial Data.
Selected financial data for Duquesne for each of the six years in the period ended December 31,1998, are set forth on l page 46.The financial data is incorporated here by reference. l Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations !
Overall Performance 1998 Compared to 1997 On Alay 29,1998, the PUC issued its final order related to Duquesne's restructuring plan. In the second quarter of 1998 Duquesne recorded an extraordinary charge (Pennsylvania restructuring charge) against earnings for $142.3 i million ($82.5 million net of tax) for the ,,eneration-related stranded costs not considered by the PUC's restructuring I l order to be recoverable from customers. The Pennsylvania restructuring charge included Phillips Power Station (Phillips), Ilrunot Island Power Station (111), deferred caretaker costs related to the two stations and deferred coal costs. )
(3ee " Rate Ataners" on page 16.) l Duquesne's earnings available for common stock were $144.5 million in 1998, excluding the Pennsylvania i l restructuring charge, compared to $137.8 million in 1997, resulting in an increase of $6.7 million or 4.9 percent. The l
increase in carnings available for common stock is due in part to reduced depreciation in accordance with the PUC's !
l restructuring order as well as a decrease in financing costs. Partially offsetting these increases in earnings were higher energy costs from purchasing additional power at higher prices due to increased nuclear station outages during the year.
1997 Compared to 1996
! Duquesne's earnings for common stock were $137.8 million in 1997 compared to $145.8 million in 1996, a decrease j of $8.0 million or 5.5 percent. The decrease is the result ofincreased depreciation and amortization related to 1
. Duquesne's mitigation of fixed generation costs as well as a full year's dividend requirement on the Alonthly Income l Preferred Secunties (A11PS) issued in Alay 1996. Partially offsetting these decreases in earnings were increased long- l term ' investment income, reduced interest costs and reduced income tax expense.
- Results ofBusiness Segments lleginning in 1999, Duquesne will have two principal business segments: (1) the transmission and distribution of electricity (electricity delivery business segment) and (2) the genc+ation of electricity and collection of the CTC (electricity generation business segment). To comply with SFAS No.131, Duquesne has reported the results for 1998, ;
1997 and 1996 by these business segments and an "all other" category. The all other category includes Duquesne investments in leasing and gas reserve transactions. Upon the anticipated completion of the auction of Duquesne's generation assets and provider oflast resort services, the electricity generation business segment will be comprised solely of the collection of the CTC.
1998 Compared to 1997 Elcetricity Delircry Business Segment. The electricity delivery business segment contributed $57.2 million to net income in 1998 compared to $61.9 million in 1997, a decrease of $4.7 million or 7.7 percent. Operating revenues for this business segment are primarily derived from Duquesne's delivery of electricity.
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Sales to residential and commercial customers are influenced by weather conditions. Wanner summer and colder winter seasons lead to increased customer use of electricity for cooling and heating. Commercial sales are also affected by regional development. Sales to industrial customers are influenced by national and global economic conditions.
Operating revenues increased by S4.5 million or 1.4 percent compared to 1997 due to an increase in sales to electric utility customers of 1.0 percent in 1998. Residential and commercial sales increased as a result of warmer summer temperatures during 1998 compared to 1997. Industrial sales decreased primarily due to a reduction in electricity consumption by steel manufacturers, which experienced a decline in demand. The following table sets fonh kilowatt-hours (KWII) delivered to electric utility customers.
KWH Delivered _
c n Thousands) 1998 1997 CF ange Residential 3.382,323 3,273,532 i.3 %
Commercial 5,896,036 5,785,745 1.9 %
Industrial 3,411,648 1 (01,107 (2.6)%
Sales to Electric Utility Customers 12,690,007 :>U,3 84 1.0 %
1 Operating expenses for the electricity delivery business segment are primarily m 'e up of costs to operate and maintain the transmission and distribution system; meter reading and billing costs; ustomer service; collection; administrative expenses; and income taxes. Operating expenses increased 55.9 million or 3.3 percent from 1997, primarily as a result of higher costs of maintenance of the transmission and distribution system, and stan-up costs related to the Customer Advanced Reliability System, including electronic meter reading and installation. The increase in the system maintenance was primarily due to the increase in frequency and severity of storms during 1998.
Depreciation and amortization expense increased $2.2 million or 4.8 percent in 1998 due to additions to the plant and equipment balance throughout the year panially offset by retirements.
Other income is primarily comprised ofinterest and dividend income. A decrease of $2.2 million or 39.0 percent was the result oflower interest income from a smaller amount of cash available for investing compared to the prior year.
Interest and other charges include interest on long-term debt, other interest and preferred stock dividends of Duquesne. In 1998, there was S0.9 million or 2.3 percent less in interest and other charges compared to 1997. The decrease was the result of the refinancing oflong-term debt at lower interest rates and the maturity of approximately 575 million oflong-tenn debt during 1998.
Electncity Generation Business Segment. In 1998, the electricity generation business segment reported net income of 571.9 million, excluding the Pennsylvania restructuring charge, compared to 560.5 million in 1997, an increase of
$11.4 million or 18.8 percent.
For the electricity generation business segment, operating revenues are primarily derived from Duquesne's supply of electricity for delivery to retail customers and the supply of electricity to wholesale customers. Beginning in 1999, revenues will include the recovery of transition costs through the collection of the CTC. Under prior fuel cost recovery provisions, fuel revenues generally equaled fuel expense, as costs were recoverable from customers through the Energy l' Cost Rate Adjustment Clause (ECR), including the fuel component of purchased power, and did not affect net income.
Beginning May 29,1998 (the date of the PUC's final restructuring order), fuel costs were expensed as incurred, and had an impact on net income to the extent fuel costs exceeded amounts included in Duquesne's authori7ed generation rates.
(See " Rate Matters" on page 16.)
Energy requirements for residential and commercial customers are influenced by weather conditions. Wanner summer and colder winter seasons lead to increased customer use of electricity for cooling and heating. Commercial .
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energy requirements are also affected by regional development. Energy requirements for industrial customers are influenced by national and global economic conditions.
Short-term sales to other utilities are made at market rates. Fluctuations in electricity sales to other utilities are related to Duquesne's customer energy requirements, the energy market and transmission conditions and the availability of Duquesne's generating stations. Future levels of short-term sales to other utilities will be affected by market rates, the level of participation in customer choice, Duquesne's decision to sell 600 MW to licensed generation suppliers and Duquesne's divestiture ofits generation assets. (See " Rate Matters" on page 16.)
I Operating revenues decreased by $3.7 million or 0.4 percent compared to 1997. The decrease in revenues can be attributed to a decrease in energy supplied to electric utility customers due to participation in the customer choice pilot program, and a decrease in energy costs that were recovered through the ECR. Partially offsetting these decreases were increased energy supplied to other utilities of 32.2 percent in 1998, due to higher demand from other utilities and increased capacity available to sell as a result of participation in the customer choice pilot program. The following table sets fonh KWII supplied for customers who have not chosen an alternative generation supplier.
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KWil Supplied (in Thousands) 1998 1997 Change Residential 3,190,451 3,267,941 (2.4)%
Commercial 5,579,888 5,777,750 (3.4)%
Industrial 3,357,371 3,499,699 (4.1)%
Sales to Flectric Utility Customers 12,127,710 12,545,390 (3.3)%
. Sales to O'.er Utilities 1,909,342 1,444,822 32.2 %
Total Sales 14,037,052 13,990,212 0.3 %
Operating expenses for the electricity generation business segment are primarily made up of energy costs; costs to operate and maintain the power stations; administrative expenses; and income taxes.
Fluctuations in energy costs generally result from changes in the cost of fuel, the mix between coal and nuclear generation, total KWII supplied, and generating station availability. Because of the ECR, changes in fuel and purchased power costs did not impact earnings for the first five months of 1998 or any of 1997 or 1996. Beginning Alay 29,1998, ,
fuel costs for customers were expensed as incurred, and had an impact on net income to the extent fuel costs exceeded I amounts included in Duquesne's authorized generation rates. (See " Rate Alatters" on page 16.)
Operating expenses increased S24.7 million or 4.4 percent from 1997 as a result ofincreased energy costs, partially offset by decreased maintenance costs and reduced BV Unit 2 lease costs due to the PUC's final restructuring order.
In 1998, fuel and purchased power expense increased by $39.1 million or 17.5 percent compared to 1997.This increase was the result ofincreased energy costs due to an unfavorable power supply mix and higher purchased [mwer prices. Reduced i availability of nuclear generating stations due to an increase in outage hours required Duquesne to purchase power and generate power from the higher fuel cost fossil stations. (See " Beaver Valley Power Station" discussion on page 3.)
Alaintenance expense decreased in 1998, primarily related to the reversal of fossil station maintenance outage accruals for outages scheduled after Duquesne's planned divestiture of generation. (See " Rate Atatters" on page 16.) A reduction in nuclear station outage cost amortization in 1998 also contributed to the decrease in maintenance expense.
Depreciation and amortization expense includes the depreciation of the power stations' plant and equipment and accrued nuclear decommissioning costs. A decrease of $32.8 million or 17.2 percent compared to 1997 was the result of reduced depreciation of generation assets in accordance with the PUC's final restructuring order. Beginning in 1999, Duquesne will be recovering its 52,133 million ($1,485 million, net of tax) of transition costs, as may be adjusted to account for the proceeds of the generation asset auction, through the CTC and will reflect amortization expense related to this recovery.
Interest and other charges include interest on long-term debt, other interest and preferred stock dividends of Duquesne. In 1998 there was a $5.2 million or 8.1 percent rede: tion in interest and other charges compared to 1997.
The decrease reflected the refinancing oflong-term debt at lower interest rates and the maturity of approximately
$75 million oflong-term debt during 1998.
AllOrber.The all other category is comprised of earnings from leasing and gas reserves investments.The all other category contributed $15.5 million to net income in 1998 compared to $15.4 million in 1997, an increase of $0.1 million or 0.9 percent. The increase can be attributed to an increase in other income due to an investment made in the fourth quarter of 1997.
. 1997 Compared to 1996 Electricity Delivery I1uriness Segment. The A tricity delivery business .egment contributed $61.9 million to net income in 1997 compared to S56.6 million in 199 2n increase of 55.3 millior, or 9.4 percent.
Operating revenues increased by 58.1 million or 2.6 percent compared to 1996, due to an increase in sales to electric utility customers of 1.1 percent in 1997 and a settlement for pole rental revenue in 1997. Sales to electric utility customers increased despite 1997's mud temperatures compared to 1996 primarily as a result of stronger industrial sales.
The following table sets forth KW11 delivered for electric utility customers.
KWH Delivered (In Thousands) 1997 1996 Change Residential 3,273,532 3,320,870 (1.4)%
Commercial 5,785,745 5,820,585 (0.6)%
Industrial 3,501,107 3,284,986 6.6 %
Sales to Electric Utility Custamen i2,560,384 12,426,441 1.1 %
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Operating expenses increased $4.7 million or 2.7 percent from 1996, as a result ofincreases in operating and maintenance costs of the transmission and distribution system.
Other income increased $3.2 million or 133.9 percent as the result of higher interest income from a larger amount of cash available for investing compared to 1996.
In 1997, there was a $1.4 million or 3.8 percent increase in interest and other charges compared to 1996. This increase was the result of paying a full year of dividend < in 1997 related to the A11PS issued in Alay 1996.
Electricity Generation Businers Segment. In 1997, the electricity generation business segment reported net income of
$60.5 million compared to $77.6 million in 1996, a decrease of $17.0 million or 22.0 percent.
Operating revenues decreased by $19.6 million or 2.2 percent compared to 1996, due to a decrease in energy supplied to other utilities of 56.4 percent in 1997.This decrease was due to reduced availability resulting from the sale of the .
Ft. A1artin Power Station in the fourth quarter of 1996 and increased forced outages. Partially offsetting the decrease in energy supplied to other utilities was a $3.2 million increase related to charges to the other IWPS owners for administrative costs. The following table sets forth KWil supplied for customers who have not chosen an alternative
- generation supplier.
KWII Supplied (In Thousands) 1997 1996 Change Residential 3,267,941 3,320,870 (1.6)%
Commercial 5,777,750 5,820,585 (0.7)%
Industrial 3,499,699 3,284,986 6.5 %
Sales to Electric Utility Customen 12,545,390 12,426,441 1.0 %
Sales to Other Utilities 1,444,822 3,310,206 (56.4)%
7btalSales 13,990,212 15,736,647 (11.1)%
Operating expenses decreased $20.7 million or 3.6 percent from 1996, as a result of decreased energy volume supplied, partially offset by increased maintenance costs.
In 1997, fuel and purchased power expense decreased by $13.5 million or 5.7 percent compared to 1996, as a result of an 11.1 percent reduction in energy volume supplied. This $26.7 million decrease due to energy volume supplied was partially offset by increased energy costs of $13.2 raillion, primarily the result of purchased power prices. Reduced availability of generating stations due to an increase in outage hours forced Duquesne to purchase power during high demand periods, resulting in increased costs.
Alaintenance expense increased in 1997 comp tred to 1996. The increase was due to more forced outage hours at nuclear stations than during 1996.
An increase in depreciation and amortization expense of $19.1 million or 11.1 percent over 1996 was due to the Aley 1,1996, increase in Duquesne's nuclear generation plant depreciation rate, resulting in higher depreciation for the first four months of 1997. In addition, accelerated nuclear lease recovery, which began on Alay 1,1997, resulted in higher annualized amortization expense of $25 million. Offsetting these increases by $8.5 million was the mid-1996 completion of the recovery of the investment in Perry Unit 2, the construction of which was abandoned by Duquesne in 1986. The remaining increase can be attributed to incremental depreciation for 1997 fixed asset additions and an increased level of nuclear decommissioning cost recogmtion. l Other income increased $1.4 million or 14.1 percent and was the result of higher interest income, due to a larger amount of cash available for investing compared to the prior year. -
In 1997 there was a 50.4 million or 0.7 percent increase in interest and other charges compared to 1996. The increase l was the result of paying a full year of dividends in 1997 related to the A11PS issued in Alay 1996.
All Orber. The all other category contributed $15.4 million to net income in 1997 compared to SI1.6 million in 1996, an increase of $3.7 million or 32.0 percent. The increase can be attributed to an increase in other income due t , an investment made in the fourth quarter of 1997.
Liquidity and CapitalResources CapitalExpenditures Duquesne spent approximately 5118.4 million in 1998, $93.7 million in 1997 and $88.5 million in 1996 for capital expenditures, of which 5113.3 million in 1998, S90.4 million in 1997 and $87.9 million in 1996 was spent for electric utility construction. The remaining capital expenditures were related to Duquesne investments. Duquesne's capital 14
i-l l expenditures for electric utility construction focus on improving and/or expanding electric utility generation, transmission and distribution systems. Duquesne currently estimates that it will spend, excluding allowance for funds used during j construction (AFC) and nuclear fuel, approximately SI10 million during 1999 (including S30 million for generation),
$75 million in 2000 (excluding generation) and $70 million in 2001 (excluding generation) for electric utility construction.
Long-Tenn investments Duquesne's investing activities during 1998,1997 and 1996 induded approximately $26 million, $15 million and $10 million, respectively, in the decommissioning trust funds, gas reserves and affordable housing investments.
Financing l
Duquesne currently expects to meet its current obligations and debt maturities through the year 2003 with funds generated from operations, through new financings and through the proceeds from the auction of generation assets.
During 1998, $75 million of mortgage bonds matured and were retired and $100 million of 8.75 percent mortgage bonds due in Alay 2022 were redeemed. The retirement and redemption were financed using available cash, the proceeds of the $40 million of 6.45 percent mortgage bonds due in February 2008 and the proceeds of the $100 million of 7.375 percent mortgage bonds due in April 2038 issued by Duquesne. Alortgage bonds in the amount of $75 million j will mature inJuly 1999. Duquesne expects to retire these bonds with available cash, or to refinance the bonds.
In connection with the power station exchange with FirstEnergy, Duquesne anticipates terminating the IW Unit 2 lease, in which case the lease liability recorded on the conmlidated balance sheet would no longer be an obligation of Duquesne. The underlying collateralized lease bonds ($371.0 million at December 31,1998) would become direct ,
obligations of Duquesne and be recorded on the consolidated balance sheet. Duquesne would also pay approximately l 5230 million in termination costs, a portion of which Duquesne expects to recover through the proceeds of the generation asset auction. (See " Power Station Exchange" discussion on page 17.)
A Duquesne subsidiary has 15 shares of preferred stock, par value $100,000 per share outstanding. The holders of l such shares are entitled to a 6.5 percent annual dividend to be paid each September 30.
In Alay 1996, Duquesne Capital LP. (Duquesne Capital), a special-purpose limited partnership of which Duquesne is the sole general partner, issued S150.0 million principal amount of 8X percent AllPS with a stated liquidation value of ;
$25.00. The holders of A11PS are entitled to annual dividends of 8X percent, payable monthly. Such dividends are guaranteed by Duquesne.
Sinn-Tenn Bonmeings At December 31,1998, Duquesne had a $150 million extendible revolving credit arrangement, expiring in October 1999. Interest rates can, in accordance with the option selected at the time of the borrowing, he based on prime, Eurcdollar or certificate of deposit rates. Commitment fees are based on the unborrowed amount of the commitments.
The credit facility contains a two-year repayment period for any amounts outstanding at the expiration of the revolving credit period. At December 31,1998 and December 31,1997, there were no short-term borrowings outstanding.
Sale ofAccounts Receivable Duquesne and an unaffiliated corporation have an agreement that entitles Duquesne to sell, and the corporation to purchase, on an ongoing basis, up to $50 milhon of accounts receivable. Duquesne had no receivables sold at December 31,1998 or December 31,1997.The accounts receivable sales agreement, which expires in June 1999, is one of many sources of funds available to Duquesne. Duquesne may attempt to extend the agreement, replace it with a similar facility, or eliminate it upon expiration.
- l. Nuclear Fuel Leasing Duquesne finances its acquisitions of nuclear fuel through a leasing arrangement, under which it may finance up to
$75 million of nuclear fuel. As of December 31,1998, the amount of nuclear fuel financed by Duquesne under this l*
arrangement totaled approximately $41.8 million. The actual nuclear fuel costs to be financed will be influenced by such factors as changes in interest rates; lengths of the respective fuel cycles; idoad cycle design; operations; the power station exchange; and changes in nuclear material costs and services, the prices and availability of which are not known at this time. Such costs may also be influenced by other events not presently foreseen. Duquesne plans to continue leasing nuclear fuel to fulfill its requirements at least through September 1999, the remaining term of the leasing arrangement..
Duquesne may attempt to extend the arrangement, replace it with a similar facility, or eliminate it upon expiration through the purchase of the balance of the nuclear fuel. Duquesne anticipates divesting its nuclear stations. (See " Power Station Exchange" discussion on page 17.)
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Rate Matters Competition and the Customer Choice Act The electric utility industry continues to undergo fundamental change in response to development of open transmission access and increased availability of energy alternatives. Under historical ratemaking practice, regulated electric utilities were granted exclusive geographic franchises to sell electricity, in exchange for making investments and incurring obligations to serve customers under the then-existing regulatory framework. Through the ratemaking process, those prudently incurred costs were recovered from customers, along with a return on the invesunent.
{
Additionally, certain operating costs were approved for deferral for future recovery from customers (regulatory assets). 1 As a result of this historical ratemaking process, utilities had assets recorded on their balance sheets at above-market costs, thus creating transition and stranded costs. .
In Pennsylvania, the Customer Choice Act went into effect on January 1,1997. The Customer Choice Act enables Pennsylvania's electric utility customers to purchase electricity at market prices from a variety of electric generation ,
suppliers (cnomer choice)..Although the Customer Choice Act will give customers their choice of electric generation ,
supplien, the existing, franchised local distribution utility is still responsible for delivering electricity from the generation supplier to the customer. The local distribution utility is also requiced to serve as the prmider oflast resort for all customers in its service territory, unless other arrangements are approved by the PUC. The provider oflast resort must provide electricity for any customer who cannot or does not choose an alternative electric generation supplier, or whose supplier fails to deliver. The Customer Choice Act provides that the existing franchised utility may recover, through a CTC, an amount of transition costs that are determined by the PUC to be just and reasonable. Pennsylvania's electric utility restructuring is being accomplished through a two-stage process consisting of an initial customer choice pilot period (which ended in December 1998) and a phase-in to competition period (which beFan inJanuary 1999).
Duquesne's estimated negative net income impact of the customer choice pilot program during 1998, with five percent of customers participating, was approximately 56 million.
Phase-In to Competition The phase-in to competition began inJanuary 1999, when 66 percent of customers became eligible to participate in customer choice (including customers covered by the pilot program); all customers will have customer choice in January 2000. As of February 28,1999, approximately 12.5 percent of Duquesne's customers had chosen alternative generation suppliers. Customers that have chosen an electricity generation supplier other than Duquesne pay that supplier for generation charges, and pay Duquesne a CTC (discussed below) and charges for transmission and distribution.
Customers that continue to buy their generation from Duquesne pay for their service at current regulated tariff rates divided into generation, transmission and distribution charges. Under the Customer Choice Act, an electric distribution company, such as Duquesne, remains a regulated utility and may only offer PUC-approved rates, including generation rates. Also under the Customer Choice Act, electricity delivery (including transmission, distribution and customer senice) remains regulated in substantially the same manner as under current regulation.
In an effort to " jump start" retail competition, Duquesne has made 600 A1W ofpower available to licensed electric generation suppliers, to be used in supplying electricity to Duquesne's customers who have chosen alternative generation suppliers. The power will be available for the first six months of 1999 at a price of 2.6 cents per KWI1. This power availability will be structured to ensure the power is used to benefit Duquesne's retail customers.
Rate Cap An overall four-and-one-half-year rate cap fromJanuary 1,1997, has been imposed on the transmission and di tnbution charges of Pennsylvania electric utility companies under the Customer Choice Act. Additionally, electric ,
utility companies may not increase the generation price component of rates as long as transition costs are being recovered, with certain exceptions.
Restructuring Plan .
In its Alay 29,1998, final restructuring order, the PUC determined that Duquesne should recover most of ' Aove-market costs of the generation assets, including plant and regulatory assets through the collection of the CTC from electric utility customers. The total of the transition costs to be recovered is 52,133 million (51,485 million, net of tax) over a seven-year period beginningJanuary 1,1999, as may be adjusted to account for the proceeds of the generation asset auction. In addition, the transition costs as reflected on the consolidated balance sheet will be amortized over the same period that the CTC revenues are being recoFnized. Duquesne will earn an i1 percent pre-tax return on the unrecovered balance.
In the second quarter of 1998, Duquesne recorded an extraordinary charge (PUC restructuring charge) against earnings of $142.3 million (582.5 million, net of tax) for the generation-related stranded costs not considered by the PUC's restructuring order to be recoverable from customers. The Pennsylvania restructuring charge included Phillips, Ill, deferred caretaker costs related to the two stations and deferred coal costs.
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l Restruaring Plan and Auction Plan. With respect to transition cost recovery, the PUC's final order on the restructuring plan approved Duquesne's proposal to auction its generation assets and use the proceeds to offset transition costs. The remaining balance of such costs (with certain exceptions described below) will be recovered from ratepayers through a CFC, collectible through 2005. Until the divestiture is complete, Duquesne has been ordered to use an interim system average CFC and price to compare based on the methodology approved in its pilot program (approximately 2.9 cents per KWH for the CTC and approximately 3.8 cents per KWII for the price to compare).
On December 18,1998, the PUC approved Duquesne's auction plan, including an auction ofits provider oflast resort service, as well as an agreement in principle to exchange certain generation assets with FirstEnergy. The assets to be auctioned willinclude Duquesne's wholly owned Cheswick Power Station, Elrama Power Station, Phillips and B1, as well as the stations to be received from FirstEnergy in the power station exchange described below. The auction plan
- calls for a two-phase, scaled bid process similar to that used in other pou er plant divestitures. The initial confidential bidding process is expected to begin in the spring of 1999, with potential buyers identified by Duquesne being asked to submit non-binding bids. Final agreements governing the transactions must be approved by various regulatory agencies,
, including the PUC, the FERC, the NRC, the Department ofJustice and/or the Federal Trade Commission. Duquesne currently expects the sale to close at the end of 1999 or the beginning of 2000.
Pwer Station Exchange. Pursuant to the defmitive agreements entered into on March 25,1999 (which remain subject to regulatory approval), Duquesne and FirstEnergy will exchange ownership interests in certain power stations.
Duquesne will receive 100 percent ownership rights in three coal-fired power plants located in Avon Lake and Niles, Ohio and New Castle, Pent sylvania (totaling approximatel t 1,300 MW), which Duquesne expects to stil dmultaneously as part of the auction of generation assets. FirstEnergy wil', acquire Duquesne's interests in BV Unit 1, BV Unit 2, Perry Unit 1, Sammis Unit 7, Eastlake Unit 5 and Bruce Mannield Units 1,2 and 3 (totaling approximately 1,400 MW). In connection with the power station exchange, Duquesne anticipates terminating the IW Unit 2 lease. (See " Financing" discussion on page 15.) Pursuant to the December 16,1998, PUC order and subject to final approval, the proceeds from the sale of the power stations received in the exch .nge will be used to offset the transition costs associated with Duquesne's currently-held generation assets and the costs associated with completing the exchange. Duquesne expects this exchange to enhance the value received f om the auction, because participants will bid on plants that are wholly owned by Duquesne, rather than plants that are jointly owned and/or operated by another entity. Additionally, the auction will include only coal- and oil-firea plants, which are anticipated to have a higher market value than nuclear plants. These value-enhancing features, along with a minimum level of auction proceeds guaranteed by FirstEnergy, are expected to maximize auction proceeds, minimize transition costs required to be recovered through the CTC (by shortening the length of the CTC recovery period), and thus reduce customer bills as rapidly as possible. Other benefits of this exchange include the resolution of all joint ownership issues, and other risks and costs associated with the jointly-owned units. Although the PUC has said the exchange appears to be in the public interest, the definitive exchange agreement must be submitted for PUC approval, and certain aspects of the exchange will have to be approved by, among other agencies, the FERC, the NRC and the Department ofJustice. The power station exchange is expected to occur simultaneously with the anticipated closing of the sale of Duquesne's generation through the auction at the end of 1999 or in early 2000.
Termination ofthe AYE Aferger On July 28,1998, DQE's board of directors concluded that it could not consumtnate the merger with AYE, toward which Duquesne had been working. Duquesne believes that AYE suffered a material adverse effect as a result of the PUC's final restructuring order regarding AYE's utility subsidiary, West Penn Power Company. More infonnation
, regarding this decision is set forth in Duquesne's Current Report on Form 8-K datedJuly 28,1998. On July 30,1998, AYE infonned DQE that it would continue to work toward consummation of the merger, and also pursue all remedies available to protect the legal and financial interests of AYE and its shareholders.
On September 17,1998, the PUC issued an order stating that, unless the parties jointly agreed to an extension of time to consummate the merger beyond October 5,1998 (the relevant date under the merger agreement), their merger application with the PUC would be considered withdrawn. On October 5,1998, Duquesne announced its unilateral termination of the merger agreemen:. More information regarding this tennination is set forth in Duquesnei Current Report on Fonn 8-K dated October 5,1998. In a letter dated February 24,1999, the PUC infonned Duquesne that the merger applica: ion was deemed withdrawn and the docket was closed.
AYE filed suit in the United States District Court for the Western District of Pennsylvania, seeking to compel Duquesne to proceed with the merger and seeking a temporary restraining order and preliminary injunction to prevent Duquesne from certain actions pending a trial, or in the alternative seeking an unspecified amount of money damages.
On October 28,1998, the judge denied AYE's motion for the temporary restraining order and preliminary injunction.
AYE appealed to the United States Court of Appeals for the Third Circuit, asking for an injunction pending the appeal and expedited treatment of the appeal. On November 6,1998, the Third Circuit denied the motion for an injunction and granted the motion to expedite the appeal.
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On Alarch 11,1999, the Third Circuit vacated the October 28 denial of a preliminary injunction.The Third Circuit remanded the case to the District Court for further proceedings to address certain issues, including whether AYE could demonstrate a reasonable likelihood of success on the merits, before determining w hether any injunctive reliefis warranted. On Alarch 12,1999, AYE filed a motion for a temporary restraining order with the district court, and a hearing was held that same day. On Alarch 16,1999, AYE and DQE entered into a consent agreement, which was approved by the district court on Alarch 18. Pursuant to the consent agreement, AYE and DQE have agreed, among other things, that pending the consolidated hearing on AYE's application for a preliminary injunction and/or an expedited trial on the merits, both parties will give each other 10 business days' notice before taking or omitting to take any action which would prevent the merger from qualifying for " pooling ofinterests" accounting treatment. This would not prevent either party from entering into any agreement, but would require the 10 business days' notice prior to ,
closing any transaction which prevents pooling. The consent agreement shall terminate on September 16,1999, unless earlier terminated or extended by mutual agreement or an order of the district court.
DQE continue to believe that AYE's claim is entirely without merit in light of the 51 billion disallowance ofits '
stranded costs, which constituted a material adverse effect under the merger aFreement and entitled DQE to terminate it as of October 5,1998. DQE will continue to defend itself vigorously against AYE's claims and intends to pursue a prompt resolution of the litigation. On Alarch 25,1999, DQE petitioned the Third Circuit for rehearing. In the interim, DQE intends to continue to pursue the implementation of customer choice under its PUC-approved restructuring plan, including the power station exchange with FirstEnergy and the generation asset auction. The ultimate outcome of this suit cannot be detennined at this time.
Deferred Energy Costs As part ofits restructuring plan fding, Duquesne requested recovery of 511.5 million (S6.7 million, net of:ax) through the CTC for energy costs presiously deferred under the ECR. Recovery of this amount was approved in the PUC's final restructuring order. Duquesne also requested recovery of an additional 531.2 million ($18.2 million, net of tax). This amount r lates to fuel costs that had been deferred between the time of the restructuring plan filing and the restructs g order in accordance with a PUC order with respect to Duquesne's ECR. As part ofits December 18,1998, order the PUC denied recovery of this additional amount. Duquesne has appealed the PUC's denial of recovery to the Pennsylvania Commonwealth Court.
Ilased upon the Customer Choice Act, which mandates recovery of all regulatory assets, and the PUC's specific authorization for Duquesne to create a regulatory asset for these costs, Duquesne believes that it is probable that these costs will be recovered through retail rates. In the event that Duquesne does not prevail in its appeal with the Pennsylvania Commonwealth Court, these costs would be written off as a charge against income.
liar 2000 Alany existing computer programs and embedded microprocessors use only two digits to identify a year (for example, "98"is used to represent "1998"). Such programs read "00" as the year 1900, and thus may not recognize dates beginning with the year 2000, or may otherwise produce erroneous results or cease processing when dates after 1999 are encountered.
liar 2000 Plan. In 19W, Duquesne began reviewing its critical information systems that impact operadonc and financial reporting in order to develop a strategy to address required computer software and system changes and upgrades. Duquesne has since assembled a Year 2000 team, comprised of management representatives from all functional areas of Duquesne, which continues to explore the exposure to Year 2000-related issues in computer software and in desices and equipment (such as plant components, substations, elevators, and heating and cooling systems) -
containing embedded microprocessors that may not correctly identify the year. The team is also explorin<; potential related issues that may originate with third parties with w horn Duquesne does business. 'Ib support the planning, organization and management ofits efforts, the team has retained Year 2000 consultants. ,
In general, Duquesne's overall strategy to address the Year 2000 issue is comprised of four phases that, in some cases, are performed simultaneously.These phases are: inventory, assessment, remediation, and testing and implementation.
Inventory consists ofidentifying the various components, equipment, hardware, and software used in Duquesne's operations that may potentially be faced with Year 2000 issues. This inventory effort was completed during the fourth quarter of 1998.
Assessment consists of evaluating all inventoried items for Year 2000 compliance or readiness. This is accomplished by contactmg the vendors and manufacturers, inspecting software and code, researching the results of other companies' assessment oflike components, and various other means. Assessment activities have been completed as of the date of this Report. Duquesne's business is dependent upon external supphers for the rehable delivery of their products and services.
Duquesne has inquired in writing ofits suppliers and senice providers with regard to their Year 2000 readiness. Duquesne is meeting with critical suppliers and senice providers to further corroborate evidence of their Year 2000 readiness.
18 I
Remediation refers to the actisities necessary to fix or replace those components that have Year 2000 issues that will adversely affect Duquesne's operations. Remediation concentrates first on timse systems, components, and equipment that substantially impact Duquesne's ability to perform its essential business functions (mission critical). Remediation is currently under way and is scheduled to be substantially complete in the second quarter of 1999. This remediation is in addition to previously planned improvements to Duquesne's systems with benefits beyond Year 2000 solutions, such as total system replacermnts discussed below.
Testing and implementation consists of placing renovated processes, systems, equipment, and other items into use within Duquesne's operations. Testing is performed on all mission critical processes, Aether or not remediation acti ities were involved in the process. Testing and implementation will be substantially compieted during the second quarter of 1999 Throughout the execution ofits Year 2000 plan, Duquesne has been prmiding and will continue to prmide infor. iation on its activities to t he PUC, the NRC and the North American Electric Reliability Counsel (NERC), which coordim tes the network ofinterconnected utilities across the nation. Duquesne's plan is in accordance with NRC guidelines, and Duquesne is working with the NRC to certify that its nuclear power station safety and operations sysums, and issues l i
. related to suppliers, will be ready for the Year 2000. NERC has been requested by the United States Department of Energy (DOE) to resiew the national electric power production and delivery infrastructure to ensure a reliable power supply during the Year 2000 transition period. Duquesne is working with NERC to address these issues through monthly status reporting and participation in regional Year 2000 tests. Duquesne also participates in the Electric Power Research Institute's project to share information about technical issues regarding Year 2000 with other entities in the electric utility industry.
Rids and Contingency Plans. Duquesne currently believes that implernentation ofits plan will mimmize the Year 2000 issues relating to its systems and equipment. Duquesne's goalis to ensure that all components and senices that in any material manner contribute to operational reliability, customer relations, safety, revenue and regulatory compliance will be suitable for continued use beyond December 31,1999, in some cases with appropriate work-arounds or contingency plans. Duquesne understands that many variables outside the control of Duquesne may have an adverse affect on the ability of Duquesne to perform its mission critical processes (e.g., telecommunication prmiders may not be able to prmide uninterrupted senice). Therefore, Duquesne is developing contingency plans for all mission critical gocesses in an effort to mitigate these risks. Contingency plans will be developed and tested for all mission critical processes by the end of the second quarter of 1999. Duquesne continues to review its operations and its critical external suppliers and service providers in order to determine any worst-case scenarios it could face as a result of Year 2000 problems.
Cosn. The estimated total cost ofimplementing Duquesne's Year 2000 plan is approximately $49 million, which includes costs related to total system replacements (the Year 2000 solution comprises only a portion of the benefit resulting from such replacements). These costs to date, primarily incurred as a result of software and system changes and upgrades by Duquesne, have been approximately $39 million. Of this amount, approximately $35 million represents capital costs attributable to the licensing and installation of new software for total system replacements. The remaining $4 million has been expensed as incurred. Funds for Duquesne's Year 2000 plan have come from Duquesne's operating and capital budgets. Approximately $10 million has been budgeted for 1999 to address Year 2000 issues. Duquesne does not anticipate that Year 2000 issues and related costs will be material to Duquesne's operations, financial condition and results of operations.
The foregoing paragraphs contain forward-looking statements regarding the timetable, effectiveness and ultimate cost of Duquesne's Year 2000 strategy. Acrual results could materially differ from those implied by such statements due ta known and unknown risks and uncertainties, including, but not limited to: the possibility that changes and upgrades are not timely completed, that corrections to the systems of other companies on which Duquesne's systems rely may not be
, timely completed, and that such changes and upgrades may be incompatible with Duquesne's systems; the availability and cost of trained personnel; and the ability to locate and correct all releeant computer code and microprocessors.
Item 7A. Quantitative And Qualitative Disclosures About Market Risk.
Market risk represents the risk of financial loss that may impact Duquesne's consolidated financial position, results of operations or cash flows due to adverse changes in market prices and rates.
Funding for nuclear decommissioning costs is deposited by Duquesne in external, segregated trust accounts and invested in a portfolio of corporate common stock and debt securities, municipal bonds, cenificates of deposit and United States government securities. The market value of the aggregate trust fund balances at December 31,1998 totaled approximately $62.7 million. The amount funded into the trusts is based on estimated returns which if not achieved as projected, could require additional unanticipated funding requirements.
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Item C. Con:olid terj Fin <:ncial Ctntem3nts cnd Cuppl mentcry Drta.
Report ofIndependent Certified Public Accountants To the Din cton and Stockholder ofDuquesne Light Company:
We have audited the accompanying consolidated balance sheets of Duquesne Light Company (a wholly owned subsidiary of DQE, Inc.) and its subsidiaries as of December 31,1998 and 1997, and the related consolidated statements ofincome, comprehensive income, retained earnings, and cash flows for each of the three years in the period ended December 31,1998. Our audits also included the financial statement schedule listed in the Index at Iter 14. These .
fmancial statements and financial statement schedule are the responsibility of the Company's manage acnt. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standarch require that we ,
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Duquesne Light Company and its subsidiaries as of December 31,1998 and 1997, and the results of their operations and their cash flows for eacn of the three years in the period ended December 31,1998 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Deloitte & 'Ibuche LLP del.Ol'ITE & TOUCIIE LLP Pittsburgh, Pennsylvania January 26,1999 4
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Ctatement of Con 2oliftted Income (Thousands ofDollars)
GarEnded December 31, 1998 1997 1996 Operating Revenues:
l Sales ofElectricity:
Residential S 410,%0 $ "15,915 5 405,392 t
Commercial 495,194 500,070 494,919 Industrial 189,617 198,708 190,723 i
Net customer revenues - 1,095,771 1,1(H,693 1,091,034 j
, ' Utilities 36,203 24,861 58,292
'Ibtal Sales of Electricity 1,131,974 1,129,554 1,149,326 Other 44,820 46,387 38,081 TotalOperudngRevemscs 1,176,794 1,175,941 1,187,407 l Operating Expenses: 3 l
Fuel 176,913 184,676 2(H,655 l
Purchased power 85,647 38,735 32,269 Other operating 269,944 269,063 263,691 q
- Alaintenance 74,908 82,869 78,386 Depreciation and amortization 204,718 235,381 216,338 Taxes other than income taxes 80,035 81,049 84,625 Income taxes 82,495 76,783 85,364 TotalOperudng Erpenses 974,660 968,556 965,328 Operatingincome 202,134 207,385 222,079 Other Income and (Deductions):
' Interest and dhidend income 13,242 16,014 12,216 Income taxes (7,582) (2,945) 2,356 Other 33,503 19,761 9,991 Toralotherlmvmc 39,163 32,830 24,563 Income Before Interest and Other Charges 241,297 240,215 246,642 Interest Charges:
Interest on long-term debt 81,076 87,420 88,478 Other interest 1,290 752 1,632 Allowance for borrowed funds used during construction (2,179) (2,339) (1,249)
Tota /Intcorst Charger 80,187 85,833 88,861 A1onthly Income Preferred Securities Dividend Requirements 12,562 12,562 7,921 Income Before ExtraordinaryItem 148,548 141,820 149,860 Extraordinary Item, Net ofTax (82,548) - -
Net Income, After Ext aordinary Item 66,000 141,820 149,860 Dhidends on Preferred and Preference Stock 4,036 4,022 4,(H5 Ecurringsfor Comnwn Stock, Befurr Entmordimtry itern S 144,512 S l37,798 5 l45,815 Ernrangsfor Common St<xk, AfterEstnwrdinmy item S 61,964 S 137,798 5 145.8l5 See notes to ansolidatedfinancialstatements.
21 1
1
Connoll2ttd Calance Cheet l (Thousands ofDollan) ;
As ofDecember 31, ASSETS 1998 1997 Pmperty, Plant and Equipment:
Electric plant in senice $4,379,703 $4,335,149 Property held under capitalleases 123,374 113,662 Construction work in progress 79,644 56,471 -
Other 6,419 5,456 Gross property, plant and equipment 4,589,140 4,510,738 Less: Accumulated depreciation and amortization (3,141,841) (1,947,819)
Totalkperty, Plantauf Equipment-Net n ,447,299 2,562,919 Long-Tenn investments; Investment in DQE conunon stock 69,067 57,617 Otherinvestments 133,189 128,947 TotalLong-Term investments 20' 6 186,564 Current Assets:
Cash and temporary cash investments 53,151 165,169 Receivables:
Electric customer accounts receivable 87,262 90,149
. Other utility receivables 25,412 23,106 Other receivables 22,419 23,736 Less: Allowance for uncollectible accounts (9,137) (15,016)
TotalReceivables-Net 125,956 121,975 Alaterials and supplies (at average cost):
Operating and construction 58,747 53,088 Coal 25,702 20,418 TotalMaterials andSupplies 84,449 73,506 Other current assets 7,670 7,478 TotalCunentAnrtr 271,226 368,128 OtherNon-Current Assets: ,
Transition costs 2,132,980 -
Regulatory assets 64,568 680,885 Other 56,799 41,683 .
TotalOtherNon-CurrentAnets 2,254,347 722,568 TotalAacts $4,175,128 $3,8-10,179 See notes to consolidatedpnancialstatemenu.
22
w l
t ConnoHfatsdCdtnes Shoot (Ibousands ofDollari)
As ofDarmber 31, !
CAPTTALI7AT10N AND LIABILIITES 1998 1997 Capitalization:
{' . Ccanmon stock (authorized - 90,000,000 shares, issued and outstandmg - 10 shares) $ -
S -
Capitalsurplus 3 1113,528 815,561
, Retained earnings 27,646 172,682
- Accumuhted other wmprehensive income '27,326 15,590
,, 7btalCommon Stockholderk Equity It68,500 1,003,833 Non-redeemable preferred stock 65,108 64,608 Non-redeemable Monthly Income Preferred Securities 150,000 150,000
- Non-redeemable preference stock 26,914 28,295
'Ibtal preferred and preference stock before defe red ESOP benefit 242,022 242,903-Deferred esnployee stock ownership plan (ESOP) benefit (14,240) (16,400)
TotalPir/inrdandPirference Stock 227,782 226,503 Long-temi debt 1,160,348 1,218,276 72talCapitall:ation - 2,256,630 2,448,612 Obligations Under Capital Leases 36,5 % 37,540 Curmst Liabilities:
A enedliabilities 116,056 87,607 Accu es payable 105,624 76,224 Lurrent maturides and sinking fund mjuirements 96,137 . 97,523 Dhidends declared - 39,597 . 2,34'?
Other 6,864 14,338 TotalOmentLiabilitia 364,278 278,011 Non-Current Liabilities:
Deferred income taxes - net 610,272 574,248 Beaver Valley lease liability 4M,570 -
Deferred income 117,508 183,304 Deferred investment tax credits 24,076 97,782 Other 290,198 220,652 litalNon-OmentLiabilitia I,517,624 1,075,986 Commitments and Contingencies (Notes 11 through N) t TbtalC,phali:ationamiLiabilitia $4,175,128 S3,840,179 2
- See notes to consolidetedfinancialstainmv.
I 23
Ctatenant of Consolidnted Canh Flows (7housands ofDollan) lear Ended Deceml>cr 31, 1998 1997 1996 Cash Flows From Openting Acti ities:
Net income $ 66,000 S 141,820 $ 149,860 Priacipal non-cash charges (credits) to net income:
Extraordinaryitem, net of tax 82,548 - -
Depreciation and amortizztion 204,718 235,381 216,338 -
Capital lease, nuclear fuel and other amortization 49,547 39,179 24,006 Deferred income taxes and invesunent tax credits - net 32,536 (7,611) (81,325)
Gain on dispositions (1,322) (5,856) -
Imestment income (66,552) (19,353) (23,841)
Increase in ECR (19,219) (25,318) (3,948)
Changes in working capital other than cash 36,300 (19,432) (16,924) l t Other (61,407) (22,648) 23,202 Net Gish MwidedB f 0penningAdithics 323,149 316,162 287,368 !
Cash Flows Fmm Imesting Activities: l Construction expenditures (118,447) (93,743) (88,546)
Long-term invesunents (26,172) (15,422) (9,953)
Proceeds from disimsition ofinvesunents 1,322 5,856 4,203 Sale of generating statio,i - -
169,100 l Other 2,958 (13,692) (700)
Net Gish (Used in) Prwided By Intesting Anititics (140,339) (l17,00l) 74,164 Cash Flows Fmm Financing Activities: !
Dividends on capital stock (211,954) (133,970) (281,015) !
Reductions oflong-term obligations- l Long-tenn debt (198,172) (52,100) (50,812)
Capitalleases (12,897) (13,551) (19,326)
Issuance of preferred stock - -
150,000 l
Issuance oflong-term debt 140,000 - -
Other (11,805) 11,215 (8,395)
Nct Guh UsedIn FinandngAditnies (294,029)_ (188,406) (209,548)
Net (decrease) increase in cash and temporary cash investments (112,018) 10,755 151,924 C.sh and temporary cash investments at beginning ofyear 165,169, 154,414 2,490 Cash and Ternporary Cash investinents at End of1 Ear $ 53,151 S l65,169 $ l54,411 CuPPLaMaNTAL. CASH Flow BNFORMATDON ,
I Cash paid during the year for:
Interest (net of amount capitalized) $ 78,046 $ 82,343 $ 86,409 income taxes $ 117,094 5 120,548 $ 165,948 3 Non-cash investing and financing acti ities:
Capitallease obligations recorded S 7,855 S 2",514 5 13,050 Preferred stock issued in conjunction with long-term investments $ -
S 1,500 5 -
See notes to amsolidatedfinancialnatements.
24 1
Ct:stement o' ' acolidated Comprehenniva income (Thousands of Dollars)
Ihar EnJed December 31, 1998 1997 1996 Net income i 66,000 $ 141,820 $ 149,860
, Other comprehensive income:
l Unrealized holding gains (losses) arising during the year, l net of tax of S8,084,53,184 and $(1,627) 11,736 4,488 (2,298) l . Less: reclassification adjustment for gains included l in net income, net of tax of $503,51,609 and $451 (709) (2,269) (635)
! 7btal Other Cornprehensive Incante 11,027 2,219 (2,933)
Comprehensive Income S 77,027 S 144,039 $ 146,927 See notes to consolidatedfinancialstatements.
Statement of Consolidated Retained Earnings (Thousands ofDollars)
As ofDecender 31, 1998 1997 1996 Balance at beginning of year $ 172,682 5 163,884 $ 294.069 Net income 66,000 141,820 149,860 Dividend declared:
Preferred stock 2,772 2,712 2,712 Preferred stock (net of tax benefit of ESOP dividend) 1,264 1,310 1,333 Common stock 207,000 129,000 276,000
'Etal Dividends declared 211,036 133,022 280,045 Balance at End cf } car 5 27,646 5 172,682 $ 163,884 See notes to consolidatedfinancialstatements.
Notes to Consolidated Financial Statements A. Consolidation
SUMMARY
OF Duquesne Light Company (Duquesne)is a wholly owned subsidiary of DQE, Inc. (DQE), a ;
s c. multi-utility delivery and services company. Duquesne is engaged in the generation, transmission, I Fj POLICIES distribution and sale of electric energy. Duquesne has one wholly owned subsidiary, A1onongahela Light and Power Company, which makes long-term investments.
On December 18,1998, the Pennsylvania Public Utility Commission (PUC) approved
- Duquesne's plan to divest itself ofits generation assets through an auction (including an auction of its provider oflast resort service), and an agreement in principle to exchange certain power stations with FirstEnergy Corporation (FirstEnergy). Final agreements governing these transactions must
. be approved by various regulatory agencies. Duquesne currently cxpects these transactions to close in late 1999 or early 2000. (See " Rate Alatters, Note E, on page 29.)
Basis ofAccounting Duquesne is subjcct to the accoanting and reporting requirements of the Securities and Exchange Commission (SEC). In addition, Duquesne's electric utility operations are subject to regulation by the PUC, including regulation under the Pcnnsy/rania Electricity Generation Customer Choice and C,mpetition Act (Customer Choice Act), and the Federal Energy Regulatory Commission (FERC) under the Federal Po.rer Act with respect to rates for interstate sales, transmission of electric power, accounting and other matters.
25
As a result of the PUC's final order regarding Duquesne's restructuring plan under the Customer Choire Act (see " Rate Matters," Note E, on page 29), the electricity generation portion of Duquesne's business no longer meets the criteria of Statement offinancia/ Accounting Standards (SE4S) No. 71, Accountingfor the ElRcts ofCertain 7Jpes ofRegulation (SFAS No. 71). According!y, application of SFAS No. 71 to this portion of Duquesne's business has been discontinued and Duquesne now applies SE IS No.101, Regulated Enterprises - Accourtingfor the Discontinuation of Application ofE4SB Statement No 71 (SFAS No. l0l) as interpreted by Emerging Issues link Force 97-4, Deregulation of the Pricing ofElectricity - Issues Rclared to the Application ofE4SB Statements No. 71 and 101. Under SFAS No.101, the regulatory assets and liabilities of the generation portion of Duquesne are determined on the basis of the source from which the regulated cash flows to ,
realize such regulatory asset; and settle such liabilities will be derived. Pursuant to the PUC's final restructuring order, certain of Duquesne's generation-related regulatory assets will be recovered through a competitive transition charge (CTC) collected in connection with providing ,
transmission and distribution services (the electricity delivery business segment). Duquesne will continue to apply SFAS No. 71 with respect to such assets. Fixed assets related to the generation portion of Duquesne's business have been evaluated in accordance with SE4S No.121, Accounting for the Impainnent ofLong-Lived Assets to Be Disposed Of(SFAS No.121). Applying SFAS No. I21 to the non-regulated generation assets,it has been determined that Duquesne's generation assets are impaired. Ilowever, pursuant to the PUC's final restructuring order, Duquesne will recover its above-market investment in generation assets through the CTC. Under Duquesne's plan to auction its generation assets, the market value utilized by the PUC in determiriing the value of the generation assets will be the net after-tax proceeds received from the auction. Accordingly, the amount of book vahie authorized by the PUC to be recovered has been reclassified on the consolidated balance sheet from property, plant and equipment to transition costs, until the auction has been completed and all approvals for the final CTC accounting have been granted. The electricity delivery business segment continues to meet SFAS No. 71 criteria and accordingly reflects regulatory assets and liabilities consistent with cost-based ratemaking regulations.The regulatory assets represent probable future revenue to Duquesne, because provisions for these costs are currently included, or are expected to be included, in charges to electric utility customers through the ratemaking process. (See " Rate Alatters," Note E, on page 29.)
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements. The reported amounts of revenues and expenses during the reporting period may also be affected by the estimates and assumptions management is required to make. Actual results could differ from those estimates.
Energy Cost Rate Adjustment Clause (ECR)
Through the ECR, Duquesne previously recovered (to the extent that such amounts were not included in base rates) nuclear fuel, fossil fuel and purchased power expenses. Also through the ECR, Duquesne passed to its customers the profits from short-term power sales to other utilities (collectively, ECR energy costs). As a consequence of the PUC's final order regarding Duquesne's restrucruting plan (see " Rate Alatters," Note E, on page 29), such fuel costs are no longer .
recoverable through the ECR. Instead, effective Alay 29,1998 (the date of the PUC's fmal restructuring onier), fuel costs are expensed as incurred and thus impact net income.
Under-recoveries from customers prior to Alay 29,1998, were recorded on the consolidated balance ,
sheet as a regulatory asset. At December 31,1998, S42.7 million was receivable from customers.
Duquesne expects to recover this amount through the CTC. (See " Restructuring Plan" discussion, Note E, on page 30.) At December 31,1997,523.5 million was receivable from customers.
Revenuesfrvn Utility Sales Duquesne's electric utility operations provide senice to customers in the City of Pittsburgh and surrounding areas. (See " Rate Alatters," Note E, on page 29.) This territory represents approximately 800 square miles in southwestern Pennsylvania.The population of the area served by Duquesne's electric utility operations, based on 1990 census data, is approximately 1,510.000, of whom 370,000 reside in the City of Pittsburgh. In addition to sening approximately 580,000 direct customer , Duquesne's utility operations also sell electricity to other utilities.
26
Aleters are read monthly and utility customers are billed on the same basis. Revenues are recorded in the accounting periods for which they are billed, with the exception of energy cost recovery revenues. (See " Energy Cost Rate Adjustment Clause" discussion above.)
Maintenance EffectiveJanuary 1,1999, as a result of the PUC's final restructuring order, all electric utility maintenance costs uill be expensed as incurred. Historically, incremental maintenance costs incurred for refueling outages at Duquesne's nuclear units were deferred for amortization over the period between refueling outages (generally 18 months); Daquesne would accrue, over the periods between outages, anticipated costs for scheduled major fossil generating station outages. Alaintenance costs incurred for non-major scheduled outages and for forced outages were charged to expense as such costs were incurred. During the fourth quarter of 1998, a reversal of the fossil maintenance outage accrual was made for outages planned to occur after the divestiture of the generation assets.
, Deptrciation and Arnortization Depreciation of property, plant and equipment, including plant-related intangibles, is recorded on a straight-line basis over the estimated remaining useful lives of properties. Amortization of gas reserve 6 vestments and depreciation of related property are on a umts of production method over the total estimated gas reserves. Amortizatior ofinterests in affordable housing partnerships is based upon a method that approximates she equity method; and amortization of certain other leases is on the basis of benefits recorded over the lives of the investments. Depreciation and amortization of other properties are calculated on various bases. l Duquesne records nuclear decommissioning costs under the category of depreciation and amortization expense, and accrues a liability, equal to that amount, for nuclear decommissioning expense. On Duquesne's consolidated balance sheet, the decommissioning trusts have been reflected in other long-term investments, and the related liability has been recorded as other non-current liabilities. Trust fund earnings increase the fund balance and the recorded li bility.
(See " Nuclear Decommissioning" discussion, Note I, on page 36.)
Duquesne's composite depreciation rate increased from 3.5 percent to 4.25 percent effective Alay 1,1996. Also in 1996, Duquesne expensed $9 million related to the depreciation portion of deferred rate synchronization costs in conjunction with Duquesne's 1996 PUC-approved mitigation plan. As a result of the 31ay 29,1998, PUC restructuring order, Duquesne reduced its rate of depreciation on its generation assets, including plant and transition costs, to achieve a net book value as of December 31,1998, equal to the level approved for recovery as transition costs.
Incorne Taxes Duquesne uses the liability method in computing deferred taxes on all diffeiences between book and tax bases of assets. These book / tax differences occur when events and transactions recognized for financial reporting purposes are not recognized in the same period for tax purposes. The deferred tax liability or asset is also adjusted in the period of enactment for the effect of changes in tax laws or rates.
For its electricity delivery business segment, Duquesne recognizes a regulatory asset for the deferred tax liabilities that are expected to be recovered from customers through rates. (See " Rate Alatters," Note E, and " Income Taxes," Note G, on pages 29 and 3 3.)
Duquesne reflects the amortization of the regulatory tax receivable resulting froni reversals of 1 deferred taxes as depreciation and amortization expense. Reversals of accumulated deferred income j taxes are included in income tax expense. 1
, When applied to reduce Duquesne's income tax liability, investment tax credits related to the electricity delivery business segment generally are deferred. Such credits are subsequently I reflected, over the lives of the related assets, as reductions to income tax expense.
Prvperty, Plant and Equipment The asset values of Duquesne's electric utility properties are stated at original construction cost, which incho s related payroll taxes, pensions and other fringe benefits, as well as administrative costs. Also mcluded in original construction cost is an alh>wance for funds used during construction (AFC), which represents the estimated cost of debt and equity ftmds used to finance constmetion.
Additions to, and replacements of, property units are charged to plant accounts. Alaintenance, repairs and replacement of minor items of property are recorded as expenses when they are incurred. The costs of electricity delivery business segment properties that are retired (plus removal costs and less any salvage value) are charged to accumulated depreciation and amortization.
27
The asset values of Duquesne's electricity generation businesu pnent properties were written down to market value in accordance with SFAS No.121 in conjunction with the final PUC restructuring order. (See "Pasis of Accounting" discussion on page 25.)
Substantially all of Duquesne's electric utility properties are subject to a first mortgage lien.
Temporary Cash investrnents Temporary cash investments are short-term, highly liquid investments with original maturities of three or fewer months. They are stated at market, which approximates cost. Duquesne considers temporary cash irwesonents to be cash equivalents.
Other Operating Revenues and OtherIncome ,
Other operating revenues are primarily comprised of revenues from joint owners of Beaver Valley Unit 1 (BV Unit 1) and Beaver Valley Unit 2 (BV Unit 2) for their shares of the administrative and general costs of operating these units. Other income is primarily made up of income from long-term investments entered into by the subsidiary of the utility and from short-term investments. The other income is separated from other revenues as the investment income does not result from operating activities.
Stock-Based Compensation Duquesne accounts for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25, Accountingfor Stock issued to Employees, and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of Duquesne's stock at the date of the grant over the amount any employee must pay to acquire the stock. Compensation cost for stock appreciation rights is recorded annually, based on the quoted market price of Duquesne's stock at the end of the period.
Reclassification The 1997 and 1996 consolidated financial statements have been reclassified to conform with 1998 presentation.
Recent Accounting Pronouncement InJune 1998, the Financial Accounting Standards Board issued SE-fS No.133, Auountingfor Dcriratire Instmments and Hedging Aaivities (SFAS No.133). This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. The adoption of SFAS No.133 is not expected to hwe a significant impact on Duquesne's financial statements and disclosures.
- c. Changes in 1Iorking Capital Other than 5: ush cHAnoEsan (Net ofDispositions and Acquisitions)forthe liar Ended Decer iser 31, WORKING cAPsTAL (Thousands of Dollars)
OTHER THAN }99g g997 }996 CASH Receivables $ (3,981) 5 (16,330) S 7,539 31aterials and supplies (10,943) (1,740) 1,286 Other current assets (192) 1,350 (873)
Accounts payable 29,400 (8,038) 9,437 Other current liabilities 22,016 5,336 (34,313)
Total 5 36,300 $ (19,432) 5 (16,924)
- c. In addition to its wholly owned generating units, Duquesne, together with FirstEnergy, has an PROPERTY, ownership or leasehold interest in certain jointly owned units. Duquesne is required to pay its PLANT AND share of the construction and operating costs of the units. Duquesne's share of the operating expenses of the units is included in the statement of consolidated income. Duquesne anticipates divesting itself ofits generation assets at the end :sf 1999 or in early 2000. (See " Rate Alatters,"
Not. E, on page 29.)
28
Generating Units Generating i Capability Fuel Unit (Meywatts) Source Cheswick 570 Coal Elrama (a) 487 Coal Eastlake Unit 5 (f) 186 Coal Sammis Unit 7 (f) 187 Coal Isruce Mansfield Units 1,2 and 3 (a)(f) 400 Coal 13eaver Valley Unit 1 (b)(f) 385 Nuclear lleaver Valley Unit 2 (c)(d)(f) 113 Nuclear Perry Unit 1 (e)(f) 164 Nuclear ,
ilrunot Island Units I and 2 178 Fuel Oil l l
Total Generating Capability 2,670 i (a) The units are equipped wnh fke gas desulfurizatsn equipment.
(b) The Nuclear RcFulatory Commission (NRC) has granted a license to operate through January 2016.
(c) In 19M, Duquesne sold and leased back its 13.74 percent interest in licaver Valley l' nit 2.
(d) The NRC has granted a heense to operate through May 2027 (e) The NRC has granted a license to operate through March 2026.
(f) Jomtly owned with FirstEnerFT-Additionally, Duquesne has an ownership interest in certain generating units not currently included in electric plant in senice on the consohdated balance sheet.The lirunot Island (III) Units 3 and 4 and the Phillips Power Station (Phillips) will be offered as part of Duquesne's generation asset auction.
D. At December 31,1998 and 1997, the fair market value of Duquesne's investment in DQE common LONG-TERM stock wcs $69.1 million and $57.6 million, respectively. At December 31,1998 and 1997, the cost of INVESTMENTS Duquesne's investment in DQE common stock was $32.0 million and $33.6 million, respectively.
Duquesne makes equity investments in affordable housing. At December 31,1998, Duquesne had investments in nine affordable housing developments.
Deferred income primarily relates to Duquesne's lease investments and certain gas reserve investments. Deferred amounts will be recognized as income over the lives of the underlying lease investments over periods generally not exceeding 15 vears.
E. Competition and the Customer Choice An RATE MATTERS The electric utility industry continues to undergo fundamental change in response to development of open transmission access and increased availability of energy alternatives. Under historical ratemaking practice, regulated electric utilities were granted exclusive geographic franchises to sell electricity, in exchange for making investments and incurring obligations to serve customers under the then-existing regulatory framework. Through the ratemaking process, those prudently incurred costs were recovered from customers, along with a return on the investment.
Additionally, certain operating costs were approved for deferral for future recovery fium customers
, (regulatory assets). As a result of this historical ratemaking process, utilities had assets recorded on their balance sheets at above-market costs, thus creating transition and stranded costs.
In Pennsylvania, the Customer Choice Act went into effect onJanuary 1,1997.The Customer Choice Act enables Pennsylvania's electric utility customers to purchase electricity at market pnces from a variety of electric generation suppliers (customer choice). Although the Customer Choice Act will give customers their choice of electric generation suppliers, the existing, franchised local distribution utility is still responsible for delivering e;ectricity from the generation supplier to the customer. The local distribution utility is also required to serve as the provider oflast resort for all customers in its senice territory, unless other arrangements are approved by the PUC. The provider oflast resort must provide electricity for any customer who cannot or does not choose an alternative electric generation supplier, or whose supplier fails to deliver. The Customer Choice Act provides that the existing franchised utility may recover, through a CTC, an amount of transition costs that are determined by the PUC to be just and reasonable. Penns)b ania's electric utility ustructuring is being accomplished through a two-stage process consisting of. .i initial customer choice pilot period (w hich ended in December 1998) .nd a phase-in to competition period (w hich hegan inJanuary 1999). Duquesne's estimated .iegative net ir come impact of the customer choice pilot program during 1998, with five perec.it of customers participating, was approximately $6 million.
29
Phase-In to Competition The phase-in to competition began inJanuary 1999, when 66 percent of customers became eligible to participate in customer choice (including customers covered by the pilot program); all customers will have customer choice in January 2000. As of February 28,1999, approximately 12.5 percent of Duouesne's customers had chosen alternative generation suppliers. Customernhat have chosen an electricity generation supplier other than Duquesne pay that supplier for generation charges, and pay Duquesne a CTC (discussed below) and charges for transmission and distributi >n. Customers that continue to buy their generation from Duquesne pay for their service at current regulated tariff rates divided into generation, transmission and distribution charges.
Under the Customer Choice Act, an electric distribution company, such as Duquesne, remains a regulated utility and may only offer PUC-approved rates, including generation rates. Also under ,
the Customer Choice Act, electricity delivery (including transmission, distribution and customer service) remains regulated in substantially the same manner as under current regulation.
In an effort to " jump start" retail competition, Duquesne has made 600 megawatts (MW) of p<>wer ,
available to licensed electric generation suppliers, to be used in supplying electricity to Duqueme's customers who have chosen alternative generation suppliers.The power will be available for the first six months of 1999 at a price of 2.6 cents per kilowatt-hour (KWII). This power availability will be structure 6 ensure the power is used to benefit Duquesne's retail customers.
Rate Cap An overail four-and-one-half-year rate cap fromJanuary 1,1997, has been imposed on the transmission and distribution charges of Pennsylvania electric utility companies under the Customer Choice Act. Additionally, electric u*.ility companies may not increase the generation price component of rates as long as transition costs are being recovered, with cenain exceptions.
Restructuring Plan In its May 29,1998, final restructuring order, the PUC determined that Duquesne should recover most of the above-market costs of the generation assets, including plant and regulatory assets through the collection of the CTC from electric utility customers. The total of the transition costs to be recovered is $2,133 million ($1,485 million, net of tax) over a seven-year period beginningJanuarv 1,1999, as may be adjusted to account for the proceeds of the generation asset auction. In addition, the transition costs as reflected on the consolidated balance sheet will be amortized over the same period that the CTC revenues are being recognized. Duquesne will earn an 1I percent pre-tax return on the unrecovered balance.
In the second quarter of 1998, Duquesne recorded the Pennsylvania restructuring charge against earnings of $142.3 million (582.5 million, net of tax) for the generation-related stranded costs not considered by the PUC's restructuring order to be recoverable from customers.The Pennsylvania restructuring charge included Phillips, BI, deferred caretaker costs related to the two stations and deferred ' coal costs. The following table sets forth the amounts reclassified from regulatory assets and property, plant, and equipment to transition costs.
30
Other Non-Cumr t Assets as ofDecernher 31, Other Transition Regulatory Regulatory Costs Assets Assets (Thousands ofDollars) I998 1998 1997 Power plants (a) 51,073,730 $ -
S -
lleaver Valley Unit 2 lease liability (See Note 1 I) 475,570 - -
Regulatory tax receivable 236,480 23,177 301,664 Ileaver Valley Unit 2 sale / leaseback deferred taxes (b) 55,130 - -
Unamortized debt costs 45,770 33,612 87,915 Beaver Valley Unit 2 sale / leaseback costs 37,790 - 38,299 Deferred rate synchronization costs 25,370 -
37,231 Dcferred employee costs 14,240 7,779 25,130 Deferred energy costs 11,510 - 23,514
, DOE decontamination and decommissioning receivable 5,580 -
8,847 Deferred nuclear maintenance outage costs 3,250 - 17,013 Brunot Island and Phillips cold reserve units (c) - - 105,693 Deferred coal costs (c) - - 15,711 Other (c)(d) 148,560 - 19,868 Total $2,132,980 $ 64,568 $680,885 (a) Amount represents the above-market costs of the power plants and was reclassified in the second quarter of 1998 from property, plant, and equipment to transinon costs. A Gnal determination of plant market value will be determined in conjunction with the generation auction.
(b) Amount represents deferred taxes related to the taxable gain on the sale /leasebuk of ficaver %11cy Unit 2 and was reclassified from deferred tax liabihties to transition costs.
(c) In the second quarter of 1998 amounts were written off as an extraordinary charge to the consetidated statement of income as part of the Pennsylvania restructuring charge.
(d) Amounts reflected in transition costs include reclassifications from other non-current assets and other non-current habibties. In addition, there are amounts included in transition costs that had not previously been recorded on the consohdated balance sheet but were determined in the final PUC restructuring order to be costs recoverable from customers through the CTC. In the case of amounts nut recorded, a regulatory habibry was recorded for the same amount as the transition costs, As part ofits restructuring plan fding, Duquesne requested recovery of SI1.5 million (56.7 million, net of tax) through the CTC for energy costs previously deferred under the ECR.
Recovery of this amount was approved in the PUC's final restructuring order. Duquesne also requested recovery of an additional 531.2 million ($18.2 million, net of tax)in deferred fuel costs.
Or. December 18,1998, the PUC denied recovery of this additional amount. Duquesne has appealed the PUC's denial of recovery to the Pennsylvania Commonwealth Court. Based upon the Customer Choice Act, which mandates recovery of all regulatory assets, and the PUC's speciGe authorization for Duquesne to create a regulatory asset for these costs, Duquesne believes that it is probable that these costs will be recovered through retail rates. In the event that Duquesne does not prevail in its appeal, these costs would be written off as a charge against income during 1999.
l Rertructuring th and Auction Ih. With respect to transition cost recovery, the PUC's final order ,
l on the restructuring plan approved Duquesne's proposal to auction its generation assets and use the !
l proceeds to offset transition costs. The remaining balance of such costs (with certain exceptions
=
l described below) will be recovered from ratepayers through a CTC, collectible through 2005. Until 1 the divestiture is complete, Duquesne has been ordered to use an interim system average CTC and price to compare based on the methodology approved in its pilot program (approximately 2.9 cents
, per KWH for the CTC and approximately 3.8 cents per KW1i for the price to compare).
On December 18,1998, the PUC approved Duquesne's auction plan, including an auction ofits provider oflast resort service, as well as an agreement in principle to exchange certain generation !
assets with FirstEnergy. The assets to be auctioned will include Duquesne's w holly ow ned l Cheswick Power Station, Elrama ?ower Station, Phillips and Hi, as uell as the stations to be i received from FirstEnergy in thr power station exchange described below. The auction plan calls for a two-phase, sealed bid procus similar to that used in other pow er plant divestitures. The initial con 6dential bidding process is expected to begin in the spring of 1999, with potential buyers identified by Duquesne being asked to submit non-bindmg bids. Final agreements governing the l transactions must be approved by various regulatory agencies, including the PUC, the FERC, the NRC, the Department ofjustice and/or the Federal Trade Commission. Duquesne currently i expects the de to close at the end of 1999 or the beginning of 2000.
31
1 Pv cr Station & change. Pursuant to the detinitive agreements entered into on Alarch 25,1999 (which remain subject to regulatory approval), Duquesne and FirstEnergy uill exchange ownership interests in certain power stations. Duquesne will receive 100 percent ownership rights in three coal-fired power plants located in Avon Lake and Niles, Ohio and New Castle, Pennsylvania (totaling approximately 1,300 A1W), which Duquesne expects to sell simultaneously as part of the auction of generation assets. FirstEnergy will acquire Duquesne's interests in Beaver Valley Unit 1 (IW Unit 1), Beaver Valley Unit 2 (BV Unit 2), Perry Unit 1, Sammis Unit 7, Eastlake Unit 5 and Bruce Alansfield Units 1,2 and 3 (totaling approximately 1,400 A1W). In connection with the power station exchange, Duquesne anticipates tenninating the IW Unit 2 lease. (See " Leases,"
Note 11, on page 34.) Pursuant to the December 18,1998, PUC oider and subject to final approval, ,
the proceeds from the sale of the power stations received in the exchange will be used to offset the transition costs associated with Duquesne's currently-held generation assets and cost . associated with completing the exchange. Duquesne expects this exchange to enhance the vahu received from the auction, because participants will bid on plants that are w holly owned by Duquesne, rather than plants that are jointly owned and/or operated by another entity. Additionally, the auction will include only coal- and oil-fired plants, which are anticipated to have a higher market value than nuclear plants. These value-enhancing features, along with a minimum level of auction proceeds guaranteed by FirstEnergy, are expected to maximize auction proceeds, minimize transition costs required to be recovered through the CTC (by shortening the length of the CTC recovery period),
and thus reduce customer bills as rapidly as possible. Other benefits of this exchange include the resolution of all joint ownership issues, and other risks and costs associated with the jointly-owned umts. Although the PUC has said the exchange appears to be in the public interest, the definitive exchange agreement must be submitted for PUC approval, and certain aspects of the exchange will have to be approved by, among other agencies, the FERC, the NRC and the Department ofJustice.
The power station exchange is expected to occur simultaneously with the anticipated closing of the sale of Duquesne's generation through the auction at the end of 1999 or in early 2000.
Termination ofthe ale Merger On July 28,1998, DQE's board of directors concluded that it could not consummate the merger with AYE, toward which Duquesne had been working. Duquesne believes that AYE suffered a material adverse effect as a result of the PUC's final restructuring order regarding AYE's utility subsidiary, West Penn Power Company. Alore information regarding this dec;sion is set forth in Duquesne's Current Report on Fonn 8-K datedJuly 28,1998. OnJuly 30,1998, AYE informed DQE that it wouhl continue to work toward consummation of the merger, and also pursue all remedies available to protect the legal and financial interests of AYE and its shareholders.
On September 17,1998, the PUC issued an order stating that, unless the parties jointly agreed to an extension of time to consummate the merger beyond October 5,1998 (the relevant date under the merger agreement), their merger application with the PUC would be considered withdrawn. On October 5,1998, Duquesne announced its unilateral termination of the merger aFreement. Aiore information regarding this termination is set forth in Duquesne's Current Report on Fonn 8-K dated October 5,1998. In a letter dated February 24,1999, the PUC infonned Duquesne that the merger appli etion was deemed withdrawn and the docket was closed.
AYE filed suit in the United ! ~.ates District Court for the Western District of Pennsylvania, ,
seeking to compel Duquesne to pceed with the merger and seeking a temporary restraining order and preliminary injunction tc prevent Duquesne from certain actions pending a trial, or in the alternative seeking an unspecified amount of money damages. On October 28,1998, the judge denied AYE's motion for the temporary restraining order and preliminary injunction. AYE appealed to the United States Court of Appeals for the Third Circuit, asking for an injunction pending the appeal and expedited treatment of the appeal. On November 6,1998, the Third Circuit denied the motion for an injunction and granted the motion to expedite the appeal.
On Alarch 11,1999, the Third Circuit vacated the October 28 denial of a preliminary injunct ion.
The Third Circuit remanded the case to the District Court for further proceedings to address certain issues, including whether AYE could demonstrate a reasonable likelihood of success on the merits, before determining w hether any injunctive reliefis warranted. On Alarch 12,1999, AYE filed a motion for a temporary restrainmg order with the district court, and a hearing was held that same day. On Alarch 16,1999, AYE and DQE entered into a consent agreement, which was approved by the district court on Alarch 18. Pursuant to the consent agreement, AYE and DQE 32
n I'
have agreed, among other things, that pending the consolidated hearing on AYE's application for a preliminary injunction and/or an expedited trial on the merits, both parties will give each other l 10 business days' notice before taking or omitting to take any action which would prevent the merger from qualifying for " pooling ofinterests" accounting treatment. This would not prevent either party from entering into any agreement, but would require the 10 business days' notice prior i
to closing any transaction which prevents pooling. The consent agreement shall tenninate on l September 16,1999, unless earlier terminated or extended by mutual agreement or an order of the district court.
l DQE continues to believe that AYE's claim is entirely without merit in light of the $1 billion l
disallowance ofits stranded costs, which constituted a material adverse effect under the merger agreement and entitled DQE to terminate it as of October 5,1998. DQE will continue to defend itself vigorously against AYE's claims and intends to pursue a prompt resolution of the litigation.
On March 25,1999, DQE petitioned the Third Circuit for rehearing. In the interim, DQE intends to continue to pursue the implementation of customer choice under its PUC-approved restmeturing plan, including the power station exchange with FirstEnergy and the generation asset auction.The ultimate outcome of this suit cannot be determined at this time.
F. At December 31,1998, Duquesne had a $150 million extendible revolving credit arrangement, sHORT-TERM expiring in October 1999. Interest rates can, in accordance with the option selected at the time of BORROWINa the borrowing, he based on prime, Eurodollar or certificate of deposit rates. Commitment fees are i Ano cRs Reomna based on the unborrowed amount of the commitment. The credit facility contains a two-year agn mMam repayment period for any amounts outstanding at the expiration of the revohing credit period. At December 31,1998 and December 31,-1997, there were no short-term borrowings outstanding.
- a. Since DQE's formation in 1989, Duquesne has filed consolidated federal income tax returns INCOME TAXES with its parent and other companies in the affiliated group. The annual federal corporate income tax returns have been audited by the Internal Revenue Senice (IRS) for the tax years through 1992. The IRS is reviewing the 1993 and 1994 returns, and the tax years 1995,1996,1997 and 1998 remain subject to IRS review. Duquesne does not believe that final settlement of the federal income tax returns for the years 1990 through 1998 will have a materially adverse effect on its financial position, results of operations or cash flows.
Deferred Tax Assets (Liabilitics) as ofDecember 31, (l'housands ofDollars) 1998 1997 Tax benefit -long-term investments 5 196,184 5 190,375 IW lease liability 167,440 -
Unbilled revenue 16,589 19,637 Investment tax credits unamortized 9,990 40,573 Gain on sale / leaseback ofIW Unit 2 - 58,137 Other 57,565 57,037 Deferred tax assets 447,768 365,759
. Transition costs (664,810) -
Property depreciation (285,783) (712,247)
Deferred coal and energy costs (16,525) (15,910)
, Loss on reacquired debt unamortized (12,976) (31,360)
Regulatory assets (9,620) (125,171)
Other (68,326) (55,319)
I Deferred tax liabilities (1,058,040) (940,007)
Nct Dcfcired 71rx Liabilitics $ (610,272) $ (574,248)
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Income liuxes (l'housands ofDollars) l 1 ear Ended December 31, 1998 1997 1996 Currently payable: Federal 5 93,493 5 98,843 $ 95,524 State 25,599 28,608 29,325 Deferred - net: Federal (31,642) (42,712) (30,950)
State 2,211 (152) (697)
Investment tax credits deferred - net (7,166) (7,804) (7,838)
TotalIncluded in Operating E.1penses 82,495 S 76,783 S 85,364 e included in other income and deductions:
Currently payable: Federal (62,409) 5 (39,536) S 24,774 State (757) (575) 14,710 Deferred - net: Federal 73,968 43,672 (25,944)
State - -
(14,176)
' investment tax credits (3,220) (616) (1,720)
TotalIncluded in Other Income and Deductions 7,582 2,945 (2,356)
TotalIncome Tax Expense S 90,077 $ 79,728 5 83,008 Total income taxes differ from the amount computed by applying the statutory federal income tax rate to income before income taxes.
Income Tax Expense Reconciliation l~ (Thousands ofDollars) lear Ended December 31, 1998 1997 1996 l
Computed federal income tax at statutory rate S 83,519 $ 77,542 5 81,504 l Increase (decrease) in taxes resulting from:
State income taxes, net of federal income tax benefits 16,639 18,595 18,955 Investment tax benefits - net (641) (7,734) (9,641)
Amortization of deferred investment tax credits (10,385) (8,420) (9,559)
Other 945 (255) 1,749 TotalIncome Tax Expense S 90,077 $ 79,728 $ 83,008 H. .
Duquesne leases nuclear fuel, a portion of a nuclear generating plant, certain office buildings, j LEASES computer equipment, and other property and equipment.
Capital Leases as ofDecember 31, (Thousands ofDollars) 1998 1997 .
Nuclear fuel $100,756 5 92,901 Electric plant 19,923 20,761 Other - 2,695 -
Total 123,374 113,662 Less: Accumulated amortization (63,604) ('i0,725)
Property lleid Under Capital Leases - Net (a) $ 59,770 S 62,937
. (a) Includes $2,037 in 1998 and $2,874 in 1997 of capital leases with associated obligations retired.
In 1987. Duquesne sold and leased back its 13.74 percent interest in IW Unit 2; the sale was e-dusive of transmission and common facilities. Duquesne subsequently leased back its interest in the unit for a term of 29.5 years.The lease provides for semi-annual payments and was accounted for as an operating lease. In conjunction with the PUC restructuring order, it was determined that the costs .
related to the lease were transition costs to be recovered through the CTC. Duquesne recorded the l l
34 i
lease liability and a corresponding regulatory asset for the present value of the future lease payments.
Duquesne is responsible under the terms of the lease for all costs related to its interest in the unit. In December 1992, Duquesne participated in the refinancing of collateralized lease bonds to take advantage oflower interest rates, thus reducing the annual lease payments. The bonds were origmally issued in 1987 to partially fund the lease ofIW Unit 2.The associated letter of credit securing the lessor's equity interest in the unit is S194 million and the term of the letter of credit extends to 1999 Duquesne currently anticipates terminating the lease in connection with the power station exchange with FirstEnergy, in which case the lease liability recorded on the consolidated balance sheet wouhl no longer be an obligation of Duquesne. The underlying collateralized lease bonds (S"1.0 million at
, December 31,1998) would become direct obligations of Duquesne and be recorded a debt on the consolidated balance sheet. (See " Rate Matters," Note E, on page 29.)
Leased nuclear fuelis amortized as the fuel is burned and charged to fuel and purchased power expense on the statement of consolidated income. The amortization of all other leased property is based on rental payments made (except the IW Unit 2 lease). These lease-related expenses are charged to operating expenses on the statement of consolidated income.
Suminary ofRental Payrnents (Thousands ofDollars)
Icar Ended Decemi,cr 31, 1998 1997 1996 Operating leases $57,324 560,684 559,503 Amortization of capital leases 12,943 16,847 19,378 Interest on capital leases 4,386 3,435 3,703 7htal Rcntal Payinents $74,653 S80,966 582,584 Future Minimum Lease Payments (Thousands ofDollars)
IW Unit 2 Operating Capital Year Ended December 31, Lease Leases Leases 1999 5 45,476 511,393 5 24,H39 2000 45,670 11,160 13,5:6 2001 45,643 11,102 10,028 2002 47,305 10,991 5,132 2003 53,100 2,551 3,085 2004 and thereafter 756,994 1,916 16.919 7bta/ Minimum Lease Payments 5994,188 549,113 5 73,519 Less: Amount representing interest (15,786)
Present t aine ofminimum lease paymentsfor capitalleases (a) S 5'7,733 (a)Incimles current ohhptions of SRI nulhon at December 31,19%
, Future minimum lease payments for operating leases are related principally to certain corporate offices. Future minimum lease pavments for capitalleases are related principally to the estimated use of nuclear fuel financed through leasing arrangements r <piring in 1999 and buihling leases.
Future payments due to Duquesne, as of December 31,1998, under subleases of certain corporate office space are approximately 56.0 million in 1999,56.0 million in 2000 and $12.7 mdlion thereafter.
- a. Duquesne anticipates divesting itself ofits generation assets through the auction and the power COMMITM ENTS station exchange by early 2000 and, depending on the regulatory approvals of the final agreements
$"oNTINGENCIES transferred to the future owners. ($ce " Restructuring Plan discussion, Notc E. on page 30.)
Construction, Intestments and Acquisitions Duquesne estimates that it will spend, excluding AFC and nuclear fuel, approximately SI10 million in 1999 (including 530 nullion for generation), S75 million in 2000 (excluding generation) and S70 million in 2001 (excluding generation) for electric utility construction.
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Nuclear-Related Matten Duquesne has an interest in three nuclear units, two of which it operates. The operation of a nuclear facility involves special risks, potential liabilities, and specific regulatm md safety requirements. Specific information about risk management and potential h o is discussed below.
Nuclear Decommissioning. Duquesne expects to deconan.ssion IW Unit Unit 2 and Perry Unit I no earlier than the expiration of each plant's operating license in 1 .1027 and 2026, respectively. At the end ofits operating hfe, IW Unit I may be placed in safe storage until IW Unit 2 is ready to be decommissioned, at which time the units may be decommissioned together.
Based on site-specific studies conducted in 1997 for IW Unit I and BV Unit 2, and a 1997 update of the 1994 study for Perry Unit 1, Duquesne's approximate share of tne total estimated decommissioning costs, including removal and decontamination costs, is $170 million,555 million and 590 million, respectively. The amount currently used to determine Duquesne's cost of senice related to decommissioning all three nuclear units is $224 million.
Funding for nuclear decommissioning costs is deposited in external, segregated trust accounts ,
and invested in a portfolio of corporate common stock arid debt securities, municipal bonds, certiGeates of deposit and United States government securities. The market value of the aggregate trust fund balances at December 31,1998, totaled approximately 562.7 million.
As part of the power station exchange, FirstEnergy has agreed to assume the decommissioning liability for each of the nuclear plants in exchange for the balance in the decommissioning trust ftmds, plus the decommissioning costs expected to be collected through the CTC.
NudearInsurance. The Pria-Anderson Amendments to the Atomic Energy Act of19H limit public liability from a single incident at a nuclear plant to 59.8 billion. The maximum available private primary insurance of 5200 million has been purchased by Duquesne. Additional protection of 59.6 billion would be provided by an assessment of up to $88.1 million per incident on each licensed nuclear unit in the United States. Duquesne's maximum total possible assessment, 566.1 million, which is based on its ownership or leasehold interests in three nuclear generating units, would be limited to a maximum of $7.5 million per incident per year. This assessment is subject to indexing for inflation and may be subject to state premium taxes. If assessments from the nuclear industry prove insufficient to pay claims, the United States Congress could impose other revenue-raising measures on the industry.
Duquesne's share ofinsurance coverage for property damage, decommissioning and decontamination liability is 51.2 billion. Duquesne would be responsible for its share of any damages in excess of insurance coverage. In addition, if the property damage reserves of Nuclear Electric Insurance Limited (NEIL), an industry mutual insurance company that provides a portion of this cu erage, are inads aate to cover claims arising from an incident at any United States nuclear site covered by that insurer, Duquesne could be assessed retrospective premiums totaling a maximum of $7.3 million.
In addition, Duquesne participates in a NEIL program that provides insurance for the increased cost of generation and/or purchased power resulting from an accidental outage of a nuclear unit.
Subject to the policy deductible, terms and limit, the coverage provides for a weekly indemnity of the estimated incremental costs during the three-year period starting 17 weeks after an accident, with no coverage thereafter. If NEIL's losses for this program ever exceed its reserves, Duquesne could be assessed retrospective premiums totaling a maximum of 52.6 million.
Beaar Val /cv Power Station (BIP9. IWPS's two units are equipped with steam generators designed and built by Westinghouse Electric Corporation (Westinghouse). Similar to other Westinghouse i nuclear plants, eutside diameter stress corrosion cracking (ODSCC) has occurred in the steam ,
generator tubes of both units. IW Unit 1, which was placed in senice in 1976, has removed approximately 17 percent ofits steam generator tubes from senice through a process called
" plugging." However, IW Unit I still has the capability to operate at 100 percent reactor power and has the ability to return n6es to service by repairing them through a process called " sleeving " No tubes at either IW Unit 1 or IW Unit 2 have been sleeved to date. lW Unit 2, which was placed in senice 11 years after IW Unit 1, has not yet exhibited the degree of ODSCC experienced at IW Unit 1. Approximate l" 3 percent of IW Unit 2's tubes are plugged; however, it is too early in the life of the unit to determme the extent to which ODSCC may become a problem at that unit. l Duquesne has undertaken certain measures, such as increased inspections, water chemistry control and tube plugging, to minimi7e the operational impact of and reduce susceptibihty to ODSCC. Although Duquesne has taken these steps to allay the effects of ODSCC, the inherent )
potential for future ODSCC in steam generator tubes of the Westinghouse design still exists.
)1 36
Alaterial acceleration in the rate of ODSCC could lead to a loss of plant eft dency, significant repairs or the possible replacement of the BV Unit I steam generators. The total replacement cost of the BV Unit I steam generators is currently estimated at S125 million. Duquesne would be resp (msible for $59 million of this total, which includes the cost of equipment removal and replacement steam generators, but excludes replacement power costs. The earliest that the BV Unit I steam generators could be replaced during a currently scheduled refueling outage i, the fall of 2001.
Duquesne continues to explore all viable means of managing ODSCC, including new repair technologies, and plans to continue to perform 100 percent tube inspections during future l refueling outages. Ilowever, Duquesne may be required to perfonn an earlier inspection of a
BV Unit l's tubes and other equipment during a mid-cycle outage in 1999, to comply with NRC requirements to conduct such inspections at BV Unit I at least every 20 months. Duquesne has requested permission from the NRC to postpone these inspections until BV Unit l's next refueling outage, currently scheduled to begin in the spring of 2000. Duquesne completed its inspection of BV Unit 2's tubes during a forced outage in 1998 to comply with NRC requircments to conduct such inspections at BV Unit 2 at least every 24 months. The next refueling outage for BV Unit 2 is currently scheduled to begin at the end of February 1999. No steam generator tube inspections will be performed until the subsequent refueling outage, currently scheduled for the fall of 2000.
Duquesne will continue to monitor and evaluate the condition of the BVPS steam generators.
BV Unit I went off-line onJanuary 30,1998, due to an issue identified in a technical review completed by Duquesne. BV Unit 2 went off-line on December 16,1997, to repair the emergency air supply systera to the control room. BV Unit 2 remained off-line due to other issues identified by a technical review, similar to that performeo at BV Unit 1. These technical review 3, held in response to a 1997 commitment made by Duquesne to the NRC, have been completed. Duquesne was one of many utilities faced with similar issum some of which date back to the initial start-up of BVPS. BV Unit I returned to service on August 15,1998, and BV Unit 2 returned to service on September 28,1998.
Spent Nuclear Fuel Disposal. The Nuclear Waste Policy Act of1982 established a federal policy for handling and disposing of sper.t nuclear fuel and a policy requiring the establishment of a final repository to accept spent nuclear fuel. Electric utility companies have entered into contracts with the United States Department of Energy (DOE) for the pennanent disposal of spent nuclear fuel and high-level radioactive waste in compliance with this legislation.The DOE has indicated that its repository under these contracts will not be available for acceptance of spent nuclear fuel before 2010. The DOE has not yet established an interim or pennanent storage facility, despite a ruling by the United States Court of Appeals for the District of Columbia Circuit that the DOE was legally obligated to begin acceptance of spent nuclear fuel for disposal byJanuary 31,1998.
Existing on-site spent nuclear fuel storage capacities at BV Unit 1, BV Unit 2 and Perry Unit I are expected to be sufficient until 2018,2012 and 2011, respectively.
In early 1997, Duquesne joined 35 other electric utilities and 46 states, state agencies and regulatory commissions in filing suit in the United States Court of Appeals for the Distn t of Columbia Circuit against the DOE. The parties requested the court to suspend the utiliti, .'
payments into the Nuclear Waste Fund and to place future payments into an escrow account ud!
the DOE fulfills its obligation to accept spent nuclear fuel. The DOE had requested that the court delay litigation while it pursued altc.. tive dispute resolution under the tenus ofits contracts with the utilities.The court ruling, issued November 14,1997, and affirmed on rehearing Alay 5,1998, a
denied the relief requested by the utilities and states and pennitted the DOE to pursue alternative dispute resolution, but prohibited the DOE from using its lack ,f a spent fuel repository as a defense. The United States Supreme Court declined to review tLe decision. The utilities' remaining remedy is to sue the DOE in federal court for money damages caused by the DOE's delay in fulfilling its obligations.
Uranium Enrichment ONigations. Nuclear reactor licensees in the United States are assessed annually for the decontamination and decommissioning of DOE uranium enrichment facilities.
Assessments ne based on the amount of uranium a utility had processed for enrichment prior to enactment of the NationalEnergy Polity Act ofl992, and are to be paid by such utilities over a 15-year period. At December 31,1998, Duquesne's liability for contributions was approxi.nately
) 56.2 million (subject to an inflation adjustment), w hich will be rect vered through the CTC as part of transition costs.
37
Fossil Decorninissioning Based on studies conducted in 1997, the amount for fossil deconunissioning is currently estimated to be $130 million for Duquesne's interest in 17 units at six sites. Each unir b opecad m he decommissioned upon the cessation of the unit's final operations. Duquen was not permitted to recover these costs as part ofits restructuring plan. (See " Rate Alatters." Note E, on page 29.)
Guarantees Duquesne and the other owners of Bruce Alansfield Power Station (Bruce Alansfield) have guaranteed certain debt and lease obligations related to a coal supply contract to.- Bruce Alansfield.
At December 31,1998, Duquesne's share of these guarantees was S10.4 million ,
Residual Haste hianagernent Regulations In 1992, the Pennsylvania Department of Environmental Protection (DEP) issued Residual Waste Alanagement Regulations governing the generation and management of non-hazardous ,
residual waste, such as coal ash. Duquesne is assessing the sites it utilizes and has developed compliance strategies that are currently under review by the DEP. Based on information currently available, S4.5 million will be spent in 1999 to comply with these DEP regulations. The additional capital cost of compliance is estimated, based on current information, to be approximately Sd.8 million per year for the next three years. This estimate is subject to the results of groundwater assessments and DEP final approval of compliance plans Employees Duquesne is party to a labor contract expiring in September 2001 with the International Brotherhood of Electrical Workers (IBEW), which represents approximately 2,000 of Duquesne's employees. The contract provides, among other things, employment security, income protection and 3 percent annual wage increases through September 2000. Daquesne and the IllEW have agreed on a package of additional benefits and protections for union employees affected by the divestiture of generation assets. Any buyer of generation assets currently owned by Duquesne will be required to offer w ork to current IBEW employees on a seniority basis, recognize the IBEW as the exclusive bargaining representative, establish comparable employee benefit plans, and assume the current labor contract. l In connection with the anticipated divestiture, Duquesne has developed early retirement programs and enhanced separation packages available for eligible IDEW and management j employees. Duquesne expects to recover related costs through the divestiture proceeds. )
Other Duquesne is involved in various other legal proceedings and environmental matters. Duquesne believes that such proceedings and matters,in total, will not have a materially adverse effect on its financial position, results of operations or cash flows.
A The pollution control notes arise from the sale of bonds by public authorities for the purposes of LON G-TE RM financing construction of pollution control facilities at Duquesne's plants or refunding previously l DEST issued bonds. Duquesne is obligated to pay the principal and interest on these bonds. For certain of l the pollution control notes, there is an annual commitment fee for an irrevocable letter of credit.
Under certain circumstances, the letter of credit is available for the payment ofinterest on, or redemption of, all or a portion of the notes. e f.ong-Terrn Debt as ofDecernber 31, (Thousands of Dollars) ,
Interest Principal Outstanding Rate Alaturity 1998 1997 First mortgage bonds 530 8.375 % 1999-2038 $743,000 (a) S 778,000 (b)
Pollution control notes Adjustable (c) 2009-2030 417,985 417,985 Sinking ftmd debentures 5.00 % 2010 2,791 2,791 Aliscellaneous '3,172 Less: Unamortized debt discount and premium - net (3,428) (3,672)
TotalLong-7?nn Debt $1,160,348 $1,218,2 76 (a) Excludes S7i0 million relaied to current matunties during 1999.
(b) Excludes $7L0 milbon related to current maturities dunng 1998.
(c) The pollution control notes have ad ustable i interest rates. The interest rates at year-end averaFed 3.9 percent m 1998 and 1.9 percent in 1997.
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At December 31,1998, sinking fund requirements and maturities oflong-term debt out-standing for the next five years were $75.0 million in 1999, $160.0 million in 2000, none in 2001 and 2002, and $100.0 million in 2003.
'lotal interest charges were $80.2 million in 1998, $85.8 million in 1997, and $88.9 million in 1996.
Interest costs attributable to long4erm debt and other interest were 582.4 million, $88.1 million and
$90.1 million in 1998,1997 and 1996, respectively. Of these amounts, $2.2 million.in 1998, $2.3 million in 1997 and $1.2 million in 1996 was capitalized as AFC. Debt discount or premium and related issuance expenses are amortized over the lives of the applicable issues.
At December 31,1998, the fair value of Duquesne's long-term debt, including current maturities and sinking fund requirements, estimated on the basis of quoted market prices for the same or a
similar issues or current rates offered to Duquesne for debt of the same remaining maturities, was
$1,258.5 million. The principal amount included in Duquesne's consolidated balance sheet is
$1,238.8 miilion.
,, At December 31,1998 and 1997, Duquesne was in compliance with all ofits debt covenants.
K.. Preferred and Preference Stock as ofDeccmber 31, PREFERRED AND (Thousands ofDollars)
PREFERENCE Call Price I998 l997 STOCK Per Share Shares Amount Shares Amount Preferred Stock Series:
3.75% (a)(b) $51.00 148,000 $ 7,407 148,000 $ 7,407 4.00% (a)(b) 51.50 549,709 27,486 549,709 27,486 4.10% (a)(b) 51.75 119,860 6,012 119,860 6,012 4.15% (a)(b) 51.73 132,450 6,643 132,450 6,643 4.20% (a)(b) 51.71 100,000 5,021 100,000 5,021 S2.10 (a)(b) 51.84 159,000 8,039 159,400 8,039 9.00% (c) -
10 3,000 10 3,000 8.375% (d) -
6,000,000 150,000 6,000,000 150,000 5.5% (e) -
15 1,500 10 1,000 Total Preferred Stock 215,108 2l4,608 Preference Stock Series:
Plan Series A(b)(f) 36.90 779,394' 26,914 799,456 28,295 Deferred ESOP benefit (14,240) (16,3 ;
Total Preferred and Preference Stock S227,782 S2Y (a) Preferred stock:4,000,000 authorized shares; (d) Cumulauve Afonthly Income Preferred Sr-
$50 par value; cumulative; $50 per share Series A (A11PS): 6,000,000 authorized sh_
involuntary liquidation value $25 involuntary liquidation value (b) Non-redeemable (e) 1.500 authorized shares; $100.000 par value; (c) 500 authorized shares; 5300,000 par value; S100,000 involuntary liquidation value involuntaryliquidation value $300.000 per share; (O Preference stock: 8,000,000 authorized shares, mandatory redemption beginning August 2000 51 par value; cumulative $35.50 per share involuntary liquidation value A Dequesne subsidiary has 15 shares of preferred stock, par value $100,000 per share, outstanding. ;
The holders of such shares are entitled to a 6.5 percent annual dividend to be paid each September j
- 30. In 1995, another Duquesne subsidiary issued 10 shares of preferred stock, par value 5300,000 4
per share. The holders of such shares are entitled to a 9.0 percent annual dividend paid quarterly.
In Alay 1996, Duquesne Capital L.P. (Duquesne Capital), a special-purpose limited partnership of which Duquesne is the sole general partner, issued 5150.0 million principal amount of 8X percent 1.fonthly Income Preferred Securities (A11PS), Series A, with a stated liquidation value of $25.00. The holders of A11PS are entitled to annual dividends of 8% percent, payable monthly.
The sole assets of Duquesne Capital are Duquesne's 8X percent debentures, with a principal amount of $151.5 million. These debt securities may be redeemed at Duquesne's option on or after Alay 31,2001. Duquesne has guaranteed the payment of distributions on, and redemption price and liquidation amount in respect of the A11PS, to the extent that Duquesne Capital has funds available for such payment from the debt securities. Upon maturity or prior redemption of such debt securities, the A11PS will be mandatorily redeemed. Duquesne's consolidated balance sheet reflects only the $150.0 million of A11PS.
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e Ilolders of Duquesne's preferred stock are entitled to cumulative quarterly dividends. If four quarterly dividends on any series of preferred stock are in arrears, holders of the preferred stock are entitled to elect a majority of Duquesne's board of directors until all dividends have been paid.
[
Ilolders of Duquesne's preference stock are entitled to receive cumulative quarterly dividends if dividends on all series of preferred stock are paid. If six quarterly dividends on any series of preference stock are in arrears, holders of the preference stock are entitled to elect two of Duquesne's directors until all dividends have been paid. At December 31,1998, Duquesne had made all dividend payments. Preferred and preference dividends were $16.6 million, $16.6 million and $12.0 million in 1998,1997 and 1996. Total preferred and preference stock had involuntary liquidation values of $278.4 million and $244.4 million, which exceeded par by $26.9 millinn and
$27.6 million at December 31,1998 and 1997.
- In December 1991, Duquesne established an Employee Stock Ownership Plan (ESOP) to provide matching contributions for a 401(k) Retirement Savings Plan for Alanagement Employees. (See
" Employee Benefits," Note 51, on page 41.) Duquesne issued and sold 845,070 shares of preference ,
stock, plan series A to the trustee of the ESOP. As consideration for the stock, Duquesne received a note valued at $30 million from the trustee.The preference stock has an annual dividend rate of 52.80 per share, and each share of the preference stock is exchangeable for one and one-half shares of DQE common stock. At December 31,1998,514.2 million of preference stock issued in connection with the establishment of the ESOP had been offset, for fmancial statement purposes, by the recognition of a deferred ESOP benefit. Dividends on the preference stock and cash contributions from Duquesne are used to fund the repayment of the ESOP note. Duquesne was not required to make a cash contribution for 1998. Duquesne made cash conts utions of approximately $1.1 million for 1997 and $1.4 million for 1996. These cash contributions were the difference between the ESOP debt service and the amount of dividends on ESOP shares ($2.2 million in 1998, $23 million in 1997 and 1996). As shares of preference stock are allocated to the accounts of participants in the ESOP, Duquesne recognizes compensation expense, and the amount of the deferred compensation benefit is amortized. Duquesne recognized campensation expense related to the 401(k) plans of $1.6 million in 1998, $3.2 million in 1997 and $2.3 million in 1996. Although outstanding preferred stock is generally callable on notice of not less than 30 days, at stated prices plus accrued dividends, the outstanding A11PS and preference stock are not currently callable. None of the remaining Duquesne preferred or preference stock issues has mandatory purchase requirements.
t InJuly 1989, Duquesne became a wholly owned subsidiary of DQE, the holding company formed E2UITY as part of a shareholder-approved restructuring. As a result of the restructuring, DQE common stock replaced all outstanding shares of Duquesne common stock, except for ten shares which DQE holds.
DQE or its predecessor, Duquesne, has continuously paid dividends on common stock since 1953. Payments of dividends on Duquesne's common stock may be restricted by Duquesne's obligations to holders of preferred and preference stock pursuant to Duquesne's Restated Articles ofIncorporation and by obligations of Duquesne's subsidiaries to holders of their preferred securities. No dividends or distributions may be made on Duquesne's common stock if Duquesne has not paid dividends or sinking fund obligations on its preferred or preference stock. Further, the aggregate amount of Duquesne's common stock dividend payments or distributions may not exceed certain percentages of net income if the ratio of total common shareholder's equity to total capitalization is less than specified percentages. As all of Duquesne's common stock is owned by DQE, to the extent that Duquesne cannot pay common dividends, DQE may not be able to pay -
dividends on its common or preferred stock. No part of the retained earnings of Duquesne was restricted at December 31,1998. (See " Rate Alatters," Note E, on pagt 4 29 through 33.)
Effectis e December 31,1998, the Company adopted SE4S No.130, Reporting Comprehensive Income ,
(SFAS No.130). This statement establishes standards for reporting and display of. comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose fmancial statements. The objective of the statement is to report a measure of all changes in equity of a business enterprise that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners (comprehensive income).
Acwmulated Other Compnbenrive income Balances as ofDecember 31, (Thousands ofDollars) 1998 1997 1996 Balance at beginning of year $15,590 $11,102 513,400 Unrealized gains on securities, net of tax 11,736 4,488 (2,2cd)
Balarte at end ofyrar $27,326 $15,590 Si1,102 40 m
7 In accordance with SE45 No.115, Accountingfor Certain investments in Debt and Equity Securities (SFAS No. I15), these investments are classified as available-for-sale and are stated at market value.
The amount of unrealized holding gains related to marketable securities was $46.5 million ($27.3 million net of tax) at December 31,1998, and $26.6 million ($15.6 million net of tax) at December 31,1997,
. u. Pension and Postretirement Benefits surtoves . Duquesne maintains retirement plans to provide pensions for all eligible employees. Upon BENEPf75 retirement, an employee receives a monthly pension based on his or her length of service and compensation.The cost of funding the pension plan is detennined by the unit credit actuarial cost
, method. Duquesne's policy is to record this cost as an expense and to fund the pension plans by an amount that is at least equal to the minimum funding requirements of the Employee Retirement Income Security Act ofl974, but which does not exceed the maximum tax-deductible amount for the year. Pension costs charged to expense or construction were $12.2 million for 1998,512.7 million for 1997, and $11.9 million for 1996.
In addition to pension benefits, Duquesne provides certain health care benefits and life insurance for some retired employees. Participating retirees make contributions, which may be adjusted annually, to the health care plan. The life insurance plan is non-contributory. Company-provided health care benefits terminate when covered individuals become eligible for Medicare benefits or reach age 65, whichever comes first. Duquesne funds actual expenditures for obligations under the plans on a " pay-as-you-go" basis. Duquesne has the right to modify or terminate the plans.
Duquesne accrues the actuarially determined costs of the aforementioned postretirement benefits over the period from the date of hire until the date the employee becomes fully eligible for benefits. Duquesne has elected to amortize the transition obligation over a 20 year period.
In 1998, Duquesne adopted SE4S No.132, Employen' Disclosures about Pensions and Other Postretirement Benefits. This statement revises employers' disclosures about pension and other postretirement benefit plans.
Duquesne sponsors several qualified and nonqualified pension plans and other postretirement benefit plans for its employees. The following tables provide a reconciliation of the changes in the plans' benefit obligations and fair value of plan assets over the two-year period ending December 31,1998, a statement of the funded status as of December 31,1998 and 1997, and summary of assumptions used in the measurement of Duquesne's benefit obligation:
Funded Status ofthe Pension and Postretirement Benefit Plans as ofDecember 31, (Thousands ofDollars)
Pension Postretirement 1998 1997 1998 1997 Change in benefit obligation:
Benefit obligation at beginning of year $ 554,302 $ 497,098 $ 46,330 $ 39,021 Senice cost 14,042 12,340 1,832 1,603 Interest cost 37,723 36,571 3,078 3,048 Actuarialloss (gain) 26,231 26,117 (3,003) 2,299 Benefits paid (26,592) (25,612) (1,879) (1,424)
Curtailments - 2,923 - 1,783
, Settlements (109) (544) - -
Special termination benefits - 5,409 - -
Benefit obligation at end ofyear 605,597 554,302 46,358 46,330 Change in plan assets:
Fair value of plan assets at beginning of year 605,457 525,871 - -
Actual return on plan assets 91,561 95,444 - -
Employer contributions 10,706 9,675 - -
Benefits paid (26,480) (25,533) - -
Fair value ofplan assets at end ofyear 681,244 605,457 - -
Funded status 75,647 51,155 (46,358) (46,330)
Unrecognized net actuarial loss (gain) (173,974) (153,682) (1,795) 1,208 Unrecognized prior senice cost 36,285 39,800 - -
Unrecognized net transition obligation 10,227 12,039 23,607 25,294 Accrued bene /it cost $ (51.815) 5 (50,688) $ (24,546) S (19,828) 41
Weighted-Average Assumptionsfor the ) car Ended December 31, Pension Postretirement 1998 1997 1998 1997 Discount rate used to determine projected benefits obligation 6.50 % 7.00 % 6.50 % 7.00 %
Assumed rate of return on plan assets 7.50 % 8.00 % - -
Assumed change in compensation levels 4.25% 4.75 % - -
Ultimate health' care cost trend rate - -
5.00 % 5.50 %
All of Duquesne's plans for postretirement benefits, other than pensions, have no plan assets.
The aggregate benefit obligation for those plans was $46.4 million as of December 31,1998, and
$46.3 million as of December 31,1997.The accumulated postretirement benefit obligation comprises the present value of the estimated future benefits payable to current retirecs, and a pro rata portion of estimated benefits payable to active employees after retirement.
Pension assets consist primarily of common stocks, United States obligations and corporate debt securities.
Components ofNet Pension Costfor the Icar Ended December 31, (Thousands ofDollars) 1998 1997 1996 Components of net pension cost:
Service cost $ 14,042 $ 12,340 S 12,209 Interest co3t 37,723 36,571 32,597 Actual return on plan assets (91,561) (95,444) (58,173)
Net amortization and deferrals 52,032 65,800 25,312 Net Pension Cost $ 12,236 S 19,267 5 11,945 Components ofPostretirement Costfor th ' lear Ended December 31, (Ihousands ofDollars) 1998 1997 1996 Components of postretirement cost:
Service cost $ 1,832 5 1,603 $ 1,182 Interest cost 3,078 3,048 2,046 Amortization of the transition obligation 1,687 1,686 1,700 Other -
218 .(812)
Total Postrrtirement Cost S 6,597 5 6,555 S 4,116 Assumed health care cost trend rates have a significant effect on the amounts reported for the .
health care plans.
i
. /E cct car or the] ofaEnded One December Percent 31,1998 Change in IIcalth Care Cost Trend Rates ,
(Thousands ofDollars) 1 Percent 1 Percent increase Decrease
, Effect on total of service and interest cost components of l
net periodic postretirement health care benefit cost $ 602 $ (521)
Effect on the health care component of the accumulated postretirement benefit obligation 5 4,819 $(4,202) l 42
T Retirrment Sat ings Plan and Other Benefit Options Duquesne sponsors separate 401(k) retirement plans for its management and bargaining unit employees.
The 401(k) Retirement basings Plan for Alanagement Employees prmides that Duquesne will match employee contributions to a 401(k) account up to a maximum of 6 percent of an employee's eligible salary.The Duquesne match consists of a $0.25 base match per cligible contribution dollar and an additional 50.25 incentive match per eligible contribution dollar,if Board-appn>ved targes are achieved. The 1998 incentive target for management was not accomplished. Duquesne is funding its matching contributions to the 401(k) Retirement Savings Plan for Atanagement ]
, Employees with payments to an ESOP established in December 1991 (See " Preferred and Preference Stock," Note K, on page 39.)
The 401(k) Retirement Savings Plan for IBEW Represented Employees provides that Duquesne -
will match employee contributions to a 401(k) account up to a maximum of 4 percent of an I employee's eligible salary. The Duquesne match consists of a S0.25 base match per eligible contribution dollar and an additional 50.25 incentive match per eligible contribution dollar, if certain targets are met. In 1998, the incentive target for bargaining unit employees was not accomplished.
DQE's shareholders have approved a long-term incentive plan, as amended, through which Duquesne may grant management employees options to purchase, during the years 1987 through 2006, up to a total of 9.9 million shares of DQE's common stock at prices equal to the fair market value of such stock on the dates the options were granted. At December 31,1998, approximately 3.8 million of these shares were available for future grants.
As of December 31,1998,1997 and 1996, active grants totaled 1,230,946; 1,084,041; and 1,698,000 shares. Exercise prices of these options ranged from $15.8334 to $43.4375 at December 31,1998; $15.8334 to $33.7813 at December 31,1997; and from $8.2084 to $30.875 at December 31,1996. Expiration dates of these grants ranged from 2000 to 2008 at December 31, 1998; from 2000 to 2007 at December 31,1997; and from 1997 to 2006 at December 31,1996. As of December 31,1998,1997 and 1996, stock appreciation rights (SARs) had been granted in connection with 867,1N; 635,995; and 984,000 of the options outstanding. During 1998,233,532 SARs were esercised; 170,476 options were exercised at prices ranging from $15.8334 to $31.5625; and no options were cancelled. During 1997,694,984 SARs were exercised; 638,494 options were exercised at prices ranging from S8.2084 to $30.75; and no options were cancelled. During 1996, 715,000 SARs were exercised; 267,000 options were exercised at prices ranging from $8.2084 to
$20.3334; and 150 options were cancelled. Of the active grants at December 31,1998,1997 and 1996,750,463; 402,816; and 668,000 were not exercisable.
N. Effective December 31,1998, Duquesne adopted SE4S No.131, Disdorurcs alour Segments ofan BUSINESS Entripise and Related1nfmnation (SFAS No.131). This statement establishes standards for the way AND RE TED t public business enterprises report information about operating segmenri. Operating segments INFORMATION are mnponents of an enterprise about which separate financial information is available that is evaluated repd y by the chief operating decision maker in deciding how to allocate resources and in assessin armance. This statement also establishes standards for related disclosures about produr , ser ices, geographic areas, and major customers.
. Ili. cically, Duquesne has been treated as a single integrated business sepnent due to its regulated operating emironment. The PUC authorized a combined rate for supplying and delivering electricity to customers which was cost-based and was designed to recover Duquesne's operating expenses and
, investment in electric utility assets and to provide a return on the investment. As a result of the Customer Choice Act, generation ofelectricity will be deregulated and charged at a separate rate from the delivery of electricity beginning in 1999 (fwe percent of customers chose alternative generation suppliers in 1998). For the purposes of complying with SFAS No.131, Duquesne is requireJ to disclose information about its business sepnents separately. Accordingly, Duquesne has used the PUC-approved separate rates for 1999 to develop the fmancialinformation of the business segments for the periods ended December 31,1999,1997 and 1996.
Beginning in 1999, Duquesne's principal busii. , sepnents (determined by pnalucts and services) will consist of the transmission and distribution by Duquesne of electricity (electricity delivery business sepnent) and the generation by Duquesne of electricity and collection of the CFC (electricity generation business segment). L comply with SFAS No.131, Duquesne has reported the results for 1998,1997 and 1996 by these business sepnents and an "all other" category. The all other category in the folkming table includes Duquesne investments below the quantitative threshoki for separate disclosure.
I Financial data for business segments is provided as follows:
43
1 Business Segmentsfor the Year Ended December 31, (Thousands ofDollars)
Electricity Electricity All Deliverv Gerieration Other Consolidated 1998 Operating revenues $ 321,484 $ 855,310 $ - $1,176,794 Operating expenses 183,320 579,969 6,653 769,942 Depreciation and amortization expense 46,723 157,995 - 204,718 Operating income (loss) 91,441 117,346 (6,653) 202,134 Other income 3,425 13,161 22,577 39,163
- Interest and other charges 37,711 58,637 437 96,785 Income before extraordinary item 57,155 71,870 15,487 144,512 Extraordinary item, net of tax - (82,548) - (82,548) ,
, Net income (loss) after extraordinary item $ 57,155 $ (10,678) $ 15,487 $ 61,964 i
i Assets $1,314,266 $2,711,533 $ 149,329 $4,175,128 I Capital expenditures S 71,699 $ 41,629 $ 5,119 $ 118,447 (Thousands ofDollars)
Electricity Electricity All Deliverv Generation Other Consolidated 1997 Operating revenues $ 316,938 5 859,003 $ - $1,175,941 Operating expenses 177,468 555,276 431 733,175 !
Depreciation and l amortization expense 44,573 190,808 - 235,381 Operating income (loss) 94,897 112,919 (431) 207,385 .
Other income 5,613 11,432 15,785 32,830 l Interest and other charges 38,612 63,805 - 102,417 Net income S 61,898 5 60,546 5 15,354 5 137,798 Assets $1,476,133 $2,201,229 5 162,817 S3,840,179 Capital expenditures S 57,646 5 32,763 $ 3,334 $ 93,743 (Thousandt ofDollars)
Electricity Electricity All Deliverv Generation Other Consolidated ,
1996 Operating revenues S 308,826 5 878,581 S - $1,187,407 Operating expenses 172,787 575,959 244 748,990 ,
Depreciation and amortization expense 44,639 171,699 -
216.338 Operating income (loss) 91,400 130,923 (244) 222,079 Other income 2,400 10,015 -12,148 24,563 Interest and other charges 37,197 63,359 271 100,827 Net income S 56,603 5 77,579 S 11,633 5 145,815 Assets $1,407,529 52,355,294 5 134,263 $3,897,086 Capital expenditures S 52,514 S 35,371 5 661 5 88,546 44
C. Sumrnary ofSelected Quarterly Financial Data (Thousands ofDollars)
CUARTERLY FINANCIAL [lhe quarterly data reflect seasonal wcather variations in the electric utility's service territory }
INFOR AT ON 1998 First Quarter Second Quarter Third Quarter Fourth Quarter Operating revenues (a) $285,157 $287,333 S326,677 S277,627 Operating income 45,331 45,818 63,181 47,804 income before extraordinary item 33,445 30,560 48,243 36,300 Extraordinary item -
(82,548) - -
Net income after extraordinarv item 33,445 (51,988) 48,243 36,300 1
1997 First Quarter Second Quarter Third Quarter Fourth Quarter Operating revenues (a) 5285,759 5275,026 5325,588 5289,568 Operating income 55,042 45,291 64,773 42,279 Net income 36,415 27,156 46.074 32,175 (a) Restated to conform with 1998 presentation.
l S
l l
45 f
SELECTED FINANCIAL DATA Amounts in Thousands of Dollars 1998 1997 1996 1995 1994 1993 INCOME STATEMENTITEMS Total operating revenues $1,176,794 51,175,941 51,187,407 $1,189,784 51,180,624 51,172,685 Operating income $ 202,134 5 207,385 5 222,079 5 246,637 5 236,556 5 240,168 Income before extraordinary item S 148,548 5 141,820 $ 149,860 $ 151,070 S 147,449 5 147,362 Extraordinary item S (82,548) 5 -
S -
5 -
S -
S -
Net income after extraordinary item $ 66,000 5 141,820 $ 149,860 S 151,070 5 147,449 5 147,362 Earnings for common stock before extraordinary item $ 144,512 5 137,798 5 145,815 5 145,750 S 141,403 5 138,174 Earnings for common stock .
after extraordinary item S 61,964 5 137,798 5 145,815 5 145,750 S 141,403 S 138,174 i
BALANCE SIIEET rFEMS Property, plant and equipment - net $1,447,299 52,562,919 52,717,473 $2,978,903 $3,068,519 53,123,948
'Ibtal assets $4,175,128 53,840,179 $3,897,086 54,067,665 $4,149,867 54,388,103 Capitalization: j Common stockholder's equity S 868,500 $1,003,833 5 989,424 S1,131,334 51,115,512 51,100,671 a l
Non-redeemable preferred and preference stock 227,782 226,503 223,072 70,966 95,345 124,736 Redeemable preferred and preference stock - - - - - 8,392 leng-term debt 1,160,348 1,218,276 1,271,961 1,322,531 1,368,930 1,416,705 Total capitalization $2,256,630 52,448,612 S2,484,457 $2,524,831 52,579,787 52,650,504 Hem 9. Changes in and Disagreements with Accountants on Accounting and FinancIsl Disclosure.
None.
I 1
Part Ill item 10. Directors and Executive Officers of the Registrant.
All directors of DQE are also directors of Duquesne. Information relating to DQE's and Duquesne's board of l directors is set forth in Exhibit 99.2 hereto.The infonnation is incorporated here by reference. Infonnation relating to
' e the executive officers of tl e Registrant is set forth in Part I of this Report under the caption " Executive Of6cers of the ReFi strant."
Ittm 11. Executive Compensation.
The infonnation relating to executive compensation is set forth in Exhibit 99.1, filed as part of this Report.
The infonnation is incorporated here by reference.
I 1
46
Item 12. Cerurity Ownership of Certcin Geneficial Ownero end Mangement.
DQE is the beneficial owner and holder of all shares of outstanding Common Stock, $1 par value, of Duquesne, consisting of 10 shares as of February 28,1999. Infonnation relating to the ownership of equity securities of DQE and Duquesne by directors and executive officers of Duquesne is set forth in Exhibit 99.1, filed as part of this Report.
The information is incorporated here by reference.
Item 13. Certain Relationships and Related Transactions.
None.
Part IV Item 14. Exhitalts, Financial Statement Schedules and Reports on Form 8-K.
(a)(1)The following infonnation is set forth here on pages 22 through 45:
Report ofIndependent Certified Public Accountants.
Statement of Consolidated Income for the Three Years Ended December 31,1998.
Consolidated Balance Sheet, December 31,1998 and 1997.
Statement of Consolidated Cash Flows for the Three Years Ended December 31,1998.
Statement of Consolidated Retained Earnings for the Three Years Ended December 31,1998.
Notes to Consolidated Financial Statements.
(a)(2)The following fmancial statement schedule and the related Report ofIndependent Certified Public Accountants are filed here as a part of this Report:
Schedule for the Three Years Ended December 31,1998:
II - Valuation and Qualifying Accounts.
The remaining schedules are omitted because of the absence of the conditions under which they are required or because the information called for is shown in the financial statements or notes to the financial statements.
(a)(3) Exhibits are set forth in the Exhibits Index below, and incorporated here by reference. Documents other than those designated as being filed here are incorporated here by reference. Previously filed documents incorporated by reference to a DQE Annual Report on Fonn 10-K, a Quarterly Report on Form 10-Q or a Current Report on Form 8-K are at Securities and Exchange Commission File No. 1-10290. Documents incorporated by reference to a Duquesne Light Company Annual Report on Form 10-K, Quarterly Report on Form 10-Q or a Current Report on Form 8-K are at Securities and Exchange Commission File No.1-956.The Exhibits include the management contracts and compensatory
. plans or arrangements required to be filed as exhibits to this Fonn 10-K by item 601(d)(10)(iii), of Regulation S-K.
(b) Two Reports on Fonn 8-K were filed during the fiscal quarter ended Decembe 31,1998, and two were filed thereafter.
A report was filed October 5,1998, to report DQE's termination of the merger agreement with AYE.
No financial statements were filed with this report.
A report was filed October 15,1998, to report the execution by Duquesne and FirstEnergy of an agreement in principle to exchange interests in certain power stations. No financial statements were filed with this report.
A report was filed Alarch 19,1999, to report the consent agreement entered into by DQE and AYE. No financial statements were filed with this report.
A report was filed Alarch 26,1999, to report the execution of defir itive power station exchange agreements.
No financial statements were filed with this report.
47
Oxhibit3 Index Exhibit Method of N o. Description Filing 2.1 Generation Exchange Agreement by and between Exhibit 2.1 to the Fonn 8-K Duquesne Light Company, on the one hand, and Current Report of Duquesne The Cleveland Electric Hluminating Company, Light Company dated Ohio Edison Company and Pennsylvania Power Alarch 26,1999. ,
Company, on the other, dated as of Alarch 25,1999.
2.2 Nuclear Generation Conveyance Agreement by and Exhibit 2.2 to the Fonn 8-K
- between Duquesne Light Company on the one hand, Current Report of Duquesne and Pennsylvania Power Company and the Cleveland Light Company dated Electric Illuminating Company, on the other, dated Alarch 26,1999.
as of Alarch 25,1999.
3.1 Restated Articles of Duquesne Light Company, as Exhibit 3.1 to the Form 10-K amended through December 19,1991 and as currently Annual Report of Duquesne in effect. Light Company for the year ended December 31,1991.
3.2 By-Laws of Duquesne Light Company, as arnended Exhibit 3.2 to the Fonn 10-K through December 18 1996 and as currently in effect. Annual Report of Duquesne Light Company for the year ended December 31,1996.
4.1 Indenture dated Alarch 1,1960, relating to Duquesne Exhibit 4.3 to the Fonn 10-K Light Company's 5% Sinking Fund Debentures. Annual Report of DQE for the year ended December 31,1989.
4.2 Indenture of Alortgage and Deed of Trust dated as of Exhibit 4.3 to Registration April 1,1992, securing Duquesne Light Company's Statement (Form S-3)
First Collateral Trust Bonds. No. 3 3-52 782.
4.3 Supplemental Indentures supplementing the said Indenture of 31ortgage and Deed of Trust -
Supplemental Indenture No.1. Exhibit 4.4 to Registration Statement (Fonn S-3)
No. 3 3-52782.
Supplemental Indenture No. 2 through Supplemental Exhibit 4.4 to Registration indenture No. 4. Statement (Form S-3)
No. 3 3-63602.
Supplemental Indenture No. 5 through Supplemental Exhibit 4.6 to the Form 10-K Indenture No. 7. Annual Report of Duquesne Light Company for the year ended December 31,1993.
48 1
Gxhibit Method of N o. Description Filing Supplemental Indenture No. 8 and Supplemental Exhibit 4.6 to the Form 10-K Indenture No. 9. Annual Report of Duquesne Light Company for the year ended December 31,1994.
SupplementalIndenture No.10 through Supplemental Exhibit 4.4 to the Fonn 10-K
> Indenture No.12. Annual Report of Duquesne Light Company for the year ended December 31,1995.
Supplemental Indenture No.13. Exhibit 4.3 to the Fonn 10-K Annual Report of Duquesne Light Company for the year ended December 31,1996.
Supplemental Indenture No.14. Exhibit 4.3 to the Fonn 10-K Annual Report of Duquesne Light Company for the year ended December 31,1997.
4.4 Amended and Restated Agreement of Limited Partnership Exhibit 4.4 to the Fonn 10-K of Duquesne Capital L.P., dated as of Alay 14,1996. Annual Report of Duquesne Light Company for the year ended December 31,1996.
1 4.5 Payment and Guarantee Agreement dated as of Alay 14, Exhibit 4.5 to the Fonn 10-K l 1996 by Duquesne Light Company with respect to A1IPS. Annual Report of Duquesne
{
Light Company for the year !
cnded December 31,1996.
l l
4.6 Indenture dated as of Alay 1,1996 by Duquesne Light Exhibit 4.6 to the Fonn 10-K i Company to the First National Bank of Chicago as Trustee. Annual Report of Duquesne Light Company for the year ended December 31,1996.
Agrrements relating toJointly Ou ned Generating L' nits:
10.1 Administration Agreement dated as of September 14,1967. Exhibit 5.8 to Registration
. Statement (Form S-7)
No. 2-43106.
10.2 Transmission Facilities Agreement dated as of Exhibit 5.9 to Registration September 14,1967. Statement (Fonn S-7)
No. 2-43106.
10.3 Operating Agreement dated as of September 21,1972 Exhibit 5.1 to Registration for Eastlake Unit No. 5. Statement (Fonn S-7)
No. 2-48164.
1 10.4 Alemorandum of Agreement dated as ofjuly 1,1982 re Exhibit 10.14 to the Form 10.K reallocation of rights and liabilities of the companies Annual Report of Duquesne under uranium supply contracts. Light Company for the year ended December 31,1987.
I 49
I.
Exhibit Method of No. D.<s cription Filing 10.5 Operating Agreement dated August 5,1982 as of Exhibit 10.17 to the Form 10-K September 1,1971 for Sammis Unit No. 7. Annual Report of Duquesne ;
Light Company for the year ended December 31,1988.
10.6 Alemorandum of Understanding dated as of Alarch 31, lhhibit 10.19 to the Fonn 10-K 1985 re implementation of company-by-company Annual Report of DQE for the i management of uranium inventory and delivery. year ended December 31,1989.
10.7 Restated Operating Agreement for lleaver Valley Unit Exhibit 10.23 to the Form 10-K Nos. I and 2 dated September 15,1987. Annual Report of Duquesne ,
Light Company for the year ended December 31,1987.
10.8 Operating Agreement for Perry Unit No. I dated Exhibit 10.24 to the Fonn 10-K Alarch 10,1987. Annual Report of Duquesne Light Company for the year ended December 31,1987.
10.9 Operating Agreement for llruce Alansfield Units Nos.1, Exhibit 10.25 to the Form 10-K 2 and 3 dated September 15,1987 as ofJune 1,1976. Annual Report of Duquesne Light Company for the year ended December 31,1987.
10.10 Basic Operating Agreement, as amendedJanuary 1,1993. Exhibit 10.10 to the Form 10-K Annual Report of Duquesne Light Company for the year ended December 31,1993.
10.11 Amendment No. I dated December 23,1993 to Exhibit 10.11 to the Fonn 10-K Transmission Facilities Agreement (as ofJanuary 1,1993). Annual Report of Duquesne Light Company for the year ended December 31,1993.
10.12 Alicrowave Sharing Agreement (as amended Exhibit 10.12 to the Form 10-K January 1,1993) dated December 23,1993. Annual Report of Duquesne I ight Company for the year ended December 31,1993.
10.13 Agreement (as of September 1,1980) dated Exhibit 10.13 to the Fonn 10-K December 23,1993 for termination or construction Annual Report of Duquesne of certain agreements. Light Company for the year ended December 31,1993. r Agreements relating to the Sale and Leaseback ofBeater Udley Unit No. 2:
10.14 Order of the Pennsylvania Public Utility Commission Exhibit 28.2 to the Fonn 10-Q dated September 25,1987 regarding the application Quarterly Report of Duquesne of the Duquesne Light Company under Section 1102(a)(3) Light Company for the quarter of the Public Utility Code for approval in connection with ended September 30,1987.
the sale and leaseback ofits interest in Beaver Valley Unit No. 2.
50
Exhibit Method of h o. Description Filing 10.15 Order of the Pennsylvania Public Utility Commission Exhibit 10.28 to the Form 10 '<
dated October 15,1992 regacding the Securities Annual Report of Duquesne Certificate of Duquesne Light Company for the Light Company for the year l assumption of contingent obligations under ended December 31,1992. l fmancing agreements in connection with the I
refunding of Collateralized Lease llonds. )
x10.16 Facility Lease dated as of September 15,1987 between Exhibit (4)(c) to Registration The First National Bank of Boston, ss Owner 'nustee Statement (Form S-3)
, under a Trust Agreement dated as of September 15,19F7 No. 33-18144.
with the limited partnership Owner Participant named therein, Lessor, and Duquesne Light Company, Lessee.
yl0.17 Facility Lease dated as of September 15,1987 between Exhibit (4)(d) to Registration The First National llank of Boston, as Owner Trustee Statement (Form S-3) under a T ust Agreement dated as of September 15, No. 33 -18144.
1987, with the corporate Owner Panicipant named therein, Lessor, and Duquesne Ligt Company, Lessee.
r 10.18 Amendment No. I dated as of December 1,1987 to Exhibit 10.30 to the Form 10-K Facility Lease dated as of September 15,1987 between Annual Report of Duquesne The First National Bank of Boston, as Owner'liustee Light Company for the year under a Trust Agreement dated as of September !5,1987 ended December 31,1987.
with the limited partnership Owner Participant named therein, Lessor, and Duquesne Light Company, Lessee.
yl0.19 Amendment No. I dated as of December 1,1987 to Exhibit 10.31 to the Form 10-K Facility Lease dated as of September 15,1987 between Annual Report of Duquesne The First National Bank of Boston, as Owner Trustee Light Company for the year ,
under a Trust Agreement dated as of September 15, ended December 31,1987.
1987 with the corporate Owner Participant named therein, Lessor, and Duquesne Light Company, Lessee.
x 10.20 Amendment No. 2 dated as of November 15,1992 to Exhibit 10.33 to the Form 10-K Facility Lease dated as of September 15,1987 between innual Repon of Duquesne The First National Bank of Boston, as Owner Trustee Light Company for the year under a Trust Agreement dated as of September 15,1987 ended December 31,1992.
with the limited partnership Owner Participant named e
therein, Lessor, and Duquesne Light Company, Lessee.
ylo.21 Amendment No. 2 dated as of November 15,1992 to Exhibit 10.34 to the Form 10-K Facility Lease dated as of September 15,1987 between Annual Report of Duquesne 1
The First National Bank ofIloston, as Owner 'Ihistee Light Company for the year under a Trust Agreement dated as of September 15, ended December 31,1992.
1987 with the corporate Owner Participant named thei .in, Lessor, and Duquesne Light Company, Lessee.
p x 10.22 Amendment No. 3 dated as of October 13,1994 to Exhibit 10.25 to the Form 10-K Facility Lease dated as of September 15,1987 between Annual Report of Duquesne The First National Bank of Boston, as Owner 'Ihistee Light Company for the year under a Trust Agreement dated as of September 15.1987 ended December 31,1994.
with the limited partnership owner Participant named therein, Lessor, and Duquesne Light Company, Lessee.
51
Exhibit Method of N o. Description FiHng y10.23 Amendment No. 3 dated as of October 13,1994 to Exhibit 10.26 to the Form 10-K Facility Lease dated as of September 15,1987 betu een Annual Report of Duquesne The First National Bank of Boston, as Owner Trustee Light Company for the year under a Trust Agreement dated as of September 15,1987 ended December 31,1994.
with the cmporate Owner Panicipant named therein, Lessor, and Duquesne Light Company, Lessee.
Exhibit (28)(a) to Registration x10.24 Participation Agreement dated as of September 15, 1987 among the limited partn. lip Owner Statement (Fonn S-3)
Participant named therein. the Original Loan No. 33-18144.
Paiticipants listed in Schedule I thereto, as Original Loan Participants, DQU Funding Corporation, as Funding Corp, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Daquesne Light Company, as Lessee.
yl0.25 Participation Agreement dated as of September 15,1987 Exhibit (28)(b) to Registration among the corporate Owner Participant named therein, Statement (Form S-3) the Original Loan Participants listed in Schedule 1 No. 3 3-18144.
thereto, as Original Loan Participants, DQU Funding Corporation, as Funding Corp, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Duquesne Light Company, as Lessee.
x10.26 Amendment No. I dated s of December 1,1987 to Exhibit 10.34 to the Form 10-K Participation Agreement dat i as of September 15,1987 Annual Report of Duquesne among the limited partnership Owner Participant named Light Company for the year therein, the Original Loan Participants listed therein, ended December 31,1987.
as Original Loan Participants, DQU Funding Corporation, as Funding Corp, The First National Bank ,
of Boston, as Owner Trustee, Irving'Ii ust Company, as I Indenture Trustee and Duquesne Light Company, as Lessee.
yl0.27 Amendment No. I dated as of December 1,1987 to Exhibit 10.35 to the Form 10-K l '
Participation Agreement dated as of September 15,1987 Annual Report of Duquesne among the corporate Owner Panicipant named therein, Light Company for the year the Original Loan Participants listed therein, as Original ended December 31,1987.
Loan Participants, DQU Funding Corporation, as Funding Corp, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Duquesne Light Company, as Lessee.
Amendment No. 2 dated as of March 1,1988 to Exhibit (28)(c)(3) to r l
- x10.28 Participation Agreement dated as of September 15,1987 Registration Statement l
i among the limited partnership Owner Participant named (Form S-3) No. 33-54648.
therein, DQU Funding Corporation, as Funding Corp, The First National Bank of Boston, as Owr.er Trustee, Irving 'Irust Company, as Indenture Trustee and Duquesne Light Company, as Lessee.
52
I Cxhibit Method of N o. Description Filing yl0.29 Amendment No. 2 dated as of March 1,1988 to Exhibit (28)(c)(4) to Participation Agreement dated as of September 15,1987 Registration Statement among the corporate Owner Participant named therein, (Form S-3) No. 33-54648.
DQU Funding Coquration, as Funding Corp, The First Nanonal Bank of Boston, as Owner Tiustee, Irving Trust Company, as Indenture Trustee and Duquesne Light Company, as Lessee.
x 10.30 Amendment No. 3 dated as of November 15,1992 to Exhibit 10.41 to the Form 10-K Participation Agreement dated as of September 15,1987 Annual Report of Duquesne among the limited partnership Owner Participant named Light Company for the year therein, DQU Funding Corporation, as Funding Corp, ended December 31,1992.
DQU 11 Funding Corporation, as New Funding Corp, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Duquesne Light Company, as Lessee.
yl0.31 Amendment No. 3 dated as of November 15,1992 to Exhibit 10.42 to the Form 10-K )
Participation Agreement dated as of September 15,1987 Annual Report of Duquesne j among the corporate Owner Participant named therein, Light Company for the year DQU Funding Corporation, as Funding Corp, ended December 31,1992. I DQU 11 Funding Corporation, as New Funding Corp, l The First National Bank of Boston, as Owner Trustee, l
The Bank of New York, as Indenture Trustee and 1 Duquesne Light Company, as Lessee.
I x10.32 Amendment No. 4 dated as of October 13,1994 to Exhibit 10.35 to the Form 10-K Participation Agreement dated as of September 15,1987 Annual Report of Duquesne among the limited partnership Owner Participant named Light Company for the year ,
therein, DQU Funding Corporation, as Funding Corp, ended December 31,1994. !
DQU 11 Funding Corporation, as New Funding Corp, The First National Bank of Boston, as owner Tustee, The Bank of New York, as Indenture Trustee and Duquesne Light Company, as Lessee.
yl0.33 Ameninent No. 4 dated as of October 13,1994 to Exhibit 10.36 to the Form 10-K Participation Agreement dated as of September 15,1987 Annual Report of Duquesne among the corporate Owner Participant named therein, Light Company for the year DQU Funding Coqoration, as Funding Corp, ended December 31,1994.
. DQU 11 Funding Corporation, as New Funding Corp, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and
, Duquesne Light Company, as Lessce.
zl0.34 Ground Lease and Easement Agreement dated as of Exhibit (28)(e) to Registration September 15,1987 between Duquesne Light Company, Statement (Form S-3)
Ground Lessor and Gr ator, and The First National Bank No. 33-18144.
l of Boston, as owner Trustee under a Trust Agreement l dated as of September 15,1987 wi:h the limited partnership Owner Participant named therein, Tenant and Grantee, t
53
Exhibit Method of No. Descriptior Fillrig z10.3 5 Assignment, Assumption and Further Agreement dated as Exhibit (28)(f) to Registration of September 15,1987 among The First National llank of Statement (Form S-3) lloston, as Owner Trustee under a Trust Agreement dated No. 33-18144.
as of September 15,1987 with the limited partnership Owner Participant named therein, The Cleveland Electric illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and The <
'Ibledo Edison Company.
710.36 Additional Support Agreement dated as of September 15, Exhibit (28)(g) to Registration ,
1987 between The First National llank of Iloston, as Statement (Fonn S-3)
Owner Frustee under a Trust Agreement dated as of No. 3 3-18144.
September 15,1987 with the limited partnership Owner Participant named therein, and Duquesne Light Company.
710.37 Indenture, Ilill of Sale, Instrument of Transfer and Exhibit (28)(h) to Registration Severance Agreement dated as of October 2,1987 Statement (Fonn S-3) between Duquesne Light Company, Seller, and The First No. 33-18144.
National llank ofIloston, as owner Tiustre under a Trust Agreement dated as of September 15,1987 with the limited part nersl.9 Owner Participant named therein, Iluyer.
710.38 Tax Indemnification Agreement dated as of September 15, Exhibit 28.1 to the Fonn 8-K 1987 between the Owner Participant named therein and Current Report of Duquesne Duquesne Light Company, as Lessee. Light Company dated November 20,1987.
710.39 Amendment No. I dated as of November 15,1992 to Exhibit 10.48 to the Form 10-K Tax Indemnification Agreement dated as of September 15, Annual Report of Duquesne 1987 between the Owner Participant named therein and Light Company for the year Duquesne Light Company, as Lessee. ended December 31,1992.
zl0.40 Amendment No. 2 dated as of October 13,1994 to Tax Exhibit 10.43 to the Fonn 10-K Indannification Agreement dated as of Sentember 15,1987 Annual Report of Duquesne between the Owner Participant named therem and Light Company for the year Duquesne Light Company, as Lessee. ended December 31,1994.
zl0.41 Extension Letter dated December 8,1992 from Exhibit 10.49 to the Form 10-K Duquesne Light Company, each Owner Participant, The Annual Report of Duquesne ,
First National llank of Itoston, the Lease Indenture Light 6 >mpany for the year Trustee, DQU Funding Corporation and DQU 11 ended December 31,1992.
Funding Corporatio- addressed to the New Collateral Trust Trustee extending their respective representations and warranties and covenants set forth in each of the Participation Agreements.
x10.42 Trust Indenture, Alortgage, Security Agreement and Exhibit (4)(g) to Registration Assignment of Facility Lease dated as of September 15, Statement (Fonn S-3) 1987 between The First National llank of Iloston, as No. 3 3-18144.
Owner Trustee under a Trust Agreement dated as of September 15,1987 with the limited pannership Owner Participant named therein, and Ining Trust Company, as Indenture Trustee.
54
Cxhibit Method of N o. Description Filing yl0.43 Trust Indenture, Atortgage, Security Agreement and Exhibit (4)(h) to Registration Assignment of Facihty Lease dated as of September 15, Statement (Fonn S-3) 1987 between The First National Bank of Boston, as No. 3 3- 18144.
Owner Trustee under a Trust Agreement dated as of September 15,1987 with the corporate Owner Participant named therein, and Ining Trust Company, as Indenture Trustee.
a x10.44 Supplemental Indenture No. I dated as of December 1, Fxlubit 10.45 to the Fonn 10-K 1987 to Trust Indenture, Alortgage, Security Agreement Annual Report of Duquesne j and Assignment of Facility Lease dated as of September 15, Light Company for the year 1987 between The First National Bank of Boston, as Owner {
ended December 31,1987. >
Tmstee under a Trust Agreement dated as of September 15, 1987 with the limited partnership Owner Participant named therein, and Irving Trust Company, as Indenture Trustee.
yl0.45 Supplemental Indenture No. I dated as of December 1, Exhibit 10.46 to the Form 10-K 1987 to Trust indenture, Alortgage, Security Agreement Annual Report of Duquesne ,
and Assignment of Facility Lease dated as of September 15, Light Company for the year i 1987 between The First National llank of Boston, as ended December 31,1987. l Owner Trustee under a 'liust Agreement dated as of September 15,1987 with the corporate Owner Participant named therein, and Ining Trust Company, as Indenture Trustee.
x10.46 Supplemental Indenture No. 2 dated as of November 15, Exhibit 10.54 to the Form 10-K 1992 to Trust Indenture, Afortgage, Security Agreement Annual Report of Duquesne and Assignment of Facility Lease dated as of September 15, Light Company for the year 1987 between The First National Bank of Boston, as ended December 31,1992.
Owner Trustee under a Trust Agreement dated as of j September 15,1987 with the limited partnership Owner Participant named therein, and The Bank of New York, as Indenture Trustee.
yl0.47 Supplemental Indenture No. 2 dated as of November 15, Exhibit 10.55 to the Fonn 10-K 1992 to Trust Indenture, Afortgage, Security Apaement Annual Report of Duquesne l and Assignment of Facility Lease dated as of September 15, Light Company for the year
! 1987 between The First National Bank of Boston, as ended December 31,1992.
a Owner Trustee under a Trust Agreement da;ed as of September 15,1987 with the corporate Owner Participant named therein, and The Bank ofNew York,
, as Indenture Trustee.
10.48 Reimbursement Agreement dated as of October ',1994
. Exhibit 10.51 to the Form 10-K among Duquesne Light Company, Swiss Bank Annual Report of Duquesne Corporation, New York Branch, as LOC Bank, Union Light Company for the year Bank, as Administrating Bank, Swiss Bank ended December 31,1994.
Corporation, New York Branch, as Administrating Bank and The Participating Banks Named Therein.
55
Exhibit Method of N o. Description Filing 10.49 Collateral Trust Indenture dated as of Nm ember 15,1992 Exhibit 10.58 to the Fonn 10-K among DQU 11 Funding Corporation, Duquesne Light Annual Report of Duquesne Company and The llank of New York, as Trustee. Light Company for the year ended December 31,1992.
10.50 First Supplemental Indenture dated as of November 15,1992 Exhibit 10.59 to the Form 10-K to Collateral Trust Indenture dated as of November 15,1992 Annual Report of Duquesne ,
among DQU 11 Funding Corporation, Duquesne Light Light Company for the year Co:npany and The Bank of New York, as Trustee. ended December 31,1992.
x10.51 Refmancing Agreement dated as of November 15,1992 Exhibit 10.60 to the Form 10-K anmng the limited partnership Owner Participant Annual Report of Duquesne Light Company for the year i namul therein, as Owner Panicipant, DQU Funding Corporation, as Funding Corp, DQU 11 Funding ended December 31,1992.
Corporation, as New Funding Corp, The First National Bank of Boston, as owner Trustee, The Bank of New Ti>rk, as Indenture Trustee, The Bank of New l York, as Collateral Trust Trustee, The Bank of New Wrk, j as New Collateral Trust Trustec, and Duquesne Light Company, as Lessee.
yl0.52 Refmancing Agreement dated as of November 15,1992 Exhibit 10.61 to the Form 10-K among the corporate Owner Participant named therein, Annual Report of Duquesne as Owner Participant, DQU Funding Corporation, Light Company for the year as Funding Corp, DQU 11 Funding Corporation, ended December 31,1992.
as New Funding Corp, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee, The Bank of New York, as Collateral Trust Trustee, The Bank of Ne- ihrk, as New Collateral Trust Trustee, and Duquesne Light Company, as Lessee.
x10.5 3 AdJendum dated December 8,1992 to Refinancing Exhibit 10.62 to the Form 10-K Agreement dated as of November 15,1992 among the Annual Report of Duquesne i limited partnership On ner Participant named therein, Light Company for the year l as Owner Participant, DQU Funding Corporation, as ended December 31,1992.
- Funding Corp, DQU 11 Funding Corporation, as New Funding Corp, The First National Bank of Boston, as owner Trustee, The Bank of New York, as Indenture Trustee, The Bank of New York, as Collateral Trust Trustee, The Bank of New York, as New Collateral Trust Trustee,
- and Duquesne Light Company, as Lessee.
yl0.54 Addendum dated December 8,1992 to Refmancing Exhibit 0.63 to the Fonn 10-K r Agreement dated as of November 15 1992 among the Annual Report of Duquesne corporate Owner Participant named therein, as Light Company for the year Owner Partici; e, sQU Funding Corporation, as ended December 31,1992.
Funding Corp, DQU 11 Funding Corporation, as New Funding Corp, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee, The Bank of New York, as Collateral Trust Trustee, The Bank of New York, as New Collateral Trust Trustee, and Duquesne Light Company, as Lessee.
56
Exhibit Method of N o. Description Filing OtherAgreements:
10.55 Deferred Compensation Plan for the Directors of Exhibit 10.1 to the Form 10-K Duquesne Light Company, as amended to date. Annual Report of DQF for the year ended December 31,1992.
- 10.56 Incentive Compensation Program for Certain Executive Exhibit 10.2 to the Fonn 10-K Officers of Duquesne Light Company, as amended to date. Annual Report of DQE for the year ended December 31,1992.
?
89.57 Description of Duquesne Light Company Pension Exhibit 10.3 to the Form lo-K Service Supplement Program. Annual Report of DQE for the ,
year ended December 31,1992. j 10.58 Duquesne Light Company Outside Directors' Exhibit 10.59 to the Form 10-K Retirement Plan, as amended to date. Annual Report of Duquesne Light Company for the year ended December 31,1996.
10.59 Duquesne Light /DQE Charitable Giving Program, Exhibit 10.1 to the Fonn 10-Q as amended. Quarterly Report of DQE for l the quarter ended Alarch 31, 1998.
10.60 Perfonnance incentive Program for DQE, Inc. and Exhibit 10.7 to the Fonn 10-K Subsidiaries formerly known as the Duquesne Light Annual Report of DQE for the Company Perfotmance incentive Program. year ended December 31,1996.
10.61 Employment Agreement dated as of August 30,1994 Exhibit 10.9 to the Form 10-K between DQE, Duquesne Light Company and Annual Report of DQE for the David D. Alarshall. year ended December 31,1994.
l 10.62 First Amendment dated as ofJune 27,1995 to Exhibit 10.68 to the Form 10-K Employment Agreement dated as of August 30,1994 Annual Report of Duquesne
- between DQE, Duquesne Light Company and Light Company for the year
! David D. Alarshall. ended December 31,1995.
10.63 Employment Agreement dated as of August 30, ' 994 Duquesne Light Company between DQE, Duquesne Light Company and Exhibit 10.10 to the Form 10-K
- Gary L. Schu ass. Annual Report of DQE for the year ended December 31,1994.
1 10.64 Employment Agreement dated as of October 14.1996 Exhibit 10.70 to the Form 10-K between Duquesne Light Company and James E. Cross. Annual Report of Duquesne Light Company for the year ended December 31,1996.
10.65 Non-Competition and Confidentiality Agreement dated Exhibit 10.14 to the Fonn 10-K as of October 3,1996 by and among DQE, Inc., Duquesne Annual Report of DQE for the Light Company and David D. Alarshall, together with a year ended December 31,1996.
schedule listing substantially identical agreements with Victor A. Roque.. James D. .\litchell andJames E. Cross.
57
F 1 I
Exhibit Method of N o. Description Filing 10.66 Schedule to Non-Competition and Confidentiality Exhibit 10.12 to the Form 10-K Agreement dated as of October 3,1996 (Exhibit 10.14 Asmual Report of DQE for the to the Form 10-K Annual Report of DQE for the year year ended December 31,1998.
ended December 31,1996) listing a substantially identical agreement with WilliamJ. DeLeo.
10.67 Severance Agreement dated April 4,1997, between the Exhibit 10.1 to the Form 10-Q
(
Company and David D. 31arshall, together with a Quarterly Report of DQE for the schedule describing substantially identical agreements quarter ended Alarch 31,1997.
with Gary L Schwass, Victor A. Roque, James E. Cross andJames D. Alitchell.
10.68 Schedule to Severance Agreement dated April 4,1997 Exhibit 10.14 to the Form 10-K (Exhibit 10.1 to the Form 10-Q Quarterly Annual Report of DQE for the Report of DQE for the quarter ended Alarch 31,1997) year ended December 31,1998, listing a substantially identical agreement with William J. DeLeo.
12.1 Calculation of Ratio of Earnings to Fixed Charges. Filed here.
21.1 Subsidiaries of registrant:
Duquesne has no significant subsidiaries.
23.1 Indepenlent Auditors' Consent. Filed here.
27.1 Financi l Data Schedule. Filed here.
99.1 Executwe Compensation of Duquesne Light Company Filed here.
Executive Officers for 1998 and Security Ownership of Duquesne Light Company Directors and Executive Officers as of December 31,1998.
99.2 Directors of DQE and Duquesne Light Company. Filed here.
x An additional document, substantially identical in all material respects to this Exhibit, has been entered into relating to one additional limited partnership Owner Participant. Although the additional document may differ in some respects (such as name of the Owner Participant, dollar amounts and percentages), there are no material details in which the document differs from this Exhibit.
y Additional documents, substantially identical in all material respects to this Exhibit, have been entered into 6 relating to font additional corporate Owner Participants. Although the additional documents may differ in some respects (such as names of the Owner Participants, dollar amounts and percentages), there are no material details in which the documents differ from this Exhibit.
(
z Additional documents, subentially identical in all material respects to this Exhibit, have been entered into relating to six additional Ownt. Participants. Although the additional documents may differ in some respects (such as names of the Owner Participants, dollar amounts and percentages), there are no material details in which the documents differ from this Exhibit.
I Copies of the exhibits listed above will be furnished, upon request, to holders or beneficial owners of any . lass of Duquesne's stock as of February 28,1999, subject to payment in advance of the cost of reproducing the exhibits requested.
58
CCHEDULE 11 SCHEDULE il - VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31,1998,1997 and 1996 (Thousands of Dollars)
, Column A Column B Column C Column D Column E Column F Additions llalance at Charged to Charged to Italance Beginning Costs and Other at End Description ofYear Expenses Accounts Deductions of Year 4
Year Ended December 31,1998 Reserve Deducted from the Asset to which it applies:
Allowance for uncollectible accounts $15,016 SI 1,000 S3,290 (A) $20,169 (II) S 9,137 Year Ended December 31,1997 l Reserve Deducted from the Asset to which it applies: 1 Allowance for uncollectible accounts $ 18,294 511,000 $3,934 (A) 518,212 (11) 515,016 l l
l Year Ended December 31,1996 Reserve Deducted from the Asset to which it applies:
Allowance for uncollectible accounts $17,920 $10,582 S4,080 (A) 514.288 (II) 518,204 l
l Notes: (A) Recovery of accounts previously written off.
(!!) Accounts receivable written off.
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59
CI:nnturea Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be sip.ed on its behalf by the u ulersigned, thereunto duly authorized.
DUQUESNE LIG1IT COMPANY (Registrai,t)
Date: Alarch 26,1999 lly: /s/ David D. Alarshall (Signature) (
David D. Alarshall President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Titla Date President, Chief Executive Officer and Director Alarch 26,1999
/s/ David D. Marshall David D. Alarshall
/s/ Gary L. Schwass Senior Vice President and Chief Financial Of6cer Alarch 26,1999 Gary L. Schwass Controller March 26,1999
/s/ James E. Wilson James E. Wilson (Principal Accounting Of6cer)
/s/ Daniel llerg Director Alarch 26,1999 Daniel flerg Director Doreen E. Iloyce
/s/ Robert P. Ilozzone Director Ma* i 26,1999 Robert P. Ilozzone
/s/ Sigo Falk Director March 26,1999 l l
Sigo Falk Director ,
William i1. Knoell l
Director March 26,1999
/s/ ThomasJ. Errin , {
Thomas). Murrin
/s/ Eric W. Springer Director March 26,1999 Eric W. Springer i
I i
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Duquerna Lilht Comp ny Exhibit 23.1 Independent Auditors' Consent We consent to the incorporation by reference in Registration Statement Nos. 33-52782 and 33-63602, and Post Effective Amendment No. I to Regis': ration Statement Nos. 33-53563 and 33-53563-01 of Duquesne Light Company l on Form S-3 of our report datedJanuary 26,1999, appearing in this Annual Report on Forin 10-K of Duquesne Light Company for the year ended December 31,1998.
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/s/ Deloitte & 'Ibuche LLP DELOIT1'E & TOUCIIE LLP '
Pittsburgh, Pennsylvania March 25,1999 6
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