<PAGE>
[CONFORMED]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1995
--------------
<TABLE>
<CAPTION>
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification Number
- ------------- ----------------------------------- ---------------------
<S> <C> <C>
1-956 Duquesne Light Company 25-0451600
(A Pennsylvania Corporation)
One Oxford Centre
301 Grant Street
Pittsburgh, Pennsylvania 15279
Telephone (412) 393-6000
</TABLE>
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
----- -----
DQE is the holder of all shares of common stock, $1 par value, of Duquesne Light
Company consisting of 10 shares as of March 31, 1995 and April 30, 1995.
<PAGE>
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
March 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Operating Revenues:
Sales of Electricity:
Customers $ 267,256 $ 298,647
Phase-in deferrals - (24,820)
Utilities 12,489 14,725
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Total Sales of Electricity 279,745 288,552
Other 9,587 7,316
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Total Operating Revenues 289,332 295,868
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Operating Expenses:
Fuel and purchased power 55,100 61,668
Other operating 66,351 66,247
Maintenance 18,830 16,255
Depreciation and amortization 44,821 39,590
Taxes other than income taxes 21,323 21,934
Income taxes 25,365 29,829
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Total Operating Expenses 231,790 235,523
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OPERATING INCOME 57,542 60,345
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Other Income and (Deductions):
Allowance for equity funds used during
construction 212 459
Interest and dividend income 2,094 1,339
Income taxes (282) 967
Other - net (1,333) (2,817)
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Total Other Income and (Deductions) 691 (52)
----------- -----------
INCOME BEFORE INTEREST CHARGES 58,233 60,293
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Interest Charges:
Interest on long-term debt and other interest 25,060 25,179
Allowance for borrowed funds used during
construction (198) (378)
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Total Interest Charges 24,862 24,801
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NET INCOME 33,371 35,492
DIVIDENDS ON PREFERRED AND
PREFERENCE STOCK 1,485 1,597
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EARNINGS FOR COMMON STOCK $ 31,886 $ 33,895
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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DUQUESNE LIGHT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS
Property, Plant and Equipment $ 4,588,095 $ 4,618,966
Less Accumulated Depreciation and Amortization (1,547,027) (1,550,447)
----------- -----------
Property, Plant and Equipment - Net 3,041,068 3,068,519
----------- -----------
Other Property and Investments 86,089 74,269
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Current Assets:
Cash and temporary cash investments 68,524 15,904
Receivables 130,201 132,315
Other current assets, principally materials and supplies 118,734 104,541
----------- -----------
Total Current Assets 317,459 252,760
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Other Non-Current Assets:
Extraordinary property loss 18,914 22,394
Unamortized debt costs 102,650 103,454
Beaver Valley Unit 2 sale/leaseback premium 32,692 33,414
Deferred rate synchronization costs 51,149 51,149
Regulatory tax receivable 424,665 428,043
Other regulatory assets 81,857 72,309
Other non-current 38,004 43,556
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Total Other Non-Current Assets 749,931 754,319
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TOTAL ASSETS $ 4,194,547 $ 4,149,867
=========== ===========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock - $1 par value (shares - 90,000,000 authorized; 10 issued) $ - $ -
Capital surplus 826,574 823,193
Retained earnings 289,205 292,319
----------- -----------
Total Common Stockholder's Equity 1,115,779 1,115,512
----------- -----------
Non-redeemable preferred stock 90,229 90,340
Non-redeemable preference stock, Plan Series A 29,806 29,857
----------- -----------
Total preferred and preference stock before deferred ESOP
benefit (involuntary liquidation values of $119,898 and
$120,060, exceed par by $43,777 and $43,882,
respectively) 120,035 120,197
Deferred employee stock ownership plan (ESOP) benefit (24,211) (24,852)
----------- -----------
Total Preferred and Preference Stock 95,824 95,345
----------- -----------
Long-term debt 1,368,751 1,368,930
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Total Capitalization 2,580,354 2,579,787
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Obligations Under Capital Leases 39,830 41,106
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Current Liabilities:
Notes payable - -
Current maturities and sinking fund requirements 85,312 85,691
Accounts payable 95,559 88,585
Accrued liabilities 94,074 58,826
Other current liabilities 38,462 35,469
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Total Current Liabilities 313,407 268,571
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Deferred Investment Tax Credits 122,101 123,591
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Deferred Income Taxes - Net 985,384 991,149
----------- -----------
Other 153,471 145,663
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Commitments and Contingencies (Note 4)
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TOTAL CAPITALIZATION AND LIABILITIES $ 4,194,547 $ 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>
Three Months Ended
March 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Operations $ 82,128 $ 94,429
Changes in working capital 33,136 52,123
Other - net (1,812) 11,148
----------- -----------
Net Cash Provided from Operating Activities 113,452 157,700
----------- -----------
Cash Flows Used by Investing Activities:
Capital expenditures (12,447) (19,428)
Long-term investments (9,095) -
Allowance for borrowed funds used during construction (198) (378)
Other - net (1,192) (222)
----------- -----------
Net Cash Used by Investing Activities (22,932) (20,028)
----------- -----------
Cash Flows Used in Financing Activities:
Dividends on capital stock (36,732) (37,000)
Reductions of long-term obligations (4,460) (49,896)
Reductions in notes payable - (10,991)
Other - net 3,292 (513)
----------- -----------
Net Cash Used in Financing Activities (37,900) (98,400)
----------- -----------
Net increase in cash and temporary cash investments 52,620 39,272
Cash and temporary cash investments at beginning of period 15,904 -
----------- -----------
Cash and temporary cash investments at end of period $ 68,524 $ 39,272
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. CONSOLIDATION AND RECLASSIFICATIONS
The condensed consolidated financial statements include the accounts of Duquesne
Light Company (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 months ended
March 31, 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 first quarter
operating income was $5.8 million.
2. RECEIVABLES
Components of Receivables for the periods indicated are as follows:
<TABLE>
<CAPTION>
Amounts in Thousands of Dollars
--------------------------------------
March 31, March 31, December 31,
1995 1994 1994
---------- ------------ ------------
<S> <C> <C> <C>
Electric customer accounts receivable $ 94,523 $109,961 $ 96,157
Other accounts receivable 51,350 42,150 51,179
Less: Allowance for uncollectible accounts (15,672) (14,274) (15,021)
-------- -------- --------
Receivables less allowance for uncollectible
accounts 130,201 137,837 132,315
Less: Receivables sold - (30,000) -
-------- -------- --------
Total Receivables $130,201 $107,837 $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 no receivables sold at March 31,
1995. The accounts receivable sales agreement, which expires in June 1995, is
one of many sources of funds available to Duquesne. Duquesne expects to extend
the agreement or to replace the facility with a similar one.
Regulatory tax receivable
With respect to the financial statement presentation of Statement of Financial
Accounting Standards No. 109, 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.
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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
Duquesne's 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.
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 March 31, 1995, Duquesne's net investment in Phillips and BI was $93.1
million and $42.2 million, respectively.
4. COMMITMENTS AND CONTINGENCIES
Construction
Duquesne estimates that it will spend approximately $80 million on construction
during 1995. This amount excludes AFC, nuclear fuel, expenditures for possible
early replacement of steam generators at the Beaver Valley Station (See "Nuclear
Litigation" discussion on page 7.) 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, 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 Beaver Valley Unit 1, $35 million for Beaver Valley Unit 2, and $67 million
for Perry Unit 1.
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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 March 31, 1995 totaled $22 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, 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 $6.5 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 stations, 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.
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
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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 1997. 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. 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 jointly owned 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 2010. 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. During
1994, Duquesne increased the storage capacity at Beaver Valley Unit 1 by
equipping the spent fuel pool with high density fuel storage racks.
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 March 31, 1995, Duquesne's liability for
contributions is approximately $9.9 million. Contributions, when made, are
recovered through the Energy Cost Rate Adjustment Clause (ECR).
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
March 31, 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 in the year 2000.
The minimum future payments to be made by Duquesne solely in relation to these
obligations are $29.4 million at March 31, 1995.
Residual Waste Management Regulations
In 1992, the Pennsylvania Department of Environmental Resources (DER) 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 $5 million through 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 DER final approval of
compliance plans.
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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.
__________________________________
9
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
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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 is 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, Duquesne's 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 thereof, could cease to meet these criteria
for various reasons, including a change in PUC or FERC regulations. In such an
event, Duquesne would be required to write-off any regulatory assets or
liabilities for those operations that no longer meet the SFAS No. 71
requirements.
Results of Operations
- -------------------------------------------------------------------------------
Seasonality
The quarterly results are not necessarily indicative of full-year operations
because of seasonal fluctuations. Sales of electricity to ultimate customers by
Duquesne tend to increase during the warmer summer and cooler winter seasons
because of greater customer use of electricity for cooling and heating.
10
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Operating Revenues
Operating revenues declined $6.5 million during the first quarter of 1995 as
compared to the first quarter of 1994 due to lower sales of electricity. The
milder 1995 winter weather resulted in a 5.2 percent reduction in sales of
electricity to residential customers. Sales of electricity to commercial and
industrial customers were comparable to the first quarter of 1994. First
quarter sales of electricity to other utilities decreased 21.4 percent in 1995
when compared to 1994 due to milder winter weather and the resulting lower
demand from other utilities.
Other operating revenues increased $2.3 million primarily due to an increase in
billings by Duquesne to the other joint owners of the Beaver Valley Unit 1 Power
Station. The higher billings reflect the other joint owners' share of costs
associated with the first quarter 1995 scheduled refueling outage.
Operating Expenses
First quarter fuel and purchased power expense decreased $6.6 million when
compared to the first quarter of 1994 due to a 9.9 percent decrease in
generation, a more favorable generation mix and lower average fuel costs. The
lower level of power generation was consistent with the reduced demand for
electricity and electric sales during the three months ended March 31, 1995.
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 first quarter
operating income was $5.8 million.
Income taxes decreased compared to the first quarter of 1994 because of lower
taxable income and a one percent decrease in the Pennsylvania Corporate Net
Income tax rate.
Financial Condition
- -------------------------------------------------------------------------------
Financing
Duquesne plans to meet its current obligations and debt maturities through 1998
with funds generated from operations and through new financings. At March 31,
1995, Duquesne was in compliance with all of its debt covenants.
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 amends
the Public Utility Holding Company Act of 1935 (1935 act) and the Federal Power
Act. Amendments to the 1935 act create a new class of independent power
producers known as Exempt Wholesale Generators (EWGs), which are exempt from the
corporate structure regulations of the 1935 act. EWGs, which may include
independent power producers as well as affiliates of electric utilities, do not
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require Securities and Exchange Commission approval or regulation. In addition,
brokers and marketers, without owning or operating any generation or
transmission facilities, are being permitted to enter into the business of
buying and selling electric capacity and energy.
Amendments to the Federal Power Act create 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" below.)
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.
Transmission Access
In March 1994, Duquesne submitted, pursuant to the Federal Power Act, a "good
faith" request for transmission service with the Allegheny Power System (APS)
and Pennsylvania-New Jersey-Maryland Interconnection Association (PJM
Companies). The request is based on 20-year firm service with flexible delivery
points for 300 megawatts of transfer capability over the transmission network
that extends 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 March 29, 1995, the FERC issued a
notice of proposed rulemaking which would create a new foundation for a more
competitive electric industry. Duquesne does not believe that its applications
are inconsistent with the proposed rulemaking.
_____________________________
12
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
a. In lieu of an Annual Meeting, Duquesne's sole stockholder, DQE (the
owner of all 10 outstanding shares of Duquesne's common stock),
elected directors of Duquesne through a Unanimous Consent of
Stockholders executed on April 19, 1995.
b. The directors elected pursuant to the Unanimous Consent and whose
terms will expire in 1998 were:
Doreen E. Boyce
David D. Marshall
Robert Mehrabian
The directors whose terms continue until 1996 are:
Sigo Falk
Robert B. Pease
Eric W. Springer
Wesley W. von Schack
The directors whose terms continue until 1997 are:
Daniel Berg
Robert P. Bozzone
William H. Knoell
Thomas J. Murrin
c. The only other matter addressed by the Board of Directors in the
Unanimous Consent was the ratification of the appointment of
Deloitte & Touche LLP as independent public accountants to audit the
books of Duquesne for the year ending December 31, 1995.
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. No Current Report on Form 8-K was filed during the three months
ended March 31, 1995.
_____________________________
13
<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 May 11, 1995 /s/ Gary L. Schwass
--------------------- -------------------------
(Signature)
Gary L. Schwass
Senior Vice President and
Principal Financial and
Accounting Officer
14
<PAGE>
Exhibit 12.1
Duquesne Light Company and Subsidiary
Calculation of Ratio of Earnings to Fixed Charges
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Year Ended December 31,
Months Ended -------------------------------------------------
March 31, 1995 1994 1993 1992 1991 1990
-------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FIXED CHARGES:
Interest on long-term debt $23,121 $ 94,646 $102,938 $119,179 $127,606 $135,850
Other interest 322 1,095 2,387 1,749 1,773 4,939
Amortization of debt discount, premium and
expense-net 1,617 6,381 5,541 4,223 3,892 4,039
Portion of lease payments representing an
interest factor 10,788 44,839 45,925 60,721 64,189 64,586
------- -------- -------- -------- -------- --------
Total Fixed Charges $35,848 $146,961 $156,791 $185,872 $197,460 $209,414
======= ======== ======== ======== ======== ========
EARNINGS:
Income from continuing operations $33,371 $147,449 $144,787 $149,768 $143,133 $135,456
Income taxes 25,647* 87,897* 75,042 107,999 101,073 84,478
Fixed charges as above 35,848 146,961 156,791 185,872 197,460 209,414
------- -------- -------- -------- -------- --------
Total Earnings $94,866 $382,307 $376,620 $443,639 $441,666 $429,348
======= ======== ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES 2.65 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 $.9 million for the three months ended March 31,
1995, has been excluded from the ratio.
*Earnings related to income taxes reflect a $1.8 million decrease for the three
months ended March 31, 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 2.70 and
2.65 for the three months ended March 31, 1995 and the year ended December 31,
1994, respectively.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<CIK> 0000030573
<NAME> DUQUESNE LIGHT CO
<MULTIPLIER> 1,000
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> 0
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,041,068
<OTHER-PROPERTY-AND-INVEST> 86,089
<TOTAL-CURRENT-ASSETS> 317,459
<TOTAL-DEFERRED-CHARGES> 711,927
<OTHER-ASSETS> 38,004
<TOTAL-ASSETS> 4,194,547
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 826,574
<RETAINED-EARNINGS> 289,205
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,115,779
0
95,824
<LONG-TERM-DEBT-NET> 1,368,751
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 59,534
0
<CAPITAL-LEASE-OBLIGATIONS> 39,830
<LEASES-CURRENT> 25,777
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,489,052
<TOT-CAPITALIZATION-AND-LIAB> 4,194,547
<GROSS-OPERATING-REVENUE> 289,332
<INCOME-TAX-EXPENSE> 25,365
<OTHER-OPERATING-EXPENSES> 206,425
<TOTAL-OPERATING-EXPENSES> 231,790
<OPERATING-INCOME-LOSS> 57,542
<OTHER-INCOME-NET> 691
<INCOME-BEFORE-INTEREST-EXPEN> 58,233
<TOTAL-INTEREST-EXPENSE> 24,862
<NET-INCOME> 33,371
1,485
<EARNINGS-AVAILABLE-FOR-COMM> 31,886
<COMMON-STOCK-DIVIDENDS> 35,000
<TOTAL-INTEREST-ON-BONDS> 24,738
<CASH-FLOW-OPERATIONS> 113,452
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
