ML20207E590
| ML20207E590 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley  |
| Issue date: | 12/31/1998 |
| From: | Marshall D DQE |
| To: | |
| Shared Package | |
| ML20207E531 | List: |
| References | |
| NUDOCS 9906070083 | |
| Download: ML20207E590 (82) | |
Text
{{#Wiki_filter:z.,.... ;. . , .; . . ; ,,,,. , , , , ,,,,. ;g.; .6 .g.e,..a_~ ;. , . . , .,_: .. c'.,,..., . .. r,
. , .. - . . , s. .
.1.-
j., ,; . , ' u.,,. - . ..,, . . , . - f.,..7.: , - : , . _.. . -g. ,;. ..n. -q, , - :. .
' . . . ,;'. ,..,,1,
- . ..,. ;~ .. ., . ,p. ,7 ., . ;.
.% ?} '} ' ' . }. ,;p ' : '..y 3,( l/ '.~c' , 5 , ., y . .f; l: y : ',.;,',1 ' .. ,, .; '.: : : **. ',: n.. . f s r. 3.y r .. ,.,.:.
.-':a * .- . . . , ;'
'. * . ; ;. _ . l_:. . . . ' :.,, y n ' ;,.. . ,1:y: : ..;
L. ; . . . . . .
- . : . e; ..r. ;_ .s . y
;i. . .
...w
(. : .v.: v.,.. : ; ; .. . n -.; ., ,.-: . . ,g , ' '. j.[ ..'; ._ L.; .. . ,
;.m. . ',.;. , 6. .z'.i . -h:;-1-,, : . ' y , , " 3.y_. .:_~- :s.c 3'!: ; .;; ;.,'
d
.;,.-';.b.; f - . . . . ~ . ' . - '. d.<;.\'._f..._*.__.*,.,.;...<.,**;,..Y..;,.',!,;
. . . . . , . ' ,. ) , . ,
1 ?. q'; :,s , 4.
'. ; *.-h.,
- s. ,; . ' 1 .', .* { f,' N .f,. '.. .-,&;, ..y'
..,.._.of...*...y..., , . ...,... , .: . .L;
. v),w. . * .
*.: !t,.._ .,, , :i .;n k ' , : 3.;wG. , ;;, , t '-. _:. q't;; %. y, .,; ,... s.;...l"*.,_ .:...;, _ .);)'I ' .. , ,...: si > . . ' . - ' r,', : , , . i s_
& _ ,. ,[. c; ,. -y- ;':. V ..' ' . ' . . . . . . ' . . d.. .:o_.
ua; . . ; ,: 4 ... ..g'
- j :. ,: h , .,, :.;, ~; %.. :
W. 9- -
- q. ;. y, ., :, ; . -;.., -"
'q , r ., . . e :
t , :
.. ....,[.J,.,__,,
k . .. l' s ?.
\ '. [y 'y . % ', -.
.,; . _ .: s .. .-
,l .. :. .
, t f.,.-l, . _',;.c s - .' - . . '; _. ',;. ; , l-e,y. u: . .e':;pj _ - :...; .;*. :a '. ..; :,g.1 _.[. . y .. . _3,
( ! c ' .;,'e' '4.,:3, -- ;. .. , \ ... ,e's <. . . t p :.i4, n .y:a. ,. .v'g;.; ;w;.x. s s l;, .:. '.. .sQ Fo.v: ;,,,
.: .. ;t ,.'. 'd; . ,, _ .*j'.
;;. 4. . ., -....c'..,,v.7..'j,.,.'.
; [ '.'*;y;; ' . , . ?.;s .,: ; .f.-m-.v :. ,,
,. , a; ' .. ;*
. ... ( '<' ,:. .e,.:.9.'.'., .. . ,,.
. ' .,.,,'.5-- , . -. y y' su . . -;. .;
e t
.,...,,.:.s ;. , W'.. ; 'l,.;,; . , .; . .s. , . f.. 3 , -. .,.,t, .
., ;. - . s. 3,, v . g:. _ .,~..,...s,..,r- ,
*a ;. -
. . . . . *. ,-.; ;. ; ' , s , < < ; ,p
- i -
.....n. i i _ , .
m'
. . . , ,, g..s : ..q <. ,; '; + f. , ,,s. .. ':
,? 4
-3. . . . . .
;;; .',o j,, :e ...;f,'m a.-)n . . ' 7 ',;. '.- . ;' ' s.;,..,.u, k. : .,g, i.1p.;r_ ,;* . 3; e.v:
- *; ;,.. -'"p,-. ".. , . ' .i(. . " .,, . -. e. .' 4,
. . . - ? '. . -, . ,- , . . . '; . '*. ' , ,y .,
s
, , - - -. . . . . . ~ .,.%..,.-,,
. ,,r, - ' ' -c
. . s g .
-);
lr.;.A 1: .. ,,- c t . . . y< . :..'a
't
. , , , . . 'r' . .
1
? :' . c '. ..f,'.' .;. .. ' , . -s.t.,,s,.
. r -'
[ _ } ' [ ( ',[ ':., ,'? pf.: L7 f, ' . C. 9 3'g.,gM[..( C :l.".f;','18j.[.j; ", ,'(,,P .' / \. l@ j Q. , Y, ,% ,0! ',, -l?. '. ,, i '. ' i f . '. '; f.. .
.'Y ,,.;..,,., .. ,. .. ,[,6 j ;3,,.( d.> . i' ;;l i .'. 4. j[ . ' ' -
. - , f l ::- '.' ~~. . . \,...: <>& :' h "J ' . , lp.'fY'
~
..i* ? ';'s i:. ,. l 'I . I %: ']l' C ? . ;$:, ll i.h, ^ .',. \ SN. N .,b . ';'l.1.'f k ^. ! 'V. 4 f
- ..f. * -ll .Yl( ._?'l'{;
U*, . . :.'.
i: ? 'h,; j..sy;' 4 2 ' .? .. ~l-o.m . . '..';',.. . - . ;l, ; eY .:.. .:. .M , ,c. z.: i'. . l. . .~^. . . <;). 4G +.:. ,* {.- ".;'.' . . . .: .$ . , u .l.:2... r . .' .. ".- d . *;:T.:l .. ';5.;~v . : ' . ' .. : . i:r .
.. :: .~R4:M,i ). v: f;,;... ,..:.. . .z
; . ; .c : . .
- ;. ;:- [. ,.. .. l . ; 51;f ; ! f.h. .(- ; .: , ;, .
'.f.' ;[, .; . i.,; , .},' .},'
2 [ '., . , ,j ' !" ~:. , ,,. f. ..' l. . l '_ , ' ,-
. .Q,. n :.y'.f . , .j.[, ..
. . . ; ., . ..~p...;.',...y.'.- ~b:_.;..... -: ; .'
'e. :. .; . . ' f,' . . .-: .. ..; ; y 3. . ..?. e :.. ; . t ' . , ;;. : .: ' *, .: l : .... ,., . . . :' a . ,
' ..c. . ;:;l; . ; : ;: . ' .; n; * + f. ,Y. .. .. '. .. -' r '
. :. .>....: . , . . , r: y< [f,;s,
, .&_ s w..-
.. '; ' . :. ,p. >; .. .m ., , ,, . ., .. ..; .;a. _,. . .. .., .,'. .. %, .; ;[.; h.. :::;: ,:s,. '. .. .
F. ' ._ , , ;....\.;l. ;; 2. . Q. 3l:' . ...._ .. 1, .g q . , _ ;; ;( __ ' e ? ..l y b.:. ' ;;", . '.\ . ._ ' y p:..'\.~_..:_'.,.. - :_ . '. ., w ' .:. _.._
" :. : . b , l.:-) .nr % ';.. : ,a
. :, ::s' p, . . . '.G..';.,'..'s... , * * . .
.1 .; -
v.. .. - s.- s'. , ::
. f. ' , f,; .,'., ;;..--.':.*...., .. ...:..
j : -.,;..
% ', . *y, ,i q < * . .,,e. . ,' , , , ' . '- .!,.:..-. ' , , - i, _ ? _-
. , i . ;: al- , 'j,.-*j.' ,; y , , . : ,. - ;. ,. , L, ' ;.. - r ; .f.,',,,,* . . , - i, - k .,
y ; v', .; . ' . .
.;,. 'i , '
f, *
. * }[ .' j;, .' .b, *
., ', j' .: . . '..+ .: '. ' n; v.
',ye. . u-. ,: ;y . rn.c,,,;.'r :, 'm...
"- A s.. .k k$ , .
,c [.;.' .. ' n:, ' . . . :-
l?:0 n.;; . .
... . y y:,:-,
.i Nf 7.#:.>.-
' e-
' [ ,.'. ** , ' + ., ".-.
" . -.'? - _ / ',n . .
. ; ... -. .y ,{ ., ::
' ' ' pd .., 1
- %/" r- ...; . - - - i
*f.
[ **. '.- '. .; d.,'.,'l...
.S # ., .
- y: +/ ', k' ', i' } -7 ',.'.f.. ,..II.".'
- q. ?..f,',,.,*.
', ;; . '. 4,
* . . c t
[ .- .,t,
. . . '. ;% ;". ~-
U . ',
, . . g{'
.....b.*c
~,_-:*A, - .,.Q. ':.* , . , . .
u,- -
. .[ . ".
" '. 's-' , '
, . - ;- g
'% l,t .:;' .,:. 1 '*..*:.*.',_ .' , u . . ... . '..i' .'.- '.- ' ..,.1...r._
}: ; *
'- *'.).',,',: :4 i ;., , l . -
y .,s*. . y J _M ,,' v .:.n
'j.._..',.... .
- i, 4 :-.j_.;+ : '.4 '.
' ,,_. , t - ( ;. . . > v. ; .,
_. ,p ,,'_,
~
- s. -
,f,.f'.
- t ' o ., ; - -.. , ' l.,. ; w,; ;.
.t .
.,..'s.'.<-.,...-,
. _ . n' ,.s. ., . ' .;.w-.cl.
f *
. " $, 'a .- . , . . .%_ .,. ,. ;.-'
., ) '.I'fl. . :, , ; ._
.. ,...: - . . . . , . _ . _ j ;, e .....,..,..y'. -e i: 9 .9'-
' * * ' s.- f. *,...,', . , y;t,y ..,'q,H.,.."..l,,: . .f . ' ,'. 's.; .h : \ .,,' ..' ... [.i , . '. . ~ ' '
- z ,. . ~n..- .. .. s
;a- ;
. . .~ .i , j . ,; *: '* ' -,.
,*,,-' [,ni. . g ,.. ~ -;.~..,,;. ',, -+: , f -' -- v
. ., ._. .f :; ' , ,:'l;I. ,' ;,'4'..,_>;....
.'[;,; . .. : . .
^
% ,i; : ; b'.; :i ,
; ;f h.Q. , . J.*.;_;l:-, );) .,; -. {._ . Y' .y? .. .\f, ! . . . - ~-l l '.'~ ! ^ "... ' ': J.: ?~ ._ .
l....'_,-:y', .".'N.. J
.'c. .E~ :*..$;' b ;. f u '.6 .': :l:: : ,.
". .i ' . II. ',L ' n ~ :',: ~ .';. '. l .', ! -
. H;, ',* I '.' . .'f \':. .h ' l t '. 'dl ; .-.'E.....
g b . *, : N.$' JL ::s %
\; q:.y '
- c. *;_'.q'.._- '
**.'r_.t ..,
- .:. , ), l;g '._, . . . . .. . . ~;j,. ,, ,..:...G:).; 'j.i
^'.L 7.' ; ._.,5+ .- . ,;
.'._.'.'-l.:4:,.*.' .
. '>. l'* Q.? *; ? .{;,l. ;;.;?.i :- .;s;., - .K ' _
,t, - . . . , - 'l
' :. : :.- 6
- -; .., . ' .-. : ' '"- : -_^ . ' ..,.c., l ' ll ': O.Q':j
' ~'
_'. '.. h. : ;;y,,[ ,' y . .q. ry g ^ ' ', ~' ' @:." ,..q. l_','* ' & _l. :: G. , .' 0;.
' ' . . .' _ ,$ Tps.ja:
+ i - '[_ ? ._.[,,a..,, ,:.
' }' $ , . . .'f. N ;g . s.g - (, , j o .( . g ,
;. S . ? :: f."h :.l l,~ _ l_ ' ' ;' !:N h ' l' : ;h.. b,':S.'. . ll. f .}:- ~ lq }
. nl , ;' l 5 ' , _ ' ,- l . . .< .
bih f,\ l,
' ' :' . .,.{.' '; [;[**'.'..w
' L ',; . .g.'l._ ^l'l,
- : ; .;;)e ';: ,,,
-; ~ . y . , A :' W .f,%.: ,.4. 41. , ,,.
; {. p: . :' _.-[ ,. . . ' _ . . .. _, -. .. . .. .. .es c : ~;..
~.
.*. . .v.
.:( h. . - ..e.. ..- * . - . -
.y..
' .. .r.
.r,,_ , % V, .:_ ... . - :,. _ .
. . - .; ; ; ..:. -,.l :
_ ., . p ,- . , - q,.1,.,c:,y.7..,.,.y' d *.;.;( . . ' . . '..s -;; , e. ' '.n. p -y..,, , .q- ;_. . ."a , ,. ..;.' J .l ( .; 1
.U,. ;.,~ -.- ._a . 4. .:,': .: a' .. ;;
;. . .,z ,10 . . ,p,(l,). ... ;. , ,. y, i o.. '," 'c ' ,7 .'_;cM ', ls',,. q: ,.l;, ~ .l.' .. . .' : / ,,. ,y,_.r ,.c.,. .. .- ,..,._:.4..,
....,g.. . .._.,_aa
.s. . . . . . . , .,;.., ,_ ;<
..... , .. .4
.. - ..t -
',,:: ..;,) . , ' , ; ';' .3 9 .{ n.. : , y, . . . .,- : _ ,H - : '
.i.._. c..>.+, ,..r.. '*.x,..T,t,..- :,; . :...*
. . ,. ..': . . , . ',n., ij \ ! ;l,
- ...,... :.9 . *+v......r v. .y . , ; .t. p- ...,.,.;. . .
. .. []'
._r
.r e.. ,.:- . : ;. - , ~ . ; . ' .,
, ::;.' . .. ..;g' , - - ,. .'.',, . _ . . ' . -~_..g,...
. ..,..~..:. . , . - . . ., \ ';.
3 ,. ; ,+ ., ' f..,- - . . ;.- ;, , .: ? : ' .i
, ... ,; ( ..; },. . , v.l.
- , &' s, *r :. i.
, I , _M '/,.,M o , f.
-.- ..; ; ,3_; z,
, . l j -l. s _ 5
*J, f f.. :P. - -. . . _, ,;; , ',/ - ,. - .;-- v, -....<3,- *. -' . A ,a -+ e i S.,. '; ^ . ;.
. ,..~_ ' ..;
,f,!.-
a -'.4.; . , , yy 1 L.;*;;:- .-
.'e.W:.,,'. ,.. '.. . . . .- .-.l,,_ _
*;- .y
.':, ~ 4 7;.
n e; -
- 2f ; .,..,, . ,-;., m ;
.. q 1 .'; . . ;; . .; .4.* . . ...* -y, ...'.~;...;,.',..' - - ..: ' .. . . '. . :y. , , ' .,.v - - - '*" *
..,.q' ._c,. .; j -! -. ,.. , - . . .- - . ;-.. . ' _- . _ , - - .; '. . ,s.c. .. :,.
_ n, :. _ . _r ,p n,.'.; -
,,e. ..
;_ _,,' y%n'f . . ': :. . . ' .. : *: - . . . *
._c.. .*.'.y *".:
n '-' * .* 4. >
.'t,;.
.n.,'.
'l.'.',.'l.
!l.. . ':; ll .. . _ ' ., _ ,; ..'..'/',.~.:~,",:'..,~.
'.: g . r . ,. ;, p . . - -- .. . ; l, -
,e...,_.__.
.c .
.e -: . - .
..t,
. . . ,.,' ;.. in ..
~-. . . ,;.g.
,. : , . . ,, _;.. .,. >_.;' ',-. t;- - . -. _ _ , -,: -
.,z,
,-y .p,. , ,
,s , ;: p ;,, . , , - . ,g. ..~. 3,..,.,... , ,*
,,,_.q'
- ' ; , '. 3 , ; ,, .y ., *- .,-['.',.
4'. " ' * .{ 5, :ty
, , o ,: eJ Y,.
'.g* * '
,, T.', ,t , ,.
}
. .. p ..I,'., ,', y -
l;b' d;.[. ; - , '.' h , ' , :;h' '. '
'i' i,.
,[
- f
. [,.' {. . ,., ; ;;. - j, ;, + ,,' ,j .,;,. f , f ' .1 :::..
- -,'_;--, -;.. ,. .- 7. :. . . . . . .:
.,, p, e.,-
- ,,.1 .
*y . , , , . . ;
e..:.;.. ' ;, _ y ;, ';_., . _
-. .s
.h .
. ' .. "....;. ., p ; _" y;; \; ',.e..,.'.',,.,L._,_'._
Q.- . . , _., __a..-- , - r :,; l w 3. ;y . , ._ , ,;..- ,
.a.-
..,..; ..*. '.. , . > ..o.- .*: ,- ~ y.
. < ,,.- rv c
.;: :* 7. ,- . .,r -", ,
.;e .- s.y,-r._ , a , s'
-. ..?;- ,
s ,v. .
, .g;, . .p,. L
' . ' , , ' ,. -l Q:, . c . /./ ' { ,q .,,g,',,. .',..:,.,;,,. - ,, ' - * . . -l..,.a',' . . f l ,;,., 4,.,'e.*
,. .',e"l . 7,,,-.....- n ,. j 9..-
N . /* ' , ,
,..l., . ", s+; i j ,
, ' * (. : . c 4.- .
t s- t...
^
f j . ' We
. .y . M - ? g %:.,g+'.s-i..
?p , . .g w ,r g.
A , :. ' . . . ~ c^ - *. .* ' .' ; ;; * ,?.s. * ';
...w,". ~ ;:v> ~' ')'
- , .'_ '; .- . .. . y :.. *'. '.,j, '. Q::;q .o./.Qf. t:I' .'x,- *l? gs.f. f'; ' .f,\ ...;.... . . . _ . .- .
. ' .-",,l . j f , _ .j.' .' .' 'd_ll. v: .. .:. , - . _'- - ;>
'1., : *-
' . f5. ._: ,
.[ l l^ ;)*[; (( j [-Q,l.:} ;._,': _'i t ','~^'
~
i ; 1. < . __' J'_ ':]y'
. : . .^ -[ .. L,.b
, .y'.. q , .c
;, ,Q _
.] ; <v .p) '. :* ,'. T . g..? ,j'. f _ . }:, ' ' i ); '. _
..9.l e,.. ,_l ,' _
-.-.y. .. -
.y *" ' :..r.'.; ; ..,,;- *
.'> ;,, ,, r ;.n : _in j;:- : . . ;;; f ' < : ' ;. * ' *:. , ., :
- % .g .,- c;. _ - ': .
('__. . . , ; .. . >
'Q' _. _ _-l _ ,.;.,..r. , . , _ ,.: :;,,. . * ~; : ~ .
.. .. . . . . . . ..;.: ,. ,; .. .,;, ,. . v . . ..-. .a, , ., t . , , :,
,; .,;,.- ; ,m .4J,,.4 ,v ::., , . .:- . ,t;..-
_ .. 9, _ ,: d; p ...
-1.
. . /./ . . '_ .
@$g:,,:; A- s,..:q;.
is- .
,9, ..a.. .wt ; ; '~4,s. . ;. ; ,3...
,;.g - ,, ,j-. , " ,',.:.. ,' ,.,;_'.....:< ;.;_ : . .; ,.. ..g.. . . .;: ': { F.,_,. j. -;.g,.( r,1w,,,q,,.W m, p, -
.l , .; ' - , -. :.:,~.:, , ' . .,,
. ., - y[. ; ..,;.. ,,p ,_g, , , f,,,s.,2q,a g g ;, j. , . . n. , g , - :. . . . . 1
;,-..i,.;: ,:r,,..
1 ., ,, e, e
,. .-. _ . _.,,...e,.y,.,....,.,
"7,.,,'4...r.o, ,',, . .c : . 3. . . f.. s...,,,.s 9- ; ..s . . m.r7. : y ,.. ..~,y .g 3 , ;j e..,.g.,s,., a y t .g, , 3 a . ;. . ..y g,,: ;, . g., ta r,4;.-
;, . _ . . ; y . ,3 :.. . .. y 3 .g .. . . . -
...o...
.g - - -
3.g
; . p.* w . s p. ..,, . ,x .$ , , q. .,y,
, .g
',,.,.._4.s . . .r ;. .-,;;_f
- s ,
.c . _ _.; , ; , .6, by _ .. . .. pl& Gl hyl'y\. l."Q
'Y',( * ; _.j' ;-;;. ..[:r, _ .7 y.,\ / y .:f F;.}:'y 9,% ;' , , . . .n. -l' .fk hf* ; ),;; \..]l' ;. ' R ., _i .:'.% . '.:. :; l 'f ].. [',ll f.; , }y:I ;- . l- ) ?:: ' .:'-l.'.:'l.' ' L: .:{ ?.':.) . j :" *! .', b.J,j: (r[ L 's }&.ki. ),y,f :,% g, [U('.&.; ';a."; , f $;Q VW :' (. ; . y:l I5_
' . ', i,;':l' w*
- f..'.'} .,.?, \ : ' '
g _ f;,3 ;3. _ ; 4u,..g. ,l . g. . , ^.' ' l l' .9 .W(.;[. . ^ , T;.'l
,j.y ' ' '
' y:!'." ' J .
- .a , . ; ;:' '.; . .; a:.;- f 9.. _ 3lj_ , _ .q,,f.Oy n ;
_ _l
' a . f.:. .;.-(, ,..:.;; g,, _ . } .. ..e.:. q ; ! ..,._.y . ,g: ; ;4g,f .y
;;&f ;
. ;,7 , ::?. ; '::;k . .... :.l ';f;,e. 's i.V ' .t; c - ), , :
4.: .' . . ', niv R, a, p..'
,.4
,1 :..$
yn y.(. ,; .; ..s ;,,,;,q
; :.;;-;' _. :f .. }[.[?
v : ...i ,
. :~ _., ;_r.; i '. ,%y i .. ;%l)r : _ y _f e\. J.. ,: . ',;._
',_;. e r:
l.', g* " i:.b ) j^y;q... ,4, I .,,(q';i&_. . :'tV .f. ::d';h gz t : ' ~~y:f - Y ' 'n
)$ .p;: ,g ' . ;. .Y.I. 0', ,hp.,s; ;,_.{'," .' <{;j_ }',
..) t.
;) ;q?; u . f j y Y ::*;{ t.l WQlL'- .. ..U?;C.:, Y..., ,,
).y .4,,-{ ;' b .:'. q'/ ;i: q. ,l*9 q. ;f ,,g. 6. "o L \;y ;,:.'f{.;,.,:.j U'.:L ) .: . , ;$,:*1. si; h,i.f.g: :h s
.*h1. ?l,&. ..q .c; .a # )<;.) , . . . .
w.'
,*,$,'l:j ". e..
..ee - -. . o . : .. - ..x.,. -- .:
f.k: . 4f.. _*, ',, % '.
, . .: . : .u s c. : .. -
- n. , .
- - }:.. :; n
',;,:'. !l:' f:,,9 ;l l.. ..;,,'*. L',po' . r.!. f(Q'1,
- ?, ?.: i ' i.)" G.y \;: . ' .:
? &; ',_ ';l,' ;
'..(;' :%, - l ',: ;R ....).' "' i n tv .:
[ ; :y h ,,,.', A.;,},;,yIl .y ' vl;:l VJ,. .D:;-l'* f:; ':}(;Ys.:v;;..W"O ;
Q,.) .@ &; ".} ' ) .' j,%. lL ' ;':. :.
L% :':j , . [*l '{ '. : w . + Q &. , . ;
. . ;; .a ; - A };gQj.;:~.[Q:..0 Qd.:. '.l.v2)' . ) ifh [.i.[ ,':'! f.Q.? : : F' .::J ' s.. .. ::l,R'r; \
. f. '
. f, .
,' ;" [, .. C: - ~
'.;,...~, * :. .;
; si..: , '-
,1, . . .:. ,, 7. .j..;..,..-. "g . i 'j:e g ;$
,'. ?.: :.l *l :\ .. .n .)=l,,y :. 'i ' f,j '.-[. ;). ' f. m'",.[:; ,J .{: n'%
':. e.R.W. ,i ' ' .. '3,.'..;: :* . ...,'. t . 'q'. *,...: vl;'. ;;
3,,;y'.
,+ : ,; .. :.?',. ., . . *'. : , . ?,.r[ nM ;p, .U; .,kQ. :.'.gh,s. . fg.?
. . ..1,.,- .-.c.....~.'
f . ,;......,,
,,1.W.?
~..q...q. r. ,...C..i., ' ' . >
y.::.
.. ., . .M. .s.. .. ,g,.,. s... 1 :*- . , . , .- - : .g, .;,.4c .&.q.:
. n .w- n. .,T ?. . . a., . ;;. . ..~.g....,..,.. ..,y- .. . . +-, -x .:e . . . .w e : .....,.,,....,..q*-
~ .
... ,/. ' . o , ; ,. . . -
*..; c:,. "...;
u "~ ;. .,..,.~%:..,..,
. z;
.: : s :
7:'. ,.y *. eu : .'.. , .a .1
< to
, . . - .. s
. :. ' <F>.- . .'~ . .., ,i .g
>J. . . : , 4.,m, ,,- ,,:. ;. , V .. ! .ei e%.' .-e&,
g .-
- , *;. .:. . '-r s.'.v ". '
' . .,:*:.*.:.~'p..,.- . , . ; .' {. :\,'. .. ;.. . .*.j'._. .::. . -
v ; _; *.r , :" ,4, y , . . }1.:. fjjJu .-?.:
*. .:?.v.- N.,
.3__,,%. y;f;;p.:....:
.m
.f' '.f l ', y.,,. *
.. .'. , ,,? ,,f; ; ll *? ;Q " ' ., , , . _. .. a,
. . :- D ';-; y}. . c ; , [*.
*q;?'M. ..Q. . ;:' *? *<(;.}.,:n.s .; '-
1 'i, . , ,:
. . . , , ^' f - :; ..
.:.,:...92 i.; .';:,;:::: ':
.. .:,. a .. 7.:..', ; .:.. ;f.,' J:' :' .' ir;;, . . ,*. .;'
'. e
, . . . . , ,. *, ....':.i.,'- '; I,' .j' .,._.m.,,t...,.-- ..'.;,'.-l..-
. - xN <'f. .u. -
t* * ;y-
&.,4.l
.'.p",,,.,
l V*..N.' ,.;;.M. s Jh ' . f, ,j .. .
.Y
. K. *; 9, ~. 4ie.a: .l - . %s. .'. .. A /:
..I',.' j. * .',, .;e4:- :; ,. F , ,k:*. ,. ;c.r. ...o,, '. o.* ' .;'; . *y'.e,,. . :j ,. . ; * .;,
,Y"..
f
-_ G , . "."h; .M ;- . p* ..!.
' . .,.'. ,V
- ' . ,.%.4.
- g. q,,.,; _ , ,, ..
.lf. , .
'.> _. . . - .. ".l ,k {c
%f+ s ; %. D': . ; =,.7' ) ,s,q; .:);7. . . ,
.h.' ,'. :' .nin:;'.'.
- ,v,..' . 'd._'.,','.'f'.'..'.v, ,,.s.
,.....i * ', :) .
- .' ,, : l,.: . t ',,,m.,,'.e..n.
v n' s. .., V. ,.,e: s ':, . ,, . y e n. k ( .-lz . , . ,;, , , . , ,
;'. ,r .,. .'j n ' ,..,'...,,;;,'fa %
- . s .. . .c.-
s 's ::+' ;" '= * . ;,es.. ;.- . ks, I ; , .
- ,,'v. . . , , , ' .:- ..:,.... * * ;'s _ '
' '. *! ; ' ' - ; . i ,: , . ~ ^ = j/
- i',. -'*, = ' ' , . . 4,- ,n.
;'. '.;'.< '... .i Q<. ,,i g',%g.
..r,.,.. < ,~ Q ' .K',a-.'.<,,.e
. ,_..'.,g',...,g,
.s
', f, *'**. , g" ' ,' f'. ,3
. .; I,
-. r' f.'.. ' h y .s. ,..v..i, .t ;. . .vue.-,o, p ,;.,..,, - ~l 3,,.'D '.. . ;'*: A
,, ,; -q ,
,, ,s. . 3 ,
.',,'.e.~,..
; ,s, ..I' . . .
. 3.' .;,_.'. ..
..n ; !
O.....':,3-( ..,L ' : , .,; .'.. ' $; ,;,. .'x' ',; . ,.. - "
- w. "*j..
'a,.
3.;;. .o.'.:.- ,,;.,,V, . . . . . - .2.'.....,,.
. * . 3f; . s. y' . . :' :. , ,.;..s ...;.
._s ;- , ': P. :, Q. c.
. . . ~: . .: .. b ,s.. .* .. , . . 'sn- .
, ' . , ., ' .-Q,!,.',..- , .
,, :.,Q j ';.,',, ...'%..,
*.>9 l
,.'.'.,8.1',. ._,.;'..%, , O,n ' .1,.,
,;,....A...... ".'c 2,, ' .
,,N..,.:'.r,,'....'
* . . s ). -
' . : .+ .,,.,'..'.:. .. .
s
*;',.34/
My :
" + ;,A s
..,',',..?.,..,'.,'.,g*..'
_,..,;..'_ . ; ._: t_ . . " ,. , ,,. .' s [*'_ ;', i 4
..e, , , : \. *. , :,..y. ...: '. .' * .
3' )._;*- _ s,... . t :*; e) ,, , . L
, . , ,. . l
~
. , _n :. . ., ;v. .- . . ., ..
~ . .
-r w+. v. ,.. w. x_; ; , . . ~
.',.,,..c..
.- . . ;.) ;. . . - '.. . '
- ,c. .:, - -. . .,+
c ; . -
,p' n,. . .
. m~.9.
..m .- < , . .
- n. ,e.. .. .
- v. ; ; .'.'. ..
,,....o. ,.a
.. t ; .4 .
. .. .i .
%- . . ' , . ' .1, -
.f.: f
,. l. ; .
.,3 , .
~j. - , .
_., : .c,y,, I .i';.,- ? , ' n
...y
. + g
. ~.:.
y,'c e
' , ;- '.i,...'.s;,.
_[/
'.,,;,[. . .',,'.h. -
; .: ..,t j.'%.
, I w :,.. ..:,
~, ; q. 5. . . .._'
~~
,(*.,
' ;.9 _;
g',,,I ,,(',
/
,.w'...... '3L
\*
g
..' ', ' f [. ..[ 5 . .*
S 'I.
. .l.' .., .. ,.. .[ ... ' , ' . . .
...J. a '
. b~ f'.. .,; ;b ...+, .
. 4 ; , ,
. c . - ., v . . . . , . ; . ,. , .. ..
..; ~ ,. c- . . . . . . .
. - . . ' . ' - ' .. d '
y . 8, . , - *ee *
&g , . ' .., ,- ,
m- - - - _ _ CO R P Q R A T E R O F 1 L E
- n rurdti- ntdits drhver, and s 1 ll l 11111 ' ins with urtive hunnru ven.
l GE to en innovettve, dynarn' 1 troned to meet the npandong n rs and partooro ships thr oughout the I nited %tates and Lanada valur to uno shaschudders. l reds of the onar krtphu r hs dehrering < rrative udutwus to untl ens llll1 lllll1l CONTENTS Cover DOE 1998 RESULTS DQE is a sharehohler-focused delivery and E DOE's year-end annualized services company that adds value by apply. dividend increased by 5.6% over inE a " building block" approach to identify- 199Ts dividend level. ing and expanding its business h. nes. E Expanded business lines con-Ono tributed 66 cents per share,20% DQE Financialand Operating fligblights of DOE earnings per share before PA restructuring charge. Two 5 DOE unnateraHy terminated its ' ' Persidenti Message - David Marshall pro- proposed merger with Allegheny vides an overview of the company's inajor Energy on October 5,1998. strategic initiatives. Ile notes how the con- E Duquesne Light received regula-tinued growth of our expanded business tory approval to recover most of its lines will offer addit onal shareholder value, eansition costs, in part, because of Its willingness to auction its g generation facilities. Building Udue -It has been DQE's con-E Duquesne Ught announced sistent strategy to effectively restructure our an agreement in principle to electric utility operations, recover capital
- exchange generation facilities investnient and grow earnings through our with FirstEnergy to maximize the expanded business lines. This section tells value of its generation auction.
the stories of these businesses and features B AquaSource, established in 1997 photos of soine of the tearn incinhers uho to acquire, develop and manage are helping to " build value" for our water and wastewater utilities, shareholders. expanded to approximately 300,000 customers, with opera-Nineteen tions throughout the United States, lloard o[ Directory E With the addition of a major landfill Twenty gas collection system on Staten - ~
'*' "d' N'" **'k' DQ E *** h
- DQE and Subsidiary OJJ1cers approximately 350 billion cubic feet of gas reserves.
1Wenty-1Wo I998 Financial Staternents at a Glance - 5 DOE and North American Learn more about our 1998 financial perfor- Power Brokers executed the nation's first retait acquisition of Inance through this accessible overview. ele tricity over the internet. North This section features an Il-year suminary of American provides a low-bid, Ley financial and operating data, as well as Internet auction-based approach highlights of our 1998 results. to the retail purchasing of electricity and natural gas. 1998 Financialinfor, nation 5 Das and BroadP Int Communications offered a first-of-its-kind, advertiser-inside Back Cover sponsored, free long-distance Sbarrbolder Referruce Guide telephone service. E DOE Energy Services was chosen to build, own, operate and maintain the new energy facility for the Detroit Metro Airport Midfield Terminal Project, as part of a joint venture with MichCon Gas.
"O, 4
*n
.m.
s. . , . ', } I N{$ is. . % . l[Q} %:,w: Q:.; , ' ;,
~~ " J
. e. .
}W p;'
,) .y -
g "
$?
to - t p\ ,
+
k ;'
~
f [,
?
~ g,
!;j .
ypjp . f. n< -
,.O{f
/
a
} .; hY <
q[F:' "sA. 1tg- , ' ";;- 2 '
.y
. g; . 3",.
n f
CO H P O H A T E R O F 1 L E DOE to an inntpwative, dynamic multi-utility delivery and services company with anive business ven-I i tures and partnenhips throughout the 1 *nited %tates and Lanada. Ile are positierned to meet the expanding needs of the marketplace by delivering creative solutions to our customen and valar to our sbarrholden. CONTENTS Cover DQE 1998 RESULTS l I)()E is a sharehohler-focused delis try and E DOE's year-end annualized senices company that adds s alue by apply. 7- dividend increased by 5.6% over ing a ohuihhng hlock,, approach to identity- 199Ts dividend level. ing and espanding its business lines. E Expanded business lines con-One tnbuted 66 cents per share,26% l)Ql: Financial and Operating flighlights of DOE earnings per share before PA restructuring charge. Two E DQE muawraHy termnaw ns l'.anident's 3fessage - 1)asid Marshall pro- proposed merger with Allegheny sides an ovenieu of the company's tualor Energy on October 5,1998. strategic initiatis es. Ile notes how the con- E Duquesne Light received regula-tinued growth of our espanded business tory approval to recover most of its l lines will oll.er addition.Il shareholder s alue. transition costs, in part, because of its willingness to auction its generation facilities. linilding iidne -It has heen i)(JV's con-B Duquesne Light announced sistent strategy to effectis cir testructure our an agreement in principle to electric utility operations, recos er capital
- exchange generation facilities intestinent and grou earnings through our with FirstEnergy to maximlze the espanded husiness lines. This section tells value of its generation auction.
the stories of these businesses and features E AquaSource, established in 1997 photos of some of the team inemhers who to acquire, develop and manage are helping to "huihl value" for our water and wastewater utilities, shareholders, expanded to approximately 300.000 customers, with opera-Nineteen tions throughout the United States. ! lloard of f)irectoiT E With the addition of a major landfill gas collection system on Staten Twenty island, New York, DQE now has l)Qliand Subsidiary Office /T
- approximately 350 billion cubic feet of gas reserves.
Twenty-Two I998 Financial Staternents at a Glance - E DOE and North American I earn nuire about our 1998 financial perfor. Power Brokers executed the nation's first retali acquisition of inance through this accessible oserview. This section' features an Il-year summary of American provides a low-bid,
- Ley financial and operating data, as w ell as Internet auction-based approach l highlights of our 1998 results. to the retail purchasing of electricity and natural gas.
8 DOE and BroadPoint I998 Financialinforonation Communications offered a first-of-its-kind, advertiser. inside Back Cover sp nsored, free long-distance Shareholder Reference Gnide telephone service. E DOE Energy Services was chosen to build, own, operate and maintain the new energy facility for the Detroit Metro Airport Midfield Terminal Project, as part of a joint venture with MichCon Gas. ( L
..J
DQE 8GH 8. I G H T S Financial and Operating (in mdlions, except per share amounts) 1998 1997 Change Earnings per conunon share $2.52* $2.57 -1.9% . I)ividends paid per cornrnon share $1.44 $1.36 5.9 % -
.\lar Let i apitalie.ation $3,400 $2,729 24.6 %
Alarlet to Imk value ratio 2.29 1,82 - 25.8% Net income $197* $199 -1.0% operating revenues $1,270 $1,230 3.3 % Interest and other charges $110 $115 -4.3% hu estment and other income $136 $130 '4.6% 1)QE return on average conunon equity 13.1% 13.8 % - Electrie utility return on average conunon equay 10.8 % 10.8% - Peak demand (AlW) 2,484 2,671** -7.0% Electrie customer sales (LWh) 12,128 12,545 . -3.3 %
'Ibtal assets $5,248 $4,694 : 11.8%
Expanded business line assets $1,072 $854 25.5 % Water utility assets $232 510 - 1 ong-term invesunents - $760 $723 5.1%- Market Prico Per Share
- m. -
1998 1997 1996 1995 1994 1993 Iligh $43.94 $35.13 $31.50 $30.75 $23.00
$24.67 l ' 12.2% l Low $31.63 $26.88 $25.75 $19.63 $18.42 $20.92 l 8.6% {
Year-end $43.94 $35.13 $29.00 $30.75 $19.75
$23.00 l -13.8% - l
$r'r~9festil!Ifsttele4{ $ly-g te ; *o crort/stetter/
9secut/s satt if 6 8% 9sentti sete tf 62% x-- N = x x
- 5100 $1.'30
- 1 **
oa.or si.as
,,..,. o s .as 5">o
,a...,
gi g . . . . . "; 3 E-
$z00 gFt y 1 5i00 aJ 4 r
51.'30 l 51.0 0
'30 .'30 0 '94 '95 '96 '97 '98 0 '94 '95 '96 '97 '98
- LuluJes cxtraordinary 58:. S mdlion/SI.06 per Jarr Pennnh anla restructuring &arge en June IVvN 1
" .-Ill. time comparty mud
E A R FE L L 0W SH A R E H O L D E R
- 1 ? A\1 1)I IJGI I i i I) 'l () ()NCl \G \lN II \\ l 'l i115 ()PP(IR l'l NI'iY 'l() Al)l) RIM 'l i11 IN\TXI(>R$ (11' AN INI)l'Pl:NI)I N'l DQE, \ (.(ntP\Ni u l~l11 A \T RY PRt hPI R()l's I l"Il'Rl:. NI'l 1)!J $5 'l() s \Y, Il' II\s I;l l'N \N I \TNII ll iI:AR. IN TlIl' P\sT l2 \H)N'li1%,
u l' 11 BT I 311'RGi I) 1 R( nl Pl NNWlY\NIA'S El 1 Cl RIC Cl N It hil R Cll()lCI' RIXl RL Cll RING l'lI.lNGs WIl'Il A 1 \lR RI.SL'l:1 . BT ll WT 'l1 R \llN VI I I) ()l'R l'\ll i l) .\ll'RGl R u l'111 Al.l.1 Gill:NY ENI RGY , MT 11 WT R1 Cl l\TI) Cl's'It all R ANI) \ll'!)!\ PR \lsl 1 OR Dll)l'l $NI l.lGil'I'S RI SP()Nsil'l() A Sl Ril A ()l' ~l ORN \l)()l'S \NI) Sl VI RI' WINI)N l()R\lS - { u I; Ii WT C()NTINL I l} T() 13P\NI)(it'R (:()RI' !)! 1.IVI RY lil'SINI AN TNI) lit 11.1) ()N ()L R st'CCI ssi l'I.1 INI Ol' C( nlPl.I311XI \RY PRol)lCl 5 \NI) SI IWICI:s . \NI) uT II WT
\ClillTI I) AN Tl.1 -Il\ll:-ilR ;ll S I OCl4 PRICI:.
Building Value Through People These achies ements are the product of many dedicated, capable professionals u ho nnident and Oicf. .
&rcutive Of]ker, t' )QE come froin aH of. W#.,a companies - men and w omen u ho has e embraced the many changes taking place in our industry, and w ho bas e demonstrateil teamw ork, innovation and l haril work. From our employees' perspective, this has been a challenging year, anti i congratu-late them on their perses crance and resilience.
This report will detail the steps ue base been taking to build salue at DQE . from ensuring a fair and reasonable transition to electric competition in u estern Pennsylvania, to expanding business lines that maximize the benefits of our skills and experience. I refer to this as our buihling block approach, and I am proud to feature some of the many team members u w ho have contributed significantly to the progress M of your company. Y Proposed Merger Terminated ... l T ((M No Longer in Your Best Interest In 1997, we asked your approval of our (/ merger plans uith Allegheny Energy. At that time, u e believed the merger presented the best oppor-tunity for your company to impros e, grou and win , in a competitive electricity market. From the very beginning, hou ever, w e noted that favorable and expedited regulatory treatment was a critical factor , for a successful merger. Aluch changed between April 5,1997, E j a uh (en
)ctoher we5,1998, signed thewemerger u hen terminatedagreement, it.
While I won't recount all the details of these and changed circumstances, I u ant to emphasize that the intended benefits of the merger largely disappeared with the application of the state's new customer choice legislation. A steep disallou ance of Allegheny Energy's stranded costs and of the stranded costs that conhl be recosered by
the combined company, as ucIl as additional merger conditions, sharply reduced p<nential shareholder benefits. As of()ctober 5, Allegheny subsidiary West Penn Pouer's restructuring order permitted the recovery of only 5525 million of the SI/> hillion of stranded costs it wouhl incur. IX)E was fully justified in terminating the agreement, to amid forcing our sharehohlers to absorh nearly one-half of this S1 bilhon disallow ance. When w e considered all the facts befbre us on ()ctober 5 - the end of the 18-month time frame for ac hieving satisfactory merger conditions - IX)E's lloard of Directors concluded that it could not, consistent with its fiduciary duty to shareholders, consununate the i merger under these circumstances. The stock market clearly expressed its view of the dhergent regulatory paths taken by the companies. ()n the date of the merger announcement, IX)E stock stood at S271/8, while Allegheny Energy stock u as at 529 3/4. On October 5, IX)E stock was $4015/16 - a 51 % increase - u hile Allegheny Energy was at S315/16, a mere 5% increase. In other words, the relative premium that you had expected to receise as part of the merger agreement had disappeared. And u hile u e h.n e nun ed on, I want to sincerely thank you for your support of the merger. We strongly believe that the best course of action ihr you, our ow ners,is to continue our successful grow th strategies as an independent company.
&rcutive Mce PresiJcut Your investment Was Protected in PA Choice Restructuring and Cl>icffinancial in the fall of 1997, I w rote y ou to reaffirm my commitment to protecting shareholder O//kcr, DQE interests as w e phased into customer choice in Pennsylvania. The Public Utility Conunission (PUC) had just begun to review our restructuring filings to meet the conditions of the necutire nce President customer choice legislation, which allowed two-thirds of the state's residents to choose their and General cuunsel, generation supplier in,lanuary 1999 DQE "Alission Accomplished"is the best way I can define the PCC ruling on our customer choice restructuring filings as an independent company. The PUC w as fair in its treatment of y our im estments in our company. Our approved restructuring plan, as an independent company, permits recovery of nearly all of our imestments made in the generation business.
These positise results are due to the planned use of an auction to dhest our generation facihties, as a means to establish transition cost values. The Duquesne Light plan includes an euhange of facihties with I'irstEnergy, an auction of our generation facilities and an auction of our provider oflast resort service - the obligation to provide generation service to customers w ho do not choose another generation supplier. The sale of our generating plants uill benefit shareholders and customers alike. Our sharehohlers will benefit, as u e effectively reim est cash received from the auction into our expanded business lines, u hich have provided a strong track record of grow th. We also will add to your earnings per share grow th by using auction proceeds to strategically repurchase DQE stock, as market conditions permit. There is no doubt that exiting the generation business is a radical change ihr your company. Ilow ever, the introduction of competition in the generation of power has changed everything. Regulated utilities no longer are the only pow er producers in tow n. And size - the sheer wlume of megaw atts a company controls -is rapidly hemming a critical factor in 3
determining generation success. Many com;unies larger than ours also have decided to exit this business, not only in Pennsylvania but throughout the nation. While w e are proud of our long history of electricity generation, w e do not have sufficient capacity to effectively compete in generation markets that uill be extremely wlatile user the next few years. Margins will be narrow and unpre-dictable. We firmly believe it is not prudent to expose our shareholders to risks of this nature. We will not be a large-scale generator of electric pow er. We will not be a w holesale pow er marketer. We will not be a retail supplier of electricity. We see our generation auction as a means to further reduce shareholder risk and customer costs, w hile offering power station empicyees an opponunity to further their careers in companies focused on generating electricity. I Salute Our Dedicated Ernployees Although I believe many of our employees uil! he offered good positions uith the generation companies purchasing our plants, clearly some job losses will occur. We are committeil to fair treatment of any employees who may be displaced as a result of this business decision. We will help people case the transition to new careers through early M' ' ' ' iice Prrsident, DQE retirement options, enhanced severance benefits, job training and job counseling. I salute the employees u ho have dedicated their careers to establishing and maintaining one of the most reliable power generation systems in N, orth Amen.ca. l' heir work eth.ic, good will and community spirit hase set the highest standard for this companv's future. Assistant iice President, Invenor Relations and Marketing Positioned for Success in a New Business Environment communi.ations, DQE A fair regulatory result . a generation swap and auction to reduce sharehohler and n . : . , < .. . m - customer exposure . . and cash from asset sales to apply to our successful, expanded business lice President, lines. Clearly, from a sharehohler perspective, we are positioned to succeed in this dynamic Controller and Tarasurrr, new business emironment. DQE It has been DQE's consistent strategy to effectis ely restructure our electric utility oper-ations, recover your capital investment and grow earnings through our expanded business lines. This strategy has sen ed our sharehohlers w ell over the past decade. In fact, your investment in DQE has achieved a total return of 461% over the last to years,largely due to non-Duquesne 1 ight investments. This surpasses both the record perfor-mance of the SAP 500 and the S& P Electric Utility index. Year-end operating earnings per share were S2.52, compared to 19W's result of 52.40. This represents a 5% increase in earnings per share, excluding the $82.5 million extraordinary Pennsylvania restructuring charge taken in June 1998, and the 1997 gains associated with the sale of Chester Engineers and Exide Electronics stock. Given the company's dramatic transition in 1998, we are pleased with this result. Clear Vision of a Bright Future Our strategic vision for the future is a simple one: to become a premier multi-Ltility delivery and services company. We beliese our investor base will be best served through our continued focus on the delivery business in this rapidly changing environment. Our size sen es as an advantage, allowing us to be oppor-tunistic and nimble in our business approach. We recognize that u e bas e a solidly 4
established customer base, as w ell as an extensh e know ledge of the utility industry and the distribution business. We are aggressisely pursuing a strategy of aggregation designed to , .. achies e efficiencies through economics of scale - targeting a priinary need of the fraginented c,py,,, 3,y,,,,,, water industry.1)QE is u cil suited to expand its interest in the w ater industry because ofits DQF. extensite background in utility operations and maintenance, regulatory and environmental compliance, anil customer service and information technology. Ily the end of 1998, we w ere n., p,.,,,g,,,, ,,,j ggg providing service to approximately 300,000 uater and uastewater customers throughout the As,,,jyjy,7,,je, og;ce,; country, augmenting our 580,000 electric distribution customers in western Pennsylvania. DQE We will maximize efficiencies and capitalize on our base of knowledge as w e continue our i transfortnation into a muhi-utility deliscry and senices company. Expanded Customer Base Provides Opportunities for Related Products and Services # The expansion of those businesses we know best lends itself to a broader customer base. This expanded customer base, in turn, provides an outlet for the related products and senices that have added value and experience over the past decade. Recogni/ing that customer needs are both dh erse and changing, w e are
" building" upon Ihree primary expanded business lines synergistic w ith our core distribution business: complementary products and services; industrial and conunercial energy sen ices; and energy-related technology. The mission of these businesses, many of w hich are featured in the following pages, is to provide innovative, value-athled, integrated customer solutions. These investments base achies ed grou th in earnings and value, and bas e effectis ely diversified our business lines.
I want to emphasize that our investment philosophy will remain scry disci-plined - with control, structure and focus on results inherent in every decision w e make. lly sirtue of our company's history, w e possess a treinendous amount of knowledge and experience in the delivery end of the business, and we plan to capitali/c on that. The bottom-line result: quality, reliable service delivery for an expanded customer base. Our related investments, w hich have added experience as u ell as incremental value os er the past decade, will continue to increase in importance, as u e offer them to this expanded customer base. On behalf of the board and our management team, I w ould like to sincerely thank you for your continued confidence as w e strategically navigate through the most dramatic changes this company has ever faced. While w e have encountered many changes m er the past decade, one thing has not changed: We are dedicated to building value and delivering results for shareholders.
- 1) avid I). Marshall ibrsident and ChiefEvecutive Opkcr February 26,1999 s
e . . . denera 10n Dives iture ggp. 1:NNsYlY\NI \ 1s A 1.I' \l)) R A\1()N(; N IXl 1.s ()I i 1 RIN(; RI All)I N 15 ~1111. S 1d Allil.lTY 'l() Cil()(hl' Till'IR l'I.lUI RICI'l Y ( I'.NI'RAI l()N St l'I'I.ll:R. Tu o out of three residents became eligible for choice on a n d Dv o]v esn e Li 'Jn hi January 2,1991. All customers will hase electric choice comeJanuary 1,2000 C The 1)uquesne Light team has kept pace with Pennsyh ania's trailblazing effort by initiating a restructuring that will benefit
' " '" '" ' ~ ~ '
lla President and <fsurrant to tbr Mrsident. company positions for the neu electricity Duquesne 1.ight mat Letplace. The first building block in this process was estensive regulatory restructuring required by the state's Electricity Generation Customer Choice and Competition Act. ()ur restructuring plan, approved by the Public Utility Commission (PUC), permits recovery of nearly all of our im estments in the generation business. The positise results associated uith our plan are due to the planned use of an auction to divest our gen-eration facilities as the means to establish transition cost s alues. In our restructuring proceedings before the PU(:, dh estiture w as strongly argued for by the Pennsylvama ()ftice of Consumer Advocate, the PUC's ()ffice of Trial StatT, the City of Pittsburgh and various consumer groups. We see dis estiture as a means to fur- [ ther reduce both sharehohler risk and cus- [ tomer costs w hile offering pow er station Y . employees an opportunity to further their
~k,. careers in companies focused on generating a
1 1 I) avid .\larshall's letter (pages 2 5) highlights the a , sharehohler benefits of the NudcarI herv "ias Group, generation auction as ucil as Duquesne Light our comminnent to fair brssdent, treatinent (if einphlyces Generation Crwsp, Duquesne Light impacted by the plant sale. General Alanager, PUC Approves Plan , I)uquesne's generation
"" N#'"
divestiture plan has three main Custviner Operanons. parts: an asset auction, a facility Duquesne Light exchange uith FirstEnergy, and electricity. Our plants bas e a great deal to an auction of provider oflast resort senice. offer in terms of quality, location, and the in 1)ecember, the PUC approved all pmfessionalism and expertise of the people three elements of the divestiture plan. The u ho run them. first phase of the generation auction involves if the plants are non-binding hids that will narrow the field
, sold for a price that to those considered most qualified. We
~
FOR
~
IS Regulator
. Restructuring exceeds the minimmu threshold set by the expect winning hidders to he announced this PUC - w hich many consumer ath ocates sununer, with final PUC approval by the believe will occur - 1)uquesne 1.ight cus- end of the year.
tomers w ill benefit through a shorter recov- On October 15, w e announced an cry period of the Competitive Transition agreement in principle with FirstEnergy to Charge (CTC). The CTC represents transi- exchange ou nership interests of certain tion costs - related to generation invest- generation facilities, including the licaser ments- that the PUC determined couhl he Valley Nuclear Power Station u e currently included in electric rates. operate. The generation exchange will help facilitate the auction process because partici-r
pants now will he able to hid
- lli n'ar the only EI)Cin Penn9 /vania on entire plants instead of top"n c Pd'Tiripann a cuaruna9copc price to comparc and 12 onanths of units inint1y owned uith ather hinovicalpou er use to help ibem in shopping utilities. Essentially, we plan 5"'dArnadtionsuPPlin-
- IIi boorted implernentation ofchoice by to transfer nuclear power -
olJering to generation supplien 600 interests and minority ownership megau atts ofpou crfor thefirst six months of1999 - enough to serie all our of several coal-fired plants for . . A rcudenttal customers - at a price that 100% ownership of three fossil- should orndt in anstomer savings ofsnorr fuel plants. - The final seginent of
- automer D """ '. "WN ""
choice cducation pn> gram, u hic.h the divestiture plan involves features plain language annmunications Duquesne's provider oflast resort
"" "S'""""U"#"" I' * '
l community groups. l senice. The winning hidder will supply In a tion, w e are the only elesc u holesale power to Duquesne in the quanti-distdiution coinpany in the state that can Contrviler, ties rei1uired to senice customers u ho do not Duquesne Light; choose another generation supplier, w ho are re d mou customer incten dah erou@ an Assistant Controller, advanced metering system. Under customer DOE unable to find a supplier willing to serve them, choice, claily meter readings will play a criti-or w ho no longer receive generation senices Asnstant General cal role in forecasting electric consumption Counsd, froin another supplier. M,e see the auction of Duquesne Light so that generation suppliers can set their the obligation to serve as another opportunity to reduce customers' transition costs. m hfanager, Information Systems Derdopnient, Champions of Choice As a result of our decision to exit the electricity generation business, Duquesne l Duquesne Light I.ight customers should experience the shortest transition to full electric com-1% ject hIanager, Customer Choice; petition of any major electric company General Afanager, . . FinancialServices; m the state. l'he Dujuesne Light team has Duquesne Light pec,,,, j(gge,. in Pennsylvania's more to cus-tomer choice in many ways. Afanager, Corpargne Servias,
- IIi ucre one ofthefint electric Duquesne Light distnbution companics (EI)Cs) to mail bills that unbundle charges into distribution, transmission, generation and Comyctitive hansition Charge cornponents.
y
M pow er load schedules acconfingly. The daily The New readings also will enable 1)uquesne to Duquesne accurately charge or credit suppliers for any Concurrent difference in their power load schedules v ith our genera-compared to actual customer use. tion auction, the ()ur state-of-the-art Customer Advanced portion of Reliability System, also know n as CARS, Duquesne I.ight 1 i is the only system deployed today that that remains after i delivers integrated usage data for residential, divestiture also will be conunercial and industrial customers, as well changed to fit the real-as network-level outage detection and ities of the new business restoration noti 6 cations. This data conunu- environment. The " wires" portion of the nications link through the meter enables us company is making signi6 cant progress in
. . . . . . Chair, )?ar RKKI to provide customers with greater choice, redesigmng itself m.to a process orgamzation 79., 7.,,,.
greater convenience and better service in a that is appropriate to a delis ery-only busi. Duquesne Light; GeneralAuditor, DQE cost-effective w.1y. ness. We are huihling on our strengths - ily the end of the second quarter of 1999, reliability and customer service - as w e GeneralManager, infunnation 7bchnologr, w e uill complete the installation of Alpha develop a 6exible and responsive organiza- Duquesne Light meters to our 30,000 commercial and indus- tion that will grow and provide new prod- M trial customers - one of ucts that will increase business and enhance ""K"
,3]
the largest installations our image uith customers. Duquesne Light IS FOR r, c' LUSi0mer Choice
- ofits kind in the country. In addition to Y2K Preparations on Track measurement data for billing and outage Preparations for the Year 2000 are noti 6 cation Alpha meters have the ability a top priority throughout the company.
to provide voltage and power quality infor- We have a comprehensive plan in place to mation, along with pro 61e data for load address Year 2000 issues. More information research. We plan to offer customers and on this subject can he found on DQE's generation suppliers a variety of products Internet site (wuw.dge.com) or by calling stemming from the meter's advanced our toll-free hotline at 1-877-393-7800. functions. e
IllT s W l Vl'RYI filNG is lilG IN cfficiencies through economics of scale - 4 Ti~.xw, ANI) I)()E's Avt \SotRCI. targeting a primary need of the fragmented sUlisli)I tRY 11 u lii:o nii 'llil: 1.ARGisi u ater industry.1)()E is u ell suited io INVlXl()R-On NI~l) WA'll'R UTil II Y IN Till: expand its interest in the w ater industry luNI: s ! AR sull:. Formed in April 19'n, because ofits estensive background in utility the company owns and operates water and operations and maintenance, regulatory and w astewater utilities in 10 states, and is rapid- environmental compliance, and customer ly expanding to other states throughout the service and information technology. I.ast country. Growth Through Water Acc visi^ ions o TallTale o.n ca.ye.n We see continuing aggregation of deliv-
'] ery systems as an opportunity to produce solid returns without incurring high premi-ums for our participation. Our relatively small size has thus far enabled our AquaSource subsidiary to capitahre on opportunities in the u ater business, without appearing on the " radar screen" -
of the competition. AquaSource's strategy of aggrega-tion or " roll-up" is designed to achies e l l
- t
year, we continued our rapiil espansion into the water business through an aggres-sise aggregation strategy geared toward acquiring small to mid-sized private w ater distribution and services companies in high-growth regions. r/r rig /,r AquaSource brings to the market a L.res cm n financially strong, motivated and innovatis e '4'"#d"' C""'"##"* AquaSource I team esperienced in all facets of water anii w asten ater sen ices - infrastructure, regu- l'ia Prcsident,
.4dininistrwtion, and latory and emironmental. It prosides ,4,,j,,,y, s,yy,ary, design, construc- ^9"3S""
tion, operation and , .j p,,,jj,,, pj,,,,,j, Budgcting and Rates, A AquaSource aimwon v iS FOR Senior l'ia hrsident
. and ChiefFinancial A
Offier, AquaSource g* management sersices. Providing safe, clean Canada with more than 17,000 customers drinking water in today's regulatory envi- in its office and home u ater cooler division. ronment has become a highly complex Ilased on this les el of growth, we bas e the process. The cost to comply with gm ern- potential to ikrable our size as a multi-mental regulations has become prohibitis e utility distribution company in a few to many smaller water utilities. AquaSource short years. can provide the benefits of economics of We believe AquaSource has the capital scale that otherwise wouki not he as ailable, resources, the operational experience and thus helping small municipalities and private the dedication to become a leading water water companies to proactively aikiress these and wastewater services provider in the types of challenges. country. We may not he able to stay under At ) car-end, AquaSource had acquired the radar much longer. approximately 300,000 customers, totaling
- 6) transactions. In December, AquaSource acquired a bottled water company in 11
Building BlV C by Pu rsuin 9 " P" es _""'"."_""qm""f,:"m_'"quahn. Wel, -Deh. ned Vlarket oo>Qs An important component m _ ,, + to offer products and services n . \.
}
{ {] that male delis cred conunodi-ties, such as electricity, u ater, gas and cominunications, more valu-E. QE I t)N'l1 RN AN 1 NTRI'PRI NFL'R-l \l. NPIRII TNI) AN (>PI R YiING Pill!.(N)PilY (ll NTRTil.GIC P\R I'NI RING able for customers. Using a huilding block approach that intoh es acquiring and tleveloping
'l() lllfil.1) Sil \RI I kil.l)I R VTI.lT. Thomas stanti-alone, financially defensible i f orkmans, president of Duquesne businesses, Duquesne Enterprises pursues ucil-defined market opportunities in the areas of electronic conuncree, communica-tions and energy senices. Because conuner-cial and market conditions are constantly changing,1)uquesne Enterprises continually review s its operating companies for expan-sion opportunities and exit strategies to ensure that DQE's capitalis put to the best possible use.
Each operating company has its ou n
.g specialized, effective management team, w hose financial interest is aligned with DQE. These companies are operated in an environment that is enriched and support- -
ive, leveraging DQE's core competencies, including customer access, synergistic opportunities u ith affiliates, and industry knowledge. gg, ()ne example of our success in energy Duquesne Enterprises services is our Control Solutions business, one of the largest and most successful energy senices companies in the mid-Atlantic ia
esehn o u. 14rsiJnit, North American Power llrolers, Inc. region. This business provides energy tion by flill(;ates, chairman of Alicrosoft, engineering, controls, and efficient facilities for a ComputerWorhl Smithsonian Auard. services. Control Solutions' focus on the liroadPoint Communications' Freeway industrial tuarket - including more than service is one of our neuest and most 2,(H)0 customers - complements ihe com- innovatis e complementary products and mercial market focus of our ()n!)emand services. IlroadPoint is in the midst of an Energy Solutions subsidiary. These industrial extremely successful national rollout of this capabilities, combined with the innovatise first-of-its kind, advertiser-sponsored, free performance contracting and low-cost encrgy long-distance telephone service. With the management systems of Oni)cmand, and Freeway service, customers earn two free the automated meter reading capabilities of minutes oflong-distance calling for each our EnSite partnership with Itron, create short audio advertisement they listen to. g, , , g, a strong platform for expanding I)QE's Freeway has been up and running *ha mv firsident, OnDemand customer base. successfully m. Pittsburgh since April 1998, Energy Solutions, Inc. 1)QE is building businesses through the with 25,000 subscribers and inore than 70 M l+'sident, control application of electronic conunerce enabling national advertisers.1)aring the first several Solutions, LLC technologies. This strategy led to our invest- u cels ofits national rollout, the Freeway ment in, and strategic service has attracted hundreds of thousands 14rsident, llroadPoint alliance w ith, North of subscribers.1)QE anticipates using the American Power Freeway service to extend its retail m iS FOR En repreneurialism
~
Ilrokers. North American provides a low- customer base to millions of homes, with an \ bid, Internet auction-based approach to the expandable electronic conunerce connection retail purchasing of electricity and natural through w hich it will provide additional gas, and is the leader in extending electronic products and services. commerce to the retail energy market. 1)uquesne Enterprises will continue to Approximately 50 energy suppliers, including create value for 1)QE sharehohlers by acquir-many of the country's largest, regtdarly ing and developing synergistic businesses participate in these Internet auctions. North with compelling inarket opportunities in the American's innovative sersice has received rapidly growing areas of electronic com-prestigious recognition, including nomina- inerce, conununications and energy services. 13
___ ~ t)R Ni:ARlY \ 1)1 C \l)l., l.ARNIN(,s l'Rt IVil)I I) HY I)OE s Att NI ACK I he President, Wntauk; Ausnant 7sranurr, DQE; StlNI)!\RY lI Wl: $1 R\TI) AN AN ON( O!NG, 7trarunt; Duquesne yg. ggggg,,. nrm T k-1.ight Gnnpany M financial flexibility generated by 31ontauk's l icr Prrridcut, legal diserse and ophisticated insestment port-ChiefCounsel, WntauL M fi>lio has enabled I)QE to buihl a strong I kr Persidcut and platform of expanded business lines, u hile 7trasurer, Entaul allowing 1)uquesne Light to address critical issues associated u ith deregulation. Financial Expertise ,nelude return on ins estment, linkages to e 1)OE's core distribution business, credit Provides a S011 -,m.t- - -t opportunities. The team also factors in the P1atJ-4 possibilities for add-on im esonents and q J q long-term prospects that relate to the struc-ture, our partners, or the nature of the l 4 GE v t ]L im estment. Evaluating, structuring, negoti-ating and implementing these complex l transactions has led to the des elopment The core of Alontauk's success lies in of a sophisticated skill set that positions its ability to des elop a diverse and distinctis e Alontruk u cil fi>r future expansion. group of transactions, engineered uith .\1ontaul's current invesunent portfidio precision across a uide range of ahernative generally encompasses three lines of busi-investment opportunities. ness: renewable energy businesses, including - In practice, Alontauk applies strict landfill gas, coal bed methane and synthetic investment discipline to identify and focus fuels; affordable housing; and structured on transactions that meet a very specific set financial leasing transactions. In a building ofinvestment characteristics. These criteria block fashion, many of the initiatises that
.\1ontaul developed base esohed into opportunities fiir other I)QE subsidiaries.
14
Eqq"M.% IS FOR we * * *
- Hnancial Flexibility This includes 1)uquesne 1.ight Company's aflisrtlable housing partnerships in the
^
- Ihan ing car nings grou t/r Pittsburgh region, as w ell as the possibilities
- Optorno:. sng portfolin valun for sinall-scale generation itlentitietl through e %npporting affiliate endeavan .
Alontaul's 1.unilill gas ins estinents. With the $* addition in 1998 of a major landfill gas col-lection system on Staten Island, New York, knowledge base and position in the market 1)QE now has approsimately H0 billion ihr tax-advantaged transactions have provid-cubic feet of gas resen es. Clearly, .\lontaul's ed important linkages to I)QE's other expanded business lines.
==manchem The ti.nneial expertise of the .\1ontauk te.un plays an mport nt role in DQE's busi-h . ,U , t,1) .
ness strategy. Alontauk provides 1)QE with unique financial structuring capabilities, sev-eral diverse and profitable lines of business, N and enhanced earnings grow th. Ily identify-ing and espanding upon these unique oppor-
. . A tunities, .\lontauk is recognved as an imestment-generating and portf olio-
. management organization.
Alontauk's experiente in structur-ing complex financial transac-tions uill he a valuable asset as DQE mmes to expand gj its landfill gas, w ater and electric operations. i 15
innovative Energ Solutions torinovstry, Vl a n u fa ctu re rs , Ai rp o rts o finnovathe energy facility and fuel solu-
, , tions. The conipany des elops or acquires, and lnSiltvflonS
~
eu ns, oneeies ana maintain"n"FY facih-ties and independent power projects OPPs), L N B 101: ACE 01 ITI'R-INCREAN- and sells the outputs froin these facilities - 4 ING CostPI:Tn Ivr PRESSURES, back to custoiners under long-term agree-C(IRPORTI'lONS ARI CONCI:NTRAIING tuents. Through its Duquesne Energy sub-Al()RE ANI) A10RE ()l' Till:lR REM)URCl.S ON sidiary, the coinpany also produces specialty Till IR CORl'. Ill'SINEsS. Fuel sourcing and fuels and provides fuel inanagernent services. energy facility managernent and optiiniza- Target markets for the energy facility tion are vieu ed as non-core activities that husiness include industry, manufacturers, can he handled most efficiently through airports, and institutional customers that use outsourcing. "inside the fence" energy facilities to supply steam, electricity, chilled water, and com-pressed air. With a reliable, experienced, M p. l'rrsident, efficient partner like DQE E.nergy S.ervices DQE Energy Services to operate energy facilities, purchase fuel, and even take aging energy assets off their hooks, customers can reduce energy costs and avoid future capital expenditures to maintain these assets. Whether the custorner has existing energy assets like the 11.,1. Ileinz facilities we operate in Pittshurgh and Leamington, Ontario, or needs a new facility, - DQE Energy Senices can provide a 6.' cost-effective solution. DQE Energy Senices' approach focuses EfA % on understanding the customer's site-specific problems, financial objectives, and operating requirements. The strength of
, DQE EnerF'v Services is its ability to work MLI,a4 '
directly with customers and take a flexible,
- i. .
. innovative approach to sohing their energy m
- __P. ",
- 1 11 _
t I mi'kr President, Operations, DQE Energy Senices problems. That strength is Fuel development offers another demonstrated in its two synergy. During 1998, Duquesne 11.J. l lemi contracts, its Energy completed the construction operations and maintenance of six E-FueP production facilities in contract for the Pittsburgh Ohio, Pennsylvania, Kentucky, North International Airport Energy Carolina, South Carolina and Facility, and its winning hid to Virginia. These facilities produce an build, ow n, operate and main- environmentally friendly pelletired , J tain the new energy facility for fuel made from coal and by-products ) the Detroit Metro Airport of the manufacture of paper and plastic. Vice President, _ Midfield Terminal E-Fuel, w hith burns with reduced lesels of Finance, Treasurer , and Ontsviter, DQE I Project, a joint venture nitrogen oxide and sulfur dioside emissions, l Eq* Ss i with AlichCon Gas. is targeted to industrial facilities that burn N g L l'ke Persident, Legal, (J = DQE Energy
- . gg poy Senices _
Innovation ~~ Duquesne Energy DQE Energy Services' approach to the higher-priced stoker coal, and to niche independent pouer market is to develop or steam coal markets. acquire small to mid-si/c projects, some of Initial supply contracts were obtained for which may provide synergistic opportunities the new facilities. E-Fuel also is in use at the with other DQE companies. The Ileinz Pittsburgh complex, demonstrating Alonmouth (N.J.) Energy Facility is an our vertical integration strategy of facilities excellent example of the synergistic benefits and fuels. our building block approach offers, by Duquesne Energy's efforts to commercial-l adding incremental value in businesses ire E-Fuel technology earned th: American related to DQE's areas of expertise. DQE iloiler Alanufacturers Association's Annual Energy Services built and now operates Public Service Award for Energy and this 10-megawatt landfdl gas pou cred IPP. Environmental Achiesement. In 1999, A Alontauk investment, GSF Energy,is w e will seek out additional energy facility responsible for well field operation and gas opportunities w here E-Fuel can provide production. Using transactions of this type, customers with a competitive advantage. DQE maximizes the strengths and expertise in short, the flexible, responsive DQE of our various subsidiaries to provide Energy Senices team is the strategic resource solutions to our customers. for customers' total energy soluuon. ,,
O O Bnngmg Creativit , Efficienc , and Vlass to"he Business o:~ Distribution _ ,h _ l,of _ _ anathe _ l hI ',,#f,",' rnunity, both today and in the future. D()l'nergy PAltTNEllS tailors its ( inununications C()\l\ll'NIC \11()NS 1)I 1,1\ l RY meet the needs of each specific opportunity. 17cr thsidcut, sys1[ \ls IN1t)-ll[i 2isI ci NI t RY Through varied combinations of technolog-1in.ince and lowurrr _ ice President, legal \'Isl()N. D() Energy PAllTNEllS uorks and the lescraging of current assets, with a wide range of distribution system PAltTNEllS remales traditional industry ou ners in the areas of gas, electric and participants into state-telecommunications to help them hetter of-the-art distribution netu orks. IS FOR , Transformation . Systems working with D() Energy g PARTNEllS henefit from a reliable source of f mds, operational impnn ements, expanded product lines and the espert guidance of a motivated team. 'Ibgether,
,m as partners, they are meeting the complex Parrident, DQEnergy challenge of providing exceptional service PAirINERS to both customer and community.
is
BOA R D O F l R E C TO R S Daniel Berg William H. Knocil*
- 69. 'lerm expires 2000(1,6). j ~4. 'Icrm expires 2000(3,4,6).
Institute Professor, Rensselaer - Retired Chairinan and Cluef Polytechnic Institute. Executis e ()fficer of Cyclops Chairman of the lloard and Industries, Inc. (hasic and I)irector, Crystek Crystal Corporation (man- specialty steels and fabricated steel preulucts; ufacturer of high reliability crystals for industrial anti conunercial construction). Inicroprocewors and oscillators). Other I)irectorships include Cahot Oil and Gas directorships include Ily ' lech Alachine,Inc. Corporation and St. Clair Alemorial (specialty parts), and Joachim A1achinery Co., llospital.1.ife trustee of Carnegie Alellon Inc. (distributor of machine tools). Unis ersity. Doreen E. Boyce David D. Marshall
- 64. 'lerm expires 2001(2,5). 46. Term expires 2001 (3,5, 6).
President and Chief Executive Presitlent of the lluhl 1.oundation (supports educa- Officer of DQE; President and DQE/Duque no
- ught commettees:
tional and community pro, Chief becutive Ofheer of-grams). Directorships include Alicrobac Duquesne Light. Directorships include the 2 c;yy,7yy,yu,,y 1,aboratories, Inc. and Dollar llank, l'edera Allegheny Confmna on Conununity i Finana Savings llank. Trustee of Franklin & Dmlo;unent. Trustee of Penn's Southw est + No"""d""K Alarshall College. ^""dadon (nonomic dmlojunent). Duque.n. u he s commeetees: Robert P. Bozzone* Thomas A Murrin L I mp/urment and . (:vmmunny Relations
- 69. 'l.crm expires 2000 (3,6). 6. yy,./rar lhur
- 65. ,l'e rm expires 2000(1,2). 8 Dean, A.J. Palumbo School
\. ice C.hairman of Allegheny g gi y; .a g
- Lead Director Feledyne, Inc. (specialty metals .
2 Duquesne L,nn.ersitv; former production). Life member of - Deputy Secretary of U.S. Dept. of AS A1 International (engineering techm.eal .
. . Conunerce; former I, resident, \\.estmghouse society). Directorships melude Alleghent .
Electne Corporation Energy and Advanced
,leicdyne, Inc. Former Chairman, .
Pittsburgh branch m. the Federal Reserve .fechnologv Group. Directorslu.ps melude Alotorola, Inc. (manufacturer of electne . llank of Cleveland. Trustee of Rensselaer . equipment and components). 31 ember of the Polytechm.e Institute. lhecutive Committee of the U.S. Council on Competitiveness and Chairman of the Sigo Falk Pittsburgh Tissue Engineering institute.
- 64. 'lerm expires 1999(2,3,4).
Alanagement of personal Eric W. Springer
, investments. Chairman of Alaurice Falk Aledical Fund, f
;J
- 69. Term expires 1999 (1,4).
Of Counsel, Ilorty, Springer the 1. con Falk Family Trust, and the g and 31attern. P.C. (attorneys-Chatham College lloard of Trustees. at-lau). Trustee of the Alaurice Directorships incimle the Ilistorical Society Falk Aledical Fund and Trustee Ementus of of Western Pennsy hania and the Allegheny Presbyterian University llospital and the 1.and Trust. University of Pittsburgh Aledical Center. Past president of the Allegheny County llar Association. se
s DQE FF I CE R G C . David D. Marshall,46. President and Chief Executive Officer. Previously behl senior executive positions in finance at Central Vermont Public Service. Joined the company in 1985. Directorships included on page 19 Gary L. Schwass,53. Executis e Vice President and Chief Financial Officer. Previously sened in a variety of senior executh e positions in finance and management with Consumers Power Company. Joined the company in 1985. Directorships include Chair, Western Pennsylvania Development Credit Corporation (promotes small business through lending activities), and Vice President and Treasurer, lloly Family Foundation (supports families in crisis). Victor A. Roque,52. Executive Vice President and General Counsel. Formerly Vice President, General Counsel and Secretary for Orange and Rockland Utilities. Joined the , company in 1994. Directorships include the Pennsylvania Ilusiness Roundtable (economic desclopment), the Ilill Ilouse Association (provider of social services), the Urban League of Pittsburgh, and the United Way Good Neighbors Aihisory Conunittee. Member, Salvation , Army Greater Pittsburgh Advisory lloard. William J. DeLeo,48. Vice President and Chief Administrative Officer. Previously hehl senior management positions with Duquesne Light, Gulf Oil and Price Waterhouse. Joined the company in 1985. Directorships include the Pittsburgh Cisic Light Opera. James D. Mitchell,47. Vice President. Previously hehl senior financial positions with Duquesne Light and U.S. West, Inc. Joined the company in 1988. Directorships include Three Rivers Youth (helps troubled teenagers). Morgan K. O'Brien,38. Vice President, Controller and Treasurer. Previously heki senior financial positions at DQE, Duquesne Light, PNC llank and Deloitte & 'Ibuche. Joined the company in 1991. Jack E. Saxer, Jr.,55. Vice President. Previously held senior financial positions with Gulf Oil and Chevron. Joined the company in 1989. Directorships include Point Venture (s enture capital) and Pittsburgh Consumer llealth Coalition (healthcare advocacy for the disadvantaged). Diane S. Eismont,54 Corporate Secretary l DUQUESNE LIGHT COMPANY OFFICERS 1 I l David D. Marshall,46 Gary R. Frosina C. Cordisco,47 , President and Chief Brandenberger,61 Treasurer Executive Officer Vice President and Assistant to the President Diane S. Eismont,54 Gary L. Schwass,53 Corporate Secretarv and Senior Vice President William J. DeLeo,48 Assistant General Counsel and Chief Financial Officer Vice President, Corporate Senices James E. Wilson,33 Victor A. Roque,52 Controller c Senior Vice President Edward N. Neal,52 and General Counsel Vice President, I Customer Operations James E. Cross,52 President, Morgan K. O'Brien,38 Generation Group Vice President, Finance 20
r AQUASOURCE OFFICERS Donald J. Clayton,44 William A. Callegari,57 James A. Lahtinen,46 President President-South Vice President, Planning, lludgeting and Rates Edward R. Wallace,43 William K. Senior Vice President and Reynolds, 56 Carey A. Thomas,34 Chief Financial Officer President-Alidaest Vice President, Administration and Assistant Secretary DUQUESNE ENTERPRISES OFFICERS i e Thomas A. Anthony J. Villiotti,52 Eric R. Stoltz,41 Hurkmans, 33 Senior Vice President Vice President President and Treasurer Anthony F. Pekny,41 Neal G. Taylor,47 Rachael K. Lorey,34 Controller Senior Vice President Vice President, Legal MONTAUK OFFICERS James D. Mitchell,47 William F. Fields,48 Stevan R. Schott,35 President Vice President and Controller Treasurer Frosina C. Cordisco,47 Vice President John F. Fulgoney,52 Viec President, Legal and Chief Counsef DOE ENERGY SERVICES OFFICERS Alexis Tsaggaris,50 Deborrah E. Beck,41 Richard M. LIConti,54 President Vice President, Finance, President Linda S. Ackerman,42 Vice President, Legal Philip J. Damiani,48 Vice President, Operations DQENERGY PARTNERS OFFICERS
. John W. Welch,47 Frank A. Hoffmann,47 Kelly M. Pasterick,28 President Vice President, Operations Controller Mask S. Daday,37 William H. Roberts,45 Patricia A. Prozzi,44 Vice President, Finance Vice President, Legal President, and Treasurer DQE Communications f
21
l 1998 fin A N C I A L STATE M E N T S AT CJ LQN CE Detailed financial information can he thund beginning on juge 29 Selected Financial Data (in millions, except per share amounis) l 1997 1996 1995 Selected income Statement items: Revenues from sales of electricity $1,124 $1,144 $1,149 Fuel and purchased power expenses . 223 237 232 Net electric revenues 901 907 917 Other revenues 106 93 81 Net operating revenues 1,007 1,000 998 Operating and maintenance expenses 401 388 384 Depreciation and amortization 243 223 203 Taxes other than income taxes 3 - Non-energy operating e.1penses Operating income 280 303 322 , Investment and other income 130 73 52 Interest and other charges 115 110 107 Income taxes . 96 87 96 Pa restructuring charge (net of tax) - - _ Net incoule Basic EPS e S 2.57 5 2.32 S 2.20 Diluted EPS - S 2.54 5 2.29 5 2.17 x)_ _ _ _ _ _ 2.76 2.69 2.73
)
Selected Balance Sheet Hems: lamg-term investments S 723 5 519 5 441 Property, plant and equipment $2,662 $2,817 $3,060 Total assets $4,694 54,639 $4,459 1 "Thtal capitaliz. Capitalization Ratios: Common shareholders' equity = 48.3 % 45.6 % 47.5 % Preferred and preference stock = 7.3% 7.3% 2.5%
= 44.4 % 47.1 % 50.0 %
Selected Common Stock Information= l Average shares outstanding 77.5 77.3 77.7 - I Shares outstanding at year-end 77.7 77.3 77.6 Market capitalization $2,729 $2,241 52,386 Dhidends declared S 107 5 101 5 94 Dividends declared per share $ 1.38 $ 1.30 $ 1.21 Book value per share at year-end $19.30 $18.01 $17.13 Dividend payout ratio = 52.9 % 55.2 % 54.1% Dividend yield at year-end = 4.1% 4.7% 4.2% Return on average common equity = - 13.8 % 13.2 % 13.1 % Price-earnings ratio at year-end 13.7 12.5 14.0
- Ilam (Js uher Penn9 henia reveruaunng Jorge SI 46; thfured 11% after truaunng Jarge. $144 Ratna uf earnings tofurd Jarges (pre-ta.o after l'rnnyh anw vertructuno.g s.
23
1994 1993 1992 1991 1990 1989 1988
$1,146 51,132 51,127 $1,163 S1,110 $1,097 S1,047 244 238 239 254 229 220 231 902 894 888 909 881 877 816 90 63 37 38 31 48 43 992 957 925 947 912 925 859 421 415 365 385 388 353 335 166 158 132 123 123 123 117 88 71 84 94 80 93 81 675 644 581 602 591 569 533
= 317 313 344 345 321 356 326 43 31 42 36 46 (3) 30 110 120 132 142 157 165 175 93 80 112 105 88 75 62
$ - 157 $ 144 $ 142 $ 134 S 122 5 113 $ 119 5 1.98 $ 1.81 S 1.78 5 1.67 5 1.49 5 1.35 5 1.24 S 1.96 S 1.79 $ 1.77 5 1.65 S 1.48 S 1.34 S 1.24 2.57 2.29 2.24 2.10 1.90 1.78 1.72
$ 196 $ 126 $ 59 $ 44 $ 18 $ - $ -
$3,140 S3,168 $3,037 $3,053 $3,048 $3,055 $3,066 S4,427. $4,550 $3,778 $3,851. $3,834 $3,921 $3,881
$2.750 $2.781 $2.716 S2/49 $2.770 $2.827 ' $2.866 r
46.4 % 44.2 % ' 43.1% 41.6 % 39.0 % 37.7 % 37.4 % 3.5% 4.8% 4.9% 5.2% 6.8% 7.8% 8.5% _ 50.1% 51.0 % 52.0 % 53.2% - 54.2% 54.5% 54.1 % - l
*- 79.0' 79.5 79.4 80.1 81.6 83.7 95.6 l l
78.5 - 79.5 79.4 79.4- 80.6 83.0 85.7
$1,550 $1,829 $1,708 $1,621 $1,337 $1,321 $1,0534
$ 89- $ 86 $ 81 $ 78 $ 75 $ 73 5 78
$ 1.13 $ 1.08 $ 1.03 $ 0.97 - $ 0.92 S 0.87 . $ 0.f1
$16.27 $15.47 $14.75 $14.00 $13.38 $12.85 512.34 56.4 % 58.8 % 56.9 % 57.6 % 60.7 % 63.1 % 643%
5.7% 4.6% 5.0% -5.0% - 5.8% 5.7% 6.6 % 12.5 % 12.0 % 12.4 % .12.2 % 11.3 % 10.6 % 10.4 % 9.9 12.7 12.1 12.3 11.1 11.8 10.1 -l m'F 3 i . .. .
Selected Operating Data l 1997 1996 1995 j Sr.les of Electricity (kilowatt-hours)* Average annual residential use 6,247 6,362 6,474 Electric energ sales supplied (millions): Residential 3,268 3,321 3,378 Commercial 5,695 5,737 5,729 Industrial 3,500 3,285 3.237 Aliscellaneous 82 83 84 Totalsales to customers 12,545 12,426 12,428 Sales to other utilities 1,445 3,310 2,975 . l Totalsales Percentage Change in Energy Sales:
- Residential (1.6) (1.7) 4.9 Commercial (0.7) 0.1 3.0 Industrial 6.5 1.5 (0.6) .
Aliscellaneous (1.2) (1.2) 0.0 ) Totalsales to customers 1.0 0.0 2.5 i Sales to other utilities (56.4) 11.3 (7.4) I Totalsales Energy Supply and Production Data: Energy supply (millions of kilowatt-hours): Net generation - system plants 12,567 14,166 14,201 1,423 1,570 1,202 i Tota! energy supply 13,990 15,736 15,403 Generating capability (megawatts) 2,670 2,670 2,834 Peak demand (megawatts) 2,671 2,463 2,666 Cost of fuel per million BTU 131.20e 130.21e 131.37c A Electric Utility Customer Data: Telephone access:
% of customers waiting less than 30 seconds - 88 % 88 % 87 %
Customer Senice Guarantee Program error rate - .004 % .007 % .007 % Number of customers at year-end (thousands): Residential 523.5 522.8 522.9
- Commercial 54.5 54.0 53.8 Industrial 2.0 2.0 2.0 Other 1.9 1.9 1.9 Totalcustomers 581.9 580.7 580.6 Expanded Business Lines: ____
% contribution to DQE earnings M 31 % 19 % 15 %
Return on equity M 19 % 15 % 13 % Assets (millions) _ _. $854 5612 $470 Landfill gas reserves (Bef) o 224 171 - Water and wastewater customers (thousands) 1 - - 24
f 1994 1993 1992 1991 1990 1989 1988 6,170 6,201 5,901 6,331 5,953 6,060 6,I68 3,219 3,231 3,069 3,285 3,078 3,119 3,156 5,563 5,490 5,358 5,450 5,236 5,145 5,055 3,256 3,M6 3,059 3,M2 3,296 3,221 3,302 84 84 83 84 84 84 91 12,122 11,851 11,569 11,861 11,694 11,569 11,604 3,212 2,821 4,060 2,979 1,830 2,100 2,716 15.334 14.672 15.629 14.840 13.524 13.669 14.320 (0.4) 5.3 (6.6) 6.7 (1.3) (1.2) 3.0 1.3 2.5 (1.7) 4.1 1.8 1.8 3.2 6.9 (0.4) 0.6 (7.7) 2.3 (2.5) 13.2 0.0 1.2 (1.2) 0.0 0.0 (7.7) (7.1) 2.3 2.4 (2.5) 1.4 1.1 (0.3) 5.7 13.9 (30.5) 36.3 62.8 (12.9) (22.7) 12.0 4.5 (6.1) 5.3 9.7 (1.1) (4.5) 6.8 14,678 14,056 15,074 14,220 13,266 13,455 14,144 656 616 555 620 258 214 176 15,334 14,672 15,629 14,840 13,524 13,669 14,320 2,834 2,834 2,834 2,835 2,835 2,835 2,836 2,535 2,499 2,308 2,402 2,379 2,381 2,372 137.23e 143.65e 140.15e 153.70e 149.62e 143.87e 145.74e 2.23e 2.33e 2.19e 2.44e 2.51e 2.73 e 2.58e
- 86 % 76 % 41 % 26"/o - - -
. 522.6 522.3 521.2 520.0 518.3 516.8 513.8 53.6 52.9 52.8 52.6 52.3 52.0 51.5 2.0 2.0 2.0 2.0 2.0 2.0 2.0 1.9 1.9 1.8 1.9 1.9 1.8 1.8 580.1 579.1 577.8 576.5 574.5 572.6 569.1 10 % 4% 1% - - - -
10 % 6% 2% 2% - - -
$350 $212 $106 553 531 52 -
N h M _ w h 6 25
CO N D E N S E D I N A N C I A L STAT E M E N T S l i Condensed Statement of Consolidated Income (nnilions ofdollan, except per share antonnts)
'.ar sne e 9.comsmer a i flo4/euti/,tyse/e, 1998 1997 wit /s ine >esjee/fne/
ee;/; e/or te nue/ee> Revenues from sales of electricity . $1,127 _ $1,124
- /4//en ente Fuel and purchased pow er expenses 263 223 x- - Net electric revenues 864 901 7 f,, , Other revenues 143 106 investnoent, ./ Net operating revennes 1,007 1,007 ,
se/stedte eese < tu;/ne;; %.__ __ Operating and maintenance espenses 437 401
-1)epreciation and amortization 217 243 .
l
' 'l:nes other than income taxes 81 83 l ee/heet/gefle sfo/ic/I 72.,1 Non-energy operating e.spenses 735 p/snt depseein/ ten Operating inconte '272 280 (entinuedp serot/s , Investment and other income 136 130 in espone/e</ ' Interest and other charues l'10 115
~
6usine;; line; / 1 l inconie before incorne taxes Vefinaneing e ,,uf ,,,,.,9,.g,,,,_,y ,,n, ygg ,95 /en7s -tesno debt Income taxes 101 96 pjg( Incarne beforr extraonlinary itnn 197 199 seitsneta sing e ></e > % __ . , _ Extraordinary item (net of tas) (83)- - Net incoine . $ 114 $ 199
$nle rf Clie:tes Iktrnings per sbarr - befcur o g g 9 ,g, ,,, ,,,
atraonlinary itan $ - 2.52 $ 2.57 in 199? sddeef - ~' I? eent; pe> 3/inse
- Eantings per shair - after extraordinary itern $ 1.46 $ 2.57 to
Condensed Consolidated Balance Sheet (millions ofdollan) Centinaard < / sewth in repanded N Current assets $ 375 $ 569
~ Long-term invesunents 760- 723
& n > <.n-ss h.nes f Property, plant and equipment -1,717 2,662 e Regulatory assets 2,198' 681 4j 'j. Other non-current assets 198 59
* (fne'estieft y/s/It s Totalassets l' $5,248 $4,694 l see/s2sofiedss tsensitten eests Current liabilities $ . 354 ' S 308 Deferred income 157 225 Non-current liabilities 1,625 1,058 Long-term debt 1,365. 1,376 fnesesse se ferts y .y ,,,,,, , 7btalliatrilities l. 3,501 2,967 l
/ esse listinty Preferred and preference stock 263 228 Conunon shareholders' equity 1,484 - 1,499 lblal15al15 filles aHO CyHity $5,148 $k,69k Long-Term Snwestmeruts eanilluons of Jodlar o H00 oreo sus Il
* (,00 es,o s, .;
400 [ .] 100 O O '94 '95 '9fi '97 '98 inirsturcuts on unhos debiri, bu,ane s ses. < <anplenicuras, fu rulu< ts and scin< cs. industiud and annnoce a sal enci g) scru<n and enci g1 o clatcd In hondog, ha.1 added
; ain< i: buh effn to.rb driri sufs ong our a 1panded burnerss hncs l
37
Condensed Statement of Consolidated Cash Flows (milhons ofdollana leniinned stsen9 W' resh f /ew p 6e,w/e; 1998 1997 finaneos/f /e e r6thty w_- Operating cash flows $496 $470 Changes in working capital (37) (37) Other (98) (66) Cashftwn operating activities 361 367
./ Capital expenditures (190) (116) tyseeth in -cd -Purchase of companies (144) (6) cerendet tersiness Long-tenn investments (69) (219) . /ines t4se*p4 Disposition ofinvestments 7- 86 opp sepelien s/sotegy other (1) (1) '"'I '9 "I Cash used in investing activitics (397) (256) inveshnents Common and preferred stock dividends (114) (107)
_- Net change in long-tenn debt (71) (66) g,,, f f,, ,,,g Common stock repurchases (14) - di,idendpiewth Other (12) 7 Cash used infinancing activities (211) (l66) Net change in cash $(247) . 5 (55) w oper eens c n re. - unallanus of sinflar o
'IOO s4ro Il 400 sara .3,,
300 W M . 200 100 0 '94 '95 '96 '97 '98 1%itra aasi, flou allows IM)I fa, not cf Its nlwo rtiong anal n onsts'ar< fonn o rtforir e njents, Intfu nn its n afulal sto us tus e senst sica-inp its esfuensleal frusoncss lines me * $$ttlloslcS T:'arllHg cd tid ldngl Othcr* bdldHn't .shect c 'anges
)
a
\
.,1 0 9 0 7 . F :- I N.A'N.'C I'A.L "N F 01 R . M' A' T I O - N .
.k C o n 1 e n -t .5 T h irt y 'k f h I t4te t y (W '
' li
- herty Sevahm '
3
'[.+'
' T hart y' Neets-
F ett y F tity Osae-F etty T ww o Ffi tt y F oue ' 4 F ett y + tw o , s , F.stt y -F syc F etty 5 eve , Se v ent y - Es9pht
- Co m pa ny-. Re po rt o n ' Fin a n cial Stateme nts TIIE COAiPANY IS RESPONS111LE FOR Tile with established procedures. There are limits
. FINANCIAL INTORA1ATION AND REPRE- inherent in any system ofinternal control
- SEVTATIONS CONTAINED IN Tile FINANCML and such limits are based on recognition that STATEMENTS AND OTIIER SECTIONS OF Tills the cost of such a system should not exceed ANNUAL REPORT TO SIIAREIICLDERS. The - the benefits derived. The system ofinternal
" Company believes that the consolidated accounting control is supported by written financial statements have been prepared in policies and guidelines and is supplemented conformity with generally accepted by a staff ofinternal auditors. The Company
' accounting principles that are appropriate in believes that the internal accounting control
' the circumstances to reflect, in all material . system provides reasonable assurance that its
' respects, the substance of events :md assets are safeguarded and the financial transactions that should be included in the information is reliable.
statements and that the other information in
'the annual report to shareholders is consistent t with those statements. In preparing the . .g ' financial statements, the Company makes . David D. Marshall i informed judgments and estimates based on ' President and Chief Executive Officer !
i
. currently available information about the effects of certain events and transactions. ^
j-The Company maintains a system. ofinternal - - accounting control designed to provide l reasonable assurance that the Company's Gary L. Schwass assets are safeguarded, and that transactions Executive Vice President and are executed and recorded in accordance Chief Financial Officer 29.
.\
L. ,
I 1 990 fin A N C I A L N F 0 R M AT I O N Contents Therty < Therty-One R .. <1 Therty-Seven / * / , /s . Therty-Nene k- 1/ . - Fetty . /s ' ./.,..,.<
' ' l ' , . :' F Fetty-One ' -
.'< . c / .,
Fetty-Two I . - . . . - /l < . s, Fetty-Four . .. - ? ( . , <sc t . i /; F.tt,.Fewe . . . _ . .. .. . .. , ~.m. /. . Fetty-Fewe . s' ua3, - !( . .; . / . N: . . / . . ,- ! I Fetty-Ftwo \ ' - f , r.l...'.,/:..',....: - 5 ,n.> j Seventy-54ght . (,J ..- " /,
> ,//
l l Company Report on Financial Statements Tlic COs1PANY ls RESPONSIBl.E I OR TilF. with established procedures. There are limits IINANCIAl. INFOR\1 ATION AND REPRE- inherent in any system of internal control SINI Al'lONS CONTAINED IN Tile FINANCI AL and such limits are based on recognition that STAI EAIINIS AND OTill R SI CTIONS OF Tills the cost of such a system shouki not exceed ANNUAI. RFPORT TO Sil AREllOl.DERs. The the benefits derived. The system ofinternal Company believes that the consolidated accounting control is supported by written fmancial statements have been prepared in policies and guidelines and is supplemented conformity with generally accepted by a staff of internal auditors. The Company accounting principles that are appropriate in helieves that the internal accounting control the circumstances to reDect, in all material system provides reasonable assurance that its respects, the substance of events and assets are safeguarded and the financial transactions that should be included in the information is reliable. statements and that the other infonnation in the annual report to shareholders is consistent g with those statements. In preparing the - 1V(
, financial statements, the Company makes David D. Marshall informed judgments and estimates based on President and Chief Executive Officer currently available information about the effects of certain events and transactions.
The Company maintains a system ofinternal accounting control designed to provide reasonable assurance that the Company's Gary L Schwass assets are safeguarded, and that transactions Executive Vice President and are executed and recorded in accordance Chief Financial Of6cer ze
DQE 1998 Financial Information CORPORATE DQE, Inc. (DQE)is a multi-utility delivery and senices company. Its subsidiaries are Duquesne STRUCTURE Light Company (Duquesne); AquaSource, Inc. (AquaSource); DQE Energy Senices, Inc. (DES); DQEnergy Partners, Inc. (DQEnergy); Duquesne Enterprises, Inc. (DE); and Alontauk, Inc. (Alontauk). DQE and its subsidiaries are collectively referred to as "the Company." The Company's utility operations include an electric utility engaged in the generation, transmission, distribution and sale of electric energy and a water resource management company that acquires, develops and manages water and wastewater utilities. The Company's expanded business lines offer a wide range of energy-related technologies, industrial and commercial energy senices, telecommunications, and other complementary senices. The expanded business lines' initiatives include energy facility development and operation, domestic and international independent power production, the production and supply of innovative fuels, investments in communications systems (including long-distance telephone senice) and electr mic commerce. In addition, one of the Company's subsidiaries is a financial senices company that makes long-term . investments and provides financing for the other expanded business lines and related customers. On December 18,1998, the Pennsylvania Public Utility Commission (PUC) approved the
- ' Company's plan to divest itself ofits generation assets through an auction (including an auction of its provider oflast resort senice), 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. The Company currently expects these transactions to close in late 1999 or early 2000. (See " Rate Alatters" discussion on page 39.)
The Company's Service Areas The Company's electric utility operations prmide senice to customers in the City of Pittsburgh and surrounding areas. (See " Rate Alatters" on page 39.) This territory represents approximately 800 square miles in southwestern Pennsylvania. The population of the area served by the Company'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 appioximately 580,000 direct customers, the Company's utility operations also sell electricity to other utilities. , The Company's water utility operations provide senice throughout the United States. The Company's water utility and related senice operations have grown rapidly and are currently { approaching 300,000 customer connections. l Regulatien ( The (' memy is r%ct to the accounting and reporting requirements of the Securities and j Exchang uommission (SEC). In addition, the Compan/s electric utility operations are subject to ! regulation by the PUC, including regulation under the Pcnmy/rania Electricity Generation Customer Choice and Compctition 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 39.) The Company's electric utility operations are also subject to regulation by the Nuclear Regulatory Commission (NRC) under the Atomic Energy An ofl9H, as amended, with respect to i the operation of its jointly owned / leased nuclear power plants, Beaver Valley Unit 1 (BV Unit 1), . l Beaver Valley Unit 2 (BV Unit 2) and Perry Unit 1. l The Company's water utility operations are subject to regulation by the utility regulatory bodies i in their respective states. As a result of the PUC's Alay 29,1998, final order regarding the Company's restructming plan under the Customer Choice Act (see " Rate Alatters" on page 39), the electricity generation ponion of the Company's business no longer meets the criteria of Statement offinancia/ Accounting Standards (SE4S) No. 71, Axountingfor the Ef]hcts ofCertain Types ofRegulation (SFAS No. 71). Accordingly, application of SFAS No. 71 to this portion of the Company's business has been discontinued and the Company now applies SE4S No.101, Regulated Enterprises - Accountingfor the Discontinuation ofApplication ofE4SB Statement No. 71 (SFAS No.101), as interpreted by Emerging Issues Task Force (EITY) 97-4, Deregidation of the Pricing ofElectricity - Issues Related to the Application ofE4SB Statements No. 71 and 101. Under SFAS No.101, the regulatory assets and i liabilities of the generation portion of the Company are determined on the basis of the source l from which the regulated cash flows to realize such regulatory assets and settle such liabilities will be derived. Pursuant to the PUC's fimal restructuring order, certain of the Company's generation-related regtdatory assets will be recovered through a competitive transition charge (CTC) 30 \ l
)
collected in connection with providing transmission and distribution ser ices (the electricity delivery business segment). The Company will continue to apply SFAS No. 71 with respect to such assets. Fixed assets related to the generation portion of the Company's business have been evaluated in accordance with SE4S No.121, Accountingfor the Impairment ofLong-Lived Assets to Be Disposed Of(SFAS No.121). Applying SFAS No.121 to the non-regulated generation assets,it has been determined that the Company's generation assets are impaired. IIowever, pursuant to the PUC's final restructuring order, the Company will recover its above-market investment in generation assets through the CTC. Under the Company's plan to auction its generation assets (currently expected to close in late 1999 or early 2000), 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 ofits generation assets. Accordingly, the amount of book value 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 f' mal 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 regulatiens. The regulatory assets represent probable future revenue to the Company, because provisions for these costs are currently included, or are expected to be included, in charges a
to electric utility customers through the ratemaking process. (See " Rate Matters" on page 39.) RE:ULTS OF Overalll'efformance OPERATION 5 1998 (;ompared to 1997 On May 29,1998, the PUC issued its final order related to the Company's restructuring plan. In the second quarter of 1998 the Company recorded an extraordinary charge (Pennsylvania restructuring charge) against earnings for $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 restmeturing charge included Phillips Power Station (Phillips), Brunot Island Power Station (BI), deferred caretaker costs related to the two stations, and deferred coal costs. The charge resulted in a reduction of Duquesne's contribution to the Company's earnings per share by $1.06. (See " Rate Matters" on page 39.) The Company's earnings per share in 1998 were $2.52, excluding the Pennsylvania restructuring charge, compared to 52.57 in 1997, resulting in a decrease of $0.05 per share or 1.9 percent. Earnings available for common stock were S195.8 million in 1998, excluding the Pennsylvania restructuring charge, compared to $199.1 million in 1997, resulting in a decrease of $3.3 million or 1.7 percent. The decrease in earnings available for common stock can be primarily attributed to the gains recorded on the sale of Chester Engineers (Chester) and of Exide Electronics Group, Inc. (Exide) stock in 1997, which together contributed $0.17 to earnings per share. Excluding these gains, the resulting increase to earnings per share of $0.12 in 1998 is primarily the result ofincome attributable to the increased level oflong-tenn investments made late in 1997 and throughout 1998 through the expanded business lines. 1997 Compared to 1996 The Company's earnings per share in 1997 of $2.57 increased by 50.25 or 10.8 percent,
, compared to earnings per share of 52.32 in 1996. Earnings for common stock were $199.1 million in 1997 compared to $179.1 million in 1996, an increase of S20.0 million or 11.2 percent. The sale of Chester and of Exide stock in 1997 together contributed $0.17 to earnings per share, and an additional 50.19 per share was earned by the expanded business lines, the result ofincome attributable to the increased level oflong-tenn investments. A partial offset to these increases in net income in 1997 was an incremental 525 million of accelerated nuclear fixed asset recovery as detailed in Duquesne's 1996 PUC-approved mitigation plan.
Dividends Once all dividends on DQE's Preferred Stock, Series A (Convertible),5100 liquidation preference per share (DQE Preferred Stock), have been paid, dividends may be paid on the Company's common stock to the extent permitted by law and as declared by the board of directors. Ilowever, payments of dhidends 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 31 I I- -
= _ . . . _ . . . . .
preference stock. Further, the aggregate amount of Duquesne's common stock dividend payments i 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. Aa all of Duquesne's common stock is owned by DQE, to the extent that Duquesne cannot pay common dividends, the Company may not be able to pay dividends on its common stock or DQE Preferred Stock. The Company has continuously paid dividends on common stock since 1953. The Company's annualized disidends per share were $1.52, $1.44, and $1.36 at December 31,1998,1997 and i 1996. During 1998, the Company paid a quarterly dividend of $0.36 per share on each of January 1, April 1, July 1 and October 1. The quarterly dhidend declared in the fourth quarter of
)
j 1998 was increased from $0.36 to $0.38 per share payableJanuary 1,1999. The Company expects l that funds generated from operations will continue to be sufficient to pay dhidends. The l Company's need for and the availability of funds will be inauenced by, among other things: new } investment opporttmities; the economic activity within the Company's utility senice territory; competitive and environmental legislation; the results of the anticipated divestiture; and regulatory matters experienced by the electric utility industry generally, more specifically the transition to competition in Pennsylvania. (See " Rate Matters" on page 39.) The Company's stock price was
$43"/m at the end of 1998. i l
Results ofBusiness Seynents l Historically, Duquesne has been treated as a single integrated business segment due to its regulated operating emironment. The PUC autimrized a combined rate for supplying and delivering electricity to customers. This rate was based on the Company's cost of senice, which
)
j was designed to recover the Company's operating expenses and investment in electric utility as w l and to provide a return on the investment. As a result of the Customer Choice Act, generation m l electricity will be deregulated and charged at a separate rate from the delivery of electricity beginning in 1999 (5 percent of customers chose alternative generation suppliers in 1998). For the purposes of complying uith the SE IS No.131, " Disclosures about Sepnents ofan Enterprise and RelatedInfonnation"(SFAS No.131), the Company is required to disclose information ainut its business segments separately. Accordingly, the Company has used the PUC-approved separate l rates for 1999 to develop the financial information of the business segments for the periods ended December 31,1998,1997 and 1996. Beginning in 1999, the Company will have two principal business segments: (1) the transmission and distribution by Duquesne of electricity (electricity delivery business segment) and (2) the generation by Duquesne of electricity and collection of the CTC (electricity generation business segment). To comply with SFAS No.131, the Company has reported the results for 1998,1997 and 1996 by these business segments and an "all other" category. The all other category includes the Company's expanded business lines and Duquesne investments. These expanded business lines include water utilities, energy products and senices, and other activities. Intercompany transactions primarily relate to sales of electricity, property rental, management fees and dividends. (See Note 0,
" Business Segments and Related Infonnation."in the Notes to the Consolidated Financial Statements on page 75.) Upon the anticipated completion of the auction of the Company's generation assets and provider oflast resort senices, the electricity generation business segment will be comprised solely of the collection of the CTC. -
l99S ComparcJ to I997 Electricity Delivery Business Segment. The electricity delivery business segment contributed
$37.2 million to net income in 1998 compared to $61.9 million in 1997, a decrease of $4.7 million '
or 7.6 percent. Operating revenues for this business segment are primarily derived from the Company's delivery of electricity. Sales to residential and commercial customers are influenced by weather conditions. Warmer 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 $4.5 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 demar.d. The following table sets forth kilowatt-hours (KWH) delivered to electric utility customers. 32
1 l l IGVH Delivered I (In Thousands) 1998 1997 Change Residential 3,382,323 3,273,532 3.3 % Commercial 5,896,036 5,785,745 1.9 % Industrial 3,411,648 3,501,107 (2.6)% Sales to Electric Utility Customers 12,690,007 12,560,384 1.0 % l 1 Operating expenses for the electricity delivery business segment are primarily made up of costs I to operate and maintain the transmission and distribution system; meter reading and billing costs; l customer service; collecton; administrative expenses; and non-income taxes, such as property and j payroll taxes. Operating expenses increased $9.9 million or 7.2 percent from 1997, primarily as a i I result of higher costs of maintenance of the transmission and distribution system, and start-up costs related to the Customer Advanced Reliability System, including electronic meter reading i and installation. The increase in the system maintenance was primarily due to the increase in i frequency and severity of stonns during 1998. l Depreciation and amortization expense increased $1.7 million or 3.8 percent in 1998 due to j additions to the plant and equipment balance throughout the year partially offset by retirements. l Other income is primarily comprised ofinterest and dividend income. A decrease of
$1.6 million or 22.8 percent was the result oflower interest income from a smaller amount of cash l 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 50.9 million or 2.3 percent less in interest and other charges compared to 1997. The decrease was the result of the refinancing oflong-tenn debt at lower interest rates and the maturity of approximately $75 million oflong-tenn debt during 1998. Decreased taxable income during 1998 resulted in lower income taxes by $3.1 million or 7.6 percent. Electricity generation business segment. In 1998, the electricity generation business segment reported net income of $71.9 million, excluding the Pennsylvania restructuring charge, compared to $60.5 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 the Company'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 Cost Rate Adjustment Clause (ECR), including the fuel component of purchased power, and did not affect net income. Beginning Alay 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 authorized generation rates. (See " Rate Alatters" on page 39.) Energy requirements for residential and commercial customers are influenced by weather c conditions. Warmer summer and colder winter seasons lead to increased customer use of { electricity for cooling and heating. Commercial energy requirements are also affected by regional 1 development. Energy requirements for industrial customers are influenced by national and global { o economic conditions. 1 Short-tenn sales to other utilities are made at market rates. Fluctuations in electricity sales to l other utilities are related to the Company's customer energy requirements, the energy market and transmission conditions, and the availability of the Company's generating stations. Future levels of j short-term sales to other utilities will be affected by market rates, the level of participation in l customer choice, the Company's decision to sell 600 megawatts (A1W) to licensed generation l suppliers and the Company's divestiture ofits generation assets. (See " Rate Alatters" on page 39.) ) Operating revenues decreased by $3.7 million or 0.4 percent compared to 1997. The decrease l 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 KWH supplied for customers who have not chosen an alternative generation supplier. as 1 1
KWII 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 Electric Utility Customen 12,127,710 12,545,390 (3.3)%
- Sales to Other 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 non-income taxes, such as property and payroll taxes. Fluctuations in energy costs generally result from changes in the cost of fuel, the mix between coal and nuclear generation, total KWHs 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 amounts included in Duquesne's authorized generation rates. (See " Rate Alatters" on page 39.) . 1 Operating expenses increased $14.4 million or 2.8 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 power prices. Reduced availability of nuclear generating stations due to an increase in outage hours required the Company to purchase power and generate power from the higher fuel cost fossil stations. (See " Beaver Valley Power Station" on page 45.) Alaintenance expense decreased in 1998, primarily related to the reversal of fossil station maintenance outage accruals for outages scheduled after the Company's planned divestiture of generation. (See " Rate Alatters" on page 39.) 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 $32.3 million or 16.8 percent compared to 1997 was the result of reduced depreciation of generation assets in accordance with the PUC's final restmeturing order. Beginning in 1999, the Company will be recovering its $2,133 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. Other income is primarily comprised ofinterest and dhidend income. A decrease of $3.7 million . or 29.1 percent was the result oflower interest income, due to a smaller amount of cash available for investing compared to the prior year. 1 Interest and other charges include interest on long-term debt, other interest and preferred stock dhidends of Duquesne. In 1998 there was a $5.2 million or 8.1 percent reduction 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. Increased taxable income during 1998 resulted in higher income tax expense by $4.4 million or 13.5 percent. All Other The all other category contributed $69.0 million to net income in 1998 compared to
$78.1 million in 1997, a decrease of $9.1 million or 11.6 percent. I Operating revenues primarily include revenues from operating activities of the expanded l business lines. Operating revenues increased in 1998 by $41.7 million or 64.3 percent compared to 1997. This increase was primarily the result ofincreased revenues from AquaSource and other new investments through the operating activities of the expanded business lines, partially offset by i
. the loss of operating revenues from the sale of Chester in the second quarter of 1997. j
,4
Operating expenses include expenses from operating activities of the expanded business lines and Duquesne investments. In 1998, operating expenses increased $51.1 million or 81.4 percent over 1997. The growth of the expanded business lines' start-up and developmental activities and acquisitions accounted for most of the increase. Also, in the third quarter of 1998 the Company wrote off costs related to the failed merger with Allegheny Energy, Inc. (AYE), resulting in an increase to other i operating expenses of $14.1 million. (See " Rate Atatten" on page 39.) Offsetting in part the increases 1 to operating expenses was the 1997 sale of Chester, which resulted in reduced operating costs of $7.8 !
~
million and the recognition of the favorable resolution of certain associated contingencies in 1998. Depreciation and amortization expense primarily includes the depreciation of plant and equipment of the expanded business lines and amortization of certain investments. In 1998, depreciation and - amortization expense increased by $4.9 million or 107.1 percent, primarily due to the acquisition of water and water-related companies by AquaSou'rce during 1997 and throughout 1998. Other income primarily includes long-term investment income, and interest and dividend income related to the expanded business lines and Duquesne investments. Other income in 1998 1 was $9.7 million or 8.1 percent higher than in 1997. This increase was the result of new investments made by the expanded business lines during late 1997 and throughout 1998, and a new investment made at Duquesne in the fourth quarter of 1997. Partially offsetting the increase were the gains on the sale of Chester and of Exide stock in 1997 of approximately $23 million ($13 million, net of tax), net of costs of the sale and reserves for contingencies realized for the sale of Chester. Interest and other charges are made up ofinterest on long-tenn debt, other interest and preferred stock dividends of the expanded business lines, and Duquesne investments. An increase of $0.6 million or 4.5 percent in 1998 was the result of higher long-term debt interest expense, primarily related to AquaSource debt assumptions associated with the acquisition of certain water and water sersice companies. Higher income tax expense of $3.8 million or 15.6 percent in 1998 can be attributed to the increase in taxable income. 1997 ComparrJ ra I996 E/caricity Delircry Busincu Segment. The electricity delivery business segment contributed
$61.9 million to net income in 1997 compared to $56.6 million in 1996, an increase of
$5.3 million or 9.4 percent.
Operating revenues increased by $8.1 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 mild temperatures compared to 1996 primarily as a result of stronger industrial sales. The following table sets forth KWII delivered for electric utility customers. KWil 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 Customers 12,560,384 12,A26,44i 1.1 %
Operating expenses decreased $1.0 million or 0.7 percent from 1996, as a result of small decreases in operating and maintenance costs of the transmission and distribution system. Depreciation and amortization expense increased $0.2 million or 0.5 percent in 1997 due to additions to the plant and equipment balance throughout the year, which were partially offset by retirements. Other~ income increased $1.6 million or 31.4 percent and was 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 dividends in 1997 related to the , Alonthly Income Preferred Securities (A11PS) issued in Aiay 1996. ) Increased taxable income during 1997 resulted in higher income tax expense by $3.8 million or ! 10.3 percent. 3s I-
.. j
1 l l Electricity gemration businen 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 l 22.0 percent. Operating revenues decreased by $19.6 million or 2.2 percent compared to 1996, due to a i decrease in energy supplied to other utilities of 56.4 percent in 1997. This decrease was due to j reduced availability resulting from the sale of the Ft. Ntartin 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 Beaver Valley Power Station (DVPS) owners for administrative costs. The following table sets forth KWil supplied for i customers who have not chosen an alternative generation supplier. KWil Supplied (in Thousands) 1 1997 1996 Change Residential 3,267,941 3,320,870 (1.6)% 1 Commercial 5,777,750 5,820,585 (0.7)% , i Industrial 3,499,699 3,284,986 6.5 % ! Sales to Electric Utility Customers 12,545,390 12,426,441 1.0 % j Sales to Other Utilities 1,444,822 3,310,206 (56.4)% j 7btal Sales 13,990,212 15,736,647 (11.1)% j l l Operating expenses decreased 59.7 million or 1.8 percent from 1996, as a result of decreased I 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 i1.1 percent reduction in energy volume supplied. This $26.7 milhon I decrease due to energy volume supplied was partially offset by increased energy costs of
$13.2 million, primarily the result of purchased power prices. Reduced availability of generating stations due to an increase in outage hours forced the Company to purchase power during high demand periods, resulting in increased costs.
Alaintenance expense increased in 1997 compared 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 $19.7 million or 11.4 percent over 1996 was due to the Alay 1,1996, increase in the Company's nuclear generation plant depreciation rate resulting in higher depreciation for the first four months of 1997. In addition, accelerated nuclear lease recovery, which beFan on Alay 1,1997, resulted in higher annualized amortization expense of
$25 million. Offsetting these increases by S8.5 million was the mid-1996 completion of the recovery of the investment in Perry Unit 2, the construction of which was abandoned by the Company in 1986. The remaining increase can be attributed to incremental depreciation for 1997 fixed asset additions and an increased level of nuclear decommissioning cost recognition. -
Other income increased $2.9 million or 29.7 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 u as a $0.4 million or 0.7 percent increase in interest and other charges compared , to 1996. The increase was the result of paying a full year of dividends in 1997 relatcd to the AllPS issued in Alay 1996. Decreased taxable income during 1997 resulted in lower income tax expense by $10.1 million or 23.9 percent. All Other The all other category contributed $78.1 million to net income in 1997 compared to S48.7 million in 1996, an increase of $29.4 million or 60.4 percent. Operating revenues increased in 1997 by $5.9 million or 10.0 percent compared to 1996. The increase resulted primarily from a $20.4 million increase in revenues from a landfill gas recovery investment made in the fourth quarter of 1996 and growth in the operating activities of the expanded business lines. Partially offsetting the increase in revenues was the sale of Chester in the second quarter of 1997, w hich decreased revenues by approximately $20 million. In 1997 operating expenses increased $8.3 million or 15.2 percent over 1996. The increase is attributable to operating costs from a landfill gas recovery investment made during 1996 and the ao growth of the expanded business lines, partially offset by the reduced operating costs associated with Chester during the first half of 1997.
Other income in 1997 was $48.0 million or 67.5 percent higher compared to 1996. The increase was the result oflong-tenn investment income, gains on the sale of Chester and of Exide stock, and interest and disidend income from a higher level of short-term investments. The ; increase in long-tenn investment income of approximately $15 million was the resuh of ) investments made during 1996 and 1997. The Company invested approximately $180 milhon m j lease investments in 1997. In the second quarter of 1997, Chester was sold for a pre-tax gain of i approximately $12 million, net of estimated costs of the sale. Also,in the fourth quarter of 1997, l the Company sold its investment in Exide stock for a pre-tax gain of approximately SI1 million. l An increase in interest and other charges of $3.0 million or 27.5 percent in 1997 compared to 1996 was the result of higher long-tenn debt interest expense associated with higher average l borrowings outstanding. liigher income tax expense of $13.2 million or 117.7 percent in 1997 resulted from an increase in taxable income.
- LlQUIDETv Capital Evpenditures AND CAPITAL The Company spent approximately $190.5 million in 1998, $116.0 million in 1997 and RESOURCES $101.2 million in 1996 for capital expenditures, of which $113.3 million in 1998, $90.4 million in
, 1997 and $87.9 million in 1996 was spent for electric utility construction. The remaining capital expenditures were related to the Company's expanded business lines and Duquesne investments. ;
The Company's capital expenditures for electric utility construction focus on impnning and/or expanding electric utility generation, transmission and distribution systems. The Company currently estimates that it will spend, excluding allowance for funds used during construction (AFC) and nuclear fuel, approximately $110 million during 1999 (including $30 million for generation),
$75 million in 2000 (excluding generation) and $70 million in 2001 (excluding generati(m) for electric utility construction.
In 1998 the Company completed construction of six plants to produce E-FueP, a coal-based i synthetic fuel, at a cost of approximately S40 million. All of these plants are currently in operation. l L<mg-%n investments The Company has made long-tenn investments in the following areas: leases, affordable housing, gas reserves and energy solutions. Investing acti ities during 1998 included approximately
$22 million in affordable housing partnerships, $22 million in natval gas reserves and the remaining
$25 million in the decommissioning trust fund and other investments. This $25 million includes investments in BroadPoint Communications, Inc. BroadPoint has introduced the Freeway Senice,in which customers earn free long-distance telephone senice in exchange for listening to short, targeted audio advertisements. The Company also invested in North American Power Brokers, Inc., a provider of a low-bid, Internet auction-based approach to purchasing natural gas and electricity through a secure website. Investing aethities during 1997 included approximately
$180 million in lease investments, SI1 million in landfdl gas reserve investments,516 million in affordable housing partnerships, and 512 million in the decommissioning trust fund and other j investments. During 1997, the Company committed to approximately 55 million in equity funding obligations for lease invesunents. Investing activities during 1996 included approximately $50 million
, in lease investments,530 million in gas reserve investments, $15 million in affordable housing partnerships, and $6 million in enerFy solution and other investments. During 1996, the Company also committed to approximately $37 million in equity funding obligations for lease and affordable housing partnerships.
Acquisitions and Dispositions In 1998, the Company issued 337,262 shares of DQE Preferred Stock, representing an investment of approximately $34 million (out of a total investment of approximately $156 million in stock and cash)in the acquisition of water and water-related companies. The Company has invested approximately $35 million in stock and cash for additional water and water-related company acquisitions through February 1999. The Company also invested $22 million to acquire a 50 percent interest in and fmance the growth of Control Solutions, LLC, a commercial and industrial heating, ventilation and air conditioning senice and energy controls company. Dispositions in 1998 relate to assets acquired by the Company through leasehold interest investments. Dispositions in 1997 related primarily to the sale of Chester and of Exide stock. Dispositions in 1996 were comprised oflong-term leveraged lease assets totaling $18 million. The Company is studying restructuring its current investment portfolio, including the possible divestiture ofits $131 million portfolio of affordable housing investments. 37 l
l l Financing The Company 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. To the extent that acquisition and long-tenn investment opportunities prior to the generation divestiture exceed current expectations, the Company may explore various financing alternatives. At December 31,1998, the Company was in compliance with all ofits debt covenants. During 1998, $75 million of mortgage bonds matured and were retired and $100 million of l 8.75 percent mortgage bonds due in May 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. Mortgage bonds in the amount of $75 million will mature inJuly 1999. The Company expects to retire these bonds with available cash, or to refinance the bonds. In connection with the investment in certain landfill gas property and equipment during 1998, the l
~
Company issued a $25 million note maturing in 2019, with an annual interest rate of 8.0 percent. In connection with the power station exchange with FirstEnergy, the Company anticipates terminating the IIV Unit 2 lease, in which case the lease liability recorded on the consolidated . balance sheet would no longer be an obligation of the Company. The underlying collateralized , lease bonds ($371.0 million at December 31,1998) would become direct obligations of the j Company and be recorded on the consolidated balance sheet. The Company would also pay i approximately $230 million in tennination costs, a portion of which the Company expects to j recover through the proceeds of the generation asset auction. (See " Power Station Exchange" discussion on page 40.) The Company has $150 million in bank tenn loans outstanding at December 31,1998, with
$65 million maturing in 2000 and $85 million maturing in 2001. l InJuly 1997, the Company authorized and registered 1,000,000 shares of the DQE Preferred Stock, all with $100 liquidation preference, for use in connection with acquisitions by the Company of other businesses, assets or securities. Approximately $25 million in long-tenn debt has been assumed in connection with these acquisitions. (See " Acquisitions and Dispositions" discussion on page 37.) As of December 31,1998,352,742 shares of DQE Preferred Stock had been issued and were outstanding. An additional 29,928 shares of DQE Preferred Stock were issued in January and February 1999.
A Duquesne 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 30. In May 1996, Duquesne Capital LP. (Duquesne Capital), a special-purpose limited partnership of which Duquesne is the sole general partner, issued $150.0 million principal amount of 8 % percent MIPS with a stated liquidation value of $25.00. The holders of MIPS are entitled to annual dividends of 8% percent, payable monthly. Such dividends are guaranteed by Duquesne. The Company repurchased shares ofits common stock on the open market late in 1998. Short-Tenn Bonnings At December 31,1998, the Company had two extendible revolving credit arrangements, including a $125 million facility expiring in June 1999 and a $150 million facility expiring in October 1999. Interest rates can, in accordance with the option selected at the time of the , borrowing, be based on prime, Eurodollar or certificate of deposit rates. Commitment fees are based on the unborrowed amount of the commitments. Iloth credit facilities contain two-year repayment periods for any amounts outstanding at the expiration of the revohing credit periods. At December 31,1998 and December 31,1997, there were no short-tenn borrowings outstanding. Sale ofAccounts Receivable The Company and an unaffiliated corporation have an agreement that entitles the Company to sell, and the corporation to purchase, on an ongoing basis, up to $50 million of accounts receivable. The Company 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 the Company. The Company may attempt to extend the agreement, replace it with a similar facility, or eliminate it upon expiration. 38 L
i Nuclear Fuel Leasing The Company 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 the Company under this 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; reload cycle design; operations; the power station exchange; and changes in nuclear material costs and senices, the prices and availability of which are not known at this time. Such costs may also be influenced by other events not presently foreseen. The Company plans to continue leasing nuclear fuel to fulfill its requirements at least through September 1999, the remaining term of the leasing arrangement. The Company 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. The Company anticipates divesting its nuclear stations. (See " Power Station Exchange" discussion on page 40.)
- RATE MATTERS Competition and the Customer Choice Act The electric utility industry continues to undergo fundamental change in resionse 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 from 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 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 (customer choice). Although the Customer Choice Act will give customers their choice of electric generation suppliers, the existing, franchised h> cal distribution utility is still responsible for delivering electricity from the generation supplier to the , customer. The h> cal 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 prmide electricity for any customer who cannot or does not choose an alternative electric generation supplier, or w hose 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 j 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 (w hich began inJanuary 1999). The Company's estimated negative net income impact of the customer choice pilot program during 1998, with 5 percent of customers participating, was approximately 56 million. Phase-In to Competition l The phase-in to competition began in January 1999, when 66 percent of customers became
, eligible to participate in customer choice (including customers covered by the pilot program); l all customers will have customer choice inJanuary 2000. As of February 8,1999, approximately j 12 percent of the Company's customers had chosen alternative generation suppliers. Customers l that have chosen an electricity generation supplier other than the Company pay that supplier for i generation charges, and pay the Company a CTC (discussed below) and charges for transmission and distribution. Customers that continue to buy their generation from the Company pay for their senice at current regulated tariff rates dhided 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, the Company has made 600 MW of p<mer 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 KWII. This power availability will be structured to ensure the power is used to benefit Duquesne's retail customers. l 39
h Rate Cap . . . An overall four-and-one-half-year rate cap from January 1,1997, has been imposed on the transmission and distribution 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 Aiay 29,1998, fmal restructuring order, the PUC determined that the Company 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 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 recognized. The Company will earn an 11 percent pre-tax return on the unrecovered balance. - l In the second quarter of 1998, the Company recorded an extraordinary charge (PUC j 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 charge resulted in a reduction of Duquesne's contribution to the Company's earnings per share by $1.06. Restructuring 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 CTC, collectible through 2005. Until 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 KWII for the CTC and approximately 3.8 cents per KWH
*- for the price to compare).
On December 18,1998, the PUC approved Duquesne's auction plan, including an auction ofits prmider oflast resort senice, as well as an agreement in principle to exchange certain generation
- assets with FirstEnergy. The assets to be auctioned will include Duquesne's wholly owned Cheswick Power Station, Elrama Power Station, Phillips and BI, 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, sealed bid process similar to that used in other power plant divestitures. The initial confidential bidding process is expected to begin in Afarch 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. Daquesne currently expects the sale to close at the end of 1999 or the beginning of 2000.
- Parer Station Evcbange. Pursuant to the agreement in principle and subject to the execution and regulatory approval of definitive agreements, Duquesne and FirstEnergy will exchange ownership .
interests in certain power stations. Duquesne will receive 100 percent ownership rights in three coal-fired power plants h>cated in Avon Lake and Niles, Ohio and New Castle, Pennsylvania (totaling approximately 1,300 A1W), which the Company expects to sell simultaneously as pan of the auction of generation assets. FirstEnergy will acquire Duquesne's interests in BV Unit 1, BV Unit 2, Perry Unit 1, Sammis Unit 7, Eastlake Unit 5 and Bruce Afansfield Units 1,2 and 3 (totaling approximately 1,400 AiW). In connection with the power station exchange, the Company anticipates terminating the BV Unit 2 lease. (See " Financing" discussion on page 38.) j Pursuant to the December 18,1998, PUC order and subject to final approval, the proceeds from i i the sale of the power stations received in the exchange will be used to offset the transition costs associated with Duquesne's currendy-held generation assets and the costs associated with
- completing the exchange. Duquesne expects this exchange to enhance the value received from 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-fired plants, which are anticipated to have a higher market value than 4()
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 exch nge agreement must be submitted for PUC approval, and certain aspects of the exchange will have co 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. Hnnination of the ME Merger On July 28,1998, DQE's lloard of Directors concluded that it could not consummate the merger with AYE, toward which the Company had been working. The Company 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 information regarding this decision is set forth in
, the Company's Current Report on Fonn 8-K datedJuly 28,1998. OnJuly 30,1998, AYE informed 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, the Company announced its unilateral tennination of the merger agreement. More information regarding this tennination is set forth in the Company's Current Report on Form 8-K dated October 5,1998. In a letter dated February 24,1999, the PUC infonned the Company that the merger application 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 the Company to proceed with the merger and seeking a temporary restraining order and preliminary injunction to prevent the Company 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. Argument was held onJanuary 15,1999, and a decision is pending. The ultimate outcome of this suit cannot be detennined at this time. Defenrd Energy Costs As part ofits restructuring plan filing, the Company requested recovery of $11.5 million ($6.7 million net of tax) through the CTC for energy costs presiously deferred under the ECR. Recovery of this amount was approved in the PUC's final restructuring order. The Company also
. requested recovery of an additional $31.2 million (518.2 million net of tax). This amount relates to fuel costs that had been deferred between the time of the restructuring plan filing and the restructuring order in accordance with a PUC order with respect to the Company's ECR. As part ofits December 18,1998, order the PUC denied recovery of this additional amount. The Company has appealed the PUC's denial of recovery to the Pennsylvania Commonwealth Court. .
l Based upon the Customer Choice Act, which mandates recovery of all regulatory assets, and the PUC's specific authorization for the Company to create a regulatory asset for these costs, the Company believes that it is probable that these costs uill be recovered through retail rates. In the event that the Company does not prevail in its appeal with the Pennsylvania Commonwealth Court, these costs woukt be written off as a charge against income during 1999. YrAR 2000 Many 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 pmcessing when dates after 1999 are encountered. m C
l l l l l l Har 2000 ILn. In 1994, the Company began resiewing its critical information svstems that I impact operations and financial reporting in order to develop a strategy to address required computer software and system changes and upgrades. The Company has since assembled a Year 2000 team, comprised of management representatives from all functional areas of the Company, which continues to explore the exposure to Year 2000-related inues in computer software and in devices 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 exploring potential related issues that may originate with third parties with whom the Company does business. To support the planning, organization and management ofits efforts, the team has retained Year 2000 consultants. In general, the Company's overall strategy to address the Year 2000 issue is comprised of four phases that, in some cases, are perfonned simultaneously. These phases are: inventory, assessment, remediation, and testing and implementation. Inventory consists of identifying the various components, equipment, hardware, and software , used in the Company'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 contacting 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. The Company's business is dependent upon external suppliers for the reliable delivery of their products and , senices. The Company has inquired in writing ofits suppliers and senice providers with regard j to their Year 2000 readiness. The Company is meeting with critical suppliers and senice providers j to further corroborate evidence of their Year 2000 readiness, i Remediation refers to the activities necessary to fix or replace those components that have ! Year 2000 issues that will adversely affect the Company's operations. Remediation concentrates first on those systems, components, and equipment that substantially impact the Company's ability to perfonn 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 l addition to previously planned improvements to the Company's systems with benefits beyond Year l 2000 solutions, such as total system replacements discussed below. 1 Testing and implementation consists of placing renovated processes, systems, equipment, and I other items into use within the Company's operations. Testing is perfonned on all mission critical processes, whether or not remediation activities were involved in the process. Testing and implementation will be substantially completed during the second quarter of 1999. Throughout the execution ofits Year 2000 plan, the Company has been pnniding and will continue to provide infonnation on its activities to the PUC, the NRC and the North American Electric Reliability Counsel (NERC), which coordinates the network of interconnected utilities across the nation. The Company's plan is in accordance with NRC guidelines, and the Company is working with the NRC to certify that its nuclear power station safety and operations systems, and issues related to suppliers, will be ready for the Year 2000. NERC has been requested by the DOE to review the national electric pow er pnxluction and delivery infrastructure to ensure a reliable power supply , during the Year 2000 transition period. The Company is working with NERC to address these issues i through monthly status reponing and participation in regional Year 2000 tests. The Company also j participates in the Electric Power Research Institute's project to share infonnation about technical issues regarding Year 2000 with other entities in the electric utility industry. I Risks and Contingency hu. The Company currently believes that implementation of its plan will minimize the Year 2000 issues relating to its systems and equipment. The Company's goal is 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. The Company understands that many variables outside the control of the Company may have an adverse afTect on the ability of the Company to perfonn its mission critical processes (e.g., telecommunication pnniders may not be able to provide uninterrupted senice). Therefore, the Company is developing contingency plans for all mission critical processes in an effort to mitigate these risks. Contingency plans will be deveh> ped and tested for all mission critical processes by the end of the second quarter of 1999. The Company continues to review its operations and its critical external suppliers and senice prmiders in order to detennine any wont-case scenarios it could face as a result of Year 2000 problems. At
Costs. The estimated total cost ofimplementing the Company'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 the Company's Year 2000 plan have come from the Company's operating and capital budgets. Approximately $10 million has been budgeted for 1999 to address Year 2000 issues. The Company does not anticipate that Year 2000 issues and related costs will be material to the Company's operations, fmancial condition and results of operations.
The foregoing paragraphs contain forward-h>oking statements regarding the timetable, effectiveness and ultimate cost of the Company's Year 2000 strategy. Actual results could materially differ from those implied by such statements due to 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 the Company's systems rely may not be timely completed, and that such changes and upgrades may be incompatible with the Company's systems; the availability and cost of trained personnel; and the ability to h>cate and correct all relevant computer code and microprocessors. PROPERTY, Int'estment in PP&E and Accumulated Depreciation PLANT AND The Company's total investment in PP&E and the related accumulated depreciation balances CQUIPMENT for major classes of property at December 3],1998 and 1997 are as follows: (PPaE) PP&E and Related Accumulated Depirciation at December 31, (Thousands ofDollan) 1998 1997 Accumulated Net Accumulated Net Investment Depreciation Investment Invesunent Depreciation Investment Electric delitery $1,531,116 5 522,531 51,008,585 $1,528,128 5 509,998 $1,018,130 Electric production 2,797,800 2,491,162(a) 306,638 2,528,927 1,175,516 1,353,411 Electric general 130,431 64,544 65,887 334,565 192,439 142,126 Capital leases 123,374 63,604 59,770 113,662 50,725 62,937 Other 301d17 25,4H7 275,930 119,846 34,116 85,730 Toral S4,884,1 M $3,167,328 51,716,8 to $4,625,128 $1,962,794 52/>62,334 (a) See " Restructuring Plan" discussion on page 40. 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 electricity 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 general PP&E. This allocation 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-detennined market value. (See " Restructuring Plan" , discussion on page 40.) Electric general PP&E includes internal telecommunication equipment, vehicles and office equipment. The Company's capital leases are primarily associated with leased nuclear fuel and, to a lesser extent, other electric plant. The Other PP&E is comprised of water ,
systems, water treatment facilities, various buildings and land, E-Fuel
- facilities, landfill gas l recovery equipment and other property related to the Company's expanded business lines. l l
r 43
Joint interests in Generating Units The Company has various contracts with subsidiaries of FirstEnergy (Ohio Edison Company, Pennsylvania Power Company, The Cleveland Electric Illuminating Company (CEI) and The
'Eledo Edison Company), with respect to several jointly owned / leased generating units, which include provisions for coordinated mair tenance responsibilities, limited and qualified mutual back-up in the event of outages, and certain capacity and energy transactions.
In September 1995, the Company commenced arbitration against CEI, seeking damages, ) termination of the operating agreement for Eastlake Unit 5 (Eastlake) and partition of the parties' { interests in Eastlake through a sale and division of the proceeds. The arbitration demand alleged, ! among other things, the improper allacation by CEI of fuel und related costs; the mismanagement i of the administration of the Saginaw coal contract in connection with the closing of the Saginaw { mine, which historically supplied coal to Eastlake; and the concealment by CEI of material l information. CEI also seeks monetary damages from the Company for alleged unpaid joint costs I in connection with the operation of Eastlake. The Company 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 I order staying all proceedings pending execution of definitive exchange agreements. Upon such -
execution, the parties will seek a further stay of proceedings pending the closing of the exchange. ! (See " Power Station Exchange" discussion on page 40.) Joint lnterests in Power Stations Wclear Power Stations Beaver Valley Perry Unit 1 Unit 2 Unit i Duquesne
- 47.50 %
- 13.74% (a) 13.74 %
FirstEnergy Corporation 52.50 % 86.26 %
- 86.26 %
Fossil Power Stations Sammis Bruce Mansfield Eastlake Unit 7 Unit 1 Unit 2 Unit 3 Unit 5 Duquesne 31.20 % 29.30 % 8.00 % 13.74 % 31.20 % FirstEnergy Corporation
- 68.80 %
- 70.70 %
- 92.00 %
- 86.26 %
- 68.80 %
" Denotes Operator (a) In 19M, the Gunpany sold and leased back its 13.M percent interest in IW Unit 2. The Cornpany leased back its interest in the unit for a terr of 29.5 years.
EMPLOYEES At December 31,1998, the Company had 3,986 employees. Duquesne had 1,521 employees in the electricity generatior. business segment,1,258 in the electricity delivery business segment and 582 in administration. AquaSource had 539 employees in the water and water ser ice companies, and the other expanded business lines had 86 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. Duquesne and the IBEW have aFreed on a package of additional benefits and protections for traion 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 connection with the anticipated divestiture, Duquesne has developed early retirement programs and enhs.nced separation packages available for eligible IBEW and management employees. Duquesne expects to recover related costs through the divestiture proceeds. ELECTnsc The Company anticipates divesting itself ofits generation assets through the auction and the uTsuTY power station exchange by early 2000 and, depending on the regulatory approvals of the final OPERATIONS agreements regarding the divestiture, expects certain obligations related to the divested assets will be transferred tc, the future owners thereof. 44
The Company's fossil plants operated at an availability factor of 80 percent in 1998 and 84 percent in 1997. The Company'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. The next refueling outages for BV Unit 2 and Perry Unit I are currently scheduled to begin at the end of February 1999 and in Alarch 1999, respectively. The timing and duration of scheduled maintenance and refueling outages, as well as the duration of forced outages, affect the availability of power stations. The Company nonnally experiences its peak demand in the summer. The 1998 customer system peak demand of 2,484 A1W occurred on August 7,1998. Beaver Udhy Power Station BV Unit I went off-line on January 30,1998, due to an issue identified in a technical resiew completed by the Company. BV Unit 2 went off-line on December 16,1997, to repair the emergency air supply system to the control room. BV Unit 2 remained off-line due to other issues identified by a technical review, similar to that perfonned at BV Unit 1. These technical reviews, held in response to a 1997 commitment made by the Company to the NRC, have been completed. The Company was one of many utilities faced with similar issues, some of which date back to the initial start-up of BVPS. BV Unit I returned to senice on August 15,1998, and BV Unit 2 returned to senice on September 28,1998. 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 I and 3 percent of BV Unit 2 steam generator tubes have been removed from senice. Alaterial 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 total replacement cost of the BV Unit I steam generators is estimated at $125 million, $59 million of w hich would be the Company's responsibility. The earliest that the BV Unit I steam generators could be replaced during a currently scheduled refueling outage is the fall of 2001. BV Unit 2, which was placed in service 11 years after BV Unit 1, has not yet exhibited the degree of ODSCC experienced at BV Unit 1. It is too early in the life of BV Unit 2 to detennine the extent to which ODSCC may become a problem at that unit. Fossil Fuel The Company believes that sufficient coal for its coal-fired generating units will be available from various sources to satisfy its requirements for the foreseeable future. During 1998, approxi-mately 2.0 million tons of coal were consumed at the Company's two wholly owned coal-fired stations, Cheswick Power Station (Cheswick) and Eframa Power Station (Elrama). The Company owns Warwick Aline, an underground mine k>cated in southwestern Pennsylvania. At December 31,1998, the Company's net investment in the mine was S4.4 million. The Company 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. The Company purchases the remaining coal for use at Elrama on the open market. The current estimated liability for mine closing, including final site reclamation, mine water treatment and certain labor liabilities is $47.6 million, and the Company has recorded a liability on the consolidated balance sheet of approximately $39.9 million toward these costs. The remaining 57.7 million will be charged to expense during 1999 and the first quarter of 2000.
During 1998,48 percent of the Company's coal supplies were provided by contracts, including Warwick Afine, with the remainder satisfied through purchases on the spot market. The Company had three long-tenn ccmtracts in effect at December 31,1998, that, in combination with spot market purchases, are expected to furnish an adequate future coal supply. The Company does not anticipate any difficulty in replacing or renewing these contracts as they expire from 2000 through 2005. At December 31,1998, the Company's wholly owned generating units had on hand an average coal supply of 45 days. 4s
r 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 the Company's requirements for its jointly owned / leased nuclear units through 2000. An adequate supply of conversion services through the year 2002 is also under contract. Enrichment senices for the Company's joint interests in BV 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. The Company 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. The Company continues to review on an annual basis its alternatives ' for enrichment senices for the years 2010 through 2014 under the USEC contract and may < tenninate these future years ifit can arrange more cost-effective enrichment senices. Fuel fabrication contracts are in place to supply reload requirements through 2005 and 2004 respectively, for BV Unit I and BV Unit 2, and for the life of plant for Perry Unit 1. The . Company will continue to make arrangements for future uranium supply and related senices, as required. (See " Nuclear Fuel Leasing" discussion on page 39.) l Nuclear Decommissioning j The Company expects to decommission BV Unit 1, BV 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 l end ofits operating life, BV Unit I may be placed in safe storage until BV Unit 2 is ready to be 5 decommissioned, at which time the units may be decommissioned together. ! Based on site-specific studies conducted in 1997 for BV Unit I and BV Unit 2, and a 1997 update of the 1994 study for Perry Unit 1, the Company's approximate share of the total estimated decommissioning costs, including removal and decontamination costs, is $170 million,
$55 million and $90 million, respectively. The amount currently being used to determine the Company's cost of senice related to decommissioning all three nuclear units is $224 million.
Funding for nuclear decommissioning costs is deposited in extemal, segregated trust accounts and invested in a portfolio of corporate common stock and debt securities, municipal bonds, certificates of deposit and United States government securities. The market value of the aggregate tmst fund balances at December 31,1998, totaled approximately $62.7 million. As part of the power station exchange, FirstEnergy has agreed in principle 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. NHCICHY IHSHrRHCC The Price-Anderson Amendments to the Atomic Energy Act of19H limit public liability from a single incident at a nuclear plant to $9.8 billion. The maximum available private primary , insurance of $200 million has been purchased by the Company. Additional protection of
$9.6 billion would be provided by an assessment of up to $88.1 million per incident on each licensed nuclear unit in the United States. The Company's maximum total possible assessment,
$66.1 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.
The Company's share ofinsurance coverage for property damage, decommissioning and decontamination liability is $1.2 billion. The Company would be responsible for its share of any damages in excess ofinsurance coverage. In addition, if the property damage reserves of Nuclear Electric Insurance Limited (NEIL), an industry mutual insurance company that pnnides a portion of this coverage, are inadequate to cover claims arising from an incident at any United States nuclear site ccvered by that insurer, the Company could be assessed retrospective premiums totaling a maximum of $7.3 million. 4e 1 L_-.~___-__---.___-__._______--___-__. _ . . _ _ _ _ - . . _ - _ _ - - _ - _ _ - _ _ . . - - - _ - _ - _ _ --_-_-_J
In addition, the Company participates in a NEll program that pro ides 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 indemnity of the estimated incremental costs during the three-year period starting 17 weeks after an accident, with no coverage thereafter. If NEICs losses for this program ever exceed its reserves, the Company could be assessed retrospective premiums totaling a maximum of $2.6 million. Spent Nuclear Fuel Disposal 7he Nuclear ilaste Policy Act of1932 established a federal 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 (DOE) 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 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 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, IW Unit 2 and Perry Unit I are expected I to be sufficient until 2018,2012 and 2011, respectively. I In early 1997, the Cmnpany 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 escrow account until the DOE fulfills its obligation to accept spent nuclear fuel.The DOE had requested that the j court delay litigation while it pursued alternative dispute resolution under the tenns ofits contracts with the utilities. The court ruling, issued November 14,1997, and affirmed on rehearing May 5,1998, 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 of a spent fuel repository as a defense. The United States Supreme Court declined to review the 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 Obligations Nuclear reactor licensees in the United States are assessed annually for the decontamination 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 National j 1 Energy Folicy Act of1992 and are to be paid by such utilities over a 15-year period. At December 31,1998, the Company's liability for contributions was approximately $6.2 million (subject to an inflation adjustment), which will be recovered through the CTC as part of transition costs. ENVmON- Various federal and state authorities regulate the Company with respect to air and water quality MENTAL and other emironmental matters. The Company believes it is in current compliance with all MATTERS material applicable environmental regulations. As discussed above, the Company anticipates divesting itself ofits generation assets, and expects that environmental obligations related to divested assets will transfer to the new owners. As required by Title V of the Clean AirAa Amendments (Clean Air Act), the Company filed
. comprehensive air operating pennit applications for Cheswick, Elrama, IM and Phillips in 1995.
Approval is still pending for these applications. The Company filed its Title W Phase 11 Clean Air Act compliance plan with the PUC on December 27,1995. The Company also filed Title IV Phase 11 pennit applications for oxides of nitrogen (NOx) 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. Add Rain I% gram Requinwents. Although the Company believes it has satisfied all of the Phase I l Acid Rain Program requirements of the Clean Air Act, the Phase II Acid Rain Program requires i siFnificant additional reductions of sulfur dioxide (SO,) through the end of 2000. The Company currently has 662 MW of nuclear capacity and 887 MW of coal capacity equipped with SO, emission-reducing equipment. Through the year 2000, the Company will implement a combination of compliance methals 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 alkeated SO, allowances. 47 L- _._ _ ._ _ _ _
The Company has developed, patented and installed low NOx burner technology for the Elrama boilers. These cost-effective NO, reduction systems installed on the Elrama roof-fired boilers were specified as the benchmark for the indusuy for this class of boilers in the ! Environmental Protection Agency's (EPA) final Group II rulemaking. In 1998, the Company l installed low-cost burner modifications to existing low NOx burner technology and a n.w flue gas conditioning system to maximize the effects of combustion-related controls at Cheswick. l 0:.unc Reduction Requirrments. In addition to the Phase II Acid Rain Program requirements, the l Cmnpany is resixmsible for NOx reduction requirements to meet the current Ozone Ambient Air l Quality Standards under Title I of the Clean Air Act. Compliance with the current ozone standard ) is based on pre-1997 ozone data, using a one-hour average value approach. During the 1998 summer ozone season, the western Pennsyh ania " area" achieved compliance with the one-hour i ou ne standard. The Company believes it will continue its current low NOx emission levels under l the maintenance plan being established by the DEP. The Company 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 the Company's power plants and will supersede reduction levels , specified for 2003 by the Onme Transport Commission control program. The EPA requires states in the northeast and midwest to amend their implementation plans to impose NO, allowance caps on emissions during the May to September control period. Because the DEP has only recently proposed implementation s egulations, the costs of mmpliance cannot be determined by the Company at this time. Ilowever, the Company anucipates that compliance would require additional capital and operation costs beyond those already estimated through 2000. Futuir Air Quality Rcquirrments. The Company 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 NOx control requirements that were recommended by the Ozone Transnort Commission. The estimated costs to comply with this program have been included in the Company's capital cost estimates through the year 2000. The Company currently estimates that additional capital costs to comply with 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 onme 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 aume standards will not be implemented until 2004, and the fine particulate matter standards will not be implemented until 2007 or later. Ilecause appropriate state ambient air monitoring and implementation plans have not been developed, the costs of compliance ivith these new standards cannot be detennined by the Company 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 greenhouse 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 proFrams have been developed, the costs of compliance cannot be detennined by the Company at this time. Other. In 1992, the DEP issued ResidualIGste Management Regidations governing the generation and management of non-hazardous residual waste, such as coal ash. The Company is assessing the sites it utilizes and has developed emnpliance strategies that are currently under review by the DEP. Capital costs of $3.8 million were inemred by the Company in 1998 to comply with these DEP regtdations. Based on infonnation currently available, approximately $4.5 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. 4e
Under the Emergemy Planning and Community Right-to-Know Act of1986, certain manufacturing and indu< trial companies are required to file annual toxic release inventory reports. The first submission by coal- and oil-fired electric utility generating stations is due July 1,1999, to report on emissions and discharges for 1998. 'Ibxic release inventory reporting does not involve emission reductions. The Company does not anticipate any material impact resulting from this requirement. The Comprehensive Environmental Response, C<nnpensation and Liability Act of1980 and the Superfund Amendments and Reauthorharion Act of1986 established a variety afinformational and environmental action programs. Through its investment in GSF Energy (GSF), the Company indirectly became involved in three hazardous waste sites. GSF was a minor contributor of materials to each site, and other solvent potentially responsible parties are involved. GSF believes that available defenses, along with its overall limited involvement, will limit any potential liability it may have for clean-up costs. Additionally, as part of the GSF invesanent the Company is indemnified for any costs that it may incur related to these sites by at least one fmancially responsible party. Accordingly, the Company believes that these matters will not have a material adverse effect on its financial position, results of operations or cash flows. The Company's water and water-related operations are subject to the federal Safe Drinking Hhter Act, which provides for unifonn minimum national water quality standards, as well as governmental authority to specify treatment processes to be used for drinking water. These operations are also subject to the federal C/can Hater Act, which regulates the discharge of pollutants into waterways. The Company is involved in various other emironmental matters. The Company believes that such matters, in total, will not have a materially adverse effect on its financial 1nisition, results of operations or cash flows. OTHER Customer Advanced Reliability System The Customer Advanced Reliability System (CARS)is a communications senice that provides the Company with an electronic link to its customers, including the ability to read customer meters. During 1998, the Company's senice contract with Itron, Inc. was expanded to include additional advanced commercial and industrial customer metering capabilities and associated software. Installation of this advanced metering subsystem commenced in 1998 and will continue during 1990 As of December 31,1998, the base CARS system had essentially been completed, with nearly all residential meters adapted for CARS, and approximately 470,000 meters being read daily. Retirement Plan Measurement Assumptions The Company decreased the discount rate used to detennine the projected benefit obligation on the Company's retirement 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 the Company's retirement plan obligations are reflected in the amounts shown in " Employee llenefits," Note N to the consolidated financial statements, on page 73. The resulting change in related expenses for subsequent years is not expected to be material. Recent Accounting Pronouncement In June 1998, the Financial Accounting Standards lloard (FASil) issued SE4S No.133, Accountingfor Derivative Instruments and Hedging Activities (SFAS No.133). This statement establishes accounting and reporting standards for derivative instruments, incloding 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 the C< Wany's financial statements and disclosures. Except for historical information contained herein, the matters discussed in this annual report are forward-looking statements which involve risks and uncertainties including, but not limited ) to, economic, competitive, governmental and technological factors affecting the Company's I operations, markets, products, services and prices and other factors discussed in the Company's l filings with the Securities and Exchange Commission. t 49 l l
]
' REPORT OF lb the Dincton and Shareholden ofDQE, Inc.:
INDEPENDENT We have audited the accompanying consolidated balance sheet of DQE, Inc. and its subsidiaries
' CMRTIFIED as of December 31,1998 and 1997, and the related consolidated statements ofincome,
$C UNTANTS comprehensive income, retained earnings, and cash flows for each of the three years in the period ended December 31,1998. These financial statements are the responsibility of the Company's i
management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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 accotmting 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 DQE, Inc. and its subsidiaries as of December 31,1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended . December 31,1998, in conformity with generally accepted accounting principles. E & Deloitte & Touche LLP Pittsburgh, Pennsylvania January 26,1999 t REPORT OF The Audit Committee, composed entirely of non-employee directors, meets regularly with the THE AUDIT jndependent certified public accountants and the internal auditors to discuss results of their audit COfA EE OF 7gg work, their evaluation of the adequacy of the internal accounting controls and the quality of 9 OF DIRECTORS , I nancial reponing. OF DQE In fulfilling its responsibilities in 1998, the Audit Committee recommended to the Board of Directors, subject to shareholder approval, the selection of the Company's independent certified public accountants. The Audit Committee reviewed the overall scope and details of the independent certified public accountants' and internal auditors' respective audit plans and reviewed and approved the independent certified public accountants' general audit fees and non-audit senices. Audit Committee meetings are designed to facilitate open communications with internal auditors and independent certified public accountants. To ensure auditor independence, both the independent certified public accountants and the internal auditors have full and free access to the . Audit Committee. The Audit Committee of the Board of Directors of DQE I I I i
*3()
.________________o
p Statement of Consolidated Income (12,ousands ofDollars, Except Per Sharr Amounts) Har Ended December 31, 1998 1997 1996 OPERADNG Sales of Electricity: REVENUES Residential S 410,960 5 405,915 5 405,392 Commercial 490,009 494,834 489,646 Industrial 189,617 198,708 190,723 Total customer revenues 1,090,586 1,099,457 1,085,761 Utilities 36,203 24,861 58,292
'Ibtal Sales of Electricity 1,126,789 1,124,318 1,144,053 . Other ~ 142,809 105.856 92,724 Total Operating Rcrenne. 1,269,598 1,230,174 1,236,777 OPERATING Fuel and purchased power 262,560 223,411 236,924 QXPENSES Other operating 361,790 317,747 309,559 Maintenance 74,908 82,869 78,386 Depreciation and amortization 217,156 242,843 222,928 Taxes other than income taxes 81,318 82,567 85,974-Total Operating Evpenses 997,732 949,437 933,771 CPERATING Operating Income 271,866 280,737 303,006 INCOME 105,139 64,464 49,636 lAmpterm investment income OTHER INCOME Gain on dispositions 6,809 34,364 5,119 Interest and other income 24,057 30,979 19,035~
Total OtherIncome 136,005 129,807 73,790 Interest and Other Charges 110,201 115,638 110,270 Income Before Income Taxes and Extraordinasy Item 297,670 294,906 266,526 Income Taxes 100,982 95,805 87,388 Income Before Extraordinary item 196,688 199,101 179,138 Extraonlinary Item, Net of Tax . (82,548) - - N3T INCOME Net Income, After Extraordinary Item 114,140 199,101 179,138 Dividends on Preferred Stock 866 - - Earnings Available for Common Stock S 113,274 5 199,101 5 179,138
\
Average Number of Common Shares 1 Outstanding (Thousands of Shares) 77,683 77,492 77,349 { 1 cARNINGS PER Basic Earnings Per Share of Common Stock: I
. CHARE Before Extraordinary Item 5 2.52 S 2.57 5 2.32 Extraordinary Item S(1.06) - -
After Extraordinary item S 1.46 5 2.57 5 2.32 Diluted Earnings Per Share of Common Stock: Before Extraordinary Item S 2.48 $ 2.54 S 2.29 Extraordinary Item S(1,04) - - After Extraordinary Item S 1.44 S 2.54 S 2.29 DIVIDENDS Dividends Declared Per Share of Common Stock $ 1.46 5 1.38 5 1.30 ; DECLARED ! See notes to consolidatedjinancialnatements. i i _ . . _ _ .
I' l Consolidated Balance Sheet (Thousands ofDollars) As ofDecember 31, 1998 1997 Assets Current Assets: Cash and temporary cash investments $ 108,790 S 356,412
, Receivables:
Electric customer accounts receivable 87,262 90,149 Water customer accounts receivable 10,591 471 'I
- Other utility receivables 25,412 23,106 Other receivables 51,944 33,001 Less: Allowance for uncollectible accounts (9,415) (15,016)
Total Receivables - Net 165,794 131,711 Materials and supplies (at average cost): . Operating and construction 58,747 53,088 Coal 25,702 20,418 Total Afaterials and Supplies 84,449 -73,506 Other current assets 15,719 7,727 Total Cunrnt Assets 374,752 569,356. Long-Term Investments: Leveraged leases 388,113 349,129 Affordable housing 131,395 137,860 Gas reserves 103,270 92,645 Other leases 38,783 69,329 Other 98,877 73,823 Total Long-Term Investments 760,438 722,786 Property, Plant and Equipment: Electric plant in service 4,379,703 4,335,149 Property held under capital leases 123,374 113,662 Construction work in progress 79,644 56,471 Other 301,417 119,846 Gross property, plant and equipment 4,884,138 4,625,128 . Less: Accumulated depreciation and amortization (3,167,328) (1,962,794) TotalI%pny, Plant and Equipment - Net 1,716,810 2,662,334 Other Non-Current Assets:
. Transition costs 2,132,980 -
- Regulatory assets 64,568 680,885 Other- 198,015 59,041 j Total Other Non-Cunrnt Assets 2,395,563 739,926 Tetal Assets $5,247,563 $4,694,402 See notes to consolidatedfinancialstatements.
[
- (
f (Thousands ofDollars) As ofDaember 31, 1998 1997 uABILMIES AND Current IJabilities: CAPf7AUZATION Accounts payable $ 121,100 $ 85,085 Current maturities and' sinking fund requirements 100,822 97,844 Dividends declared 33,009 30,312 Accrued liabilities _ -87,944 79,949 Notes payable 4,525 - Other 6,864 14,339
., Total Cunrut Liabilities 354,264 307,529 Non-Current Liabilities:
Deferred income taxes - net 777,017 667,652 Ileaver Valley lease liability 475,570 - Deferred income 156,579 225,107 Capital lease obligations 36,596 37,540 Deferred investment tax credits 24,076 97,782 Other 310,981 255,467 TotalNon-Cunrnt Liabilities 1,780,819 1,283,548 Commitments and Contingencies (Notes 11 through O) Capitalizatiom Long-Term Debt 1,364,879 1,376,121 Preferred and Preference Stock: DQE preferred stock 35,274 1,548 Preferred stock of subsidiaries 215,608 214,608 Preference stock of subsidiaries 26,914 28,295 Total preferred and preference stock before deferred employee stock ownership plan (ESOP) benefit 277,796 244,451 Deferred EFDP benefit (14,240) (16,400) lbtalPrefenrdandPtrference Stock 263,556 228,051
, Common Shareholders' Equity:
Common stock - no par value (authorized - 187,500,000 shares; issued - 109,679,154 shares) 994,996 996,508 Retained earnings 869,671 869,749 Treasury stock (at cost)(32,305,726 and 31,998,723 shares) (385,976) (371,821) Accumulated other comprehensive income 5,354 4,717 Total Common Shareholders' Equity 1,484,045 1,499,153 Total Capitalization 3,112,480 3,103,325 Total Liabilities and Capitalization $5,247,563 $4,694,402 See notes to consolidatedf:nancialstatemenn. sa
w Statement of Consolidated Cash Flows (Thousands ofDollars) l Har Ended December 31, l 1998 1997 1996 CASH flows' Net income S114,140 $199,101 $179,138 FROM L Principal non-cash charges (credits) to net income: OPERATING Extraordinary item, net of tax . - 82,548 - - - ACTIVITIES Depreciation and amortization 217,156 242,843 222,928 i Deferred income and other taxes : 119,945 60,811 (43,170) Capital lease, nuclear fuel and invesunent amortization 80,574 67,671 53,166 Investment income (111,904) (66,246) (57,429) Gain on disposition ofinvestments (6,809) (34,364) (5,119) Changes in working capital other than cash (36,995) (36,758) 2,915 Increase in ECR (19,219)' (25,318) (3,948) . Other (78,479) (40,038) 34,445- i Net Cash Pnwidedfrom Operating Activities 360,957 367,702 382,926-
- I CASH flows Capital expenditures . (190,548) (116,004) (101,150)
FROM- Acquisition of water companies (122,007) (6,611) - INVESTING Long-term investments (68,895)- (219,122) (101,381) ACrivmES Acquisition of Control Solutions (21,954) .- - Proceeds from disposition ofinvestments 6,809 86,300 18,100 1 Sale of generating station - - 169,100 ! Other (512) (1,132) (1,898) Net Cash Used in Investing Activities (397,107) (256,569) (17,229) CASH FLOWS Reductions of long-term obligations: FROM Long-term debt (198,272) (52,100) (50,812) FINANCING Capital leases (12,897) (13,551). (19,326) ACTIVITIES ' Dividends on common and preferred stock (114,218) (106,959) (100,517) Repurchase of common stock . (14,155) (30) (11,717) Increase (decrease) in notes payable 4,313 - (28,637) Issuance oflong-term debt 140,000 - 85,000 Issuance of subsidiary preferred stock - -- 150,000 Other (16,243) 6,941- (3,477) l Net Cash (Usedin) 1%videdfrwn Finaming Anivities (211,472) (l65,699) 20,514 Net (decrease) increase in cash ! and temporary cash investments (247,622) (54,566) 386,211 Cash and temporary cash invesunents at beginning of year 356,412 410,978 24,767 Cash and temporary cash investments at end of year $108,790 $356,412 $410,978 ! Supplemental Cash Flow Information CASH PAID Interest (net of amount capitalized) S 91,462 $ 95,413 $ 95,702 TH Y R Income taxes 5 27,978 $ 66,703 $ 91,641 - NON-CASH Preferred stock issued in conjunction with
- INVESTING . long-term investments S 33,726 $ 2,548 $ -
AND FINANCING Note payable issued in conjunction with purchase ACTIVITIES ofproperty 5 25,000 $ - 5 - Capitallease obligations recorded S 7,855 $ 27,514 5 13,050 Equity funding obligations cancelled $ - S 9,107 $ - Equity funding obligations recorded S - S 5,441 $ 36,716 On May 1,1997, DQE exchanged its shares in Chester Engineers for shares of common stock of the purchaser of Chester Engineers, which were subsequently sold at various dates through June 5,1997. See notes to consolidatedpnancialstatements.
.a I
Statement of Consolidated Comprehensive income (Thousands ofDollars) Har Ended December 31, 1998 1997 1996 Net income $ 114,140 $ 199,101 $ 179,138 Other comprehensive income: Unrealized holding gains arising during the year, net of tax of $452, $5,154 and $0 637-7,268 - Less: reclassification adjustment for gains included
. in net income, net of tax of $0, $4,440 and $0 - (6,260) -
Total Other Comprehenswe luome 637 1,008 - Comprehensive income $ 114,777 $ 200,109 $ 179,138 See notes to ansohdatedpnancialstatements. Statement of Consolidated Retained Earnings (Thousands ofDollan) As ofDecember 31, 1998 1997 1996 Balance at beginning of year S 869,749 $ 777,607 $ 698,986 Net income 114,140 199,101 179,138 Dividends declared (114,218) (106,959)- (100,517) Balance at End of Year S 869,671 5 869,749 $ 777,607 See notes to consolidatedfinancialstatements. Notes to Consolidated Finaencial Statements A. Consolidation CUMMARY OF DQE, Inc. (DQE) is a multi-utility delivery and senices company. Its subsidiaries are Duquesne CIGNIFICANT Light Company (Duquesne); AquaSource, Inc. (AquaSource); DQE Energy Services, Inc. (DES); Acc "" DQEnergy Partners, Inc. (DQEnergy); Duquesne Enterprises, Inc. (DE); and Montauk, Inc. gu (Montauk). DQE and its subsidiaries are collectively referred to as "the Company." The Company's utility operations include an electric utility engaged in the generation, transmission, distribution and sale of electric energy and a water resource management company that acquires, develops and manages water and wastewater utilities. The Company's expanded
- business lines offer a wide range of energy-related technologies, industrial and commercial energy senices, telecommunications and other complementary senices. The expanded business lines' initiatives include energy facility development and operation, domestic and international
. independent power production, the production and supply ofinnovative fuels, investments in communications systems (including long-distance telephone senice) and electronic commerce. In addition, one of the Company's subsidiaries is a financial services company that makes long-tenn investments and provides financing for the other expanded business lines and related customers.
On December 18,1998, the Pennsylvania Public Utility Commission (PUC) approved the Company's plan to divest itself ofits generation assets through an auction (including an auction of its pnnider oflast resort senice), 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. The Compa,y currently expects these transactions to close in late 1999 or early 2000. (See " Rate Matters" discussion, Note F, on page 60.) ss
n i I Basis ofAccounting 3 The Company is subject to the accounting and reporting requirements of the Securities and l Exchange Commission (SEC). In addition, the Company'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 Peer Act with respect to rates for interstate sales, transmission of electric power, accounting and other matters. As a result of the PUC's final order regarding the Company's restructuring plan under the
' Customer Choice Act (see " Rate Atatters," Note F, on page 60), the electricity generation
- portion of the Company's business no longer meets the criteria of Statement ofFinancial Accounting Standards (SE4S) No. 71, Accountingfor the Effects of Certain Types ofRegulation (SFAS No. 71). Accordingly, application of SFAS No. 71 to this portion of the Company's business has been discontinued and the Company now applies SE4S No.101, Regulated ,
Entnprises - Accountingfcr the Discontinuation ofApplication ofFASB Statement No 71 (SFAS ] i No.101) as interpreted by Emnging issues Task Force (EITF) 97-4, Derrgulation ofthe Pricing of Electricity - Issues Related to the Application ofE4SB Statements No. 71 and 101. Under SFAS No.101, the regulatory assets and liabilities of the generation portion of the Company are detennined 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 PUC s final restructuring order, certain of the Companyh 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). The Company will continue to apply SFAS No. 71 with respect to such assets. Fixed assets related to the generation portion of the Company's business have been evahiated in accordance with SFAS No. I21, Accountingfor the impairment oflong-Lived Assets to Be Disposed Of(SFAS No.121). Applying SFAS No.121 to the non-regulated generation assets, it has been determined that the Company's generation assets are impaired. However, pursuant to the PUC's final restructuring order, the Company will recover its above-market investment in generation assets through the CTC. Under the Company's plan to auction its generation assets, 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 ofits generation assets. Accordingly, the amount of book value 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 a 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 the Company, 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 Atatters," Note F, on page 60.) ; 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, the Company 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, the Company 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 the Company's restructuring plan (see " Rate Alatters," Note F, on page 60), such fuel costs are no longer recoverable through the ECR. Instead, effective Alay 29,1998 (the date of the PUC's final restructuring order), fuel costs are expensed as incurred and thus impact net income. Under-recoveries from customers prior to Aiay 29,1998, were recorded on the consolidated balance sheet as a regulatory asset. At December 31,1998, $42.7 million was receivable from customers. The Company expects to recover this amount through the CTC. (See " Restructuring
- Plan" discussion, Note F, on page 61.) At December 31,1997, $23.5 million was receivable from customers. .+
h - __
Revenuesfnnn Utility Sales The Company's electric utility operations provide service to customers in the City of Pittsburgh , and surrounding areas. (See " Rate Alatters," Note F, on page 60.)This territory represents l approximately 800 square miles in southwestern Pennsylvania. The population of the area served by the Company'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 serving approximately 580,000 direct customers, the Company's utility operations also sell electricity to other utilities. The Company's water utility operations provide service to customers throughout the United States. The Company's water operations have grown rapidly and are currently approaching 300,000 customer connections. Meters are read monthly and utility customers are billed on the same basis. Revenues are i recorded in the accounting periods for which they are billed, with the exception of energy cost ) recovery revenues. (See "Fnergy Cost Rate Adjustment Clause" discussion on page 56.)
- Alaintenance 1 EffectiveJanuary 1,1999, as a result of the PUC's final restructuring order, all electric utility )
maintenance costs will be expensed as incurred. Historically, incremental maintenance costs incurred l , for refueling outages at the Company's nuclear units were deferred for amortization over the period { between refueling outages (generally 18 months); the Company would accrue, over the periods l 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 l such costs were incurred. During the fourth quarter of 1998, a revenal of the fossil maintenance outage accrual was made for outages planned to occur after the divestiture of the generation assets. . 1 Deptrciation and knortization l 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. Goodwill, representing the excess of the cost over the net tangible and identifiable assets of acquired businesses, is stxted at cost and is amortized on a straight-line basis over the estimated future periods to be benefited (25 to 40 years). Goodwill is included in other non-current assets on the consolidated balance sheet. In certain regtdatory jurisdictions the Company expects to recover its goodwill and to earn a return on those costs through the ratemaking process. Amortization of gas reserve investments and depreciation of related property are on a units of production method over the total estimated gas reserves. Amortization ofinterests in affordable housing partnerships is based upon a method that approximates the 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 caletdated on various bases. The Company 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 the Company'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 liability. , (See " Nuclear Decommissioning" discussion, Note J, on page 66.) The Company's electric utility operations' composite depreciation rate increased from 3.5 percent to 4.25 percent effective Alay 1,1996. Also in 1996, the Company expensed $9 million related to the depreciation portion of deferred rate synchronization costs in conjunction with the Company's 1996 PUC-approved mitigation plan. As a result of the Alay 29,1998, PUC restructuring order, the Company 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. j income Taxes The Company ases the liability method in computing deferred taxes on all differences between look and tax bases of assets. These lxmk/ tax differences occur when events and transactions recognized for financial reporting purposes are not recognized in the same period for tax purposesfrhe deferred tax liability or asset is also adjusted in the period of enactment for the effect of changes in tax laws or rates. l F1 l 1
For its electricity delivery business segment, the Company recognizes a regulatory asset for the deferred tax liabilities that are expected to be recovered from customers through rates. (See " Rate l Matters," Note F, and " Income Taxes," Note II, on pages 60 and 64.) j The Company reflects the amortization of the regulatory tax receivable resulting from reversals ) of deferred taxes as depreciation and amortization expense. Reversals of accumulated deferred 1 income taxes are included in income tax expense. When applied to reduce the Company's income tax liability, investment tax credits related to ! the electricity delivery business segment generally are deferred. Such credits are subsequently reflected, over the lives of the related assets, as reductions to income tax expense. j Other Operating Revenues and Other income Other operating revenues include the Company's non-kilowatt-hour (KWH) utility revenues and revenues from expanded business lines' operating activities. Other income primarily is made up of income from long-term investments entered into by the expanded business lines. The income is separated from other revenues as the investment income does not result from operating activities.
- Pn>perty, Plant and Equipment The asset values of the Company's properties are stated at original construction cost, which ;
includes related payroll taxes, pensions and other fringe benefits, as well as administrative costs. l Also included in original construction cost is an allowance for funds used during construction (AFC), which represents the estimated cost of debt and equity funds used to finance construction. ;
. Additions to, and replacements of, property units are charged to plant accounts. Maintenance, repairs and replacement of minor items of property are recorded as expenses when they are incurred. The costs of electricity delivery business segment properties that are retired (plus removal 1 costs and less any sah age value) are charged to accumulated depreciation and amortization. i The asset values of the Company's electricity generation business segment properties were i written down to market value in accordance with SFAS No.121 in conjunction with the final l PUC restructuring order. (See " Basis of Accounting" discussion on page 56.)
Substantially all of the Company's electric utility properties are subject to a first mortgage lien. Temporary Cash Investments 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. The Company considers temporary cash investments to be cash equivalents. Earnings Per Share Basic earnings per share is computed by dividing inaame available to conunon stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, or resuhed in the issuance of common stock that then shared in the earnings of the entity. The preference stock of the ESOP, as described in Note N, " Employee Benefits," was the primary cause for the dilution of earnings per share for the years ended December 31,1998,1997 and 1996 as shown on the statement of consolidated income. Each share of the preference stock is . exchangeah!e for one and one-half shares of DQE common stock. Assuming conversion at the beginning of each year, the number of DQE shares was added to the denominator (weighted-average number of common shares outstanding). Partially offsetting the dilutive effect of the additional shares, the preference stock has an annual dividend rate of 52.80 per share, which was added back to the numerator (income available to common stockholders). The result of calculating both basic and dilutive earnings per share was a 50.02 dilutive effect for 1998, after the Pennsylvania restructuring charge, and a 50.03 dilutive effect for 1997 and 1996. Stock-Based Compensation The Company accounts for stock-based compensation using the intrinsic value method prescribed in APH Opinion No. 25, Accountingfor Stock Isrued to Employees, and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company'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 the Company's stock at the end of the period. se
Reclassifcarian The 1997 and 1996 consolidated financial statements have been reclassified to conform with 1998 presentation. Recent Accounting Pronouncernent InJune 1998, the Financial Accounting Standards Board (FASB) issued SE1SNo.133, Accountingfar Derivative Instnnnents and Hedging Activities (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 n" edging aethities. The adoption of SFAS No.133 is not expected to have a significant impact on the Company's financial statements and disclosures.
- a. Changes in 11orking Capital Other than Cash CHANGESIN (Net ofDispositions and Acquisitions)for tbc Ilar Ended December 31,
- e $gp", (Thousands ofDollars)
OTHER THAN 1998 1997 1996 CASH Receivables S (19,080) $ (14,476) $ (1,946) Materials and supplies (10,942) (1,740) 1,286 Other current assets (1,020) (519) (948) Accounts payable 30,745 (4,993) 4,691 Other current liabilities (36,698) (15,030) (168) Total 5 (36,995) $ (36,758) $ 2,915 c. PROPERTY, In addition to its wholly owned generating units, the Company, together with FirstEnergy, has PLANT AND an ownership or leasehold interest in certain jointly owned units. The Company is required to pay COUIPMENT jts share of the construction and operating costs of the units. The Company's share of the operating expenses of the units is included in the statement of consolidated income. The Company anticipates divesting itself ofits generation assets. (See
- Rate Matters," Note F, on page 60.)
Generating Units Generating Fuel Unit Capability Source (Megawatts) Cheswick 570 Coal Elrama (a) 487 Coal Eastlake Unit 5 (O 186 Coal Sammis Unit 7 (O 187 Coal Bruce Mansfield Units 1,2 and 3 (a)(O 400 Goal Beaver Valley Unit 1 (b)(O 385 Nuclear Beaver Valley Unit 2 (c)(d)(O 113 Nuclear Perry Unit I (e)(O 164 Nuclear Brunot Island Units 2a and 2b 178 Fuel Oil Total Generating Units 2,670 (a) De unit is equipped with flue gas desulfurization equipment. (b) The Nuclear Regulatory Cornrnission (NHC) has granted a license to operate through January 2016. (c) In 19H7, the Company sold and leased back its 13.74 percent interest in licaver Valley Unit 2. (d) The NRC has granted a license to operate through May 2027. (c) The NRC has granted a license to operate through March 2026. (f) jointly owned with FirstEnergy. Additionally, the Company has an ownership interest in certain cold-reserved generating units. The Brunot Island (BI) Units I and 3 and the Phillips Power Station (Phillips), with a combined capacity of 428 MW, will be offered as part of the Cornpany's generation asset auction. so
D- The Company makes equity investments in affordable housing and gas reserve partnerships as a LONG-TERM limited partner. At December 31,1998, the Company had investments in 27 affordable housing INWSNENTS funds and 29 gas reserve sites. The Company is the lessor in 9 leveraged lease arrangements invohing mining equipment, rail equipment, fossil generating stations, a waste-to-energy facility, high speed senice ferries and natural gas processing equipment. These leases expire in various years beginning in 2004 through 2033. The recorded residual value of the equipment at the end ! of the lease terms is approximately 2 percent of the original cost. The Company's aggregate ! investment represents 20 percent of the aggregate original cost of the property and is either leased to a creditworthy lessee or is secured by guarantees of the lessee's parent or affdiate. The remaining 80 percent was financed by non-recourse debt provided by lenders who have been granted, as their sole remedy in the event of default by the lessees, an assignment of rentals due under the leases and a security interest in the leased property. This debt amounted to $949 million and $950 million at December 31,1998 and 1997. Net Leveraged Lease Investments at December 31, (Thousands ofDollars) - 1998 1997 Rentals receivable (net of non-recourse debt) S632,879 5638,030 Estimated residual value ofleased assets 22,029 22,029 Less: Unearned income (266,795) (310,930) Leveraged lease investments 388,113 349,129 1 Less: Deferred taxes arising from leveraged leases (185,639) (115,383) Net Leveraged Lease investments S202,474 5233,746 The Company's other leases include investments in fossil generating stations, a waste-to-energy facility, computers, vehicles and equipment. The Company's other investments are primarily in assets of nuclear decommissioning trusts and marketable securities. Deferred income primarily relates to the Company's other lease investments and certain gas reserve investments. Deferred amounts will be recognized as income over the lives of the underlying investments for periods generally not exceeding seven years from the time ofinvestment. E; In 1997, the Company created the Preferred Stock, Series A (Convertible),5100 liquidation ACQUISITIONS preference per share (DQE Preferred Stock), to issue as consideration in lieu of cash in connection with acquisitions by the Company of other businesses, assets or securities. (See
" Preferred and Preference Stock," Note L, on page 70.) Through December 31,1998, the Company had invested approximately $166 million (of which appmximately 535 million was in the form of DQE Preferred Stock) to acquire the stock or assets of water and water-related companies. The Company also invested $22 million to acquire a 50 percent interest in and finance the growth of Control Solutions, LLC, a commercial and industrial heating, ventilation and air conditioning service and energy controls company.
F. Competition and the Customer Choice Act 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 , l 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 from customers (regulatory assets). As a result of this historical ratemaking procesa, 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 i prices 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 electricity from the generation w
l l supplier to the customer. The local distribution utility is also required to serve as the provider of last resort for all customers in its senice territory, unless other arrangements are approved by the PUC. The provider oflast resort must pro ide 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 began in January 1999). The Company's estimated negative net income impact of the customer choice pilot program during 1998, with 5 percent of customers participating, was approximately $6 million. Phase-In to Competition The phase-in to competition began in January 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 8,1999, approximately 12 percent of the Company's customers had chosen alternative generation suppliers. Customers that have chosen an electricity genernion supplier other than the Company pay that supplier for j generation charges, and pay the Company a CTC (discussed below) and charges for transmission j and distribution. Customers that continue to buy their generation from the Company pay for 1 their senice at current regulated tariff rates dhided 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, the Company has made 600 megawatts (MW) of power 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 KWII. This power availability will be structured to ensure the power is used to benefit Duquesne's retail customers. l Rate Cap An overall four-and-one-half-year rate cap frornJanuary 1,1997, his been imposed on the transmission and distribution 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 May 29,1998, final restructuring order, the PUC determined that the Company should recover most of the above-market costs of the generation assets, including plant and regtdatory 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 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 recognized. The Company will earn an 11 percent pre-tax return on the unrecovered balance.
. In the second quarter of 1998, the Company recorded an extraordinary charge (PUC restructuring charge) against earnings of $142.3 million ($82.5 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, HI, deferred caretaker costs related to the two stations and deferred coal costs. The charge resulted in a reduction of Duquesne's contribution to the Company's earnings per share by $1.06. The table below sets forth the amounts reclassified from regulatory assets and property, plant, and equipment to transition costs.
e.1
Other Non-Current Assets as ofDecember 31, Other Tran.ition Regulatory Regulatory Costs Assets Assets (Thousands ofDollars) 1998 1998 1997 Power plants (a) 51,073,730 S - S - Beaver Valley Unit 2 lease liability (See Note I) 475,570 - - Regulatory tax receivable 236,480 23,177 301,664 Beaver 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 Deferred 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 5680,885 (a) Amount represents the above-market costs of the Imwer plants and was reclassiGed in the second quarter of 1998 from pmperty, plant, and equipment to transition costs. A Gnal determination of plant market value will be deternned in conjunction with the generation auction. (b) Amount .apresents deferred taxes related to the taxable gain on the sale /leaschack of lleaver VaUey Unit 2 and was reclassified from deferred tax liabilities to transition costs. (c) In the second quarter of 1998 amounts were written off as an extraordinary charge to the consolidated 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 liabdities. In addition, there are amounts included in transition costs that had not previously been recorded on the consolidated 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 not recorded, a regulatory liabihty was recorded for the same amount as the transition costs. As part ofits restructuring plan filing, the Company requested recovery of SI1.5 million ($6.7 million net of tax) through the CTC for energy costs previously deferred under the ECR. Although recovery of this amount was approved in the PUC's final restructuring order, the Company subsequently requested recovery of an additional 531.2 million ($18.2 million net of tax) in deferred fuel costs. On December 18,1998, the PUC denied recovery of this additional amount. The Company has appealed the PUC's denial of recovery to the Pennsylvania Commonwealth Court. Based upon the Customer Choice Act, which mandates recovery of all j regulatory assets, and the PUC's specific authorization for the Company to create a regulatoy i asset for these costs, the Company believes that it is probable that these costs will be recovered j through retail rates. In the event that the Company does not prevail in its appeal, these costs wouhl be written off as a charge against income during 1999. Restruaming Plan and Auaion 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 CTC, collectible through 2005. Until - ; 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 KWil 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 will include 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 Imwer station exchange described below. The auction plan calls for a two-phase, sealed bid process similar to that used in other power plant divestitures. The initial confidential bidding process is expected to begin in March 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 a to close at the end of 1999 or the beginning of 2000.
r Purer Station Ihrbange. Pursuant to the agreement in principle and subject to the execution and regulatory approval of definitive agreements, Duquesne and FirstEnergy will exchange ownership interests in certain [x>wer stations. Duquesne will receive 100 percent ownership rights in three coal-fired power plants k>cated in Avon Lake and Niles, Ohio and New Castle, Pennsyh ania (totaling approximately 1,300 MW), which the Company expects to sell simultaneously as part of the auction of generation assets. FirstEnergy will acquire Duquesne's interests in Beaver Valley Unit 1 (bV Unit 1), Beaver Valley Unit 2 (BV Unit 2), Perry Unit 1, Sanunis Unit 7, Eastlake U' nit 5 and Bruce Mansfield Units 1,2 and 3 (totaling approximately 1,400 MW). In connection with the [xmer station exchange, the Company anticipates terminating the IW Unit 2 lease. (See " Leasing" discussion, Note 1, on page 65.) Pursuant to the December 18,1998, PUC order and subject to final approval, the proceeds from the sale of the power station received in the exchange will be used to offset the transition costs associated with Duquesne's currently-held generation assets and costs associated with l completing the exchange. Duquesne expects this exchange to enhance the value received from 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-fired plants, which are anticipated to have a higher market value than nuclear plants. 1 These value-enhancing feamres, along with a minimum level of auction pmceeds guaranteed by FirstEnergy, are expected to maximize auction pmceeds, minimize transition costs required to be recovered through the CTC (by shortening the length of the CTC recovery period), and thus reduce I customer bills as rapidly as imssible. Other benefits of this exchange include the resolution of all joint l 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 1 must be submitted for PUC approval, and certain aspects of the exchange will have to be approved by, I among other agencies, the FERC, the NRC and the Department ofJustice. The power station { exchange is expected to occur simultaneously with the anticipated chising of the sale of Duquesne's l generation through the auction at the end of 1999 or in early 2000. Termination ofthe ale Merger OnJuly 28,1998, DQE's Board of Directors concluded that it could not consummate the merger with AYE, toward which the Company had been working. The Company 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 information regarding this decision is set forth in
]
the Company's Current Report on Fonn 8-K datedJuly 28,1998. OnJuly 30,1998, AYE infonned l 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. J 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 wouki he considered withdrawn. On , October 5,1998, the Company announced its unilateral tennination of the merger agreement. More l information regarding this termination is set forth in the Company's Current Report on Fonn 8-K j dated October 5,1998. In a letter dated February 24,1999, the PUC informed the Company that the merger application was deemed withdrawn and the docket was closed.
- AYE filed suit in the United States District Court for the Western District of Pennsyhanu seeking to compel the Company to proceed with the merger and seeking a temporary restr.anmg order and preliminary injunction to present the Company 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 l 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. l Argmnent was held on January 15,1999, and a decision is pending. The ultimate outcome of this suit cannot be detennined at this time. G. At December 31,1998, the Company had two extendible revohing credit arrange nents, including CHORT-TERM a $]25 million facility expiring inJune 1999 and a $150 million facility expiring in October 1999. CORROWING Interest rates can,in accordance with the option selected at the time of the borrowing, he based on prime, Eurodollar or certificate of deposit rates. Commitment fees are based on the unborrowed mG amount of the commitments. Both credit facilities contain two-year repayment periods for any CREDIT ARRANGE. amounts outstanding at the expiration of the revohing credit periods. At December 31,1998 and M NTS December 31,1997, there were no short-tenn terrowings outstanding. ea
- H. The annual federal corporate income tax returns have been audited by the Internal Revenue WNEMS Service (IRS) for the tax years through 1992. The IRS is reviewing the Company's 1993 and 1994 returns, and the tax years 1995,1996,1997 and 1998 remain subject to IRS review. The Company does not believe that final settlement of the federal income tax returns for the yean 1990 through 1998 will have a materially adverse effect on its financial position, results of operations or cash flows. Defernd Tax Assets (Liabilities) at December 31, (Thousands ofDollars) 1998 1997 Tax benefit -long-term invesmients S 221,277 $ 235,957 BV lease liability 167,440 - Unbilled revenue 16,589 19,637 Investment tax credits unamortized 9,990 40,573 Gain on sale / leaseback of BV Unit 2 - 58,137 ' Other. 116,525 65,210 Deferred tax assets 531,821 419,514 Transition costs (664,810) - Property depreciation (285,783) (712,247) Leveraged leases (185,639) (115,383) 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 (133,485) (87,095) Deferred tax liabilities (1,308,838) (1,087,166) Net Deferred Tax Liabilities 5 (777,017) $ (667,652). Income Taxes (Thousands ofDollan) Jear Ended December 31, 1998 1997 1996 Currently payable: Federal $ 2,245 5 3,911 $ 85,976 State 26,946 31,083 44,582 Deferred - net: Federal 80,104 69,324 (18,737) State 2,072 (93) (14,874) Investment tax credits deferred - net (10,385) (8,420) (9,559) Income Taxes $100,982 5 95,805 5 87,388
'Ibtal income taxes differ from the amount computed by applying the statutory federalincome tax rate to income before income taxes.
Income Tax Expense Reconciliation (Thousands ofDollars) lear Ended December 31, l 1998 1997 1996 I Computed federalincome tax at statutory rate $104,185 $103,217 $ 93,284 ) Increase (decrease)in taxes resulting from: State income taxes, net of federal income tax benefits 18,370 20,143 19,310 Investment tax benefits - net (14,884) (17,831) (15,116) Amortization of deferred investment tax credits (10,385) (8,420) (9,559) Other 3,696 .(1,304) (531) 7otalIncome Tax Expense $100,982 5 95,805 $ 87,388
., 4
- s. The Company leases nuclear fuel, a portion of a nuclear generating plant, certain office 88amas ' buildings, computer equipment, and other property and equipment.
Capital Leases at December 31, . (Thousands ofDollars) 1998 1997 Nuclear fuel $100,756 $ 92,901 Electric plant 19,923 20,761 Other - 2,695 - Total 123,374 113,662 Less: Accumulated amortization (63,604) (50,725) J Property Held Under Capital Leases - Net (a) $ 59,770 $ 62,937 (a) includes 52.037 in 1998 and $2,874 in 1997 of capital leases with asweisted obligations retired. In 1987, the Company sold and leased back its 13.74 percent interest in BV Unit 2; the sale was exclusive of transmission and common facilities. The Company subsequently leased back its interest in the unit for a term of 29.5 years. The lease provides for semi-annual paymenu c.nd 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. The Company recorded the lease liability and a corresponding regidatory asset for the present value of the future lease payments. The Company is responsible under the terms of the lease for all costs related to its interest in the unit. In December 1992, the Company participated in the refinancing of collateralized lease bonds to take advantage oflower interest rates, thus reducing the annual lease payments. The bonds were originally issued in 1987 to partially fund the lease of IW Unit 2. The associated letter of credit securing the lessor's equity interest in the unit is $194 million and the term of the letter of credit extends to 1999. The Company 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 would no longer be an obligatien of the Company. The underlying collateralized lease bonds ($371.0 million at December 31,1998) would become direct obligations of the Company and be recorded as debt on the consolidated balance sheet. (See " Rate Matters," Note F, on page 60.) Leased nuclear fuel is 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 BV Unit 2 lease). These lease-related expenses are charged to operating expenses on the statement of consolidated income. Summary ofRental Payments (Thousands ofDollars) l 1 ear Ended December 31, 1998 1997 1996 Operating leases $57,324 $60,684 $59,503 l
. Amortization of capital leases 12,943 16,847 19,378 Interest on capital leases 4,386 3,435 3,703 Total Rental Payments $74,653 $80,966 $82,584 65 i
y I Future Minimum Lease Payments (Thousands ofDollars) BV Unit 2 Operating Capital Year Ended December 31, Lease Leases Leases 1999 $ 45,476 $ 8,846 $ 24,839 2000 45,670 8,610 13,516 l 2001 45,643 8,552 10,028 2002 47,305 8,441 5,132 2003 53,100 - 3,085 2004 and thereafter 756,994 - 16,919 TotalMinimum Lease Payments $994,188 $34,449 $ 73,519 Less: Amount representinginterest (15,786) Prrsent value ofminimum lease paymentsfor capitalleases (a) $ 57,733 (a) includes current obligations of $21.1 million at December 31,1998. . Future minimum lease payments for operating leases are related principally to certain corporate offices. Future minimum lease payments for capital leases are related principally to the estimated use of nuclear fuel financed through leasing arrangements expiring in 1999 and building leases. Future payments due to the Company, as of December 31,1998, under subleases of certain corporate office space are approximately $6.0 million in 1999, $6.0 million in 2000 and -
$12.7 million thereafter.
J. The Company anticipates divesting itself ofits generation assets through the auction and the COMMITMENTS power station exchange by early 2000 and, depending on the regulatory approvals of the final AND agreements regarding the divestiture, expects certain obligations related to the divested assets will [hN{NES be transferred to the future owners. (See " Restructuring Plan" discussion, Note F, on page 61.) Construction, investments and Acquisitions i The Company estimates that it will spend, excluding AFC and nuclear fuel, approximately 9
$110 million in 1999 (including $30 million for generation), $75 million in 2000 (excluding.
generation) and $70 million in 2001 (excluding generation) for electric utility construction. Nuclear-Related Matters The Company 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 regulatory and safety requirements. Specific infonnation about risk management and potential liabilities is discussed ; below. ! Nudcar Duomminioning. The Company expects to decommission BV Unit 1, BV 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 operatinglife, BV Unit I may be placed in safe storage until BV Unit 2 is ready to be deconunissioned, at vchich time the units may be decommissioned together.
- Based on site-specific studies conducted in 1997 for BV Unit I and BV Unit 2, and a 1997 update of the 1994 study for Perry Unit 1, the Company's approximate share of the total i estimated decommissioning costs, including removal and decontamination costs, is $170 million, ,
$55 million and $90 million, respecth ely. The amount currently used to determine the Company's cost of sersice 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 and debt securities, municipal lxmds, certificates of deposit and United States government securities. The market value of the aggregate trust ftmd balances at December 31,1998, totaled approximately $62.7 million. As part of the power station exchange, FirstEnergy has agreed in principle to assume the decommissioning liability for each of the nuclear plants in exchange for the balance in the decommissioning trust funds, plus the deconunissioning costs expected to be collected through the CTC. w
- Nudear Insurance. The Price-Andenon Amendments to the Atomic Energy Act ofI9H limit public liability from a single incident at a nuclear plant to $9.8 billion. The maximum available private primary insurance of $200 million has been purchased by the Company. Additional protection of
$9.6 billion would be provided by an assessment of up to $88.1 million per incident on each licensed nuclear unit in the United States. The Company's maximum total possible assessment,
$66.1 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. The Company's share ofinsurance coverage for property damage, decommissioning and decontamination liability is $1.2 billion. The Company would be responsible for its share of any damages in excess ofinsurance coverage. In addition, if the pmperty damage resen es 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 nuclear site covered by that insurer, the Company could be assessed retrospective premiums totaling a maximum of $7.3 million. In addition, the Company participates in a NEIL program that provides insurance for the increased cost of generation and/or purchased power resuhing from an accidental outage of a nuclear unit. Subject to the policy deductible, tenus 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, the Company could be assessed retrospective premiums totaling a maximum of $2.6 million. Beaver lithy Puuw 'tation (BI7'S). BVPS's two units are equipped with steam generators designed and built by Westin ise Electric Corporation (Westinghouse). Similar to other Westinghouse nuclear plants, out. Jiameter stress corrosion cracking (ODSCC) has occurred in the steam generator tubes of U.a units. BV Unit 1, which was placed in senice in 1976, has removed approximately 17 p et ofits steam generator tubes from senice through a process called
" plugging." Ilowever, BV Unit I still has the capability to operate at 100 percent reactor inwer and has the ability to return tubes to senice by repairing them through a process called " sleeving." No tubes at either BV Unit 1 or BV Unit 2 have been sleeved to date. BV Unit 2, which was placed in senice 1 I years after BV Unit 1, has not yet exhibited the degree of ODSCC experienced at BV Unit 1. Approximately 3 percent of BV Unit 2's tubes are plugged; however, it is too early in the life of the unit to determine the extent to which ODSCC may become a problem at that unit.
The Company has undertaken certain measures, such as increased inspections, water chemistry control and tube plugging, to minimim the operational impact of and reduce susceptibility to ODSCC. Although the Company 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. Material acceleration in the rate of ODSCC could lead to a loss of plant efficiency, significant repairs or the possible replacement of the BV Unit I steam generators. The total replacement cost of the BV Unit I steam generators is currently estimated at $125 million. The Company would be responsible for
$59 million of this total, which includes the cost of equipment remm al and replacement steam i generators, but excludes replacement power costs.The earliest that the BV Unit I steam generators could be replaced during a currently scheduled refueling outage is the fall of 2001. , The Company continues to explore all viable means of managing ODSCC, including new repair technologies, and plans to continue to perfonn 100 percent tube inspections during fature refueling outages. However, the Company may be required to perfonn an earlier inspection of 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. The Company has requested pennission from the NRC to postpone these inspections until BV Unit 11, next j refueling outaFe, currently scheduled to begin in the spring of 2000, and expects to receive such j i permission early in 1999. The Company completed its inspection of BV Unit 2's tubes during a j
} forced outage in 1998 to comply with NRC requirements to conduct such inspections at BV Umt l l 2 at least every 24 months. The next refueling outage for IW Unit 2 is currently scheduled to begin at the end of February 1999. No steam generator tube inspections will be perfonned until the subsequent refueling outage, currently scheduled for the fall of 2000. The Company will l continue to monitor and evaluate the condition of the BVPS steam generators. sr { t
I BV Unit I went off-line on January 30,1998, due to an issue identified in a technical review completed by the Company. BV Unit 2 went off-line on December 16,1997, to repair the emergency air supply system to the control room. BV 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 response to a 1997 commitment made by the Company to the NRC, have been e completed. The Company was one of many utilities faced with similar issues, some of which date , back to the initial start-up of BVPS. BV Unit I returned to senice on August 15,1998, and BV ! Unit 2 returned to senice on September 28,1998. , Spent Nuclear Fuel Disposal. The Nuclear Il'aste Polity Act of1982 established a federal policy for handling and disposing of spcnt 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 permanent 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 .. f 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 District of Columbia Circuit that the DOE was legally obligated to begin acceptance of spent nuclear fuel for disposal byJanuary 31,1998. i Existing on-site spent nuclear fuel storage capacities at BV Unit 1, BV Unit 2 and Perry Unit 1 are expected to be sufficient until 2018,2012 and 2011, respectively. In early 1997, the Company 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 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 November 14,1997, and affirmed on rehearing Aiay 5,1998, denied the relief requested by the utilities and states and permitted the i DOE to pursue alternative dispute resolution, but prohibited the DOE from using its lack of a i spent fuel repository as a defense. The United States Supreme Court declined to review the ) 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. j Uranium Enrichment Oldigations. Nuclear reactor licensees in the United States are assessed annually for the decontamination 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 National Energy Policy Act of 1992, and are to be paid by such utilities over a 15-year period. At December 31,1998, the Company's liability for contributions was appmximately
$6.2 million (subject to an inflation adjustment), which will be recovered through the CTC as part of transition costs.
Fossil Decommissioning Based on studies conducted in 1997, the amount for fossil decommissioning is currently estimated to be $130 million for the Company's interest in 17 units at six sites. Each unit is . expected to be decommissioned upon the cessation of the unit's final operations. The Company was not permitted to recover these costs as part ofits restructuring plan. (See " Rate Atatters," Note F, on page 60.) , Guarantees The Company and the other owners of Bruce Atansfield Power Station (Bruce Afansfield) have guaranteed certain debt and lease obligations related to a coal supply contract for Bruce Atansfield. At December 31,1998, the Company's share of these guarantees was $10.4 million. As part of the Company's investment portfolio in affordable housing, the Company has received fees in exchange for guaranteeing a minimum defined yield to third-party investors. A portion of the fees received has been deferred to absorb any required payments with respect to these transactions. Based on an evaluation of and recent experience with the underlying housing projects, the Company believes that such deferrals are ample for this purpose. so m__
I Residual Uisste Managernent Regulations In 1992, the Pennsylvania Department of Emironmental Protection (DEP) issued Residual Waste Management Regulations governing the generation and management of non-hazardous residual waste, such as coal ash. The Company is assessing the sites it utilizes and has developed compliance strategies that are currently under review by the DEP. Based on infonnation currently available, $4.5 million will be spent in 1999 to comply with these DEP regulations. 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.
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. 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
, he required to offer work to currerst 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 connection with the anticipated divestiture, Duquesne has developed early retirement programs and enhanced separation packages available for eligible IBEW and management employees. Duquesne expects to recover related costs through the divestiture proceeds. Other The Company is involved in various other legel proceedings and environmental matters. The Company 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. K. T he pollution control notes arise from the sale of bonds by public authorities for the purposes LONG-TERM of financing construction of pollution control facilities at the Company's plants or refunding C DT previously issued bonds. The Company is obligated to pay the principal and interest on these bonds. For certain of 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 j payment ofinterest on, or redemption of, all or a portion of the notes. Long-Tern Debt at December 31, (Thousands of Dollars) Interest Principal Outstanding Rate Maturity 1998 1997 First mortgage bonds 5.90 8.375 % 1999-2038 $743,000 (a) $ 778,000 (b) Pollution control notes Adjustable (c) 2009-2030 417,985 417,985
, Sinking fund debentures 5.00 % 2010 2,791 2,791 Term loans 6.47 % -7.47 % 2000-2001 150,000 150,000 Economic development revenue bonds 5.5 %-8.75 % 1999-2024 10,760 -
Term notes Adjustable (d) 2008 9,500 - Miscellaneous 34,271 31,017 Less: Unamortized debt discount and premium - net (3,428) (3,672) Total Long-Term Debt SI,364,879 S1,376,121 (a) Excludes $75.0 million related to current maturities during 1999 (b) Excludes $75.0 million related to current maturities during 1998. (c) ne imilution control notes have adjustable interest rates. The interest rates at year-end averaged 3.9 percent in 1998 and 3.9 percent in 1997. (d) Term notes have variabic rates, adjusted quarterly. De interest rate at December 31,1998, was 5.5 percent. At December 31,1998, sinking fund requirements and maturities oflong-term debt out-standing for the next five years were $82.4 million in 1999,$167.1 million in 2000, $86.3 million in 2001, $1.2 million in 2002, and $101.1 million in 2003. es 1
Total interest and other charges were $110.2 mi!! ion in 1998, $115.6 million in 1997, and $110.3 million in 1996. Interest costs attributable to long-term debt and other interest were $95.6 million,
$101.2 million and $99.4 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 4 premium and related issuance expenses are amortized over the lhes of the applicable issues.
At December 31,1998, the fair value of the Company's long-term debt, including current maturities and sinking fund requirements, estimated on the basis of quoted market prices for the l same or similar issues or current rates offered to the Company for debt of the same remaining maturities, was $1,467.6 million. The principal amount included in the Company's consolidated balance sheet is $1,443.3 million. At December 31,1998 and 1997, the Company was in compliance with all ofits debt covenants. L. Porferred and Preference Stock at December 31, PREFERRED (Thousands ofDollars) PREFERENCE g ,gg p ; e 1998 1997 STOCK Per Share Shares Amount Shares Amount Preferred Stock of DQE:
- Series A Preferred Stock (a) - 352,742 $35,274 15.480 $1,548 Preferred Stock Series of Subsidiaries:
1.75% (b) (c) $51.00 148,000 7,407 148,000 7,407 4.00% (b)(c) 51.50 549709 27,486 549,709 27,486 4.10% (b) (c) 51.75 119,860 6,012 119,860 6,012 4.15% (b) (c) 51.73 132,450 6,643 132,450 6,643 4.20% (b) (c) 51.71 100,000 5,021 100,000 5,021
$2.10 (b)(c) 51.84 159,000 8,039 159,400 8,039 l 9.00% (d) -
10 3,000 10 3,000 8.375% (e) - 6,000,000 150,000 6,000,000 150,000 i 6.5% (f) - 15 1,500 10 1,000 l 6.5% (g) - 10 500 - - j Total Prrferred Stock ofSubsidiaries 215,608 214,608 Preference Stock Series of Subsidiaries: j Plan Series A(c)(h) 36.90 779,394 26.914 799,456 28,295 ' Deferred ESOP benefit (14,240) (16,400) Total Preferred and Preferrnce Stock S163,556 $228,051 (a) Preferred Stock: 4,000,000 authorized shares; (e) Cumulative Alonthly Income Preferred Securities, no par value; Convertible; $100 liquidatio'n Series A(A11PS): 6,000,000 authorized shares; preference per share $25 involuntary liquidation value 0,) Preferred stock: 4,000,000 authorized shares; (f) 1,500 authorized shares; $100,000 par value;
$50 par value; cumulative; $50 per share $100,000 imoluntary liquidation value involuntary liquidation value (g) Preferred stock: 100 ar? %cd shares; $50,00() par (e) Non-redeemable value; $50,000 per share involuntary liquidation value (d) 500 authorized shares; $300.000 par value; th) Preference stock: 8.000,000 authorized shares; involuntary liquidation value SMO,000 per share; $1 par value; cumulative $35.50 per share involuntary mandatory redemption beginning August 2000 liquidation value In July 1997, the Company authorized and registered 1,000,000 shares of DQE Preferred Stock.
As of December 31,1998,352,742 shares of DQE Preferred Stock had been issued and were outstanding. An additional 29,928 shares of DQE Preferred Stock were issued inJanuary and February 1999. The DQE Preferred Stock ranks senior to the Company's common stock as to the payment of dividends and the distribution of assets on liquidations, dissolution or winding-up of the Company. IIolders of DQE Preferred Stock are entitled to vcae on all matters submitted to a vote of the holders of DQE common stock, voting together with the holders of common stock as a single class. Each share of DQE Preferred Stock is entitled to three votes. Each share of DQE Preferred Stock is convertible at the Company's option into the number of shares of DQE common stock computed by dividing the DQE Preferred Stock's $100 liquidation value by the five-day 70
average closing sales price of DQE common stock for the five trading days immediately prior to the conversion date. Each unredeemed share of DQE Preferred Stock will automatically be converted on the first day of the first month commencing after the sixth anniversary ofits issuance. Dividends on DQE Preferred Stock are paid quarterly on each January 1, April 1, July I and October 1. I1,720 shares of DQE Preferred Stock are entitled to an annual dividend of 4.3 percent, comprising a quarterly dividend of $1.075 per share. 3,760 shares are entitled to an annual dhidend of 4.2 percent, comprising a quarterly dhidend of $1.05 per share. 250,400 shares are entitled to an annual dividend of 4.0 percent, comprising a quarterly dividend of $1.00 per share. 3,120 shares are entided to an annual dividend of 3.4 percent, comprising a quarterly dhidend of i
$.85 per share. 107,543 shares (including 23,960 shares issued inJanuary 1999) are entitled to an annual dividend of 3.6 percent, comprising a quarterly dividend of $.90 per share. 5,968 shares 1 issued in February 1999 are entitled to an annual dividend of 3.8 percent, comprising a quarterly dhidend of $.95 per share.
InJune 1998, a DQE subsidiary issued 10 shares of preferred stock, par value $50,000 per share. The holders of such shares are entitled to a 6.5 percent annual dhidend to be paid each September. , A Duquesne 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 dhidend to be paid each September 30. In 1995, another Duquesne subsidiary issued 10 shares of preferred stock, par value $300,000 per share. The holders of such shares are entitled to a 9.0 percent annual dhidend paid quarterly. In Alay 1996, Duquesne Capital LP. (Duquesne Capital), a special-purpose limited partnen, hip of which Duquesne is the sole general partner, issued $150.0 million principal amount of 8 % percent Atonthly Income Preferred Securities (A11PS), Series A, with a stated liquidation value of $25.00. The holden of A11PS, are entitled to annual dividends of 8 % percent, payable monthly. The sole assets of Duquesne Capital are Duquesne's 8 % 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 MIPS, 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. The Company's consolidated balance sheet reflects only the $150.0 million of A11PS. IIolders of Duquesne's preferred stock are entitled to cumulative quarterly dhidends. If four quarterly dhidends 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. I folders of Duquesne's preference stock are entitled to receive cumulative quarterly dhidends if dhidends on all series of preferred stock are paid. If six quarterly dhidends on any series of preference stock are in arrears, holders of the preference stock are entitled to elect two of Duquesne's directon until all dhidends have been paid. At December 31,1998, Duquesne had made all dhidend payments. Preferred and preference dividends of subsidiaries included in interest and other charges were $16.7 million, $16.7 million and $12.1 million in 1998,1997 and 1996. 'Ibtal preferred and preference stock had involuntary liquidation values of $278.4 million and $244.4 million, which exceeded par by $26.9 million and $27.6 million at December 31,1998 and 1997.
,, In December 1991, the Company established an Employee Stock Ownership Plan (ESOP) to provide matching contributions for a 401(k) Retirement Savings Plan for Atanagement Employees. (See " Employee Benefits, Note N, on page 73.) The Company issued and sold 845,070 shares of preference stock, plan series A to the trustee of the ESOP. As consideration for the stock, the Company received a note valued at $30 million from the trustee. The preference stock has en annual dhidend rate of $2.80 per share, and each share of the preference stock is exchangeable for one and one-half shares of DQE common stock. At December 31,1998, $14.2 million of preference stock issued in connection with the establishment of the ESOP had been offset, for financial statement purposes, by the recognition of a deferred ESOP benefit. Dhidends on the preference stock and cash contributions from the Company are used to fund the repayment I of the ESOP note. The Company was not required to make a cash contribution for 1998. The l Company made cash contributions of approximately $1.1 million for 1997 and $1.4 million for 1996. These cash contributions were the difference between the ESOP debt senice and the amount of dhidends on ESOP shares ($2.2 million in 1998, $2.3 million in 1997 and 1996). As
, shares of preference stock are ahcated to the accounts of participants in the ESOP, the Company recognizes compensation expense, and the amount of the deferred compensation benefit is amortized. The Company recognized compensation expense related to the 401(k) plans of 71
$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 MIPS and preference stock are not currently callable. None of the remaining Duquesne preferred or preference stock issues has mandatory purchase requirements.
M. Changes in the Number ofShares ofDOE Common Stock Outstanding as ofDecemb*r 31, (Thousands ofShares) 1998 1997 1996 Outstanding as ofJanuary 1 77,680 77,273 77,556 Reissuance from treasury stock 70 408 157 Repurchase of common stock (377) (1) (440) Outstanding as ofDecember 31 77,373 77,680 77,273 The Company has continuously paid dividends on common stock since 1953. The Company's annualized dividends per share were $1.52, $1.44 and $1.36 at December 31,1998,1997 and 1996. During 1998, the Company paid a quarterly dividend of $0.36 per share on each of . January 1, April 1, July 1 and October 1. The quarterly dividend declared in the fourth quarter of 1998 was increased from $0.36 to $0.38 per share payableJanuary 1,1999. During 1997, the Company paid a quarterly dividend of $0.34. Once all dividends on the DQE Preferred Stock have been paid, dividends may be paid on the Company's common stock to the extent permitted by law and as declared by the board of directors. However, 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 oblignions on its preferred or preference stock. Further, the aggregate amount of Duquesne's common stock dMdend payments or distributions may not exceed j certain percentages of net income if the ratio of total c,mmon shareholder's equity to total capitalization is less than specified percentages. As all of Duquesne's common stock is owned by the j Company, to the extent that Duquesne cannot pay common dhidends, the Company may not be able to pay dividends on its common stock or DQE Preferred Stock. No part of the retained earnings of the Company was restricted at December 31,1998. Effective December 31,1998, the Company edopted SE4S No.130, Reponing Comprebensive 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 financial 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). Accumulated Other Comprehensive income Balances as of December 31, - (Thousands ofDollars) 1998 1997 1996 llalance at beginning of year S 4,717 $ (2,551) $ (2,551) Unrealized gains on securities, net of tax 637 7,268 - Balance at end ofyrar $ 5,354 $ 4,717 $ (2,551) In accordance with SE45 No.115, Aaountingfbr 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 $8.9 million ($5.4 million net of tax) at December 31,1998, and $8.1 million ($4.7 million net of tax) at December 31,1997. 73 e-
r l j N. Pension and Postretirement Benefits [ EMPLOYEE EE NEFITS The Company maintains retirement plans to provide pensions for all eligible employees. Upon retirement, an employee receives a monthly pension based on his or her length of senice and compensation. The cost of funding the pension plan is detennined by the unit credit actuarial cost method. The Company'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 Retin-ment Income Security Act ofl974 (ERISA), 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, $12.7 million for 1997, and $11.9 million for 1996.
In addition to pension benefits, the Company provides certain health care benefits and life insurance for some retired employees. Participating retirees make contributions, u hich may be adjusted annually, to the health care plan. The life insurance plan is non-contributory. Company-provided health care benefits terminate when covered indisiduals become eligible for Medicare benefits or reach age 65, whichever comes first. The Company funds actual expenditures for , obligations under the plans on a " pay-as-you-go" basis. The Company has the ri F ht to modify or terminate the plans. The Company accrues the actuarially determined costs of the aforementioned postretirement I a benefits over the period from the date of hire until the date the employee becomes fully eligible j for benefits. The Company has elected to amortize the transition obligation over a 20 year period. I In 1998, the Company adopted SIHS No.132, Employm' Disdonnrs about Pensions and Other ( Postretirrment Benefits (SFAS No.132). This statement revises employers' disclosures about ' pension and other postretirement benefit plans. The Company sponsors several qualified and nonqualified pension plans and other postretirement benefit plans for its employees. The following tables provide a reconciliation of the i changes in the plans' benefit obli Fations and fair value of plan assets over the two-year period l I 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 the Company's benefit obligation: Funded Status of the Pension and Postrctirement Benefit Plans at December 31, (Thousande ofDollars) Pension Postretirement 1998 1997 1998 1997 Change in benefit obligation: l Benefit obligation at beginning of year S 554,302 S 497,098 5 46,330 S 39,021 j Senice cost 14,042 12,340 1,832 1,603 ' Interest cost 37,723 36,571 3,078 3,048 Actuarial loss (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 t'alue ofplan assets at end ofyear 681,244 605,457 - - Funded status 75,647 51,155 (46,358) (46,330) Unrecognized net actuarial lon (gain) (173,974) (153,682) (1,795) 1,208 Unrecognized prior service cost 36,285 39,800 - - Unrecognized net transition obligation 10,227 12,039 23,607 25,294 Accrued benefit cost S (51,815) $ (50,6S8) S (24,546) $ (19,828) F3
Weighted-Average Assumptions as ofDecember 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 the Company's plans for postre*irement benefits, other than pensions, have no plan assets. i i The aggregate benefit obligation for those plans was $46.4 million as of December 31,1998, and S46.3 million as of December 31,1997. The accumulated postretirement benefit obligation ; comprises the present value of the estimated future benefits payable to current retirees, and a pro s j 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 Cost as ofDecember 31, (l'housands ofDollars) ! 1998 1997 1996 l Components of net pension cost: Service cost S 14,042 $ 12,340 S 12,209 Interest cost 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 S 12,236 5 19,267 S 11,945 Components ofPostretirement Cost as ofDecember 31, (Thousamis ofDollars) 1998 1997 1996 Components of postretirement cost: Senice cost' S 1,832 S 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 Postretirement Cost S 6,597 $ 6,555 S 4,116 , Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. , Effect ofa One Percent Change in Health Care Cast Trend Rates as ofDecember 31,1998 (Thousands ofDollars) e 1 Percent 1 Percent Increase Decrease l Effect on total of service and interest cost components of net periodic postretirement health care benefit cost S 602 S (521) Effect on the health care component of the accumulated postretirement benefit obligation S 4,819 S(4,202) a L ).
i Retirement Savings Plan and Other Benefit Options The Company sponsors separate 401(k) retirement plans for its management and bargaining unit employees. The 401(k) Retirement Savings Plan for Management Employees prmides that the Company will match errployee contributions to a 401(k) account up to a maximum of 6 percent of an employee's eligible salary. The Company match consists of a $0.25 base match per eligible contribution dollar and an additional 50.25 incentive match per eligible contribution dollar, if Board-approved targets are achieved. The 1998 incentive target for management was not accomplished. The Company is funding its matching contributions to the 401(k) Retirement Savings Plan for Management Employees with payments to an ESOP established in December 1991. (See " Preferred and Preference Stock," Note L, on page 70.) The 401(k) Retirement Savings Plan for IBEW Represented Employees provides that the Company will match employee contributions to a 401(k) account up to a maximum of 4 percent of an employee's eligible salary. The Company match consists of a 50.25 base match per eligible contribution dollar and an additional $0.25 incentive match per eligible contribution dollar, if certain targets are met. In 1998, the incentive target for bargaining unit employees was not accomplished. The Company's shareholders have approved a long-tenn incentive plan through which the Company may grant management employees options to purchase, during the years 1987 through 2006, up to a total of 9.9 million shares of the Company'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; 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 867,104; 635,995; and 984,000 of the options outstanding. During 1998,233,532 S \Rs were exercised; 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 $8.2084 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.
- c. Effective December 31,1998, the Company adopted SE4S No.131, Disrlosures about Segments of EUSINESS an Enterprise and Rdated luformation (SFAS No.131). This statement establishes standards for the CZGMENTS way that public business enterprises report information about operating segments. Operating segments are components of an enterprise about which separate financial information is available fN that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing perfonnance. This statement also establishes standard, for related
- disclosures about products and ser ices, ge<> graphic areas, and major customers.
llistorically, Duquesne has been treated as a single integrated business segment 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 the Company'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 electricity beginning in 1999 (5 percent of customers chose alternative generation suppliers in 1998). For the purposes of complying with SFAS No.131 the Company is required to disclose information about its business segments separately. Accordingly, the Company has used the PUC-approved separate rates for 1999 to des clop the financial information of the business segments for the periods ended December 31,1998,1997 and 1996. rs
I Beginning in 1999, the Company's principal business segments (determined by products and senices) will consist of the transmission and distribution by Duquesne of electricity (electricity delivery business segment) and the generation by Duquesne of electricity and collection of the CTC (electricity generation business segment). 'E comply with SFAS No.131, the Company has reported the results for 1998,1997 and 1996 by these business segments and an "all other" category. The all other category in the following table includes the expanded business lines and Duquesne investments below the quantitative threshold for separate disclosure. These expanded business lines include water utilities, energy products and services, electronic commerce, and other activities. Intercompany eliminations primarily relate to intercompany sales of electricity, property rental, management fees and dividends. Upon the anticipated completion of the auction of the Company's generation assets and provider oflast resort senices, the electricity generation business segment will be comprised solely of the collection of the CTC. Financial data for business segments is prmided as follows: Business Segments as ofDecember 31, , (Ibousands ofDollars) Electricity Electricity All Deliverv Generation Other Fliminations Consolidated . ! 1998 Operating revenues $ 321,484 $ 855,310 $ 106,432 $ (13,6Q $1,269,598 Operating expenses 147,373 536,964 113,830 (17,591) 780,576 Depreciation and I amortization expense 47,388 160,243 9,525 - 217,156 Operating income (loss) 126,723 158,103 (16,923) 3,963 271,866 Other income 5,284 9,020 128,883 (7,182; I36,005 Interest and other charges 37.711 58,637 14,730 (877) 110,201 Income before taxes and extraordinary item 94,296 108,486 97,230 (2,342) 297,670 l Income taxes 37,141 36,616 28,197 (972) 100,982 I Income before l extraordinary item 57,155 71,870 69,033 (1,370) 196,688 Extraordinarv itent, net of tax - (82,548) - - (82,548) Net income (loss) after extraordinary item $ 57,155 $ (10,678) $ 69,033 $ (1,370) $ 114,140 Assets $1,314,266 $2,711,533 $1,221,764 $ - $5,247,563 Capital expenditures $ 71,699 $ 41,629 $ 77,220 $ -$ 190,548 (Ibousands ofDollan) Electricin Electricity All Delivery Generation _ Uther Eliminations Consolidated . 1997 Operating revenues $ 316,938 $ 859,003 $ 64,769 $ (10,536) $1,230,174 Operating expenses 137,425 522,531 62,748 (16,110) 706,594 , Depreciation and amordzation expense 45.652 192,592 4,599 - 242,843 Operating income (loss) 133,861 143,880 (2,578) 5,574 280,737 Other income 6,844 12,723 119,185 (8,945) 129,807 Interest and other charges 38,612 63,805 14,093 (872) 115,638 Income before taxes 102,093 92,798 102,514 (2,499) 294,906 income taxes 40,195 32,252 24,395 (1,037) 95,8b5 Net income $ 61,898 5 60,546 $ 78,119 5 (1,462) $ 199,101 Assets $1,476,133 52,201,229 $1,017,040 $ - $4,694,402 l Capital expenditures $ 57,646 $ 32,761 5 25,595 $ - $ 116,004 re f i l ( _ _ _ _ _ _ _ _ _ _ . _ _ _ _ _
(Thousands ofDollars) Electricity Electricity All s Delivery Generation Other Eliminations k'onsolidated 1996 Operating revenues $ 308,826 $ 878,581 5 58,894 $ (9,524) $1,236,777 Operating expenses 138,384 532,190 54,455 (14,186) 710,843 Depreciation and amortization expense 45,415 172,870 4,643 - 222,928 Operating income (loss) 125,027 173,521 (204) 4,662 303,006 Other income 5,209 9,806 71,152 (12,377) 73,790 Interest and other charges 37,197 63,359 11,056 (1,342) 110,270 Income before taxes 93,039 119,968 59,892 (6,373) 266,526 Income taxes 36,436 42,389 11,207 (2,644) 87,388
, Net income $ 56,603 5 77,579 5 48,685 $ (3,729) $ 179,138 i
Assets $1,407,529 $2,355,294 5 876,169 $ - $4,638,992 Capital expenditures $ 52,514 $ 35,371 $ 13,265 5 - $ 101.150
- p. Surninary ofSelened Quancrly Financial Data (11rousands ofDollars, Except Per Sharr Amounts)
QUARTERLY FINANCIAL [lhe quarterly data reflect seasonal weather variations in the electric utilitys service territory.] IN FORMATION 1998 First Quarter Second Quarter Third Quarter Fourth Quarter (UNAUDITED) O S298,775 S303,510 revenues (a) S347,770 5319,543 Operating income 61,817 64,949 83,242 61,858 Income before extraordinary item 45,130 40,204 62,069 49,285 Extaordinary item - (82,548) - - Net income after extraordinary item 45,130 (42,344) 62,069 49,285 Basic earnings per share: Beforc extraordinary item 0.58 0.52 0.80 0.62 Extraordinary item - (1.06) - - After extraordinary item 0.58 (0.54) 0.80 0.62 Diluted earnings per share: Before extraordinary item 0.57 0.51 0.78 0.62 Extraordinary item - (1.04) - - Ader extraordinary item 0.57 (0.53) 0.78 0.62 Stock price: liigh 37 % 37 % 39 % 43 "/m Low 32W 31 % 34 % 37 % 1997 First Quarter Second Quarter Third Quarter Fourth Quarter Operating revenues (a) $306,334 $287,850 $334,714 $301,276 Operating income 76,817 55,631 97,209 51,080
' Net income 45,097 46,778 58,665 48,561 s
Basic earnings per share 0.58 0.61 0.75 0.63 Diluted earnings per share 0.57 6.60 0.75 0.62 Stock price. Ifigh 29% 29 33 % 35 % Low 27 % 26 % 31 % 30L (a) Restated w confonn with 1998 presentation. 77 l l 1 n , a
GLOSSARY Competitive Transittors Charge (CTC) - Pennsylvania Public Utility OF TERMS During the electric utility restructuring from the Commission (PUC) - The governmental traditional regulatory framework to customer body that regulates all utilities (electric, gas, choice, electric utilities will have the opportunity to telephone, water, etc.) that do business in l recover transition costs from customers through a Pr x . ania. per kilowatt-hour charge. Power Station Exchange - Duquesne and l Customer Choice - The Pennsylvania FirstEnergy Corporation have an agreement in ! Electricity Generation Customer Choice and . principle to exchange ownership interests in certain Competition Act (see " Rate Atatters" on page 39) P>wer plants. (See " Rate Alatters" on page 39.) gives consumers the right to contract for electricity at market pnces from PUC-approved electne Price to compare - The Company will pmvide a credit to a customer for the PUC-i generation supphers. determined market price of electric generation. Decommissioning Costs - Customers will experience savings to the extent that Decommissioning costs are expenses to be incurred they can purchase power at a lower price from an in connection with the entombment, alternative electric generation supplier than the ' decontamination, dismantling, removal and disposal amount of the credit. ! of structures, systems and compments of a pmver plant that has permanendy ceased the producuon of Provider of Last Resort - The local distribution utility is required to provide electricity "I"# *"*'U* for customers who cannot or do not choose an Deferred Energy Costs -In mnjunction alternative generation supplier, or whose supplier j with the Energy Cost Rate Adjustment Clause, the fails to deliver. (See " Rate Atatters" on page 39.) { Company historically recorded deferred energy ' costs to offset differences between actual energy Rate sano - The amount rePresentinE the l value f assets appmved by a n latory agency for j costs and the level of energy costs currendy recognm n m the rates charge to rate-regulated j recovered from its rate-regulated electric utility customers. Distribution / Transmission - De Regulatory Assets - llistorical ratemaking
" practices granted exclusive geographic franchises m ComPa"}'s " electricity delive9 business seE*ent.
. . exchange for the obhgat on to serve all customers.
T.ransmission is the flow of electricity from Under this system, certain prudendy-incurred costs generating stations over high voltage lines to . were approved by the PUC and the FERC for substations where voltage is reduced. Distnbuc.onis deferral and future recovery with a return from the flow of electricity over lower voltage facilities to customers. These deferred costs were capitalized as the ultimate customer (busmesses and homes). regulatory assets by the regulated utility. Divestiture - The selling of major assets. The Company currend anticipates divestiture ofits Restructuring Plan - The Company's plan, appmved b the PUC, for restructuring and generacon assets rough an auction and the power recovery o transition costs under Pennsylvania's stauon exchange. Customer Choice Act. Energy Cost Rate Adjustment Clause Stranded Costs - Stranded costs are the net (ECR) - Until Aiay 29,1998, the Compan present value of a utility's known or measurable histoncally recovered through the ECR, to ie costs related to electric generation that are not extent that such amounts were not meluded in base rates, the cost of nuclear fuel fossd fuel and recoverable through the CTC. purchased power costs. Tarttf - Public schedules that detail a utility's rates, rules, senice territory and terms of semce; Federal Energy Regulatory < ' Commission (FERC) - The FERC,is an . tariffs are filed for official approval with a independent five-member commission within the
'"E"j'*"'I *E*"#F' United States Department of Energy. Among its Transition Costs - Transition costs are the many resp msibilities, the FERC sets rates and net present value of a utility's known or measurable i charges for the wholesale transportation and sale of costs related to electric generation that are electricity. recoverable through the CFC.
Market Power - When one company owns a Watt - A watt is the rate at which electricity is sufficiently large percentage of generation, generated or consumed. A Lilowatt (KW)is equal to i transmission, or distribution capabilities in a region 1,000 watts. A Lilowatt-hour (KWII)is a measure l allowing it to set the market price of electricity. of the quantity of electricity generated or consumed i in one hour by one kilowatt of power. A megawatt obligation to Serve - Under tradm. .onal . 01\\')is IWilowatts or one million watts. regulation, the duty of a regulated utihty to provide senice to all customers in its senice territory on a non-discriminatory basis. re _ _ _ _ _ _ _ . _ _ _ . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _ _ _ _w
SH A R E H O L D E R E F E R E N C E GU iD E Common Stock Stock Certificate Transf ers Trading Symhol: DQE Indisiduals u ho are not participants in the dividend Stock Exchanges 1,isted and Traded: reinvestment plan and w ho want to transfer stock New York, Philadelphia, Chicago certificates should send their certificates and related Number of Common Shareholders of Record docmnents to our transfer agent: at Year-End: 68,270 First National llank of Boston DQE internet Home Page /o Boston EquiSene A varictv of shareholder, customer service and P.(). Ilos 8040 ccononne development mformation is avadable on Bo M 02266-8040 DQE's home page on the World Wide Web. You also Dividend reinvestment plan participants u ho want to can interact uith us sia electronic mail. Our address transfer their shares should send their certificates and W is www.dge.com. related documents to DQE Shareholder Relations. Shareholder Inf ormation Line Direct Deposit of Dividends
. Shareholders and potential investors are invited to Your DQE quarterly disidends can he deposited autmunaHy into a penond cheWng o call 1-888-247.0401 fier the latest infi>rmation on account. Call Shareholder Relations tollgas np free f,or earnings and dividends.
more information. Shareholder Services / Assistance Dividend Tax Status The Company estimates that all conunon stock divi-lo.u can ente to us at: dends paid in 1998 are taxable as dividend income. DQE Shareholder Relations Bm 68, Pittsburgh, PA 15230-0068 This estimate is suhicct to audit by the Internal Res enue Sen ice. or call us at:
'Ibil-free: 1-800-247-0400 in Pittsburgh: 1-412-393-6167 l'as: 1-412-393-60S7 E l e c t r i . ++- S t o c k He telephone, representatis es are availahle from
' The following investor services are available 7:30 a.m. to 4 Ii.m. (Eastern time) to assist you uith through DOE's dividend reinvestment and Ihe follouing services: stock purchase plan:
Direct purchase ofinitial shares oi,ect Purchase of DOE Stock Direct deposit of dividends DOE offers non-shareholders the ability Automatic cash contributions to purchase common stock directly Dividend reinvestment through the Company. Call, write, or visit
$.tock transf.er regmrements our home page at wmrw.dge.com for a prospectus on this popular program.
, Disidend payment inquiries Change of address Eost stock certihcate Automatic Cash Contributions Through this program, current reinvest-s Please feel free to call at other times. Our Alessage ment plan participants can make regular ( enter is as ailable 24 hours a day. You can record a cash contributions to purchase additional mewage, and our staff u ill follow up on the next shares of DOE common stock by having funds automatically withdrawn from their business day. bank accounts. Financial Community inquiries Analysts,imestinent managers and brokers should
- Purchase and sale of plan shares at direct their inquiries to I-412-393-4133; nominal commissions Fax: 1-412-393-4394. Written intIuiries should he
- Acceptance of certificates for safe-sent to the imestor Relations Department at Box 68, keeping Pittsburgh, PA 15230-0068, . Re-registration of some or all of a shareholder's holdings i he IwJi 1+, n a regmered trademark on the Con.pam
- Creation of new accounts as gifts for family, friends or institutions you sup-1 Iwl* n a regwovJ trademmL oflhpenc i nerg Port. including a complimentary gift DUI .md m M6h.ncJ mmpamn ur Iyual(ipponunn> I mplogrs
. .,, .. . . . * ,,. .'.a+qt .% ,. ,- !,,. ,5 m.,i.,., , ,, , . ..v . . , ,,,,-..g.. t
. <. s. . rf.,,.,,...,.y
?'*-.'a,s
. , .: *-.. v
. . . f ey 4.T,.',,,,4,,..,- , s *<s.. y,, ..* ,, : , ,,.,. , , ;:f,.:
'. ' ./- ?, s, ; ...i .. . ;.,..- 4
,r,.,v.- <ev w.m .5 9 . ...;
,j , , w . .r
,g .q..y .
. .i m , , i ; ,,, . .s ,f ,,,,p. .. . . .,;...
,a,.,,
., ...q.., ,,#..,,,.m. 4,,;. . . . - 2 4
,.,.z,,,'.,.,,glc e
, s f . .i. , ,g , ,, . , . , . .,
, g . . :.. , , . , ., , . ,. :e ..*g.,i , , f.,,y...,., j
,'; *r: ,*
~- . . . . . . -., .,
. b., ':w,p',.. ,. ..p.s',.,' < : . . ., g , i .;Q %q - l . ;. ,.<..
'A . <v . :9. . ,. :. -' .* . ; @. . ... ~ . y',,,..
-...,A ., .. c . .n ;'y It..,r.,r .n, ;, .':. :.. . ,. e. 4,.). ; . . ,.n, ', .,..:,,,.. ; , . . . ... <..
, a . . , :c. , , '.. s s..- . ,,.>, .., ,, ..,an,,. r. 4 . _, .<2.L ..,,i ' ..~: .s,,.M..,.*,..s.s.'.. i. , , : i.;, ,?, ...s, ,'o.
...p. y o '.*.,', ~,, d' . ,.5. . ,i %.s ,. !..'. ,.: , .'. . ,.
9 1, c. ,.. ,z s- . < . . . E.
'. i . 'o
.. '. '..$,,*,'.'...;..',,-)**.
;),b, .l
.: .)- . { % ;" . , .(. ', e,-sr. , f. ' . f
^ ' .
'; y'>.; . . ; . >,%,.,, . . .... , ; , f.s '.;,
9- ',e,<2,'
..K, ' '.;' . .,* ~ . p,.7,',, [. ,c;.' .,', J,',.i ,l1<;yl,'t ,.,tX'. .;e.g.,,
- - ys5,,R ., ,.qn.,-- , . , , , ' - , ",la t l( " .j%,@,,,;Jp . ,
. .,t ., h g c. >s,.
? . - #4 ;f'", 'y . .. 1. 'r , ;, ';.ql' y 9 , ,,'; ,g,,,,.tg*,,,, . p i
's#'.,,
. : v o,, , . , . , .;a y.; ,, . .,; ' ,, ;.% ; ,;.g. , .3e.u.s.. . ', ' s.q ;m. .. >: c A.9 if *' : 7
.:t ? ; .5\ ;J ,. j ,,cp . . ;. . . . . . . , ,~ : ,-
M.v .- , ,,".,l:,': .w ',y.L,s , - (. [, ~ .'. .,6, g J < s,,, v,.
. . ? :~.t ,s. a
, ., ,;, ;, ; J.; . ;, aW g f,g,,p-% .y;:;. }. ,.. .q t t '.i. 1 .;; . . ;:. ;. y.. 5.
' #,.cy .?r, .y . : l -;; ; -. ; g) : . .,
n.. ?;v, ..~. d. ,. q-,:y. p.;. y s >1 n.;
. - .c. .
g . y. w . - ' ., :
..n s ,. . \ g' .m ., . s. ;W - .~ , . 4; , . s g;g,.. :
..:r . s . . - .v -> e . , ' 1..:
'.:;- ':l:.i ; .:
.,1 ..
% ".j'g . A. ,. ' ' . 4 . , ~ ^' ' , % :., , . 9. . v. i --:,l .4 ,. ,,25.- ,.1~..lk,. ..r:h!.J, i .,' .'N R';. . . f, ,4".,.y;
..;.'J,',".. '.
- fs.
1..
- 4 - o
- . .,s '. - ,' a.;' : y.* f ., h } . ., : :)* ,}l ,i* d. '.. t'$. ' ~';,,'.h ."G,) ', , , ;,'i',, . 2.'.;i: * ; . " 't .* Q-, .,'.,'. ' . $': .,., V '. W;, 4;l, s'**;. .'Q,:: f,,
*** " .. ,.*1 ? .!. j ' ,* :.,: n 'i
- -, .* - ;:. r , .", ,o s ..? e,
.. <. Y. o, '., t
*. n .-'. -
. J., . . .
1 m ._ , t .
'%.*' ',: . ;h.
.k ,".; { }j d' ',s,g,r Q :' *f , d. ,a 'l ; ,
,o -l,
' {y u okl ,rq ,
" ' ' [.
e 'I *,k. I h.f* i[ ' bl ' ,e . .h , ,, * , < b ' ' f** ( I' . l
.'), ,.
.S I [ b ^.',' , '* I- ' . . ' i, ?U [ 1,', * ', ' $U . , '.* I ' - .
,w 6 '/ i fr $.
' & l'):% Q l.
l;,.f!.:. ..h,::.Yfl ,: ;L :' .
. f.,,? '.f.fl l.:., l:.'f.'l l'::. .
$,;:f .'. . ,
. : ' I < ' * . i 3 (~
,'_ - .#' . [ .,
' '" - - ,g N '... '. .., .. ;/ . *, -
>l , . ,1
'f ',, : . , ,
} l.&. .:l$.Gl ,:.'.ljWlIlfNE&!Ik;N$ ;?;.[',[.f.l[',,k Q,ll(.: .],.} {[l. .f. li.; '.. '. h i . 7, v.l'[ f l.Ql]. '
.1. %.2' 'T I' # .[., ,'
9,,,. , , - f f n hl .,', .i . ,j 8s ,4 j '.,',,$,,..,'.4 ,-/, l ', ) ., $ ,. {* ',. r[i' p.,.
'..l ( ,f . , >\< ' . ' ',)
; ? , '. .'~ , \... . . [ ,f. V ' .', { , ! , l .
_[ , I e.f - [ 1,
, , 's. . . . ,' ,e. ..**0,,')'fo. '.li.'*.i. ' .-'k,', , , g, - ,,.-[ ,>. ' ,' '*/ s 1. vi ' , . . ,
- v. i.. }', . . ,
[. .. ,..' * '..
. . ;- .. V. .'- .-
4
,.,,'.'4 +g ;- .,.^, 7, (y c, , .-i. !
,' ; y,,.&. ..' ,.' .; . f ,'. ,-** '.<g,, _ - '?, , , ., iz., *, i;r' . *,*6 e.,
,- ,. ,,s G'f ; -
- i. ;- ,&, ,7 O >* \
. , ?c, ,,4, ' - ',i '.s. ,:
1 * . '
'r 5
.%.'lc,;W' Y e ,*:, ;,
','.,,.',l,./ , .' ;i t, .*
et *.,.A,', l
*".'..'.'e G
t .
, A s
,, -,-:l -*,,',s y ,0 . > - 6 * ,s
' , J
,e .
. . ' . . . , '; a, 4, ,, . ,s.y. ,. ,y _',..,t, .(. . .
,,5:,,.; [,, ~,s; .
+
- q. .,' l . '(c-
,l,, j , .? , , ; yj
. , . . . , , , ,,y
.3 . . ., , b,,, .S,,
, - 77 , f4 .- c.
,, ., . gg ".o y,-* ,f , ;
,*f,,.-
. ;e.:. ., g,,.,...;.,,;~,.1...,,, .,,;y - , , , , , , ,
...J
.9 ,
.. , .{ : ., ; . ,- ; .. . . , y,.. . .: . : q. , , . : .<;' -k,s . ', ; n . , ,' % ' , e. . <
;' o . < . ;;. . ,. 9 , , ae, ,- - q, , ,~,.,e, j, . . . . , ,c , .e.
..u; -
u...
-,gg . . r. - . . ,. . ,, f,.
. , j* * *. /.
.) a ,, s ,~.t e ,n !,,g,~a ,,i,,,.g., 3, s
,.. <r '.,
.; , ,. , , , . , ,.,,j ,,
.O .;>,s'.', ,'.>;
,; '. ,' >.* ,;,, . .; a,,,'k +l',-- , .. . , . t,
<- , **
- I % .
. < .. , . . , O...
. ',..* $, o
, * . ' . ' * ~ . ' , *. ,.,.. .- .
.t. .... -' .*. . **C..,;.;
,*o, '.,.. ,<*. . '.* . m,q i, t . .
;., c.,. . - -
.;',.,'$,,,i',..,r,
..s ..
. : .. . " . . .:, ...,. .,.., ,.,. .*. ., .. - i;'o, _r j. . ' . ., ,-, a.; . .
- s. . . .
. ... ., . , ..'l-. '.;' ,a ,.- ,. . .' .
.y ;*.. ,...-s.:,,' > . f: , ..
. o
. ; . c. .
- <W
- L
;..' = ;, .i . .J. - . , -' ..:.. .,. . . . .
o.,, : ; -
.- . :, .te.,*',. .,,,,
..,'..>h.,".. : - . ,
, . n,s'.*., .. *. ,.,p* , . ~ b . y . ., '.,,-;-. . ,?,*..,,. , .* ,* ., . .
* .,." (*$ , ,l , s . ', ; s.,. *. 'r- .;' ' ' ,
ri, ,'.'.' v', i .i.. . .- ..,.i.,j.).. .'.'.,[..2...
.,,q., * , ' ' , . ., f.- ,.
. ' , ' . , , s.
,e
- V , .. %-<,h,.,7 , . . . . -
- s. "
.sV* ' . - ; ' ;
.~ .
*'s.,*. A ,,,?-
.,*a.,,',:,, :
i , ,,.<:* ,..'m.. . . *f. . ;
., * , ' .,,..;'4,.
t P { .'..*. ,: -f opl\ . ~- . a- pi m.:o
. + . ,,% ', . v. - .-, ,.. . .:...,,-,',,,-p-.,
l l ,, .: , . ' * ...:
., ,,.,+1% . , -l c>. ", !
' . ,..e, .> * . o,',a..,... ., ,
- ,..*..e.. ..- ,. ,e, .q g..
o .
. ,. .u.,-,
. ., ',. , , , +'..,(, . ,- . .s.,. ... .,r'.....,,
- - .- - , . , . ,. , 4.,
s,,* ;< (, s.,, .. .. ,
. ' . - >,,.,. 4,,, .
.r.,, f,
. ,/ ., .
,,,.4 ,j , (4 ,r ,
....r ,,,J.,'i.., ,
,, , -t. *. .,, . ..i. Y ,, .-
...;,,,,.,*',,.'.....,.,..,4,.,,.y, '. .'.-
,,,1, Q i./., . . ' ' . .* . .
- .. r,. .q' m,', ,.e a; , ,. ,)p,w;,. ..t,' f , 's '
,3 r .,.,..7...-
.,i.5
. . - ' .,, p- .e. y.l ....,,.2' , , , .
.3*. .. .
~, .; - - :;r ',n,,
,e , ,
e,...,,'.3, '..,,i ,; v 5 ' :.e. , ; , , . ' , '. ,y- a
,;.,, g , r ,. ,. . s ;.*,:...'*.c,7./'..,a..... -,6, .g. . .. .a,..,.
g
. . . , ,. , , - ,, :. ,. a.
c,. ; u.: . . .:. * . , . _ . , .., . _ ,t .
.t.
. .- j,..... . p
;.' . . I < , ,, -e.,- '. i 'ti*." .
t * 't
* . . . . " . - . M. - - . ... .. .' ., ., .,. . . .s., s .*' :
.n..-
r .t .r y . . , . _ . ,, .,,.,nO.: .,..:. $, s.-n.
.t h'.....
s * . ~,t n
-r.<.- >
. t .}.1.-s,-:
- ':',.......sW.. '.
,,,,;*.,.-.-(- * -
~ n< c-
. : ' y: M
-. ' ( : s,. . : , - .,.l., ', . ': ,.%'
- s' " . :. .. *
.s
.....~,,';,%4,, ,- , -. .. . ,:. K. . ;' ,, .** . ..,.^'..:
- .,,.',..i'
~/ -
. . , .. ., ,.- r,, ri . %, .,,,, ?'. . .*,,
r, ,. . , , . ..
. 3> ,. , ; +' , - ,. .e' .. ,. ..i.. . , , ..,,.- . , .. - -
, : +. .
..s, as 1. f . . > ,
- - ..: .; .,,, . . , , , , . ., y ., i3, . - ,f . . . . < , .. ,. , , . . . . ,. ,.
i
, -, *: : , ,. , . ,. f m
-s.it,, -, ;,a.
,. . o, * ..,, ;, , . . . ; ,
p
.,,/. -. , , . : . . . . . . . . , ' , , .
,,.,s.i.,.;., , . . , , . . .- .- . . . ,
. p % 3
~,*.,r, u,,,,. y,' '.,,t- . *. ,, , - ' "- - ", ~;, , '. .
, , . . .. * .. e ir. .e , , , a, .',.7,.,
;'.. . ,,'.1,s'. .*
n- ,. . . .., . r , n -
.. , . ' . . ' . . . > . .. >: . . . . ;. . . ~ . . u .a. ',. ' '.,
,J,5,', . y -l:i *;. [ ,;' ' , ' ,"l'. f. . , .}....:c' 2,."' * ' '
; ; ;. . , ,* , b . . , ' ,.?. ,. a,. - Q "',' ....i::
a . ,-.,n,,,
',: ] . , . ;:
, ,,>.. . .' / ~ ' .:i: ': :: . .-: . . . c,:
-s r,.'. , -
* ,% z.'*
- b. e ,. '.l '
.~,.
*. .v....' . , -
- e. - y
' . ., . : ~. - - ; - .-
. , . , , . .- c.>.' ..,
-g \.4...,'.,...-
.:, u. x ',; ;
.s .-
- . o.. y',
s.,, s'.,',..;,..'.' ' : '. ,l..* -..".A , .,.:,,..,..x.,,.4.1'. 1,:- s-. .'c
,...",,,',.,c\.;.,f>-['.;~'.:_.',....,..*
;f,
.* : , .;. r ~,'
, :. r ..;' ..": . ,
.:- . ':ci',
..'.'.<,.,..s.,.. .- . , , . ,.:.,..,.>,;n ., .. ;,,'. . q, .- ., <y .
',. .L y;lL ' . .':o- . .:)..
. . . . . t.. : -;0 ,t. . '. .,
. . . . . , . . .g...,.i..*~, , . . , . . .
.:.,.s _. . . , , ' ,* . . . *- .
v..... ,, ..
.. . r
. - j, .c.,4,.,,
. . . ,, .. .... - . . ,.r.;$.<,... .,, .v.....,."....:. .
-e.,., .....,.t.....
. .s , . , . . . .,..,,..,,,%'-.
.. . , , ,. .4 .
.- 3,p,,,
."y' "..l,.f.,' >.. - ,, .
.i . . , . , .~ , . , , . . . , ,,.,;.
' , + .;. , .
...i
- e (. ; '.s .;
- 7. .* e8..;.,.,
' , , - .. J V. '. , L, ;. ,.< -
..<,c.. ...n,
';, s
.,y'.,
r
,,.<..g..,:
f, i.. ., ,,,',..q,
, + y.. ,
, .. , ,i;+,."..,.,:.....'- ,;.. :<.j.-.'
,-.,.> . ~ . , ..
. . , -, .- ,._- l~..,.,,.,.;;..-
3{l,.. %,,.,,,,s't ,; f,.- ~,.,,;; y . ~.
-v.
a
. ,:..;; .. ,.y ._ . , , , .. . . . , -n;. .
;, *.e,..., n' ,.l.[.i..,,..,'s
,".3 ;..i , . . , ; ,
v + . ,..
.. ,:y , .; * ,,
...y,o~*:.... . ,;, - l %. . ,:;.. t. .. ;; \ '3.. < ,
y ,. ; ;; - [, *g _; : _ ,; , ....a .;._.
, ,,...,j ,'.
* ., ^
, , l } . ,2 l lh , ,
?',*.': l, 2. g.
- js)
- U.'
^
. '(. .' . 'p : . ' '. [ lg "i.[ - l,* j ;; '.l'~.
f ' .z',' ,' }r, f. , .,' x I....,'q..c, l'Q . . 'x. .' .. .. . ,le.'y; .' l.*W c. ?y *;. f. .. _. ; Q *..,' :..
,\., .~,:,'y.h ,,. l,,; ~g ': ., t ' y, ,,,s,--a,. h os_ . ,g l 'e._',.? ' f .* ' :. _
', f..s.,..;a, . , ..o .,r s.
=,._- ,
..t,.
c y ys . . e. . .. ' s .r.
;, s . ~ . . .. ;... . . ,. .q.~ -
.' , . . ,,W.**....,>
'e % onn
.-.~,@.~.t.4 rs
.,Q. v,,,Q ..>
',' ,' - . ,c s
- ~ .a...
c 3 o.
+.. ,:,*:,. -
- .+.s.' ;
f,: r i, . y.,., v .+,* w ,tr::: : . ; "' J; :- .'.5 .'>i ^ . ....- ]: .. < .V, ' ' ,,,, ^ l 6. :..',, ,- ,. , ,f i
;
- G .'.s' .?...:q'
. . ;, f- [ ?:..74.. ,, >,.,'-,;, } , . ,' . *.., y*:,:L..J e s..,
s.. ,j . 3. ' q . , ' L. .',,,..;* ., .et , , , 3 . - n' Jt .t .
' i, - *
- '. .'%,t.r.'. . o,..,.;,, ;a. ,b ' ,f, dr ?, *' ,' Q. V [.. . ",'ll ..;, ,:(f,':'*: *,' ' ;.: .;.cq.
f:;.~.
; f < l '. s, .:! ;
q,, ,: . . ; j' '. ' .m.,b ;,'; *, ,s:' .. . ,.,D:. .).. ".j .1.. ?
...y,'. l..
, ,;. , . .',.;.,,,, ';;; f.'-, ,*.~s' .,. ..,'N 1;g; ~i} A ,w'
, :d. :Y. ,S ; . *. m.; '- .! ;'~.y .f. . .f, 9.. .;c'. i," - '.? 'Nl'...'. a .:,&. s- (.:.<,*H , . .. - .:)v. . . .]+ ., , ':,? . l. .,?. ,, .. n. v ,, . . , .:%:. y;_. 3,a,.'! .as
. . &-_v e . :' n,,,;Q: - .y.
,,.c.. . , _ . . ,, ,
.:.,.v* r .,.
.o .
. . u.< b s..~ . .
r[r', ' .f ,' 'h. I,
*s n t .. .
- E,. . ll s,, l:$ , .'j?, ;l ,Y } . . -* lY_ . .:*..* k.m,. ~,] .['4::
u.
- 9. p: g,?. p -}<".i ,' f,l'. ' '* . ; '. .$ S.;' : -$. 5,.:," . , ; , ;;'f h ,
, 'y , . ;, O. kd' b: * , '[ . . v.. .lI,. .b ,h{ n', , ., . t
.l * ' . .: *. . .w,g. bp . , , . == - 'O., ,, ,I... - .
.54.' ' . ' ',g',rb
'* g' ' . ':f. ' , ,* s,,. ..'. ,' .i..;t.'- '.
*, ,n= '
f d :. .',.,...e
,,8,(,- '.M,.., Y '?
e8
. ' l . ' , l'\k,h ";* , *: ,'j{ 5
, j $,.
* .'g.,*,,;".,'p.'.=..'.*gf.'.,f.,..,,-
O.r* ,s
;5 ] . ,y ,, '.
*(iy,6.p,,.*,*..,.;,,,1"* ,,y'.8,
,, ; . ,' % ; i M'm,,.i-:.',';?..,,
- j. . ,
p
,. !< .. ./. y s. j ,.' '0 ',N;'.//q.)'*.,<.('.,'",*.'.
* ., y** f - , qlii *3,, , . ',".,
,* .'.;- , ', ' s. . 4',. . ,'*
i g,, , , e . ,'.. ', J. y*r *..'{ ,l','
,r. ,a , .-' ,.,.e. ;, ',.. ,,*' .c: <. ,3
. ' .,*%','&..,f..g*.t,*.f:,f a
' k; ' , .y .=
-
- 1,*=*,r., (,g's', ',":
sr. l g , O , , ,. -a l.'.* ".".',...:j.'e.'t*p,?.,,, <e ..;
' ;t . e .yl .s- .' , ~ . -.s 'r-> .'.3,...j..
sly 0;. e no. .s.n,- -e
-.,g.,..r,
.;,,.,,,..,,f.*" 1 i..p e
..*..e f ..
,,"...",:. e
,f,.1'-
..'g',.y
'. j q,; 1',, . p ,gs , .' 4 .,;. , . - A.'. .,4 ,. . . N, g g, e
* . ,:,- . 4, ',. ,. 7.+gs'. .a.q
. ;. ,e ,,-
+
,. f ;,,,.,
.:. ." v, N..s ' ,%
e e g.,',.. 4. " ; <g:, . :, , '.- . < ,-,*'i*
.s' 9 '
..v.. y :
.V'.:,s",...'j.c, P. , ..j.,,.,'4..*.',,b., '. . . . . , .'...,.,,J, .- * . .
u -. 4...'., - . ..
't i ,.
- 'i" A - - -' : . ,t. ".:.h. ,,s . i9, 1..'i'.'s'.+"' . ;- . . , ' ., .,, .. ..-. . ' '.3*'
; . 4
- 1. < 8 . 7.. . r.o. .)y *.
-['f .,
. . , ;. -....i- . .;< 3' p ,,, .;. . . g, . . ,..t',4' .O.d.g t,: . ..'..c.: , , , .,..'..,.,',n...(.;..."..,..'..'\<j,,,vy, C
. . . . ,. ' , ., .,.. .',-i<'.f* ... , . '-.v..
e
- / .
* .* . - .f,'i.,
;f.t.. 'J; .-f, ..i,'A .r.- ; , t.
,?.),; +
e , A , . u ?.. "J [@.,4 -* -:'% c . ' . . ; . q
. .c ..
- .- . .. . . :.o .,..
, . ... ^ ,
';rl ' ^ h?"', j: h. ,. ... .. . ,. . . ,: <. . ,:. ! q q ,. '4. .},.c I?.
Y.1: ' i, f :&,* .-ll'. . -;:, .,,' l-*j" l;:
<'. & i.', . . '*.n *\ .:.,' 'f l ,,f.
'~.s *: b',
f ,. ~. '
.i:s' y., .( . l l L,. ' ,j.).': y ;, ,?'
t '.,) .'. ):': J'
.' . . ' d: [ ': ?6.' ;.l:l , ; ' ,* '. *;,.3. ^$.,I ' h[.. l.? m' l ' .' ' *; '
- d ' '. f ^':,. cl'; 'lY
. _?,,j)$i .,' i. yQ+,...(C -l;f. n
- T .;,'~I.' V. .' . r:d . ;;_ '. m' ' H e ' , ',: ' l b. f ) ;":-:.?; { hl.' 1 i }, . .;-Q:.:, . ' , '- : !. ..l. , :..
'; I'l., *,' '*:.
L::', 'X. l.1..;A ..l , f. , J:- :( '. ' , < (
,:l.
,",,-{.; .' 'n;j . "_i,.nb ;'. l'.&., ,,T.', ' .iL.: 'tl. .. ,l .', l. .l ? ,^'. :' .A ; * '.?. ", ,
* : ';;N4.>; ': y .k N. .?',C, ',% ;l; . b. .Or.['. lf.g.:l ky^,., r.T;):<i . '., . . .. bl V; s'.K., '.l,, ,l. k' s' * ,.{.; "., Y:
_ . g. .' ..'.'. .',, :) -l ] . ;..,
.c*.,'. :
':.<' .. ?','
x . .
? .." . ., )~ .*lf;Al N
.?, *:; f ,~ :'
> . . 'E;?.' . *.'u' ,.: ;; . ,a- *f'.;s. .' - ' h*I.l .'{ .*.'
'I
. ., .l,]y. ?.. y*,l. ' , ' . .
. [. l- f,',,. .'f "le.- ' *: 1*l[. , .:, .l . -~.' ' , ,$: j f . v ~ , - . . , ?!s0 _7 .r.
; t
.^'s.h.' , . . .['h'. n . .?,h. s : - u.
v N';. P . .'... s.
- * - a. r.. k 4 '
'lv l'
- . l. . if,Y . .*$. j;+ , .. . v. ,- l' * ;h. .. . .. , s i, ' v!' ' 8,U: .Y.S i - . .l' 1.*. :.
d L:: :::l; 4, ;', i' : ; .i *. ".
.?l ). ,).,, f: . s:. .N;.:::,,..I' g '.:' } 'd. ,.. ' -l l',"l.*:
, , ' ' ) i ... Q. l ?:?:!!' .,{':'.*.'I:'.
* & '. e ,n-;
,{,:) 'y f ';,' .C ?.., " , . * , -' .(. > :, .y.', ::Y .['ll.- .'. i x;G . .;,l.-l.n }f , .',?;
J., '.p . .: ' " .::. L'.i. 7 %_.] ' ', .* f 'l ,', ..: . l J'r; 'A.c *.? '3: fQ/;;:l' ,' l l'. . ,gl' . [ . ' . .. , L.l '; .ll. . ; V. lL.*. %. .l. 'T .'Q , . '; ,' '; -
, l .'. f . f. '*' . ', k. . l. .l- !,.. . l .
"el ? k: ; ', *: -
(. . . ' . ' . , NlE .,
.* , ~- . :. . ;
- y CY f.E -
- N.'; *X h;\[%
l .' ' . ,f. . I.7, .R :';l.S. i.. .'sq'._
^
, ' . _ .. ( 'f. .'.' Ll ? l:,....L;[,' u'.l. H.; ,:- .' '* '. l: . , 'I * ,, i' T,. 'k' . .;: i
. , . . .'.[;! .*. ' .3 ?. U5. . r,n' y.. .,:.. ':.
'y .: a ' .'s 1,.&, J c w . A,:
y; .,y ': .a
.c
. vi J, . . ,- s
..%;, ..et ,,0.d,,;; g s . - , ', '. ',['y'.;; \.' ? ) ':. l' }
.r ,; - . .. s. ,>,
, 4 f. :. .
.4,-
u ~..n. ,'. >0.g.,-lN },*'.'.
- p",. }.',,,..le
.:. .., .; ,- .,- .., g'. ;' .. g::'. *.; Q^- J. .s . .I.&. .r : q .>( . .ga '? -,.,,,y 'l ' ,;;.. :c - t . r."~t- . ' 1";-'. . ,- -',.. ,s s ...
. f/, ', l d,e W. g g ;r', f C s;J 'sh.d. :A...u..,., . ;.g- ,.t., ',; w ;;f g , .; , .l . dlt f,.. q ,f,, m ,,, [, ,.. , h, ,' " D s:: -/.J,j : y.j >2 . .f.;,
d
,. .f, s ;, l,:',, . ' - * *:I. ,!. 3, t.l'- t/ d,, ', 4 ' g , j c , . . '* * ;
'.,e:.y. . . , . ;-- *. ;d.'.,', . y. '.' b ) (. . .,,,',~! " l. 's ,,s.
s
, ;; ...s - - . e. s.,'-
,.' !7>.s< 2.. - ** b ,';J. ::. :.:p ,, . ...%.< . .- . ; --
i- ; - :. . . . ,
.' . V. .r-:.
' n .. . .' ~ . c ,c . ; '. ', ..o ' '
*, ,* ;,. t ,' .
- a. &; : s.,'.
- a
-*a,,... s s
'.o
; . . . . ', !, . ;
- o'g ,j o -
n.i ' ;., ,r
'ys n. ., ; .. . 9: .; s : . .'. . .g : .(;. ::,'n t,,".**:,.g..'., :p e ,,:1
- 1~-'.;'. \',
"l*;4.,{'s %- . . :; ,,ayt., . . : '.'.;a~ ., h.;.2,, ;,.l. , ". ..; ya'. s' . :<Q. . . . l . ,.n, . . ,...i.. ;r ' . ;.. . -% p . 7'.
~4 ...:.-. , .. . ... , . :;;.. , .L. .l" .,
.,s ,t .- :. .,. :1%'g .;~,,3 Y. . p:. y -j. : es-
' ;;: ? -
.m. , . 9'. .'ur , ..:- u ' t' W,. .q ';9 7; .,. , : ';l. .;%,.' ,, (:.p., .,. t+
'; .,ves ;, ;
~,n .
,p .. w..'. ,{ ' , ; ,r',,y, ;,,; , i... -, i; . ,j._' , ; ; : ' ?,
t_y :*.._; .,, 'j..: ,yx , m,,,,.fwy:y .s; , .,, ) ;.* \ ';. y ., y ' *
- j q g . { * , .;:; . : ,: ,,:. ; r'! ., . 'a;
, .~ .
tu %'.Q ':. yyy'. ' ^ ', i: ,; .) :'s. , ;; )..a .
- : ;,; }.,,,y.
f?. , ;.,, . ..,; ,i & : . Yl s.; S. ,'. ;
._;.....v....'.O.f , '_.q.?. '. '- . 5 . - ..'l.. ' -a ... i - : : :. k ^' ::.'. _- ..I. ,l.. : .': : .b,, -;; . :. ' . , .$ .a ss?...t.: ....m.
^
f.f. f .. b. . . *, ' . Y 'h , n. l Y. .. s.
> ~..-
. . . c.
,:' < :.l::, .; : . . . , ,,;y ' . . . .. ,:;; ;,:
- ,; . . . : .. y y:y g ; ; . ..:'- . '.l ,;J:[- ) : .x:;!.
.L{ ' .. ...;. .
f;... , .
. . . . . e .i .. W g. : . , . n . ,, ; . . m..:,'.. .,V. .,; u . .ay r .;m;. o.;, 5* y* . *:.e. ...Q,o* - A * . .. .cr .*-. n.....7.:.... . .:. , Q . < .}',. .. ..,:'.,.:sf N : * ,; " .:;;.4 . ':. ri..:...,,t,1.... .'*e, < 3..-
,% .y.r : . , .'. ,:n.l lj .: ,
.,,- ',.,,.n. . W,).i: . .,g'.q* . :.f.
; .'.pY.f.' :~'.:.Y.. . . ;...n.,..;;y. l: J.y .' %.,~;
..,,:v..'.;..::
. v .. ..,. ,:. ,. . l ,.y
. .. ., . .., . .' 1 s" ;.g' . *:'. . ' ...:.-:- - '.
...t
..9
... .'+ . o.%, ' <. .~~s.'l,.,, ;' -u . t,.
c
. z.
5: ..'.a. -,s. .',.'y .m.
.;- 1 ,. i. ,; ,;'.r.,.. r'., e :
,'...,.s - : '- ..'- ; . '. . !: , . - .' . ., , .. ** ' . ' . ?* '"- . . - .-eL- ,s
~ . '
. , ^ ,,J <. ;, .P '* ?' . {. .r )e. ' .. '. l...spV..,.,.'
.- e , *.
.f. s j..
, a.,:a.',, C b. . .. e u. ,. '
9- -
; c), < . .
Ar, . , ' :'; n.*~. l* ,[ : f. _ :.le <>- .:',...-. t
. . " . .<: , m .' . .*.E
%,a... 4 :. f.'.y' . . . ',; , [' .":. ;n . ,;, .,* ' : . N' . ': s,;. : . , 3, p .
;-)>:,e 4"....,
* .s -'.',,:.
~ .. c..
, * .s. - . ,; '~ ,-:...>.g'.- . . *-*;
- n
. , . . . . . , . . . ' , c; - , ; : .
~
,- .s
,. -" , .. >." ,. ..:...v' -
~ . . .*e.'. :* - . ' , ,. . . . . . . -: . ny^< ... ' .;..".,
,: , = T...'.-
.% ,; =, ' ,...~,.. ,, ;. :': ...c .c
*. i\ .' , 9, .;; e.;;.,. !}- a. .g' : .. '.'. : . , *'..'..t;,,.
- , . l. ; , . - . . . . ** o, . . - *';
? .. :Y 4,:' .:.; ::s ' . ,: p ,'. .,:v.L ~ , -); *. . :. 4. ',:o' ;.'.?n :s n. ' ' . .s,,.:.,~ ; ,.....P:
,'.'.'.*y.A,',.' -. ': ;~ .
'.,f ;.: _:% : e i ^. Q . .
,y..,'...e- ".p. :? : n - y .7 . .+. , . --R.,'.p'.,*,',- s ,, - .- . . .- : . , ,
- 4. ..';.;
jf c, f'
' Qb - - -
_. .. n: * .i.c l::
- v ' . .: . '
* ' * :n - n
.w -
- .,\, ';(.i ',,'.: . ".l . , l'.1f ..;l'_ ,4 ;4. .: <'.*.:..'<-;, , L' ^.{^.', ;, f'-'. '. .., ;,',;_
.}. l ' .': "_l,; ;l, * . M . , .['. +[.,' ;;h ' Y'l * , j\l.f ~ , l'!,. , ',.' j ~ -.*,, :,:f. .'.'.k,3:' e. ; ,'[.e} '.]: :ll'l'
,' . h . ' '.
s'E '
-: ;' 5-
. . %. o *.
- s' ~ q *.,. ! ** ,'Y e. 's . . . ..';
o , w m e .~k,. .* * *, ,
*e.***'
% s a*
~ . ~ , , ...'#:. '.
..'s,. \..'.... . . e,' >d, ' '
**l- -
'r..',', .1<
a .
..W.'Y W , .y_ " %.l?, ,: . ,;1
,,Ll ?r' , . ' *, O , y- ]
J'+ \ ;'. Ki , ';,
,; t.!. s ; ,, ' : . .. [', *; , 't;' , ' a . i ' ,' o f, f. g: .f' u . . l Q . " .( . ),\ ,, w, .*. .- ; . ; ; .' .,.* ' : fl ', ' 'y. : ,'. e ,l d.
. ; "rf)'l.,? ' ,,:' ' ,,( f
; ?. , c, ,. i .: ,.
l . 'v =l' .
.,;h , .
..~: ;;:p p ,:. y,c
. ...* g . c.
. - i . . . :<.,.y > ,,t. q. n.,v, ,. '. ., .. c .c ;9, ,... a.:.9.as. .,, - - :: n ..:. s ..l...r..-...',
*,.. -.~ . . . ..4 , , , '.
, i,'.- .we. ". ..
. ,y... ..,:,.,,'.<.p.
.: - . .. - lA, . .w if ,y,- .
.c.. ...,:s.%..',,,..,,*.'..*,.,,.:.3.
. 3 .. ;y ;;. .. :, . , .W, .l.f.-
6,
, ' . . ,,4 ,*r . , ,*~.. . .<;
,*,': ,, c . . , , , .g
- r, .. s .;. s - . ;
* . , , s, . .fo . [ J , , .,., . .. ., .. . , & ;> ' ' ', . ' ; , ;. ',,*'y : *. .;l s : k . 4.it-.g ' '.
. g
* * ' . " ,,b',,.. '* . , T.: y 'u ; ,'* ,,', lq<.:: *y,.
o.,
* , s .*;, ' ;f . . , j. { ' . ?, , , ,f ,,,. ' 9 t.
a
, s ' , ' .9 , '
'g:).jj j f...,..d j J. .*.f.:;sl.).
- Ql' .,[v,li&.. .A,.v'l.y, V.n.'p,f', * ,g, ', _,,.-[;[ 'l.. * ; .,_. . ; .Q ,[,.[,'$%
'.; 49';{
y.y,f.,, .. ,. ._'.g>;,fc,.; .)fy ,j ;y. l;j._y.(. .QY;.:y, : :,}.;.,l, y *'['. 4r
,,.,'; " < t; - p; QpQ. g,. . ]:, .G . y' Qf.,].
.;. , . , .*'^ . .,,.1..b...<..*
4,. ;, ! . . , ,y 9,
. ... -. ,. . . . . , .. .- . . . _ e . . . , 's
.e..r.*.'r . . , U . b. . . [. .,. : *.,5s+
'v ..4,.,
,p.y: .u..,,:,*v. * . .*- - -
a.o.,.~ ,. ,
;c h a :2 . V, . a, , _e . d.. h',; ' , . +' '*. i; . . 1;'v
.t. , !'
.;. . gj,.g'.. >.:. 1,y ,' E.'t
.7 ' *
; , ' ' . Y, .s % .'s,l '
't.*%'^ - \ -' : " r. ' W
- C k ;*. - . k \ ,, ' ; . , ' . '
n' lM,".i,.". y . ;. ' ' .;*:g ,, .?,, : . Q' y.. . ,' < ,r',.y' : ,: '- s-l , h; qY-l .< y , % ^'.')"* O N"; .-l:?. .} "v ' I' . 'I. ?,^'T 's ,*?,0 T ' J . ' ' N * 'l . .:' f.E ' " --: 'f
' ,;.'? l.*l;~ U. 'oN,..b7' 1'... * " . ' .'*: .v
- 1lq,$ . 'E. '.; . % .? j? ? ';;*l W%
.4.D; ;' ;'-Q *' (. '+ . , , . .h; & ,, .'l. ,.)^. .,f b ' -*l; . - }, .' :.
i'; ' , *
- h '.. ' y. ', ' . 'i . . .,9 l_, e ' S ;(5,;[',. *; l b';!di: .[ C,Y,;D' O? , ', ' \,d ' .N:);
- _~;Q Q;
"'*'(.L-f._ ,.? " . .. .',. } ".' i, . .'s, r ,,*:l. '.E*.f *;
, :l.', . l i.; . :
,, ,,. ,. N q .?. ,' 7, ,,;:'. . , ,, .;; i}';. ., 'l'j;l g ',',: -l's : r,.1 .y^ : ' , ,;.s'",g ", "., :, ',' ,,
,- *. . '{l.;l
- r . ,,.
' : * .: , . , , . y. ,;. Q.1,1 * - ~;, n ' ,\_ . .% .' - ":~.e '*'.-, . .,'.
.-:) , .Q: _. .
- *-. *.;*~ .: 1 ' ,- ~.*..t'.*:..,*, . ,..*A..s.
c ;,; :. 4j.-: l pe y* <.
, i'.:' ,' .".......v..:A..,
s':'.,. ? r. #* v.9- ),.
,..s-;,.. . . . gv . . -.!," .* , ,
.e'.'.-.;s.a .s'.
* /. * : : : : ..< ;s . :. ., <*
.e . ; > - :-
n.,- -n ?* .. N
,,.'.0a.:..,i...;4..",.' . , .
,,p,*
s rs ....* n.n. J. ,. . ,'.f. ; ..g,<. - . j r o,r.. .;,,'..#.,.,.,. ; . , ..
.o,'g y ., en ..'.5 - ; . ' , i 4., *
-t '."s...
,y ;fe p . 2 . , . ;
.A , e.s
. . . . . . r. j 9
;, P.. . /i ' j , * ~ y ., , , *,f p,p . . m ,, : .,e.. . .. f.* ,s.: . . . , ,, , , , . ....%.',.- .-
S, .,: ; l >n.r
.<c , , . ' o. ' *, *..,.,,'p. : ,g-.:*t, s,.,. .s. u n.. t. . . ,r. . . . . ,
,p a'.\* ; j . ' ,( a. >
*t,g ; g; * . . .
, . , . %.s, .
ly , , 'V } ,, -lA ',s '^*q . *^'..: .; , -}l'.3.'..s'.'..
" _';t'.' . ,'..i,,:. >
g , %: ..
.....s.i ' n. , .i
. 9 .) '..*;..,,..,'4..,<',. .s. .~ u_ _,, "} f. f ,, '/* .. : ','j . . . , R., 1 :, ), ' s j,. ,.
.,p ,
' .% : qr ;
- l;
; A e,4";..~."*%,'
- *.ef ' '. . . r, '.l..', 'r ;.,
. . ., b ,
*' .' l . :
y ,':
, ,* * * .y ' ';' ' "1' .
..., :oL $.. . a":l, ['-.? '; '!?j", s! . .,.,v.... l,l, ? ,,. , K l _ 'l. :? .: .'l
.Q. . . ? . . .,h., u $ .;;:z.h %r .n. ,. r..
! . '1,
- t'5 . .'..L f.J' ' h< ' ;. .:::-?',..'.'.Y....,.$...':n-
' ; ^] { ' '. p.Y(* . - .Q. . , ? - lc. ? *:.j,' ' : .-l~,',?, , - ':- *w
-'u n . l.' .< . t.
J:'..'.'r? .l_.?
} ;'; ' $l . 0.' q.' J .J.'
o .w ).,. . - ..
,.fg
, ',-f.s., M jf $ .*:..{ 2h :- .. l- / . -l' .;, .k.' s . t c. . : .,j- *g?
k; '[ L 'N.'".N -
'; v. ;? 'j. . ')r,.
^
; .'e
.cr -(.'.. j. '.Qf,.j;' . : *. f b'). Y;.:;;l,.._. : ', tix. .I*N ..' ;
- flk'Gj l_ '
s .:: .. h 4.k. ;D A f. , al{ .e. ',!f*.?. .h..
&-:; \ ,iy%.fu- <.:h[,}. .l . v.- .;..vp. ; . Li&;:.- . . . ' . ', . ;,.
q s. .
,c
.....8a...,.
. .,:.. ; f. .i;_..:....
,,...: .- s
...: n y v u :c . ;
p n ... n . c ,; , 3
.t..
m . ;>..g... .; . ,~,....v. : 4....,....e- ..s
; - :.;, _ .. : ~ -: .
, .. 3. h:
r.,. :..e
, . l
~ ,. . , .. : ,.a 7
, ; ;,+ . . .
,:g........ .. n:.j
,,y:,:: :. ;.. -:v.+
- . .:.: . ~ ,
.;*._ ')y ;,.,: Q' ': . *, ,;_f. y '/.'m'}./,.:,l,,,.._.,).-.J..,,,*..,...,js,r.s:..,.,...:,.-*<..;;Q. ' A. . ,a;: .l4 }. . , , J : < , ,. :' ._ ' . .,,:l .s'? o. :i...t.} j':q . ', .'_,;,... '+. ._.. :.)'., p. 's..,.. R", % .,;;--
- v. ....
r., ,=... .. . j, 1, .
. ,.. ,.js l': .u .. .e .',:;.{3 m. , e.,-e. ...tt r.
. ,y ,.* ,..'; h ll).:, ':{ .f , .
j...p
. ::. . s -) ',; *;. *. ' . &. . , . .,,
- s. , . . .
-. ,;[ ..
e -
. , . . . . . ',g...s. . q) s
, 'i Y_. .y~.t .
._ : (, :*. . . ,L.-lf
. .s r q.,>- .- 4 'g.
f,'; .j.f : ..,Y..-h N *
, * .,. - ). [! ll .f,:' .f.:n ,h'\ '. 0 i ..' ..' . ,: ,.. .$ , ., ' . ;.
, ,h ). .. f
^
I ' k. _" ,?, b'[.l. l 1 c.. ' *l._'
,e, ~' _. , . , x'IY f,',.;,:,':g.'.';n::' ;i f. kN;:l?.., , 3p. :,;~ .:s: ef .*c*:m, , gl, . a ..t, .*.*s=.h :l:.h. .,\.],~'*l,
. . .{ : Ay r, ':f.. 'Y l.. , . .. ,S\; ? .! _&a ..' hs. .*; N ll {.:;k . . U:: w.n. . : . e....;. ,,, .
. .O. , .. .
- m. .
.;- ,l x,* ,,: p.m ..,g .f'. -,Y e
.yl f .%l
- ,. ;.,"..' l ';'. t . ,' t 1l "* ; 4 f:.' ,*,,l', . ' , ' .. . ,Y, n. :,.r.j..
.l.,
.s ,) : '
, Q ' .i',, " .' . ; C',) ',, '*y, c'l
. g ,n I .*a h *t a ,? , j ,n. . ~%
g -)_ n. ;'U ', ,
,.g'
. ' M , : ?.*, **-
f,?*:^.f Q.l1:':. , , ,, . *Y'f .' .!h ..
' ,1,f
[ N;iN ' , ' -- . Y.(h ,' - ' ^
' $ . ' ': :. .' .]? _ j .' ..l. - _:l.f.I* ; .f; :' ,Y: lf ',' l }
- l V ; f *. l* .s
.*h. .\ ' :
yN. sl .:.y
; ..y ., m. .; ,(:a.r.y.
, ; ; .4
, s ;, .%, .l.
,u.+,
.. ;; ,y: ; s ,-; e p. :,:,',, 3. :)~..'f',g v. .. . .,h;. l ,m :...,,:.", .yp:,. ;.q~. .. ..u,
.p c.
7 ;%.a, y ; g, . :..:. :. ..;_;,. _9. ,, :v., _ _.:y~. ..g v:e. ,q. :. w y::,;.. ;,p , , , >. , .>.,,., .r, , ;r; . g.; . ; . .; .a:g. , . : .,y:{ _ ..;,,._i' .r.
- .. : r .. ..;. ;-
- <;. . : ;. :a .p , . 2, g ,.p:~_. .; ,. :.,; ;. ,1.
. . 3,, :. .,y .. .e.- . . ...p.3......_- . p_ . .. .}}