ML20217Q738
| ML20217Q738 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley, Perry |
| Issue date: | 03/27/1998 |
| From: | Clayton D DUQUESNE LIGHT CO. |
| To: | NRC (Affiliation Not Assigned) |
| References | |
| NUDOCS 9804130133 | |
| Download: ML20217Q738 (64) | |
Text
64 Duqu:cn3 Light Cempany
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411 savinth Avrnue Phone (412) 393-6230 P. o. Box 1930 FAX (412) 393-6571 Mail Drop 15-doe 02
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PittsburDh. PA 15230-1930 Donald J. Clayton I.,ll /f 9 '/ /B !D: 50 vice President & Treasurer PUBLIC DOCUMENT ROOM March 27,1998 U. S. Nuclear Regulatory Commission 2120 L Street NW Washington, DC 20555 Attn.: Director of Nuclear Reactor Regulation RE:
Docket No. 50 440 - Perry Nuclear Power Plant Unit No.1 Docket No. 50-334 - Beaver Valley Power Station Unit No.1 Docket No. 50-412 - Beaver Valley Power Station Unit No. 2 Gentlemen:
In accordance with NRC Regulation 10 CFR Section 140.21, regarding the Price-Anderson Act retrospective premium system guarantee requirements, you will find enclosed:
- 1. A copy of Duquesne Light Company's consolidated financial statements for the twelve month period ended December 31,1997;
- 2. An internal cash flow projection, including actual 1997 data and projections for 1998. This statement indicates that $7.498 million, our portion of the $30 million retrospective premiums for the three subject units, would be available for the payment of such premiums in 1997. Duquesne Light Company has a 47.5% ownership in Beaver Valley Unit No.1, a 13.74% ownership in Perry Unit No.1 and a 13.74% leasehold interest in Beaver Valley Unit No. 2.
Pursuant to Commission rules, Duquesne Light Company has elected to utilize its financial statement as its guarantee of payment of deferred premiums. We are providing these statements to meet our reporting requirements for both Beaver Valley Unit 1 and Unit 2 and Perry Unit 1 at this time.
Sincerely, pp/
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,. -am aa,.,n PDR ADOCK 050oo334 I
PDR h
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D. Donawitz - BV 0
i Source and Application of Funds (in millions of dollars)
Actual Forecast Capital Requirements 1997 1998 Construction Expenditures (Excluding AFUDC and Nuclear Fuel)(1) 94
$ 130 Capital Additions Projected to be Leased (Principally Nuclear Fuel) 15 15 Maturities and Sinking Funds 52 75 Total Capital Requirements 161
$ 220 Sources of Capital intemal Sources (2)
Deferred Taxes 8
1
($ 11)
Investment Tax Credits
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8)
(
9)
Depreciation and Amortization 235 247 l
i Total Internal Sources 228
$ 227 l
(excluding retained eamings) l (1) Total AFUDC for 1998 is projected to be less than $ 2 million.
(2) Changes in retained eamings have not been reflected.
The above forecast information is based upon assumptions conceming many variables, and is subject to significant changes. Accordingly, such information represents estimates and will be updated periodically. This information is provided for general information purposes only and not for any specific use or reliance.
(CONFORMED]
f-UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31.1997
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF Tile SECURITIES EXClIANGE ACT OF 1934 For the Transition Period From to Commiuton File Number 1-956 Duquesne Light Company (Exact name of registrant as specified in its chaner)
Pennsvivania 25-0451600 (State or other jurisdiction of (1.R.S. Employer Identification No.)
incorporation or organization) 411 Seventh Avenue Pittsburgh. Pennsvlvanin 15219 (Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (412)393-6000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No DQE is the holder of all shares of outstanding common stock, $1 par value, of Duquesne Light Company consisting of Id shares as of February 28,1998.
[X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 l
of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements I
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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Securities registered pursuant to Section 12(b) of the Act:
o Name of each exchange Revistrant Title of each cl a.
on which resistered j
Duquesne Light Preferred Stock New York Stock Exchange Company Involuntary Series Dauidatlan Value 3.75 %
$50 per share 4.00 %
5;0 per share i
4.10 %
$50 per share 4.15%
$50 per share l
4.20 %
$50 per share l
$2.10
$50 per share 8.375 %
$25 per share (1)
Sinking Fund Debentures, due March 1,2010 (5 %)
New York Stock ExchanSe (1) Issued by Duquesne Capital, L.P., and the payments of dividends and payments on liquidation or redemption are guaranteed by Duquesne Light Company.
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4 DUQUESNE LIGNT COMPANY EXHIBIT 23.1 l
l INDEPENDENT AUDITORS' CONSENT t
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We consent to the incorporation by reference in Registration Statement Nos. 33-52782 and 33-63602, and Post Effective Amendment No. I to Registration Statement Nos. 33-53563 and 33-53563-01 of Duquesne Light Company on Form S-3 of
, ~ our report datedJanuary 27,1998, appearing in this Annual Report on Form 10-K of Duquesne Light Company for the year ended December 31,1997, i
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/s/ Deloitte & Touche LLP l
DELOITFE & TOUCIIE LLP Pittsburgh, Pennsylvania l
l March 24,1998 1
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TABLE OF CONTENTS s
DSC h91 GLOSSARY PART III PART I ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ITEM 1.
BUSINESS AND FINANCIAL DISCLOSURE 45 General 1
Property Plant & Equipment (PP&E) 2 ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS Employees 3
0F THE REGISTRANT 45 Electric Utility Operations 3
ITEM 11.
EXECUTIVE COMPENSATION 45 Fossil Fue!
4 Nuclear Fuel 4
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN Nuclear Decommissioning 5
BENEFICIAL OWNERS AND MANAGEMENT 45 Nuclear Insurance 5
Spent Nuclear Fuel Disposal 5
ITEM 13.
CERTAIN RELATIONSHIPS AND Uranium Enrichment Obligations 6
RELATED TRANSACTIONS 46 Environmental Matters 6
Other 7
Executive Officers of the Registrant 9
PART IV ITEM 2.
PROPERTIES 10 ITEM 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 46 ITEM 3.
LEGAL PROCEEDINGS 11
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SCHEDULE II 58 ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11 SIGNATURES 59 PARTII ITEM S.
MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER I
MATTERS 11 ITEM 6.
SELECTED FINANCIAL DATA 11 ITEM 7.
MANf6iMENTS CISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS I
Results of Operations 12 Liquidity and Capital Resources 15 Rate Matters 16 l
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 19 ITEM 8.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS; CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENIARY DATA; SELECTED FINANCIAL DATA 20
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Glossary of Terms e
Competitive Generation Credit Obligation to Serve Duquesne will provide a credit to a customer for the Under traditional regulation, the duty of a regulated PUC-determined market price of electric genera-utility to provide service to all customers in its ser-tion. Customers will experience savings to the vice territory on a non-discriminatory basis.
l extent that they can purchase power at a lower price J
from an alte ive el tric generation supplier than gn A ce stomers equal opportunity to access the the amount o e cre t.
transmission grid.
CTC or Com titive Transition Charge During the e ctric utility restructuring from the tra-h m n is the. ETeat.est amount of electricity i
l ulatory framework to customer choice, ditional rekities will have the opportunity to recover demanded at any given time.
i' electric ut l
customers through a surcharge, Pennsylvania Public Utility Commission (PUC) l transition costs from, tion charge.
or competitive transi The governmental body that regulates all utilities (electric, gas, telephone,, water, etc.) that do Customer Choice busmess m, Pennsylvania.
he Pennsylvania Electricity Generation Customer Choice and Competition Act (see ", Rate Matters" on gas, gas, page 16) will give consumers the nght to contract he amount representing the value of assets approved for electricity at market prices from PUC-approved by a regulatory agency for inclusion in rates charged electne generation suppliers.
to rate-regulated customers.
j Decommissioning Costs Regulatory Assets Decommis,sioning costs are expenses to be incurred 11istoric ratemaking practices granted exclusive i
in connection with the entombment, decontamina-geographic franchises in exchange for the tion, dismantling, removal and disposal of struc-obligation to serve all customers. Under this tures, systems and components of a power plant that system, certain prudently incurred costs were has permanently ceased the production of electric approved by the PUC and the FERC for deferral i
energy.
and future recovery with a return from customers.
Rese deferred costs are capitalized as regulatory I
Deferred Energy Costs assets by the regulated utility.
In conjunction with the Energy Cost Rate Adjustment Clause, Duquesne records deferred Restructuring Plan energy costs to offset differences between actual in contemplation of the merger with Allegheny energy costs and the level of energy costs currently Energy being consummated, Duquesne has filed recovered from its rate-regulated cIcetric utihty this plan incorporating the merger benefits into its customers.
restructuring and recovery of transition costs under j
the Customer Choice Act.
i Distributionfironsmission l
Transmission is the flow of electricity from Stand-Alone Plan j
generatin,g stations over high voltage imes.
In the ever? the merger with Allegheny Energy Distnbuuon is the flow of electncity over lower is not consummated, Duquesne has filed this plan voltage facilities to the ultimate customer-for restructuring and recovery of transition costs usually businesses and homes.
under the Customer Choice Act.
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l Divestiture Tarif l,
The selling of major assets power plants, Public schedules that detail a utility's rates, rules, transmission equipment or istribution lines).
service territory and terms of service that are filed i
f Energy Cost Rate Adjustment Clause (ECR) for official approval with a regulatory agency.
Duquesne recovers through the ECR, to the extent Transition or Stranded Costs that such amounts are no,t included in base rates, the Transition costs, also known as stranded costs, are cost of nuclear fuel, fossil fuel and the net present value of a utility's known or measur-i purchased power costs.
able costs related to electric generation that are ulatory framework, recoverable under the current rege in a competiuve l
Federal Energy Regulatory Commission (FERC) but which may not be recoverab l
The FERC is an mdependent five-member l
commission within the United States Department of generation market. They are costs which remam unrecovered following mitigation efforts taken by l
Energy. Among its many responsibilities, the FERC the utility.
l sets rates and charges for the wholesale transporta, tion and sale of electricity-Unbundled Charges Se,parate charges for each of the generation, trans-Independent System Operator (ISO) m,ission and distribution of electncity in accordance An organization formed by, but independent of, with the deregulation of generation ader the transmission-owning utilities which is responsible Customer Choice Act.
for ensuring nondiscriminatory op.en transmission access and the planning and secunty of the
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combined bulk transmission systems of utilities A watt is the rate at which electricity is generated or within a given geographic region.
consumed. A kilowatt (KW)is equal to l'.000 watts.
A kilowatt-hour (KWH) is a measure of the quantity Afarket Power of electricity generated or consumed in one hour by When one company owns a sufficiently large per, one kilowatt of power. A megawatt (MW) is 1,000 centage of generauon, transmission, or kilowatts or one million watts.
distribution capabil, ties in a region which allow it to set the market price of electricity.
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PARTI ITEM 1.
BUS 1HESS.
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l General Pan 1 ofthis Annual Repon, Fonn 10-K (Repon) should be read in conjunction with Duquesne Light Company) audited consolidatedfinandalstatements, which are setforth on pages 21 through 44 in Pan IVofthis Report. Explanations of certainfinancialand operating terms used in this Repon are setfonb in a GLOSSARYat thefront ofthis Repon.
Duquesne Light Company (Duquesne) is a wholly owned subsidiary of DQE, Inc. (DQE), an energy services holding company. Duquesne is engaged in the generation, transmission, distribution and sale of electric energy.
Duquesne has one wholly owned subsidiary, Monongahela Light and Power which currently holds energy-related investments.
Proposed Merger On August 7,1997, the shareholders of Duquesne's parent, DQE, and Allegheny Energy. Inc. (AYE),
approved a proposed tax-free, stock-for-stock merger. Upon consummation of the merger, DQE will be a whol-ly owned subsidiary of AYE. Immediately following the merger, Duquesne will remain a wholly owned sub-sidiary of DQE.The transaction is intended to be accounted for as a pooling of interests. Under the pooling of interests method of accounting for a business combination, the recorded assets, liabilities and equity of each of the combining companies are carried forward to the combined corporation at their recorded amounts.
Accordingly, no goodwill, including the related future earnings impact of goodwill amortization, results from a transaction accounted for as a pooling of interests. In order to qualify for pooling treatment, many requirements must be met by each of the combining companies for a period of time before and after the combination occurs.
Examples of the requirements prior to the muger include limitations on: dividends paid on common stock, stock repurchases, stock compensation plan activity and sales of significant assets. DQE's management has focused and will continue to focus on meeting the pooling requirements as they relate to DQE and its sub-sidiaries prior to the merger.
Under the terms of the transaction, DQE's shareholders will receive 1.12 shares of AYE common stock for each share of DQE's common stock and AYE's dividend in effect at the time of the closing of the merger. The transaction is expected to close in mid-1998, subject to approval of applicable regulatory agencies, including the public utility commissions in Pennsylvania and Maryland, the Securities and Exchange Commission (SEC),
the Federal Energy Regulatory Commission (FERC) and the Nuclear Regulatory Commission (NRC).
In September 1997, the City of Pittsburgh filed a federal antitrust suit seeking to prevent the merger and ask-ing for monetary damages. Although the United States District Court for the District of Western Pennsylvania dismissed the suit in January 1998, the City of Pittsburgh filed an appeal and asked for expedited review.
Duquesne anticipates a decision on whether the appeal has been granted by late March 1998.
Unless otherwise indicated, all information presented in this Annual Report relates to Duquesne only and does not take into account the proposed merger between DQE and AYE.
Service Territory Duquesne provides electric service to customers in Allegheny County, including the City of Pittsburgh; Beaver County; and Westmoreland County. (See Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS " Rate Matters" on page 16.)This territory l
represents approximately 800 square miles in southwestern Pennsylvania, located within a 500-mile radius of one-half of the population of the United States and Canada. The population of the area served by Duquesne's electric utility operations, based on 1990 census data,is approximately 1,510,000, of whom 370,000 reside in the City of Pittsburgh. In addition to serving approximately 580,000 direct customers, Duquesne's utility oper-ations also sell electricity to other utilities.
Regulation l
Duquesne is subject to the accounting and repotting requb.n ts of the SEC. In addition Duquesne's elec-l tric utility operations are subject to regulation by the Penns)
..a Public Utility Commission (PUC),includ-ing regulation under the Pennsylvania Electricity Generation Castomer Choice and Competition Act (Customer Choice Act), and the FERC under the Federal Power Act with respect to rates for interstate sales, transmission of electric power, accounting and other matters. (See Item 7. MANAGEMENT'S DISCUSSION AND ANAL-YSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS " Rate Matters" on page 16.)
Duquesne is also subject to regulation by the NRC under the Atomic Energy Act of1954. as amended, with respect to the operation ofits jointly owned / leased nuclear power plants, Beaver Valley Unit 1 (BV Unit 1),
Beaver Valley Unit 2 (BV Unit 2) and Perry Unit 1.
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l Duquesne's consolidated financial statements report regulatory assets and liabilities in accordance with l
Statement ofFinancial Accounting Standards (SFAS) No. 71, Accountingfor the Efects of Certain Types of o
l Regulation (SFAS No. 71), and reflect the effects of the current ratemaking process, in accordance with SFAS l
No. 71, Duquesne's consolidated financial statements reflect regulatory assets and liabilities consistent with cost-based, pre-competition ratemaking regulations. The regulatory assets represent probable future revenue to Duquesne because provisions for these costs are currently included, or are expected to be included, in charges to electric utility customers through the ratemaking process.
A company's electric utility operations, or a portion of such operations, cwid cease to meet the SFAS No, 71 criteria for various reasons, including a change in the FERC regulations or the competition-related changes i
in the PUC regulations,(See Item 7, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS " Rate Matters" on page 16.)'Ihe Emerging Issues Task Force of the Fmancial Accounting Standards Board (EITF) has determined that once a transition plan has been approved, application of SFAS No. 71 to the generation portion of a utility must be discontinued and replaced by the application of SFAS No.101, Regulated Enterprises - Accountingfor the Discontinuation ofApplication of FASB Statement No. 71 (SFAS No.101). The consensus reached by the EITF provides further guidance thet l
I the regulatory assets and liabilities of the generation portion of a utility to which SFAS No,101 is being applied should be determined on the basis of the source from which the regulated cash flows to realize such regulatory assets and settle such liabilities will be derived. Under the Customer Choice Act, Duquesne believes that its generation related regulatory assets will be recovered through a competitive trar,sition charge (CTC) l collected in connection with providing transmission and distribution services, and Duquesne will continue to apply SFAS No. 71. Fixed assets related to the generation ponion of a utility will be evaluated including the cash flows provided by the CTC,in accordance with SFAS No.121, Accountingfor the impairment ofLong-l Lived Assets andfor limg-Lived Assets to Be Disposed Of(SFAS No.121). Duquesne believes that all of its regulatory assets continue to satisfy the SFAS No. 71 criteria in light of the transition to competitive generation under the Customer Choice Act and the ability to recover these regulatory assets through a CTC, Once any por-tion of Duquesne's electric utility operations is deemed to no longer meet the SFAS No. 71 criteria, or is not recovered through a CTC, Duquesne will be required to write off assets (to the extent their net book value exceeds fair value), the recovery of which is uncertain, and any regulatory assets or liabilities for those opera-tions that no longer meet these requirements. Any such write-off of assets could be materially adverse to the financial position, results of operations and cash flows of Duquesne, Property, Plant and Equipment (PPM)
Investment in PP&E and Accumulated Depreciation Duquesne's total investment in property, plant and equipment and the related accumulated depreciation bal-ances for major classes of property at December 31,1997 and 1996, are as follows:
PP&E and Related Accumulated Depreciation at December 31 IAmounts in Thousands ofDollars) 1997 1996 Accumulated Net Accumulated Net Investment Depreciation Investment _
investment Depreciation Investment Electric Ihluction
$2,494,476 $1,175,516 $1,318,960
$2,467,786 $1,092,928 $1,374,858 Electric Transerission 298,614 119,895 178,719 299,895 114,406 185,489 Electric Distribution 1,206,546 390,103 816,443 1,176,738 374,180 802,558 Electric General 334,565 192,439 142,126 324,366 168.470 155.8 %
Propeny lleld for Future Use (a) 3,980 66 3,914 190,821 82,737 108,084 Property lleid Under Capital Leases 113,662 50,725 62,937 99,608 47,670 51,938 Other 58,895 19,075 39,820 49.559 10.909 38.650 Totat
$4,510,738 $1,947,819 $2,562,919
$4.608,773 $ 1.891,300 $2.717.473 (a) See " Property lleld for Future Use" discussion on page 3.
Joint interests in Generating Units Duquesne has various contracts with subsidiaries of FitstEnergy Corporation (Ohio Edison Company, Pennsylvania Power Company, The Cleveland Electric illuminating Company (CEI) and The Toledo EMson Company), with respect to several jointly owned / leased generating units, that include provisions for coordinat-ed maintenance responsibilities, limited and qualified mutual back-up in the event of outages, and certain capacity and energy transactions.
In September 1995, Duquesne commenced arbitration against CEl, 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 alk> cation 2
by CEI of fuel and related costs; the mismanagement of the administrition of the Saginaw coal contract in con-nection with the closing of the Saginaw mine, which historically supplied coal to Eastlake; and the conceal-ment by CEI of material information. In October 1995, CEI commenced an action against Duquesne in the
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Court of Common Pleas, Lake County, Ohio seeking to prevent Duquesne from taking any action to effect a partition on the basis of a waiver of partition covenant conmhed in the deed to the land underlying Eastlake.
CEI also seeks monetary damages from Duquesne for alleged unpaid joint costs in connection with the opera-tion of Eastlake. Duquesne removed the action to the United States District Court for the Northern District of l
Ohio, Eastem Division, where it is now pending. Currently, the parties are engaged in settlement discussions.
Duquesne anticipates that a trial will commence late in 1998.
Joint interests in Power Stations Nuclear Power Stations Beaver Valley Perry Unit 1 Unit 2 Unit 1 Duquesne
- 47.50%
- 13.74% (a) 13.74 %
FirstEnergy Corporation 52.50%
86.26 %
- 86.26 %
l Fossil Power Stations Sammis Bruce Mansfield Eastlake l
Unit 7 Unit 1 Unit 2 Unit 3 Unit 5 l
Duquesne 31.20 %
29.30 %
8.00 %
13.74 %
31/l0 %
l FirstEnergy Corporation
- 68.80 %
- 70.70%
- 92.00 %
- 86.26 %
- 68.80 %
- Denotes Operator (a) In 1987, Duquesne sold and leased back its 13.74 percent interest in BV Unit 2. Duquesne leased back its intest in the unit for a term of 29.5 years. *Ihe lease is accounted for as an operating lease.
Property Heldfor Future Use in 1986, the PUC approved Duquesne's request to remove Phillips Power Station (Phillips) and a portion of Brunot Island (BI) from service. These assets were classified as property held for future use. In 1997, through l
its analys:s of customer choice in the Restructur ng Plan and Stand-Alone Plan, Duquesne determined that l
Phillips and a portion of BI would not be cost-effective in the production of electricity in the face of a competi-l tive marketplace. Based on this analysis, Phillips and a portion of BI have been reclassified on the balance l
sheet from property held for future use to a regulatory asset. In each of the filings, Duquesne is seeking recov-l ery of its investment and associated costs of Phillips and BI through a CTC. (See Item 7. M ANAGEMENT'S l
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS " Rate j
Matters" on page 16.)
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Employees l
At December 31,1997, Duquesne had 3,352 employees, including 1,114 employees at Beaver Valley Power Station (BVPS). Duquesne is party to a labor contract expiring in September 2001 with the Intemational l
Brotherhood of Electrical Workers, which represents approximately 2,000 of Duquesne's employees. The con-tract provides, among other things, employment security, income protection and 3 percent annual wage increases through September 2000.
Electric Utility Operarfons l
l Duquesne's fossil plants operated at an equivalent availability factor of 78 percent in 1997 and 76 percent in l
1996. Duquesne's nuclear plants operated at an equivalent availal>ility factor of 67 percent in 1997 and 76 per-cent in 1996. BV Unit I went off line on September 27,1997, for a scheduled refueling outage, and returned to service on January 21,1998. Perry Unit I completed a refueling outage on October 23,1997. His outage lasted 40 days, a record for Perry Unit 1. The next refueling outage for BV Unit I is currently scheduled to begin in April 1999.The next refueling outages for BV Unit 2 and Perry Unit I are currently scheduled to begin in September 1998 and March 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. Duquesne normally experiences its peak demand in the summer. The 1997 and all-time customer system peak demand of 2,671 MW occurred on July 15,1997.
BV Unit I went off line January 30,1998, due to an issue identified in a technical review recently completed by Duquesne. BV Unit 2 went off-line December 16,1997, to repair the emergency air supply system to the control room and has remained off-line due to other issues identified by a similar technical review of BV Unit 2.
Rese technical reviews are in icsponse to a 1997 commitment made by Duquesne to the NRC. Duquesne is one j
of many utilities faced with these technical issues, some of which date back to the original design of BVPS.
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Both BVPS units remain off-line for a reviliriation of technical specification surveillance testing requirements of various plant systems. Based on the current status of the revalidation process, Duquesne currently anticipates thit both BVPS units will remain off-line through March 1998.
BVPS's two units are equippeJ with steam generators designed and built by Westinghouse Electric Corporation (Westinghouse). Similar to other Westinghc,use nuclear plants, outside diameter stress corrosion cracking (ODSCC) has occurred in the steam generator tubes of both units. The units continue to operate at 100 percent reactor power, although approximately 17 percent of BV Unit I and 2 percent of DV Unit 2 steam gen-erator tubes have been removed from service. Material acceleration in the rate of ODSCC could lead to a loss in plant ef0ciency 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 which would be Duquesne's responsibility. The car!iest that the BV Unit I steam generators could be replaced during a scheduled refueling outage is the fall of 2000.
Fossil Fuel Duquesne believes that suf ficient coal for its coal-fired generating units will be available from various sources to satisfy its requirements for the foreseeable future. During 1997, approximately 2.3 million tons of coal were consumed at Duquesne's two wholly owned coal-fired stations, Cheswick Power Station (Cheswick) and Elrama Power Station (Elrama).
Duquesne owns Warwick Mine, an underground mine located in southwestem Pennsylvania. At December 31, 1997, Duquesne's net investment in the mine was $10.7 million. Duquesne estimates that, at December 31, 1997,its economically recoverable coal reserves at Warwick Mine were in excess of 1.5 million tons. An unaf-filiated contract operator at Warwick Mine encountered adverse geologic conditions late in 1996 that resulted in a contract default. Commencing in 1997, a new unaffiliated operator began producing approximately 360,000 tons of coal per year for exclusive use at Elrama. Duquesne 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 Duquesne has recorded a liability on the consolidated balance sheet of approximately $27.5 million toward these costs.
During 1997,34 percent of Duquesne's coal supplies were provided by contracts, including Warwick Mine, with the remainder satisfied through purchases on the spot market. Duquesne had three long-term contracts in effect at December 31,1997 that,in combination with spot market purchases, are expected to furnish an ade-quate future coal supply. Duquesne does not anticipate any difficulty in replacing or renewing these contracts as they expire from 2000 through 2005. At December 31,1997, Duquesne*s wholly owned and jointly owned generating units had on hand an average coal supply of 41 days.
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Nuclear fuel l
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 hexaDuoride,(3) enriching the uranium hexaGuoride, '4) fabricating fuel assemblies,(5) utilizing the nuclear fuel in the generat-ing station reactor, and (6) storing and disposing of spent fuel.
An adequate supply of uranium is under contract to meet Duquesne's requirements for its jointly owned / leased nuclear units through 2000. An adequate supply of conversion services through the year 2002 is elso under contract. Enrichment services for Duquesne's joint interests in BV Units 1 and 2 and Perry Umt I will be supplied through fiscal year 1999 under a United States Enrichment Corporation's (USEC) Utility Services contract. Duquesne has terminated, at zero cost, all of its enrichment services requirements under this contract for the fiscal years 2000 through 2005 and is planning to secure required enrichment services during this period from other suppliers. Duquesne continues to review on an annual basis its attematives for enrich-ment services for the years 2006 through 2014 under the USEC contract and may terminate these future years if it can arrange more cost-effective alternative enrichment services. Fuel fabrication contracts are in place to supply reload aquirements through 2002 and 2003 respectively, for BV Unit I and BV Unit 2 and the life of plant for Perry Unit 1. Duquesne will continue to make arrangements for future uranium supply and related services, as required. (See item 7. MAN AGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS " Nuclear Fuel Leasing" discussion on page 16.)
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i Nuclear Decommissioning Duquesne expects to decommission BV Unit I, BV Unit 2 and Perry Unit I no earlier than the expiration of cach plant's operating license in 2016,2027 and 2026. At the end of its operating life, BV Unit I may be placed in safe storage until BV Unit 2 is ready to be decommissioned, at which time the units may be decom-missioned 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 I, Duquesne'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 Duquesne's cost of service related to decommissioning all three nuclear units is $224 million. Duquesne is seeking recovery of any potential shortfall in decommissioning funding as part of either its Restructuring Plan or its Stand-Alone Plan. (See item 7. M.ANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS " Rate Matters" on page 16.)
With respect to the transition to a competitive generation market, the Customer Choice Act requires that util-ities include a plan to mitigate any shortfall in decommissioning trust fund payments for the life of the facility with any future decommissioning filings. Consistent with this requirement, in 1997 Duquesne increased its annual contributions to the decommissioning trusts by $5 million to approximately $9 million. Duquesne has received approval from the Internal Revenue Service (IRS) for qualification of 100 percent of additional nucle-ar decommissioning trust funding for BV Unit 2 and Perry Unit 1, and 79 percent for BV Unit 1.
Funding for nuclear decommissioning costs is deposited in extemal, segregated trust accounts and invested in a portfolio of corporate common stock and debt securitics, municipal bonds, certificates of deposit and United States govemment securities. 'Ihe market value of the aggregate tmst fund balances at December 31, 1997 totaled approximately $C.1 million.
NuclearInsumnce The Price-Anderson Amendments to the Atomic Energy Act of1954 limit public liability from a single inci-dent at a nuclear plant to $8.9 billion. The maximum available private primary insurance of $200 million has been purchased by Duquesne. Additional protection of $8.7 billion would be provided by an assessment of up to $79.3 million per incident on each nuclear unit in the United States. Duquesne's maximum total possible assessment, $59.4 million, which is based on its ownership or leaschold 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 index-ing for inflation and may be subject to state premium taxes. If assessments from the nuclear industry prove insufDcient to pay claims, the United States Congress could impose other revenue-raising measures on the industry.
Duquesne's share of insurance coverage for property damage, decommissioning and decontamination liability is
$1.2 billion. Duquesne would be responsible for its share of any damages in excess of insurance coverage. In addi-tion, if the property damage reserves of Nuclear Electric Insurance Limited (NEIL), an indusuy 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, Duquesne could be assessed retrospective premiums totaling a maximum of $5.8 million.
In addition, Duquesne participates in a NEIL program that provides insurance for the increased cost of gen-eration and/or purchased power resulting from an accidental outage of a nuclear unit. Subject to the policy deductible, terms and limit, the coverage provides for a weekly indemnity of the estimated incremental costs during the three year period starting 21 weeks after an accident, with no coverage thereafter. If NEIL's losses for this program ever exceed its reserves, Duquesne could be assessed retrospective premiums totaling a maxi-mum of $3.4 million.
Spent Nuclear fuel Olsposal The Nuclear Waste Policy Act of1980 established a federal policy for handling and disposing of spent nucle-ar fuel and a policy requiring the establishment of a final repository to accept spent r. clear fuel. Electric utility l
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. 'Ihe 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 by January 31,1998. Existing on-site spent nuclear fuel storage capacities at BV Unit 1, BV Unit 2 and Perry Unit I are expected to be sufDcient until 2017,201I and 2011, respectively.
5
In early 1997, Duquesne joined 35 other electric utilities and 46 states, state agencies and regulatory com-missions in filing suit in the United States Court of Appeals for the District of Columbia Circuit against the e
DOE. ne 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. He court ruling, issued November 14,1997, was not entirely in favor of the DOE or the utilities. The court permitted the DOE to pursue alternative dispute resolution, but prohibited it from using its lack of a spent fuel repository as a defense. The DOE has requested a rehearing on the matter, which has yet to be scheduled.
Uranium Enrichment Obligations Nuclear reactor licensees in the United States are assessed annually for the decontamination and decommis-sioning of DOE uranium enrichment facilities Assessments are based on the amount of uranium a utility had processed for enrichment prior to enactment of tho National Energy Policy Act of1992 (NEPA) and are to be paid by such utilities over a 15-year period. At Decenber 31,1997, Duquesne's liability for contributions was approximately $7.2 million (subject to an inflation adjustment). (See Item 7. MANAGEMENT'S DISCUS-SiON AND ANALYSIS OF FINANCIAL CONDITION A ND RESULTS OF OPERATIONS " Rate Matters" on page 16.)
Environmental Matters Various federal and state authorities regulate Duquesne with respect to air and water quality and uher envi-ronmental matters. Duquesne believes it is in current compliance with all material appikable environmental regulations.
The Comprehensive Environmental Response, Compensation and Liability Act of1980 and The Superfund Amendments and Reauthorization Act of1986 (Superfund) established a variety of mformational and environ-mental action programs. The Environmental Protection Agency (EPA) previously informed Duquesne of its potential involvement in three hazardous waste sites. Duquesne reached agreements to make de minimis finan-cial settlements related to these sites in order to resolve any associated liability.
As required by 'Iitle V of the Clean Air Act Amendments (Cican Air Act), Duquesne filed comprehensive air operating permit applications for Cheswick, Elrama, BI and Phillips during the last h alf of 1995. Approval is still pending for these applications. Duquesne filed its Title IV Phase II Clean Air At t compliance plan with the PUC on December 27,1995. Duquesne also filed Title IV Phase II permit applications for oxides of nitro-gen (NOx) emissions from Cheswick, Elrama and Phillips with the Allegheny County Health Department and the Pennsylvania Department of Envirenmental Protection (DEP) on December 23,1997.
Although Duquesne believes it has satisfied all of the Phase I Acid Rain Prograri requirements of the Clean Air Act, the Phase II Acid Rain Program requires significant additional reductim of sulfur dioxide (SO2) and NOx by the year 2000. Duquesne currently has 662 MW of nuclear capacity and 887 MW of coal capacity equipped with SO2 emission-reducing equipment (excluding 300 MW of regulatory assets at Phillips). Through the year 2000, Duquesne is considering a combination of comphance methods that include fuel switching; increased use of, and improvements in, SO2 emission-reducing equipment; ksw NOx burner technology; and the purchase of emission allowances for those remaining stations not in compliance.
l Duquesne has developed, patented and installed low NOx burner technology for the Elrama boilers. These cost-effective NOx reduction systems installed on the Elrama roof-fired boilers were specified as the bench-mark for the industry for this class of boilers in the EPA's final Group II rulemaking. Duquesne is also current-ly evaluating additional low-cost, developmental NOx reduction technologies at Cheswick. In 1997, Duquesne tested combustion-related NOx controls at Cheswick, with positive results, and expects to install low-cost mod-ifications and a new flue gas conditioning system to maximize the effects of such controls.
In addition to the Phase II Acid Rain Program requirements Duquesne is responsible for additional NOx reduction requirements to meet the current Ozone Ambient Air 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 aver-age value approach. Flue gas conditioninF and post-combustion NOx reduction technologies may be employed to meet the one-hour standard if economically justified. Also, Duquesne is examining and developing innova-tive emissions technologies designed to reduce costs. Duquesne also continues to work with the operators ofits jointly owned stations to implement cost-effective compliance strategies to meet these requirements.
Duquesne is closely monitoring other future air quality programs and air emission control requirements that could result from more stringent ambient air quality and emission standards for SO, and NOx particulates and other by-products of coal combustion. In 1997, the DEP finalized a regulation to implement the additional NOx control requirements that were recommended by the Ozone Transport Cemmission. The estimated costs to 6
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comply with this program have been included in Duquesne's capital cost estimates through the year 2000.
Duquesne currently estimates that additional capital costs to comply with Clean Air Act requirements through the year 2000 will be approximately $20 million.
In July 1997, the EPA announced new national ambient air quality standards for otone and fine particulate 1
matter. To allow each state time to determine what areas may not meet the standards and to adopt control strategies to achieve compliance, the ozone standards will not be implemented until 2004, and the fine particu-i late matter standards will not be implemented until 2007 or later. Because appropriate state a nbient air moni-l toring and implementation plans have not been developed, the costs of compliance with these new standards cannot be determined by Duquesne at this time.
In December 1997, more than 160 nations reached a preliminary agreement (Kyoto Protocol), under which, among other things, the United States would be required to reduce ita greenhouse gas emissions during the years 2008 through 2012. However, as the Kyoto Protocol has yet to be either signed or ratified, and the related greenhouse gas reduction programs remain undeveloped, the costs of compliance cannot be determined by Duquesne at this time.
In 1992, the DEP issued Residual Waste Management Regulations governing the generation and manage-ment of non-hazardous residual waste, such as coal ash. Duquesne is assessing the sites it utilizes and has developed compliance strategies that are currently under review by the DEP. Capital costs of $2.8 million were incurred by Duquesne in 1997 to comply with these DEP regulations. Based on information currently avail-able, approximately $8 million will be spent in 1998. The additional capital cost of compliance through the year 2000 is estimated, based on current information, to be approximately $16 million. 'Ihis estimate is subject to the results of groundwater assessments and DEP final approval of compliance plans.
Duquesne is involved in various other environmental matters. Duquesne believes that such matters, in total, will not have a materially adverse effect on its financial position, results of operations or cash flows.
Other Customer Advanced Reliability System The Customer Advanced Reliability System (CARS)is a communications service that provides Duquesne with an electronic link to its customers, including the ability to read customer meters. In September 1997, Duquesne amended its service contract with Itron, Inc., with respect to CARS. The amendment extends by one year, into 1998, the period during which Itron, Inc., will install and finalize the system. As of December 31, 1997, more than 98 percent of customers' meters had been adapted for CARS, and more than 450,000 meters were being read automatically.
Year 2000 l
Many existing computer programs use only two digits to identify a year (for example,"98" is used to repm sent "1998"). Such programs read "00" as the year 1900, and thus may not recognize dates beginning with the year 2000, or may otherwise produce erroneous results or cease processing when dates after 1999 are encoun-tered. Such failures could cause disruptions in normal business operations.
In 1994, Duquesne inventoried and assessed the critical information systems that impact operations and financial reporting (including systems with respect to the general ledger, supply chain, billing, payroll, human resources, financial reporting and certain types of data for plant maintenance)in order to develop a strategy to address required computer software changes and upgrades relating to such operations. By 1995, a plan to test and, as necessary, replace, upgrade or repair these systems had been developed and implementation had begun, with an anticipated completion date in 1999. Although implementation of the plan has been accelerated in cer-tain respects by Year 2000 issues, the planned replacement, upgrade and repair of the systems is also generally required for business purposes unrelated to the Year 2000 issue. Duquesne currently believes that implementa-l tion of the plan will minimize its Year 2000 issues relating to these systems. Replacement, upgrade and repair projects that have been completed or are currently in progress include, without limitation, the replacement of an integrated plant maintenance system at DVPS (including related computer hardware), replacement of the supply chain (purchasing and inventory) system, and release upgrades of packaged software for the corporate financial recordkeeping system. The cost of all such projects is currently estimated to be $35 million, approxi-mately one-half of which had been incurred through 1997. Duquesne has been expensing or capitalit.ing such costs in accordance with appropriate accounting policies.
Duquesne has assembled a team to inventory and assess the Year 200u issues that impact it. The team is comprised of management representatives from all functional areas of Duquesne. In addition to monitoring the information systems plan described above, the goals of the team include an assessment of Duquesne's expo-sure to Year 2000-related problems in devices and equipment containing embedded microprocessors that may not correctly identify the year, as well as potential problems that may originate with third parties outside Duquesne's control. Duquesne also participates in the Electric Power Research Institute's project to share information about technical issues regarding the Year 2000 problem with other entities in the electric utility industry.
7
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f a
l Gives. the fact that Duquesne's essessment, as noted above, is currently in progress, Duquesne cannot cur-l rently estimate the exact extent of any outstcnding Year 2000 systems and equipment issues, the specific time l
frame in which any required corrections would need to be made and the costs to Duquesne in correcting any possible related outstanding matters. Until Duquesne's assessment is completed, it cannot determine whether Year 2000 issues and related costs will be material to Duquesne's operations, Onancial condition and results of operations.
Retirement Plan hieasurement Assumptions Duquesne decreased the discount rate used to determine the projected benefit obligation on Duquesne's retirement plans at December 31,1997 to 7.0 percent. The assumed change in future compensation levels and assumed rate of retum on plan assets were also decreased to reflect current market and economic conditions.
The effects of these changes on Duquesne's retirement plan obligations are reflected in the amounts shown in
" Employee Benefits," Note M to the consolidated financial statements, on page 41. The resulting change in related expenses for subsequent years is not expected to be material.
Recent Accounting Ptonouncements SFAS No.130, Reporting Comprehensive income (SFAS No.130) and SFAS No.131, Disclosures about Segments of an Enterprise and Related Information (SFAS No.131), have been issued and are effective for fis-l cal years beginning after December 15,1997. SFAS No.130 defines comprehensive income and outlines cer-tain reporting and disclosure requirements related to comprehensive income. SFAS No.131 requires certain disclosures about business segments of an enterprise,if applicable. The adoption of SFAS No.130 and SFAS No.131 is not expected to have a significant impact on Duquesne's financial statements or disclosures.
&ceptfor historicalinformation contained herein, the matters discussed in this Annual Report on Form 10-K are l
forward-looking statements which involve risks and uncertainties induding, but not limited to, economic, competitive, governmental and tubnologicalfactors afecting Duquesne's operations, markets, products, services andprices and other factors discussed in Duquesne'sfilings with the Securities and & change Commission.
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8
hecutlw Officers cf the Registmnt Set forth below are the names, ages as of March 1,1998, positions and brief accounts of the business I
experience during the past five years of the executive officers of Duquesne.
NAME AGE OFRCE David D. Marshall 45 President and Chief Executive Officer since August 1996.
President and Chief Operating Officer from February 1995 to August 1996. Executive Vice President from February 1992 to February 1995, Assistant to.the President from October 1990 to February 1992, and Vice President - Corporate Development from August 1987 to February 1992.
Gary L. Schwass 52 Senior Vice President since February 1995 and Chief Fm' ancial Officer since July 1989. Vice President -
Finance and Principal Financial Officer from May 1988 to February 1995; Vice President, Treasurer and Principal Financial and Accounting Officer from August 1987 to May 1988.
i James E. Cross 51 President, Generation Group since September 1996.
Senior Vice President - Nuclear since February 1995.
Vice President - Nuclear from September 1994 to February 1995. Formerly Vice President, Thermal Operations, and Chief Nuclear Officer of Portland General Electric from May 1993 to September 1994; and Vice President and Chief Nuclear Officer of Portland General Electric from December 1991 to May 1993.
Gary R. Brandenberger 60 Vice President - Customer Operations since May 1997.
Vice President - Power Supply from August 1986 to May 1997.
WilliamJ. DeLeo 47 Vice President - Marketing and Corporate Performance since April 1995. Vice President -
Corporate Performance and Information Services fromJanuary 1991 to April 1995.
Victor A. Roque 51 Vice President since April 1995 and General Counsel since November 1994. Previously Vice President, General Counsel and Secretary for Orange and Rockland Utilities from April 1989 to November 1994.
DonaldJ. Clayton 43 Vice President since October 1997. Treasurer since January 1995. Assistant Treasurer from May 1990 toJanuary 1995.
Morgan K. O'Brien 37 Vice President since October 1997. Controller and Principal Accounting Officer since October 1995. Assistant Controller from December 1993 to October 1995. Manager, Corporate Taxes, from September 1991 to December 1993.
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ITEM 2.
PROPERTIES, Duquesne's properties consist of electric generating stations, transmission and distribution facilities, and supplemental properties and appurtenances, comprising as a whole an integrated electric utility system, located in Allegheny, Beaver and Westmoreland counties in southwestern Pennsylvania.
Duquesne owns all or a portion of the following generating units except Beaver Valley Unit 2, which is leased.
Duquesne's Share of Plant Output Capacity Year Ended (Megawatts)
December 31,1997 Name and Location Type Summer Winter (Megawatt-hours)
Cheswick Coal 562 570 3,475,197 Springdale, Pa.
Elrama Coal 474 487 2,097,700 Elrama, Pa.
Sammis Unit 7 (1)
Coal 187 187 998,838 Stratton, Ohio Eastlake Unit 5 (1)
Coal 186 186 730,184 Eastlake, Ohio Beaver Valley Unit 1 (1) -
Nuclear 385 385 1,925,121 Shippingport, Pa.
Beaver Valley Unit 2 (1)
Nuclear i!3 113 878,998 Shippingport, Pa.
Perry Unit I (1)
Nuclear 161 164 1,117,806 North Perry, Ohio Bruce Mansfield Unit 1 (1)
Coal 228 228 1,397,484 Shippingport, Pa.
Bruce Mansfield Unit 2 (1)
Coal 62 62 297,012 Shippingport, Pa.
Bruce Mansfield Unit 3 (1)
Coal 110 110 511,924 Shippingport, Pa.
Brunot Island Oil IM UE 5.034 Brunot Island, Pa.
Total 2.634 2,670 13.43 5.29R (1)
Amounts represent Duquesne's share of the unit which is owned by Duquesne in common with one or more other electric utilities (or, in the case of Beaver Valley Unit 2, leased by Duquesne).
Duquesne owns 24 transmission substations (including interests in common in the step-up transformers at Sammis Unit 7; Eastlake Unit 5; Bruce Mansfield Unit 1; Beaver Valley Unit 1; Beaver Valley Unit 2; Perry Unit 1; Bruce Mansfield Unit 2; and Bruce Mansfield Unit 3) and 562 distribution substations. Duquesne has 714 circuit-miles of transmission lines, comprising 345,000,138,000 and 69,000 volt lines. Street lighting and I
distribution circuits of 23,000 volts and less include approximately 50,000 miles oflines and cable.
Duquesne owns the Warwick Mine, including 4,849 acres owned in fee of unmined coal lands and mining rights, located on the Monongahela River in Greene County, Pennsylvania. (See Item 1. BUSINESS. " Fossil Fuel" discussion on page 4.)
Additional information relating to Item 2. PROPERTIES, is set forth in Note C, " Property, Plant and Equipment," of the consolidated financial statements for year ended December 31,1997, on page 28. The information is incorporated here by reference.
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i ITEM 3.
LEGAL PROCEEDINGS, Rate-Related Legal Pmceedings, Pmperty, Plant and Equipment Related Legal Proceedings and Envimnmental legalPmceedings Eartlake Unit 5 l
i In September 1995, Duquesne commenced ari,itration 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 allocation by CEI of fuel and related costs; the mismanagement of the administration of the Saginaw coal contract in connection with the closing of the Saginaw mine, which historically supplied coal to Eastlake; and the concealment by CEI of material information. In October 1995, CEI commenced an action against Duquesne in the Court of Common Pleas, Lake County, Ohio seeking to prevent Duquesne from taking any action to effect a partition on the basis of a waiver of partition covenant contained in the deed to the land underlying Easdake. CEI also seeks monetary damages from Duquesne for alleged unpaid joint costs in connection with the operation of Eastlake.
Duquesne removed the action to the United States District Coun for the Northern District of Ohio, Eastern Division, where it is now pending. Currently, the parties are engaged in settlement discussions. Duquesne antici-pates that a trial will commence late in 1998.
Proposed Merger In September 1997, the City of Pittsburgh filed a federal antitrust suit seeking to prevent the merger of DQE and AYE and asking for monetary damages. Although the United States District Court for the District of Western Pennsylvania dismissed the suit in January 1998, the City filed an appeal and asked for expedited review. Duquesne anticipates a decision on whether the appeal has been granted by late March 1998.
Unless otherwise indicated, all information presented in this report relates to Duquesne only and does not take into account the proposed merger between DQE and AYE.
Proceedings involving Duquesne's rates are reported in Item 1. BUSINESS " Rate Matters." Proceedings involving Property, Plant and Equipment are reported in item 1. IlUSLNESS " Property, Plant and Equipment."
Proceedings involving env;ronmental matters are reported in Item 1. IIIW I SS " Environmental Matters."
ITEM 4.
SusMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
Duquesne's common stock is not publicly traded. Effective July 7,1989, Duquesne became a wholly owned subsidiary of DQE, the holding company formed as part of a shareholder-spproved restructuring. As a result of the restructuring, Duquesne's shareholders received DQE common stock in exchange for their shares of Duquesne common stock, which were cancelled. DQE owns all of Duquesne's outstanding common stock, which consists of 10 shares. As such, this item is not applicable to Duquesne because all its common equity is held solely by DQE. During 1997 and 1996, Duquesne declared quarterly dividends on its common stock totaling $129 million and $276 million, respectively.
ITEM 6.
SELECTED FINANCIAL DATA.
Selected financial data for Duquesne for each of the six years in the period ended December 31,1997, are set forth on page 44. The financial data is incorporated here by reference.
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a ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDm0N AND RESULTS OF OPERATIONS, Results of Open tions Duquesne's future financial condition and its future operating results are substantially dependent upon the effects of the Restructuring Plan or Stand-Alone Plan currently before the PUC. Duquesne expects to be given the oppcrtunity to fully recover its transition costs. Ilowever, to the extent Duquesne does not ultimate-ly recover its transition costs, a charge against earnings would be recognized. Such charge could have a materi-ally adverse effect on Duquesne's financial position, results of operations and cash flows. (See " Rate Matters" on page 16.)
Earnings Duquesne's earnings for common stock decreased to $137.8 million in 1997 compared to $145.8 million in 1996. This $8.0 million decrease is the result ofincreased depreciation and amortization related to Duquesne's continued mitigation of fixed generation costs. Additionally, the milder 1997 temperatures impacted the weather-sensitive residential and commercial customer kilowatt-hour sales. Partially offsetting these sales reductions was an increase in sales to industrial customers, the result of sales to a new customer and the expansion of an existing large customer's facilities. Other net income reductions resulted from increased operating and maintenance expenses, primarily as the result of approximately 21 percent more forced outage hours at nuclear generating stations than in 1996, and a full year's dividerid requirement on the M,nthly Income Preferred Securities (MIPS) issued in May 1996. Other earnings increases resulted from increased long-term investment income, reduced interest costs and reduced income tax expense.
Duquesne's earnings for common stock remained steady at $145.8 million in 1996 as compared to 1995.
Although earnings for common stock did not change, there were a variety of factors which impacted the state-ment of consolidated income and offset one another. There was a decrease of approximately $25 million in operating income, the result ofincreased depreciation and amortization related to Duquesne's continued miti-gation of fixed generation costs. Additionally, the u messonably warm summer temperatures in 1995 reflected a decrease in sales for 1996 by impacting the weather-sensitive residential and commercial customers. Partially I
offsetting these reductions was an increase in other income in 1996 by $23 million primarily due to income from long-term investments made during late 1995 and 1996. Duquesne achieved reductions in interest charges in 1996 offset by the dividend requirement on the MIPS issued in May 1996. Other earnings increases resulted from decrensd income tax expense.
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Revenues J
Total operating revenues in 1997 decreased $11.9 million or 1.0 percent as compared to 1996. Comparing l
1996 and 1995 operating revenues, there was an decrease of $3.0 million or 0.3 percent.
Increase (Decrease) from Prior Year (Revenues in Millions ofDollars) 1997 1996 l
KWH Revenues KWH Revenues Residential (1.6)%
$ 0.5 (1.7)%
5 (8.9)
[
Commercial (0.7)%
5.1 0.1 %
(2.2)
Industrial 6.5 %. -
8.0 1.5 %
0.0 i
Less: Provision for Doubtful Accounts 0.4 (2.8)
Sales to Electric Utility Customers 1.0 %
13.2 0.0 %
(8.3) 1-Sales to Other Utilities (56.4)%
(33.4) 11.3 %
2.3 Other Revenues 8.3 3.0 Total (11.1)%
$(11.9) 2.2 %
$ (3.0)
Sales ofElectricity to Customers Operating revenues are primarily derived from Duquesne's sales of electricity. Currently, the PUC autho-rires rates for electricity sales which are cost-based and are designed to recover Duquesne's operating expenses and investment in electric utility assets and to provide a return on the investment. Customer revenues fluctuate l
as a result of changes in sales volume and changes in fuel and other energy costs, as these costs are generally recoverable from customers through the Energy Cost Rate Adjustment Clause (ECR). Under fuel cost recov-cry provisions, fuel revenues generally equal fuel expense, including the fuel component of purchased power, 12 l
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4 and do not affect net income. As required under the Customer Choice Act, Duquesne has filed with the PUC its plan addressing its proposed restructuring to operate in a competitive emironment including unbundled charges
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for transmission, distribution, generation and a CTC. Duquesne cannot predict what rates the PUC will autho-rize in connection with these fdings and the phase-in to competition. (See " Rate Matters" discussion on page 16.)
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.
1997 Compared to 1996: In 1997, net customer revenues reflected on the statement of consolidated income, increased $13.2 million or 1.2 percent from 1996. The variance can be attributed primarily to an increase in energy costs. The total energy cost increase was $19.9 million. To a lesser extent, customer revenues were favorably impacted by an increase of 6.5 percent in industrial kilowatt (KWII) sales. Sales to a new customer, an industrial gas supplier, represent 64 percent of the increase while the remaining increase is due to expansion of one of Duquesne's largest customers' facilities. Residential and commercial sales decreased 95,295 KWH when comparing 1997 and 1996 due to mild 1997 temperatures. Sales to Duquesne's 20 largest customers accounted for approximately 14 percent of customer revenues in 1997,1996, and 1995.
1996 Compared to 1995: Net customer revenues decreased $8.3 million or 0.8 percent in 1996 compared to 1995. The variance can be attributed prima ily to decreased residential customer KWil sales of 1.7 percent due to unseasonably warm summer temperatures in 1995, as compared to 1996, resulting in decreased revenues of
$8.9 million. Industrial KWII sales volume in 1996 increased when compared to the prior year because of a self-generation outage experienced in 1996 by one of Duquesne's large industrial customers.
Sales to Other Utilities Short-term sales to other utilities are regulated by the FERC and are made at market rates. Fluctuations in electricity sales to other utilities are related to Duquesne's customer energy requirements, the energy market and transmission conditions, and the availability of Duquesne's generating stations. Future levels of short-term sales to other utilities will be affected by market rates.
1997 Compared to 1996: Duquesne's electricity sales to other utilities in 1997 were $33.4 million or 57.4 per-cent less than in 1996. The reduction is due to reduced availability of generating capacity as a result of the sale of Duquesne's 50 percent interest in the Ft. Martin Power Station (Ft. Martin) in October 1996 and to a 9.1 per-cent increase in other generating stations' outage hours when compared to 1996.
1996 Compared to 1995: In 1996, electricity sales to other utilities were $2.3 million or 4.2 percent greater than in 1995 due to the timing of generating station outages.
Other Operating Revenues Duquesne s non-KWII revenues comprise other operating revenues in Duquesne's statement of consondated l
income. Other operating revenues are primarily comprised of revenues from joint owners of BV Unit I and BV l
Unit 2 for their shares of the administrative and general costs of operating these units. Other operating rev-l enues, therefore, fluctuate depending on the timing of scheduled refueling and maintenance outages at BVPS i
when significant costs are incurred.
1997 Compared to 1996: The other operating revenue increase of $8.3 million or 21.8 percent when compar-ing 1997 and 1996. The variance was due to the 21 percent increase in nuclear forced outage hours since 1996 and in part to a pole attac!unent settlement in the second quarter of 1997.
1996 Compared to 1995: Both DV Unit I and BV Unit 2 underwent refueling outages in 1996 and 1995. BV Unit 2 experienced an extended outage of 107 days during 1996 due to unanticipated repairs to two residual heat removal pumps and reactor head vent valves, resulting in a S3.0 million or 8.5 percent increase in other operat-ing revenues during 1996.
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Operating Expenses Fueland Purchased Power Erpense Fluctuations in fuel and purchased power expense generally result from changes in the cost of fuel, the mix between coal and nuclear generation, the total KWHs sold, and generating station availability. Because of the i
ECR, changes in fuel and purchased power costs did not impact earnings in 1997,1996 and 1995. Under Duquesne's mitigation plan approved by the PUC inJune 1996, the level of energy cost recovery is capped at 1.47 cents per KWil through May 2001. Pending the outcome of Duquesne's Restructuring Plan or Stand-Alone Plan filing, Duquesne may freeze the ECR and roll it into base rates. (See " Rate Matters" on page 16.).
1997 Compared to 1996: Fuel and purchased power expense decreased $13.5 million or 5.7 percent in 1997, as compared to 1996, as a result of an 11.1 percent reduction in energy volume supplied. The $26.7 million decrease due to energy volume supplied was partially offset by increased energy costs of $13.2 million, primarily 13
the result of purchased power prices. Reduced availability of generating stations due to a 9.1 percent increase in outage hours forced Duquesne to buy purchased power during high demand periods, resulting in increased costs.
1996 Comparrd to 1995: The increase of $5.0 million or 2.1 percent in 1996 as compared to 1995 was the result of a 33 percent increase in purchased power prices. This increase was partially offset by lower nuclear fuel costs.
Other Operating Expense 1997 Compared to 1996: The increase of $5.0 million or 2.0 percent in 1997 as compared to 1996 resulted primarily from pension expense recorded in 1997 for an early retirement plan offered to bargaining unit employees.
1996 Comp.ud to 1995: Other operating expense increased $2.8 million or 1.1 percent when comparing 1996 and 1995. The increase was the result of a one-time lease charge.
Maintenance Erpense 1997 Compmd to 1996: Alaintenance expense increased 54.5 million or 5.7 percent. During 1997, there were approximately 21 percent more forced outage hours at nuclear stations than in 1996.
1996 Compared to 1995: Alaintenance expense decreased $3.1 million or 3.8 percent in 1996 from 1995.
The decrease was primarily due to lower maintenance outage costs as a result of fewer fossil station outages in 1996.
Depreciation and Amortization Erpense 1997 Compared to 1996: During 1997, depreciation and amortization experse increased $19.0 million or 8.8 percent from 1996. The A1ay 1,1996 increase from 3.5 percent to 4.25 percent in Duquesne's composite depreciation rate resulted in higher depreciation for the first four months of 1997; in addition accelerated nuclear lease recovery, which began on Atay 1,1997, resulted in higher depreciation and amortization expense by $25 million. Offsetting the increase by 58.5 million was the mid-1996 completion of the recovery of the investment in Perry Unit 2, the construction of which was abandoned by Duquesne in 1986.The remaining increase can be attributed to incremental depreciation for 1997 fixed asset additions and an increased level of nuclear decommissioning cost recognition.
1996 Compared to 1995: Depreciation and amortization expense increased $25.7 million or 13.5 percent in 1996 when compared to 1995 primarily due to the increase in Duquesne's composite depreciation rate from 3.5 percent to 4.25 percent effective Atay 1,1996. During the third quarter of 1996, Duquesne completed recovery ofits investment in Perry Unit 2, the construction of which was abandoned by Duquesne in 1986.
The resultant decrease in amortization expense was offset by Duquesne's increase in depreciation, as well as
$9 million that was expensed related to the depreciation portion of deferred rate synchronization costs in con-junction with Duquesne's 1996 PUC-approved mitigation plan.
Taxes Other Than income Taxes Taxes other than income taxes decreased $3.6 million and $1.7 million in 1997 and 1996, respectively, from the prior year, primarily due to the reduced West Virginia business and occupation taxes as a result of the sale of Ft. A1artin in the fourth quarter of 1996.
Income Taxes Income taxes were lower in 1997 as compared to 1996 by $8.6 million and lower in 1996 as compared to 1995 by S6.9 million. The variances result from decreased taxable income.
Other income and (Deductions)
Other income is primarily made up ofincome from long-term investments entered into by the subsidiary of the utility and interest income from short-term investments.
1997 Compared to 1996: Duquesne increased other income over the 1996 levels. An $8.3 million or 33.7 percent increase in other income and deductions resulted from long-term investment income and interest and dividend income from a higher level of short-term investments. The greater long-term investment income of approximately $10 million was the result ofinvestments made hte in 1996 and thmughout 1997.
1996 Compared to 1995: The increase of $22.9 million in cGer income and deductions, when comparing 1996 and 1995, was primarily the result ofincome from long-tenn investments made during late 1995 and 1996.
I4
1 Ixterest CCcrges Duquesne achieved reductions of $3.0 million and $8.4 million in internt charges in 1997 and 1996. Due to the maturity of $50.0 million of debt in the second quarter of 1996 and $50.0 million of debt in the fourth quarter of 1997, interest decreased in 1997. The decrease in 1996 was primarily due to the retirement of long-term debt during 1995.
Monthly Income Prrferred Securities Dividend Requirrments The Monthly Income Preferred Securities Dividend Requirements reDects the payment of dividends related to preferred stock issued in May 1996. The increase of $4.6 million in 1997 as compared with 1996, was the result of paying a full year of dividends in 1997.
Dividends on Prefenrd and Preference Stock The decrease of $1.5 million in 1996 in dividends on preferred and preference stock was primarily due to the retirement of preferred stock in 1995.
Liquidity and CapitalResources Duquesne's future liquidity and capital resources could be reduced as a result of the Restructuring Plan or Stand-Alone Plan currently before the PUC. Duquesne cannot predict the level of transition cost recovery that will be permitted, the impact of any such recovery on Duquesne's capitalization and the continued compliance with Duquesne's debt covenants or whether internally generated cash will continue to meet or exceed Duquesne's capital requirements and dividend payments. (See " Rate Matters" on page 16.).
CapitalExpenditures Duquesne spent approximately $93.7 million in 1997, $88.5 million in 1996 and $78.7 million in 1995 for capital expenditures. Duquesne's capital expenditures focus on improving and/or expanding electric utility generation, transmission and distribution systems. Duquesne estimates that it will spend, excluding allowance for funds used during construction (AFC) and nuclear fuel, approximately $130 million during 1998 and $100 million during each of 1999 and 2000 for electric utility construction. Duquesne expects that funds generated from operations will continue to be sufficient to fund a large part of its capital needs. (See " Rate Matters" on page 16.)
long-Term investments Duquesne's long-term investments consist of Duquesne's holdings of DQE common stock, investments in affordable housing, lease investments, and nuclear decommissioning trust funds. Investing activities in afford-able housing included approximately $4.0 million, $1.5 million and $5.4 million during 1997,1996 and 1995, respectively. Duquesne invested approximately $11.4 million, $5.7 million and $4.0 million in nuclear decom-missioning trust funds during 1997,1996 and 1995. Other investments in 1996 totaled $2.7 million. In addi-tion, Duquesne invested $57.5 million in lease investments during 1995.
Financing Duquesne expects to meet its current obligations and debt maturities through the year 2002 with funds gen-erated from operations and through new financings. At December 31,1997, Duquesne was in compliance with all of its debt covenants.
Mortgage bonds in the amount of $35 million matured in February 1998 and were retired using available cash. In February 1998, Duquesne issued a notice of redemption of $100 million principal amount of its 8.75 percent mortgage bonds, originally due in May 2022. The redemption date is March 1998, and the redemption price is 106.5625 percent of the principal amount, plus interest accrued until redemption. The redemption is to be partially financed with the proceeds of the February 1998 issuance of $40 million principal amount of 6.45 percent mortgage bonds, due in February 2008. Duquesne anticipates additional financing of the redemption through the further issuance of lower interest rat. mortgage bonds. Mortgage bonds in the amount of $35 mil-lion and $5 million will mature in June and November 1998, respectively. Duquesne expects to retire these bonds with available cash or to rennance the bonds. (See " Rate Matters" on page 16.)
In October 1997, a Duquesne subsidiary issued ten shares of preferred stock, par value $100,000 per share.
The holders of such shares are entitled to a 6.5% annual dividend to be paid each September 30.
In May 1996, Duquesne Capital L.P. (Duquesne Capital), a special-purpose limited partnership of which Duquesne is the sole general partner, issued $150.0 million principal amount of 8X 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.
Short-Term Borrowings At December 31,1997, Duquesne had a $150 million extendible revolving credit arrangements expiring in October 1998. Interest rates can,in accordance with the option selected at the time of the borrowing, be based 15
on prime, Eurodollar or certificate of deposit rates. Commitment fees are based on the unborrowed amount of the commitments. The credit facility cont: ins a two-year replyment period for any amounts outstanding at the expiration of the revolving credit periods. At December 31,1997 and December 31,1996, there were no short-term borrowings outstanding.
Sale ofAccounts Receivable Duquesne and an unaffiliated corporation have an agreement that entitles Duquesne to sell, and the corpora-tion to purchase, on an ongoing basis, up to $50 million of accounts receivable. Duquesne had no receivables sold at December 31,1997 or December 31,1996. De accounts receivable sales agreement, which expires in June 1998, is one of many sources of funds available to Duquesne. Duquesne may attempt to extend the agree-ment, replace it with a similar facility, or eliminate it upon expiration.
Nuclear FuelLeasing Duquesne finmces its acquisitions of nuclear fuel through a leasing arrangement under which it may finance up to $75 million of nuclear fuel. As of December 31,1997, the amount of nuclear fuel financed by Duquesne under this arrangement totaled approximately $46.2 million. The actual nuclear fuel costs to be financed will be in0uenced by such factors as changes in interest rates; lengths of the respective fuel cycles; reload cycle design; operations; and changes in nuclear material costs and services, the prices and availability of which are not known at this time. Such costs may also be influenced by other events not presently foreacen. Duquesne plans to continue leasing nuclear fuel to fulfill its requirements at least through September 1998, the remaining term of the leasing arrangement. Duquesne may attempt to extend the arrangement, replace it with a similar facility, or climinate it upon expiration through the purchase of the balance of the nuclear fuel.
Rote Matters Competition and the Customer Choice Act ne 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, reg-ulated 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.
Brough 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 have assets recorded on their balance sheets at above-market costs, thus creating transition costs.
In Pennsylvania, the Customer Choice Act went into effect January 1,1997. The Customer Choice Act enables Pennsylvania's electric utility customers to purchase electricity at market prices from a variety of electric gen-eration suppliers (customer choice). Although the Customer Choice Act will give customers their choice of electric generation suppliers, delivery of the electricity from the generation supplier to the customer will remain the responsibility of the existing franchised uti:ity. The Customer Choice Act also 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 (running through 1998) and a phase-in to competition period (beginning in 1999). For the first stage, Duquesne filed a pilot program with the PUC on February 27,1997. For the second stage, Duquesne filed on August 1,1997 its iestructuring and merger plan (the Restructuring Plan) and its stand-alone restructuring plan (the Stand-Alone Plan) with the PUC. (See the detailed discussion of these plans on pages 18 and 19.)
Customer Choice Pilots The pilot period gives utilities an opportunity to examine a wide range of technical and administrative details related to competitive markets, including metering, billing, and cost and design of unbundled electric services. Duquesne's pilot filing proposed unbundling transmission, distribution, generation and competitive I
transition charges and offered participating customers the same options that were to be available in a competi-tive generation market. The pilot was designed to comprise approximately 5 percent of Duquesne's residential, commercial and industrial demand. The 28,000 customers participating in the pilot may choose unbundled ser-
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vice, with their electricity provided by an alternative generation supplier, and will be subject to unbundled distri-bution and CTC charges approved by the PUC and unbundled transmission charges pursuant to Duquesne's FERC-approved tariff. On May 9,1997, the PUC issued a Preliminary Opinion and Order approving Duquesne's filing in part, and requiring certain revisions. Duquesne and other utilities objected to several features of the PUC's Preliminary Opinion and Order. Hearings on several key issues were held in July. The PUC issued its final order on August 29,1997, approving a revised pilot program for Duquesne. On September 8,1997 Duquesne appealed the determination of the market price of generation set forth in this order to the Commonwealth Court of Pennsylvania. Duquesne expects a hearing to be scheduled for mid-1998. Although this appeal is pending, Duquesne complied with the PUC's order to implement the pilot program that began on November 3,1997.
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1
Financialimpact cf Pilot Program Order It is anticipated that the net financial impact of Duquesne's customers' choosing alternative generation sup-pliers during the pilot period (through 1998) will be a reduction of operating revenues of approximately $1 mil-tion per month. (See " Forward-Looking Statements" discussion on page 19.) Duquesne is seeking in its Restructuring Plan and its Stand-Alone Plan to maintain current rates under Section 2804(4)(v) of the Customer Choice Act (Rate Cap Provision), which states that in certain circumstances an electric distribution utility may roll its energy cost rate into base rates without reducing its rates below the capped level if the PUC determines that excess earnings are to be used for mitigation of transition costs. Duquesne will reduce its accelerated nuclear lease amortization to offset the shortfall,if any,in operating revenues between the pilot program and the final approved rates.
Phase In to Competition The phase-in to competition begins on January 1,1999, when 33 percent of customers will have customer choice (including customers covered by the pilot program); 66 percent of customers will have customer choice no later than January 1,2000; and all customers will have customer c.cice no later than January 1,2001.
S However, in its sole order to date (the PECO Order), the PUC ordered dw phase-in provisions of the Customer Choice Act to require the acceleration of the second and third phases to January 2,1999 and January 2,2000, respectively. As they are phased-in, customers that have chosen an electricity generation supplier other than Duquesne will pay that supplier for generation charges, and will pay Duquesne a CTC (discussed below) and unbundled charges for transmission and distribution. Customers that continue to buy their generation from Duquesne will pay for their service at current regulated tariff rates divided into unbundled generation, trans-mission and distribution charges. The PECO Order concluded that under the Customer Choice Act, an electric distribution company, such as Duquesne, is to remain a regulated utility and may only offer PUC-approved, tar-iffed rates (including unbundled generation rates). Delivery of electricity (including transmission, distribution and customer service) will continue to be regulated in substantially the same manner as under current j
regulation.
Rate Cap and hansition Cost Recovery Ilefore the phase-in to customer choice begins in 1999, the PUC expects utilities to take vigorous steps to mit-l igate transition costs as much as possible without increasing the rates they currently charge customers.
Duquesne has mitigated in excess of $350 million of transition costs during the past three years through accel-l crated annual depreciation and a one-time write-down of nuclear generating station costs, accelerated recogni-tion of nuclear lease costs, increased nuclear decommissioning funding, and emortization of various regulatory assets. This relative level of transition cost reduction, while holding rates constant, is unmatched within l
The PUC will determine what portion of a utility's transition costs that remain at January 1,1999 will be recoverable through a CTC from customers. The CTC recovery period could last through 2005, providing a utility a total of up to nine years beginning January 1,1997 to recover transition costs, unless this period is extended as part of a utility's PUC-approved transition plan. An overall four-and-one-half-year rate cap from January 1,1997 will be imposed on the transmission and distribution charges of electric utility companies.
Additionally, electric utility companies may not increase the generation price component of rates as long as transition costs are being recovered, with certain exceptions. Following is a summary of Duquesne's requested transition cost recovery, net s.f deferred taxes, as of January 1,1999; the related net balances as of December 31,1997; and the amounts mitigated during the past three years.
hansition Costs Mitigation Balance CTC Recovery (Amounts in Millions of Dollars) 1/1/95 - 12/31/97 12/31/97 Requested 1/1/99 Nuclear generation plant (a)
$232
$ 968
$ 877 Fossil generation plant (a) 541 541 Generation-related regulatory assets (b) 103 382 357 Decommissioning costs (c) 18 133 124 Total
$353
$2,024
$ 1,899 (a) Nuclear and fossil generation plant represent a projection of the amount by which the net book value, including materials and supplies inventories, and fuel inventories, of the generating plants exceeds the market value for these plants. " Nuclear generation plant" also includes the present value of future above-market lease payments related to the sale / leaseback of BV Unit 2.
(b) Generation-related regulatory assets represent costs which under the historical ratemaking process were deemed recoverable from customers through future rates. These regulatory assets include, among other items, amounts related to future federal income tax pay-ments, premiums paid to reacquire debt, initial cperating costs of BV Unit 2 and Perry Unit I, and energy costs not recovered currently.
(c) Decommissioning costs represent the estimated present value of unfunded fossil and nuclear generation plant decommissioning Costs.
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FinancialExposure to 1Mnsition Cost Recovery Any estimate of the ultimate level of transition costs (including those set forth in the table on page 17 depends on, among other things, the extent to which such costs are deemed recoverable by the PUC; the ongoing level of Duquesne's costs of operations; regional and national economic conditions; and growth of Duquesne's sales. Duquesne believes that it is entitled to recover substantially all ofits transition costs, but cannot predict the outcome of this regulatory process. (See i
" Forward-Looking Statements" discussion on page 19.)Indeed, the PECO Order provides for recovery by PECO Energy i
Company (PECO) of 100 percent of transition costs determined to be just and reasonable by the PUC liowever,in deter-raining transition costs, the PUC found the market value of PECO's generating units to be signincantly higher than the esti-mate of market value sponsored by PECO. Thus, the total amount of transition costs requested by PECO was significantly more than that allowed by the PUC in the PECO Order, as the PUC-determined market value offset a larger portion of the transition costs. The PUC-ordered recovery of PECO's transition costs through a CTC is permitted over an eight-and-one-half-year period beginning January 1,1999. However, PECO is only permitted to earn a return on the unamortized balance of transition costs at a rate equal to its long-term cost of debt. In the event that the PUC rules that any or all of Duquesne's transition costs cannot be recovered through a CTC mechanism, or Duquesne fails to satisfy the requirements of SFAS No. 71, these costs will be written off. (See item 1. BUSINESS " Regulation" on page 1.) On January 26,1998, PECO announced that it was reducing its dividend by 44 percent, and also that it was reporting a net loss for 1997 of $1.5 billion, including an extraordinary charge of $3.1 billion ($1.8 billion net of taxes)in the fourth quarter of 1997 to reflect the effects of the PECO Order. As Duquesne has substantial exposure to transition costs relative to its size, significant transi-tion cost write-offs could have a materially adverse effect on Duquesne's financial position, results of operations and cash flows. Various financial covenants and restrictions could be violated if substantial write-off of assets or recognition oflia-bilities occurs. Under such circumstances, Duquesne may face constraints on its ability to pay dividends, issue new mort-gage debt or maintain access to bank lines of credit, thus negatively impacting its operations.
Timdablefor Restructuring Plan and Stand Alone Plan Approval On August 1,1997, Duquesne filed the Restructuring Plan and the Stand-Alone Plan with the PUC. Although the provi-sions of the Customer Choice Act require a PUC decision nine months from the filing date (which would be April 30, 1998), the Pennsylvania Attorney General's Office requested an extension in order to conduct an investigation into certain competition issues relating to the Restructuring Plan. Pursuant to an arrangement among Duquesne, the PUC and the Attorney General, Duquesne anticipates a decision by the PUC (with respect to the Restructuring Plan if the merger of DQE and AYE is approved, or with respect to the Stand-Alone Plan if tFe merger is not approved) on or before May 29,1998 or such later date as the parties may agree.
Stand-Alone Plan In the event the merger of DQE with AYE is not consummated under the filed Restructuring Plan, Duquesne has sought approval for restructuring and recovery of its own transition costs through a CTC under the Stand-Alone Plan. Duquesne proposed that any finding of market value for Duquesne's generating assets should be based on market evidence and not on an administrative determination of that value based on price forecasts (the PECO Order determined the market value of PECO's generation based on the price forecast sponsored by the Pennsylvania Office of Consumer Advocate). In addition, l
Duquesne proposed that such a final market valuation be conducted in 2003, and that an annual competitive market solici-tation be used to set the CTC in the interim. The 2003 final market valuation would be performed by an independent panel of experts using the best available market evidence at that time. The Stand-Alone Plan filing also provided for certain trig-gets that would accelerate the date of this final market valuation. Prior to the final valuation, Duquesne would sell a sub-stantial amount of power to the highest bidder in an annual competitive solicitation. The annual market price established by the solicitation would be used to set competitive generation credits and determine the CTC as a residual from the genera-tion rate cap under the Rate Cap Provision. During the transition period, Duquesne committed to accelerate amortization and depreciation of its generation-related assets and cap its return on equity through a return on equity spillover mecha-nism, in exchange for being allowed to charge existing rates under the Rate Cap Provision. Duquesne committed to a min-imum of $1.7 billion of amortization and depreciation of generation-related assets by the end of 2005. Under the proposed retum on equity spillover mechanism, additional amortization and depreciation in excess of this minimum $1.7 billion commitment would be recorded in order to comply with the return on equity cap. The generation rate cap would apply to the sum of the CTC and the competitive generation credit determined in the annual competitive solicitation. The Stand-Alone Plan also proposed to redesign individual tariffs to encourage more efficient consumption and further mitigate transi-tion costs during the transition period. Consistent with Duquesne's long-standing commitment to economic development, the rate redesign provides for a significant reduction in the cost of electricity for incremental consumption. Application of the rate redesign to the CTC would also have the potential to maximize mitigation of transition costs during the transition period.
As an alternative to a market-based valuation in 2003, if the PUC finds that a determination of market value as of December 31,1998 is required by the Customer Choice Act, then Duquesne has agreed that the PUC may order an imme-diate auction of Duquesne's generation at that time.
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Restructuring Plan The Restructuring Plan incorporates the benefits of the merger of DQE with AYE, such as anticipated saving., to Duquesne, on a nominal basis, of $365 million in generation-related costs over 20 years, and $9 midon in transmission-i related costs and $173 million in distribution-related costs over 10 years. Duquesne plans to use the generation-related por-l tion of its share of net operating synergy savings to shonen the transition cost recovery period. In addition, the anticipated cost savings are expected to permit Duquesne to increase its minimum depreciation and amortization commitment by $160 mil-i lion, reduce distribution rates by $25 million in 2001, and freeze distribution rates at this reduced level until 2005. The merger-related synergies are expected to enable Duquesne to reduce its transition costs in 2005 by $200 million. (See
" Forward-looking Statements" discussion on page 19.) The Restructuring Plan also incorporates the market-based approach to determining transition costs proposed by Duquesne in its Stand-Alone Plan. The 2003 final market valuation wdl be performed by an independent panel of experts using the best available market evidence at that time, including a potential sale of a portion of the combined company's generating assets. Certain triggers will accelerate the date of this final market valuation if market prices rise significantly or the minimum amortization commitment is satisfied prior to 2003.
The annual market price established by Duquesne's solicitation would be used to set competitive generation credits and to determine the CTC as a residual from the generation rate cap under the Rate Cap Provision. Duquesne's minimum amorti-1 zation commitment of $1.7 billion in the proposed Stand-Alone Plan has been increased under the Restructuring Plan. As in the Stand-Alone Plan, the determination of transition costs in 2003 will compare the book value of generating assets in 2005 (after netting the increased minimum commitment to depreciation and amortization and any retum on equity spillover) with the market value of the generating assets in 2005. The opposing parties believe that there should be a one-time valuation of the generating assets performed at January 1,1999. Any merger-related synergies relating to generation would then be used to reduce Duquesne's transition costs as of that date. These parties also believe that Duquesne's pro-posed distribution rate decrease should be effective January 1,1999, as well.
1 AdditionalRestructuring Plan Commitments The Restructuring Plan also contains a number of commitments by the merged DQF/AYE entity. First, the merged enti-ty will open up its transmission system to all parties on a reciprocal non-discriminatory basis and eliminate multiple rate
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charges across the combined transmission system. Second, the merged entity willjoin a recently proposed Midwest I
Independent System Operator (ISO) or other then-existing ISO, or form its own ISO if no existing ISO offers acceptable rules, including marginal cost transmission rates. Several utilities have applications pending before the FERC to form ISOs. Third, the merged entity has committed to make a report,18 months after consummation of the merger, to the PUC regarding its progress on the ISO commitment. ne PUC may, at its opion, require the merged entity to relinquish control l
of 300 MW of generating capacity to alleviate concerns over market power. He form of relinquishment would be at the
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option of the merged entity; possible forms of relinquishment include an energy swap, entering a power sale contract, divestiture of generating assets and a bidding trust.
The FederalFilings In addition to the PUC filings of the R:strt'cturing Plan and the Stand-Alone Plan, on August 1,1997, DQE and AYE filed theirjoint merger application with the FERC (the FERC Filing). Pursuant to the FERC Filing, DQE and AYE have committed to forming orjoining an ISO that meets the entity's requirements, including marginal cost transmission pricing, following the merger. In addition, DQE and AYE have stated in the FERC Eding that following the merger the combined entity's market share will not violate the market power conditions and requirements set by the FERC. On January 20, 1998, DQE and AYE filed merger applications with the Antitrust Division of the Depanment of Justice and the Federal Trade Commission.ncse applications are currently pending.
Forward-Ixoking Statements The foregoing paragraphs contain forward-looking statements (within the meaning of the Private Securities Lirigation Reform Act of1995) regarding the financial impact, consequences and benefits of the Customer Choice Act, the pilot pro-gram, the Stand-Alone Plan, the Restructuring Plan and the merger of DQE with AYE. Such forward-looking statements involve known and unknown risks and uncertainties that may cause the actual results and benefits to materially differ from those implied by such statements. Such risks and uncertainties include, but are not limited to, the substance of PUC approvals regarding the Stand Alone Plan or the Restructuring Plan, general economic and business conditions, industry capacity, changes in technology, integration of the operations of AYE and DQE, regulatory conditions to the merger, the loss of any significant customers, and changes in business strategy or development plans.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Funding for nuclear decommissioning costs is deposited by Duquesne in extemal, segregated trust accounts and invest-I ed 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 trust fund balances at December 31,1997 totaled approximately
$47.1 million. The amount funded into the trusts is based on estimated returns which, if not achieved as projected, could require additional unanticipated funding requirements.
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ITEM 8.
CONSOUDATED FINANCIAI. STATEMENTS AND SUPPLEMENTARY DATA, t
REPORT OF INDEPENDENT CERTIFIED Pusuc ACCOUNTANTS To the Directors and Stockholder of Duquesne Light Company:
We have audited the accompanying consolidated balance sheet of Duquesne Light Company (a wholly owned subsidiary of DQE,Inc.) and its subsidiaries as of December 31,1997 and 1996, and the n lated consolidated statements ofincome, retained earnings, and cash flows for each of the three years in the period ended December 31,1997. Our audits also includ-cd the financial statement schedule listed in the Index at Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those 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 exanumng, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessmg the accounting principles used and significant estimates made by management, as well as eval-unting the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Duquesne Light Company and its subsidiaries as of December 31,1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31,1997 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
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/s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Pittsburgh, Pennsylvania January 27,1998 l
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hTATEMENT OF CONSOUDATED INCOME (Thousands ofDollan) l Year Ended Daember 31,
~
1997 1996 1995 Operating Revenues:
Sales of Electricity:
Residential
$ 405,915
$ 405,392 5 414,291 Commercial 500,070 494,919 497,187 Industrial 198,708 190,723 190,689 Provision for doubtful accounts (11,000)
(10,582)
(13,430)
Net customer revenues 1,093,693 1,080,452 1,088,737 Utilities 24,861 58,292 55,% 3
'Ibtal Sales of Electricity 1,118,554 1,138,744 1,144,700
_ther 46,387 38,081 35,084 O
TeenfOpermaingReumsw 1,164,941 1,176,825 1,179,784 Operating Fpm Fuel 184,676 204,655 208,546 Purchased power 38,735 32,269 23,422 Other operating 258,063 253,109 250,322 Maintenance 82,869 78,386 81,516 Depreciation and amortization 235,381 216,338 190,679 Taxes other than income taxes 81,049 84,625 86,349 Income taxes 76,783 85,364 92,313
- TandOpmseingEspmser 957,556 954,746 933,147 OperatingIncome 207,385 222,079 246,637 OtherIncome and(Deductions):
Interest and dividend income -
16,014 12,216 7,923 Income taxes (2,945) 2,356 (581)
Allowance for equity funds used during constmction 721 Other 19,761 9,991 (6,404)
TeenfOderimense 32,830 24,563 1,659 Income Before Interest and Other Charges 240,215 246,642 248,2 %
Interest Charges:
Interest on long-term debt 87,420 88,478 95,391 Other interest 752 1,632 2,599 '
Allowance for borrowed funds used during construction (2,339)
(1,249)
(764)
' 7deafInamurOsrger 85,833 88,861 97,226 Monthly Income Preferred Securities Dividend Requirements 12,562 7,921 Net Income 141,820 149,860 151,070 Dividends on Preferred and Preference Stock 4,022 4,045 5,320 I
EarningrforGesnes= Sand
$ 137,798
$ 145,815
$ 145,750 See motes to ceuohdettd)inamulstatemenu.
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CONSOLIDATED BALANCE SHEET (Thousands ofDollars)
As ofDecember 31, ASSETS 1997 1996 Peuperty, Plant and Equipment:
Electric plant in service
$4,332,630
$4,272,623 Construction workin proj;ress 56,471 45,059 Property held under capitalleases 113,662 99,608 Property held for future use 3,980 190,821 Other 3,995 662 Grom txuperty, plant and equipment 4,510,738 4,608,773 Less-
.unulated depreciation and amortization (1,947,819)
(1,891,300)
Tordh.p~ ey, PlantandEpipment-Net 2,562,9I9 2,717,473 1Long-Term Investments:
Imtstment in DQE common stock 57,617 59,319 Other investments 128,947 102,948 TotalLong-Term Investmener 186,564 162,267 Current Assets:
Cash and temporary cash investments 165,169 154,414 Receivables:
Electric customer accounts receivable 90,149 92,475 l
Other utility receivables 23,106 18,635 Other receivables 23,736 12,829 Less: Allowance for uncollectible accounts (15,016)
(18,294)
I TotalRecrinebles-Net 121,975 105,645 Materials and supplies (at average cost):
l Coal 20,418 19,097 Operating and construction 53,088 52,669 TotalMaterialr andSupplies 73,506 71,766 Other current assets 7,478 8,828 TordCwrentAcrer 368,128 340,653
- OtherNon-Current Assets:
Regulatory assets 680.885 636,816 Other 41,683 39,877 TasmIOserNon-CwerntAnrar 722,568 676,693 TotalAncar
$3,840,179
$3,897,086 See notes tuonsolidatedfinancialstatements.
22
C' NSOLIDATED BALANCE SHEET O
(Thousands ofDollars)
At ofDaember 31, CAPfrAUZADON AND DABIIJrIES 1997 1996 Capitalii.ation:
I Common stock (authorized - 90,000,000 shares, issued and outstanding - 10 shares)
S Capitai surplus 831,151 825,540 Retained earnings 172,682 163,884 TotalCommon StockholderiFpity 1,003,833 989,424 l
Non-redeemable preferred stock 64,608 63,608 Non-redeemable Atonthly income Preferred Securities 150,000 150,000 Non-redeemable preference stock 28,295 28,997
'Ibtal preferred and preference stock before deferred ESOP benefit 242,903 242,605 Deferred employee stock ownership plan (ESOP) benefit (16,400)
(19,533)
TotalPnfenedand P,,jh.,a Stock 226,503 223,072 Long-term debt 1,218,276 1,271,961 Totale?'N=--e 2,448,612 2,484,457 Obligations Under Capital Leases 37,540 28,407 Current Uabilities:
l 1
Current maturities and sinking fund requirements 97,523 70,912 Accounts payable 76,224 84,272 Accmed liabilities 62,044 59,020 Dividends declared 2,349 2,371 Other 14,338 4,613 TotalCsannt habdees 252,478 221,188 Non-Current Uabilities:
Deferred income taxes - net 599,811 726,517 Deferred investment tax credits 97,782 106,201 Deferred income 183,3M 139,075 l
Other 220,652 191,241-TotalNon-Canntliabdecs 1,101,549 1,163,034 Commitments and Contingencies (Notes B through A1)
TotalCgrealnanaes andUshdmer
$3,840,179
$3,897,086 l
See notes to coruolidatedpnancialstatemena.
l l
l l
23
1 STATEMENT OF CONSOUDATED CASH FL0ws (Thatuandt ofDollan)
Year Ended Duember 31, 1997 1996 1995 Cash Flows From Operating Activities:
Net income
$ 141,820
$ 149,860
$ 151,070 Principal non-cash charges (credits) to net income:
Depreciation and amortization 235,381 216,338 190,679 Capital lease, nuc! car fuel and other amortization 39,179 24,006 32,670 Deferred income taxes and investment tax credits - net (7,611)
(81,325)
(30,211)
Gain on dispositions (5,856)
Investment income (19,353)
(23,841)
(13,317)
(Increase)decreasein ECR (25,318)
(3,948) 11,652 Changes in working capital other than cash (19,432)
(16,924) 19,004 Other (22,648) 23,202 39,867 Net Cad IbidedBy OpermeingAawmes 316,162 287,368 401,414 Cash Hows From Investing Activities:
Construction expenditures (93,743)
(88,546)
(78,656) long-term investments (15,422)
(9,953)
(66,854)
Proceeds from disposition ofinvestments 5,856 4,203 Sale ofgenerating station 169,100 Other (13,692)
(700)
(4,534)
Net Cm6 (UsedIn) fbided By Irwesning Aaivinier (117,001) 74,lM (150,M4)
Cash Hows From Fmancing Activities:
Dividends on capital stock (133,970)
(281,015)
(150,059)
Reductions oflong-term obligations:
Preferred and preference stock (29,732)
Long-term debt (52,100)
(50,812)
(56,114)
Capitalleases (13,551)
(19,326)
(26,373)
Issuance ofpreferred stock 150,000 Other 11,215 (8,395)
(2,5061 Net Gm6 UsedIn FmewingAai *ier (188,406)
(209,548)
(264,784)
Net increase (decrease) in cash and temporary cash investments 10,755 131,924 (13,414)
Cash and temporary cash investments at beginning ofyear 154,414 2,490 15,9M Cash and temporary cash investments at end of year
$ 165,169
$ 154,414 2,490 SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the year fon Interest (net of amount capitalized)
$ 82,343
$ 86,409
$ 95,521 Income taxes
$ 120,548
$ 165,948
$ ll5,5 M Non-cash investing and financing activities.
Capitallease obligations recorded
$ 27,514
$ 13,050
$ 14,%1 Preferred stock issued in conjunction with long-term investments 1,000 3,000 See notes to msolidatedfr: wialstatements.
i 24 l
STATEMENT OF CONSOUDATED RETAINED EARNINGS (Thousands ofDollars) har Ended December 31, 1997 1996 1995 Balance at begirming of year
$163,884
$294,069
$292,319 Net income i 11,820 149,860 151,070 Total 305,704 443,929 443,389 Cash dividends declared:
Preferred stock 2,712 2,712 3,870 Preference stock (net of tax benefit of ESOP dividend) 1,310 1,333 1,450 Common stock 129,000 276,000 144,000 Total cash dividends declared 133,022 280,045 149,320 Halance at end of year
$172,682
$163,884
$294,069 See notes to msolidateJpnancialstatements.
j Notes to Consolidated Financial Statements A. Summary of Consolidation ard Proposert oferger Significant Duquesne Light Company (Duquesne) is a wholly owned subsidiary of DQE, Inc. (DQE), an Accounting energy services holding company. Duquesne is engaged in the generation, transmission, distribution Policies and sale of electric energy. Duquesne has one wholly owned subsidiary, Monongahela Light and Power which makes long-term investments.
All material intercompany balances and transactions have been eliminated in the preparation of the consolidated financial statements.
On August 7,1997, the shareholders of Duquesne's parent, DQE, and Allegheny Energy, Inc.
(AYE), approved r p oposed tax-free, stock-for-stock merger. Upon consummation of the merger, DQE will be a wholly owned subsidiary of AYE. Immediately following tM incrger, Duquesne will remain a wholly owned subsidiary of DQE. The transaction is intended to be accounted for as a pooling of interests. Under the pooling of interests method of accounting for a business combination, the recorded assets, liabilities and equity of each of the combining companies are carried forward to the l
combmed corporation at their recorded amounts. Accordingly, no goodwill, including the related future earnings impact of goodwill amortization, resu:ts from a transaction accounted for as a pool-ing of interests. In order to qualify for pooling treatment, many requirements must be met by each of the combining companies for a period of time before and after the combination occurs. Examples of the i
requirements prior to the merger include limitations on: dividends paid on common stock, stock i
repurchases, stock compensation plan activity and sales of significant assets. DQE's management has focused and will continue to focus on meeting the pooling requirements as they relate to DQE and its subsidiaries prior to the merger.
Under the terms of the transaction, DQE's shareholders will receive 1.12 shares of AYE common stock for each share of DQE's common stock and AYE's dividend in effect at the time of the clos-ing of tue merger. The transaction is expected to close in mid 1998, subject to approval of applica-ble regulatory agencies, including the public utility commissions in Pennsylvania and Maryland, the Securities and Exchange Commission (SEC), the Federal Energy Regulatory Commission (FERC) and the Nuclear Regulatory Commission (NRC).
In September 1997, the City of Pittsburgh filed a federal antitrust suit seeking to prevent the merger and asking for monetary damages. Although the United States District Court for the District of Western Pennsylvania dismissed the suit in January 1998, the City of Pittsburgh filed an api can and asked for expedited review. Duquesne anticipates a decision on whether the appeal has bet n granted by late March 1998.
Unless otherwise indicated, all information presented in this Annual Report relates to Duquesne only and does not take into account the proposed merger between DQE and AYE.
Bru
- tecounting uo me is subject to the accounting and reponing requirements of the SEC. In addition, Duq u's electric utility operations are subject to regulation by the Pennsylvania Public Utility Commission (PUC), including regulation under the Pennsylvania Electricity Generation Customer Choice and Competition Act (Customer Choice Act), and the FERC under the Federal Power Act with respect to rates for interstate sales, transmission of electric power, accounting and other matters.
25
l I
Duquesne's consolidated financial statements reprt regulatory assets and liabilities in accor-dance with Statement of Financici Accounting Standards (SFAS)IVo. 71, Accountingfor the Efects of Cenain Types ofRegulation (SFAS No. 71), and renect the effects of the current ratemaking process.
In accordance with SFAS No. 71, Duquesne's consolidated financial statements reflect regulatory assets and liabilities consistent with cost-based, pre-competition ratemaking regulations. (See " Rate Matters," Note E, on page 29.)
ne preparation of Gnancial 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.
Revenuesfrom Sales ofElectricity Duquesne provides electric service to customers in Allegheny County, including the City of Pittsburgh; Beaver County; and Westmoreland County. (See " Rate Matters," Note E, on page 29.)
His territory represents approximately 800 square miles in southwestern Pennsylvania, located within a 500-mile radius of one-half of the population of the United States and Canada. He popu-lation of the area served by Duquesne's electric utility operations, based on 1990 census data,is approximately 1,510,000, of whom 370,000 reside in the City of Pittsburgh. In addition to serving approximately 580,000 direct customers, Duquesne's utility operations also sell electricity to other utilities.
Meters are read monthly and electric utility customers are billed on the same basis. Revenues are recorded in the accounting periods for which they are billed, with the exception of energy cost recovery revenues. (See " Energy Cost Rate Adjustment Clause (ECR)" discussion below.)
Energy Cost Rate Adjustment Clause (ECR)
Through the ECR, Duquesne recovers (to the extent that such amounts are not included in base rates) nuclear fuel, fossil fuel and purchased power expenses and, also through the ECR, passes to its customers the profits from short term power sales to other utilities (collectively, ECR energy costs).
Under DuquesrWs mitigation plan approved by the PUC in June 1996, the level of energy cost recov-ery is capped at 1.47 cents per kilowatt hour (KWil) through May 2001. He rate currently being recovered is 1.2h cents per KWII, based upon estimated 1996 costs. To the extent that current fuel and purchased power costs, in combination with previously deferred fuel and purchased power costs, are not projected to be recoverable through this pricing mechanism, ther,e costs would become transi-tion costs subject to recovery through a competitive transition charge (UTC). (See " Rate Matters,"
Note E, on page 29.) Nuclear fuel expense is recorded on the basis of the quantity of electric energy generated and includes such costs as the fee imposed by the United States Department of Energy (DOE) for future disposal and ultimate storage and disposition of spent nuclear fuel. Fossil fuel expense includes the costs of coal, natural gas and fuel oil used in the generation of electricity.
On Duquesne's statement of consolidated income, these ECR revenues are included as a component of operating revenues. For ECR purposes, Duquesne defers fuel and other energy expenses for recovery, or refunding,in subsequent years. The deferrals redect the difference between the amount that Duquesne is currently collecting from customers and its actual ECR ener-gy costs. The PUC annually reviews Duquesne's ECR energy costs for the fiscal year April through March, compares them to previously projected ECR energy costs, and adjusts the ECR for over-or under-recoveries and for two PUC-established coal cost standards. nis adjustment was not made during 1997, despite a projected increase of 0.13 cents per KWii, pending the outcome of Duquesne's Restructuring Plan or Stand-Alone Plan (as defined in " Rate Matters," Note E, on page 29).
Over-or under-recoveries from customers have been recorded in the consolidated balance sheet as payable to, or receivable from, customers. Based on Duquesne's Restmeturing Plan and Stand-Alone Plan, the 1997 under-recoveries were reclassined as a regulatory asset and may be recovered througS a CTC. At December 31,1997, $23.5 million was receivable from customers. At December 31, 1996, $1.8 million was payable to customers and shown as other current liabilities.
Maintenance Incren, ental maintenance costs incurred for refueling outages at Duquesne's nuclear un s are a
deferred for amortiration over the period between refueling outages (generally 18 months).
Duquesne accrues, over the periods between outages, anticipated costs for scheduled major fossil generating station outages. Maintenance costs incurred for non-major scheduled outages and for forced outages are charged to expense as such costs are incurred.
26
Depreciation cnd Amortization Depreciation of propcrty, plant and equipment, including plant-related intangib!cs,is recorded on i
a straight-line basis over the estimated remaining useful lives of properties. Amonization of other intangibles is recorded on a straight-line basis over a five-year penod. Amortization ofinterests in i
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 amonization of certain cther leases is on the basis of benefits recorded over the lives of the investments. Depreciation and amortization of other properties are calculated on various bases.
In 1987 Duquesne sold its 13.74 percent interest in Beaver Valley Unit 2 and leased it back. The lease is accounted for as an operating lease. In May 1997, Duquesne accelerated the recognition of expense related to the lease. The accelerated expense recognition accounted for $16.1 million of total amortization expense for 1997. Due to the above market price of the lease, Duquesne has pro-posed in its Restructuring Plan and Stand-Alone Plan (as defined in " Rate Matters," Note E, on page 29) to recover the remaining above-market lease costs through a CTC.
I Duquesne records nuclear decommissioning costs under the category of depreciation and amorti-zuion expense and accrues a liability, equal to that amount, for nuclear decommissioning expense.
On Duquesne's consolidated balance sheet, the decommissioning trusts have been reflected in other long-term investments, and the related liability has been recorded as other non-current liabilities.
Trust fund earnings increase the fund balance and the recorded liability. (See " Nuclear Decommissioning" discussion, Note I, on page 36.)
Duquesne's composite depreciation rate increased from 3.5 percent to 4.25 percent effective May 1, 1996. Also in 1996, Duquesne expensed $9 million related to the depreciation portion of deferred rate synchronization costs in conjunction with Duquesne's 1996 PUC approved mitigation plan.
Income Taxes Duquesne uses the liability method in computing deferred taxes on all differences between book and tax bases of assets. These book / tax differences occur when events and transactions recognized for financial reporting purposes are not recognized in the same period for tax purposes. The deferred tax liability or asset is also adjusted in the period of enactment for the effect of changes in tax laws or rates.
For its electric utility operations, Duquesne recognizes a regulatory asset for the deferred tax liabilities that are expected to be recovered from customers through rates. (See " Rate Matters,"
Note E, on page 29 and " Income Taxes," Note G, on page 33.)
Duquesne reflects the amortization of the regulatory tax receivable resulting from reversals of deferred taxes as depreciation and amortization expense. Reversals of accumulated deferred income taxes are included in income tax expense.
When applied to reduce Duquesne's income tax liability, investment tax credits related to electric utility propeny generally are deferred. Such credits are subsequently reflected, over the lives of the related assets, as reductions to income tax expense.
Property, Plant and Equipment The asset values of Duquesne's electric utility properties are stated at original construction cost, which includes related payroll taxes, pensions and other fringe benefits, as well as administrative and general costs. 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 electric utility properties that are retired (plus removal costs and less any salvage value) are charged to accumulated depreciation and amortization.
Substantially all of Duquesne'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 cast. Duquesne considers tem-porary cash investments to be cash equivalents.
Other Operating Revenues and Other income Other operating revenues are primarily comprised of revenues from joint owners of BV Unit I and Unit 2 for their shares of the administrative and general costs of operating these units. Other income is primarily made up of income from long-term investments entered into by the subsidiary of the utility and from short-term investments. The other income is separated from other revenues as the investment income does not result from operating activities.
27
)
Stock Based Comp:nsation Duquesne accounts for stock based compensation using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 2$, Accountingfor Stock issued to Employees, l
and related interpretations. Accordingly, compensation cost for stock options is measured as the excess,if any, of the quoted market price of DQE'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 DQE's stock at the end of the period.
{
Reclassification The 19% and 1995 consolidated financial statements have been reclassified to conform with l
accounting presentations adopted during 1997, J
Recent Accounting Pronouncements SFAS No.130. Reporting Co nprehensive income (SFAS No. l30) and SFAS No. ]31, Disclosures I
about Segments of an Enterprhe and Related information (SFAS No.131), have been issued and are effective for fiscal years beginning after December 15,1997. SFAS No.130 defines comprehensive inenme and outlines certain reporting and disclosure requirements related to comprehensive income.
SFAS No.131 requires certain disclosures about business segments of an enterprise,if applicable.
i
'Ihe adoption of SFAS No.130 and SFAS No.131 is not expected to have a significant impact on Duquesne's financial statements or disclosures.
B. Changesin Changes in Working Capital Other than Cash Working Capital 1997 1996 1995 Other than Cash (Amounts in Thousands ofDollars)
Receivables
$(16,330)
$ 7,539
$ 19,131 Materials and supplies (1,740) 1,286 9,994 Other current assets 1,350 (873) 7,840 l
Accounts payable (8,048) 9,437 15,781 Other current liabilities 5,336 (34,313)
(33,742)
Total
$(19,432)
$(16,924)
$ 19,004 i
C. Property, Plent In addition to its wholly owned generating units, Duquesne, together with FirstEnergy cnd Equipment Corporation, has an ownership or leaschold interest in cenain jointly owned units. Duquesne is l
required to pay its share of the construction and operating costs of the units. Duquesne's share of the operating expenses of the units is included in the statement of consolidated ircome.
Generating Units at December 31,1997 Generating Net Utility Fuel Unit Capability Plant Source (Megawatts)
(Millions of Dollars)
Cheswick 570
$ 120.4 Coal Elrama (a) 487 96.5 Coal Eastlake Unit 5 186 35.6 Coal Sammis, Unit 7 187 46.7 Coal Bruce Mansfield Unit 1 (a) 228 62.5 Coal i
Bruce Mansfield Unit 2(a) 62 18.2 Coal Bruce Mansfield Unit 3 (a) 110 47.9 Coal Beaver Valley Unit I (b) 385 195.9 Nuclear i
Beaver Valley Unit 2 (c)(d) 113 14.0 Nuclear Beaver Valley Common Facilities 149.5 Perry Unit I (c) 164 387.1 Nuclear i
Brunot Island Units 2a and 2b 178 21.9 Fuel Oil j
Total Gene:ating Units 2,670
$1,196.2 (a) The unit is equipped with flue gas desulfurization equipment.
(b) The Nuclear Regulatory Commission (NRC) has granted a license to operate through January 2016.
(c) In 1987 Duquesne sold and leased back its 13.74 percent interest in Beaver Valley Unit 2. The lease is accounted for as an operating lease. Amounts shown represent facilities not sold and subsequent leasehold improvements.
(d) The NRC has granted a license to operate through May 2027.
(e) The NRC has granted a license to operate through March 2026.
28 u
- d. Lcng Term At December 31,1997 and 1996, the fair market value of Duquesne's investment in DQE common investments stock was $57.6 million and $39.3 million, respectively. At December 31,1997 and 1996, the cost of Duquesne's investment in DQE common stock was $33.6 million and $40.3 million, respectively.
Duquesne makes equity investments in affordable housing. At December 31,1997. Duquesne had invwments in eight affordable housing developments.
Defened income primarily relates to Duquesne's lease investments. Deferred amounts will be recognized as income over the lives of the underlying lease investments over periods generally not exceeding five years.
Duquesne's other investments are primarily in assets of nuclear decommissioning trusts and mar-ketable securities. In accordance with SFAS No.115, Accountingfor Certain Investments in Debt i
aml Equiry Securities (SFAS No. I15), these investments are classified as available-for sale and are stated at market value. ne amount of unrealized holding gains related to marketable securities at both December 31,1997 and 1996 are $26.6 million and $19.0 million ($15.6 million and $11.1 million net of tax), respectively.
E. Rate Matters Competition and the Customer Choice Act The electric utility industry continues to undergo fundamental change in response to development of open transmission access and increased availability of energy alternatives. Under historical ratemaking practice, regulated electric utilities were granted exclusive geographic franchises to sell electricity in exchange for making investments and incurring obligations to serve customers under the then-existing regulatory framework. Through the ratemaking process, those prudently incurred costs were recovered from customers along with a retum on the investment. Additionally, certain operating costs were approved for deferral for future recovery from customers (regulatory assetsk As a result of this historical ratemaking process, utilities have assets reco-ded on their balance sheets at above-market costs, thus creating transition or stranded costs.
In Pennsylvania, the Customer Choice Act went into effect January 1,1997. He 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 gin customers their choice of electric generation suppliers, delivery of the electricity from the gen-eration supplier to the customer will remain the responsibility of the existing franchised utility. The Customer Choice Act also 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.
J Pennsylvania's electric utility restructuring is being accomplished through a two-stage process con-sisting of an initial customer choice pilot period (running through 1998) and a phase-in to competi-tion period (beginning in 1999). For the first stage, Duquesne filed a pilot program with the PUC on February 27,1997. For the second stage, Duquesne filed on August 1,1997 its restructuring and merger plan (the Restructuring Plan) and its stand-alone restructuring plan (the Stand Alone Plan) with the PUC. (See the detailed discussion of these plans on pages 30 and 31.)
Customer Choice Pilots ne pilot period gives utilities an opportunity to examine a wide range of technical and adminis-trative details related to competitive markets, including metering, billing, and cost and design of unbundled electric services. Duquesne's pilot filing proposed unbundling transmission, distribution, generation and competitive transition charges and offered participating customers the same options that were to be available in a competithe generation market. The pilot was designed to comprise approximately 5 percent of Duquesne's residential, commercial and industrial demand. He 28,000 customers participatirg in the pilot may choose unbundled service, with their electricity provided by an altemative generation supplier, and will be subject to unbundled distribution and CTC charges approved by the PUC and unbundled transmission charges pursuant to Duquesne's FERC-appmved tariff. On May 9,1997, the PUC issued a Preliminary Opinion and Order approvmg Duquesne's fil-ing in part, and requiring certain revisions. Duquesne and other utilities objected to several features of the PUC's Preliminary Opinion and Order. Hearings on several key issues were held in July. The PUC issued its final order on August 29,1997, approving a revised pilot program for Duquesne. On September 8,1997 Duquesne appealed the determination of the market price of generation set forth in this order to the Commonwealth Court of Pennsylvania. Duquesne expects a hearing to be sched-uled for mid-1998. Although this appealis pending, Duquesne complied with the PUC's order to implement the pilot program that began on November 3,1997.
Phase-In to Competition The phase-in to competition begins on January 1,1999, when 33 percent of customers will have customer choice (including customers covered by the pilot program); 66 percent of customers will have customer choice no later than January 1,2000; and all customers will have customer choice 29
no later than January 1,2001. However, in its sole order to date (the PECO Order), the PUC ordered the phase-in provisions of the Customer Choice Act to require the acceleration of the second and third phases to January 2,1999 and January 2,2000, respectively. As they are phased-in, customers that have chosen an electricity generation supplier other than Duquesne will pay that sup-plier for generation charges, and will pay Duquesne a CTC (discussed below) and unbundled charges for transmission and distribution. Customers that continue to buy their generation from Duquesne will pay for their service at current regulated tariff rates divided into unbundled generation, transmission and distribution chaqn The PECO Order concluded that under the Customer Choice Act, an electric distribution cornpany, such as Duquesne,is to remain a regulated utility and may only offer PUC-approved, tar 0 fed rates (including unbundled generation rates). Delivery of electricity (including transmission, distribution and customer service) will continue to be regulated in substan-tially the same manner as under current regulation.
i Rate Cap and Transition Cost Recovery Before the phase-in to customer choice begins in 1999, the PUC expects utilities to take vigorous steps to mitigate transition costs as much as possible without increasing the rates they currently charge customers. Duquesne has mitigated in excess of $350 million of transition costs during the past three years through accelerated annual depreciation and a one-time write-down of nuclear gen-erating station costs, accelerated recognitiori of nuclear lease costs, increased nuclear decommis-sioning funding, and amortization of various regulatory assets. This relative level of transition cost l
reduction, while holding rates constant, is unmatched within Pennsylvania.
l The PUC will determine what portion of a utility's transition costs that remain at January 1,1999 will be recoverable through a CTC from customers. The CTC recovery period could last through 2005, providing a utility a total of up to nine years beginning January 1,1997 to recover transition costs, unless this period is extended as part of a utility's PUC-approved transition plan. An overall four-and-one-half-year rate cap from January 1,1997 will be imposed on the transmission and dis-tribution charges of electric utility companies. Additionally, electric utility companies may not I
increase the generation price component of rates as long as transition costs are being recovered, with certain exceptions. Duquesne has requested recovery of transition costs of approximately $2 l
billion, ne' of deferred taxes, beginning January 1,1999. Of this amount,50.5 billion represents reg-ulatory assets and $1.5 billion represents potentially uneconemic plant and plant decommissioning costs. Any estimate of the ultimate level of transition costs for Duquesne depends on, among other things, the extent to which such costs are deemed recoverable by the PUC, the ongoing level of the cost of Duquesne's operations, regional and national economic conditions, and growth of Duquesne's sales. (See item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINAN-CIAL CONDITION AND RESULTS OF OPERATIONS " Financial Exposure to Transition Cost Recovery" discussion on page 18; and " Regulatory Assets and Emerging issues Task Force" dis-c cussion on page 32).
Timetablefor Restructuring Plan and Stand Alone Plan Approval On August 1,1997, Duquesne filed the Restructuring Plan and the Stand-Alone Plan with the PUC. Although the provisions of the Customer Choice Act require a PUC decision nine months from the filing date (which would be April 30,1998), the Pennsylvania Attorney General's Office requested an extension in order to conduct an investigation into certain competition issues relating to the Restructuring Plan. Pursuant to an arrangement among Duquesne, the PUC and the Attomey General, Duquesne anticipates a decision by the PUC (with respect to the Restructuring Plan if the merger is approved, or with respect to the Stand Alone Plan if the merger is not approved) on or before May 29,1998 or such later date as the parties may agree.
Stand-Alone Plan in the event the merger of DQE with AYE is not consummated under the filed Restructuring Plan, Duquesne has sought approval for restructuring and recovery of its own transition costs through a CTC under the Stand-Alone Plan. Duquesne proposed that any finding of market value for Duquesne's generating assets should be based on market evidence and not on an administrative determination of that value based on price forecasts (the PECO Order determined the market value of PECO Energy Company's generation based on the pri c forecast sponsored by the Pennsylvania Office of Consumer Advocate). In addition, Duo':m. proposed that such a final market valuation be conducted in 2003, and that an annual competitas u.arkat solicitation be used to set the CTC in the interim. The 2003 final market valuation would be perfmmed by an independent panel of experts using the best available market evidence at that time. The Stand-Alone Plan filing also provided for certain triggers that would accelerate the date of this final market valuation. Prior to the final valua-tion, Duquesne would sell a substantial amount of power to the highest bidder in an annual competi-tive solicitation. The annual market price established by the solicitation would be used to set 30
competitive generation credits and determine the CTC as a residual from the generation rate cap under the Rate Cap Provision. (See item 7. M ANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS " Financial Impact of Pilot Program Order" discussion on page 17.) During the transition period, Duquesnc committed to accelerate amortization and depreciation of its generation-related assets and cap its retum on equity through a retum on equity spillover mechanism, in exchange for being allowed to charge existing rates under the Rate Cap Provision. Duquesne committed to a minimum of $1.7 billion of amortiza-tion and depreciation of generation-related assets by the end of 2005. Under the proposed return on equity spillover mechanism, additional amortization and depreciation in excess of this minimum
$1.7 billion commitment would be recorded in order to comply with the return on equity cap. The generation rate cap would apply to the sum of the CTC and the competitive generation credit deter-mined in the annual competitive solicitation. The Stand-Alone Plan also proposed to redesign indi-vidual tariffs to encourage more efficient consumption and further mitigate transition costs during the transition period. Consistent with Duquesne's long-standing commitment to economic develop-ment, the rate redesign provides for a significarst reduction in the cost of electricity for incremental consumption. Application of the rate redesign to the CTC would also have the potential to maximize mitigation of transition costs during the transition period.
As an alternative to a market-based valuation in 2003,if the PUC finds that a determination of market value as of December 31,1998 is required by the Customer Choice Act, then Duquesne has agreed that the PUC may order an immediate auction of Duquesne's generation at that time.
Restructuring Plan The Restructuring Plan incorporates the benefits of the merger with AYE, such as anticipated savings to Duquesne, on a nominal basis, of $365 million in generation-related costs over 20 years, and $9 million in transmission-related costs and $173 million in distribution-related costs over 10 years. Duquesne plans to use the generation-related portion of its share of net operating synergy sav-ings to shorten the transition cost recovery period. He Restructuring Plan also incorporates the market-based approach to determining transition costs proposed by Duquesne in its Stand-Alone Plan. He 2003 final market valuation will be performed by an independent panel of experts using the best available market evidence at that time, including a potential sale of a portion of the combined compa-3 ny's generating assets. Certain triggers will accelerate the date of this final market valuation if mar-ket prices rise significantly or the minimum amortization commitment is satisfied prior to 2003. The annual market price established by Duquesne's solicitation would be used to set competitive genera-tion credits and to determine the CTC as a residual from the generation rate cap under the Rate Cap Provision. Duquesne's minimum amortization commitment of $1.7 billion in the proposed Stand-Alone Plan has been increased under the Restructuring Plan. As in the Stand-Alone Plan, the deter-mination of transition costs in 2003 will compare the book value of generating assets in 2005 (after netting the increased minimum commitment to depreciation and amortization and any retum on equi-ty spillover) with the market value of the generating assets in 2005. The opposing parties believe that there should be a one-time valuation of the generating assets performed at January 1,1999.
Any merger related synergies relating to generation would then be used to reduce Duquesne's transi-tion costs as of that date.Rese parties also believe that Duquesne's proposed distribution rate decrease should be effective January 1,1999, as well.
AdditionalRestructuring Plan Commitments The Restructuring Plan also contains a number of commitments by the merged DQF/AYE entity. First, the merged entity will open up its transmission system to all parties on a reciprocal non-discriminatory basis and eliminate multiple rate charges across the combined transmission system.
Second, the merged entity willjoin a recently proposed Midwest independent System Operator (ISO) or other then-existing ISO, or form its own ISO if no existing ISO offers acceptable rules, including marginal cost transmission rates. Several utilities have applications pending before the FERC to form ISOs. Third, the merged entity has committed to make a report,18 months after consummation of the merger, to the PUC regarding its progress on the ISO commitment. He PUC may, at its option, require the merged entity to relinquish control of 300 MW of generating capacity to alleviate concerns over market power. De form of relinquishment would be at the option of the merged entity; possible forms of relinquishment include an energy swap, entering a power sale con-tract, divestiture of generating assets and a bidding trust.
The FederalFilings In addition to the PUC filings of the Restructuring Plan and the Stand-Alone Plan, on August 1, 1997, DQE and AYE filed theirjoint merger application with the FERC (the FERC Filing). Pursuant to the FERC Filing, DQE and AYE have committed to forming orjoining an ISO that meets the 31 l
entity's requirements, including marginal cost transmission pricing, following the merger. In addi-tion, DQE and AYE have stated in the FERC Filing that following the merger the combined entity's market share will not violate the market power conditions and requirements set by the FERC On January 20,1998, DQE and AYE filed merger applications with the Antitrust Division of the Department of Justice and the Federal Trade Commission. These applications are currently pending.
Regulatory Assets and Emerging issues Task Force As a result of the application of SFAS No. 71 Duquesne records regulatory assets on its consoli-dated balance sheet. The regulatory assets represent probable future revenue to Duquesne because provisions for these costs are currently included, or are expected to be included, in charges to electric utility customers through the ratemaking process.
A company's electric utility operations, or a portion of such operations, could cease to meet the SFAS No. 71 criteria for various reasons, including a change in the FERC regulations or the com-petition related changes in the PUC regulations. (See " Competition and the Customer Choice Act,"
on page 29.) The Emerging issues Task Force of the Financial Accounting Standards Board (EITF) has determineil that once a transition plan has been approved, application of SFAS No. 71 to the genera-tion portion of a utility must be discontinued and replaced by the application of SFAS No.101, 1
Regulated Enterprises Accountingfor the Discontinuation ofApplication of FASB Statement No.
71 (SFAS No.101). The consensus reached by the EITF provides further guidance that the regula-tory assets and liabilities of the generation portion of a utility to which SFAS No.101 is being applied should be determined on the basis of the source from which the regulated cash flows to realize su:h regulatory usets and settle such liabilities will be derived. Under the Customer Choice Act, Duquesne believes that its generation-related regulatory assets will be recovered through a CTC collected in connection with providing transmission and distribution services, and Duquesne will con-tinue to apply SFAS No. 71. Fixed assets related to the generation portion of a utility will be evaluated including the cash flows provided by the CTC,in accordance with SFASNo.121, Accountingfor the impairment ofLong Lived Assets andfor Long Lived Assets to Be Disposed Of(SFAS No. I21).
Duquesne believes that all of its regulatory assets continue to satisfy the SFAS No. 71 criteria in light of the transition to competitive generation under the Customer Choice Act and the ability to recover these regulatory assets through a CTC. Once any portion of Duquesne's electric utility opera-tions is deemed to no longer meet the SFAS No. 71 criteria, or is not recovered through a CTC, Duquesne will be required to write off assets (to the extent their net book value exceeds fair value),
the recovery of which is uncertain, and any regulatory assets or liabilities for those operations that no longer meet these requirements. Any such write-off of assets could be materially adverse to the financial position, results of operations and cash flows of Duquesne.
Duquesne's regulatory assets related to generation, transmission and distribution as of December 31,1997 were $561.9 million, $33.2 million and $85.8 million, respectively. At December 31, 1996, Duquesne's regulatory assets related to generation, transmission and distribution were $492.6 million, $41.4 million and $102.8 million, respectively. The components of all regulatory assets for the periods presented are as follows:
32
l Regxlatory Assets ct December 31 1997 1996 (Amounts in Thousands ofDollars)
Regulatory tax receivable (Note A)
$301,664
$394,131 Brunot Island and Phillips cold reserve units (a) 105,693 Unamortized debt costs (b) 87,915 93,299 Deferred rate synchronization costs (c) 37,231 41,446 Beaver Valley Unit 2 sale / leaseback premium (Note H) 28,554 30,059 Deferred employee costs (d) 25,130 29,589 Deferred energy costs (Note A) 23,514 Deferred nuclear maintenance outage costs (Note A) 17,013 13,462 Deferred coal costs (e) 15,711 12,191 DOE decontamination and decommissioning receivable (Note I) 8,847 9,779 Other (f) 29,613 12,860 TotalRegulatory Assets
$680,885
$636,816 (a) Brough its analysis of customer choice in the Restiucturing Plan and Stand.Alone Plan, Duquesne determined s
that Phillips and a portion of Brunot Island would not be cost-effective in the production of electricity in the face of a competitive marketplace.
(b) The premiums paid to reacquire debt prior to scheduled maturity dates are deferred for amortnation over the life of the debt issued to finance the reacquisitions.
(c) Initial operating costs of Beaver Vallev Unit 2 and Perry Unit I were deferred end are currently being recovered over a 10 year period.
(d) Includes amounts for recovery of accrued compensated absences and accrued claims for workers' compensation.
(e) De PUC has directed Duquesne to defer recovery of the delivered cost of coal to the extent that such cos meeds generally prevailing market prices for similar coal, as determined by the PUC.
(f) 1997 amounts ihclude $6.8 million reltted to Statement oflosition W1, Environmental Remediation Liabilities for the ongoing monitoring of certain of Duquesne's sites and $6.8 million of one-time costs for the 1997 carly retirement plan recorded in accordance with SFAS No. 88, Employers' Accountingfor Settlements and Curtailments of Defined Benept Pension Plans andfor Termination Benefits and SFAS No.106, Employers' Accountingfor Postretirement Benepts Other Than Pensions. (See
- Employee Benefits," Note M, on page 41.)
- f. Short Term At December 31,1997, Duquesne had a $150 million facility expiring in October 1998. Interest Borrowing and rates can, in accordance with the option selected at the time of the borrowing, be based on prime.
Revolving Credt Eurodollar or certificate of deposit rates. Commitment fees are based on the unborrowed amount of Arrangements the commitments. The credit facility contains two-year repayment periods for any amounts out-standing at the expiration of the revolving credit periods. At December 31,1997 and December 31, 1996, there were no shott-term bormwings outstanding.
O. Income Taxes Since DQE's formation in 1989, Duquesne has filed consolidated federal income tax retums with its parent and other companies in the affiliated group. The annual federal corporate income tax returns have been audited by the Internal Revenue Service (IRS) for the tax years through 1992.
The IRS is reviewing the 1993 and 1994 returns, and the tax years 1995 and 1996 remain subject to IRS review. Duquesne does not believe that final settlement of the federal income tax returns for the years 1990 through 1996 will have a materially adverse effect on its financial position, results of operations or cash liows.
33 l
L
Deferred Tax Assets (llabilities)et December 31 1997 1996 (Amounts in Thousands of Dollars)
Tax benefit-long-term investments
$ 190,375
$ 143,724 Gain on sale / leaseback of BV Unit 2 58,137 61,131 Investment tax credits unamortized 40,573 44,067 Unbilled revenue 19,637 19,222 Other 57,037 49,840 Deferred tax assets 365,759 317,984 Property depreciation (712,247)
(783,851)
Regulatory assets (125,171)
(150,346)
Loss on reacquired debt unamortized (31,360)
(33,331)
Deferred coal and energy costs (15,910)
(5,054)
Other (80,882)
(71,919)
Deferred tax liabilities
(%5,570)
(1,044,501)
Net Deferred Tax IJabilities
$ (599,811)
$ (726,517)
Income Taxes 1997 1996 1995 (Amounts in Thousands ofDollars)
Currently payable:
Federal
$ 98,843
$ 95,524
$103,271 State 28,608 29,325 30,453 Deferred - net:
Federal (42,712)
(30,950)
(28,381)
State (152)
(697)
(5,778)
Investment tax credits deferred - net (7,804)
(7,838)
(7.252)
Totalincluded in Operating Expenses 76,783 85,364 92,313 Included in other income and deductions:
Currently payable:
Federal (39,536) 24,774 2,199 State (575) 14,710 (1,619)
Deferred - net:
Federal 43,672 (25,944) 442 State (14,176) 137 investment tax credits (616)
(1,720)
(578)
Totalincluded in Other income and Deductions 2,945 (2,356) 58l TotalIncome Tax Expense
$ 79,728
$ 83,008
$ 92,894 Total income taxes differ from the amount computed by applying the statutory federal income tax rate to income before income taxes.
Income Tax Expense Reconcillation 1997 1996 1995 (Amounts in Thousands ofDollars)
Computed federal income tax at statutory rate
$ 77,542
$ 81,504 5 85,387 Increase (decrease) in taxes resulting frora:
State income taxes, net of federal income tax benefits 18,595 18,955 15,076 Amorti.tation of deferred investment tax credits (8,420)
(9,559)
(7,831)
Investment tax benefits - net (7,734)
(9,641)
(2,311)
Other (255) 1,749 2,573 TotalIncome Tax Expense
$ 79,728
$ 83,008
$ 92,894 34 k
H. Leases Duquesne leases nuclear fuel, a portion of a nuclear generating plant, certain office buildings, computer equipment, and other property and equipment.
CapitalLeases at December 31 1997 1996 (Amounts in Thousands ofDollars)
Nuclear fuel
$ 92,901
$ 79,103 Electric plant 20,761 20,505 Total 113,662 99,608 Less: Accumulated amortization (50,725)
(47,670)
Property Held Under CapitalIsases - Net (a)
$ 62,937
$ 51.938 (a) Includes $2,874 in 1997 and $2.618 in 1996 of capital leases with associated obligations retired.
In 1987, Duquesne sold and leased back its 13.74 percent interest in BV Unit 2; the sale was exclusive of transmission and common facilities. Duquesne subsequently leased back its interest in the unit for a term of 29.5 years. The lease provides for semi-annual payments and is accounted for as an operating lease. Duquesne is responsible under the terms of the lease for all costs related to its interest in the unit. In December 1992, Duquesne participated in the refinancing of collateralized lease bonds to take advantage of lower interest rates and reduce the annual lease payments. The bonds were originally issued in 1987 for the purpose of partially financing the lease of BY Unit 2.
In accordance with the BV Unit 2 lease agreement, Duquesne paid the premiums of approximately
$36.4 million as a supplemental rent payment to the lessors. This amount was deferred and is being amortized over the remaining lease term. At December 31,1997, the defened balance was approxi-mately $28.6 million.
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, see " Depreciation and Amortization,"
Note A, on page 27). These lease-related expenses are charged to operating expenses on the state-ment of consolidated income.
Summary ofRentalPayments 1997 1996 1995 (Amounts in Thousands ofDollars)
Operating leases
$60,684
$59,503
$57,617 Amortization of capital leases 16,847 19,378 26,705 Interest on capital leases 3,435 3,703 4,332 TotalRental Paymenis
$80,966
$82,584
$88,654 Future Minimum Lease Payments Operating Leases Capital Leases Year Ended December 31, (Amounts in Thousands ofDollars) 1998
$ 56,876
$ 26,401 1999 56,869 16,417 2000 56,830 10,446 2001 56,745 4,717 2002 58,296 3,342 2003 and thereafter 814.560 16,469 TotalMinimum finse huyments
$1,100,176
$ 17,792 Less: Amount representing interest (17,729)
Present value of minimum lease payments for capital leases ( t)
$ 60,063 (a) Includes current obligations of $22.5 million at December 31,1997.
35
e Future minimum lease payments for capital leases are related principally to the estimated use of nuclear fuel financed through leasing arrangements and building leases. Future minimum lease pay-ments for operating leases are related principally to BV Unit 2 and certain corporate offices.
Future payments due to Duquesne, as of December 31,1997, under subleases of certain corporate office space are approximately $5.9 million in 1998, $6.0 million in 1999 and $27.6 million thereafter.
- i. Commitments Construction andinvestments cnd Duquesne estimates that it will spend, excluding AFC and nuclear fuel, approximately $130 mil-Contingencies lion during 1998 and $100 million in each of 1999 and 2000 for electric utility constmetion.
Nuclear Related Matters Duquesne has an ownership interest in three nuclear units, two of which it operates. De opera-tion of a nuclear facility involves special risks, potential liabilities, and specific regulatory and safe-ty requirements. Specific information about risk management and potential liabilities is discussed below.
Nuclear Decommissioning. Duquesne expects to decommission BV Unit 1, BV Unit 2 and l
Perry Unit I no earlier than the expiration of each plant's operating license in 2016,2027 and 2026.
l At the end of its operating life, BV Unit I may be placed in safe storage until BV Unit 2 is ready to be decommissioned, at which time the units may be decommissioned together.
Based on site-specific studies conducted in 1997 for BV Unit I and BV Unit 2, and a 1997 update of the 1994 study for Perry Unit 1. Duquesne's approximate share of the total estimated decommissioning costs, including removal and decontamination costs, is $170 million, $55 million and $90 million, respectively. De amount currently being used to determine Duquesne's cost of service related to decommissioning all three nuclear units is $224 million. Duquesne is seeking recovery of any potential shortfall in decommissioning funding as part of either its Restructuring Plan or its Stand-Alone Plan. (See " Rate Matters," Note E, on page 29.)
With respect tv the transition to a competitive generation market, the Customer Choice Act requires that utilities include a plan to mitigate any shortfall in decommissioning trust fund payments for the life of the facility with any future decommissioning filings. Consistent with this requirement, in 1997 Duquesne increased its annual contributions to the decommissioning trusts by $5 million to approximately $9 million. Duquesne has received approval from the IRS for qualification of 100 percent of additional nuclear decommissioning trust funding for BV Unit 2 and Perry Unit 1, and 79 percent for BV Unit 1.
Funding for nuclear decommissioning costs is deposited in external, segregated trust accounts and invested in a portfolio of corporate common stock and debt securities, municipal bonds, certificates of deposit and United States government securities. He market value of the aggregate trust fund balances at December 31,1997 and 1996 totaled approximately $47.1 million and $33.7 million, respectively.
NuclearInsurance. ne Price-Anderson Amendments to theAtomic Energy Act of1954 limit public liability from a single incident at a nuclear plant to $8.9 billion. He maximum available pri-vate primary insurance of $200 million has been purchased by Duquesne. Additional protection of
$8.7 billion would be provided by an assessment of up to $79.3 million per incident on each nucle-ar unit in the United States. Duquesne's maximum total possible assessment, $59.4 million, which '
is based on its ownership or leasehold interests in three nuclear generating units, would be limited to a maximum of $7.5 million per incident per year. This assessment is subject to indexing for inflation and may be subject to state premium taxes. If assessments from the nuclear industry prove insufficient to pay claims, the United States Congress could impose other revenue-raising measures on the industry.
Duquesne's share of insurance coverage for property damage, decommissioning and decon.
. tamination liability is $1.2 billion. Duquesne 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 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, Duquesne could be assessed retrospective premiums totaling a maximum of
$5.8 million.
In addition Duquesne participates in a NEIL program that provides insurance for the increased cost of generation and/or purchased power resulting from an accidental outage of a nuclear unit. Subject to the policy deductible, terms and limit, the coverage provides for a weekly indemnity of the esti-mated incremental costs during the three-year period starting 21 weeks after an accident, with no coverage thereafter, if NEIL's losses for this program ever exceed its reserves, Duquesne could be assessed retrospective premiums totaling a maximum of $3.4 million.
36
Beaver Valley Power Station (B VPS) Steam Generators. BVPS's two units are equipped with steam generators designeh.d 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. BV Unit 1, which was placed in service in 1976, has removed approximately 17 percent ofits steam generator tubes from service through a process called " plugging." However, BV Unit I continues to operate at 100 percent reactor power and has the ability to return tubes to service by repairing them through a process called " sleeving."
No tubes at either BV Unit i or BV Unit 2 have been sleeved to date. 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. Approximately 2 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.
Duquesne has undertaken certain measures, such as increased inspections, water chemistry con-trol and tube plugging, to minimize the operational impact of and to reduce susceptibility to ODSCC. Although Duquesne has taken these steps to allay the effects of ODSCC, the inherent potential for future 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. Duquesne would be responsible for $59 million of this total, which includes the cost of equipment removal and replace-ment steam generators but excludes replacement power costs. The earliest that the BV Unit I steam generators could be replaced during a scheduled refueling outage is the fall of 2000.
Duquesne continues to explore all viable means of managing ODSCC, including new repair tech-nologies, and plans to continue to perform 100 percent tube inspections during future refueling out-ages. The next refueling outage for BV Unit 1 is scheduled to begin in April 1999, and the next refueling outage for BV Unit 2 is currently scheduled to begin in September 1998. Both outages will include inspection of 100 percent of each unit's steam generator tubes. Duquesne will continue to monitor and evaluate the condition of the BVPS steam generators.
BV Unit I went off-line on September 27,1997, for a scheduled refueling outage, and retumed to service on January 21,1998. Perry Unit I cornpleted a refueling outage on October 23,1997.
This outage lasted 40 days, a record for Perry Unit 1. The next refueling outage for Perry Unit 1 is currently scheduled to begin in March 1999.
BV Unit I went off-line January 30,1998, due to an issue identified in a technical review recent-ly completed by Duquesne. BV Unit 2 went off-line December 16,1997, to repair the emergency air supply system to the control room and has remained off-line due to other issues identified by a similar technical review of BV Unit 2. These technical reviews are in response to a 1997 commit-ment made by Duquesne to the NRC. Duquesne is one of many utilities faced with these technical issues, some of which date back to the original design of BVPS. Both BVPS units remain off line for a revalidation of technical specification surveillance testing requirements of various plant sys-tems. Based on the current status of the revalidation process, Duquesne currently anticipates that both BVPS units will remain off-line through March 1998.
Spent Nuclear FuelDisposal The Nuclear Waste Policy Act of1982 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 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 estab-lished an interim or permanent storage facility, despite a rt,iing by the United States Court of Appeals for the District of Columbia Circuit that the DOE was legally obligated to begin accep-tance of spent nuclear fuel for disposal by January 31,1998. Existing on-site spent nuclear fuel storage capacities at BV Unit 1, BV Unit 2 and Perry Unit I are expected to be sufficient until 2017,2011 and 2011, respectively.
In early 1997, Duquesne joined 35 other electric utilities and 46 states, state agencies and regula-tory 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 of its contracts with the utilities. The court ruling, issued November 14,1997, was not entirely in favor of the DOE or the utilities. The court permitted the DOE to pursue alternative dispute resolution, but prohibited it from using its lack of a spent fuel repository as a defense. The DOE has requested a rehearing on the matter, which has yet to be scheduled.
37
s Urrnium Enrichment oblig:tions. 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 of1992 (NEPA) and are to be paid by such utilities over a 15-year period. At December 31,1997 and 1996, Duquesne's liability for contributions was approximately $7.2 million and $8.1 million, respectively (subject to an inflation adjustment).
(See " Rate Matters," Note E, on page 29.)
FossilDecommissioning In Pennsylvania, current ratemaking does not allow utilities to recover future decommissioning costs through depreciation charges during the operating life of fossil-fired generating stations.
Based on studies conducted in 1997, this amount for fossil decommissioning is currently estimated to be $130 million for Duquesne's interest in 17 units at six sites. Each unit is expected to be decommissioned upon the cessation of the final unit's operations. Duquesne has submitted these estimates to the PUC, and is seeking to recover these costs as part of either its Restructuring Plan or its Stand Alone Plan. (See " Rate Matters," Note E, on page 29.)
Guarantees Duquesne and the other owners of Bruce Mansfield Power Station (Bruce Mansfield) have guar-anteed certain debt and lease obligations related to a coal supply contract for Bruce Mansfield. At December 31,1997, Duquesne's share of these guarantees was $15.1 million. Re prices paid for the coal by the companies under this contract are expected to be sufficient to meet debt and lease obligations to be satisfied in the year 2000. The minimum future payments to be made by Duquesne solely in relation to these obligations are $6.2 million in 1998, $5.8 million in 1999, and $4.6 mil-lion in 2000. Duquesne's total payments for coal purchased under the contract were $38.3 million in 1997, $26.9 million in 19%, and $28.9 million in 1995.
Residual Waste hianagement Regulations in 1992, the Pennsylvania Department of Environmental Protection (DEP) issued Residual Waste Alanagement Regulations governing the generation and management of non-hazardous residual waste, such as coal ash. Duquesne is assessing the sites it utilizes and has developed compliance strategies that are currently under review by the DEP. Capital costs of $2.8 million and $2.5 million were incurred by Duquesne in 1997 and 1996, respectively, to comply with these DEP regulations. The additional capital cost of compliance through the year 2000 is estimated, based on current infonna.
tion, to be $16 million. This estimate is subject to the results of groundwater assessments and DEP final approvalof 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. He contract provides, among other things, employment security, income protection and 3 percent annual wage increases through September 2000.
Other Duquesne is involved in various other legal proceedings and environmental matters. Duquesne believes that such proceedings and matters, in total, will not have a materially adverse effect on its financial position, results of operations or cash flows.
J. Long-Term Debt The pollution control notes arise from the sale of bonds by public authorities for the purposes of financing construction of pollution control facilities at Duquesne's plants or refunding previously issued bonds. Duquesne 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 payment of interest on, or redemption of, all or a portion of the notes.
l 38 l
Larg Term DebtetDecember31 Principal Outstanding interest (Amounts in Thousands ofDollars)
Rate Maturity 1997 1996 First mortgage bonds 5.85%8.7M 1998 2025 $ 778,000 (a) $ 853,000 (b)
Pollution control notes (c) 2009-2030 417,985 417,985 Sinking fund debentures 5%
2010 2,791 4,891 Miscellaneous 23,172 Less: Unamortized debt discount and premium - net (3,672)
(3,915)
TodelLong Term Debt
$1,218,276
$1,271,%1 (a) Excludes $75.0 million related to current maturities during 1998.
(b) Excludes $50.0 million related to a current maturity during 1997.
(c) The pollution control notes have adjustable interest rates. 7he interest rates at year-end averaged 3.9 percent in 1997 and 3.7 percent in 1996.
At December 31,1997, sinking fund requirements and maturities oflong-term debt outstanding for the next five years were $75.0 million in 1998, $75.0 million in 1999, $100.0 million in 2000 and none in 200l and 2002.
Total interest was $85.8 million in 1997, $88.9 million in 1996, and $97.2 million in 1995.
Interest costs attributable to long-term debt and other interest were $88.1 million, $90.1 million and
$97.9 million in 1997,1996 and 1995, respectively. Of these amounts, $2.3 million in 1997, $1.2 million in 19%, and $0.7 million in 1995 were capitalized as AFC. Debt discount or premium and related issuance expenses are amortized over the lives of the applicable issues.
During 1994, Duquesne's BV Unit 2 lease arrangement was amended to reflect an increase in federal income tax rates. At the same time, the associated letter of credit securing the lessor's equity interest in the unit wat increased from $188 million to $194 million and the term of the letter of credit was extended to 1999. If certain specified events occur, the letter of credit could be drawn down by the owners, the leases could terminate, and collateralized lease bonds ($381.5 million at December 31,1997) would become direct obligations of Duquesne.
'At December 31,1997,'the fair value of Duquesne's long-term debt, including current maturities and sinking fund requirements, estimated on the basis of quoted market prices for the same or similar issues or current rates offered to Duquesne for debt of the same remaining maturities, was $1,313.6 million. The principal amount included in Duquesne's consolidated balance sheet is $1,296.9 million.
At December 31,1997 and 19%, Duquesne was in compliance with all of its debt covenants.
(See " Rate Matters," Note E, on page 29.)
l 39
K. Preferred cnd Pr:ferred ad Preference Stock at December 31 (Shares and Amounts in Thousands)
Call Price Per Share Shares Amount Shares Amount Preferred Stock Series:
l 3.75% (a)(b)(c)
$51.00 148 7,407 148
$ 7,407 i
4.00% (a)(b)(c) 51.50 550 27,486 550 17,486 4.10% (a)(b)(c) 51.75 120 6,012 120 6,012 4.15% (a)(b)(c) 51.73 132 6,643 132 6,643 4.20% (a)(b)(c) 51.71 100 5,021 100 5,021
$2.10 (a)(b)(c) 51.84 159 8,039 159 8,039 3,000 9.00% (d) 3,000 8.375% (e) 6,000 150,000 6,000 150,000 1,000 6.5% (f)
Total Preferred Stock 7,209 214,608 7,209 213,608 Preference Stock Series:(g)
Plan Series A(c)(h) 36.90 799 28,295 817 28,997 Total Preference Stock 799 28,295 817 28,997 Deferred ESOP benefit (16,400)
(19,533)
Total Preferred and Preference Stock
$226,503
$223,072 (a) Preferred stock: 4,000,000 authorized shares; (e) Cumulativ e Monthly income Preferred Securities,
$50 par value; cumulative Series A (MIPS): 6,000,000 authorized shares; (b) $50 per share involuntary liquidation value
$25 involuntary liquidation value (c) Non-redeemsble (f) 1,500 authetired sha.es; 10 issued, $100,000 par (d) 500 authorized shares; 10 issued $300,000 par value; $100,000 involuntary liquidation value value; involuntary liquidation value $300,000 (g) Preference stock: 8,000.000 authorized shares; per share; mandatory redemption beginning
$1 par value; cumulative August 2000; cumulative (h) $35.50 per share involuntary liquidation value In October 1997, a Duquesne subsidia1y issued 10 shares of preferred stock, par value $100,000 per share. He holders of such shares are entitled to a 6.5 percent annual dividend 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 dividend paid quarterly.
In May 1996, Duquesne Capital L.P. (Duquesne Capital), a special-purpose limited partnership of which Duquesne is the sole general partner, issued $150.0 million principal amount of 8X percent Monthly income Preferred Securities (MIPS), Series A, with a stated liquidation value of $25.00.
The holders of MIPS are entitled to annual dividends of 8X percent, payable monthly. He sole assets of Duquesne Capital are Duquesne's 8X percent debentures, with a principal amount of
$151.5 million. These debt securities may be redeemed at Duquesne's option on or after May 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 MIPS will be mandatorily redeemed. Duquesne's consolidated balance sheet reRects only the
$150.0 million of MIPS.
Holders of Duquesne's preferred stock are entitled to cumulative quarterly dividends. If four quarterly dividends on any series of preferred stock are in arrears, holders of the preferred stock are entitled to elect a majority of Duquesne's board of directors until all dividends have been paid.
Holders of Duquesne's preference stock are entitled to receive cumulative quarterly dividends if dividends on all series of preferred stock are paid. If six quarterly dividends on any series of preference stock are in arrears, holders of the preference stock are entitled to elect two of Duquesne's directors until all dividends have been paid. At December 31,1997. Duquesne had made all dividend payments. Total preferred and preference stock had involuntary liquidation values of $244.4 million and $242.5 million, which exceeded par by $27.6 million and $28.2 million at December 31,1997 and 1996.
40 i
1
In December 1991, Duquesne established an Employee Stock Ownership Plan (ESOP) to provide matching contributions for a 401(k) Retirement Savings Plan for Management Employees. (See
" Employee Benefits," Note M below.) Duquesne issued and sold 845,070 shares of preference stock, plan series A to the trustee of the ESOP. As consideration for the stock, Duquesne received r note valued at $30 million from the trustee. The preference stock has an annual dividend rate of
$2.80 per share, and each share of the preference stock is exchangeable for one and one-half shares of DQE common stock. At December 31,1997, $16.4 million of preference stock issued in connec-tion with the establishment of the ESOP had been offset, for financial statement purposes, by the recognition of a deferred ESOP benefit. Dividends on the preference stock and cash contributions from Duquesne are used to repay the ESOP note. Duquesne made cash contributions of approxi-mately $1.1 million for 1997, $1.4 million for 1996, and $1.6 million for 1995. These cash contri-butions were the difference between the ESOP debt service and the amount of dividends on ESOP shares ($2.3 million in 1997,1996 and 1995). As shares of preference stock are allocated to the accounts of participants in the ESOP, Duquesne recognizes compensation expense, and the amount of the deferred compensation benefit is amortized. Duquesne recognized compensation expense relat-ed to the 401(k) plans of $3.1 million in 1997 and $2.3 million in 1996 and 1995. Although out-standing 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 requiremer L Common Common Stock and CapitalSurplus Stock and (Amounts in Thousands)
Capital 1997 1996 1995 Surplus Premium on common stock
$831,425
$825,814
$837,539 Capital stock expense (274)
(274)
(274)
Total CapitalSurplus
$831,151
$825,540
$837,265 In July 1989, Duquesne became a wholly owned subsidiary of DQE, the holding company formed as part of a shareholder-approved restructuring. As a result of the restructuring, DQE com-mon stock replaced all outstanding shares of Duquesne common stock, except for ten shares which DQE holds.
DQE or its predecessor, Duquesne, has continuously paid dividends on common stock since 1953. Payments of dividends on Duquesne's common stock may be restricted by Duquesne's obli-gations to holders of preferred and preference stock pursuant to Duquesne's Restated Articles of incorporation and by obligations of Duquesne's subsidiaries to holders of their preferred securities.
No dividends or distributions may be made on Duquesne's common stock if Duquesne has not paid dividends or sinking fund obligations on its preferred or preference stock. Further, the aggregate amount of Duquesne's common stock dividend payments or distributions may not exceed certain percentages of net income if the ratio of total common shareholder's equity to total capitalization is less than specified percentages. As all of Duquesne's common stock is owned by DQE, to the extent that Duquesne cannot pay common dividends, DQE may not be able to pay dividends on its common or preferred stock. No part of the retained camings of Duquesne was restricted at December 31,1997. (See " Rate Matters," Note E, on pages 29 through 33.)
M. Employee Retirement Plans Benefits Duquesne maintains retirement plans to provide pensions for all cli ible employees. Upon retire-E ment, an employee receives a monthly pension based on his or her length of service and compensa-tion. 'Ihe cost of funding the pension plan is determined by the unit credit actuarial cost method.
Duquesne's policy is to record this cost as an expense and to fund the pension plans by an amount that is at least equal to the minimum funding requirements of the Employee Retirement income Security Act of1974 (ERISA) but that does not exceed the maximum tax-deductible amount for the year. Pension costs charged to expense or construction were $12.7 million for 1997, $11.9 million for 1996, and $6.1 million for 1995.
In 1997, Duquesne offered an early retirement plan to its bargaining unit employees meeting cer-tain age and service criteria. In accordance with SFAS No. 88, Employers' Accountingfor Settlements and Curtailments ofDefined Benefit Pension Plans andfor Termination Benefits and SFAS No.106, Employers' Accountingfor Postretirement Benefits Other Than Pensions, Duquesne recorded $6.8 million of one-time costs as a regulatory asset and other non-current liability on the consolidated balance sheet.
41
e Funded Status of the Retiremez! Plans and Amounts Recognized on the Cons:lidated Balance Sheet ct December 31 1997 1996 (Amounts in Tiwusands ofDollars)
Actuarial present value of benefits rendered to date:
Vested benefits
$460,483
$413,109 Non-vested benefits 25,080 22,551 Accumulated benefits obligations based on compensation to date 485,563 435,660 Additional benefits based on estimated future salary levels 68,739 61,438 Projected benefits obligation
$54,302 497,098 Fair market value of plan assets 605,457 525,871 Projected benefits obligation under plan assets
$ 51,155
$ 28,773 Unrecognized net gain
$153,682
$128,382 Unrecognized prior service cost (39,800)
(43,790)
Unrecognized net transition liability (12,039)
(13,853)
Net pension liability per consolidated balance sheet (50,688)
(41,966)
Total
$ 51,155
$ 28.773 Assumed rate of return on plan assets 8.00 %
8.25 %
Discount rate used to determine projected benefits obligation 7.00 %
7.50%
Assumed change in compensation levels 4.75 %
5.25 %
Pension assets consist primarily of common stocks, United States obligations and corporate debt securities.
Components ofNet Pension Cost 1997 1996 1995 (Amounts in Thousands ofDollars)
Service cost (benefits earned during the year)
$ 12,340
$ 12,209
$ 9,953 Interest on projected benefits obligation 36,570 32,597 30.063 Return on plan assets (95,444)
(58,173)
(99,246)
Net amortization and deferrals 65,801 25,312 65,316 NetPension Cost
$ 19,267
$ 11,945 5 6,086 Retirement Snings Plan and Other Bene)it Options Duquesne sponsors separate 401(k) retirement plans for its management and bargaining unit employees.
He 401(k) Retirement Savings Plan for Management Employees provides that Duquesne will match employee contributions to a 401(k) account up to a maximum of 6 percent of an employee's eligible salary. Duquesne's match consists of a $0.25 base match per eligible contribution dollar and an additional $0.25 incentive match per eligible contribution dollar,if Board-approved targets are achieved. Re 1997 incentive target for management was accomplished. Duquesne is funding its matching contributions to the 401(k) Retirement Savings Plan for Management Employees with payments to an ESOP established in December 1991. (See " Preferred and Preference Stock,"
Note K, on page 40.)
The 401(k) Retirement Savings Plan for IBEW Represented Employees provides that, beginning in 1995, Duquesne will match employee contributions to a 401(k) account up to a maximum of 4 percent of an employee's eligible salary. Duquesne's match consists of a $0.25 base match per eli-gible contribution dollar and an additional $0.25 incentive match per eligible contribution dnllar,if certain targets are met. In 1997, the incentive target was accomplished.
DQE's shareholders have approved a long-term incentive plan through which Duquesne ty grant management employees options to purchase, during the years 1987 through 2006, up s
j total of 7.5 million shares of DQE's common stock at prices equal to the fair market value o tch stock on the dates the options were granted. At December 31,1997, approximately two milli.a of these shares were available for future grants.
42
As of December 31,1997,1996 and 1995, active grants totaled 1,084,041; 1,698,000; and 2,159,000 shares. Exercise prices of these options ranged from $15.8334 to $33.7813 at December 31, 1997; from $8.2084 to $30.875 at December 31,1996; and from $8.2084 to $27.625 at December 31, 1995. Expiration dates of these grants ranged from 2000 to 2007 at December 31,1997; from 1997 to 2006 at December 31,1996; and from 1997 to 2005 at December 31,1995. As of December 31, 1997,1996 and 1995, stock appreciation rights (S ARs) had been granted in connection with 635,995; 984,000; and 1,202,000 of the options outstanding. 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. During 1995,367,000 SARs were exercised; 133,000 options were exercised at prices ranging from $8.2084 to $21.6667; and 28,000 options were cancelled. Of the active grants at December 31,1997,1996 and 1995, 402,816; 668,000; and 929,000 were not exercisable.
OtherIbstretirement Benefits in addition to pension benefits, Duquesne provides certain health care benents and life insurance for some retired employees. Participating retirees make contributions, which may be adjusted annu-ally, to the health care plan. He life insurance plan is non-contributory. Company provided health care benefits terminate when covered individuals become eligible for Medicare benefits or reach age 65, whichever comes first. Duquesne funds actual expenditures for obligations under the plans on a " pay-as-you-go" basis. Duquesne has the right to modify or terminate the plans.
Duquesne accrues the actuarially determined costs of the aforementioned postretirement benefits over the period from the date of hire until the date the employee becomes fully eligible for benefits.
Duquesne has elected to amortize the transition liability over 20 years.
Components ofIbstretirement Cost 1997 1996 (Amounts in Thousands of Dollars)
Service cost (benefits earned during the period)
$1,603
$1,182 Interest cost on accumulated benefit obligation 3,048 2,046 Amortization of the transition obligation over 20 years 1,686 1,700 Other 218 (812)
Total 1%stretirement Cost
$6,555
$4,116 The accumulated postretirement benefit obligation comprises the present value of the estimated future benefits payabic to current retirees and a pro rata portion of estimated benefits payable to active employees after retirement.
Funded Status of1%stretir ement Plan at December 31 1997 1996 (Amounts in Thousandr ofDollars)
Actuarial present value of benefits:
Retirees
$ 8,150
$ 8,840 Fully eligible active plan participants 5,966 3,829 Other active plan participants 32,214 26,352 Accumulated postretirement benefit obligation 46,330 39,021 Fair market value of plan assets Accumulated benefit obligation in excess of plan assets
$(46,330)
$(39,021)
Unrecognized net actuarial (loss) gains
$ (1,208)
$ 2,874 Unrecognized net transition liability (25,294)
(27,198)
Postretirement liability per consolidated balance sheet (19,828)
(14.697)
Total
$(46,330)
$(39,021)
Discount rate used to determine projected benefit obligation 7.00 %
7.50%
Health care cost trend rates:
For year beginning January 1 6.58 %
6.96 %
Ultimate rate in the year 2001 5.50 %
6.00 %
Effect of a one percent increase in health care cost trend rates:
On accumulated projected benefit obligation
$ 5,2M
$ 2,920 On aggregate of annual service and interest costs 581 391 43
N, Outrtstly Summary ofSelected Quarterly FinancialData (Thousands ofDollars)
"" 8 phe quanerly data renect seasonal weather variations in the utility's service territory.]
(Unaudited) 1997 First Quarter Second Quarter Third Quarter Fourth Quarter Operating Revenues
$283,009
$272,276
$322,838
$286,818 Operating income 55,042 45,291 M,773 42,279 Net income 36,415 27,156 46,074 32,175 1996 First Quarter Second Quarter Third Quarter Fouith Quarter Operating Revenues (a)
$290,857
$284,522
$320,275
$281,171 Operating Income (a) 55,540 50,422 70,209 45,908 Net income 36,749 32,571 50,852 29,688 (a) Restated to conform with presen'ations adopted during 1997, SELECTED FINANCIAL DATA Amounts in Thousands of Dollars 1997 1996 1995 1994 1993 1992 INCOME STATEMENT ITEMS Total operating revenues
$1,164,941
$1,176,825
$1,179,784
$1,168,624
$1,160,685
$1,150,380 Operating income
$ 207,385
$ 222,079
$ 246,637
$ 236,556
$ 240,168
$ 258,367 Net income
$ 141,820
$ 149,860
$ 151,070
$ 147,449
$ 147,362
$ 149,768 Eamings for common stock
$ 137,798
$ 145,815
$ 145,750
$ 141,403
$ 138,174
$ 140,357 BALANCE StIEET 1 RIMS Propeny, plant and equipment - net
$2,562,919
$2,717173
$2,978,903
$3,068,519
$3,123,948
$3,018,641 Total assets
$3,840,179
$3,897,086
$4,067,665
$4,149,867
$4,388,103
$3,718,092 Capitalization:
Common stockholder's equity
$1,003,833
$ 989,424
$1,131,334
$1,115,512
$1,100,671
$1,107,609 Non-redeemable preferred and preference stock 226,503 223,072 70,966 95,345 124,736 123,430 Redeemable preferred and preference stock 8,392 8,579 Long-term debt 1,218,276 1,271,% 1 1,322,531 1,368,930 1,416,705 1,413,001 Total capitalization
$2,448,612
$2,484,457
$2,524,831
$2,579,787
$2,650,504
$2,652,619 44
, ITEM 9.
CHANGLS IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
All directors of DOE are also directors of Duquesne. Information relating to DQE's and Duquesne's board of directors is set forth in Exhibit 99.2 hereto. The information is incorporated here by reference. Information relating to the execu-tive officers of the Registrant is set forth in Part I of this Report under the caption " Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
The infonnation relating to executive compensation is set forth in Exhibit 99.1, filed as part of this Report.The infor-mation is incorporated here by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAt. OWNERS AND MANAGEMENT.
DQE is the beneficial owner and holder of all shares of outstanding Common Stock, $1 par value, of Duquesne, con-sisting of 10 shares as of February 28,1998. Information relating to the ownership of equity securities of DQE and Duquesne by directors and executive officers of Duquesne is set forth in Exhibit 99.1, filed as part of this Report. The information is incorporated here by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
45
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-X.
(a)(1) The following information is set forth here on pages 20 through 45:
Report ofIndependent Certified Public Accountants.
Statement of Consolidated Income for the Three Years Ended December 31,1997.
Consolidated Balance Sheet, December 31,1997 and 1996.
Statement of Consolidated Cash Flows for the Three Years Ended December 31,1997.
Statement of Consolidated Retained Earnings for the Three Years Ended December 31,1997.
Notes to Consolidated Financial Statements.
(a)(2) The following financial statement schedule and the related Report ofIndependent Certified Public Accountants are filed here as a part of this Report:
Schedule for the Three Years Ended December 31,1997:
11-Valuation and Qualifying Accounts.
The remaining schedules are omitted because of the absence of the conditions under which they are required or because the information called for is shown in the financial statements or notes to the financial statements.
(a)(3) Exhibits are set forth in the Exhibits Index below, and incorporated here by reference. Documents other than those designated as being filed here are incorporated here by reference. Previously filed documents incorporated by refer-ence to a DQE Annual Report on Form 10-K, a Quarterly Report on Form 10-Q or a Current Report on Form 8-K are at Securities and Exchange Commission File No. 1-10290. Documents incorporated by reference to a Duquesne Light Company Annual Report on Form 10-K, Quarterly Report on Form 10-Q or a Current Report on Form 8-K are at Securities and Exchange Commission File No.1-956. The Exhibits include the management contracts and compensatory plans or arrangements required to be filed as exhibits to this Form 10-K by Item 601(d)(10)(iii), of Regulation S-K.
(b) No Reports on Form 8-K were filed during the fiscal quarter ended December 31,1997.
I 46
EXHIBITS INDEX EXHIBIT METHOD OF NO.
DESCRIPTION FIUNG 2.1 Agreement and Plan of Merger dated as of April 5,1997, Exhibit 2(a) to the Form 8-K among DQE, AYE and AYP Sub,Inc.
Current Report of DQE dated April 8,1997.
2.2 Stock Option Agreement dated as of April 5,1997, Exhibit 2(b) to the Form 8-K between DQE, and AYE.
Current Report of DQE dated April 8,1997.
2.3 Letter Agreement dated as of April 5,1997, between Exhibit 2(c) to the Form 8 K DQE, and AYE.
Current Report of DQE dated April 8,1997.
3.1 Restated Articles of Duquesne Light Company, as Exhibit 3.1 to the Form 10-K amended through December 19,1991 and as currently Annual Report of Duquesne in effect.
Light Company for the year ended December 31,1991.
3.2 By-Laws of Duquesne Light Company, as amended Exhibit 3.2 to the Form 10-K through December 18,1996 and as currently in effect.
Annual Report of Duquesne Light Company for the year ended December 31,1996.
4.1 Indenture dated March 1,1960, relating to Duquesne Exhibit 4.3 to the Form 10.K Light Company's 5% Sinking Fund Debentures.
Annual Report of DQE for the year ended December 31,1989.
4.2 Indenture ofMortgage and Deed of Trust dated as of Exhibit 4.3 to Registration April 1,1992, securing Duquesne Light Company's Statement (Form S-3)
First CollateralTrust Bonds.
No. 33-52782.
4.3 Supplemental Indentures supplementing the said Indenture of Mortgage and Deed of Trust -
Supplemental Indenture No.1.
Exhibit 4.4 to Registration Statement (Form S-3)
No. 33-52782.
Supplemental Indenture No. 2 through Supplemental Exhibit 4.4 to Registration Indenture No. 4.
Statement (Form S-3)
No.- 33-63602.
Supplemental Indenture No. 5 through Supplemental Exhibit 4.6 to the Form 10-K Indenture No. 7.
Annual Report of Duquesne Light Company for the year ended December 31,1993.
SupplementalIndenture No. 8 and Supplemental Exhibit 4.6 to the Fonn 10-K Indenture No. 9.
Annual Report of Duquesne Light Company for the year ended December 31,1994.
47
METHOD OF
+
EXHIBIT N0.
DESCRIPTION FILING Supplemental Indenture No.10 through Supplemental Exhibit 4.4 to the Form 10-K Indenture No.12.
Annual Report of Duquesne Light Company for the year ended December 31,1995.
Exhibit 4.3 to the Form 10-K Supplemental Indenture No.13.
Annual Report of Duquesne Light Company for the year ended December 31,1996.
Filed here.
SupplementalIndenture No.14.
4.4 Amended and Restated Agreement of Limited Partnership Exhibit 4.4 to the Form 10-K of Duquesne Capital L.P., dated as of May 14,1996.
Annual Report of Duquesne Light Company for the year ended December 31,1996.
4.5 Payment and Guarantee Agreement dated as of May 14 Exhibit 4.5 to the Form 10 K 1996 by Duquesne Light Company with respect to MIPS.
Annual Report of Duquesne -
Light Company for the year' ended December 31,1996.
4.6 Indenture dated as of May 1,1996 by Duquesne Light Exhibit 4.6 to the Form 10-K Company to the First National Bank of Chicago as Annual Report of Duquesne Trustee.
. Light Company for the year ended December 31,1996.
Agreements relating toJointly Owned Generating Units:
10.1 Administration Agreement dated as of September 14,1967.
Exhibit 5.8 to Registration Statement (Form S-7)
No. 2-43106.
10.2 Transmission Facilities Agreement dated as of September 14, Exhibit 5.9 to Registration 1967.
Statement (Fonn S-7)
No. 2-43106.
10.3
- Operating Agreement dated as of September 21,1972 Exhibit 5.1 to Registration for Eastlake Unit No. 5.
Statement (Form S-7)
No. 2-48164.
10.4 Memorandum of Agreement dated as ofJuly 1,1982 re Exhibit 10.14 to the Form 10-K reallocation of rights and liabilities of the companies Annual Report of Duquesne under uranium supply contracts.
Light Company for the year ended Decemler 31,1987.
Operating Agreement dated August 5,1982 as of Exhibit 10.17 to the Form 10-K 10.5-September 1,1971 for Sammis Unit No. 7.
Annual Report of Duquesne Light Company for the year ended December 31,1988.
48
l.'
EXHIBIT METHOD OF NO.
DESCRIPTION FILING 10.6 Memorandum of Understanding dated as of March 31, Exhibit 10.19 to the Form 10-K 1985 re implementation of company-by-company Annual Report of DQE for the l
management of uranium inventory and delivery.
year ended December 31,1989.
10.7 Restated Operating Agreement for Beaver Valley Unit Exhibit 10.23 to the Fonn 10-K Nos. I and 2 dated September 15,1987.
Annual Report of Duquesne Light Company for the year ended December 31,1987.
10.8 Operating Agreement for Perry Unit No. I dated Exhibit 10.24 to the Form 10-K March 10,1987.
Annual Report of Duquesne Light Company for the year ended December 31,1987.
10.9 Operating Agreement for Bruce Mansfield Units Nos.1, Exhibit 10.25 to the Form 10-K 2 and 3 dated September 15,1987 as ofJune 1,1976.
Annual Report of Duquesne Light Company for the year endad December 31,1987.
10.10 Basic Operating Agreement, as amended Ianuary 1,1993.
Exhibit 10.10 to the Form 10-K Annual Report of Duquesne Light Company for the year ended December 31,1993.
10.11 Amendment No. I dated December 23,1993 to Exhibit 10.11 to thdorm 10-K Transmission Facilities Agreement (as ofJanuary 1,1993).
Annual Rep:,a of Duquesne Light Company for the year caded December 31,1993.
10.12 Microwave Sharing Agreement (as amended Exhibit 10.12 to the Form 10-K January 1,1993) dated December 23,1993.
Annual Report of Duquesne 1
Light Company for the year l
l ended December 31,1993.
10.13 Agreement (as of September 1,1980) dated Exhibit 10.13 to the Form 10-K December 23,1993 for tenninstion or construction Annual Report of Duquesne l
of certain agreements.
Light Company for the year i
ended December 31,1993.
I Agreements relating to the Sale and Leaseback :
of Beaver Valley Un? No. 2:
i l
10.14 Order of the Pennsylvania Public Utility Commission Fxhibit 28.2 to the Form 10-Q dated September 25,1987 regarding the application Quarterly Report. f Duqu:sne i
c.f the Duquesne Light Company under Section i102(a)(3)
Light Company for the quarter
'of the Public Utility Code for approvalin connection with ended September 30,1987.
the sale and leaseback ofits interest in Beaver Valley Unit No. 2.
49
METHOD OF EXHIBIT N O.
DESCRIPTION FRING 10.15 Order of the Pennsylvania Public Utility Commission Exhibit 10.28 to the Form 10-K dated October 15,1992 regarding the Securities Annual Report of Duquesne Certificate of Duquesne Light Company for the Light Company for the year assumption of contingent obligations under ended December 31,1992.
financing agreements in connection with the refunding of Collateralized Lease Bonds.
x10.16 Facility Lease dated as of September 15,1987 between Exhibit (4)(c) to Registration The First National Bank of Boston, as Owner Trustee Statement (Forn S-3) under a Trust Agreement dated as of September 15,1987 No. 33-18144.
with the limited partnership Owner Participant named therein, Lessor, and Duquesne Light Company, Lessee.
yl0.17 Facility Lease dated as of September 15,1987 between Exhibit (4)(d) to Registration The First National Bank of Boston, as Owner Trustee Statement (Form S-3) under a Trust Agreement dated as of September 15, No. 3 3-18144.
1987, with the corporate Owner Participant named therein, Lessor, and Duquesne Light Company, Lessee.
x10.18 Amendment No. I dated as of December 1,1987 to Exhibit 10.30 to the Form 10-K Facility Lease dated ss of September 15,1987 between Annual Report of Duquesne The First National Bank of Boston, as Owner Trustee Light Company for the year under a Trust Agreement dated as of September 15,1987 ended December 31,1987.
with the limited partnership Owner Participant named therein, Lessor, and Duquesr,e Light Company, Lessee.
yl0.19 Amendment No. I dated as of December 1,1987 to Exhibit 10.31 to the Form 10-K Facility Lease dated as of September 15,1987 between Annual Report of Duquesne The First National Bank of Boston, as Owner Trt.stee Light Company for the year under a Trust Agreement dated as of September 15, ended December 31,1987.
1987 with the corporate Owner Participant named therein, Lessor, and Duquesne Light Company, Lessee.
x10.20 Amendment No. 2 dated as of November 15,1992 to Exhibit 10.33 to the Form 10-K Facility Lease dated as of September 15,1987 between Annual Report of Duquesne The First National Bank of Boston, as Owner Trustee Light Company for the year under a Trust Agreement dated as of September 15,1987 ended December 31,1992.
with the limited partnership Ownrr Particip:mt named therein, Lessor, and Duquesne Light Company, Lessee.
yl0.21 Amendment No. 2 dated as of November 15,1992 to Er.hibit 10.34 to the Form 10-K Facility Lease dated as of September 15,1987 between Annual Report of Duquesne The First National Bank of Boston, as Owner Trustee Light Company for the year under a Trust Agreement dated as of September 15, ended December 31,1992.
1987 with the corporate Owner Participant named therein, Lessor, and Duquesne Light Company, Lessee.
x10.22 Amendment No. 3 dated as of October 13,1994 to Exhibit 10.25 to the Form 10-K Facility Lease dated as of September 15,1987 between Annual Report of Duquesne The First National Bank of Boston, as Owner Trustee Light Company for the year under a Trust Agreement dated as of September 15,1987 ended December 31,1994, with the limited partnership Owner Participant named therein, Lessor, and Duquesne Light Company, Lessee.
50
)
EXHIBIT METHOD OF No.
DESCRIPTION Fil.ING yl0.23 Amendment No. 3 dated as of October 13,1994 to Exhibit 10.26 to the Form 10-K Facility Lease dated as of September 15,1987 between Annual Report of Duquesne The First National Bank of Boston, as Owner Trustee Light Company for the year under a Trust Agreement dated as of September 15,1987 ended December 31,1994.
with the corporate Owner Participant named therein, i.essor, and Duquesne Light Company, Lessee.
x10.24 Participation Agreement dated as of September 15, Exhibit (28)(a) to Registration 1987 among the limited partnership Owner Statement (Form S-3)
Participant named therein, the Original Loan No. 3 3-18144.
Participants Lsted in Schedule 1 thereto, as Original Loan Participants, DQU Funding Corporation, as Funding Corp, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Duquesne Light Company, as Lessee.
yl0.25 Participation Agreement dated as of September 15,1987 Exhibit (28)(b) to Registration among the corporate Owner Participant named therein, Statement (Form S-3) 1 the Original Loan Participants listed in Schedule i No. 3 3-18144.
thereto, as Original Loan Participants, DQU Funding Corporation, as Funding Corp, The First National Bank j
of Boston, as Owner Tru, tee, Irving Trust Company, as I
Indenture Trustee and Duquesne Light Company, as Lessee.
x10.26 Amendment No. I dated as of December 1,1987 to Exhibit 10.34 to the Form 10-K j
Participation Agreement dated as of September 15,19" Annual Report of Duquesne among the limited partnership Owner Participant nan.c Light Company for the year therein, the Original Loan Participants listed therein, ended December 31,1987.
as Original Loan Participants, DQU Funding Corporation, as Funding Corp, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Duquesne Light Company, as Lessee.
y10.27 Amendment No. I dated as of December 1,1987 to Exhibit 10.35 to the Form 10-K Participation Agreement dated as of September 15,1987 Annual Report of Duquesne among the corpc, rate Owner Participant named therein, Light Company for the fear the Original Loan Participants listed therein, as Original ended December 31,1987.
Loan Participants, DQU Funding Corporation, as Funding Corp, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Duquesne Light Company, as Lessee.
x10.28 Amendment No. 2 dated as of March 1,1988 to Exhibit (28)(c)(3) to Participation Agreement dated as of September 3,1987 Registration Statement among the limited partnership Owner Partici, ant named (Form S-3) No. 33-54648.
therein, DQU Funding Corporation, as Fundng Corp, The First National Bank of Boston, as Owner'Irustee, Irving Trust Company, as Indenture Trustee and Duquesne Light Company, as Lessee.
51
l EXHISIT METH00 0F
^
N0.
DESCRIm0N FIuMG
\\
yl0.29 '
- Amendment No. 2 dated as ofMarch 1,1988 to Exhibit (28)(c)(4) to Participation Agreement dated as of September 15,1987 Registration Statement among the corporate Owner Participant named therein, (Form S-3) No. 33-54648.
DQU Funding Corporation, as Funding Corp, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Duquesne Light Company, as Lessee.
x10.30 Amendment No. 3 dated as of November 15,1992 to Exhibit 10.41 to the Form 10-K Participation Agreement dated as of September 15,1987 Annual Report of Duquesne among the limited partnership Owner Participant named Light Company for the year therein, DQU Funding Corporation, as Funding Corp, ended December 31,1992.
DQU 11 Funding Corporation, as New Funding Corp, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Duquesne Light Company, as Lessee.
l yl0.31 Amendment No. 3 dated as of November 15,1992 to Exhibit 10.42 to the Form 10-K -
'articipation Agreement dated as of September 15,1987 Annual Report of Duquesne among the corporate Owner Participant named therein, Light Company for the year DQU Funding Corporation, as Funding Corp, ended December 31,1992.
DQU II Funding Corporation, as New Funding Corp, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Duquesne Light Company, as Lessee.
x10.32 Amendment No. 4 dated as of October 13,1994 to Exhibit 10.35 to the Form 10-K Participation Agreement dated as of September 15,1987 Annual Report of Duquesne among the limited partnership Owner Participant named Light Company for the year therein, DQU Funding Corporation, as Funding Corp, ended December 31,1994.
DQU II Funding Corporation, as New Funding Corp, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and -
Duquesne Light Compay, as Lessee, y10.33 Amendment No. 4 dated as of October 13,1994 to Exhibit 10.36 to the Form 10-K Participation Agreement dated as of September 15,1987 Annual Report of Duquesne among the corporate Owner Participant named therein, Light Company for the year DQU Funding Corporation, as Funding Corp, ended December 31,1994.
DQU II Funding Corporation, as New Funding Corp, The First National Bank of Boston, as Owner Trustec, l
The Bank of New York, as Indenture Trustee and Duquesne Light Company, as Lessee.
zl0.34 Ground Lease and Easement Agreement dated as of Exhibit (28)(c) to Registration September 15,1987 between Duquesne Light Company, Statement (Form S-3)
Ground Lessor and Grantor, and The First National Bank No. 33-18144.
of Boston, as Owner Trustee under a Trust Agreement dated as of September 15,1987 with the limited partnership Owner Participant named therein, Tenant and Grantee.
52
EXHIBIT METHOD OF NO.
DESCRIPTION FILING l
zl0.35 Assignment, Assumption and Further Agreement dated as Exhibit (28)(1) to Registration of September 15,1987 among The First National Bank of Statement (Form S-3)
Boston, as Owner Trustee under a Trust Agreement dated No. 3 3-18144.
as of September 15,1987 with the limhed partnership Owner Participant named therein,The Cleveland Electric illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and The
'Ibledo Fdison Company.
zl0.36 Additional Support Agreement dated as of September 15, Exhibit (28)(g) to Registration 1987 between The First National Bank of Boston, as Statement (Fonn S-3)
Owner Trustee under a Trust Agreement dated as of No. 3 3-18144.
September 15,1987 with the limited partnership Own.:r Participant named therein, and Duquesne Light Company.
zio.37 Indenture, Bill of Sale, Instrument cf Transfer and Exhibit (28)(h) to Registration Severance Agreement dated as of October 2,1987 Statement (Form S-3) between Duquesne Light Company, Seller, and The First No. 3 3-18144.
National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15,1987 with the limited partnership Owner Participant named therein, Buyer.
z10.38 Tax Indemnification Agreement dated as of September 15, Exhibit 28.1 to the Form 8-K 1987 between the Owner Participant named therein and Current Report of Duquesne Duquesne Light Company, as Lessee.
Light Company dated November 20,1987.
zl0.39 Amendment No. I dated as 4 November 15,1992 to Exhibit 10.48 to the Form 10-K Tax Indemnification Agreement dated as of September 15, Annual Report of Duquesne
]
1987 between the Owner Participant narned therein and Ligh: Company for the year j
Duquesne Light Company, as Lessee.
ended December 31,1992.
l zl0.40 Amendment No. 2 dated as of October 13,1994 to Tax Exhibit 10.43 to the Form 10-K Indemnification Agreement dated as of September 15,1987 Annual Report of Duquesne l
between the Owner Participant named therein and Light Company for the year Duqu-"e Light Company, as Lessee.
ended December 31,1994.
z10.41 Extensi n Letter dated December 8,1992 from Exhibit 10.49 to the Form 10-K Duquesne Light Company, each Owner Participant,The Annual Report of Duquesne First National Bank of Boston, the Lease Indenture Light Company for the year Trustee, DQU Funding Corporation and DQU 11 ended December 31,1992.
(
Funding Corporation addressed to the New Collateral Trust Trustee extending their respective representations and warranties and covenants set forth in each of the Participation Agreements.
x10.42 Trust Indenture, Mortgage, Security Agreement and Exhibit (4)(g) to Registration f
Assignment of Facility Lease dated as of September 15, Statement (Form S-3) 1987 between The Ficst National Bank of Boston, as No. 3 3-18144, l
Owner Trustee under a Trust Agreement dated as of September 15,19b7 with the limited partnership Owner Participant named therein, and Irving Trust Company, as Indenture Trustee.
53 l
P EXHIBIT METHOD OF N O.
DESCRIPTION FILING yl0.43 Trust indtnture, Mortgage, Security Agreement and Exhibit (4)(h) to Registration Assignment of Facility Lease dated as of September 15, Statement (Form S-3) 1987 between The First National Bank of Boston, as No. 3 3-18144.
Owner Trustee under a Trust Agreement dated as of September 15,1987 with the corporate Owner Participant n.nned therein, and Irving Trust Company, as Indenture Trustee.
x10.44 Supplemental Indenture No. I dated as of December 1, Exhibit 10.45 to the Form 10-K 1987 to Trust Indenture, Mortgage, Security Agreement Annual Report of Duquesne and Assignment of Facility Lease dated as of September 15, Light Company for the year 1
1987 between The First National Bank of Boston, as Owner ended December 31,1987.
Trustee under a Trust Agreement dated as of September 15, 1987 with the limited partnership Owner Participant named therein, and Irving Trust Company, as Indenture Trustee.
yl0.45 Supplemental Indenture No. I dated as of December 1, Exhibit 10.46 to the Form 10-K 1987 to Trust Indenture, Mortgage, Security Agreement Annual Report of Duquesne and Assignment of Facility Lease dated as of September 15, Light Company for the year 1
1987 between The First National Bank of Boston, as ended December 31,1987.
Owner Trustee under a Trust Agreement dated as of September 15,1987 with the corporate Owner Participant named therein, and Irving Trust Company, as Indenture Trustee.
x10.46 Supplemental Indenture No. 2 dated as of November 15, Exhibit 10.54 to the Form 10-K 1992 to Trust Indenture, Mortgage, Security Agreement Annual Report of Duquesne and Assignment of Facility Lease dated as of September 15, Light Company for the year 1987 between The First National Bank of Boston, as ended December 31,1992.
Owner Trustee under a Trust Agreement dated as of September 15,1987 with the limited partnership Owner Participant named therein, and The Bank of New York, as Indenture Trustee.
yl0.47 Supplemental Indenture No. 2 dated as of November 15, Exhibit 10.55 to the Form 10-K 1992 to Trust Indenture, Mortgage, Security Agreement Annual Report of Duquesne and Assignment of Facility Lease dated as of September 15, Light Company for the year 1987 between The First National B ' af Boston, as ended December 31,1992.
Owner Trustee under a Trust Agree,aent dated as of September 15,1987 with the corporate Owner Participant named therein, and The Bank of New York, as Indenture Trustee.
10.48 Reimbursement Agreement dated as of October 1,1994 Fxhibit 10.51 to the Form 10-K among Duquesne Light Company, Swiss Bank Annual Report of Duquesne Corporation, New York Branch, as LOC Bank, Union Light Company for the year Bank, as Administrating Bank, Swiss Bank ended December 31,1994.
Corporation, New York Branch, as Administrating Bank and The Particip2 ting Banks Named Therein.
54
s EXHIBIT -
METHOD OF
,o NO.
DESCRIPTION FIUNG l
10.49 Collateral Trust Indenture d2ted as of November 15,1992 Exhibit 10.58 to the Form 10-K among DQU 11 Funding Corporation, Duquesne Light Annual Report of Duquesne.
Company and The Bank of New York, as Trustee.
Light Company for the year ended December 31,1992, 10.50 First Supplemental Indenture dated as of November 15, Exhibit 10.59 to the Form 10-K 1992 to Collateral Trust indenture dated as of.
Annual Reporc of Duquesne November 15,1992 among DQU 11 Funding Corporation, Light Company for the year Duquesne Light Company and The Bank of New York, as ended December 31,1992.
Trustee.
- 0.51 Refinancing Agreement dated as of November 15,1992 Exhibit 10.60 to the Form 10-K among the limited partnership Owner Participant Annual Report of Duquesne named therein, as Owner Panicipant, DQU Funding Light Company for the year Corporation, as Funding Corp, DQU 11 Funding ended December 31,1992.
Corporation, as New Funding Corp, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee, The Bank of New York, as Collateral Trust Trustee, The Bank of New York, as New Collateral Trust Trustee, and Duquesne Light Company, as Lessee.
yl0.52 Refinancing Agreement dated as of November 15,1992 Exhibit 10.61 to the Form 10-K among the corporate Owner Participant named therein, Annual Report of Duquesne as Owner Participant, DQU Funding Corporation, Light Company for the year as Funding Corp, DQU 11 Funding Corporation, ended December 31,1992.
as New Funding Corp, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee, The Bank of New York, as Collateral Trust Trustee, The Bank of New York, as New Collateral Trust Trustee, '
and Duquesne Light Company, as Lessee.
]
x10.53 Addendum dated December 8,1992 to Refinancing Exhibit 10.62 to the Form 10-K Agreement dated as of November 15,1992 among the Annual Report of Duquesne limited partnenhip Owner Partic pant named therein, Light Company for the year i
as Owner Participant, DQU Funding Corporation, as ended December 31,1992, Funding Corp, DQU 11 Funding Corporation, as New l
Funding Corp, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee, The Bank of New York, as Collateral Trust Trustee, The Bank of New York, as New Collateral Trust Trustee, and Duquesne Light Company, as Lessee.
y10.54
- Addendum dated December 8,1992 to Refinancing Exhibit 10.63 to the Form 10-K Agreement' dated as of November 15,1992 among the Annual Report of Duquesne corporate Owner Participant named therein, as Light Company for the year Owner Participant, DQU Funding Corporation, as ended December 31,1992.
F:mding Corp, DQU II Funding Corporation, as New Fending Corp, The First National Bank of Boston, as -
Oner Trustee, The Ba'nk of New York, as Indenture Truee, The 3ank of New York, as Collateral Trust Trustee, The Ihnk of N. w York, as New Collateral Trust Trustee, and Duquen.c Light Company, as Lessee.
l*
55
EXHIBIT METHOD OF j
N O.
DESCRIPTION FILING l
OtherAgreemte 1
10.55 Deferred Compensation Plan for the Directors of Exhibit 10.1 to the Form 10-K Duquesne Light Company, as amended to date.
Annual Report of DQE for the 1
year ended December 31,1992, 10.56 Incentive Compensation Program for Certain Executive Exhibit 10.2 to the Form 10-K Officers of Duquesne Light Company, as amended to Annual Report of DQE for the
- date, year ended December 31,1992.
10.57 Description of Duquesne Light Company Pension Exhibit 10.3 to the Form 10-K Service Supplement Program.
Annual Report of DQE for the year ended December 31,1992.
10.58 Duquesne Light Company Outside Directors' Exhibit 10.59 to the Form in.K Retirement Plan, as amended to date.
Annual Report of Duquesne Light Company for the year ended December 31,1996.
10.59 Duquesne Light /DQE Chantable Giving Program.
Exhibit 10.6 to the Form 10-K Annual Report of DQE for the year ended December 31,1992.
10.60 Performance Incentive Program for DQE,Inc. and Exhib;t 10.7 to the Form 10-K Subsidiaries formerly lmown as the Duquesne Light Annual Report of DQE for the Company Performance Incentive Program.
year ended December 31,1996.
10.61 Employment Agreement dated as of August 30,1994 Exhibit 10.9 to the Form 10-K between DQE, Duquesne Light Company and Annual Report of DQE for the David D. Atarshall.
year ended December 31,1994.
10.62 First Amendment dated as ofJune 27,1995 to Exhibit 10.68 to the Form 10-K Employment Agreement dated as of August 30,1994 Annual Report of Duquesne between DQE, Duquesne Light Company and Light Company for the year David D. Atarshall.
ended December 31,1995.
10.63 Employment Agre. ment dated as of August 30,1994 Duquesne Light Company between DQE. Duquesne Light Company and Exhibit 10.10 to.he Form 10-K Gary L. Schwass.
Annual Report of DQE for the year ended December 31,1994.
10.64 Employment Agreement dated as of October 14,1996 Exhibit 10.70 to the Form 10-K between Duquesne Light Company and James E. Cross.
Annual Report of Duquesne Light Company for the year ended December 31,1996.
10.65 Non-Competition and Confidentiality Agreement dated Exhibit 10.14 to the Form 10-K as of October 3,1996 by and among DQE, Inc., Duquesne Annual Report of DQE for the Light Company and David D. Atarshall, together with a year ended December 31,1996.
schedule listing substantially identical agreements with Victor A. Roque, James D. Atitchell andJames E. Cross.
56
e kXHIBIT METHOD OF NO, DESCRIPTION FILING 1
10.66 Schedule to Non-Competition and Confidentiality Exhibit 10.12 to the Form 10-K Agreement dated as of October 3,1996 (Exhibit 10.14 Annual Report of DQE for the to the Form 10-K Annual Report of DQE for the year year ended December 31,1997.
ended December 31,1996) listing substantially identical agreements with Gary R. Brandenberger and Donald J. Clayton.
10.67 Severance Agreement dated April 4,1997, between the Exhibit 10.1 to the Form 10-Q Company and David D. Marshall, together with a Quarterly Report of DQE for the schedule describing substantially identical agreements quarter ended March 31,1997.
with Gary L. Schwass, Victor A. Roque, James E. Cross andJames D.Mitchell.
10.68 Schedule to Severance Agreement dated April 4,1997 Exhibit 10.14 to the Form 10-K (Exhibit 10.1 to the Form 10-Q Quarterly Annual Report of DQE for the Report of DQE for the quarter ended March 31,1997) year ended December 31,1997.
ended December 31,1996) listing substantially identical agreements with Gary R. Brandenberger and Donald J. Clayton.
12.1 Calculation vi twio of Earnings to Fixed Charges.
Filed here.
21.1 Subsidiaries of registrant:
Duquesne has no signincant subsidiaries.
23.1 Independent Auditors' Consent.
Filed here.
27.1 Financial Data Schedule.
Filed here.
99.1 Executive Compensation of Duquesne Light Company Filed here.
Executive Officers for 1997 and Security Ownership of Duquesne Light Company Directors and Executive Officers as of December 31,1997.
99.2 Directors of DQE and Duquesne Light Company.
Filed here.
j An additional document, substantially identical in all material respects to this Exhibit, has been entered into relat-l x
ing to one additional limited partnership Owner Participant. Although the additional document may differ in some t
respects (such as name of the Owner Panticipant, dollar amounts and percentages), there are no material details in which the document differs from this Exhibit.
j y Additional documents, substantially identical in all material respects to this Exhibit, have been entered into relating to four additional corporate Owner Participants. Although the additional documents may differ in some respects (such as names of the Owner Participants, dollar amounts and percentages), there are no material details in which the documents diff;r from this Exhibit.
Additional documents, ebstantially identical in all material respect, to this Exhibit, have im entered into relating z
to six additional Owner Participn.ts. Although the additional documents may differ in some respects (such as names of the Owner Participants, dollar amo0nts and percentages), there are no material details in which the documents differ from this Exhibit.
Copies of the exhibits listed above will be furnished, upon request, to holders or beneficial owners of any class of Duquesne's stock as of February 28,1998, subject to payment in advance of the cost of reproducing the exhibitt requested.
57
O SCHEDULE II SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31,1997,1996 and 1995 (Thousands of Dollars)
Column A Column B Column C Column D Column E Columnf Additions Balance at Charged to Charged to Balance Beginnir.g Costs and Other at End Ds, ription of Year Ernenses Accounts Deductions of Year Year Ended December 31,1997 Reserve Deducted from the Asset to which it applies:
Allowance for uncollectible accounts
$18.294 SI1.000 S3.934 (A)
$18.212 (B) 515.016 Year Ended December 31,1996 Reserve Deducted from the Asset to which it applies:
Allowance for uncollectible accounts
$17.920
$10.582
$4.080 (A)
$14.288 (B)
$18.294 l
Year Ended December 31,1995 Reserve Deducted from the Asset to which it applies:
Allowance for uncollectible accounts
$15.021
$13.430
$3.567 (A)
$14.098 (B)
$12,220 i
i l
Notes: (A) Recovery of accounts previously written off.
(B) Accounts receivable written off.
1 58
e SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DUQUESNE LIGHT COMPANY (Registrant)
Date: March 23,1998 By: /s/ David D. Marshall (Signature)
David D. Marshall President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE I
/s/ David D. Marshall President, Chief Executive Officer and Director March 23,1998 David D. Marshall
/s/ Gary L. Schwass Senior Vice President and Chief Financi:.1 March 23,1998 Gary L. Schwass Officer
/s/ Morgan K. O'Brien Vice President and Controller March 23,1998 Morgan K. O'Brien (Principal Accounting Officer)
/s/ Daniel Berg Director March 23,1998 Daniel Berg
/s/ Doreen E. Boyce Director March 23,1998 Doreen E. Boyce
~ /s/ Robert P. Bozzone Director March 23,1998 i
Robert P. Bozzone
/s/ Sigo Falk Director March 23,1998 Sigo Falk
/s/ William II. Knoell Director March 23,1998 William 11. Knocli
/s/ ThomasJ. Murrin Director March 23,1998 Thomas J.Murrin Director Eric W. Springer 59
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