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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1995
-----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition Period From ____________ to ____________
Commission File Number
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1-956
Duquesne Light Company
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-0451600
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
411 Seventh Avenue
Pittsburgh, Pennsylvania 15219
Formerly:
One Oxford Centre, 301 Grant Street
Pittsburgh, Pennsylvania 15279
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (412) 393-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
DQE is the holder of all shares of outstanding common stock, $1 par value, of
Duquesne Light Company consisting of 10 shares as of February 21, 1996.
[X] Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Registrant Title of each class on which registered
- -------------- ------------------------------ -----------------------
Duquesne Light Preferred Stock (par value $50) New York Stock Exchange
Company
Involuntary
Series Liquidation Value
------ -----------------
3.75% $50 per share
4.00% $50 per share
4.10% $50 per share
4.15% $50 per share
4.20% $50 per share
$2.10 $50 per share
Sinking Fund Debentures, due March 1, 2010 (5%) New York Stock Exchange
TABLE OF CONTENTS
PART I Page
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ITEM 1. BUSINESS
General 1
Results of Operations 1
Liquidity and Capital Resources 5
Rate Matters 6
Property Plant & Equipment (PP&E) 7
Employees 10
Electric Utility Operations 10
Fossil Fuel 11
Nuclear Fuel 11
Nuclear Decommissioning 12
Nuclear Insurance 13
Spent Nuclear Fuel Disposal 13
Uranium Enrichment Decontamination and
Decommissioning Fund 14
Environmental Matters 14
Outlook 15
Other 17
Executive Officers of the Registrant 18
ITEM 2. PROPERTIES 20
ITEM 3. LEGAL PROCEEDINGS 21
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS 21
PART II
ITEM 5. MARKET FOR REGISTRANT'S
COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS 21
ITEM 6. SELECTED FINANCIAL DATA 22
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 22
ITEM 8. CONSOLIDATED FINANCIAL
STATEMENTS AND SUPPLEMENTARY
DATA 22
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL
DISCLOSURE 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT 22
ITEM 11. EXECUTIVE COMPENSATION 22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT 22
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON
FORM 8-K 23
SCHEDULE II 35
SIGNATURES 36
GLOSSARY 37
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS 38
FINANCIAL STATEMENTS 39
SELECTED FINANCIAL DATA 63
PART I
ITEM 1. BUSINESS.
General
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Part I of this Annual Report, Form 10-K (Report) should be read in conjunction
with Duquesne's audited consolidated financial statements, which are set forth
on pages 38 through 62 in Part IV of this Report. Explanations of certain
financial and operating terms used in this Report are set forth in a glossary on
page 37 of this Report.
Duquesne Light Company (Duquesne) is a wholly owned subsidiary of DQE, an
energy services holding company formed in 1989. Duquesne is engaged in the
production, transmission, distribution and sale of electric energy. Duquesne was
formed under the laws of Pennsylvania by the consolidation and merger in 1912 of
three constituent companies. Duquesne has one wholly owned subsidiary,
Monongahela Light and Power, also a Pennsylvania corporation, which currently
holds energy related lease investments.
Service Territory
Duquesne provides electric service to customers in Allegheny County,
including the City of Pittsburgh, and Beaver County. This represents a service
territory of approximately 800 square miles in southwestern Pennsylvania. The
population of the area served by Duquesne, based on 1990 census data, is
approximately 1,510,000, of whom 370,000 reside in the City of Pittsburgh. In
addition to serving approximately 580,000 customers within this service area,
Duquesne also sells electricity to other utilities beyond its service territory.
Regulation
Duquesne's operations are subject to regulation by the Pennsylvania Public
Utility Commission (PUC), as well as to regulation by the Federal Energy
Regulatory Commission (FERC) under the Federal Power Act with respect to rates
for interstate sales, transmission of electric power, accounting and other
matters.
Duquesne's operations are also subject to regulation by the Nuclear
Regulatory Commission (NRC) under the Atomic Energy Act of 1954, as amended,
with respect to the operation of its jointly owned/leased nuclear power plants,
Beaver Valley Unit 1 (BV Unit 1), Beaver Valley Unit 2 (BV Unit 2) and Perry
Unit 1. Duquesne is also subject to the accounting and reporting requirements of
the United States Securities and Exchange Commission.
Duquesne's consolidated financial statements report regulatory assets and
liabilities in accordance with Statement of Financial Accounting Standards No.
71, Accounting for the Effects of Certain Types of Regulation (SFAS No. 71) and
reflect the effects of the ratemaking process. In accordance with SFAS No. 71,
Duquesne's consolidated financial statements reflect regulatory assets and
liabilities based on current cost-based ratemaking regulations. The regulatory
assets represent probable future revenue to Duquesne because provisions for
these costs are currently included, or are expected to be included, in charges
to electric utility customers through the ratemaking process.
Duquesne's operations currently satisfy the SFAS No. 71 criteria. However,
a company's utility operations or a portion of such operations could cease to
meet these criteria for various reasons, including a change in the PUC or the
FERC regulations. Should Duquesne's operations cease to meet the SFAS No. 71
criteria, Duquesne would be required to write off any regulatory assets or
liabilities for those operations that no longer meet these requirements.
Management will continue to evaluate significant changes in the regulatory and
competitive environment in order to assess Duquesne's overall consistency with
the criteria of SFAS No. 71.
Results of Operations
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Seasonality
Sales of electricity to customers by Duquesne tend to increase during the
warmer summer and colder winter seasons because of greater customer use of
electricity for cooling and heating.
1
In the near term, weather conditions and the overall level of business
activity in Duquesne's service territory are expected to continue to be the
primary factors affecting sales of electricity to customers. In the long-term,
Duquesne's electric sales may also be affected by increased competition in the
electric utility industry. (See "Competition" discussion on page 15.)
Sales of Electricity to Customers
Operating revenues are derived from Duquesne's sales of electricity to
customers and are based on rates authorized by the PUC. These rates are cost-
based and are designed to recover Duquesne's energy and other operating expenses
and investment in electric utility assets and to provide a return on such
investment. Sales to Duquesne's 20 largest customers accounted for 14.2 percent
and 14.6 percent of customer revenues in 1995 and 1994, respectively. Sales to
USX Corporation, Duquesne's largest customer, accounted for 3.7 percent and 3.8
percent of total 1995 and 1994 customer revenues, respectively. Total kilowatt-
hour (KWH) sales to customers in 1995 increased 2.5 percent when compared to KWH
sales to customers in 1994. In response to extreme 1995 summer and winter
temperatures, residential and commercial KWH sales increased 4.9 percent and 3.0
percent, respectively. Industrial sales volume in 1995 declined when compared to
the prior year because of temporary production facility outages experienced by
some of Duquesne's large industrial customers. The severe weather conditions in
1995 also resulted in higher residential KWH sales volume when compared to 1993.
Components of Change in Operating Revenues from the Prior Year
- -------------------------------------------------------------------------------
1995 1994
(Amounts in Millions of Dollars)
- -------------------------------------------------------------------------------
Revenues from Sales of Electricity:
Net customer revenues $ 7.8 $ 6.0
Utilities (2.3) 7.6
- -------------------------------------------------------------------------------
Revenues from total sales of electricity 5.5 13.6
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Other operating revenues 5.7 (5.7)
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Total Operating Revenues $11.2 $ 7.9
===============================================================================
Customer revenues fluctuate as a result of changes in sales volume and
changes in fuel and other energy costs.
Net customer revenues in 1995 when compared to 1994 increased by $7.8
million, or 0.7 percent. The change is the net result of higher sales, partially
offset by lower energy costs per megawatt hour (MWH), the benefits of which are
passed through to the customers in the form of lower rates. The significantly
hotter summer temperatures in 1995 resulted in increased sales of electricity to
residential customers in particular. Revenues attributable to electric sales to
residential customers in 1995 exceeded 1994 residential revenues by $13.2
million, or 3.3 percent. Net customer revenues also increased $6.0 million, or
0.6 percent, in 1994 when compared to 1993. The 1994 variation represented
higher sales to commercial and industrial customers, driven in part by an
expanded customer base.
Net customer revenues for 1994 and 1993 include phase-in deferrals that
represented the deferral and subsequent recovery of revenues resulting from a
$232 million rate increase granted in early 1988. The PUC required Duquesne to
phase this increase in during a six-year period, which ended in April 1994.
During this phase-in period, the rate increase was recognized in operating
revenues. (See "1987 Rate Case" discussion in Note F to the consolidated
financial statements on page 48.)
Sales to Other Utilities
Short-term sales to other utilities are regulated by the FERC and are made
at market rates. Short-term power sales to other utilities in 1995, 1994 and
1993 were 2,974,797 KWH, 3,212,110 KWH and 2,820,920
2
KWH, respectively. Fluctuations in electricity sales to other utilities are
related to Duquesne's customer energy requirements, the energy market and
transmission conditions and the availability of Duquesne's generating stations.
Revenues from sales to other utilities were $56.0 million, $58.3 million and
$50.7 million in 1995, 1994 and 1993, respectively. Sales to other utilities
were less prevalent in 1995 than in 1994 because severe weather conditions
resulted in greater sales to Duquesne's customers. (See "Sales of Electricity to
Customers" discussion on page 2.) Increased customer sales reduce power
available to sell to other utilities. Future levels of short-term sales to other
utilities will be affected by the resolution of Duquesne's proposed sale of its
ownership interest in the Ft. Martin Power Station and by the outcome of
Duquesne's FERC filings requesting firm transmission access. (See "Sale of Ft.
Martin" and "Transmission Access" discussions on pages 9 and 16, respectively.)
Generally, Duquesne is permitted to recover (to the extent that such
amounts are not included in base rates) fuel and other energy costs from its
customers through an Energy Cost Rate Adjustment Clause (ECR), subject to the
PUC review. This revenue adjustment also includes a credit to Duquesne's
customers for profits from short-term sales to other utilities. The credit to
Duquesne's customers for profits from short-term sales to other utilities was
$15.5 million in 1995, $16.6 million in 1994 and $12.1 million in 1993. Included
in a petition currently before the PUC, Duquesne proposes a five-year annual $5
million credit to the ECR to compensate Duquesne's customers for the lost
profits from any reduced short-term power sales caused by the sale of its
ownership interest in the Ft. Martin Power Station. (See "Energy Cost Rate
Adjustment Clause (ECR)" and "Sale of Ft. Martin" discussions on pages 6 and 9,
respectively.)
Other Operating Revenues
Duquesne's non-KWH revenues comprise other operating revenues in Duquesne's
statement of consolidated income. Other operating revenues are primarily
comprised of revenues from joint owners of BV Unit 1 and BV Unit 2 for their
shares of the administrative and general costs of operating these units. Other
operating revenues, therefore, fluctuate depending on the timing of scheduled
refueling and maintenance outages at Beaver Valley Power Station (BVPS) when
significant costs are incurred. Both BV Unit 1 and BV Unit 2 underwent refueling
outages in 1995 and in 1993. There were no refueling outages in 1994;
accordingly, other operating revenues increased $5.7 million in 1995, when
compared to the prior year. Conversely, other operating revenues decreased $5.7
million in 1994 when compared to 1993.
Operating Expenses
Total operating expenses increased $6.5 million in 1995 when compared to
1994. Total operating expenses increased from 1993 to 1994 by $8.9 million. Fuel
and purchased power expense fluctuations generally result from changes in the
cost of fuel, the mix between coal and nuclear generation, the total KWHs sold
and generating station availability. Because of the ECR, changes in fuel and
purchased power cost normally do not impact earnings.
Components of Change in Fuel and Purchased Power Expense from the Prior Year
- -------------------------------------------------------------------------------
1995 1994
(Amounts in Millions of Dollars)
- -------------------------------------------------------------------------------
Average unit cost of fuel $ (2.3) $(3.4)
Generation mix (5.2) (5.5)
Generation volume (6.4) 7.6
Purchased power 1.7 7.7
- -------------------------------------------------------------------------------
Total Energy Expense $(12.2) $ 6.4
===============================================================================
The average unit cost of fuel is based on fuel costs divided by generation.
The average unit cost of fuel decreased in 1995 when compared to 1994 and 1993
largely because of lower nuclear fuel costs.
3
Generation mix impacts fuel expense as Duquesne's nuclear fuel cost per KWH
is less than its fossil fuel cost per KWH. During 1993, compared to 1994 and
1995, Duquesne had more nuclear station outages, resulting in less nuclear
generation and more fossil fuel and purchased power expense.
Generation volume during 1995 decreased 2.7 percent when compared to 1994
due to more generating station outages. Overall nuclear generation increased in
1995 due to strong performances at the nuclear units. (See "Beaver Valley Power
Station (BVPS)" and "Perry Unit 1" discussions on page 9.) Major outages at coal
stations, including an extended forced outage at the Ft. Martin Power Station,
resulted in reduced coal generation which more than offset the increased nuclear
generation. During 1994, generation increased 3.4 percent from 1993 due to fewer
generating station outages.
Purchased power volume increased in 1995 when compared to 1994 primarily
due to generating station outages during periods of extreme weather conditions.
Purchased power volume increased in 1994 when compared to 1993 primarily due to
the performance of Perry Unit 1.
Other operating expense continued to decrease in 1995. The $7.8 million
decrease from 1994 to 1995 and the $18.9 million decrease from 1993 to 1994, are
largely attributable to cost reduction measures instituted by Duquesne.
Maintenance expense fluctuations primarily result from the timing of
scheduled generating station outages, the timing of scheduled transmission and
distribution line maintenance and the effect of storms on overhead lines and
transformers. Incremental maintenance expense incurred for scheduled refueling
outages at Duquesne's nuclear units is deferred for amortization over the period
between refueling outages (generally 18 months). Influenced by extreme weather
conditions and the timing of outages at both fossil and nuclear stations,
maintenance costs incurred by Duquesne in 1995 exceeded the prior year by $2.0
million. During 1994 and 1993, amortization of deferred nuclear refueling outage
expense increased, reflecting the higher costs of refueling outages. Offsetting
this increase in 1994 was a decrease in transmission and distribution line
maintenance expense.
Duquesne changed, as of January 1, 1993, its method of accounting for
maintenance costs during scheduled major fossil generating station outages.
Under the new accounting policy, Duquesne accrues, over the periods between
outages, anticipated expenses for scheduled major fossil generating station
outages. The cumulative effect (approximately $5.4 million, net of income taxes
of approximately $3.9 million) of the change on prior years was included in net
income in 1993. The effect of the change in 1993 was to reduce income, before
the cumulative effect of changes in accounting principles, by approximately $2.4
million and to reduce net income, after the cumulative effect of changes in
accounting principles, by approximately $7.8 million.
Depreciation and amortization expense increased $25.9 million in 1995,
primarily due to the change in Duquesne's composite depreciation rate from 3.0
percent to 3.5 percent effective January 1, 1995. Depreciation and amortization
expense increased $12.3 million in 1994 when compared to the prior year due to
increases in depreciable property and nuclear decommissioning expense.
As part of Duquesne's plan to optimize generation capacity, a petition
pending before the PUC proposes an annual increase in depreciation and
amortization expense related to Duquesne's nuclear power investment of $25
million for three years. Consistent with the 1995 increase in the composite
depreciation rate, Duquesne is not seeking a rate increase to recover these
additional costs. (See "Sale of Ft. Martin" discussion on page 9.)
Taxes other than income taxes were lower in 1993 compared to 1995 and 1994,
primarily as a result of a favorable resolution of certain property tax
assessments. In 1993, Duquesne recorded, on the basis of these revised
assessments, the expected refunds for overpayments in prior years.
Income taxes were lower in 1993, when compared to 1995 and 1994, because of
a favorable settlement with the Internal Revenue Service (related to Duquesne's
1988 federal income tax return and DQE's 1989 consolidated federal income tax
return). The remaining fluctuations result from changes in taxable income.
During 1994 the statutory Pennsylvania income tax rate was reduced from 12.25
percent to 9.99 percent.
4
This resulted in a net decrease of $80.5 million in deferred tax liabilities and
a corresponding reduction in the regulatory receivable.
Other Income and Deductions
Other income and deductions decreased $4.9 million in 1995 when compared to
1994 primarily due to increases in income taxes related to other income. The
$5.4 million decrease in other income and deductions from 1993 to 1994 reflects
the favorable corporate federal income tax settlements recorded in 1993 offset
that year by a $15.2 million long-term power sale write-off.
Capital Expenditures
Duquesne spent approximately $78.7 million in 1995, $94.3 million in 1994
and $100.6 million in 1993 for construction. These amounts were expended to
improve and/or expand electric production, transmission and distribution
systems. Duquesne's capital expenditures for construction focus on extending
service to new customers, providing for the replacement of utility property and
modifying facilities consistent with the most current environmental and safety
regulations. Duquesne estimates that it will spend, excluding the allowance for
funds used during construction (AFC) and nuclear fuel, approximately $90
million, $90 million and $100 million for construction during 1996, 1997 and
1998, respectively. Approximately $5 million of capital expenditures for
reliability enhancements to the simple cycle units located at Brunot Island (BI)
contemplated in Duquesne's petition before the PUC are excluded from these
estimates. (See "Sale of Ft. Martin" discussion on page 9.) Duquesne expects
that funds generated from operations will continue to be sufficient to finance a
large part of its capital needs.
Investing
Duquesne's long-term investments consist of Duquesne's holdings of DQE
common stock, investments in affordable housing, leasehold and other
investments, and Duquesne's nuclear decommissioning trusts. Investing activities
increased in 1995, after staying relatively constant in 1994 when compared to
1993. Duquesne invested $5.4 million and $5.3 million in affordable housing
funds during 1995 and 1994, respectively. In addition, Duquesne invested $57.5
million in other leases and investments during 1995.
Liquidity and Capital Resources
- -------------------------------------------------------------------------------
Financing
Duquesne expects to meet its current obligations and debt maturities
through the year 2000 with funds generated from operations and through new
financings. At December 31, 1995, Duquesne was in compliance with all of its
debt covenants.
Duquesne's 1947 first mortgage bond indenture was retired in the third
quarter of 1995 following the maturity of the last bond series issued under the
indenture. All of Duquesne's First Collateral Trust Bonds have been issued under
a new mortgage indenture that was established in April 1992 (the 1992
Indenture). All First Collateral Trust Bonds became first mortgage bonds when
the 1947 mortgage indenture was retired. The 1992 Indenture includes more
flexible provisions and eliminates conventions such as mandatory sinking funds
and formula-derived maintenance and replacement clauses.
On September 1, 1995, Duquesne redeemed all of its outstanding shares of
$7.20 Preferred Stock for $29.9 million. On August 29, 1995, Duquesne
repurchased $7 million of its 8-3/8% First Collateral Trust Bonds maturing in
2024.
In May 1996, $50.0 million of First Collateral Trust Bonds will mature.
Duquesne expects to retire these bonds with internally generated funds or to
refinance the bonds.
5
Short-Term Borrowings
At December 31, 1995, Duquesne had an extendible revolving credit
agreements with a group of banks totaling $150 million. This facility expires in
October 1996. Interest rates on this credit agreement vary. Commitment fees are
based on the unborrowed amount of the commitments. The credit facility contains
a two-year repayment period for any amount outstanding at the expiration of the
revolving credit period. At December 31, 1995 and 1994, there were no short-term
borrowings outstanding.
Interest Charges
Duquesne achieved a $3.8 million and a $9.1 million reduction in interest
charges in 1995 and 1994, respectively, primarily due to the retirement of long-
term debt. Duquesne's interest on long-term debt and dividends on preferred and
preference stock declined to $100.7 million in 1995 from $107.1 million in 1994
and $117.7 million in 1993. Interest expense in 1996 will be influenced by
fluctuations in short-term rates and any new financing.
Sale of Accounts Receivable
Duquesne and an unaffiliated corporation have an agreement that entitles
Duquesne to sell, and the corporation to purchase, on an ongoing basis, up to
$50 million of accounts receivable. At December 31, 1995, Duquesne had sold $7
million of receivables to the unaffiliated corporation. Duquesne had no
receivables sold at December 31, 1994. The accounts receivable sales agreement,
which expires in June 1996, is one of many sources of funds available to
Duquesne. Duquesne may attempt to extend the agreement, or to replace the
facility with a similar one or to eliminate it upon expiration.
Nuclear Fuel Leasing
Duquesne finances its acquisitions of nuclear fuel through a leasing
arrangement under which it may finance up to $75 million of nuclear fuel. As of
December 31, 1995, the amount of nuclear fuel financed by Duquesne under this
arrangement totaled approximately $40.8 million. Duquesne plans to continue
leasing nuclear fuel to fulfill its requirements at least through September
1998, the remaining term of the leasing arrangement.
Rate Matters
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Electric rates charged by Duquesne to its customers are regulated by the
PUC. Electric rates charged to the Borough of Pitcairn and rates charged for
sales to other electric utilities are regulated by the FERC. These rates are
designed to recover Duquesne's operating expenses, investment in utility assets,
and to provide a return on those investments. Sales to other utilities are made
at market rates. At this time, Duquesne has no pending base rate case and has no
immediate plans to file a base rate case. In Duquesne's petition currently
before the PUC for the sale of its ownership interest in the Ft. Martin Power
Station, Duquesne proposes to freeze its base rates for a five-year period. (See
"Sale of Ft. Martin" discussion on page 9.)
Energy Cost Rate Adjustment Clause (ECR)
Through the ECR, Duquesne recovers (to the extent that such amounts are not
included in base rates) nuclear fuel, fossil fuel and purchased power expenses
and, also through the ECR, passes to its customers the profits from short-term
power sales to other utilities (collectively, ECR energy costs). Nuclear fuel
expense is recorded on the basis of the quantity of electric energy generated
and includes such costs as the fee imposed by the United States Department of
Energy (DOE) for future disposal and ultimate storage and disposition of
6
spent nuclear fuel. Fossil fuel expense includes the costs of coal, natural gas
and fuel oil used in the generation of electricity.
On Duquesne's statement of consolidated income, these ECR revenues are
included as a component of operating revenues. For ECR purposes, Duquesne defers
fuel and other energy expenses for recovery, or refunding, in subsequent years.
The deferrals reflect the difference between the amount that Duquesne is
currently collecting from customers and its actual ECR energy costs. The PUC
annually reviews Duquesne's ECR energy costs for the fiscal year April through
March, compares them to previously projected ECR energy costs and adjusts the
ECR for over- or under-recoveries and for two PUC-established coal cost
standards. (See "Deferred Coal Costs" and "Warwick Mine Costs" discussions in
Note F to the consolidated financial statements on pages 49 and 50,
respectively.)
Over- or under-recoveries from customers are recorded on the consolidated
balance sheet as payable to, or receivable from, customers. At December 31,
1995, $5.8 million was payable to customers and shown as other current
liabilities. At December 31, 1994, $5.9 million was receivable from customers
and shown as other current assets.
Deferred Rate Synchronization Costs
In 1987, the PUC approved Duquesne's petition to defer initial operating
and other costs of Perry Unit 1 and BV Unit 2. Duquesne deferred the costs
incurred from November 17, 1987, when the units went into commercial operation,
until March 25, 1988, when a rate order was issued. In its order, the PUC
postponed ruling on whether these costs would be recoverable from Duquesne's
customers. At December 31, 1995, these costs totaled $51.1 million, net of
deferred fuel savings related to the two units. Duquesne is not earning a return
on the deferred costs. Duquesne believes that these costs are recoverable. In
1990 and 1995, the PUC permitted other Pennsylvania electric utilities rate
recovery of such costs.
Property, Plant and Equipment (PP&E)
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Investment in PP&E and Accumulated Depreciation
Duquesne's total investment in property, plant and equipment and the
related accumulated depreciation balances for the following major classes of
property at December 31, 1995 and 1994, are as follows:
PP&E and Related Accumulated Depreciation at December 31
- --------------------------------------------------------------------------------
(Amounts in Thousands of Dollars)
1995 1994
--------------------------------------------------------------------------------------------
Accumulated Net Accumulated Net
Investment Depreciation Investment Investment Depreciation Investment
--------------------------------------------------------------------------------------------
Electric Production $2,501,974 $ 885,389 $1,616,585 $2,474,032 $ 796,338 $1,677,694
Electric Transmission 296,953 110,242 186,711 295,512 105,217 190,295
Electric Distribution 1,143,111 347,399 795,712 1,119,247 323,922 795,325
Electric General 314,844 141,133 173,711 305,335 123,766 181,569
Property Held for Future Use 216,633 94,283 122,350 216,206 94,283 121,923
Property Held Under Capital Lease 133,381 74,874 58,507 161,775 91,376 70,399
Other 45,114 19,787 25,327 46,859 15,545 31,314
- ------------------------------------------------------------------------------------------------------------------------------------
Total $4,652,010 $1,673,107 $2,978,903 $4,618,966 $1,550,447 $3,068,519
====================================================================================================================================
7
Joint Interests in Generating Units
Duquesne has various contracts with The Potomac Edison Company, Monongahela
Power Company, Ohio Edison Company, Pennsylvania Power Company, The Cleveland
Electric Illuminating Company (CEI) and The Toledo Edison Company that include
provisions for coordinated maintenance responsibilities, limited and qualified
mutual back-up in the event of outages and certain capacity and energy
transactions.
Under the agreements governing the operation of these jointly owned
generating units, the day-to-day operating authority is assigned to a specific
company. CEI has such authority for Perry Unit 1 and Eastlake Unit 5; Ohio
Edison Company has authority for Sammis Unit 7; Pennsylvania Power Company has
authority for Bruce Mansfield Units 1, 2 and 3; and Monongahela Power Company
operates Ft. Martin Unit 1.
In September 1995, Duquesne served a demand for arbitration on CEI seeking,
among other things, a partition of Eastlake Unit 5 through a sale of Duquesne's
interest therein and a termination of its operating agreement with CEI for that
unit. The demand alleges, among other things, the improper allocation by CEI of
fuel and related costs between itself and Duquesne; the mismanagement by CEI of
the closing of the Saginaw Mine, which historically supplied coal to the unit;
and the concealment by CEI of information. In October 1995, CEI filed its own
arbitration demand and asserted counterclaims seeking Duquesne's alleged share
of costs relating to the unit. A panel of arbitrators has been appointed.
Duquesne has a joint interest in the following nuclear power stations with
the following companies:
Beaver Valley
---------------------- Perry
Unit 1 Unit 2 Unit 1
------- -------- ------
Duquesne * 47.50% * 13.74% (c) 13.74%
Ohio Edison Company 35.00% 41.88% 30.00%
Pennsylvania Power Company (a) 17.50% - 5.24%
CEI (b) - 24.47% * 31.11%
Toledo Edison Company (b) - 19.91% 19.91%
*Denotes Operator
(a) Subsidiary of Ohio Edison Company
(b) Subsidiary of Centerior Energy Corporation
(c) In 1987, Duquesne sold and subsequently leased back its 13.74 percent
interest in BV Unit 2; the sale was exclusive of transmission and common
facilities. The total sales price of $537.9 million was the appraised value of
Duquesne's interest in the property. Duquesne leased back its interest in the
unit for a term of 29.5 years. The lease provides for semiannual payments and
is accounted for as an operating lease. Duquesne is responsible under the terms
of the lease for all costs of its interest in the unit. (See "Property, Plant
and Equipment," Note B to the consolidated financial statements on page 46.)
Duquesne has a joint interest in the following fossil plants with the
following companies:
Bruce Mansfield Ft.
Sammis ----------------------------- Eastlake Martin
Unit 7 Unit 1 Unit 2 Unit 3 Unit 5 Unit 1
----- ------ ------ ------ ------ ------
Duquesne 31.20% 29.30% 8.00% 13.74% 31.20% 50.00%
Ohio Edison Company *48.00% 60.00% 39.30% 35.60% - -
Pennsylvania Power Company (a) 20.80% * 4.20% * 6.80% * 6.28% - -
CEI (b) - 6.50% 28.60% 24.47% *68.80% -
Toledo Edison Company (b) - - 17.30% 19.91% - -
Potomac Edison Company (c) - - - - - 25.00%
Monongahela Power Company (c) - - - - - * 25.00%
*Denotes Operator
(a) Subsidiary of Ohio Edison Company
(b) Subsidiary of Centerior Energy Corporation
(c) Subsidiary of, and currently known as, Allegheny Power System
8
Beaver Valley Power Station
BVPS continues to demonstrate excellence in operating performance. During
1995, BV Unit 1 and BV Unit 2 both underwent scheduled refueling outages, which
were completed in the shortest duration in both the units' history. Further
exemplifying BVPS' accomplishments, both refueling outages were completed under
budgeted cost. In spite of these scheduled refueling outages, the combined
capacity factor for the units averaged 80 percent during 1995. Capacity factor
is a key production measure and indicates how well the plant operated based on
its design capacity. It is the ratio of the power actually generated by a
facility to the facility's rated capacity during a given period of time. Also,
BV Unit 2 achieved an unplanned capability loss factor of 0.7 percent, which is
significantly better than the industry standard of 4.0 percent. This factor
measures how much power production was lost due to unplanned outages.
In addition to optimizing generation and cost efficiency, BVPS management
continues to emphasize safety in operations. During 1995, BVPS employees
achieved the milestone of more than three million hours worked without incurring
a single lost time accident.
Perry Unit 1
Duquesne has a 13.74 percent ownership interest in Perry Unit 1, a nuclear
generating unit located in Ohio and operated by CEI. Perry Unit 1 experienced
improved performance during 1995, a year without a refueling outage, and
achieved a capacity factor of 87.5 percent. CEI has submitted to the NRC an
action plan, called the Perry Course of Action (PCA). CEI management continues
to represent to Duquesne that the PCA is on schedule and will be an effective
program to ensure that Perry Unit 1 is in conformance with applicable industry
standards. The PCA is scheduled to be completed by the end of Perry Unit 1's
fifth refueling outage, presently scheduled for the spring of 1996. Duquesne
cannot predict the effectiveness of the PCA. Duquesne will continue to monitor
closely this situation.
Sale of Ft. Martin
On November 29, 1995, Duquesne and AYP Capital, Inc., an unregulated
subsidiary of the Allegheny Power System (APS), entered into an agreement for
the sale of Duquesne's 50 percent ownership interest in Unit 1 of the Ft. Martin
Power Station, for the sum of $169 million. The agreement is subject to all
necessary regulatory approvals. On December 20, 1995, Duquesne filed a Petition
for Declaratory Order with the PUC requesting approval for the sale in
conjunction with a six-point plan to be financed in part by the proceeds of the
Ft. Martin transaction.
Under the plan, Duquesne offers to freeze its base rates for a period of
five years. If approved, the rate freeze is expected to produce a 14 percent
reduction in the real price of electricity based on an average annual inflation
rate of 2.7 percent. In addition, Duquesne proposes to record a one-time
reduction of approximately $130 million in the value of Duquesne's nuclear plant
investment. Duquesne also proposes to use the proceeds from the sale to finance
reliability enhancements to the simple cycle units located at BI, to retire debt
and to reduce equity. The BI simple cycle units will provide 135 megawatts (MW)
of summer peaking capacity and 168 MW of winter peaking capacity and permit
Duquesne to achieve greater operational flexibility in meeting peak system
demands. The plan also proposes an annual increase of $25 million for three
years in depreciation and amortization expense related to Duquesne's nuclear
investment, as well as additional annual contributions to its nuclear plant
decommissioning funds of $5 million for five years, without any increase in
existing electric rates. Lastly, Duquesne proposes a five-year annual $5 million
credit to the ECR to compensate Duquesne's customers for the lost profits from
any reduced short-term power sales foregone by the sale of its ownership
interest in the Ft. Martin Power Station. (See "Energy Cost Rate Adjustment
Clause (ECR)" discussion on page 6.)
The PUC is currently reviewing Duquesne's petition.
9
Property Held for Future Use
In 1986, the PUC approved Duquesne's request to remove Phillips Power
Station (Phillips) and a portion of BI from service and from rate base. Duquesne
expects to recover its net investment in these plants through future electricity
sales. Duquesne believes its investment in these plants will be necessary in
order to meet future business needs outlined in Duquesne's plans for optimizing
generation resources. (See "Generation Resource Optimization" discussion on page
17.) If business opportunities do not develop as expected, Duquesne will
consider the sale of these assets. In the event that market demand, transmission
access or rate recovery do not support the utilization or sale of the plants,
Duquesne may have to write off part or all of their costs. A portion of the BI
combustion turbine capacity currently held for future use may be returned to
service pending the outcome of the sale of Duquesne's ownership interest in Ft.
Martin. (See "Sale of Ft. Martin" discussion on page 9.) At December 31, 1995,
Duquesne's net investment in Phillips and BI held for future use was $77.4
million and $44.9 million, respectively.
Employees
- --------------------------------------------------------------------------------
At December 31, 1995, Duquesne had 3,515 employees, including 1,178
employees at Duquesne-operated BVPS. The International Brotherhood of Electrical
Workers (IBEW) union represents 2,086 of Duquesne's employees. The current
collective bargaining agreement with the IBEW expires on September 30, 1998.
Electric Utility Operations
- --------------------------------------------------------------------------------
Approximately 69 percent of the electric energy generated by Duquesne's
system during 1995 was produced by its coal-fired generating capacity and
approximately 31 percent was produced by its nuclear generating capacity.
Duquesne normally experiences its peak loads in the summer. The 1995 customer
system peak of 2,666 MW, the highest system peak in Duquesne's history, occurred
on August 16, 1995.
Duquesne's fossil plants operated at 76 percent availability in 1995 and 85
percent availability in 1994. Duquesne's nuclear plants operated at 83 percent
availability in 1995 and 75 percent in 1994. The timing and duration of
scheduled maintenance and refueling outages, as well as the duration of forced
outages, affect the availability of power stations.
Duquesne determines the need for and timing of generation resource
additions based on maintaining an adequate level of resources in reserve above
the projected weather normalized annual peak demand. In addition, capacity
resources throughout the region can supplement Duquesne's in-service generation
resources, if required, through Duquesne's substantial transmission import
capability, currently in excess of 4,000 MW. The North American Electric
Reliability Council, of which Duquesne is a member, uses "capacity margin" to
report generating capability when compared to customer demand. Capacity margin
is one of the criteria used by Duquesne in assessing the need for future
resources. Duquesne's capacity margin in 1995 was 11.7 percent. The capacity
portfolio reflected in Duquesne's capacity margin includes in-service generating
capacity, plus 21 MW capacity provided by non-utility generation contracts, plus
a portion of the capacity from property held for future use available to meet
customer needs during peaking or emergency conditions. The customer peak demand
reflected in Duquesne's capacity margin is based on the actual peak demand
experienced during the extraordinarily hot 1995 summer weather conditions, less
97 MW of interruptible load resources available from Duquesne's interruptible
customers, but not actually interrupted during the peak period.
The successful resolution of Duquesne's proposed sale of its ownership
interest in Ft. Martin will reduce in-service capacity by 276 MW. Duquesne
expects to replace Ft. Martin capacity by(1) utilizing the 168 MW oil-fired
combustion turbines at the BI combined cycle facility, which is property held
for future use, and (2) acquiring seasonal peaking capacity from power
marketplace resources, as required. These additional resources ensure that
adequate capacity will be available to enable Duquesne to continue to maintain
the expected level of power generation reliability.
10
Fossil Fuel
- --------------------------------------------------------------------------------
Duquesne believes that sufficient coal for its coal-fired generating units
will be available from various sources to satisfy its requirements for the
foreseeable future. During 1995, approximately 2.6 million tons of coal were
consumed at Duquesne's two wholly owned coal-fired stations, Cheswick Power
Station (Cheswick) and Elrama Power Station (Elrama).
Duquesne owns Warwick Mine, an underground mine located on the Monongahela
River approximately 83 river miles from Pittsburgh. Warwick Mine has been
excluded from rate base since 1981. Duquesne temporarily idled the mine in June
1988 due to excess coal inventories. In 1990, Duquesne restarted the mine and
entered into an agreement under which an unaffiliated company will operate the
mine until March 2000 and sell the coal produced. Production began in late 1990.
The mine produced 1.1 million tons of coal in 1995. The Warwick Mine coal
reserves include both high and low sulfur coal; the sulfur content averages in
the mid-range at 1.7 percent to 1.9 percent. More than 60 percent of the coal
mined at Warwick Mine currently is used by Duquesne. Duquesne receives a royalty
on any sales of Warwick coal in the open market. These royalties are credited to
Duquesne's ECR. The Warwick Mine currently supplies less than one-fifth of the
coal used in the production of electricity at the plants owned or jointly owned
by Duquesne. Duquesne estimates that, at December 31, 1995, its economically
recoverable coal reserves at Warwick Mine were 9.0 million tons. Costs at
Warwick Mine and Duquesne's investment in the mine are expected to be recovered
through the cost of coal in the ECR. Recovery is subject to the system-wide coal
cost standard. Duquesne also has an opportunity to earn a return on its
investment in the mine through the cost of coal during the period of the system-
wide coal cost standard. At December 31, 1995, Duquesne's net investment in the
mine was $14.9 million. The current estimated liability, including final site
reclamation, mine water treatment and certain labor liabilities, for mine
closing is $34.1 million, and Duquesne has recorded a liability on the
consolidated balance sheet of approximately $15.9 million toward these costs.
(See "Warwick Mine Costs" discussion in Note F to the consolidated financial
statements on page 50.)
During 1995, 56 percent of Duquesne's coal supplies were provided by
contracts including Warwick Mine, with the remainder satisfied through purchases
on the spot market. Duquesne had four long-term contracts in effect at December
31, 1995, which, in combination with spot market purchases, are expected to
furnish an adequate future coal supply. Duquesne does not anticipate any
difficulty in replacing or renewing these contracts as they expire from 1996
through 2002. At December 31, 1995, Duquesne's wholly owned and jointly owned
generating units had on hand an average coal supply of 45 days.
The PUC has established two market price coal cost standards. One applies
only to coal delivered at the Bruce Mansfield Power Station (Bruce Mansfield).
The other, the system-wide coal cost standard, applies to coal delivered to the
remainder of Duquesne's system. Both standards are updated monthly to reflect
prevailing market prices of similar coal. The PUC has directed Duquesne to defer
recovery of the delivered cost of coal to the extent that such cost exceeds
generally prevailing market prices for similar coal, as determined by the PUC.
The PUC allows deferred amounts to be recovered from customers when the
delivered costs of coal fall below such PUC-determined prevailing market prices.
The system-wide coal cost standard extends through March 2000. The
unrecovered cost of Bruce Mansfield coal was $8.4 million and the unrecovered
cost of the remainder of the system-wide coal was $4.4 million at December 31,
1995. Duquesne estimates that all deferred coal costs will be recovered.
Duquesne's average cost per ton of coal consumed, including the cost of
delivery, during the past three years at generating units which it operates or
in which it has an ownership interest was $38.86, $39.12 and $40.08 in 1995,
1994 and 1993, respectively. The cost of coal, which falls within the market
price limitations, is recovered from Duquesne's customers through the ECR. (See
"Rate Matters" discussion on page 6, and also see "Deferred Coal Costs"
discussion in Note F to the consolidated financial statements on page 49.)
Nuclear Fuel
- --------------------------------------------------------------------------------
The cycle of production and utilization of nuclear fuel consists of (1)
mining and milling of uranium ore and processing the ore into uranium
concentrates, (2) converting uranium concentrates to uranium hex-
11
afluoride, (3) enriching the uranium hexafluoride, (4) fabricating fuel
assemblies, (5) utilizing the nuclear fuel in the generating station reactor and
(6) storing and disposing of spent fuel.
Adequate supplies of uranium and conversion services are under contract for
Duquesne's requirements for its jointly owned/leased nuclear units through 1996.
Enrichment services are supplied under a 1984 United States Enrichment
Corporation Utility Services Contract entered into for a period of 30 years by
Duquesne for joint interests in Perry Unit 1, BV Unit 1 and BV Unit 2. Under the
terms and conditions of this contract, Duquesne is committed to 100 percent of
its enrichment needs through 1998 and 70 percent in 1999; Duquesne has
terminated, at zero cost, all of its enrichment services requirements for fiscal
years 2000 through 2005 and continues to review the need for further services on
an annual basis. Fuel fabrication contracts are in place to supply reload
requirements for the next two cycles for BV Unit 1, the next two cycles for BV
Unit 2 and the next sixteen cycles for Perry Unit 1. Duquesne will be required
to make arrangements for uranium supply and related services as existing
commitments expire.
Each utility company is responsible for financing its proportionate share
of the costs of nuclear fuel for each nuclear unit in which it has an ownership
or leasehold interest. (See "Nuclear Fuel Leasing" discussion on page 6.)
Duquesne's nuclear fuel costs, which are amortized to reflect fuel consumed, are
charged to fuel expense and are recovered through rates. Duquesne estimates
that, over the next three years, the amortization of nuclear fuel consumed will
exceed the expenditures for new fuel by approximately $1.7 million. The actual
nuclear fuel costs to be financed and amortized during the period 1996 through
1998 will be influenced by such factors as changes in interest rates; lengths of
the respective fuel cycles; reload cycle design; and changes in nuclear material
costs and services, the prices and availability of which are not known at this
time. Such costs may also be influenced by other events not presently foreseen.
Duquesne's nuclear fuel costs related to BV Unit 1, BV Unit 2 and Perry
Unit 1 under the fuel lease arrangement are charged to fuel expense based on the
quantity of energy generated. Nuclear fuel costs for these units averaged .750,
.903 and .918 cents per KWH, inclusive of charges associated with spent fuel, in
1995, 1994 and 1993, respectively. Duquesne is recovering from its customers the
costs associated with the ultimate disposal of spent fuel.
Nuclear Decommissioning
- --------------------------------------------------------------------------------
The PUC ruled that recovery of the decommissioning costs for BV Unit 1
could begin in 1977, and that recovery for BV Unit 2 and Perry Unit 1 could
begin in 1988. Duquesne expects to decommission BV Unit 1, BV Unit 2 and Perry
Unit 1 no earlier than the expiration of each plant's operating license, 2016,
2027 and 2026, respectively. BV Unit 1 is expected to be placed in safe storage
until the expiration of the BV Unit 2 operating license, at which time the units
may be decommissioned together.
Based on site-specific studies finalized in 1992 for BV Unit 2, and in 1994
for BV Unit 1 and Perry Unit 1, Duquesne's share of the total estimated
decommissioning costs, including removal and decontamination costs, currently
being used to determine Duquesne's cost of service, are $122 million for BV Unit
1, $35 million for BV Unit 2 and $67 million for Perry Unit 1.
In conjunction with an August 18, 1994, PUC Accounting Order, Duquesne has
increased the annual contribution to its decommissioning trusts by approximately
$2 million to bring the total annual funding to approximately $4 million per
year. In collaboration with Duquesne and several other Pennsylvania utilities,
the PUC Office of Special Assistants is evaluating various decommissioning
issues, including funding methods. Duquesne expects that any action relating to
any forthcoming PUC report will result in further increases in annual
contributions to its decommissioning trusts. Consistent with these anticipated
future PUC actions, Duquesne's petition before the PUC for the sale of its
ownership interest in the Ft. Martin Power Station provides for additional
annual contributions to its nuclear decommissioning funds of $5 million for five
years without any increase in existing electric rates. (See "Sale of Ft. Martin"
discussion on page 9.)
Duquesne records decommissioning costs under the category of depreciation
and amortization expense and accrues a liability, equal to that amount, for
nuclear decommissioning expense. Such nuclear decommis-
12
sioning funds are deposited in external, segregated trust accounts. The funds
are invested in a portfolio of municipal bonds, certificates of deposit and
United States government securities having a weighted average duration of four
to seven years. Trust fund earnings increase the fund balance and the recorded
liability. The market value of the aggregate trust fund balances at December 31,
1995, totaled approximately $28.5 million. On Duquesne's consolidated balance
sheet, the decommissioning trusts have been reflected in other long-term
investments, and the related liability has been recorded as other non-current
liabilities.
Nuclear Insurance
- --------------------------------------------------------------------------------
All of the companies with an interest in BV Unit 1, BV Unit 2 and Perry
Unit 1 maintain nuclear property insurance, which provides coverage for property
damage, decommissioning and decontamination liabilities. Duquesne's share of
this program provides for $1.2 billion of insurance coverage for its net
investment of $407.8 million in the BVPS and $565.5 million in Perry Unit 1,
plus its interest in BV Unit 2 with lease commitments of $405.2 million, at
December 31, 1995. The lease commitments of $405.2 million represent the net
present value of future lease payments discounted at 10.94 percent, the return
currently authorized Duquesne by the PUC. Duquesne would be responsible for its
share of any damages in excess of insurance coverage. In addition, if the
property damage reserves of Nuclear Electric Insurance Limited (NEIL), an
industry mutual insurance company, are inadequate to cover claims arising from
an incident at any United States nuclear site covered by that insurer, Duquesne
could be assessed retrospective premiums totaling a maximum of $10.9 million.
The Price-Anderson Amendments to the Atomic Energy Act of 1954 limit public
liability from a single incident at a nuclear plant to $8.9 billion. Duquesne
has purchased $200 million of insurance, the maximum amount available, which
provides the first level of financial protection.
Additional protection of $8.3 billion would be provided by an assessment of
up to $75.5 million per incident on each nuclear unit in the United States.
Duquesne's maximum total assessment, $56.6 million, which is based on its
ownership or leasehold interests in three nuclear generating units, would be
limited to a maximum of $7.5 million per incident per year. A further surcharge
of 5 percent could be levied if the total amount of public claims exceeded the
funds provided under the assessment program. Additionally, a state premium tax
may be charged on the assessment and surcharge. Finally, the United States
Congress could impose other revenue-raising measures on the nuclear industry if
funds prove insufficient to pay claims.
Duquesne carries extra expense insurance which would pay the incremental
cost of any replacement power purchased (in addition to costs that would have
been incurred had the units been operating) and other incidental expense after
the occurrence of certain types of accidents at its nuclear units in a limited
amount for a limited period of time. The coverage provides for 100 percent of
the estimated extra expense per week during the 52-week period starting 21 weeks
after an accident and 80 percent of such estimate per week for the following 104
weeks, with no coverage thereafter. The amount and duration of actual extra
expense could substantially exceed insurance coverage. NEIL also provides this
insurance. If NEIL's reserves are inadequate to cover claims at any United
States nuclear site covered by that insurer, Duquesne could be assessed
retrospective premiums totaling a maximum of $3.5 million.
Spent Nuclear Fuel Disposal
- --------------------------------------------------------------------------------
The Nuclear Waste Policy Act of 1982 established a policy for handling and
disposing of spent nuclear fuel and a policy requiring the established final
repository to accept spent fuel. Electric utility companies have entered into
contracts with the DOE for the permanent disposal of spent nuclear fuel and
high-level radioactive waste in compliance with this legislation. The DOE has
indicated that its repository under these contracts will not be available for
acceptance of spent fuel before 2010 at the earliest. Existing on-site spent
fuel storage capacities at BV Unit 1, BV Unit 2 and Perry Unit 1 are expected to
be sufficient until 2016, 2010 and 2011, respectively.
13
Uranium Enrichment Decontamination and Decommissioning Fund
- --------------------------------------------------------------------------------
Nuclear reactor licensees in the United States are assessed annually for
the decontamination and decommissioning of DOE uranium enrichment facilities.
Assessments are based on the amount of uranium a utility had processed for
enrichment prior to enactment of the National Energy Policy Act of 1992 (NEPA)
and are to be paid by such utilities over a 15-year period. At December 31,
1995, Duquesne's liability for contributions is approximately $9.9 million
(subject to an inflation adjustment). Contributions, when made, are recovered
from electric utility customers through the ECR.
Environmental Matters
- --------------------------------------------------------------------------------
The Comprehensive Environmental Response, Compensation and Liability Act of
1980 and the Superfund Amendments and Reauthorization Act of 1986 (Superfund)
established a variety of informational and environmental action programs. The
United States Environmental Protection Agency (EPA) has informed Duquesne of its
involvement or potential involvement in three hazardous waste sites. Duquesne
has reached agreements to make minimal financial payments related to two of the
three sites in order to resolve any associated liability. If Duquesne is
ultimately determined to be a responsible party with respect to the remaining
site, it could be liable for all or a portion of the cleanup costs. However,
other solvent, potentially responsible parties that may bear all or part of any
liability are also involved. In addition, Duquesne believes that available
defenses, along with other factors (including overall limited involvement and
low estimated remediation costs) will limit any potential liability that
Duquesne may have for cleanup costs. Duquesne believes that it is adequately
reserved for all known liabilities and costs and, accordingly, that this matter
will not have a materially adverse effect on its financial position or results
of operations.
In 1990, Congress approved amendments to the Clean Air Act, which
established the Emission Allowance Trading System. Allowances are issued by the
EPA to fossil-fired stations with generating capability of more than 25 MW that
were in existence as of the passage of the 1990 amendments. Allowances are part
of an innovative market-based approach to sulfur dioxide (SO\\2\\) reduction.
Emission allowances can also be obtained through purchases on the open market or
directly from other sources. Excess allowances may be banked for future use or
sold on the open market to other parties to offset their emissions.
Although Duquesne has satisfied all of the Phase I requirements of the
Clean Air Act, Phase II requires significant additional reductions of SO\\2\\
and oxides of nitrogen (NO\\X\\) by the year 2000. Duquesne currently has 662 MW
of nuclear capacity, 1,187 MW of coal capacity equipped with SO\\2\\ emission
reducing equipment (including 300 MW of property held for future use at
Phillips) as well as 757 MW of capacity that meets the 1995 standards of the
Clean Air Act Amendments through the use of low sulfur coal. Through the year
2000, Duquesne is considering a combination of compliance methods that include
fuel switching; increased use of, and improvements in, SO\\2\\ emission reducing
equipment; low NO\\X\\ burner technology; and the purchase of emission
allowances. Flue gas conditioning and post combustion NO\\X\\ reduction
technologies may also be employed if economically justified. In addition,
Duquesne is examining and developing innovative emissions technologies designed
to reduce costs. Duquesne continues to work with the operators of its jointly
owned stations to implement cost-effective compliance strategies to meet these
requirements. NO\\X\\ reductions under Title IV of the Clean Air Act were
required at Cheswick, and the work to achieve the reductions was completed in
1993. The ozone attainment provisions of Title I of the Clean Air Act Amendments
also required NO\\X\\ reductions by mid-1995 at Cheswick, Elrama and Bruce
Mansfield. Duquesne achieved such reductions using innovative combustion system
modifications and low NO\\X\\ burner technology. Duquesne currently estimates
that additional capital costs to comply with Clean Air Act requirements through
the year 2000 will be approximately $20 million. This estimate is subject to the
finalization of federal and state regulations and the PUC approval of the sale
of Duquesne's interest in the Ft. Martin Power Station. (See "Sale of Ft.
Martin" discussion on page 9.)
Duquesne has developed, patented and installed low NO\\X\\ burner
technology for the Elrama boilers. These cost-effective NO\\X\\ reduction
systems installed on the Elrama roof fired boilers was specified as the
benchmark for the industry for this class of boilers in the EPA's pending Group
II rulemaking. Duquesne is also currently evaluating additional low cost,
developmental NO\\X\\ reduction technologies at Cheswick and
14
Elrama. An Artificial Neural Network control system enhancement, co-sponsored by
the Electric Power Research Institute and Duquesne, will be demonstrated at
Cheswick. The Gas Research Institute and Duquesne are sponsoring a targeted
natural gas reburn demonstration at Elrama. Both demonstrations will be
completed in 1996.
As required by Title V of the Clean Air Act Amendments, Duquesne has filed
comprehensive air operating permit applications for Cheswick, Elrama, BI and
Phillips during the last half of 1995. Duquesne also filed its Title IV Phase II
Clean Air Act compliance plan with the PUC on December 27, 1995.
Duquesne is closely monitoring other potential future air quality programs
and air emission control requirements, including additional NO\\X\\ control
requirements that were recommended for fossil fuel plants by the Ozone Transport
Commission and the potential for more stringent ambient air quality and emission
standards for SO\\2\\ particulates, and other by-products of coal combustion. As
these potential programs are in various stages of discussion and consideration,
it is impossible to make reasonable estimates of the potential costs and
impacts, if any.
In 1992, the Pennsylvania Department of Environmental Protection (DEP)
issued Residual Waste Management Regulations governing the generation and
management of non-hazardous residual waste, such as coal ash. Duquesne is
assessing the sites which it utilizes and has developed compliance strategies
under review by the DEP. Capital compliance costs of $3.0 million were incurred
by Duquesne in 1995 to comply with these DEP regulations; on the basis of
information currently available, an additional $2.5 million will be incurred in
1996. The expected additional capital cost of compliance through the year 2000
is estimated, based on current information, to be approximately $25 million.
This estimate is subject to the results of ground water assessments and DEP
final approval of compliance plans.
Duquesne is involved in various other environmental matters. Duquesne
believes that such matters, in total, will not have a materially adverse effect
on its financial position or results of operations.
Outlook
- --------------------------------------------------------------------------------
Competition
The electric utility industry is undergoing fundamental change in response
to the open transmission access and increased availability of energy
alternatives fostered by NEPA which has served to increase competition in the
industry. Previously captive customers are seeking freedom to choose alternative
suppliers of energy. These competitive pressures require utilities to offer
competitive pricing and terms to retain customers and to develop new markets for
the optimal utilization of their generation capacity.
At the national level, NEPA was designed to encourage competition among
electric utility companies, improve energy resource planning and to encourage
the development of alternative sources of energy. NEPA authorizes the FERC to
require electric utilities to provide wholesale suppliers of electric energy
with nondiscriminatory access to the utility's wholesale transmission system. In
response to this mandate, the FERC has issued a Notice of Proposed Rulemaking
(NOPR) on Open Access Nondiscriminatory Transmission Services and a supplemental
NOPR on the Recovery of Stranded Costs. The NOPR on open access transmission
would define the terms under which independent power producers, neighboring
utilities and others could gain access to a utility's transmission grid to
deliver power to customers. The supplemental NOPR on stranded costs would
address the issue of recovery of a utility's unrecovered costs that were
incurred to provide service to customers that subsequently leave a utility's
system in favor of another supplier. A final order is expected in mid-1996 on
both NOPRs. Also, in January 1996, the FERC announced its plans to reconsider
its public utility merger guidelines. The FERC actions are expected to have a
significant impact on competition in the electric utility industry.
In Pennsylvania, the PUC currently is conducting an investigation
concerning regulatory reform and has indicated an intention to issue a report to
the governor and the Pennsylvania General Assembly by June 1996. The PUC staff
issued an interim report in August 1995 that recommended that retail wheeling
not be
15
implemented at that time because of concerns that retail wheeling would benefit
large industrials at the expense of smaller customers and utility shareholders,
who would absorb the costs of stranded investments, and that service reliability
could be impaired. The report concludes that performance-based ratemaking,
wholesale competition and utility cost cutting could provide the benefits of
retail wheeling without the attendant disruptions.
Duquesne is aware of the foregoing federal and state regulatory and
business uncertainties, and is attempting to position itself to operate in a
more competitive environment. Its current rate structure allows some flexibility
in setting rates to retain its customer base and attract new business.
Furthermore, as discussed below, open access transmission offers Duquesne the
opportunity to sell power on a market basis to customers outside of its service
territory.
Duquesne has proposals before both the FERC and the PUC that address
specific issues relating to its competitive position. Because of Duquesne's
current electric generating configuration, some of its baseload capacity is used
less than optimally. Two options Duquesne is currently considering to align its
generating capabilities more closely with customer demand are discussed in
"Transmission Access" below and "Generation Resource Optimization" on page 17.
First, through open transmission access, Duquesne is seeking to increase its
level of fixed demand through the negotiation of long-term power sale contracts
to customers outside its service territory. Second, Duquesne proposes to change
its generation profile through the sale of its interest in the Ft. Martin Power
Station.
As part of its petition currently before the PUC with respect to the sale
of its interest in Ft. Martin, Duquesne has proposed, among other concessions, a
five-year freeze on base rates and a five-year annual $5 million credit to the
ECR (which would otherwise remain unaffected by the freeze) to compensate
Duquesne's electric utility customers for short-term power sales foregone by the
sale of its interest in the plant. (See "Sale of Ft. Martin" discussion on page
9.) Although Duquesne believes a rate freeze will enable it to maintain and
expand its existing customer base, if the rate freeze is implemented, Duquesne
could face the risk of reduced rates of return if unforeseen costs arise and if
revenues from sales prove inadequate to fund those costs.
Finally, as noted above, open access transmission requirements implicitly
create the potential for stranded costs. To address these issues, Duquesne has
implemented, and will continue to evaluate, the accelerated depreciation of its
generating assets as one method to guard against the competitive risks of
stranded investments. (See "Operating Expenses" discussion on page 4.) At
present, the FERC and the PUC appear supportive of stranded cost recovery;
however, implementation details for recovery of stranded costs are extremely
vague and far from decided. The petition for the sale of Duquesne's ownership
interest in the Ft. Martin Power Station currently before the PUC proposes to
further increase depreciation and amortization expense related to Duquesne's
nuclear power investment by $75 million over a three-year period. This petition
also proposes to record a one-time write-down in the value of Duquesne's nuclear
plant investment of approximately $130 million and to increase by $5 million the
annual contribution to Duquesne's nuclear plant decommissioning funds, for a
total of $25 million in contributions over the next five years. (See "Sale of
Ft. Martin" discussion on page 9.) These current and proposed accelerated
investment cost recovery measures will be absorbed by Duquesne without an
increase in base rates.
Duquesne believes that these and similar initiatives will strengthen its
position to succeed in a more competitive environment by eliminating the need to
charge its electric utility customers in the future for these currently
recognized expenses. At this time, however, there is no assurance as to the
extent to which Company initiatives can or will ultimately eliminate regulatory
and other uncertainties associated with increased competition.
Transmission Access
In March 1994, Duquesne submitted, pursuant to the Federal Power Act, two
separate "good faith" requests for transmission service with APS and the
Pennsylvania-New Jersey-Maryland Interconnection Association (PJM Companies),
respectively. Each request is based on 20-year firm service with flexible
delivery points for 300 MW of transfer capability over the APS and PJM Companies
transmission networks, which
16
together extend from western Pennsylvania to the East Coast. Because of a lack
of progress on pricing and other issues, on August 5 and September 16, 1994,
Duquesne filed with the FERC applications for transmission service from the PJM
Companies and APS, respectively. The applications are authorized under
Section 211 of the Federal Power Act, which requires electric utilities to
provide firm wholesale transmission service. In May 1995, the FERC issued
proposed orders instructing APS and the PJM Companies to provide transmission
service to Duquesne and directing the parties to negotiate specific rates, terms
and conditions. Duquesne was unable to agree to terms for transmission service
with either APS or the PJM Companies. Briefs were filed with the FERC outlining
the areas of disagreement among the companies. The matter is now pending before
the FERC. Duquesne cannot predict the final outcome of these proceedings.
Generation Resource Optimization
Duquesne's plans for optimizing generation resources are designed to reduce
underutilized generating capacity, promote competition in the wholesale
marketplace, maintain stable prices and meet customer-specified levels of
service reliability. Duquesne is committed to explore firm energy sales to
wholesale customers, system power sales, system power sales with specific unit
back-up, unit power sales, generating asset sales and any other approach to
efficiently managing capacity and energy.
The proposed sale of Duquesne's ownership interest in the Ft. Martin Power
Station demonstrates Duquesne's ongoing efforts to optimize the utilization of
generation resources. (See "Sale of Ft. Martin" discussion on page 9.) The sale
is expected to reduce power production costs by employing a cost-effective
source of peaking capacity through enhanced reliability of the simple cycle
units at BI. Implementation of the proposed plan will better align Duquesne's
generating capabilities with its native load requirements.
Customer Service Guarantees
Duquesne's commitment to provide reliable, quality service to its customers
is characterized by its customer service guarantees. On March 6, 1995, Duquesne
became the first Pennsylvania regulated utility, and the third in the United
States, to offer its residential customers guarantees of its commitment to
courteous, reliable and efficient service. Duquesne offers a $25 credit to a
customer's account if Duquesne fails to provide accurate billings; to meet
punctual service appointments; to extend prompt, courteous and professional
service; or to connect new services within one day of the date requested by the
customer.
Customer Advanced Reliability System
In January 1996, Duquesne announced its Customer Advanced Reliability
System, a new communications service that will provide its customers with
superior levels of service reliability, security and convenience. Duquesne has
signed a long-term, full service contract with Itron, Inc. (Itron), a leading
supplier of energy information and communication solutions to the electric
utility industry. Over the next two years, Itron will install, operate and
maintain a communications network that will provide Duquesne with an electronic
link to its 580,000 customers.
The Customer Advanced Reliability System is designed to respond to customer
needs on the basis of immediate information about the status of power delivery
at individual homes and businesses. This electronic communications service is
another major element in Duquesne's multi-step plan to make Duquesne's
operations more competitive and efficient.
Other
- --------------------------------------------------------------------------------
Financial Accounting Pronouncement
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of (SFAS No. 121),
17
in March 1995. This statement is effective for years beginning after December
15, 1995. Duquesne anticipates adopting this standard on January 1, 1996, and
does not expect that it will have a material impact on its financial position or
results of operations, based on the current regulatory structure in which it
operates. As competitive factors influence pricing in the utility industry, this
opinion may change in the future. The general requirements of SFAS No. 121 apply
to non-current assets and require impairment to be considered whenever evidence
suggests that it is no longer probable that future cash flows in an amount at
least equal to the asset will result.
Retirement Plan Measurement Assumptions
Duquesne decreased the discount rate used to determine the projected
benefit obligation on Duquesne's retirement plans at December 31, 1995, to 7.0
percent. The assumed change in future compensation levels was also decreased to
reflect current market and economic conditions. The effects of these changes on
Duquesne's retirement plan obligations are reflected in the amounts shown in
"Employee Benefits," Note M to the consolidated financial statements on page 56.
The resulting change in related expenses for subsequent years is not expected to
be material.
------------------------------
Except for historical information contained herein, the matters discussed in
this Annual Report on Form 10-K, are forward-looking statements that involve
risks and uncertainties including, but not limited to, economic, competitive,
governmental and technological factors affecting Duquesne's operations, markets,
products, services and prices, and other factors discussed in Duquesne's filings
with the Securities and Exchange Commission.
Executive Officers of the Registrant
- --------------------------------------------------------------------------------
Set forth below are the names, ages as of March 1, 1996, positions and
brief accounts of the business experience during the past five years of the
executive officers of Duquesne.
Name Age Office
---- --- ------
Wesley W. von Schack 51 Chairman of the Board since September 1987 and
Chief Executive Officer since January 1986.
President from January 1986 to February 1995.
David D. Marshall 43 President and Chief Operating Officer since February
1995. Executive Vice President from February 1992
to February 1995, Assistant to the President from
October 1990 to February 1992, and Vice President-
Corporate Development from August 1987 to
February 1992.
Gary L. Schwass 50 Senior Vice President since February 1995 and Chief
Financial Officer since July 1989. Vice President-
Finance from May 1988 to February 1995.
18
Name Age Office
---- --- ------
James E. Cross 49 Senior Vice President - Nuclear since February 1995.
Vice President - Nuclear from September 1994 to
February 1995. Formerly Vice President, Thermal
Operations, and Chief Nuclear Officer of Portland
General Electric from May 1993 to September 1994;
Vice President and Chief Nuclear Officer of
Portland General Electric from December 1991 to
May 1993; and Vice President, Nuclear, of Portland
General Electric from May 1990 to December 1991.
Dianna L. Green 49 Senior Vice President - Customer Operations since
April 1995. Senior Vice President - Administration
from February 1995 to April 1995. Vice President -
Administrative Services from August 1988 to
February 1995.
Roger D. Beck 59 Vice President - Customer Services since April 1995.
Vice President - Marketing and Customer Services
from August 1986 to April 1995.
Gary R. Brandenberger 58 Vice President - Power Supply since August 1986.
William J. DeLeo 45 Vice President - Marketing and Corporate Performance
since April 1995. Vice President - Corporate
Performance and Information Services from
January 1991 to April 1995.
Victor A. Roque 49 Vice President since April 1995 and General Counsel since
November 1994. Previously Vice President, General
Counsel and Secretary for Orange and Rockland
Utilities from April 1989 to November 1994.
Donald J. Clayton 41 Treasurer since January 1995. Assistant Treasurer from
May 1990 to January 1995 and Manager, Valuation and
Property Records, from August 1985 to May 1990.
Morgan K. O'Brien 35 Controller and Principal Accounting Officer since October
1995. Assistant Controller from December 1993 to
October 1995. Manager, Corporate Taxes, from
September 1991 to December 1993. Previously
Assistant Vice President - Corporate Taxes at PNC
Financial Corporation from 1990 to September 1991.
19
ITEM 2. PROPERTIES.
Duquesne's properties consist of electric generating stations, transmission
and distribution facilities, and supplemental properties and appurtenances,
comprising as a whole an integrated electric utility system, located
substantially in Allegheny and Beaver counties in southwestern Pennsylvania.
Duquesne owns all or a portion of the following generating units except
Beaver Valley Unit 2, which is leased.
Duquesne's
Share of Net Plant Output
Capacity Year Ended
(Megawatts) December 31, 1995
Name and Location Type Summer Winter (Megawatt-hours)
- ----------------- ---- ------ ------ -------------------
Cheswick Coal
Springdale, Pa. 562 570 3,431,410
Ft. Martin Unit 1 (1) Coal
Maidsville, W. Va. 276 276 1,054,790
Elrama Coal
Elrama, Pa. 474 487 2,411,635
Sammis Unit 7 (1) Coal
Stratton, Ohio 187 187 1,008,249
Eastlake Unit 5 (1) Coal
Eastlake, Ohio 186 186 896,065
Beaver Valley Unit 1 (1) Nuclear
Shippingport, Pa. 385 385 2,598,215
Beaver Valley Unit 2 (1) Nuclear
Shippingport, Pa. 113 113 856,249
Perry Unit 1 (1) Nuclear
North Perry, Ohio 161 164 1,255,429
Bruce Mansfield Unit 1 (1) Coal
Shippingport, Pa. 228 228 1,047,989
Bruce Mansfield Unit 2 (1) Coal
Shippingport, Pa. 62 62 168,360
Bruce Mansfield Unit 3 (1) Coal
Shippingport, Pa. 110 110 310,341
Brunot Island Oil
Brunot Island, Pa. 54 66 (858)
----- ----- ----------
Total 2,798 2,834 15,037,874
----------
Property held for future use:
Brunot Island Oil 204 240
Phillips Coal 300 310
----- -----
Total 3,302 3,384
----- -----
(1) Amounts represent Duquesne's share of the unit which is owned by Duquesne
in common with one or more other electric utilities (or, in the case of
Beaver Valley Unit 2, leased by Duquesne).
Duquesne owns 25 transmission substations (including interests in common in
the step-up transformers at Fort Martin Unit 1; Sammis Unit 7; Eastlake Unit 5;
Bruce Mansfield Unit 1; Beaver Valley Unit 1; Beaver Valley Unit 2; Perry Unit
1; Bruce Mansfield Unit 2; and Bruce Mansfield Unit 3) and 562 distribution
substations. Duquesne has 714 circuit-miles of transmission lines, comprising
345,000, 138,000 and 69,000 volt lines. Street lighting and distribution
circuits of 23,000 volts and less include approximately 50,000 miles of lines
and cable.
20
Duquesne owns the Warwick Mine, including 4,849 acres owned in fee of
unmined coal lands and mining rights, located on the Monongahela River in Greene
County, Pennsylvania, approximately 83 river miles from Pittsburgh. (See Item
1. BUSINESS. "Fossil Fuel" discussion on page 11.)
Duquesne's 1947 mortgage bond indenture was retired in the third quarter of
1995 following the maturity of the last bond series issued under the indenture.
All First Collateral Trust Bonds have been issued under a new mortgage indenture
that was established in April 1992 (the 1992 Indenture). The 1992 Indenture
includes more flexible provisions and eliminates conventions such as mandatory
sinking funds and formula-derived maintenance and replacement clauses.
Additional information relating to Item 2. PROPERTIES, is set forth in Note
B, "Property, Plant and Equipment," of the consolidated financial statements for
year ended December 31, 1995, on page 46. The information is incorporated here
by reference.
ITEM 3. LEGAL PROCEEDINGS.
Rate-Related Legal Proceedings, Property, Plant and Equipment-Related Legal
Proceedings and Environmental Legal Proceedings
- ---------------------------------------------------------------------------
Eastlake Unit 5
In October 1995, CEI commenced an action (Action) in the Common Pleas Court
of Lake County, Ohio, seeking to enjoin Duquesne from seeking a partition of the
Unit, through arbitration or otherwise, on the basis of a waiver of partition
contained in the deed to the Unit. It is Duquesne's position that the deed
covenant is unenforceable by CEI due to CEI's bad faith conduct toward Duquesne.
Duquesne removed the Action to the United States District Court for the Northern
District of Ohio, where it is now pending, and then, brought a motion requesting
that all claims in dispute between the parties (including its arbitration
claims) be heard by the Court or, alternatively, that the Court stay the Action
and compel arbitration of all claims and filed an answer and counterclaims.
This motion and nine other motions are pending before the Court. Until order of
the federal court is issued on this issue, both the arbitration and the federal
litigation are proceeding.
Proceedings involving Duquesne's rates are reported in Item 1. BUSINESS
"Rate Matters." Proceedings involving Property, Plant and Equipment are
reported in Item 1. BUSINESS "Property, Plant and Equipment." Proceedings
involving environmental matters are reported in Item 1. BUSINESS "Environmental
Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHARE-HOLDER MATTERS.
Duquesne's common stock is not publicly traded. Effective July 7, 1989,
Duquesne became a wholly owned subsidiary of DQE, the holding company formed as
part of a shareholder-approved restructuring. As a result of the restructuring,
Duquesne's shareholders received DQE common stock in exchange for their shares
of Duquesne common stock, which were cancelled. DQE owns all of Duquesne's
outstanding common stock, which consists of 10 shares. As such, this item is
not applicable to Duquesne because all its common equity is held solely by DQE.
During 1995 and 1994, Duquesne declared quarterly dividends on its common stock
totaling $144 million each year.
21
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data for Duquesne for each year of the six-year period
ended December 31, 1995, are set forth on page 63. The financial data is
incorporated here by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDI-
TION AND RESULTS OF OPERATIONS.
Management's discussion and analysis of financial condition and results of
operations are set forth in Item 1. BUSINESS. The discussion and analysis are
incorporated here by reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.
The Consolidated Balance Sheet of Duquesne Light Company and its Subsidiary
as of December 31, 1995 and 1994, and the related Statements of Consolidated
Income, Retained Earnings and Cash Flows for each of the three years in the
period ended December 31, 1995, together with the Independent Auditors' Report
dated January 30, 1996, are set forth in pages 38 to 62 of this Report. The
consolidated financial statements and report are incorporated here by reference.
Quarterly financial information is included on page 62 in Note O to Duquesne's
consolidated financial statements and is incorporated here by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
All directors of DQE are also directors of Duquesne. Information relating
to DQE's and Duquesne's board of directors is set forth on page 20 of the 1995
DQE Annual Report to Shareholders filed here as part of this Report in Exhibit
99.2. The information is incorporated here by reference. Information relating
to the executive officers of the Registrant is set forth in Part I of this
Report under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
The information relating to executive compensation is set forth in Exhibit
99.1, filed as part of this Report. The information is incorporated here by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
DQE is the beneficial owner and holder of all shares of outstanding Common
Stock, $1 par value, of Duquesne Light, consisting of 10 shares as of February
21, 1996. Information relating to the ownership of equity securities of DQE and
Duquesne Light by directors and executive officers of Duquesne Light is set
forth in Exhibit 99.1, filed as part of this Report. The information is
incorporated here by reference.
22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
(a)(1) The following information is set forth here on pages 38 through 62:
Report of Independent Certified Public Accountants.
Statement of Consolidated Income for the Three Years Ended December
31, 1995.
Consolidated Balance Sheet, December 31, 1995 and 1994.
Statement of Consolidated Cash Flows for the Three Years Ended
December 31, 1995.
Statement of Consolidated Retained Earnings for the Three Years
Ended December 31, 1995.
Notes to Consolidated Financial Statements.
(a)(2) The following financial statement schedule and the related Report of
Independent Certified Public Accountants (See page 38.) are filed here as a part
of this Report:
Schedule for the Three Years Ended December 31, 1995:
II- Valuation and Qualifying Accounts.
The remaining schedules are omitted because of the absence of the
conditions under which they are required or because the information called for
is shown in the financial statements or notes to the financial statements.
(a)(3) Exhibits are set forth in the Exhibit List on pages 24 through 34
and incorporated here by reference. Documents other than those designated as
being filed here are incorporated here by reference. Previously filed documents
incorporated by reference to a DQE Annual Report on Form 10-K, a Quarterly
Report on Form 10-Q or a Current Report on Form 8-K are at Securities and
Exchange Commission File No. 1-10290. Documents incorporated by reference to a
Duquesne Light Company Annual Report on Form 10-K, Quarterly Report on Form 10-Q
or a Current Report on Form 8-K are at Securities and Exchange Commission File
No. 1-956. The Exhibits include the management contracts and compensatory plans
or arrangements required to be filed as exhibits to this Form 10-K by Item
601(d)(10)(iii), of Regulation S-K.
(b) Reports on Form 8-K filed during the twelve months ended December 31,
1995:
(1) May 22, 1995 - The following event was reported:
Item 5. Federal Energy Regulatory Commission responded favorably
to Section 211 applications filed by Duquesne Light
Company for transmission service from the Pennsylvania-New
Jersey-Maryland Power Pool and Allegheny Power System by
issuing proposed orders requiring the provision of firm
transmission service at comparable prices.
No financial statements were filed with this report.
23
(2) December 4, 1995 - The following event was reported:
Item 5. On November 29, 1995, Duquesne Light Company announced it
will seek approval from the Pennsylvania Public Utility
Commission for a five-year freeze on base rates, the sale of
Duquesne's interest in the Fort Martin Power Station, the
accelerated depreciation of Duquesne's investment in its
nuclear power plants and the return to service of three units
at the Brunot Island Power Station. In addition, Duquesne
reiterated its proposal for the inclusion of all Pennsylvania
electric utilities in a region wide independent transmission
organization, and reaffirmed its commitment to the highest
levels of guaranteed customer service.
No financial statements were filed with this report.
EXHIBITS INDEX
Exhibit Method of
No. Description Filing
- -------- ------------------------------------------------------ ----------------------------
3.1 Restated Articles of Duquesne Light Company, as Exhibit 3.1 to the Form 10-K
amended through December 19, 1991 and as currently Annual Report of Duquesne
in effect. Light Company for the year
ended December 31, 1991.
3.2 By-Laws of Duquesne Light Company, as amended Exhibit 3.2 to the Form 10-K
through December 19, 1991 and as currently in effect. Annual Report of Duquesne
Light Company for the year
ended December 31, 1991.
4.1 Indenture dated March 1, 1960, relating to Duquesne Exhibit 4.3 to the Form 10-K
Light Company's 5% Sinking Fund Debentures. Annual Report of DQE for the
year ended December 31, 1989.
4.2 Indenture dated as of November 1, 1989 relating to the Exhibit 4.4 to the Form 10-K
issuance of Duquesne Light Company's unsecured Annual Report of DQE for the
notes. year ended December 31, 1989.
4.3 Indenture of Mortgage and Deed of Trust dated as of Exhibit 4.3 to Registration
April 1, 1992, securing Duquesne Light Company's Statement (Form S-3)
First Collateral Trust Bonds. No. 33-52782.
4.4 Supplemental Indentures supplementing the said
Indenture of Mortgage and Deed of Trust -
Supplemental Indenture No. 1. Exhibit 4.4 to Registration
Statement (Form S-3)
No. 33-52782.
Supplemental Indenture No. 2 through Supplemental Exhibit 4.4 to Registration
Indenture No. 4. Statement (Form S-3)
No. 33-63602.
Supplemental Indenture No. 5 through Supplemental Exhibit 4.6 to the Form 10-K
Indenture No. 7. Annual Report of Duquesne Light
Company for the year ended
December 31, 1993.
24
Exhibit Method of
No. Description Filing
- ------- ------------------------------------------------- -------------------------------
Supplemental Indenture No. 8 and Supplemental Exhibit 4.6 to the Form 10-K
Indenture No. 9. Annual Report of Duquesne Light
Company for the year ended
December 31, 1994.
Supplemental Indenture No. 10 through Supplemental Filed here.
Indenture No. 12.
Agreements relating to Jointly Owned Generating Units:
10.1 Administration Agreement dated as of September 14, Exhibit 5.8 to Registration
1967. Statement (Form S-7)
No. 2-43106.
10.2 Transmission Facilities Agreement dated as of September Exhibit 5.9 to Registration
14, 1967. Statement (Form S-7)
No. 2-43106.
10.3 Operating Agreement dated as of September 21, 1972 Exhibit 5.1 to Registration
for Eastlake Unit No. 5. Statement (Form S-7)
No. 2-48164.
10.4 Memorandum of Agreement dated as of July 1, 1982 re Exhibit 10.14 to the Form 10-K
reallocation of rights and liabilities of the companies Annual Report of Duquesne
under uranium supply contracts. Light Company for the year
ended December 31, 1987.
10.5 Operating Agreement dated August 5, 1982 as of Exhibit 10.17 to the Form 10-K
September 1, 1971 for Sammis Unit No. 7. Annual Report of Duquesne
Light Company for the year
ended December 31, 1988.
10.6 Memorandum of Understanding dated as of March 31, Exhibit 10.19 to the Form 10-K
1985 re implementation of company-by-company Annual Report of DQE for the
management of uranium inventory and delivery. year ended December 31, 1989.
10.7 Restated Operating Agreement for Beaver Valley Unit Exhibit 10.23 to the Form 10-K
Nos. 1 and 2 dated September 15, 1987. Annual Report of Duquesne
Light Company for the year
ended December 31, 1987.
10.8 Operating Agreement for Perry Unit No. 1 dated Exhibit 10.24 to the Form 10-K
March 10, 1987. Annual Report of Duquesne
Light Company for the year
ended December 31, 1987.
10.9 Operating Agreement for Bruce Mansfield Units Nos. 1, Exhibit 10.25 to the Form 10-K
2 and 3 dated September 15, 1987 as of June 1, 1976. Annual Report of Duquesne Light
Company for the year ended
ended December 31, 1987.
25
Exhibit Method of
No. Description Filing
- ------- ------------------------------------------------- -------------------------------
10.10 Basic Operating Agreement, as amended January 1, Exhibit 10.10 to the Form 10-K
1993. Annual Report of Duquesne Light
Company for the year ended
December 31, 1993.
10.11 Amendment No. 1 dated December 23, 1993 to Exhibit 10.11 to the Form 10-K
Transmission Facilities Agreement (as of January 1, Annual Report of Duquesne Light
1993). Company for the year ended
December 31, 1993.
10.12 Microwave Sharing Agreement (as amended Exhibit 10.12 to the Form 10-K
January 1, 1993) dated December 23, 1993. Annual Report of Duquesne Light
Company for the year ended
December 31, 1993.
10.13 Agreement (as of September 1, 1980) dated Exhibit 10.13 to the Form 10-K
December 23, 1993 for termination or construction Annual Report of Duquesne Light
of certain agreements. Company for the year ended
December 31, 1993.
10.14 Fort Martin Construction and Operating Agreement Exhibit 10.14 to the Form 10-K
dated April 30, 1965. Annual Report of Duquesne Light
Company for the year ended
December 31, 1993.
10.15 Fort Martin Transmission Agreement dated Exhibit 10.15 to the Form 10-K
March 15, 1967. Annual Report of Duquesne Light
Company for the year ended
December 31, 1993.
10.16 Amendment of January 1, 1988 to Fort Martin Exhibit 10.16 to the Form 10-K
Transmission Agreement. Annual Report of Duquesne Light
Company for the year ended
December 31, 1993.
10.17 Fort Martin Power Station Asset Purchase Agreement Filed here.
dated as of November 28, 1995.
Agreements relating to the Sale and Leaseback
of Beaver Valley Unit No. 2:
10.18 Order of the Pennsylvania Public Utility Commission Exhibit 28.2 to the Form 10-Q
dated September 25, 1987 regarding the application Quarterly Report of Duquesne
of the Duquesne Light Company under Section 1102(a)(3) Light Company for the quarter
of the Public Utility Code for approval in connection with ended September 30, 1987.
the sale and leaseback of its interest in Beaver Valley Unit
No. 2.
26
Exhibit Method of
No. Description Filing
- ------- ------------------------------------------------- -------------------------------
10.19 Order of the Pennsylvania Public Utility Commission Exhibit 10.28 to the Form 10-K
dated October 15, 1992 regarding the Securities Annual Report of Duquesne
Certificate of Duquesne Light Company for the Light Company for the year
assumption of contingent obligations under ended December 31, 1992.
financing agreements in connection with the
refunding of Collateralized Lease Bonds.
x10.20 Facility Lease dated as of September 15, 1987 between Exhibit (4)(c) to Registration
The First National Bank of Boston, as Owner Trustee Statement (Form S-3)
under a Trust Agreement dated as of September 15, 1987 No. 33-18144.
with the limited partnership Owner Participant named
therein, Lessor, and Duquesne Light Company, Lessee.
y10.21 Facility Lease dated as of September 15, 1987 between Exhibit (4)(d) to Registration
The First National Bank of Boston, as Owner Trustee Statement (Form S-3)
under a Trust Agreement dated as of September 15, No. 33-18144.
1987, with the corporate Owner Participant named
therein, Lessor, and Duquesne Light Company, Lessee.
x10.22 Amendment No. 1 dated as of December 1, 1987 to Exhibit 10.30 to the Form 10-K
Facility Lease dated as of September 15, 1987 between Annual Report of Duquesne
The First National Bank of Boston, as Owner Trustee Light Company for the year
under a Trust Agreement dated as of September 15, ended December 31, 1987.
1987 with the limited partnership Owner Participant
named therein, Lessor, and Duquesne Light Company,
Lessee.
y10.23 Amendment No. 1 dated as of December 1, 1987 to Exhibit 10.31 to the Form 10-K
Facility Lease dated as of September 15, 1987 between Annual Report of Duquesne
The First National Bank of Boston, as Owner Trustee Light Company for the year
under a Trust Agreement dated as of September 15, ended December 31, 1987.
1987 with the corporate Owner Participant named
therein, Lessor, and Duquesne Light Company, Lessee.
x10.24 Amendment No. 2 dated as of November 15, 1992 to Exhibit 10.33 to the Form 10-K
Facility Lease dated as of September 15, 1987 between Annual Report of Duquesne
The First National Bank of Boston, as Owner Trustee Light Company for the year
under a Trust Agreement dated as of September 15, ended December 31, 1992.
1987 with the limited partnership Owner Participant
named therein, Lessor, and Duquesne Light Company,
Lessee.
y10.25 Amendment No. 2 dated as of November 15, 1992 to Exhibit 10.34 to the Form 10-K
Facility Lease dated as of September 15, 1987 between Annual Report of Duquesne
The First Nation