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Annual Financial Rept 1980
	ML19347E394
Person / Time
Site:	Beaver Valley
Issue date:	02/27/1981
From:	Arthur J, Schaffer S; DUQUESNE LIGHT CO.
To:	;
Shared Package
ML19347E393	List: ML19347E391; ML19347E394;
References
	NUDOCS 8104270221
	Download: ML19347E394 (37)
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Businsss of the Company Contents Duquesne Light Company is en. Financial Highlights .

ACCEPTING 1

To Our Stockholders .2&3 gaged transmission, principally in the production, distribution and sale ; Accepting the Challenge THE of electric energy. The Company ;i Future Growth Commitment to the 4&5 CHALLENGE 20ig'oe'"e "mies in' #e"Te'n* yin % Advenceeiechno,og;es Beaver Counties. This area, which c tom Financial Security

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OFTHE,Qg $ includes the City of Pittsburgh, is located in Southwestern Pennsyl-Our Centennial Celebration Company Report on

. 10 & 11

. 12 & 13 vania and has a population of Financial Statements 14 about 1,426,000. Allegheny County Accountants Opinion 1.:

Steam Heating Company, a wholly. Financial Information . .15 to 3:

owned subsidiary, provides steam ; CAPCO Map . 35 Company Service heating service in the principal business section of the City of j Cor mo S ock Dividends Pittsburgh. 35

} Form 10-K Offer The executive offices of Du' ? Directors . inside back quesne Light Company are located . Company Officers inside back at 435 Sixth Avenue, Pittsburgh. I Pennsylvania 15219. ;

Duquesne Light Company is an Equal Opportunity Employer _

! About the Cover...The vitahty of the

. Pittsburgh are;a is inexorably linked to I Duquesne Light's ability to provide an

! adequate supply of electric service.

Duquesne Light enters its second cen-tury of electric service optimist.caf!y-

. l ready to accept the challenges of the

' 80's and to develop innovative solu-l [ tions the decade will demand.

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Highlightc-1980 Duquesne Light Company Percent Financial 1980 1979 Change Total Operating Revenues . . . . . . . . . . . . . . . $ 689,465,000 S 622,540,000 + 10.8 % N:t income ................. . .. ...... .. $ 92,962,000 S 82,207,000* + 13.1 % Eamings Per Share of Common Stock . . . . . . . . . . . . $1.82 S1.81* + 0.6 % Dividends Per Share of Common Stock . . . . . . . . . . . $1.80 S1.76 + 2.3 %

              '                                                                                                                                        35,550,000 Shares of Common Stock Outstanding at Year End . .                                                  40,166,083                                             + 13.0 %

Operating Utility Plant . . . . . . . . . . . . . . . . . . . . . . . $ 2,60 4,3 3 3,0 00 S 2,380,805,000 + 9.4 % Kilowatt-Hour Sales . .... . . . . . . . . . 13,297,453,000 13,320,791,000 - 0.2 % Peak Load. Kilowatts . . . . . . . . . . . .... . . 2,474,000 2,296,000 + 7.8 % Cost of Fuel Per Million BTU . . .... . . .... 149.Ac 131.8t + 13.7 % Average BTU Per KWH Output . . . . . . . . . . . . . . . . . . 10,811 10,924 - 1.0 %

Includes the curnulative effect of a change in billing practice of S3,845.000 or S.12 per share as discussed in Note B

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TO OUR STOCKHOLDERS 1980, Duquesne Light Company's l 100th Year of service, was a year

                                                                                              '          of j Kva Crucible    Steelelectric-arc Plant, Midland,furnaces Pa.           at We are also pleased to report j challenge, accomplishment and                    that in mid-July your Company suc-
                                                ,    decision for the Company.

cessfully supplied a record system Flate Case i peak load of 2,474,000 Kw and a

                                                ,    in April 1980 we filed for a rate in-    l daily system output record of j crease with the Pennsylvania Pub-               50,160,000 Kwh. The new peak load lic Utility Commission. Our request      ,

exceeds the past record by over i amounted to an increase of ap- l 95,000 Kw. In recent years, certain i proximately 18% of the Company's - advocate groups have accused

                                                ; annual electric revenues based on I Duquesne Light and other eastern I evels l       of business at December 31,          utilities of building excess capacity.
                                                ? 1979. The rate relief requested                 imagine the chaos that woule have would have permitted us to finance           resulted if the Company and other our construction program without - utilities had not had the necessary I

3 impairment, thus assuring our abil- reserve capacity to meet the 1980 l ity to maintain reliable electric j record peak loads experienced by , i utilities throughout the country. l' the service However,to on our customers. February 20, 1981, l Commission issued an order in New Technical Center the rate case allowing the Com- A new operations and computer pany an increase of only 8%, center was placed in service dunng amounting to about $47.5 million on 1980 and is an excellent example of an annual basis. The rate relief al- how Duquesne Light remains at the lowed by the Commission was forefront of utility-related technol-ogy. With its computerized monitor-g disappointing and clearly inade- l ing control and communicstions quate. The Company is taking ac-tion to cut back its 1981 construc- I sys, tem, the new facility will in. tion program and is studying the crease the Company's electric effect of the Commission's action distribution system efficiency and ' on its ability to proceed with its pro- reduce customer outage time dur-gram for raising capital during 1981. ing emergencies by quickly desig-In addition, the Company will file a new rate increase request with the ANNUAL SYSTEM PEAK LOAD I Commission in April 1981, which it u.g .a will prosecute vigorously. Our abil- asco _ ! ity to continue with our necessary construction program and to pro- ;

           - -, p -                   - - -            vide modest dividend relief on our         g                                          ,
 ,     -;      -       +              '                common stock will largely depend                                                     s i             on the Commission's response to            -

FORECAST g p i the new request. s [7 C ( ~ .,.e / ;N _ i

                                   -                    100-Year Anniversary                                                            l D              +
                                ~j                      In March 1980, Duquesne Light cel-ebrated its 100-year Anniversary.              N
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r .' L . We can all be justifiably proud of } , , N 'h I g N

                                - $ k; ;4 the many accomplishments of our Company during its first century of J.

5500

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p 4 ~ Ma providing electnc service. C Ai h. John M. Anhur Stanley G. Schatter In some respects, the future { j looks bright, too. Despite the na- - tion's on-going recession, the ~y , Company's projection of new load in the next several years remains I #C*^ N

50 strong (see pages 4 & 5). Load ad-dition in 1981 willinclude major new i ?

commercial office buildings, shop- e - ping complexes, hospital-health 'o e i

        . , i j j # y [i D       y W g1                 care facilities and two large 85,000 2
     -  ; l 4.

i p<y,1 d s u ! + u! h4 4 8 ..jaj 5 x isso 20 To 40 so so 70 so sa P00R 0 % m

   '  nating problem locations and re-             Nuclear                                     nation, must rely on nuclea, and storing power to nearby areas.          l: Shock waves from the Three Mile l coal plants to supply most of our
                                               ! Island (TMI) accident in early 1979 ! electrical needs for the remainder j Shippingport Honored                      [ continued to ripple through the en-           of this century. We should be about On May 20,1980, the Shippingport j tire industry. Duquesne Light Com-                ,   the business of maximizing our use Atomic Power Station, the world's g pany's own nuclear facility did not i of these fuels in a responsible, ex-                  .

first commercial nuclear power sta- escape theirimpact. tion, was honored as a National The jointly-owned nuclear Bea- l peditious manner. Historic Landmark by the Americar. ver Valley Unit No.1 was taken out l Corporate Headquarters l Society of Mechanical Engineers. + of service in late November 1979 In addition to the advances made i Since its initial operation in 1957, e for scheduled refueling and mainte- ; and despite the difficulties we l Shippingport has produced more j nance, and certain safety-related i faced in 1980, we ended the year thin six and one-half billion Ailo- ! inspection and modifications. At ; with a clear look toward the future, watt hours of electricity for our ! that time, Duquesne Ught was also i Most notably, in late November, we I customers. Today Shippingport f announced the Company's plans

generates power through the use l required cations asto amake resultadditional of a Nuclearmodifi-i to relocate its corporate headquar-of a thorium fight water breeder re- Regulatory Commission (NRC) ters to One Oxford Centre. We will
tctor core designed to produce study of the accident at TMI. As i occupy 13 floors of the new 46-

  . moro usable fuel than it consumes. i time progressed, the NRC-                           story One Oxford Centre building .

l mandated modifications became i currently under construction and li Sales and Earnings . more extensive, costly and time tentatively set for completion in Th:re was an improvement in the i consuming than originally antici- :, late 1982. The Company has out-Company's net income during I pated. The Company also encoun- l grown its existing headquarters j 1980, even though total kilowatt- tered delays because the equip- building. The decision to relocate hour sales declined about 0.2% Al- ! ment necessary to meet the NRC at Oxford was based on cost effi-ciencies, future space require- : l though sales to residential and i changes was not readily available. commercial customers increased Following completion of the nec- ments and the need for a location , by 3.5% and 4.0%, respectively, [ essary modifications, the Unit was that would offer convenience to l th:re was a 4.2% decrease in i returned to service on November both the Company's customers l industrial sales. The Company l 20,1980. and its employees. ; cirned $1.82 per sha'e of common The twelve-month outage of stock-a 0.6% increase from 1979. Beaver Valley Unit No.1 was very Management in view of the generally poor i, costly for two primary reasons. Our challenge for the future is .

  > state of business on a national ba 1 First, our share of the capital costs                  clear. In the face of govemmental     4 sis, Company achievements during             of these modifications amounted to ,        regulation as well as disabling infla-1980 were heartening. However,              over $30 million. Furthermore, we           tion, we must continue to meet the     j th y tended to be overshadowed          '

had to replace the Company's [ demands for electricity that our ' by the continuing impact of inflation share of the unavailable capacity of customers set for us in their homes , on our operations and adverse - Beaver Valley Unit No.1 with more and businesses. Let us assure you 1 public reaction to nuclear power. I costly oil and coal-fired generation. that those of us in the process of - l l l Nevertheless, our confidence supplying electricity to the Pitts-

inflation ,

that nuclear power will continue to ,; burgh, Allegheny and Beaver . l Tha effects of inflation on our Com- .' as a safe and economic source of I County areas-all 4,464 employees ! pany, and consequently our cus- ! dependable energy remains intact. i -will strive to provide the most ef- ! tomers, are both long-term and 1 One key goal in 1981 is to help re ! ficient and reliable product possi ' short-term. The short-term effects j store public confidence in nuclear ble, at a fair price. l tro obvious in the rapidly escalat- power by demonstrating our com-ing costs of construction, fuel, w;ges and the other costs of pro-mitment to all required levels of plant operating safety now and in

                                                                                                  )f' y/

f"7 [6 l i ducing and distributing electricity. the future and to operate the plant / i Perhaps more serious are the at a high load factor throughout the Ih B ' long term effects-the high cost of g year to provide our cusic mers with ' and Chief Executrve Officer money to finance our construction ; the lowest possible cost of service. l l and environmental programs, and I rf - [ [f , a- bV! '//.A l National Energy Policy tha depressing effect high interest yJf A ! g ritts and inadequate earnings l As mentioned in past reports, our ! j have on the market price of com- ' efforts as a utihty in helping to sup- l mon stocks, including your own ! ply our country's energy needs I *

                                                                                                        /          [/

l Duquesne Light stock. have been increasingly frustrated l STANLEYG.SCHAFFER by a bck of a national commitment - President to ratonal energy goals. We, as a Fcbruary 27,1981 3 l ind

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Acc pting tha Ch:ll:ngo... FUTURE GROWTH

                                                                                   ,           Service Area                                                                 Pittsburgh continues as a major
                                                                                   '                                                                                    corporate and regional headquar-Pittsburgh, the heart of our service ters center which supports many
                                                                                     ; area, is rushing toward tomorrow.

Plans were announced during the important jobs in engineering, com-puter technology, finance and other A year for a burst of construction ac. , professional services, adding to tivity to be completed during the (

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                                                                                     ! 1980's. Of particular interest are the ! the region's economic diversity.

u PPG Industries, Dravo and One increased Revenues j Oxford Centre buildings in down-Revenues for 1980 increased by I town Pittsburgh. These major con-

                                                                                                                                                                        $67 million over 1979.

struction projects, as well as . r

                                                                                      ~ others, are expected to represent ;                                                 Approximately 29% of electric k                                                        's

revenues came from residential

' - s' . c.ver $8.4 million in additional an- customers, 31% from commercial

                                                                                      ! nual revenues for the Company.

f s. customers and 37% from industrial ( ' s,

                                                                                                                                                                - customers. The remaining 3%

r { came from such sources as street

                                                                                                  'N                                                            l lighting and sales to other utilities.

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Accapting the Challonge . . . COMMITMENT TO THE CUSTOMER P00RORSINAL Customer Relations ums, the meeting of management our Load Management Program As changes *:Sc pface in the utility employees with randomly selected ; recognizes the Company's cus-industry and as the costs of pro- groups of customers. These For- g tomer andload characteristics. The ducing and supplying power in- ums supplement the Company,s - program encourages larger busi-crease, good customer relations efforts to improve customer rela- nesses and industries, which make become an essent;al ingred;ent in tions by providing increased dia- up a large segment of the Com-

        < the Company's responsibiftty.                 logue with customers in an informal           pany,s load, through one-on-one Out 1980 Customer Relations               atmosphere.                                   efforts by Company represent .-

Program focused on providing Conservation important ** P prompt, courteous, effective ently and f ec vel by p7 i responses to customer inquiries , Energy conservation programs, technical studies, seminars, equip-and problems. On-going training launched in the early 1970's, con- i ment sizing and other means. This wa ve mp oyees to help tinued to be emphasized in 1980. : can assist the customer in controt-ss - Printed suggestions, directed to l ting energy costs. During the year, in October, the Company began homeowners and small business . our load management prograin men, helped to identify and elimi- aided nearly 1,200 businesses, fac-a series of monthly Customer For-nate wasteful uses of electricity. tories, hospitals and schoots to be-

                                                                                                 , come more energy efficient,
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i ACCOUNT NUMBER ~l 1 04-123456-7 SERVICE ADDRESS 101 OAK RATE RS l STREET RESIDENTIAI. SERVICE ___ . '3 FPOM ERVICE PERIOD u_--K:LOWAE

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R te increase Request ; On February 20, 1981, the PUC The new rates were based on I issued an order on the request. Adequate rates are necessary for the Company's financial position in Th,s i order allowed a total annual , 1979. However, the continuing ef-Duquesne Light to continue to pro-vide adequate electric service for ; increase of 8%, which represents fects of inflation, increasing envi-its customers and provide a fair re-t

                                                                                   $47.5 million.                                                                                             ronmental costs and the impact of turn to its stockholders.                                                                                                                                                         taxes have already eroded much of On April 29,1980, the Company COST OF COAL AND NUCLEAR FUEL                                                                                the benefit of the increase.

filed a new rate schedute with the t UsTu Pennsylvania Pub!sc Utthty Com- A. Century til Mall. newest of ourlarge com. no - - '~~- rnercial customers, as the largest Mdoor mission (PUC) estimated to in- .i shoppong complex on Pennsylvansa. cr:ase annual revenues based on . levels of business at December 31, ;} 140 a. One Oxf p,,,,,n jn ,ord ,,, Centre,

                                                                                                                                                                                                                          ,ggy, ,,,,     scheduled 3 , , ,,ggg,ggg   for com-1979 by approximate!y 18*. or $113 j

square foot off,ce tower and retail complex.

million. Evidentiary hearings on the ; 320 e C. The t,800,000 square foot oravo Buading increase began in July and contsn- T. (1983 completion date) will asso be the main ued through October. entrance to the proposed light ran transit

                                                                                  .' 00                  . - - .                    ..?t                                                      system.

D. The new PPG Industnes Headquarters go , , , buildng, scheduled for completion :n late I e 1983, woII be a 1.760,000 square foot office and shopping complex. 60 E. Worls began in 1980 on US Air south dock terminal facilities, part of a major expansion project at the Greater Psttsburgh Interna-i "O _- ? .- . . . - . - . tronal Airport. i 20

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                                                                               } Customer Assistance                        i Employee information em of mi
                                                                                 ' In addition to helping customers 1

The public often views employees ', 14 f evaluate their energy consumption, ' as ambassadors for the Company.

                                                                            + ; the Company provides a budget                   Therefore,     continuing efforts are ,

j - billing system designed to help i being made to keep employees in- g u y

     '                 L, m{                             df- l residential customers cope with                                  formed of issues affecting them,
                                                                            , t higher energy bills by spreading the Company and the energy con-j, ,,              j           j                            (                                                           ,

their payments over the entire year. ; sumer. A variety of training and ed. . r -- ' ucational programs increase em- I' {; Customer Communications 1

         .a _ _ _ _ _                                  CT1,                                                                     ployees' expertise and involvement l The Company stepped up its com-          ,   in the Company's operation.                 !

l e , s - munications program during 1980 ) i g Y with information on such topics as i A. computer controtted equipment stashes l rate increases, conservation, > the rimeit takes customer service personnet lj { ; safety and future energy sources. I to handte requests for information or serv. i in addition, the Company main- l C8-

    ;a                                                                               tains an active school program          ;
                                                                                                                                 'B. Unprecedented tree growth caused       ,

the which focuses on energy education ! company to spend over s3 mation during the C~ ff f f ! u w eI ekup- > 1 0 _i ( . L \ $ j as well as other related topics, ; [*o#'l ns 1976 1977 1978 1979 1980 , such as economic education and , ,ny ,, j, j, p ,,,, energy conservation, and provides ! every emptoyee to be informed on energy. ! l a variety of resource materials to l relatedissues.

     '                                                                               exp\ain each topic.                     ; o. Intonnatmeetings with customers during y3. _ fy ,1              ^ ~'

h the yea?he!pprovide valuable insight to the ! B s j4 : ,

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Acc:pting tho Ch:ll:nga . . . ADVANCED TECHNOLOGES Operations refueling, scheduled maintenance Union Relations The Company relies principally on and many industry-wide NRC The second year of a two-year con-coal for generating capacity. During safety inspections and safety- tract negotiated in 1979 with the In-i the year, approximately 92% of the related equ,pment modintations. At f ternational Brotherhood of Electri. electricity distributed by the Com. that time the Unit was expected to cal Workers, AFL-CIO, became pany came from coal-fired stations. be out of service until mid-year l effective on October 1,1980. The Of the remaining efectric require. 1980. However, as a result i,n part of

second year provided for a 7.136%

monts, about 3% was produced by a study of the Three Mile Island [ nerease in wages and a 1.2% ia-nuclear fuel, 1% from oil-fired accident, the NRC's required ; crease in fringe benefits. peaking units, and 4% was pur. safety modifications were much Employees of the Company's chased from neighboring utilities. more extensive than originally an- I coal mine are represented by the

          ,       Despite increasing demand and                     ticipated. In fact. Beaver Valley did ? United Mine Workers of America
          ' cost of available supplies, it is be.                   not return to operation until No- ! (UMW) and are covered by the lieved that adequate quantities of                   vember 20,1980.                                                 i industry-wide Bituminous Coal fuel are available to the Company                         The Beaver Valley Stat,on            i      ,s i the Wage Agreement. A three-year in the foreseeable future.                           Company's lowest fuel cost gener- , agreement was reached with the ating station. Without its capacity, l UMW effective March 27,1978.

New Generating Capacity the Company's overall fuel costs The third and final 800,000 kilowatt increased during 1980. Employees coal-burning generating unit at the The Company's total number of Bruce Mansfield Plant, Shipping- employees at year end was 4,464, port, Pa., began commercial opera- - - - - - - - - - - - - - - about 1.5% higher than in 1979. tion September 29,1980. The third *r During the year, about 28% of our i fr ~ f -r - employees received additional unit is jointly-owned by the five , A g J f CAPCO participants, and Du- i j ; training through Company spon-quesne Light's share of the capac-yj - { sored courses or by attending a 10-ity of the unit is 109,900 kilowatts. ! "tC[,,,A" cal university. Nuclear Operations f f

                                                                                               )'& '

On November 30,1979, Beaver Val- ! l ley Power Station Unit No.1 (a ' k , , y' - CAPCO facility) was shut down for ,

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dedication and hard work. B. The Computer Center at the new nbods i Run Office Buildng is an excellent example ;

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,                           FINANCIAL SECURITY The Company's construction ex.                       arrangement-see schedule on                                    Environmental Costs pend.tures in 1950 were approxi.                     page 35.

Environmental standards cont;r.ue mate!y $210 ma hon The Company Changes.in the orig inal CAPCO estimates that it wo spend approxi. arrangements were agreed upon m gg a m egy43 on the Compan/s operations. Dur-mately 51.1 bilhon during the next by the participating uti!*tres in 1980. five years to construct needed fa. ing 1980, the Company spent at :q Under the earher arrangement, the ca , n. H0..c.c", as a resul* of the operating agreement between the $34 mL0n to construct various en-vironmental facihties. recent rate vrder, the Company is CAPCO companies was based on rc . g its c vPu:1.on expeni. The Ccmpany, a a mcmte cf comb.ncd capacity p!anning to the commun,ty it serves is spi m: tures w.th the expectation of reduc. meet future loads. The new to preserve a cie:., entronment 5

t. ora in s;:S c ecnitures for 1931. CAPCO agreement places greater All of thu Cort. pan /s p;anned a manner consistent with its or -

rehance an individual company tion to provide rehable e:c:tri; new generating facihties are being planning. Du'tuesne Light is contin. se vice at the lowest poss:bie cost consva::t . tarough the CAPCO uing to review its future needs as to the customer. well as its ability to finance them. v S~ m i x N

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                                                                                                                                                                                               $. , - e . .a f ,m$ 5f,                           l [ ?. .l ' ! l Financing                                                                 September 1, 2010. The Bonds                                                                        2. All costs of administering the The Company's 1930 financing pro.                                         were issued on September 30                                                                                    Plan are paid by the Company.

grara totahed about 5173,660,000 in 1960 and net proceeds were 3. Preference and Preferred Stock proceeds and includei 549,212,500. dividends can now be reinvested

1. Issue and sa!c of 563,000,000 4. Issue of 446,172 shares of Com- in Common Stock.

prinopa amount of 12h'o First mon Stock pursuant to the Com- 4. Additional shares of Common Mortgage Bonds. Senes due pany's Dividend Reinvestment Stock may be purchased by Januay 1,2010 Trc B:nds were Pian and contribution of 169,911 making optional cash payments issued on Jan.c ,17,19P vd shares of Common Stock to the of up to $5,000 per quarter. not proceeds to the Company Company's Employce Stock if you are interested in partici-wuc $53,136,000. Oanership Plan. The agyegate pating in the Company's Dividend

2. Issue and sale of 4,000,000 dollar value of Common Stock Reinvestment Plan write: Stock-shares of Common Stock. The issued through these plans was holders Relations Department, shares were issued on May 20, 58,370,000. Duquesne Light Company, 435 Sixth Avenue. Pittsburgh, PA 15219.

1980 and net proyeeds jo th New Dividend Company were Soc.940,00v. A. Dunng the year the Company spent ap.

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lssue principa'a" am'EN of 14% *. Erst in March 1980, the Company sub- 7,]'fj'),[,[#l,y",'##y"9,8[,77g ,

7 Mortgage Bonds. Scric due stantia!!y revised its Dividend Rein- mand for rei.able energy vestment Plan. The main features B. The compaCf modular structure of the - of the new Plan are: . . Company's Arsenar sutstato, reyes

                                                          '                              1. BrokeragC Commisstons are                                                                           1/10th the land necessary to build a similar
           * "~ *me=e*~                                                                                                                                                                         conventional facristy sn.n                                          eliminated.

r - o - . # % ,, - C Coat us the Company's most omportant

           }                                                                                                                                                                                    fuel Dunng the year, about 92*e of the Com.
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Our C:nt:nni:1 Cibrctirn ...

                                         %N SHEDDING LIGHT AND POWER ON The year 1980 marked an histodc                               brating our First Century of Serv-r                                                                  milestone for Duquesne Light Com-                             ice." The logo was affixed to a!!

pany...its 100th Anniversary. To Company vehicles and also ap-commemorate this event, the Com- , peared on or in pnnted materials, pany sponsored and prepared a .' correspondence and promotions variety of special Centennial activi- issued by the Company throughout ties and materiats, including design , the year. of aCentenniallogo. The First Century of Electricity, a The circular logo, which incorpo- booklet tracing the Company's rated the Company colors and growth, advancements and contri-milestone years of 1880 and 1980, butions to the area's energy needs read: "Duquesne Light . , . Cele- , over the last 100 years, kicked off the Company's Centennial ob-i servanceinlate 1979.

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            '            A commemorative issue of the                                              Pittsburgh: An American Industriat                                                   dustries. The electrification of City, which went on to capture the                                                   Pittsburgh, the Company's begin-j Duquesne Light NEWS was re-                                                                                                                                        ,

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                                                                 'ppointment w:s ratified at the 1980 Annual Meeting Fin __ncla! Stat _mi,nts of Stockholders. The:r ex:minr_ tion was mide in 2coreance witn gene,aily accepted aud, ting stan.

The Company is responsible for the financialinforma- dards and included a review of the system of internal tion and representations contained in the financial accounting controls and tests of transactions to the statements and other sections of this Annual Report. extent they considered necessary to provide reason-The Company believes that the financial statements able assurance that the financial statements are not have been prepared in conformity with generally misleading and do not contain material errors. accepted accounting principles appropriate in the cir. The Board of Directors has an Audit Committee cumstances to reflect, in all material respects, the composed of three non-officer directors which met substance of events and transactions that should be three times in 1980. The Audit Committee has the fol-included and that the other information in the Annual lowing duties and responsibilities: (1) recommends Report is consistent with those statements. In prepar. the independent public accountants; (2) reviews the ing the financial statements, the Company makes planned scope and results of their audit and other ser-informed judgments and estimates based on currently vices to be performed; (3) reviews the financial state-available information of the effects of certain events ments and the related report of the independent pub-and transactions. lic accountants; (4) reviews with the officers, internal The Company maintains a system of internal auditors and the independent public accountants the accounting control designed to provide reasonable adequacy of the Company's system of internal assurance that the Company's assets are safe- accounting control, including their recommendations guarded and that transactions are executed and with respect thereto; and (5) reviews the planned recorded in accordance with established procedures. scope and results of the intemal audit function. The There are limits inherent in any system of intemal con. independent public accountants have full and free trol based on the recognition that the cost of such a access to the Audit Committee and meet with it, with system should not exceed the benefits to be derived. and without management being present, to discuss The system of internal accounting control is supported internal accounting controls, auditing and financial by written policies and guidelines and is supplemented reporting matters. by a staff of internal auditors. The Company believes that the internal accounting control system provides ,' +'// reasonable assurance that assets are safeguarded {' ~ Q "> ~. 9 #" and financial information is reliable. The accompanying consolidated financial state- C. M. Atkinson John M. Arthur ments have been audited by Deloitte Haskins & Sells, Vice President Chairman of the Board and

   , dependent certified public accountants, whose in                                                              (Fiscal)                 Chief Executive Officer Opinion of Independent Certified Public Accountants DELOITTE HASKINS & SELLS Certified Pub!c Accountants Two Gateway Center Pittsburgh, Pennsylvania 15222                             in our opinion, such consolidated financial state-ments present fairly the consolidated financial TO THE DIRECTORS AND STOCKHOLDERS                          p s tion of Duquesne Light Company at Decem-OF DUQUESNE LIGHT COMPANY:                                          ,      and M and the results of its opera-tions and the changes in its financial position for We have examined the consolidated balancs                  each of the three years in the period ended sheets of Duquesne Light Company as of                    December 31,1980,in conformity with generally December 31,1980 and 1979 and the related con-            accepted accounting principles consistently solidated statements of income, retained earn-             applied during the period except for the change, ings, capital surplus and changes in financial             with which we concur,in the method of billing and
                                                                                                                        )

position for each of the three years in the period recognizing revenues as described in note B to cnded December 31,1980. Our examinations the consolidated financial statements. were made in accordance with generally accepted auditing standards and, accordingly, T f y included such tests of the accounting records and such other auditing procedures as we con-y dnTQ, M g /- [ ht$ - sidered necessary in the circumstances. February 27,1981 14 1( '

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Duqu sne Light Company Statement of Consolidated income For the Three Years Ended December 31,1980 (Thousands of Dollars. Except Per Share Amounts) 1980 1979 1978 OPERATING REVENUES:

                                                                                                                             $674,537     5611.346      5562.114 E l e c t ric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14,928 11,194 11.014 S tea m he a ting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tota! Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . 689,465 622.540 573.128 OPERATING EXPENSES: 212,672 211.939 170.814 Fue! ..... ...... ..... ..... ..... . ... .. . ..... . . Purchased power . . . . . . . . ............. . ..... ... . ... ... 18,524 10.922 35.803 101,549 87,682 79,812 Other operation .. ..... ... ..... ....... ... 61,253 52.444 52,403 Maintenance (Note N) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,660 Depreciation (Note N) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,897 48.450 48,358 47,476 41,997 Taxes other than income taxes (Note N) . . . . . . . . . . . . . . . . . . . . . Income taxes (Note H): (2,143) 12,627 9,196 Federal . . . . . . . . . . . . . . .. ................ .. .. ..... 5,343 8.312 5.040 State . . ..... ... ....... .. .. .. ........... ... .... 10,779 22,037 24,707 income tan:. doferred-not ... .... ... ... .... . . 20,808 17,666 18.409 investment tax credit deferred-net . . . . . ......... .. .... . Total Operating Expenses . . . . . . . . . . . . . . .. ....... 556,5 % 508,008 469.922

                                           .. . ... . ... .. . .. . ........ ...                                             _132,869       114.532       103.206 OPERATING INCOME OTHER INCOME:                                                                                                                                               15,971 Allowance for equity funds used during construction (Noto G) . . . . . . .                                                    22,374         18.852 10,051           8,643       6,088 Income taxes-credit (Note H)                           .... . .. ..                    ... ............

1,072 3,298 1,750 Other income and deductions-net . . . . . . . . ... ... . . Total Other income .. .. . ....... . ....... . . 35,723 29.245 23.131 168,592 143.777 126,337 INCOME BEFORE INTEREST CHARGES . . .. . .. .. .. ...... INTEREST CHARGES: 61,183 80,558 69,655 Interest on iong-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,268 3,475 4,396 Other interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for borrowed funds used during construction, (9,196) (7,715) (4,965) net of income taxes (Note G) . . . . .... .. .. ....... . . . 75,630 65,415 60,614 Totallnterest Charges . . . .. . .. ..... ... .. . INCOME BEFORE CUMULATIVE EFFECT OF THE CHANGE IN 65,723 92,962 78,362 BILLING PRACTICE . . . . . . . ........ . .. ......... ...... CUMULATIVE EFFECT TO JANUARY 1.1979 OF THE CHANGE IN - 3,845 - BlLLING RACTICE. NET OF INCOME TAXES (Note B) ..... 92,962 82.207 65,723 NET INCOME . .. . ...... ........ .. .... ...... ... . 23,353 23,721 18.915 DIVIDENDS ON PREFERRED AND PREFERENCE STOCK. ... ..

                                                                                                                              $ 69,609     S 68,486      5 46,808 EARNINGS FOR COMMON STOCK                                         .... .... . .... .. ........

38,267 32.239 31,464 AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (000) . EARNINGS PER SHARE OF COMMON STOCK: Before Cumulative Effeet of the Change in Billing Practice . . . . . . . . . $ 1.82 S 1.69 5 1.49 Cumulative Effect to January 1,1979 of the Change in Billing Practice

                                                                                                                                   -                .12       -

(Note B) . . . . . . ...... .......... ... .. ... .... .... ..

                                                                                                                              $      1.82  S       1.81  S      1.49 Total        .. . .... ...                 .... .......... ............. ...
                                                                                                                              $      1.80  $       1.76  S      1.72 DIVIDENDS DECLARED PER SHARE OF COMMON STOCK . . . . . . . .

PRO FORMA AMOUNTS ASSUMING THE CHANGE IN BILLING PRACTICE WAS APPLIED RETROACTIVELY (Note B): S 54.641 S 47.956 Earnings for Comrron Stock . . . . . . . . . . . . . .... ...... ..... . ~ S 1.69 $ 1.52 Earnings Per Share of Common Stock . . . . . . ..... ...... . The accompanying Notes to Financial Statements are an integral part of these statements. 15

Duqussne Ught Company Consolidated Balanc') Shact December 31,1980 and 1979 (Thousands of Donars) 1980 1979 ASSETS PROPERTY, PLANT AND EQUIPMENT: Electric plant: I n s e rvic e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,120,882 $1,938.844 Construction work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459,743 418.678 H e ld f or f u t ure use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 410 Total electric plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,580,761 2.357,932 Steam heating plant: In service ............ .............................................. 23,280 21.057 Construction work in progress ................ ...................... 292 1,816 Total property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,604,333 2.380,805 Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 425,225 386,479 Property, plant and equipment-net . . . . ........................ 2,179,108 ,1.994.326 OTHER PROPERTY AND INVESTMENTS: Nonutihty property (at original cost less accumulated depreciation of $269 at December 31,1980 and 5217 at December 31.1979) . . . . . . . . . . . . . . . . . . . . . 1,574 1.454 Construction funds held by trustee (Note D) ...................... .... . 22 3.134 Miscellaneous investments . . . . . . . . . .... . ........... .......... ...... 686 254 Total other property and investments . . . . . . . . . . ....... ......... 2,282 4.842 CURRENT ASSETS: Ca s h ( N o t e E ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,287 4,115 Temporary cash investments (at cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 950 - Deposits, principally for payment of interest and dividends . . . . . . . . . . . . . . . . . 313 334 Accounts receivable: Customers (less recerve for uncollectable accounts of 52.144 at December 31, 1980 and 51.849 at December 31,1979) .. .. . .. ..... . . 69,016 62,540 Ta r refund-pordpaHy invostment tax credit carryback . . .. 2,416 2,329 Claims for refund of poor years' Federal and state income taxes (Note 1) - 4.231 Other . . . . . . . . . . . . . . . . . . . . . . ............. .. ... .......... 13,384 8.304 Materials and supplies (generally at average cost): Coal . . ..... . .. .... . .. . .... .... ........ .. 54,411 40,045 Other operating and construction . . . . ... .... ..... ... ...... 27,738 23.431 Deferred fuel costs . . . . . . . . ....... .. . . .. .. .. ........ . 21,007 10.619 Other current assets . . . . . . . . . . . . ... ..... ...... ....... . ....... . 8,736 12.052 Total current assets . . . . . . . .. ............... . ..... . ...... 200,258 168,000 DEFERRED DEBITS: Deferred costs of cancelled generating units (Note C) . . . . . . . . . . ....... . 31,286 31.116 Unamortized debt expense . . . . . ... .. .... .. . . .. ..... .... 2,556 2.273 Other deferred debits . . . .. ... .. .............. ..... .. .... 27,973 21.980 Total deferred debits . . . . . . . . . . . .. ... ....... . 61,815 55.36,9 Tota! ... ......... .. . .. ..... .. . . .... 52,443,463 S2.222.537 The accompanying Notes to Financial Statements are an integral part of these statements. 16

1980 1979 LIABILITIES CAPITAllZATION (Note D): Common stock (authorized-.-45,000,000 shares; outstanding-40,166,083 and 35,550,000 shares. respectively) . . . . . . . . .......... . .... . $ 40,166 S 35,550 494,228 433,984 Cap; tat surplus . .. . .... .. .. .. ....... . .... .... .... .. Retained earnings . . . . . . . . . . . . . . . . . . . . . . . .. . ...... ...... .. 158,546 158.772 Non-redeemabic preferred and preference stock . . . . . . . . . .. .. ...... 156,137 156.137 Redeemable preferred and preference stock. less sinking fund and 146,867 149,998 repurchase requirements . . . . . . . . ..... ........ . ................ 918,230 808,830 First mortgage bonds (less sinking fund requirerrents) . . .. ........ ... . 10,981 11.436 Sinking fund debentures ...... .. .. . ............ ..... ...... . 116,000 116,000 Pollution control obligations . . . . ..... . . . ..... .. ... .... ... Unamortized debt discount and premium-net .. ... . .... . .. .. (7,161) (5.770) 2,033,994 1,8M,937 Tota! capitalization . . . . . . . .. ... ... . .. .... ... CURRENT LIABILITIES: 6,500 - Notes payable-bank (Note E) . .. . . . . .. .. . .. . .. ..... 28,500 11.000 Notes payable-commercial paper (Note E) . ......... ..... ........

                                                                                                                            -           12,000 First mortgage bonds maturing within one year (Note D) . . . . . . . . . . . . . .                              ..
                                                                                                             ....        66,292         63,835 Accounts payable .       ...     .. ... .... .. .. ........ ... ....... ..

2,037 4,328 Accrued Federal income tax (Notes H and I) . . . . . ..... ......... ....... 17,102 23,365 Other accrued taxes (Notes H and 1) . ... .. .. ........... .

                                                                                 . ................                      10,884           5,518 Deferred income taxes-deferred fuel costs .. . ...                                                                                    18,519 21,005 Accruedinterest . . ........ . ...                                                                                                    21,886 23,889 Dividends dc dared .                                 .       . . .                . ...
                                                                                                               ..         10,591         10.145 Sinking fund and repurchase requirements (Note D) .
                                                                                                         ......         186,800        170,596 Total current liabilities . . . . . .                . .. .. ... . .. .

DEFERRED CREDITS: 98,368 82,366 Investment tax credits . . . . . . . . . . . . . . . . . . . . .. .. .... .. . .. ... 120,357 102.744 Accumulated deferred income taxes . ..... . .. ....... .. .... . ..... 3,840 1.881 Other deferred credits . . . . . . . .. .. ........ ..... . .......... 222,565 186,991 Total deferred credits . . . . . . ... .. .. .... . ......... 104 13 Reserves-Injuries and damages . .. .... .. . ... .. . .. Commitments and Contingent Liabilities (Notes C,I, L and M) .. .. .. . Total . ... . . . .. .. .. . ... $2.443,463 S2.222.537 17

Duqu:sne Light Comp:,ny Stat;mant of Changos in Csnsslidstod Fincnci:1 Pccitirn For the Three Years Ended December 31,1980 (Thousands of Dones) 1980 1979 1978 SOURCE OF FUNDS: Operations: Net income (1979 includes cumulative effect of change in billing pra c.tice of $3.84 5 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,962 5 82.207 5 65,723 Non. working capital charges (credits) to income: Depreciation . . . . . . . . . . . . . . . . . . . . . .. . ................. 56,737 51.428 47.698 investment tax cred,t deferred-net ... ................. .. 16,002 18,453 16.552 income taxes deferred-net (noncurrent portion) . . . . . . . . . . . . . U,613 15.603 21.388 Allowance for equity and borrowed funds used during co n struc tio n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31,570) (26,557) (20,936) 151,744 141,124 130,425 Total.. ... ... ...... ... .............. ... ...... Sa le of bo n d s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000 100.000 - Sale of preferred stock ........ ........................... 30.000 Sale of pref erence stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 50.000 65,309 50,730 48,400 issuance of common stock . . . . . . . . . .. ...... . ........... . Increase rdecrease) in notes payable .. ....... . ..... .. 24,000 (23,500) 34,500 Construction costs reimbursed by trustees from proceeds of pollution control financings . . . . .. ........... . ... .. ... 3,223 7.375 1.376 Decrease in working capital (exclusive of current maturities of long-term debt and notes payable) (a) . . . . . . . . . . . . . . . . . . - 35,687 -

                                                                                                                            $354,276   S311,416   5294.701 Total Source of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

APPLICATION OF FUNDS: Construction expenditures (net of allowance for equity and borrowed funds used during construction) . . . . . . . . . ............... . $209,778 S197,927 $181,000 Dividends on capital stock . . . . . . . . . . . . . . . . . ........ .. 93,188 81,343 73,494 Payment of first mortgage bonds . .. . .... ..................... 12,000 15,000 - Sinking fund and repurchase requirements . . . . . . . . . . . . . . . . . . . . . . . . 3,740 5,496 4.019 7,516 11,650 4,545

   .      Other-net . . .         . ............... .......... . ..... . ...

Increase in working capital (exclusive of current maturites of long-term debt and notes payable) (a) . . . . . . . . . . . . . . . . . . . 28,054 - 31.M3

                                                                                                                            $354,276   S311,416   5294,701 Total Application of Funds . . . . . . . . . . . . . . . . . . ..                               ..

(a) The com zcnts of working capita! (exclusive of current maturities of ior.;E m debt ard notes payable) were as foMo,vs: Current assets: Cash. temporary cash investments and deposits . . . . . . . . . . .. $ 3,550 $ 4,449 S 9,160 84,816 77.404 95,843 Accounts receivable ........ . . .................. ........ Materials and supplies and other current assets . . . ... .. 90,885 75,528 63.010 21,007 10.619 19,512 Deferred fuel costs . . . . . . . . . . . . . . . . . . . . ...... ...... . 200,258 168,000 187,525 Total. .. . .. .... ....... . ..... .. .. . .... l Current liabilities: 87,297 82.354 71,221 Accounts payable and accrued interest . . . . . . . . . . . . . . . . . . 30,023 33,211 32,436 Accrued and deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,889 21,886 18,512 Dividends declared . . . . . . . . . . . . . . . . . . . . . . ... . ...... . 10,591 10,145 9,265 Sinking fund and repurchase requirements . . . . . . .. ........ . 151,800 147.596 131.434 Total ...... .. . . .... .. .... 48,458 20,404 56,091 Working capital at close of year . . . . . . . . . . . . . . . . . . . . . . 20,404 56.091 24,448 Working capital at beginning of year . .... ......... ..... increase (decrease) in working capital (exclusive of current

                                                                                                                             $ 28,054  S (35.687)  $ 31,643 matunties of long-term debt and notes payable) ..                                          ... . .

18 The accompanying Notes to Financial Statements are an integraf part cf these statements. 1

Duqu:sne Light Company Statement cf CensolidatCd Rottin d Ecrnings For the Three Years Ended December 31,1980 (Thousands of Donars) 1980 1979 1978 BALANCE AT BEGINNING OF YEAR: As previously reported . . . . . . . . . . . . . ...... ... .. ..... $158,772 S158,857 $167,373 Less settlement of prior years' income taxes (Note 1) . . . . . . . . . . . - 822 822 As restated ........ ............. ........ . ..... .. . .. 158,772 158,035 166.551 NET INCOME FOR THE YEAR .. .. . ...... .... .. .... 92,962 82.207 65.723 lotal . . . . . . . . .... ... ... . . .. ... ........ ... 251,734 240,242 232.274 DEDUCT: Cash Dividends Declared: Preferred Stock: 496 Series ... ..... . . . . . .. . .... . .... .... 1,100 1,100 1,100 3.759b Series .. ........ . . ... . . .. .. .... 281 281 281 4.159b Series . . ..... ..... .... ... 291 291 291 4.20?b Series . . . ... . . .. . . ........ ..... 210 210 210 4.109e Series .. . . ... .. . .. . .. ..... .... 246 246 246

         $2.10 Series      ..                        . . .... . .... .                        ..       .....            336            336           336 2,375         2,427         2,478 58.64 Series .         . ... ... ..                         .. . .. ...              .. ......

2,520 2,520 2,520 57.20 Series .. ..... .. .. ..... . . ...... . 2,512 2.512 1,759 58.375 Series . . . ... ... .... . .. ... ... Preference Stock: 2,195 2.283 2,373

         $7.50 Series        .........      ...... .. . .                          .      .. .. ......

1,426 1,689 1,992

         $2.75 Series . . . . .         .        .. ..... . . ............ ...

2,778 2,778 2,778 S2.315 Series . . . . . . . ... . ... ..... ..... . . 2,520 2,520 2.520 S2.10 Series . . . . . . ... . . ... . .. ... . 4,563 4,560 -

         $9.125 Series .        ....      ..........             .   ...............               .... ..

Common Stock (Per Share: 1980-$1.80; 1979-51.76; 1978-51.72) 69,835 57,590 54,610 93,188 81,343 73,434 Total Cash Dividends . . .... .. . ............. .... Loss on redemption of capital stock . . . . . . . . . .. . .. ....

                                                                                                                      -                127            123
                                                                                                                      -_            -                 622 Other . ... .. ..........                       ..... .... . ........... .....                      ..
                                                                                                                $158,546      S158,772      S158.035 BALANCE AT CLOSE OF YEAR . .. ... .... .... ....... ...

Statement of Consolidated Capital Surplus For the Three Years Ended December 31,1980 (Thousands of Dottars) 1980 1979 1978 3433,984 $387,185 S341.817 BALANCE AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,693 46,930 45,650 Premium on common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . .. .......... .. .................. ........ ... 36 - - Expense of issuing capital stock (debit) . . . . . . . .. .... ... . (485) (131) (282) 3494,228 5433.984 $387,185 BALANCE AT CLOSE OF YEAR . . . . . . . . ... .. .. ..... ...... _ The accompanying Notes to Financial Statements are an integral part of these statements. 19

basis ov:r the iife of ine unit. such costs ara presently Notas to Financi:1 estimated to be approximately $28,000,000. Provisions Statements for depreciation and denietion of otner Company property and the steam heating subsidiary's property are made on various bases (tons of coal mined for A.

SUMMARY

OF ACCOUNTING POLICIES: coal properties, etc.). Consolidation income Taxes The consolida'ed financial statements include the Deferred income taxes are provided principally for Company and its wholly-owned steam heating differences between depreciation for income tax subsidiary. purposes and depreciation for accounting purposes to the extent permitted by the Pennsylvania Public Utihty Property, Plant and Equipment Commission for rate-making purposes, and for fuel The properties of the Company and its subsidiary's and cancellation costs deferred for accounting properties are carned at original cost. The Company's purposes but deducted currently for income tax properties, with minor exceptions, are subject to a first purposes. In compliance with regulatory accounting, mortgage tien. All maintenance and repairs and income taxes are allocated between operating replacements of minor units of property are charged expenses and other income, principally with respect to to income. Replacements of retirement units of interest charges related to construction work in property and betterments are charged to property in progress. Investment tax credits are deferred and connection with retirements, reserves are charged amortized over the lives of the related facilities. with the carrying value, plus dismantling charges, less salvage, of property retired. Deferred Fuel Costs The Company defers the difference between actual Revenues fuel costs and base fuel costs until the period in which Custorrer meters are read bimonthly and bills are such costs are billed to customers through the not rendered on a monthly basis. Revenues are recorded energy clause. when billed. Allowance for Funds Used During Construction Nuclear Fuel Costs The Company's share of nuclear fuel costs under a In accordance with the uniform system of accounts non-capitalized financing lease agreement is charged prescribed by regulatory authorities, an allowance for to fuel expense based on the quantity of electric funds used during construction (AFC) is included in energy generated and reflects a zero net salvage construction work in progress and credited to other value for the leased nuclear fuel. Since regulatory income for AFC attributable to equity funds and to authorities have not determined whether spent fuel interest charges for AFC attnbutable to borrowed may be reprocessed, and therefore it may be funds. AFC is a non-cash item and is computed using necessary to store spent fuel for an indefinite period, a composite rate, which is applied to the balance of no provision for final disposition costs of such fuel has constructbn wM in p ogress and which assumes been made. that f ont, un d ir c& mon are provided by borrowings and by preferred, preference and common Debt Discount, Premium and Expense stock equity. This accounting procedure results in the Debt discount or premium and related expenses are inclusion in property, plant and equipment of amounts amortized on a straight-line basis over the lives of the considered by regulatory authonties as an appropriate issues to which they pertain. cost for the purpose of establishing rates for utility charges to customers. B. CHANGE IN BILLING PRACTICE: Depreciation Pursuant to an order by the Pennsylvania Public The Company provides for depreciation of electric Utility Commission, the Company changed its method plant, exclusive of coal properties on a straight-line of billing and recognizing revenues for residential basis determined in a manner consistent with and certain commercial customers from a quarterly applicable Pennsylvania law and with methods applied to a monthly basis, effective Jpraary 1,1979. The by the Pennsyfvania Public Utility Commission in the t $3,MS,000 cumulative effect of te change on prior determination of depreciation in rate proceedings. years (af ter reduction for incom 3 taxes of $7,353,000) Depreciation is computed on the basis of the following is included in income for the yea, ended December 31, annual rates expressed as a percentage of original 1979. The additional effect of the change on the year cost: production plant-2A2% to 6.96%, transmission ended December 31,1979 was not significant. The pro plant-2.06%, distnbution plant-2.54% and general forma amounts reflect for each yes' the effect of plant-3.06% The Company provides for retroactive apphcation of the chango in the method of cocontamination and dismantling costs for the Beaver billing and recognizing revenues and related income 20 Valley No.1 nuclear generating unit on a straight-line taxes.

C. CANCELLATION OF CAPCO shara could be subsentti. No termination costs hava GENERATING UNITS: been recorded at December 31,1980 as the CAPCO in January 1980, the Company and the other CAPCO companies have available to them and intend to companies cancelled the construction of four nuclear assert legal claims and defenses. It is the opinion of generating units. The Company's share of the the management of the Company that final resolution accumulated construction costs applicable to these of the termination costs will not have a material units was $31,286,000 as of December 31,1980. The adverse effect on the Company's financial position. If Company has received approval frcm the Federal any termination costs are incurred, the Company Energy Regulatory Commission to amortize the would seek approval from the Pennsylvania Public accumulated construction costs over a 10-year period Utility Commission to recover such costs from its beginning with the recovery of such costs from its customers over a 10-year period. customers. The Pennsylvania Public Utility if the Company is denied the right to recover these Commission has not yet decided whether to approve costs from its customers it would charge such costs to such recovery. income in the year of disallowance. The Company Claims related to the termination of associated believes that recovery of all such costs from its contracts have been filed, for which the Company's customers is proper. D. CAPITALIZATION: Capital Stock: December 31,1980 Shares Outstanding Amount Common Stock-S1 par value (1) . . . . . . . . .......... ... ...... ....... 40,166,083 S 40,166,083 Capital Surp!us: Premium on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. S500,403.359 Capital stock expense (debit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... (6,406,437) Other . . . . . . . . . . . . . .. .... ..................... .... .... ..... 231,016 Total Capital Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S494,227.938 Non-redeemable Preferred and Preference Stock: Preferred Stock-SSO par value (cumulative) (1) 4% Series (2) .. ......... ........................................ 5G,969 S 27,498,450 3.75% Series (2) . ........ ................................... .... 150,000 7,500,000 4.15% Series (2) . . . . . . . . . . . . . . . ............. ................ 140,000 7,000,000 4.20% Series (2) .. . ....... .. .. ... ........ .... ... ........ 100,000 5,000,000 4.10% Series (2) . . . . . . . ... ....... .............. ... ... 120,000 6,000,000 S2.10 Series (2) ... ................... ................. ......... 160,000 8,000,000 S7.20 Series (3) . . . . . . . . . . . . . . . . . . . ......................... 350,000 17,500,000 Preference Stock-51 par value (cumulative) (1) S2 315 Series (4) .. . . ... . . . . . .. . ... . . 1,200,000 1,200,000

       $2.10 Series (4)                    . . .. ... .                                   .. ...... .                     .... 1,200,000       1,200,000 80.898,450 Premium on Non-redeemable Preferred and Preference Stock . . . . . . . . . . . .                                                           75,238,760 Non redeemable Preferred and Preference Stock ... .....                                              ... ...                        S156.137,210 involuntary Liquidation Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                               S155,998,450 Redeemable Preferred and Preference Stock:

Preferred Stock-SSO par value (cumulative) (1) 58.64 Series (3) . .............. . ..... .. . ... ... ..... .. .... 274,872 S 13,743,600

       $8.3 75 Serie s (3 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      300,000     15,000,000 Preference Stock-51 par value (cumulative) (1) 57.50 Series (3) . .                ......... ....                     . . . ........ .                          .....      289,800         289,800
       $2.75 Series (4) ...                .. ........... ..... . ...... ..                                 . .. .... .            488,850         488,850
       $9.125 Series (3) . . . . . . . . . . . . . . . . . . .          ... ......... ............ .                               500,000         500,000 30,022,250 Premium on Redeemable Preferred and Preference Stock . . . . . . . . . . . .                                         .. .                118,666,200 Repurchase and Sinking Fund Requirements . . . . ..... ... ....... ..                                                                      (1,821.250)

Redeemable Preferred and Preference Stock . .. ........ .. .... . $146.867.200 involuntary Liquidation Value . ..... .... .......... ..... .......... $148.688.450 (1) Authorized shares: Common Stock-45,000,000; (2) S50 per share involuntary liquidation value. Preferred Stock-4,000,000; (3) S100 per share involuntary liquidation value. 21 and Preference Stock-8.000,000. (4) 525 per share involuntary hquidation value.

The following summary indicates the ch:ngas in tha number of sharcs of Common Stock outstanding during 1980,1979 cnd 1978: Year Ended December 31, 1900 1979 1978 Comn,on Stock: 35,550,000 31,750,000 29,000,000 Shares outstanding at beginning of year . . . . . . . . . . . . . . . . . . . 4,616,083 3.800.000 2.750.000 lssuances................. ......... ................. 40,166,083 35.550.000 31.750,000 Shares outstanding at end of year . . . . . . . . . . . . . . . . . . . . . . . . The outstanding Preference Stock of the Company 59.125-not redeemable prior to January 1, G89 is ca!!able on not less than thirty days' notice at the through certain refunding operations, otherwise redeemable at $100 plus the applicable redemption following redemption prices plus accrued duidends: 57.50-redeemable at S112 through April 1,1983; $105 premium decteasing from 58.64 in 1980 to S.48 in 1993. The outstanding Preferred Stock of the Companyis through April 1,1986;S103 through April 1,1989,and

                                    $101 thereaf ter; S2.75-not redeemable prior to                           callable on not less than thirty days' notice at the August 1,1984 through certain refunding operations,                       following redei stion prices plus accrued dwidends:

otherwise redeemable at S27.75 through Jufy 31,1984; 4 % - 551.50;3 .5 % - 551.00;4.15 % - S51.73,4.20 % -

                                    $26.50 through July 31,1989; and 525.25 thereatter;
                                                                                                               $51.71; 4.10%-S51.75; S2.10-551.84; $8.64-S2.315-not redeemable prior to April 1,1981 through                        redeemable at $107 through September 30,1984; $104 certain refunding operations, otherwise redeemable at                      through September 30,1989; and S101 thereafter; 57.20-redeemable at $105 through March 31,1982; S27.30 through March 31,1981; at $26.60 through March 31.1986; at $25.90 through March 31,1991; and                        $102.50 through March 31,1987; and $101 thereafter;

' at $25.25 thereafter; S2.10-not redeemab!e pnor to $8.375-not redeemable prior to April 1,1983 through certain refunding operations. Otherwise redeemab'e at April 1,1982 through certain ref unding operations, otherwise redeemable at $27.10 through March 31, $112 through March 31,1988, and thereafter at $100 1982; at 526.40 through March 31,1987; at S25.70 plus the applicable redemption premium decreasing through March 31,1992; and at 525.00 thereatter; from S5.03 in 1988 to S.34 in 2003. The shares of $8.64 Preferred Stock are entitled to a Redeemable Preferred and Preference Stock: non-cumufative purchase fund under which the The shares of 57.50 Preference Stock are entitled to a non-cumulative purchase fund under which the Company offers to repurchase annually up to 6,000 shares at not more than $100 per share. The shares of Company of fers to repurchase annually at S100 per 58.375 Preferred Stock are subject to a cumulatwe share up to 4% of the number of shares originally sinking fund beginning with the year 1984 which will issued. The shares of 52.75 Preference Stock are retire 12,000 shares on Apri! 1 in each year at S100 per subject to a cumulatwe sinking fund v,hich will retire share. The Company may on a non-cumulative basis 55,000 shares on August t in each year at $25 per retire an additional 12,000 shares in each such year. share. The Company may on a non-cumulatwe basis The Preferred Stock is entitled to quarterfy cumulatrve retire an additional 55.000 shares in each such year. The shares of 59.125 Preference Stock are subject to dividends. In the event that four quarterly duidends arein default, the holders of the Preferred Stock are a cumulative sinking fund beginning with the year 1984 entitled to elect a majority of the Board of Directors and continuing through 1997 inclusive which will retire 33,300 shares on January 1 in each year at S100 per until all dividends in arrears and current dividends share. The Company may, on a non-cumulative basis, have been paid. retire an add:tional 33.300 shares in each such year, The combined aggregate redemption requirements for the next five years as of December 31,1980 are as provided that the Company may not redeem through the exercise of this option more than an aggregate of follows: Sinking Fund 150,000 shares.The Preference Stock is entitled to Year Ending Requirements or Mandatory quarterly cumulatwe dividends except that no Purchase Requirements dwidends may be paid if dwidends on any senes of the December 31. Pref erred Stock are accumutated and unpaid. In the 1981 S3,121,250 event that six quarterly dmdends on the Preference 1982 3.275,000 Stock are in arrears, the holders of the Preference 1983 3,275,000 1984 7,805,000 Stock are entitled to elect two directors until all drvidends in arrears have been paid- 1985 7.805,000 22 WF*' E_

Th3 fortowing summary indicates the changes in the numb:r of sharts of Red:emabla Pr;ferr:d and Pr:f:r:nc3 Stock outst nd;ng during 1980.1979 and 1978: Year Ended December 31, 1980 1979 1978 Preference Stock: Shares outstanding at beginning of year . . . . . ... 3,751,360 3,788,600 3,495,000 Issuances -$9.125 Series . . . . . . . . . . .. .. . ... .

                                                                                                                                -                             85,000                  415,000 Purchases and redemptions-$2,75 Series . . . . . . . . . . . .                                                        (61,150)                          (110,000)                  (110,000)
                                -$7.50 Series                                    .             .                        (11,560)                             (12.240)                 (11,400)

Shares outstanding at end of year . . . .... . 3,678,650 3,751.360 3,788,600 Preferred Stock: Shares outstanding at beginning of year . . . ... 2,150,841 2,156,841 1,857,354 issuances-S8.375 Series . . ... .. . . . . . . 300.000 Purchases-S8.64 Series .. . .. . . .... . (6,000) (6,000) (513) Shares outstanding at end of year . . . . . .. 2,144,841 2,150,841 2,156,841 Indebtedness: First Mortgage Bonds (amount authorized is unlimited by indenture): December 31,1980 Series due September 1,1982 (3% *b) . . . . . . . $ 14,000,000 Series due September 1,1983 (3%%) . . . .. . 12,000,000 Series due July 1,1984 (3%%) . . . .. . . 16,000,000 Series due April 1,1986 (3%%) .. . . . 20,000,000 Serics duc April l,1988 (3%%) . . . .... . .. .. ... . ... .. .. .. 15,000,000 Series due March 1,1989 (4% %) . . . . . . .. . ... . .. 10,000.000 Series due February 1,1996 (5%%) . . ... . . .. . . . . 25,000.000 Series due February 1,1997 (5% %) . . . 25,000,000 Series due February 1,1998 (6%%) . .. . . .. . ... 35,000,000 Series due January 1,1999 (7%) , . . . . 30,000,000 Series duo Ju'y 1.1990 (7%*i) . . 30,000,000 Series duc f.b :h 1,2:'O (E4 *J 30,000.000 Serics due March 1,2001 (7%%) . . . . . 35,000.000 Series due December 1,2001 (7% %) . . . 35,000,000 Series duo June 1,2002 (7%%) . .. .

                                                                                                                                                     . .                        35,000.000 Series due January 1,2003 (7% %) .               ..                                                                                                  .                        40,000,000 Series duc July 1,2003 (7%%) ,                      .                  .                   . .                         .                      ..                              35.000,000 Series due Apnl1,2004 (8%%) .                                     .               ..                  .        .                .        .            .

45.000,000 Series due March 1,2005 (9%%) .. .. . . .. . . 50,000,000 Series due June 1,2006 (9%) .. .. .. . .. . .... 80,000,000 Series due April 1,2007 (8%%) . ... . . .... . ... .. . .. . .. 100.000,000 Series due February 1,2009 (10%%) . . .. . ... .. . . 100,000,000 Series due January 1,2010 (12% %) . 60.000,000 Series due September 1,2010 (14% %) . . . .. . 50,000.000 Total . .. . . .. .. .. . . . 927,000.000 8,770,000 Less current sinking fund requirements . ..... . . S918.230,000 First Mortgage Bonds (less sinking fund requirements) .. . . . .. 5*b Sinking Fund Debentures (authorized $20,000,000) due March 1,2010 . _S 10,981 000 23

Polluti:n Centrcl Obligations: Serial M:tanty Average or Mandatory Interest Redemption Final December 31, Date of Issuance Rate Beginning Maturity 1980 5.49 % 1983 2002 $ 24,000,000 September 21,1972 . . . . . . . ................ 5.685 % 1984 2003 12,000,000 June 21,1973 .. ........ ...... ........ 5.755 % 1984 2003 16,000,000 October 25,1973 .................... . ... . 7.97 % 1989 2004 14,000.000 August 13,1974 .. ........... .. ........ 7.50 % 1993 2005 17,000,000 April 2,1975 . . . . . . . .............. ....... 8.40 % 1991 2005 18,000,000 October 29,1975 . ..... ..... .. . ...... 6.90 % 1994 2011 15,000,000 September 29,1976. ..... .... ............. 5116,000.000 Total Pollution Control Obligations ................................ ....... .. ..... Sinking fund requirements and maturities for the which $63,500,000 was unused at Decc.ber 31,1980, next five years for long term debt outstanding as of $61,500,000 was unused at December 31,1978, and all December 31,1980 are as follows: of which was unused at December 31,1979. The interest rate under one of the lines is at a rate not to Year Ending Sinking Fund exceed 105 percent of the prime interest rate and, for Decemoer 31, Requirements Maturities the other hne, the rate is not to exceed the prime 1981 59,270, @ - interest rate. As part of the arrangement for a 1982 9,130,000 $14,000,000 $50,000,000 kne of credit, the Company is expected to 1983 9,191,000 12,500,000 maintain compensating balances of eight percent of 1954 9,575,000 16,700,000 the line of credit In connection with the other kne, the 1985 9.575,000 700,000 Company is required to pay a commitment fee of % of 1% per annum on the total of the line. In connection The sinking fund requirements in each year relate with the guarantee of S3,367,000 of indebtedness of an primarily to the First Mortgage Bonds, which unaffiliated coal supplier (see note M), the Company requirements may be satisfied by the certification of s expected to maintain a compensating balance of property additions at 166%% of the Bends required to fif teen percent of the amount borrowed under such be redeemed, and the pollution control obligations. arrangement. The notes payable-bank and The remaining sinking fund requirement relates to the commercial paper outstanding at December 31,1980, 5% Debentures. At December 31,1980 the 1981 and 1979 and 1978 had a weighted average interest rate of 1982 sinking fund requirements for the 5% Debentures 18.61%,12.76% and 10.32% respectively. During the had been satisfied and the 1983 sinking fund years ended December 31,1980,1979 and 1978 the requirement had been partially satisfied in the amount maximum amount of short. term borrowings of $219,M. outstanding was S63,500,000, S64,500,000 ar , The po!!ute control obligations arise from S69,000,000, the average short. term borrowings were arranpca d.vccm tr c Company and two local $23,403,000 S20,933,000 and 531,324,000 and the industrial development authonties whereby the weighted average interest rate applicable to such construction of certain pollution control fecilities is short. term borrowings was 12.47%,11.28% and being financed through the sale of bonds by those 8.55%, respectively. authorities, and the Company is obligated to pay to the authorities amounts equal to the principal of and F. BUSINESS SEGMENT INFORMATION: l interest on the authorities' bonds relating to such The Company operates predominantly in the electric facilities. Pending application for current construction utility industry. During the years ended December 31, costs. funds have been invested in short-term 1979 and 1978, approximately 11% of total operating secunties and are shown on the Balance Sheet as revenues was derived from one customer. In 1980 no i " Construction funds held by trustee". one customer provided 10% of total operating The Company's Restated Articles restrict the revenues. payment of cash dividends on, or the purchase of,its capital stock ranking junior to its Preferred Stock. G. ALLOWANCE FOR FUNDS USED DURING Under this restriction, no retained earnings were CONSTRUCTION: restricted at December 31,1980. The Company follows the procedure prescribed by the Federal Energy Regulatory Commission in determining E. SHORT TERM BORROWING the rate used for computing allowance for funds used ARRANGEMENTS: during construction. Such rate was 7.4%,7% and At Dccomber 31,1980,1979 and 1978 the Company 7.6% compounded semi. annually in 1980,1979 and had lines of cred:t with banks totakng $70,000,000 of 1978, respectively. 24 l-

H. INCOME TAXES: ' Total income taxes in 1980,1979 and 1978 were comprised of the following components: 1980 1979 1978 (Thousands of DoHars) includedin operating expenses: Federal . . . . . . . . . . . . . . . . . . ...... .. .... .... . ....... ... $12,627 S 9,196 S (2,143) State..... ............ . ... ... .. . ... . . .. ....... 5,343 8,312 5.040 included in other income (income taxes-credit): Federal . ... . ... .. . .. .. .. . ...... ..... ... .... (8,007) (6,887) (4,893) State. . . .. .. .. ... .... . ........ . .. .. .. (2,044) (1.756) (1.195) Taxes currently payable (recoverable) . . .... . 7,919 8.865 (3,191) Income taxcs deferred-net: Federal . . . . . . . . ..... .. ... .. . .. .. ......... ..... .. 17,125 8,339 17,436 State.... . . ......... .... ... .. . . ........... . .. .. . 7,582 2,440 4,601 Investment tax credit deferred-net ... .. .. .. .. .. . ......... 17,666 20,808 18.409 Totalincome tax expense . .... . . .. .. .. . .. $50,292 S40,452 S37,255 Totalincome tax expense for 1979 as indicated 1978-51,327,000), to an investment tax credit above is exclusive of S5,890,000 Federal and carryforward recognized as a credit to income taxes S1,463,000 state income taxes applicable to the deferred of $13,484,000 in 1980 and S3,088,000 in 1979 change in billing practice. and to cancellation costs deferred for accounting income taxes deferred principally relate to purposes but which are deducted currently for income differences between depreciation for income tax tax purposes of S13,894,000 in 1980. purposes and accounting purposes (1980- Total income taxes were less than the amount

   $18.312,000; 1979-519,171,000; 1978-$21,026,000), to                                      computed by applying the statutory Federalincome fuel costs which have been deferred for accounting                                        tax rates of 46% for 1980 and 1979 and 48% for 1978 purposes but which are deducted currently for income                                      to income before income taxes. The reasons for this tax purposes (1980-55,366,000; 1979-(S4,913,000);                                         difference in each year are as follows:

1980 1979 .1978 (Thousands of DoHars) Computed Federalincome tax at statutory rate . . .. .. ... 565,897 S56,423 549,429 increase (decrease) in taxes resulting from: Allowance for funds used during construction . . . . . . . . . . . . . . ... . (14,522) (12,221) (10,049) Excess of tax over book depreciation . . . 35 (1,116) (2,091) State income taxes, not of Federat income tax benefit 5,875 4,84E 4,392 Amortization of deferred investment tax credits ... .......... . (3,117) (2,718) (2,063) Other-net . . .......... .. ..... . . ... .. . .... . . (3,876) (4,756) (2,363) Total income tax expense . . . . . . . . . . . ..... .. $50,292 S40,452 S37.255

1. PRIOR YEARS' INCOME TAXES:

The Company's income tax retums are settled recovery in 1979 of a major portion of such payment through 1970 with the exception of the percentage resulted in a net charge to retained eamings of depletion issue discussed below. Income tax returns $822,000. The proposed additional Federal income for 1971 through 1976 have been examined and the taxes relating to percentage depletion for 1962 returns for 1977,1978 and 1979 are being examined. through 1972, together with interest and related state The Internal Revenue Service has assessed income tax effect, amount to $4,360,000 after deficiencies regarding the Company's computation of deducting the related tax benefit of S1,605,000. The preentage depletion on coal mined for 1956 through Company expects that the Court's decision in the 1956 19M and has proposed similar deficiencies for 1962 through 1961 case will serve as a basis for settlement through 1972, as well as certain other issues of of the proposed deficiencies related to depletion for relatively minor importance for 1971 through 1976. The 1962 through 1972. It is the Company's opinion that Company paid the assessments related to percentage the settlement of Federal and state taxes will not depletion for the years 1956 through 1961 and significantly affect the Company's financial position or instituted a suit for refund in Federal District Court. A results of operations. 25

59,392,000,57,224,000 and $6,480,000, r:spectively. J. EMPLOYEE BENEFITS: The Company and its subsiditry h:va trusteed The incr::se in pension costs in 1980 is principafly retirement plans to provido pensions for all due to c plin amont, xnt, cff:ctiva October 1,1979, employees, except coal mine employees who are which moved forwarc le taverage salary period used covered under a plan administered by the United Mine in computing the past service portion of benefits and Workers of America. Information concerning the plan the date used in computing the future portion of covering coal mine employees is not determinable benefits. Data concerning accumulated plan benefits and is not included in the data below. Pension costs and plan not assets for the trusteed plans are are funded as accrued and include a,nortization of presented below as of the January 1 actuarial prior service costs over 30 years. Pension costs valuation date, using the Company's assumed rate of charged to expense or construction for the years return of 5% in determining accumulated plan ended December 31,1980,1979 and 1978 were benefits. 1980 1979 1978 (Thousands of Dollars) Actuarial present value of accumulated plan benefits:

                                                                                                   $126,308        $113,595         $109,110 Vested . . . .       . .... ..... .....                  .......................

10,562 3,335 2,795 Nonvested .. .......... ...... ...........................

                                                                                                   $_f36,870       $116,930         $111.911 Total.. .....          ...... .. ...... .. .... ...........
                                                                                                   $ 91,167        5 80,406         5 74.751 Not assets availab e for benefits (at market value) . . . . . . . . . . . . .

The Company is liable under the Federal Mine Safety mine payroll costs and are deposited with a trustee. and Health Act and related state laws for the payment Such costs were $1,494,000,51,824,000 and S1,766,000 of disability benefits to coal mine employees disabled for the years ended December 31,1980,1979 and by black lung and to their survivors and dependents. 1978, respectively. At Aly 31,1980 (the date of the The estimated costs of providing such benefits, latest actuarial valuation), the unfunded prior service including amortization of prior service costs, are cost for these disability benefits was approximately actJarially determined and accrued on the basis of $22,860,000. K. JOINTLY-OWNED GENERATING UNITS: The Company, together with other electric utilities, regarding the Company's share of such jointly-owned primarily the CAPCO companies, has an ownership units as of December 31,1980 is as follows interest in certain jointly-owned units. Information (thousands of dollars): Company's Interest Utility Plant Accumulated Construction Work Percentago Unit in Service Depreciation in Progress Ownership Megawatts Fort Martin No.1. . .... S 36.126 511,185 5 1,435 50.0 % 276 CAPCO Units: Eastlake No. 5 . . .. ... . 43,546 8,093 3,046 31.2 % 198 , Sammis No. 7 . ... 37.681 6,615 3,275 31.2 % 187 71,689 9,257 350 29.3 % 228 l Bruce Mansfield No.1. . . . Bruce Mansfield No. 2 . . . . . . 20,058 1,774 101 8.0 % 62 l 110 70,119 545 0 13.74 % Bruce Mansfield No. 3 . . . . . . . Bruce Mansfield Common 53,251 7,145 2,930 and Shared Facilities . . . . . . . , Beaver Valley No.1 . . . . . . . . . . 279,205 23,212 16,442 47.5 % 385 18 0 114.244 13.74 % 114 I Beaver Valley No. 2 . . ... Beaver Valley Common 28,203 2.202 17,243 Facihties . ....... 0 0 1n8.103 13.74 % 165 Perry No.1 ..... .. 0 0 99,238 13.74 % 165 Perry No. 2 ..... . . .. . Davis Besse Common .ind Shared Facilities . . . .. .. 3.601 132 0 l S366,407 26 Total .... .. $643,497 $70,160 f

Under terms of the arrangements with the other cxpenses (fuel, mainteninc3 and other operation

 . owners of such jointly-owned units, the Company is                 expenses) of the jointly-owned units is included in the required to provide its own financing of the cost of                corresponding operating expenses in the Statement such units. The Company's share of the direct                      of Consolidated Income.

L LEASES: M. COMMITMENTS AND CONTINGENT Rental payments in 1980,1979 and 1978 amounted to LIABILITIES:

   $10,3S3,000,59,844,000 and 59,508,000, respectively, of            The Company's present estimate of construction which S4,772.000,56,049,000 and S7,288,000 were                    expenditures during the period 1981 through 1985 charged to operating expenses. The Company has an                  amounts to approximately St.1 billion, principa!!y undivided interest in nuclear fuel lease agreements for            related to CAPCO generating units. However, as a three CAPCO generating units. Rental payments are                  result of the February 20,1981 rate order, the made monthly during the terms of the leases based                  Company is reviewing its construction expenditures on the amount of nuclear fuelleased and the amount                 with the expectation of reductions in such of nuclear fuel bumed. The nuclear fuelleases may be               expenditures for 1981. See note C for information terminated by the lessees or lessor on a one year's                regarding contract termination charges which could notice or by casJty or certain other contingencies,                be incurred as a result of the cancellation of including def ault by the lessees. In certain situations           construction of four CAPCO nuclear generating units.

involving a termination. tne lessees may be required to The Company and the other owners of certain purchase the leased nuclear fuel at the higher of fair generating units in the CAPCO arrangements have market value or unamortized cost. At December 31, made long-term coal supply arrangements with an 1980, the Company's share of the lessor's unaffiliated mining company to supply coal for the unamortized cost of the leased nuclear fuel was Bruce Mansfield units. As part of these arrangements

$53,467,000 and tne Company expects to lease an the individual CAPCO companies are severally additional S3,719.000 of nuclear fuel. guaranteeing debt and lease obligations of the mining The Company also has certain buildings under company in connection with the development and lease, subject to purchase and renewal options. At operation of two mines from which the coal will be December 31,1980 minimum rental payments, based supplied. At December 31,1980 the Company had principally on estimated usage of nuclear fuel under guaranteed the obligations of the mining company lease and building rentals, were as follows: with respect to approximately 555,952,000 of (Thousandsof DoHars) indebtedness and had guaranteed lease obligations 1981... . . . .. ... S 9,469 relating to approximately $29,309,000 of capital 1982.. .... . .. ... 8,169 equipment for the mines.The Company expects to 1983... . ... . .. 8,683 make additional similar guarantees, the amount of 1984 12.829 which will depend on the actual costs of further 19E . .. 15,067 development of the two mines. The Company expects 1986-1990 . . .. . .... 54,566 that by 1984 it will have made further guarantees with After 1990 . .... ...... 7,973 respect to a minimum of S12,145,000 of additional indebtedness and leased capital equipment. See Total . .. .. ..... S_116,756 Management's Discussion and Analysis of Financial Condition and Pesults of Operations for discussion of The Company accounts for all of its leases as the pricing of coal from this mining company. Also,in operating leases in accordance with the manner in connection with coal supply arrangements for its which the Company's rates have been established by wholly-owned generating units the Company has the Pennsylvania Public Utility Commission. If the guaranteed debt obligations of an unaffiliated coal noncapitalized financing leases were capitalized as of supplier in the amount of S3,367,000 as of December December 31,1980 and 1979, property, plant and 31,1980. In general, it is contemplated that the equipment-net would have been increased by purchase prices to be paid for the coal to be received
$66,948,000 and S43.871,000. respectively, with related under the foregoing arrangements will include increases in current liabilities and long-term debt of amounts sufficient to service the obligations so 55,386,000 and S61,869,000, respectively, in 1980 and guaranteed.

54.476.000 and S39,613,000, respectively, in 1979. The in connection with the February 20,1981 rate order, impact on net income of capitalizing such leases in the Pennsylvania Public Utility Commission found that each year would not be material. the Company had not proven that the costs of replacement power during a 1979 outage of Beaver Valley Unit No.1 were prudently incurred and directed the Commission's Bureau of Audits to address the 27 subject in an audit and make a recommendation as to I

the amount of customer refunds which should be and are seeking affirmative action relief as well as made through the Company's energy adjustment substantial p:ymsnts by the Company to alleged clause. Although the amount of such refunds codd be victims of the Company's discrimination. The substantial, the management of the Company Company has denied that its employment practices believes that the replacement power costs were are discriminatory and is vigorously defending its prudently incurred and that the eventual outcome of position in the proceedings. While the Company is this matter will not have a material effect on the unable to predict whether the eventual outcome of the Company's financial position or results of operations. proceedings will have a material etfact on its results of The Company is a defendant in legal proceedings operations, the management of the Company believes instituted by the U. S. Department of Justice and the that such outcome will not have a material effect on Equal Employment Opportunity Commission in a the financial position of the Company. Federal District Court involving the Company's The Company is invo!"ed in various other legal emp!cyment practices. The plaintills have alleged that proceedings. in the opinion of management of the such practices violate Title Vil of the Civil Rights Act Company such legal proceedings will not have a

of 190' and Executive Order 11246 (relating to non- material effect on the financial position or results of j discrimination in employment by Federal contractors) operations of the Company.

N. SUPpLEF,'Eh'TARY INCOME STATEMENT INFORMATION: Year Ended December 31, 1980 1979 1978 tThousanos of Donars) Maintenance . .. . ....... . .... .................. . ... .. $72,549 $62,699 $60,995 Depreciation, depletion and amortization of property, plant and equipment 56,737 51,428 47,698 Taxes other than payroll and income taxes: Gross receipts ................... ........ .......... . 30,464 28,059 25,386 P r o p e rty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,439 11,333 8,918 State capital stock . . . . . . . . . . . . . . . . . . . . ...... ......... .. 2,846 7,033 5,533 Under the system of accounting follo.ved by the Charges for depreciation and amortization of Company, a portion of maintenance and repairs, intangible assets, royalties and advertising costs have provision for depreciation and depletion, and taxes not been shown as the individual amounts do not other than income taxes represent amounts charged exceed 1% of total revenues. to coal inventories. The inventory accounts are relieved and operations expense charged as the coal

is u M O. QUARTERLY FINANCIAL INFORMATION (Unaudited):

(Thousands of Dottars) Operating Operating Net Earnings Per Quarter Ended Revenuet income income Share M a rc h 31, 1979 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $162.003 $26,073 $21,221 S.48 June 30,1979 . . .... .. .. ........ ............ 143,396 25,625 16,900 .34 September 30,1979 . .... ......... .. ......... 156,529 31,369 22,261 .51 December 31,1979 ....... ......... .. ...... ... 160,612 31,464 21,826 .47 March 31,1980. .. . ... ... ... ... 174,023 35,232 25,835 .56 Juno 30.1980 . . . . . . . .. . ........ ....... ... 160,763 30,360 20,841 .40 September 30,1980 ... .... ... ..... ..... .. 177,274 32,436 23,218 .44 December 31,19E0 . ........................ . 177,405 34,841 23,067 .43 Net incomo and earnings per share for the first quarter of 1979 include the cumulative effect to January 1,1979 of the change in biliing practice of $3,845,000 or S.12 per share, respectively (see note B). 28

P. SUPPLEMENTARY INFORMATION TO DISCLOSE THE EFFECTS OF CHANGING PRICES (Unaudited): The followi,,g supplementary information is supplied in changes in specific prices (current cost) have had on . accordance with the requirements of the Statement of the Company's results of operations. The data l Financial Accounting Standards No. 33. Financial provided are not intended as a substitute for earnings Reporting and Changing Prices. This Statement reported on a historical basis, but offer some requires adjustments to historical costs to estimate perspective of the approximate etfects of inflation the effects that generalinflation (constant dollar) and rather than a precise measurement of these effects. 4 i STATEMENT OF INCOME ADJUSTED FOR CHANGING PRICES For The Year Ended December 31,1980 (Tnousands of Dohars) Constant Current Conventional Dollar Cost Historical Average Average Cost 1980 Dollars 19S0 Dollars Operating revenues . ................ ...... .. . $689,465 S 689.465 5689,465 Fuel..... .. ... ... .. . ... . .. . . .. . . . .. 212,672 212,672 212.672 Purchased power . .. ....... .... .................... . 18,524 18,524 18.524 , Other operation and maintenance expense . ...... ...... . 162,802 162.802 162.802 l Depreciation expense . . . . . . . ............ ............ 53.897 113,262 129.515 Taxes other than income taxes .... .... .. .. ......... 48,358 48,358 48.358 income taxes . . . . . . . ...... .... .... ......... .. . 60.343 60.343 60,343 Interest charges . .... . ... ....... ... ........ ...... . 75,630 75.630 75.630 j Other income and deductions-net . . . . . . . . . .. ... .. ... (35,723) (35.723) (35,723) 596,503 655.868 672.121 Net income (excluding reduction of property, plant and equipment to net recoverable cost) . . . . . .... ........ S 92.962 S 33.597* S 17.344 Increase in specific prices (current cost) of property, plant and equipment held dunng the year" . . . . . . . . . . . .. S372,998 Reduction of property. plant and equipment to net recoverable cost .. . . ...... .. ....... . ... S(188,080) (45,468) Effect of increan in general price leve! . .... .. ..... (499.357)

Excess of ir. crease in general pnce level over increase in i

specific prices af ter reduction of property, plant and equipment to net recoverable cost . . . . ... .. . (171.827)

Gain from decline in purchasing power of net amounts owed . . . , 170.936 170.936 Net . . . . . . . . .. ..... .. ...... .. ...... . S (17.144) S (891)

Including the reduction of property, plant and equipment to net recoverable cost. the net loss on a constant dollar basis would have been $154,771.

          * *At December 31.1980, current cost of property, plant and equipment, net of accumulated depreciation, was S4,518,669, while historical cost or net cost recoverab!c through depreciation was S2.180,682.

c 29

        -             _. . _ , _ .             . _ _ . _ _                    ~.       _           .. _             ~    , _ . _ _ . _ . _ _ ~                  -       __

Duquesne Light Company Selected Financial Data and Statistical Summary (Thousands of Donars.Ezerpt Per Shars Amounts) 1980 1979 197d 1977 1976 1970 Residentiairevenues. . . ... .... ........ 196,400 176,744 167,338 143,299 127,515 57,744 Commercia! revenues . . . . . . . . . . . . . . . . . . . . . . 209,686 185,701 173,768 147,433 130,804 51,304 Industnal revenues . . . . . . . . . . . . . . . . . . . . . 250,295 232,389 205.149 171,174 148,493 50,021 Street hghting and other revenues . . . . . . . . . . 11,052 10,370 9.942 8.286 7.789 3.7M Miscellaneous revenues . . . . . . . . . . . . . . . . . . . . . 7,104 6,142 5,917 5.054 3,667 794 Totat efectric revenues . . . . . . . . . . . . . . . . 674,537 611,346 562.114 475,246 418,268 163,627 Steam heating revenues . . . . . . . . . . . . . . . . . 14.928 11,194 11,014 10,997 11,310 3.373 Totat operating revenues ... . . ... . 689,465 622,540 573,128 486.243 429,578 167,000 Operation and maintenance expenses .. . 393,998 362,987 338,922 249.223 237,086 86.084 Depreciation . . .. ... 53,897 48,450 45,660 43,185 34,702 15,956 Taxes other than income taxes . ........ 48,258 47,476 41,997 40,238 30,777 12,8E9 income taxes . . . .. ... . . .... 50,292 40,452 37,255 43,944 31,175 7,948 Interest charges. net of allowance for borrowed funds used dunng construction . . . . 75,630 65,415 60,614 58,684 47,214 17,989 Other income, poncipally allowance for equity funds used dunng construction . . .. .... 25,672 20,602 17,043 16.498 17,802 8.265 income before cumu!ative effect of the change in bnhng practice .. .. ... .. . 92,962 78,362 65.723 67,467 66,426 34,399 Net income . . .. . .. . 92,% 2 82,207t 65,723 67,467 66.426 34,399 Dividends on preferred and preference stock . . 23,353 23,721 18,915 16,677 14,687 5.053 Eamings for common stock .. . ...... 69,609 58,486 46,808 50,790 51,739 29,346 Average number of common shares outstanding . . .. ., .. .. .. . 38,267 32,239 31,464 29,000 26,570 13,842 Earnings per share of common stock . . . .. 1.82 1.81t 1.49 1.75 1.95 2.12 Davidends declared on common stock . . . .. 1.80 1,76 1.72 1.72 1.72 1.66 PLANT Property. plant and equipment . . . . . . . . . . . . . . 2,604,333 2,380,805 2,201,805 2,017,774 1,856,339 960,855 Accumulated depreciation . .. .. 425,225 386.479 349,668 320,832 284.455 216.173 Net property, plant and equipment . . . . . 2,179,108 1,994.326 1,852.137 1,6 % ,942 1,571,884 744,682 TOTAL ASSETS . . ... . . . . .. 2,443,463 2,222.537 2,068,753 1,862,945 1.758.356 802,125 CAPITALIZATION Common stock . . ... ... ....... 40,166 35,550 31,750 29.000 29,000 15.150 Capital surplus . . . 494,228 433,984 387,185 341,817 342,944 110,174 Retained earnings . .... .. .... . 158,546 158.772 158,035 166,551 165,759 97,694 Non-redecmable preferred and preference stock . . . 156,137 156,137 156,137 156,137 126,137 61,137 Rs.H eV - Mrred and preference stock . 146,867 149,998 154,572 79,062 81,864 30,000 First mortw conds (iess sinking fund requirements) . . . .. 918,230 808,830 721,710 736,560 637,560 399.960 Sinking fund debentures . .. .. .... . 10,981 11,436 12,358 12,436 12.702 15,600 Pollution control obhgations . . . . . . . . . . .. 116,000 116,000 116,000 116,00v 116,000 - Unamortized dcbt d:scou it and premium-net . . ... (7,161) (5,770) (4,977) (5.138) (4,916) - l Total capitatzation . . . . . . . . . . . . . . . 2,033,994 1,8M,937 1,732.770 1,632,425 1,507,050 729,715 l tincludes cumulative effect to January 1,1979 of the change in bilhng practice, net of income taxes, of 53,845 or 5.12 per share. RESIDENTIAL SERVICES Average use per customer (kilowatt-hours) . . . 5,770 6,124 5,765 5,786 5,581 4,977 Average revenue per kilowatt-hour .. ... ... . 6.828e 6.230t 5.924t 5.094t 4.734c 2.508c ! SALES OF ELECTRICITY (mittions of kilowatt. hours) ! Residential ... . . .. . . .. .. . 2,876 2.778 2,825 2,813 2,693 2,203 Commercial . . . ... . . 4,020 3,866 3,782 3.909 3,769 3.156 Industnal . . .. 6,272 6,546 5,908 6.182 5,925 4,756 Street hghting and other . . . .. . . , 129 131 130 130 129 95 13,297 12,645 13,034 12.516 10,313 ( Total. . ... .... . . 13.321 32 l l . t

Constant do!!ar amounts represent historical costs As allowed by Statement 33, items in the income stated in terms of equal purchasing power, as statement, other than depreciation expense, were not measured by the Consumer Price Index for all Urban adjusted. The cost of fuel used in electric production Consumers. Current cost amounts reflect the changes was not adjusted because the effect on earnings was in specific prices of plant from the date the plant was not material due to the relatively short turnover period acquired to the present, and differ from constant between incurring these costs and their recovery dollar amounts to he extent that specific prices have . through the net energy clause. increased more or less rapidly than prices in general. The regulatory process limits the amount of The current cost of property, plant and equipment, depreciation expense included in the Company's which includes land, land rights, intangible plant, revenue allowance and limits utility plant in rate base property he!d for future use, construction work in to original cost. Such amounts produce cash flows progress and rnclear fuelin process, represents the which are inadequate to replace such property in the estimated cost of replacing existing plant assets and future or preserve the purchasing power of common was primarily determined by indexing surviving plant equity capital previously invested. While this effect is by the Handy Whitman Index of Public Utihty partially mitigated by the benefit derived from holding Construction Costs. The current cost of coal long term debt, the Company has a net purchasing properties was determined by indexing coal reserves power loss which is experienced by the common and machinery and equipment by the Marshall- shareholder and can only be overcome as a result of Stevens Mining and Milling index. The current year's adequate rate relief. However, the Company expects provision for depreciation and depletion on the that it will be able to establish rates which will recover constant do!!ar and current cost amounts of property, the increased costs of new plant when such costs are plant and equipment was determined by applying the incurred. Company's depreciation and depletion rates to the indexed plant amounts. Fuelinventories, the cost of fuel used in generation and purchased power have not been restated from their historical cost in nominal dollars. Rate regulation limits the recovery of fuel and purchased power costs through the operation of adjustment clauses or adjustments in basic rate schedules to actual costs. For this reason fuelinventories are effectively monetary assets. As prescribed in Statement 33, income taxes were not adjusted. The regulatory process limits the Company to the recovery of the historical cost of service in its rates. Therefore, any excess of the value of plant under constant doff am m co rent cost must be reduced to the net rc:Nc= cnt, v.N:h is histo ica? cost. The amount of this excess that accumulated as a result of inflation in the current year must be reduced to net recoverable cost. The Company, by hofding assets such as receivables, prepayments and inventory, suffers a loss i of purchasing power during periods ofinflation because the amount of cash received in the future for ' these items will purchase less. Conversely, by owing monetary liabihties, primarily long-term debt, the Company benefits because the payment in the future will be made with nominal dollars having less < purchasing power. The Company has significant I amounts of long term debt outstanding which will be paid back in do!!ars having less purchasing power j and, therefore, for purposec of these calculations, has a net gain from holding monetary liabilities in excess of moneta y assets.

31

FIVE YEAR COMPARISON OF SELECTED SUPPLEMENTARY FINANCIAL DATA ADJUSTED FOR EFFECTS OF CHANGING PRICES On Thousands Egest Per Stwe Amounts) Year Ended December 31 1980 1979 1978 1977 1976 Average 1980 dollars: Operating revenues . . . . . . . . . . . . . . . . . $689,465 $706,404 $723,889 $661,184 $621,817 Historical cost information adjusted for generalinflation: income before cumutative effect of accounting change (excluding reduction of property, plant and equ:pment to net recoverabfe co st ) . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,597 36.382 income per common share before cumulative effect of accounting change (after dividend requirements on preferred and preference stock) . . . S.27 $ .30 Net assets at year.end at net recoverable cost . . . . . . . . . .... . . ..... . 661,833 674,493 Current cost information: Income before cumulative effeet of accounting change (excluding reduction of property, plant and equipment to net recoverable cost) . . . 17,344 1.,109 income (loss) per common share before cumutative effect of accounting change (after dividend requirements on pre-ferred and preference stock). . . . . . . . . $(.16) $(.40) Excess of increase in general price level over increase in specific prices after reduction of property, p! ant and equipment to net recoverable cost . . . . 171,827 196,522 Net assets at year-end at net recoverable co s t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 661,833 674,493 Genera'inicrmotion: Gain from decline in purchasing power of net amounts owed . . . . . . . . . . . . 170,936 19S.392 Cash d2vidends declared per common share ... . . ... ...... . $ 1.80 $ 2.00 $ 2.17 $ 2.34 $ 2.49 Market price per common share at ye ar.e nd . . . . . . . . . . . . . . . . . . . . . . . . $12.63 $15.46 $18.63 $26.01 $29.67 Average consumer price index . . . . . . . . . 246.8 217.5 195.4 181.5 170.5 Historical basis: Operating revenues . . . . . . . . . . . . . . . . . . . . $689,465 $622.540 $573.128 $486.243 $429.578 Cash d:vidends declared per common share . . . . . . . . . . . . . . . ... . ... . $ 1.80 $ 1.76 $ 1.72 $ 1.72 $ 1.72 ' ~ Market pnce per common share at year.end $12.63 $13.63 $14.75 $19.13 $20.50 Proven and probable coal reserves at beg:nning of year (tons) . . .. .... 29,900 30,650 31.650 33,751 35.310 Tons of coal mined . . . . 875 928 699 728 1.055 Average cost per ton of mined coa!... .. . $31.14 $28.71 $30.72 $27.45 $20.18 30

1980 1978 1977 1976 1970 1 79 ENERGY SUPPLY AND PRODUCTION DATA Energy supply (m.tlions of kilowatt hours) Generated in system p! ants . . . .......... ...... . 13,445 13.8M 12.252 13.798 12.467 10.320 Purchasedandnetinterchange . . ..... .. ... 541 125 1,089 (125) 762 728 Losses and compaay use . . . . . . . ... ... ...... (729) (688) (696) (639) (713) (735) Total...__..... .......... ....... . 13,297 13.321 12.95 13.034 12.516 10,313 Generating capabil ty (thousands of kilowatts) . . . . . . . 3,179 3,294 3,289 3.289 2.9M 2.222 Peak load (thousands of katowatts) . ... . . . . 2,474 2,296 2,379 2,371 2.260 1.863 Cost of fuel per m4!!!on BTU , . . . . . . . . . . . ..... . . 149.768: 131.779t 125.349c 100.696t 102.910c 28 072: BTU per kilowatt-hour generated .. ............ . 10,811 10,924 11,031 10,855 10.696 11,996 Av; rage producton cost per kilowatt-hour . . . ... 2.202t 1.913t 1.9194 1.393t 1.334 0.461c NUMBER OF ELECTRIC CUSTOMERS-At End of Year Ruidential .. .. . .. . ... 500,466 496.005 491,693 487,474 484,301 4M.013 Commercia! . . .. . . .. . ... ... . ... .... 48,306 47,976 47,679 47,154 46.652 45261 Industrial . . .. .. ... .. . .. .. .. 2,005 1,975 1,932 1,689 1,666 1.705 Street lighting and other . . .... . ........ .. 1,725 1.746 1,747 1.768 1.774 1.779 Total .. . . .. . . . . . 552,502 547.702 543,056 538.285 534,593 512.75S Management's Discussion and Analysis cf Financial Condition and Results of Operations Crpital Resources and Liquidity Dunng the five years ended December 31,1980 gross equipment costs, rate of construction progress the develop-add. tons to utlity plant of the Company and its subsidiary ment of environmental and nuclear safety regulations, serv-aggregated approximate!y S969 million exclusive of $31 mil- ice reliability and system efficiencies. In add, ton, this revien lion of accumulated construction costs applicable to can- must also take into account difficulties in obtaining rate in-called generatng units, and retirements were approximately creases sufficient to generate adequate earnings, possible $68 milhon. These add.tions represented a 53% net increase changes in load growth trends and,in the case of the in util:ty plant. Construction expenditures during 1980 were CAPCO construction program,the abihty of each of the approximately $210 million, exclusive of a!!owance for funds CAPCO companies to finance its capital requirements. used during construction. These expenditures were primarily The Company anticipates that funds required for planned for the construction of CAPCO generating units in addition to construction expenditures in the next several years will be improving and expanding producen. transmission and provided principally from the issuance of additional equity distribution systems and pollution w,s L - mt. and debt secunties and in part from cash becoming avaifa-For planning purposes, the Company's present wmate ble from operations. Outside financing provided approxi-of constructon expenditures, exclusive of allowance for mately 74% of the funds required for constructior, expendi-funds used during construction, is approximately $223, $225, tures during 1980, and the Company presently estimates $198, S215 and SM B me, for each of the years 1961 that approximate!y the same percentage of funds required through 1555.resWctiveh. As a rem of tne reent rate or- for its 1981 constructon program wi!! come from outside der, the Company is reviewing its construction expenditures financing. with the expectation of reductions in such expenditures in Interim financing will be through bank borrowings and 1981.The Company's present estimate of construction ex- sales of commercial paper. See note E to the financ:a! state-penditures includes an aggregate of approximately $258 mil- ments. Variable market and general economic cond. tons lion for jointly-owned generatng units being constructed un- may affect the Company's selection of financing attema-der the CAPCO arrangements, including related transmis- tives and adversely affect its ability to raise capital. In order sion facilities. See note K to the financial statements. to maintain earnings adequate to finance constructon ex-Estimated construction expenditures relating to these gen- penditures and refunding requirements, the Company re-erating units are based upon information fumished by the quires rate increases sufficient to offset increased costs and CAPCO company responsible for 1: .e construction and oper- provide a fair rate of return. The Company believes that rate ction of each unit. The balance of the estimated construc- increases obtained since 1%9 have not been sufficient or tion expenditures is for the improvement and expansion of timely. production, transmission and distribution systems, for the The Restated Articles of the Company require that for the addition of pollution controf equipment at generating sta- issuance of preferred stock, camings (af ter income taxes) tions presently in operation and for new business construc- availab!e for interest charges be at least 1.5 times the sum of tion and other projects. The foregoing esti. nates do not in- interest charges on a!! indebtedness and preferred stock clude the cost of nuclear fuct, which is expected to be dividend requirements. This restriction currently precludes leased rather than purchased. the Company from issuing preferred stock. There is no simi-The amount which the Company must spend for its con- lar restnction upon the issuance of the Company's prefer-struction program is regularly under review and is subject to ence or common stock. changes influenced by business and economic conditions In 1980 the CAPCO companies cancelled the construction 33 and other factors, such as escatation of labor, material and of four nuclear generating units. The Company's share of

the accumutated construction costs was $31.3 mithon The op: rating r;v:nues of the Company are based at Dec:mber 31,1930. The Comp:ny has requ:sted on rata tariffs authorized by the Pennsylvania Pubhc approval to amortize such costs over a 10 year period. Utility Commission. These rate tariffs are designed to Additional costs may be incurred due to termination recover the Company's operating expenses plus a rate claims which have been filed. See note C to the finan- of return on the investment in utikty rate base. The cial statements. In its order issued February 20,1981, Company also has an energy adjustment clause which relating to the Company's latest rate request, the allows it to recover increases in the cost of fuel. Pennsylvania Public Utihty Commission deferred its de- Operating expenses, other inan income taxes, have cision on the Company's request to amortize and re- increased substantially and are expected to continue cover the accumulated construction costs from its to increase as a result of continuing increases in the customers for consideration in connection with a pend- cost of coal and oil, the effects of inflation on other op-ing Commission investigation of the CAPCO construc- erating expenses and higher depreciation resulting tion program. from increases in utibty plant and increased deprecia-The Commission also ordered that the Warwick Mine tion rates. Additionally,in September 1980 the CAPCO be excluded from rate base and placed restrictions on companies placed Mansfield Unit No. 3 in full commer-the Company's recovery of the cost of coal from that cial operation, which will continue to increase the mine. The cost of Warwick Mine coat in excess of the various operating expenses. Maintenance expenses average market prices of similar quahty coal purchased increased substantaally in 1980 due primarily to engi-by Pennsylvania uthties in the open market may not be neering and modification work at the Beaver Valley passed through the energ, adjustment clause, but may Power Station which was required by the Nuclear Reg. be deferred and recovered to the extent that the cost ulatory Commission (the "NRC") and increased distri-of Warwice, M.nc coa; talis below such market price. bution maintenance expenses related to storm dam. Commencing June 1,1980 the Company included in age. The Company is unable to predict the nature or its energy adjustment clauso the actual cost of produc- the cost of additional modification work that will be tion of coc! from Quarto Mining Company. By Interim required by the NRC in future years. Order entered January 12,1981 the Commission di- Taxes other than income taxes increased in each rected that the Company revert, pending completion of year primarily due to increased Pennsylvania gross re-the Commission's inveetigation into the reasonable- ceipts taxes, which vary in direct relaticiship to reve-ness of the cost of Ouarto coal, to its prior practice of nues and, additionally, in 1979 as a result of increased including in its energy adjustment clause approximately capital stock tax expense. The effective income tax the prevaihng market pnce of coal comparable to the rate for the three years ended December 31,1980,1979 Ouarto coal. The Company will defer any excess of the and 1978 was 35%,34% and 36%, respectively. These price of the Quarto coat over market price, currently fluctuations are due primarily to changes in taxable in-estimated for planning purposes at $19 per ton for come and the change in the Federal statutory tax rate 1981, untilinclusion of the actual price of the Ouarto from 48% to 46% in 1979. See note H to the financial coal b its energy adjustment clause is permitted by statements. the Commission. If inclusion it disallowed, such The increases in allowance for equity and borrowed difference would be charged to income in the year funds used during construction were due primarily to of disallowance. the increased cost of construction of now facikties. In-The Company has generated in each year funds from terest expense for each of the years 1980,1979 and operations suf ficient to meet its operating expenses, 1978 was higher than ine prior-year amount as a result pay divdnds and f. nance a portion of its cap,tal needs of an increase in totJ short and long-term borrowings in 197o, tu aun o: r.musco epcran;; costs, a thrce- and higher avera3C interest rates. The we:ghted aver-month coal strike and inadequate rate rehef, the Com- age interest rate on all debt as of December 31,1980 pany's current camings for common stock did not was 7.8%, compared with 7.6% in 1979 and 7.2% in cover its common stoce. dividend requirements. The 1978. The increase in total borrowings is due to the demands and commitments detailed in note M to the issuance of additional debt to finance the Company's financial statements and those noted above are not capital expenditures. expected to materia!!y af fect the Company's abihty Earnings for common stock and eamings per share to finance its operations or reduced construction in 1979 include $0.8 million and $.12 per share, respec-program. tively, as a result of a nonrecurring change in billing practice. See note B to the financial statements. Earn-Results of Operations ings per share of common stock in 1980,1979 and 1978 Operating revenues increased in the years 1978 were adversely affected by increases in the average through 1980 over the respective preceding years due number of common shares outstanding, which reduced primarily to the following reasons: 1979 1978 earnings por share by $.34, $.05 and 5.12, respectively.

                                   -1980 tu,a,ons of Donars)          The Company has prepared information on the General rate increases . .        $35.2      $25.4      $37.4   effects of inflation and changing pnccs in accordance increase in electncal                                           with the Financ:a! Accounting Standards Board's consumption                       5.2       16.3       (5.4) Statement No. 33. Such information is in note P to the Energy clause revenues .           23.1        17.4       35.6  financial statements.

State tax atustment . 2.5 2.t 6.2 Temporary surcharge - (12.2) 12.2 Other . . .9 .4 .9 5663 $414 $863 34

Toieoo LAKE ERE Cleverand t i ( t L t .

                      ~'          (                                   ,     Youngstown
                                  /4                               mon             *                                                                                                      '

New Castle PA CI t i

                            ,                                                                   6 4

Pittsburgh svingwa uquune Light Company Service Area OHlO u m Nee t

e i k BUTLER 1g f 9 f 8 (5 [ ARu3fRONG s e _ .t Am-N. ;

CAPCO '

t ouau"a' Light Company In 1967, Duquesne Light joined with Beaver Valley # f 0 aca$<'v^~'* four (ther electric utilities to form the Central Area Poiver Coordina-Nuclear-1976 gapagig,810 W JON

                                                                                                      ,'J*

E. "*[* _

tion (CAPCO) group. . KW < D. L Ownersnip:47.ss a wESTUORE LAND Generating plants built under the CAPCO program have shared own- g,,y,7 y,y,y ,p { ,,,,0, Nuclea*-1986 E erships based on individual require- t Capaary- 833.000 kW ! E monts. Each member company @Qag,1 ids ,e pays only for the capacity required np00 KW7 , 13 s1rve its customers. The .y Pennsylvania I *" , CAPCO program is constantly un-

der review and schedule changes Power Company Mansfield #1 h ar]made according to the financial and generating needs of the mem- CoaW1976 O wtst vmGN;A Capacity: 780.000 KW l UARYLAND ber companiee. D. L Share: 228.500 KW D. L Ownership: 29 3*4 Namn. L.ei cepeny service Aree ,

i 1 n Mansfield #2 Toe Toledo Coal-1977 { The Cleveland Electric Ec.ison Company i ,

Capacity: 780.000 KW D L. Share. 62,400 KW llluminating Company Davis Besse # f Eastlake #5 D. L Ownership: 8.0% Nuclear-1977 ? CoaW1972 Capacity 890.000 KW Mansfield #3 Capacity: 635S00 KW " CoaW1980 D. L Share: 198.100 KW D- O ship: 0 Capacity 800.000 KW D. L. Ownership. 312% i D. L Sha'e: 109.900 KW D. L Ownership.13.74 % Perfy # I Nuclear-1984 B Capacity: 1,205.000 KW Ohio Ed: son D L share. 165.000 KW

                                               !      Company                    D ' O*"Sh'P '3 74%

Sammis #7 Perry #2 CoaW1971 Nuclear-1988 Capacity: 600.000 KW Capacity- 1.205.000 KW D. L Share: 187.200 KW D. L. Share- 165.000 KW D. L Ownersrup: 312% D. L Ownership: 13.74.. )35 l

C mmcn Trcnsfcr Ag nts Stock Dividends End R gistrcra The Company has paU cash the preferred stock (collectively re. Common, Preference and dividends on its Common Stock in ferred to as " junior stock pay- Preferred Stocks each year since 1913 and on a reg- ments"). No dividends or distnbu- Pittsburgh National Bank, ufar Quarterly basis (January 1, tions may be made on the Pittsburgh April 1 July 1 and October 1) in Common Stock if drvidends or sink- Chemical Bank, New York each year beginning in 1953 after ing or purchase fund obligations on becoming publicly owned. Quar- the preferred stock or preference terly dividends in the first two quar- stock are accumulated and unpaid. Form 10-K Offer ters of 1979 were paid at a rate of Furthermore, the aggregate if you are a holder cr beneficial 43t per share and in the last two amount of junior stock payments owner of any class of the Com. quarters of 1979 and each of the which may be made in any 12- any's tock as o February 27, four quarters of 1980 were paid at a month period are in general limited rate of 45c per share. Future to (i) 50% of consolidated net in-Annual Meeting, the Company wdl dividends will depend upon future come for any period of 12 consec-send you, upon request and at no camings, the cash position of the utive calendar months within the 15 charge, a copy of the Company's Company, construction require- preceding months if the effect of Annual Report on Form 10-K to the monts, rate regulation and other such payments would be to reduce Securities and Exchange Com-relevant factors. The Company cur- the ratio of common stock equity to mission for the year 1980 (including rently expects that dividends will total capitalization to less than 20% a list of exhibits). All requests must contince to be paid in the future. or (ii) 75% of sucn consolidated be made in wnting to the Secretary. Dividends may be paid on the net income if the effect would be to Duquesne Light Company, 435 Common Stock to the extent per- reduce such ratio to 20% or more Sixth Avenue, Pittsburgh, PA m:tted by law and as declared by but less tnan 25%. No portion of 15219. the Board of Directors, subject to the retained eamings at December the provisions of the Company's 31 ,80 was restricted by vir ue of Restated Articles which restrict the this provision. The approximate payment of cash dividends or other r: umber of holders of common 197O-1980 distributions on, or the purchase of, stock as of the February 27, 1981 Dimensions Magazine its capital stock ranking junior to record date was 136,800. In mid-year 1981, the Company plans to publish Duquesne Light Di-Federalincome Tax status of Common stock Dividends mensions containing in-depth infor-The Company estimates that portions of the Common Stock dividands paid mation concerning the Company. in 1980 represent a return of capital and are not taxable as dividend income Dimensions will include an 11-year as follows: statistical review and discussion of some of the important issues fac-Payment Taxable As Not Taxable As Dividend income ing Duquesne Light Company. For Dates Dividend income a copy of Dimensions write: Jan.1 57.23 % 42.77 % Duquesne Light Company Apr.1 20.94 % 79.06 % Public Information Depanment July 1 20.94 % 79.06 % 435 Sixth Avenue 79.06 % Pittsburgh, PA 15219 Oct.1 20.94 % Such estimates are subject to audit by the Intemal Revenue Service. i t f e 36

Company Brrd cf Offic:rs Directors JOHN M. ARTHUR j JOHN M. ARTHURt t Chairman of the Board and Chairman of the Board and Chief Executive i Chief Esecutrve Officer [ Officerof theCompany STANLEY G. SCHAFFER STANLEY G. SCHAFFER Pressdent President of the Company CHARLES M. ATKINSON CHARLES M.. ATKINSON Vc3 PreMont-Fescal ; Vce President-Fascal of the Company CLIFFORD N. DUNN i DOREEN E. BOYCE** Vc3 Pressdent-Operations Chairman of the Department of Economics and Management and Professor of l i WILLIAM F. GILFILLAN, JR. ' Economics and Management-Vcs President-Customer Services } Hood College, Md. f GEORGE l. RIFENDIFER i JOHN H. DEMMLERt Ves Presedent-General Servces ' Partner, Reed Smith Shaw & McClay EARL J. WOOLEVER ^"***'4** l Vc3 Preside-t-Engineenng a SIGO FALK* Constructic.t } Associate Director. Health Systems Agency i f Southwestern Penna. JOHN A.KNEPPER ' l Treasurer and Controller PHlUP A. FLEGERt > Retired Chairman of the Board and Cheef '

               , THOMAS WELFER, JR-                                Executive offcer of the Company Secretary                              *                                                       !

RONALD G. MALES j WILLIAM H. KNOELLt(1)

                                                           ,       pres, dent and Chief Esecutwe Offcer of         l Assistant Treasurer                    '

Cyclops Corporation (poncipally a producer [ ELMER H. PUCHTA ' **' ""d '* D"*d "' P' d" I ' Assistant Treasurer l G. CHRISTIAN LANTZSCH** JOAN S. SENCHYSHYN I Vee Chairman of the Board of Mellon Bank, N A. and Vice Chairman of the Board and Assistant Secretary l Treasurer of Mellon NationalCorporation ERIC W. SPRINGERt Partner, Horty. Spnnger and Mattern Management Change Attomeys.at. taw At the April 1980 meeting of the ' Member of Audit Committee Board of Directors, Thomas Welfer, tMember of Compensation Committee e Jr. was elected Secretary of the $ Member of Nominating Committee Company. Mr. Welfer succeeded (1) At the Company's Apnl 22,1980 Stockhold-Howard W. Staas who retired after ers' meeting. William H. Knoell was elected i serving as Secretary of the Com- g to,.the Board of Directors. Mr Knoell re-p .ed Edward J. Hanley who retired from pany since 1953. Prior to being : the Board after serving with distincton for named Secretary. Mr. Welfer had i 27 years. been Manager in the Office of the ! Pr:sident. In Memoriam l With deep regret, the Company re-I ports the deatti on September 27, 1980 of Edward O. Boshell, a Di-

                                                       !              rector of the Company since 1948.         s Dunng these years, Mr. Boshell            !
                                                       }              served with uncommon dedication 8

and ability Mr. Boshell was a for-l mer Chairman of the Board and President of Westinghouse Air-brake Company.

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I i 1 Continuing Commitment Ohio Edison's 50th anniversary last Page year provided us an opportunity to Ohio Edison Company, with recall the many ways electricity has Ohio Edison Company and headquarters at Akron. Ohio, , improved people's lives ove. the l Subsidiary .. ... .2 provides electric service to about ' years. Ever since the incandes ent , Financial Highlights . . ..3 834,000 customers in an area of ; light bulb replaced the kerosene , Year in Review . . . . . 4, 5 approximately 7,500 square miles in lamp. electricity has grown in ' Financial Performance . .6 central and northeastern Ohio. The 4 importance-so much so that it ha.s Electric Rates . . . . . .9

                                                                      < become an indispensable ingredien:                         System Operations             ....                     .10
     , Company's wholly-owned subsidiary.

Pennsylvania Power Company, with ! in every segment of today's society. j Financing . . .. . .. .13.14 People at Ohio Edision are proud of Power Supply Planning .14,15

     , headquarters at New Castle,                                                                                                                                       ...
                                                                      ! our past achievements, ..;d we will                         fuelSupplies        .                       .... 15 l Pennsylvania, provides electric                                                                                                                                                    .17 service to about 123,000 customers                             ; continue our commitment of meeting ; Environmental Activities .                                            .
                                                                       '  customers'ever-changing            and     growing       Management Changes! Employees .18 f in an area of approximately 1,500                                                                                                                                               .. 20 square miles in western Pennsylvania. . need for electricity,                                                           i Company Officers .                     .

i Other Officers / Division Managers / d

l Board of Directors. . .

Mar.agement Report .

                                                                                                                                                                                          .21
                                                                                                                                                                                          .22 F P %F K ,', , egg                                                                   d i          r-
                                                                                                                                ! Selected Financial Data
                                                                                                                                                                                          .23
                                                                                                                                                                                          .24 I      ma          '%m                  3                 ..p,E.co         +,.,g.g %*                     , Management's Discus < ion . . .
 ;             _.. ...               < a+ .                                           -

x i Consolidated Financial M p ris. u,7 : s.w D Statements . .. .. . . 25-31 h d?;d%E 1d?% Mi i Notes to Consolidated financial 7-* ,. ? . r- ' Statements . .32 40

                                         ~.                               , t;, -                                                                         .        .
                                                                                                                                                                                          .40 Auditors' Report                 ..

l WM . 7,, % y--- 8 s A ?.g #9 W 87

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y - Consolidated Operating Statistics . 42 a.,, g." . .. : g . - ? ' J Stockholder Information . .43 i .. 4%* , ifa.cy Rg 3 y ref '

                                                                > T f,,fggfJ; V . iri M,;,%~d'        .' b 3
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i the 9sofoot chimney for Units I and 2 at the Bru e Mansfield Plant. The Planti third coal- , t l '., y , .

                               "r              ys ~                                                                                 fired unit was placed m commercial operation
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en-r l ts y c 980 E N b our O Pennsylmia Department of Environmental Resources 4 t ] S:oc<10cers (DER) in October approved N change in E,cr.ar Valief Air Although the Company request for an increase filed 4, , received a $102 million rate January 16,1980 totaling

   ,           B: sin; approval needed from                 r  F ^ W 8N'!!

U.S. Enviconmental Protec-A +g ince ease in mid-year from the $18 million.The request was tion Agency (EPA). Dw, Pennsylvania Public Utility based on the test year ended C P, Commission (PUC) the com- September 30,1979.

O The Company was granted a /(T j( _ [#

F g lt bined effects of inflation and recession produced a On June 15,1980 the Company placed the new rate incre"e c' F107 H"un , :

                                                                                           %             'y decline in earnings compared    rates into effcut appli .able to effective June 15.1990.
                                                                           *g], _ )                             8    to the previous year.           all retail customers. The Com.

The recession had its pany also agreed that it O Bruce Mansfield Unit No.3 ;

                                                                                .. %f, #/4                           greatest impact on our          would not file for any general began commercial operation                   -
   ,           September 29,1930.                           ..k                         )4,          ;F'             industrial sales, producing a   rate increase prior to April 15,1981.

7 i 'Y- 7.5 percent drop in energy O Total operating revenues were//Q % A4.\ use compared to 1979.Thus, Financing activities during total kilowatt hour sales 1980 included a private sale

               $157.2 mil' ion, an E.2%                       ,e                              4d' increase.                                   y Njlq j                                       3 showed a decline of 2.8 percent.

of $22 million first mortgago bonds (10.90% Series) to a O On February 9,19S1 a new Q Total electric sales group of insurance companies system peak load of 573,000 ] revenues increased 6.0 per- with delivery being made kilowatts was recorded, ; ./ cent, principally due to the in January and April, and a

                                                           }                                                         rate increase and higher fuel   private sale of 100,000 shares compared with the previous
                                                                                                }%>                  costs affecting customer bills. of 10.50 percent preferred peak of 554,000.
                                                           ,                                      L                  For the first time since        stock to a single insurance l

1975 no new peak load was company in May. The Com. CONTENTS _ L-.i _. established over the previous pany sold 250,000 shares of Highlights 2 year's peak load; however, common stock in November To Our Stockholders . .. . . . .. . 2 on February 9,1981 a new and in mid December sold Revenue: Ray M Emses . .: system peak load of 573,000 another 250,000 shares of Brict $mrm c : upm.v.,m . . 5 kilowatta was recorded. common stock to its parent, R: port on Construction . ........ . .... . 6 Our financing burden has Ohio Edison. Customer Services . ......... .. .... .. . 8 been reduced by the action Through the Beaver Legal and Environmenta! . . 10 taken in January 1980 when County industrial Develop-12 the Central Area Power ment Authority, the Company

p. Communications Pers ,nel Relations Services Coordination Group (CAPCO) in January 1981 sold $4.6 terminated four nuclear units million of pollution control Map 16

                                                .[ l l........'..

Operating S'tatistics . and delayed the completion revenue bonds and $1 million

                                        .                                                        . .            17 Selected Financial Data . . ...                                                                            dates on ptrt of its construe. of environmentalimprove-
                                                                        . ...                .. ..              18 Management Discussion and Analysis .                                            . ..                  19   tion program. The four          ment revenue bonds to Fin:ncial Statements .       .           ... ... .                          ...          .. 20-33         nuclear units terminated        finance its share of pollu-Auditor's Report.           .. .. .. .                           ..          . ..                     34   wot.ld have represented total   tion control facilities at the Directors and Of ficers        .... ... .                               .. ..                        35   construction costs of more      Bruce Mansfield Plant.

than $7.3 billion had they Property additions arid P been completed. Also, the improvements in 1980 cost (< .

Qw ' i Company's share of owner. ship in each of the two Perry S57.2 million. A con-struction budget of $55.6 p , m , Nuclear Plant units was million has been authorized reduced to 5.24 percent from by the board of directors for l 4 e . 6.28 percent. 1981. [ k (7 .f

d. The $10.2 million rate it now appears that an y

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r h f'g jl 3 (([ 5. increase noted earlier was granted by the PUC after lengthy investigation by the eight. year-long disagreement with Pennsylvania's Depart-ment of Environmental m;.1 myNmw . PUC of the Company's Resources (DE R), involving d5}}

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