<PAGE>
[CONFORMED]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER
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1-956
DUQUESNE LIGHT COMPANY
----------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 25-0451600
------------ ---------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
ONE OXFORD CENTRE, 301 GRANT STREET
PITTSBURGH, PENNSYLVANIA 15279
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANTS 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 (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORT), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
---- ----
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK AS OF THE LATEST PRACTICABLE DATE:
DQE IS THE HOLDER OF ALL SHARES OF COMMON STOCK, $1 PAR VALUE, OF DUQUESNE LIGHT
COMPANY CONSISTING OF 10 SHARES AS OF JUNE 30, 1995 AND JULY 31, 1995.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DUQUESNE LIGHT COMPANY
CONDENSED STATEMENT OF CONSOLIDATED INCOME
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating Revenues:
Sales of Electricity:
Customers $255,321 $271,864 $522,577 $570,511
Phase-in deferrals - (3,990) - (28,810)
Utilities 12,027 8,660 24,516 23,385
-------- -------- -------- --------
Total Sales of Electricity 267,348 276,534 547,093 565,086
Other 9,892 7,243 19,479 14,559
-------- -------- -------- --------
Total Operating Revenues 277,240 283,777 566,572 579,645
-------- -------- -------- --------
Operating Expenses:
Fuel and purchased power 52,825 59,915 107,925 121,583
Other operating 68,184 72,973 134,535 139,220
Maintenance 21,029 21,356 39,859 37,611
Depreciation and amortization 45,694 38,736 90,515 78,326
Taxes other than income taxes 20,384 20,827 41,707 42,761
Income taxes 13,419 15,597 38,784 45,426
-------- -------- -------- --------
Total Operating Expenses 221,535 229,404 453,325 464,927
-------- -------- -------- --------
OPERATING INCOME 55,705 54,373 113,247 114,718
-------- -------- -------- --------
Other Income and (Deductions):
Allowance for equity funds used during
construction 145 336 357 795
Interest and dividend income 2,014 1,506 4,108 2,845
Income taxes (726) 745 (1,008) 1,712
Other - net (207) (1,259) (1,540) (4,076)
-------- -------- -------- --------
Total Other Income and
(Deductions) 1,226 1,328 1,917 1,276
-------- -------- -------- --------
INCOME BEFORE INTEREST CHARGES 56,931 55,701 115,164 115,994
-------- -------- -------- --------
Interest Charges:
Interest on long-term debt and other
interest 24,626 25,423 49,686 50,602
Allowance for borrowed funds used
during construction (136) (278) (334) (656)
-------- -------- -------- --------
Total Interest Charges 24,490 25,145 49,352 49,946
-------- -------- -------- --------
NET INCOME 32,441 30,556 65,812 66,048
DIVIDENDS ON PREFERRED AND
PREFERENCE STOCK 1,483 1,486 2,968 3,083
-------- -------- -------- --------
EARNINGS FOR COMMON STOCK $ 30,958 $ 29,070 $ 62,844 $ 62,965
-------- -------- -------- --------
</TABLE>
See notes to condensed consolidated financial statements.
2
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DUQUESNE LIGHT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------ -------------
<S> <C> <C>
ASSETS:
Property, Plant and Equipment $ 4,604,470 $ 4,618,966
Less Accumulated Depreciation and
Amortization (1,588,700) (1,550,447)
----------- -----------
Property, Plant and Equipment - Net 3,015,770 3,068,519
----------- -----------
Other Property and Investments 88,655 74,269
----------- -----------
Current Assets:
Cash and temporary cash investments 23,014 15,904
Receivables 96,133 132,315
Other current assets, principally
material and supplies 110,148 104,541
----------- -----------
Total Current Assets 229,295 252,760
----------- -----------
Other Non-Current Assets:
Extraordinary property loss 15,636 22,394
Unamortized debt costs 101,216 103,454
Beaver Valley Unit 2 sale/leaseback
premium 32,316 33,414
Deferred rate synchronization costs 51,149 51,149
Regulatory tax receivable 421,287 428,043
Other regulatory assets 79,052 72,309
Other non-current 39,016 43,556
----------- -----------
Total Other Non-Current Assets 739,672 754,319
----------- -----------
TOTAL ASSETS $ 4,073,392 $ 4,149,867
----------- -----------
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock - $1 par value (shares -
90,000,000 authorized; 10 issued) $ - $ -
Capital surplus 824,437 824,764
Net unrealized holding gain (loss) on
investments 3,532 (1,571)
Retained earnings 292,163 292,319
----------- -----------
Total Common Stockholders Equity 1,120,132 1,115,512
----------- -----------
Non-redeemable preferred stock 90,229 90,340
Non-redeemable preference stock, Plan
Series A 29,766 29,857
----------- -----------
Total preferred and preference
stock before deferred ESOP benefit
(involuntary liquidation values of
$119,857 and $120,060, exceed par by
$43,738 and $43,882, respectively) 119,995 120,197
Deferred employee stock ownership
plan (ESOP) benefit (23,474) (24,852)
----------- -----------
Total Preferred and Preference Stock 96,521 95,345
----------- -----------
Long-term debt 1,319,313 1,368,930
----------- -----------
Total Capitalization 2,535,966 2,579,787
----------- -----------
Obligations Under Capital Leases 33,166 41,106
----------- -----------
Current Liabilities:
Current maturities and sinking fund
requirements 86,487 85,691
Accounts payable 80,464 88,585
Accrued liabilities 47,257 58,826
Other current liabilities 35,381 35,469
----------- -----------
Total Current Liabilities 249,589 268,571
----------- -----------
Deferred investment tax credits 119,610 123,591
----------- -----------
Deferred income taxes - net 972,534 991,149
----------- -----------
Other 162,527 145,663
----------- -----------
Commitments and contingencies (Note 4)
----------- -----------
TOTAL CAPITALIZATION AND
LIABILITIES $ 4,073,392 $ 4,149,867
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
3
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DUQUESNE LIGHT COMPANY
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1995 1994
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Operations $ 157,633 $ 164,132
Changes in working capital 10,797 (16,353)
Other - net 5,920 28,436
--------- ---------
Net Cash Provided from Operating
Activities 174,350 176,215
--------- ---------
Cash Flows Used by Investing Activities:
Capital expenditures (32,454) (46,039)
Long-term investments (1,430) -
Allowance for borrowed funds used
during construction (334) (656)
Other - net (1,968) 5,343
--------- ---------
Net Cash Used by Investing
Activities (36,186) (41,352)
--------- ---------
Cash Flows Used in Financing Activities:
Dividends on capital stock (66,216) (67,591)
Reductions of long-term obligations (60,738) (55,944)
Reductions in notes payable - (8,691)
Other - net (4,100) (480)
--------- ---------
Net Cash Used in Financing
Activities (131,054) (132,706)
--------- ---------
Net increase in cash and temporary cash
investments 7,110 2,157
Cash and temporary cash investments at
beginning of period 15,904 -
--------- ---------
Cash and temporary cash investments at
end of period $ 23,014 $ 2,157
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
4
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. CONSOLIDATION, RECLASSIFICATIONS AND ACCOUNTING POLICIES
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.
The condensed consolidated financial statements include the accounts of Duquesne
and its wholly owned subsidiary. All material intercompany balances and
transactions have been eliminated in the preparation of the condensed
consolidated financial statements.
In the opinion of management, the unaudited condensed consolidated financial
statements included in this report reflect all adjustments that are necessary
for a fair presentation of the results of interim periods, and are normal,
recurring adjustments. Prior period financial statements were reclassified to
conform with the 1995 presentation.
These statements should be read with the financial statements and notes included
in the Form 10-K filed with the Securities and Exchange Commission for the year
ended December 31, 1994. The results of operations for the three and six months
ended June 30, 1995 are not necessarily indicative of the results which may be
expected for the full year.
Depreciation and amortization expense increased due to an increase in Duquesne's
composite depreciation rate from 3.0 percent to 3.5 percent effective January 1,
1995. The effect of the change in the depreciation rate on operating income was
$9.9 million and $5.8 million for the six months ended June 30, 1995 and three
months ended March 31, 1995, respectively.
Duquesne's other property and investments include certain investments in
marketable securities. In accordance with Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities, these investments are classified as available-for-sale and are
stated at market value. The amount of unrealized holding gain (loss) on
investments at June 30, 1995, and December 31, 1994, are $6.0 million and $(2.8)
million, respectively. Reduced for deferred income taxes, net unrealized
holding gain (loss) on investments are $3.5 million and $(1.6) million at June
30, 1995, and December 31, 1994, respectively.
5
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2. RECEIVABLES
Components of Receivables for the periods indicated are as follows:
<TABLE>
<CAPTION>
Amounts in Thousands of Dollars
----------------------------------------------
June 30, June 30, December 31,
1995 1994 1994
-------- -------- ------------
<S> <C> <C> <C>
Electric customer accounts receivable $ 93,453 $103,868 $ 96,157
Other accounts receivable 45,141 39,998 51,179
Less: Allowance for uncollectible
accounts (16,461) (14,955) (15,021)
-------- -------- --------
Receivables less allowance for uncollectible
accounts 122,133 128,911 132,315
Less: Receivables sold (26,000) (50,000) -
-------- -------- --------
Total Receivables $ 96,133 $ 78,911 $132,315
-------- -------- --------
</TABLE>
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. Duquesne had $26.0 million of receivables sold
at June 30, 1995. The accounts receivable sales agreement, which expires in
June 1996, is one of many sources of funds available to Duquesne.
3. RATE MATTERS
Electric rates charged by Duquesne to its customers are regulated by the
Pennsylvania Public Utility Commission (PUC). Electric rates charged to the
Borough of Pitcairn and to other electric utilities are regulated by the Federal
Energy Regulatory Commission (FERC). These rates are designed to recover
Duquesnes operating expenses, investment in utility assets, and 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.
Regulatory Assets
As a result of the 1987 Rate Case, and the continued application of Statement of
Financial Accounting Standards No. 71, Accounting for the Effects of Certain
Types of Regulation (SFAS No. 71), Duquesne records regulatory assets on its
consolidated balance sheet. The regulatory assets represent probable future
revenue to Duquesne because provisions for these costs are currently included,
or are expected to be included, in charges to utility customers through the
ratemaking process. Management will continue to evaluate significant changes in
the regulatory and competitive environment to assess Duquesne's overall
consistency with the criteria of SFAS No. 71.
Regulatory Tax Receivable
With respect to the financial statement presentation of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, Duquesne reflects the
amortization of the regulatory tax receivable resulting from reversals of
deferred taxes as depreciation and amortization expense. Reversals of deferred
income taxes-net are included in income taxes.
6
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Property Held for Future Use
In 1986, the PUC approved Duquesne's request to remove the Phillips and most of
the Brunot Island (BI) power stations from service and place them in cold
reserve. Duquesne expects to recover its net investment in these plants through
future electricity sales. Phillips and BI represent licensed, certified, clean
sources of electricity that will be necessary to meet expanding opportunities in
the power markets. Duquesne believes that anticipated growth in peak load demand
for electricity within its service territory will require additional peaking
generation. Duquesne looks to BI to meet this need. The Phillips power plant
is an important component in Duquesne's strategy to identify and serve
opportunities for providing bulk power service. With recent legislation
promoting wider transmission access to bulk power markets and with the
opportunity to package a sale of power from Phillips with the support of
Duquesne's system, the Phillips plant could be made a highly reliable, cost-
competitive alternative for most purchasers. In summary, Duquesne believes its
investment in these cold-reserved plants will be necessary in order to meet
future business needs. 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.
At June 30, 1995, Duquesne's net investment in Phillips and BI was $93.2 million
and $42.4 million, respectively.
4. COMMITMENTS AND CONTINGENCIES
Construction
Duquesne estimates that it will spend approximately $81 million on utility
construction during 1995. This amount excludes allowance for funds used during
construction (AFC), nuclear fuel, expenditures for possible early replacement of
steam generators at the Beaver Valley Station (See "Nuclear Litigation"
discussion on page 9.) and expenditures for the refurbishment of the cold-
reserved units.
Nuclear-Related Matters
Duquesne operates two nuclear units and has an ownership interest in a third.
The operation of a nuclear facility involves special risks, potential
liabilities and specific regulatory and safety requirements. Specific
information about risk management and potential liabilities is discussed below.
Nuclear Decommissioning. The PUC ruled that recovery of the decommissioning
costs for Beaver Valley Unit 1 could begin in 1977, and that recovery for Beaver
Valley Unit 2 and Perry Unit 1 could begin in 1988. Duquesne expects to
decommission Beaver Valley Unit 2 and Perry Unit 1 following the end of their
operating lives, a date that currently coincides with the expiration of each
plant's operating license. Upon expiration of the Beaver Valley Unit 1
operating license, the unit will be placed in safe storage until the expiration
of the Beaver Valley Unit 2 operating license, at which time the units may be
decommissioned together.
Based upon site specific studies finalized in 1992 for Beaver Valley Unit 2, and
in 1994 for Beaver Valley Unit 1 and Perry Unit 1, Duquesnes 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 Beaver Valley Unit 1, $35 million for Beaver Valley Unit 2, and $67 million
for Perry Unit 1.
7
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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. Duquesne plans to continue making periodic reevaluations of estimated
decommissioning costs, to provide additional funding from time to time, and to
seek regulatory approval for recognition of these increased funding levels.
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 decommissioning funds are deposited in
external, segregated trust accounts. The funds are invested in a portfolio
consisting of municipal bonds, certificates of deposit, and U.S. government
securities having a weighted average duration of 4 - 7 years. Trust fund
earnings increase the fund balance and the recorded liability. The market value
of the aggregate trust fund balances at June 30, 1995 totaled approximately $25
million. On Duquesne's condensed consolidated balance sheet, the decommissioning
trusts have been reflected in long-term investments, and the related liability
has been recorded as other liabilities.
Nuclear Insurance. All of the companies with an interest in the Beaver Valley
Power Station maintain the maximum available nuclear insurance for the $5.9
billion total investment in Beaver Valley Units 1 and 2. The insurance program
provides $2.8 billion for property damage, decommissioning, and decontamination
liabilities. Similar property insurance is held by the joint owners of the
Perry plant for their $5.5 billion total investment in Perry Unit 1. 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 $10.0 million.
The Price-Anderson Amendments to the Atomic Energy Act 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 upon 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
(typically 3 percent) would 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; coverage includes 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. The amounts of
the coverage are 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. The amount and duration of
actual extra expense could substantially exceed insurance coverage. NEIL also
writes 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 $2.9 million.
8
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Nuclear Litigation. Beaver Valley Unit 1 and Unit 2 are jointly owned/leased
generating units. Duquesne's percentage interests held in Beaver Valley Unit 1
and in Beaver Valley Unit 2 are 47.5 percent and 13.74 percent, respectively.
The remainder of Beaver Valley Unit 1 is owned by Ohio Edison Company and by
Pennsylvania Power Company. The remaining interest in Beaver Valley Unit 2 is
held by Ohio Edison Company, The Cleveland Electric Illuminating Company (CEI)
and The Toledo Edison Company. Duquesne operates both units on behalf of the
joint owners of interests.
In 1991, the aforementioned owners of joint interests in Beaver Valley Unit 1
and Unit 2 filed suit against Westinghouse Electric Corporation (Westinghouse)
in the United States District Court for the Western District of Pennsylvania.
The suit alleges that six steam generators supplied by Westinghouse for the two
units contain serious defects - in particular defects causing tube corrosion and
cracking. To date, twelve additional lawsuits have been brought by other
utility companies around the country against Westinghouse for similar problems
with Westinghouse steam generators.
The condition of the Beaver Valley Unit 1 and Unit 2 steam generators is being
monitored closely. Duquesne's steam generator maintenance costs have increased
as a result of these defects and are likely to continue increasing. Replacement
of the Beaver Valley Unit 1 steam generator defective components may occur as
early as 1999. Based on the experience of other utilities with similar units
that have replaced steam generators, replacement cost per unit is estimated to
be approximately $125 million.
A jury trial began September 12, 1994, in Federal District Court in Western
Pennsylvania. Pennsylvania Power Company, Ohio Edison Company, CEI, Toledo
Edison Company and Duquesne were joined in the litigation against Westinghouse.
On October 24, 1994, the Court dismissed four of the five claims against
Westinghouse, leaving only the fraud claim. On December 6, 1994, the jury
rendered a verdict in favor of Westinghouse on the fraud count. On January 5,
1995, the owners of joint interests in the Beaver Valley plants appealed the
decision to the United States Court of Appeals for the Third Circuit. Oral
argument is scheduled for August 25, 1995. Duquesne cannot predict the final
outcome of this litigation; however, Duquesne does not believe that resolution
will have a materially adverse effect on Duquesne's financial position or
results of operations.
Spent Nuclear Fuel Disposal. Under the Nuclear Waste Policy Act of 1982, which
establishes a policy for handling and disposing of spent nuclear fuel and
requires the establishment of a final repository to accept spent fuel, contracts
for nuclear plants have been entered into with the Department of Energy (DOE)
for permanent disposal of spent nuclear fuel and high-level radioactive waste.
The DOE has indicated that the repository will not be available for acceptance
of spent fuel before 2011. Existing on-site spent fuel storage capacities at
Beaver Valley Unit 1, Beaver Valley Unit 2 and Perry are expected to be
sufficient until 2017, 2011, and 2009, respectively.
Uranium Enrichment Decontamination and Decommissioning Fund. Nuclear reactor
licensees in the United States are assessed annually for the decontamination and
decommissioning of DOE 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 (energy act) and are to be paid by such
utilities over a 15-year period. At June 30, 1995, Duquesne's liability for
contributions is approximately $9.9 million. Contributions, when made, are
recovered through the Energy Cost Rate Adjustment Clause (ECR).
9
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Guarantees
Duquesne and the other co-owners have guaranteed certain debt and lease
obligations related to a coal supply contract for the Bruce Mansfield plant. At
June 30, 1995, Duquesne's share of these guarantees was $26.1 million. The
prices paid for the coal by the companies under this contract are expected to be
sufficient to meet debt and lease obligations to be satisfied by January 1,
2000. The minimum future payments to be made by Duquesne solely in relation to
these obligations are $29.4 million at June 30, 1995.
Residual Waste Management Regulations
In 1992, the Pennsylvania Department of Environmental Protection (DEP) issued
Residual Waste Management Regulations governing the generation and management of
non-hazardous waste. Duquesne is currently conducting tests and developing
compliance strategies. Capital compliance costs are estimated, on the basis of
information currently available, at approximately $5 million in 1995. The
expected additional capital cost of compliance through 2000 is estimated, based
on current information, to be approximately $25 million; this estimate is
subject to the results of continuing ground water assessments and DEP final
approval of compliance plans.
Other
Duquesne is involved in various other legal proceedings and environmental
matters. Duquesne believes that such proceedings and matters, in total, will not
have a materially adverse effect on its financial position or results of
operations.
______________________________
10
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Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
General
------------------------------------------------------------------------------
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.
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. 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). Duquesne is also subject to regulation by the Federal
Energy Regulatory Commission (FERC) under the Federal Power Act in respect of
rates for interstate sales, transmission of electric power, accounting and other
matters.
Duquesne's nuclear facility operations are 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, Beaver Valley Unit 2 and Perry Unit 1.
Duquesne is subject to the accounting and reporting requirements of the
Securities and Exchange Commission. As a result, the consolidated financial
statements contain 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 financial
statements reflect regulatory assets and costs 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 utility customers through the ratemaking
process.
Duquesne's operations currently satisfy the SFAS No. 71 criteria. However,
Duquesne's operations or a portion of such operations could cease to meet these
criteria for various reasons including a change in PUC or FERC regulations.
Should Duquesne cease to meet the SFAS No. 71 criteria, it would be required to
write-off any regulatory assets or liabilities for those operations that no
longer meet these requirements.
11
<PAGE>
Results of Operations
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Seasonality
The quarterly results are not necessarily indicative of full-year operations
because of seasonal fluctuations. Sales of electricity to ultimate customers by
Duquesne's utility operations tend to increase during the warmer summer and
cooler winter seasons because of greater customer use of electricity for cooling
and heating.
Operating Revenues
Total operating revenues declined $6.5 million during the second quarter of 1995
as compared to the second quarter of 1994 due to lower sales of electricity.
The milder 1995 weather resulted in a 4.6 percent reduction in sales of
electricity to residential customers. Second quarter sales of electricity to
commercial and industrial customers decreased 4.9% compared to the second
quarter of 1994. Second quarter sales of electricity to other utilities
increased 38.9 percent in 1995 when compared to 1994 because the nuclear
generating station outages in the second quarter of 1994 reduced generating
capacity available for sale during the three months ended June 30, 1994.
Second quarter other operating revenues increased $2.6 million when compared to
the second quarter of 1994 primarily due to an increase in billings by Duquesne
to the other joint owners of the Beaver Valley Unit 2 Power Station. The higher
billings reflect the other joint owners share of costs associated with the 1995
scheduled refueling outage at the unit.
Operating Expenses
Current quarter fuel and purchased power expense decreased $7.1 million when
compared to the second quarter of 1994 due to a more favorable generation mix
and lower purchased power costs. The advantageous generation mix and reduced
purchased power costs were consistent with greater nuclear power station
availability during the second quarter of 1995.
Second quarter other operating expense declined $4.8 million when compared to
the prior year due to reduced maintenance outage costs at Perry Unit 1 Power
Station.
Depreciation and amortization expense for the second quarter increased due to an
increase in Duquesne's composite depreciation rate from 3.0 percent to 3.5
percent effective January 1, 1995. The effect of the change in the depreciation
rate on second quarter operating income was $4.1 million.
Income taxes decreased compared to the second quarter of 1994 because of lower
taxable income and a one percent decrease in the Pennsylvania Corporate Net
Income tax rate.
Liquidity and Capital Resources
------------------------------------------------------------------------------
Financing
Duquesne plans to meet its current obligations and debt maturities through 1998
with funds generated from operations and through new financings. At June 30,
1995, Duquesne was in compliance with all of its debt covenants.
12
<PAGE>
On September 1, 1995, Duquesne will redeem all of its outstanding shares of
$7.20 preferred stock for $30.3 million.
Outlook
------------------------------------------------------------------------------
Competition
Regulatory developments in the electric utility industry are placing increasing
competitive pressures on electric utilities. The electric utility industry is
expected to continue to undergo significant changes for the remainder of the
decade. These changes most likely will include increasing competition in the
generation and sale of electricity, increasing energy flows resulting from open
transmission access and non-regulated generation and transmission projects
outside the traditional service areas. Duquesne, like the industry in general,
is continuing to assess the impact of these competitive forces on its future
operations.
The National Energy Policy Act of 1992 (energy act) was designed, among other
things, to foster competition. Among other provisions, the energy act amended
the Public Utility Holding Company Act of 1935 (1935 act) and the Federal Power
Act.
Amendments to the Federal Power Act created the potential for utilities and
other power producers to gain increased access to transmission systems of other
utilities in order to facilitate sales to other utilities. The amendments permit
the FERC to order utilities to transmit power over their lines for use by other
suppliers and to enlarge or construct additional transmission capacity to
provide these services. Duquesne is currently pursuing expanded transmission
access under these amendments. (See discussion in "Transmission Access" on page
14.)
The PUC is currently conducting an investigation into electric power
competition. Duquesne has been advocating increased transmission access to the
wholesale power market as the necessary first step toward enabling our customers
to benefit from competition.
Emerging competition, federal deregulation of wholesale energy sales, and
prospective retail access initiatives require Duquesne to reexamine its approach
to doing business. Growth in energy sales, competitive rate pressures, and
Duquesne's commitment to provide reliable, quality service to its customers
influence short- and long-term corporate goals. Duquesne's current business plan
recognizes the need to encourage economic growth and stability in the service
territory and surrounding region. Duquesne's efforts continue to focus on
achievement of business growth through the application of marketing and economic
development programs to achieve energy-efficient growth in its sales of utility
services. Duquesne's rates for energy intensive industrial and commercial
customers are competitively priced and its rate structure allows some
flexibility in setting rates to attract new business. In addition, Duquesne
sponsors programs to help customers manage their electricity consumption and
control their costs.
Although management believes Duquesne's system is well positioned, as a clean,
low cost producer of electricity, to compete both within and outside of its
service territory, efforts continue to further reduce costs and increase
effectiveness and productivity. Management will aggressively address these
factors to position Duquesne to overcome the challenges they may create and take
advantage of the opportunities increased competition will bring.
13
<PAGE>
Transmission Access
In March 1994, Duquesne submitted, pursuant to the Federal Power Act, separate
"good faith" requests for transmission service with the Allegheny Power System
(APS) and Pennsylvania-New Jersey-Maryland Interconnection Association (PJM
Companies), respectively. Each request is based on 20-year firm service with
flexible delivery points for 300 megawatts of transfer capability over the APS
and PJM transmission networks which 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. On
May 16, 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. Rehearing may be sought only
after the FERC issues final orders. Duquesne cannot predict the final outcome of
these proceedings.
______________________________
14
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits:
EXHIBIT 12.1 - Calculation of Ratio of Earnings to Fixed Charges.
EXHIBIT 27.1 - Financial Data Schedule.
b. Current Report on Form 8-K filed during the three months ended
June 30, 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.
______________________________
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant identified below has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
DUQUESNE LIGHT COMPANY
----------------------
(Registrant)
Date August 14, 1995 /s/ Gary L. Schwass
------------------------- -------------------------
(Signature)
Gary L. Schwass
Senior Vice President and
Principal Financial and
Accounting Officer
16
<PAGE>
Duquesne Light Company and Subsidiary
Calculation of Ratio of Earnings to Fixed Charges
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
Six Months Ended
June 30, 1995 1994 1993 1992 1991 1990
----------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FIXED CHARGES:
Interest on long-term debt $ 45,825 $ 94,646 $102,938 $119,179 $127,606 $135,850
Other interest 658 1,095 2,387 1,749 1,773 4,939
Amortization of debt discount,
premium and expense-net 3,203 6,381 5,541 4,223 3,892 4,039
Portion of lease payments
representing an interest factor 21,977 44,839 45,925 60,721 64,189 64,586
-------- -------- -------- -------- -------- --------
Total Fixed Charges $ 71,663 $146,961 $156,791 $185,872 $197,460 $209,414
-------- -------- -------- -------- -------- --------
EARNINGS:
Income from continuing operations $ 65,812 $147,449 $144,787 $149,768 $143,133 $135,456
Income taxes 39,792* 87,897* 75,042 107,999 101,073 84,478
Fixed charges as above 71,663 146,961 156,791 185,872 197,460 209,414
-------- -------- -------- -------- -------- --------
Total Earnings $177,267 $382,307 $376,620 $443,639 $441,666 $429,348
-------- -------- -------- -------- -------- --------
RATIO OF EARNINGS TO FIXED CHARGES 2.47 2.60 2.40 2.39 2.24 2.05
-------- -------- -------- -------- -------- --------
</TABLE>
Duquesne's share of the fixed charges of an unaffiliated coal supplier, which
amounted to approximately $1.8 million for the six months ended
June 30, 1995, has been excluded from the ratio.
*Earnings related to income taxes reflect a $3.6 million decrease for the six
months ended June 30, 1995, and a $6.8 decrease for the year ended December 31,
1994, due to a financial statement reclassification related to SFAS 109. The
Ratio of Earnings to Fixed Charges absent this reclassification equals 2.52 and
2.65 for the six months ended June 30, 1995 and the year ended December 31,
1994, respectively.
17
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<CIK> 0000030573
<NAME> DUQUESNE LIGHT CO.
<MULTIPLIER> 1000
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> 0
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $3,015,770
<OTHER-PROPERTY-AND-INVEST> $88,655
<TOTAL-CURRENT-ASSETS> $229,295
<TOTAL-DEFERRED-CHARGES> $700,656
<OTHER-ASSETS> $39,016
<TOTAL-ASSETS> $4,073,392
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> $827,969
<RETAINED-EARNINGS> $292,163
<TOTAL-COMMON-STOCKHOLDERS-EQ> $1,120,132
0
$96,521
<LONG-TERM-DEBT-NET> $1,319,313
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> $60,034
0
<CAPITAL-LEASE-OBLIGATIONS> $33,166
<LEASES-CURRENT> $26,453
<OTHER-ITEMS-CAPITAL-AND-LIAB> $1,417,773
<TOT-CAPITALIZATION-AND-LIAB> $4,073,392
<GROSS-OPERATING-REVENUE> $566,572
<INCOME-TAX-EXPENSE> $38,784
<OTHER-OPERATING-EXPENSES> $414,541
<TOTAL-OPERATING-EXPENSES> $453,325
<OPERATING-INCOME-LOSS> $113,247
<OTHER-INCOME-NET> $1,917
<INCOME-BEFORE-INTEREST-EXPEN> $115,164
<TOTAL-INTEREST-EXPENSE> $49,352
<NET-INCOME> $65,812
$2,968
<EARNINGS-AVAILABLE-FOR-COMM> $62,844
<COMMON-STOCK-DIVIDENDS> $63,000
<TOTAL-INTEREST-ON-BONDS> $49,027
<CASH-FLOW-OPERATIONS> $174,350
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
