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[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 March 31, 1996
--------------
[_] 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)
411 Seventh Avenue
Pittsburgh, Pennsylvania 15219
-------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 393-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 March 31, 1996 and April 30, 1996.
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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
March 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Operating Revenues:
Sales of Electricity:
Customers-net $266,583 $264,540
Utilities 15,965 12,489
-------- --------
Total Sales of Electricity 282,548 277,029
Other 8,309 9,587
-------- --------
Total Operating Revenues 290,857 286,616
-------- --------
Operating Expenses:
Fuel and purchased power 59,165 55,100
Other operating 60,930 62,226
Maintenance 20,504 18,830
Depreciation and amortization 56,018 47,955
Taxes other than income taxes 21,706 21,323
Income taxes 17,950 23,640
-------- --------
Total Operating Expenses 236,273 229,074
-------- --------
OPERATING INCOME 54,584 57,542
-------- --------
Other Income and (Deductions):
Interest and dividend income 1,722 2,094
Income taxes 911 (282)
Other - net 2,485 (1,121)
-------- --------
Total Other Income and 5,118 691
(Deductions) -------- --------
INCOME BEFORE INTEREST CHARGES 59,702 58,233
INTEREST CHARGES 22,953 24,862
-------- --------
NET INCOME 36,749 33,371
DIVIDENDS ON PREFERRED AND
PREFERENCE STOCK 1,018 1,485
-------- --------
EARNINGS FOR COMMON STOCK $ 35,731 $ 31,886
======== ========
</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,
1996 1995
------------ -------------
<S> <C> <C>
ASSETS:
Property, Plant and Equipment $ 4,627,179 $ 4,652,010
Less Accumulated Depreciation and (1,672,666) (1,673,107)
Amortization ----------- -----------
Property, Plant and Equipment - Net 2,954,513 2,978,903
----------- -----------
Long-Term Investments:
Investment in DQE Common Stock 61,103 66,757
Other investments 102,744 102,648
----------- -----------
Total Long-Term Investments 163,847 169,405
----------- -----------
Current Assets:
Cash and temporary cash investments 40,000 2,490
Receivables 115,405 113,184
Other current assets, principally 110,707 86,707
material and supplies ----------- -----------
Total Current Assets 266,112 202,381
----------- -----------
Other Non-Current Assets:
Regulatory Assets 655,883 671,928
Other 47,779 45,048
----------- -----------
Total Other Non-Current Assets 703,662 716,976
----------- -----------
TOTAL ASSETS $ 4,088,134 $ 4,067,665
=========== ===========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock - $1 par value (shares -
90,000,000 $ - $ -
authorized; 10 issued)
Capital surplus 833,281 837,265
Retained earnings 294,337 294,069
----------- -----------
Total Common Stockholders' Equity 1,127,618 1,131,334
----------- -----------
Non-redeemable preferred stock 63,608 63,608
Non-redeemable preference stock 29,407 29,615
----------- -----------
Total preferred and preference
stock before deferred employee
stock ownership plan (ESOP)
benefit (involuntary liquidation
values of $92,878 and
$93,086, exceed par by $28,579 and
$28,781, respectively) 93,015 93,223
Deferred (ESOP) benefit (21,634) (22,257)
----------- -----------
Total Preferred and Preference Stock 71,381 70,966
----------- -----------
Long-term debt 1,322,484 1,322,531
----------- -----------
Total Capitalization 2,521,483 2,524,831
----------- -----------
Obligations Under Capital Leases 36,303 34,546
----------- -----------
Current Liabilities:
Current maturities and sinking fund
requirements 71,828 71,051
Accounts payable 65,873 76,435
Accrued liabilities 88,595 53,930
Dividends declared 38,456 37,015
Other 12,481 9,191
----------- -----------
Total Current Liabilities 277,233 247,622
----------- -----------
Deferred income taxes - net 810,458 805,996
----------- -----------
Deferred investment tax credits 110,203 115,760
----------- -----------
Deferred income 156,956 162,916
----------- -----------
Other 175,498 175,994
----------- -----------
Commitments and contingencies (Note 4)
----------- -----------
TOTAL CAPITALIZATION AND $ 4,088,134 $ 4,067,665
LIABILITIES =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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DUQUESNE LIGHT COMPANY
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Operations $ 86,041 $ 82,128
Changes in working capital other than 2,613 33,136
cash
Other - net 6,963 (4,428)
-------- --------
Net Cash Provided from Operating 95,617 110,836
Activities -------- --------
Cash Flows Used by Investing Activities:
Construction expenditures (14,916) (12,447)
Long-term investments 889 (2,791)
Other - net (979) (1,390)
-------- --------
Net Cash Used by Investing (15,006) (16,628)
Activities -------- --------
Cash Flows Used in Financing Activities:
Dividends on capital stock (37,018) (36,732)
Reductions of long-term obligations (4,495) (4,460)
(net)
Other - net (1,588) (396)
-------- --------
Net Cash Used in Financing (43,101) (41,588)
Activities -------- --------
Net increase in cash and temporary cash 37,510 52,620
investments
Cash and temporary cash investments at 2,490 15,904
beginning of period -------- --------
Cash and temporary cash investments at $ 40,000 $ 68,524
end of period ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Except for historical information contained herein, the matters discussed in
this Quarterly Report on Form 10-Q are forward-looking statements that involve
risks and uncertainties including, but not limited to, economic, competitive,
governmental and technological factors affecting Duquesne Light Company's
(Duquesne's) operations, markets, products, services and prices, and other
factors discussed in Duquesne's filings with the Securities and Exchange
Commission.
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. Duquesne has one wholly owned subsidiary,
Monongahela Light and Power, also a Pennsylvania corporation, which currently
holds energy-related lease investments.
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 1996 presentation.
These statements should be read with the financial statements and notes
included in the Form 10-K, Annual Report, filed with the Securities and Exchange
Commission (SEC) for the year ended December 31, 1995. The results of operations
for the three months ended March 31, 1996, are not necessarily indicative of the
results that may be expected for the full year. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements. The reported amounts of revenues and
expenses during the reporting period may also be affected by the estimates and
assumptions management is required to make. Actual results could differ from
those estimates.
Duquesne is subject to the accounting and reporting requirements of the
SEC. In addition, Duquesne's operations are subject to the regulation of the
Pennsylvania Public Utility Commission (PUC) and the Federal Energy Regulatory
Commission (FERC). 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. Such
effects concern mainly the time at which various items enter into the
determination of net income in accordance with the principle of matching costs
and revenues. (See "Rate Matters," Note 3 on page 6.)
Duquesne's other 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
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available-for-sale and are stated at market value. The amounts of unrealized
holding gain on investments at March 31, 1996, and December 31, 1995, are $18.8
million and $22.8 million, respectively. Reduced for deferred income taxes, net
unrealized holding gains on investments are $11.0 million and $13.4 million at
March 31, 1996, and December 31, 1995, respectively.
2. RECEIVABLES
Components of receivables for the periods indicated are as follows:
<TABLE>
<CAPTION>
March 31, March 31, December 31,
1996 1995 1995
(Amounts in Thousands of Dollars)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Electric customer accounts receivable $103,263 $ 94,523 $103,821
Other utility receivables 16,258 25,430 22,441
Other receivables 15,573 25,920 11,842
Less: Allowance for uncollectible (19,689) (15,672) (17,920)
accounts
- -------------------------------------------------------------------------------------
Receivables less allowance for
uncollectible accounts 115,405 130,201 120,184
Less: Receivables sold - - (7,000)
- -------------------------------------------------------------------------------------
Total Receivables $115,405 $130,201 $113,184
=====================================================================================
</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. At March 31, 1996 and 1995, Duquesne had no
receivables sold to the unaffiliated corporation. At December 31, 1995, Duquesne
had sold $7 million of receivables to the unaffiliated corporation. 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.
3. RATE MATTERS
At this time, Duquesne has no pending base rate case and has no immediate
plans to file a base rate case. In Duquesne's amended 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 8.)
Regulatory Assets
As a result of the application of 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 customers
through the ratemaking process.
Duquesne's operations currently satisfy the SFAS No. 71 criteria. However,
a company's electric 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.
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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.
The components of regulatory assets for the periods presented are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------------- ------------------
<S> <C> <C>
(Amounts in Thousands of Dollars)
- ----------------------------------------------------------------------------
Regulatory tax receivable $411,165 $414,543
Unamortized debt costs (a) 97,382 98,776
Deferred rate synchronization costs 43,449 51,149
(see below)
Beaver Valley Unit 2 sale/leaseback 31,187 31,564
premium (b)
Deferred employee costs (c) 28,628 31,218
Extraordinary property loss 4,546 8,300
Deferred nuclear maintenance outage 10,465 6,776
costs
DOE decontamination and decommissioning 10,461 10,687
receivable
Deferred coal costs 12,759 12,753
Other 5,841 6,162
- ----------------------------------------------------------------------------
Total Regulatory Assets $655,883 $671,928
============================================================================
</TABLE>
(a) The premiums paid to reacquire debt prior to scheduled maturity dates are
deferred for amortization over the life of the debt issued to finance the
reacquisitions.
(b) The premium paid to refinance the Beaver Valley Unit 2 lease was deferred
for amortization over the life of the lease.
(c) Includes amounts for recovery of accrued compensated absences and accrued
claims for workers' compensation.
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.
Deferred Rate Synchronization Costs
In 1987, the PUC approved Duquesne's petition to defer initial operating
and other costs of Perry Unit 1 and Beaver Valley Unit 2 (BV Unit 2). Duquesne
deferred the costs incurred from the date the units went into commercial
operation, until the date a rate order was issued. In its rate order, the PUC
postponed ruling on whether these costs would be recoverable from Duquesne's
customers. Duquesne is not earning a return on the deferred costs. Duquesne
believes that these deferred costs are recoverable. In 1990 and 1995, the PUC
permitted other Pennsylvania electric utilities rate recovery of such costs.
As a result of negotiations with the sole intervenor in proceedings before
the PUC related to Duquesne's plan for the sale of its ownership interest in
the Ft. Martin Power Station, Duquesne agreed to charge off $9.0 million
related to the depreciation portion of deferred rate synchronization costs.
Duquesne has recorded a $7.7 million write-off of deferred rate synchronization
costs in the first quarter of 1996. Duquesne's amended petition currently
under consideration by the PUC also proposes to amortize the remaining $42.1
million of deferred rate synchronization costs over a ten-year period. (See
"Sale of Ft. Martin" discussion on page 8.)
Property Held for Future Use
In 1986, the PUC approved Duquesne's request to remove Phillips Power
Station (Phillips) and a portion of Brunot Island Power Station (BI) from
service and from rate base. Duquesne
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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. 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 the Ft. Martin Power Station. (See "Sale of Ft. Martin" discussion
below.) At March 31, 1996, Duquesne's net investment in Phillips and BI held for
future use was $78.3 million and $44.9 million, respectively.
Sale of Ft. Martin
In December 1995, Duquesne filed a Petition for Declaratory Order with the
PUC requesting approval for the sale of its ownership interest in the Ft. Martin
Power Station and for 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. In addition, Duquesne proposes to record a
one-time reduction of approximately $130 million in the value of Duquesne's
nuclearplant 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 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 Energy Cost Rate Adjustment
Clause (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.
In April 1996, Duquesne filed an Amendment to Petition for Declaratory
Order (the Amendment). The Amendment resulted from negotiations with the Office
of Consumer Advocate, the sole intervenor in this proceeding. The Amendment adds
the following three proposals to the original six-point plan for the sale of
Duquesne's ownership interest in the Ft. Martin Power Station (discussed above).
In addition to the original annual credit of $5 million to the ECR, Duquesne
proposes to cap energy costs beginning April 1, 1997, through the remainder
of the plan period, at the historical five-year average of 14.7 mils per
kilowatt hour. Second, Duquesne agrees to charge off $9 million related to the
depreciation portion of the $51.1 million of deferred rate synchronization costs
associated with BV Unit 2 and Perry Unit 1. Thereafter, Duquesne proposes to
amortize the remaining $42.1 million of deferred rate synchronization costs over
a ten-year period. Finally, Duquesne proposes to contribute $.5 million annually
to a supplemental low-income customer assistance program. This bill payment
program, which is also subject to PUC approval, will be designed to provide
financial assistance to low-income electric customers. The PUC is currently
reviewing Duquesne's amended petition.
4. COMMITMENTS AND CONTINGENCIES
Construction
Duquesne estimates that it will spend, excluding the Allowance for Funds
Used During Construction (AFC) and nuclear fuel, approximately $90 million on
construction during 1996. Approximately $5 million of capital expenditures for
the reliability enhancements to the simple cycle
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units located at BI contemplated in Duquesne's amended petition before the PUC
are excluded from these estimates. (See "Sale of Ft. Martin" discussion, Note 3
on page 8.)
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 (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 will 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 amended 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 utility rates. (See "Sale of
Ft. Martin" discussion, Note 3, on page 8.)
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 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 March 31, 1996, totaled
approximately $29.0 million. On Duquesne's consolidated balance sheet, the
decommissioning trusts have been reflected in 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 $400.0 million in the Beaver Valley Power Station
(BVPS) and $559.3 million in Perry Unit 1, plus its interest in BV Unit 2 with
lease commitments of $402.8 million, at March 31, 1996. The lease commitments of
$402.8 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.
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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.
Beaver Valley Power Station Steam Generators. BVPS's two units are equipped
with steam generators that were designed and built by Westinghouse Electric
Corporation (Westinghouse). Similar to other Westinghouse nuclear plants,
outside diameter stress corrosion cracking (ODSCC) has occurred in the steam
generator tubes of both units. BV Unit 1, which was placed in service in 1976,
has removed approximately 15 percent of its steam generator tubes from service
through a process called plugging. However, BV Unit 1 continues to operate at
100 percent reactor power and has the ability to return tubes to service by
repairing them through a process called sleeving. To date, no tubes at either
unit have been sleeved. BV Unit 2, which was placed in service eleven years
after BV Unit 1, has not yet exhibited the degree of ODSCC experienced at BV
Unit 1. Less than 2 percent of BV Unit 2's tubes are plugged; however, it is too
early in the life of the unit to determine the extent to which ODSCC may become
a problem.
Duquesne has undertaken certain measures, such as increased inspections,
water chemistry control, and tube plugging, to minimize the operational impact
of and to reduce susceptibility to ODSCC. Although Duquesne has taken these
steps to allay the effects of ODSCC, the inherent potential for future ODSCC in
steam generator tubes of the Westinghouse design still exists. Material
acceleration in the rate of ODSCC could lead to a loss of plant efficiency,
significant repairs or the possible replacement of BV Unit 1's steam
generators. The total replacement cost of BV Unit 1's steam generators is
currently estimated at approximately $125 million. Duquesne would be responsible
for $59 million of this total, which includes the cost of equipment removal and
replacement, but excludes replacement power costs. The earliest that BV Unit 1's
steam generators could be replaced is 1999.
BV Unit 1 completed its 11th refueling outage on May 11, 1996. The outage
lasted 49 days and was the shortest refueling outage in the history of the unit.
During the outage, various inspections of the unit's steam generators were made,
including examinations using a new "Plus Point" probe. Use of the probe found
fewer defects than expected at the top of the steam generators' tube sheets. In
addition, Duquesne returned to service tubes that had previously been plugged.
The net result of activity during the refueling outage is that the number of
steam generator tubes in service at the end of the outage is 85 percent,
approximately 1 percent greater than at the beginning of the outage.
Duquesne continues to explore all viable means of managing ODSCC, including
new repair technologies, and plans to perform 100 percent tube inspections at
each unit during future refueling
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outages. Duquesne will continue to monitor and evaluate the condition of the
BVPS steam generators.
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 Department of
Energy (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.
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 March 31, 1996,
Duquesne's liability for contributions is approximately $9.9 million (subject to
an inflation adjustment). Contributions, when made, are recovered from customers
through the ECR.
Guarantees
Duquesne and the owners of Bruce Mansfield Power Station have guaranteed
certain debt and lease obligations related to a coal supply contract for the
Bruce Mansfield plant. At March 31, 1996, Duquesne's share of these guarantees
was $21.1 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 $23.1 million at March 31, 1996.
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 residual waste, such as coal ash. Duquesne is
assessing the sites 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.
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.
------------------------
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Part I, Item 2 of this Quarterly Report, Form 10-Q (Report) should be read in
conjunction with Duquesne's condensed consolidated financial statements, which
are set forth on pages 2 through 11 in Part I, Item 1 of this Report.
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. 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. (See "Competition" discussion on page 15.) 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
12
<PAGE>
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
- --------------------------------------------------------------------------------
Seasonality
The quarterly results are not necessarily indicative of full-year
operations because of seasonal fluctuations. 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,
respectively.
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.)
Operating Revenues
Total operating revenues increased $4.2 million during the first quarter of
1996 as compared to the first quarter of 1995 due to higher sales of
electricity. The severe winter weather during the first three months of 1996
resulted in higher sales of electricity to residential customers of 2.7 percent.
First quarter 1996 sales to commercial and industrial customers were comparable
to commercial and industrial sales for the first quarter of 1995. The colder
winter temperatures also resulted in greater demand for electricity from other
utilities. Revenue from sales of electricity to other utilities increased $3.5
million, or 27.8 percent, in the first quarter of 1996 when compared to the
first quarter of 1995.
Other operating revenues for the first quarter of 1996 declined $1.3
million when compared to the same period in 1995. The decrease was largely due
to the absence of greater first quarter 1995 billings to the other joint owners
of Beaver Valley Unit 1 (BV Unit 1) related to the scheduled refueling outage.
Operating Expenses
Total operating expenses increased $7.2 million during the first quarter of
1996 as compared to the first quarter of 1995.
Fuel and purchased power expense was $4.1 million greater in the first
quarter of 1996 when compared to the first quarter of 1995. This increase in
fuel and purchased power expense is consistent with the 1996 first quarter
increase in electric sales volume.
The timing of BV Unit 1 and Perry Unit 1 refueling outages resulted in a
shift between other operating and maintenance expenses when comparing the three
months ended March 31, 1996, with the same period in 1995.
Depreciation and amortization expense for the first quarter increased $8.1
million, or 16.8 percent, due primarily to the amortization of the regulatory
asset associated with deferred rate synchronization costs. (See "Deferred Rate
Synchronization Costs" and "Sale of Ft. Martin" discussions on pages 8 and 14,
respectively.)
13
<PAGE>
Income taxes decreased $5.7 million compared to the first quarter of 1995
largely due to reduced operating income and amortization of deferred investment
tax credits.
Other Income and (Deductions)
The $4.4 million increase in first quarter 1996 total other income and
deductions is consistent with additional other lease investments made in the
third quarter of 1995.
Liquidity, Capital Resources and Investing
- --------------------------------------------------------------------------------
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 March 31, 1996, 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 May 14, 1996, Duquesne Capital L.P., a Delaware special purpose limited
partnership whose sole general partner is Duquesne, issued in aggregate $150
million, principal amount of 8-3/8% Cumulative Monthly Income Preferred
Securities, Series A, with a stated liquidation value of $25. Duquesne intends
to apply these proceeds to the payment or provision for payment at maturity, the
purchase, on the open market, in private transactions or otherwise, or the
redemption of outstanding securities, including the payment of $50 million in
aggregate principal amount of long-term debt maturing May 15, 1996, for the
general corporate purposes.
Investing
Duquesne's long-term investments consist of its holdings of DQE common
stock, investments in affordable housing, leasehold and other investments, and
Duquesne's nuclear decommissioning trusts. Duquesne invested $1.0 million and
$3.2 million in affordable housing funds during the first quarter of 1996 and
1995, respectively.
Outlook
- --------------------------------------------------------------------------------
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. In addition, Duquesne
14
<PAGE>
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 Brunot Island (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.
In April 1996, Duquesne filed an Amendment to Petition for Declaratory
Order (the Amendment). The Amendment resulted from negotiations with the Office
of Consumer Advocate, the sole intervenor in this proceeding. The Amendment adds
the following three proposals to the original six-point plan for the sale of
Duquesne's ownership interest in the Ft. Martin Power Station (discussed in the
preceding paragraph). In addition to the original annual credit of $5 million to
the ECR, Duquesne proposes to cap energy costs for the period of the plan at the
historical five-year average of 14.7 mils per kilowatt hour. Second, beginning
April 1, 1997, through the remainder of the plan period, Duquesne agrees
to charge off $9 million related to the depreciation portion of the $51.1
million of deferred rate synchronization costs associated with BV Unit 2 and
Perry Unit 1. Thereafter, Duquesne proposes to amortize the remaining
$42.1 million of deferred rate synchronization costs over a ten-year period.
Finally, Duquesne proposes to contribute $.5 million annually to a supplemental
low-income customer assistance program. This bill payment program, which is also
subject to PUC approval, will be designed to provide financial assistance to
low-income electric customers.
The PUC is currently reviewing Duquesne's amended petition.
Competition
The electric utility industry is undergoing fundamental change in
response to the open transmission access and increased availability of energy
alternatives fostered by the National Energy Policy Act of 1992 (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.
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 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
cannot predict whether the PUC will adopt the recommendations of this interim
report. In addition, legislation related to retail customer choice recently was
introduced in the state legislature. Duquesne cannot predict what legislation,
if any, may ultimately be enacted.
15
<PAGE>
At the national level, on April 24, 1996, the FERC issued two related final
rules that address the terms on which electric utilities will be required to
provide wholesale suppliers of electric energy with nondiscriminatory access
to the utility's wholesale transmission system. The first rule, Order No.
888, addresses both open access and stranded cost issues. Each public utility
that owns, controls or operates interstate transmission facilities is required
to file within sixty days from May 10, 1996, the date of publication of the
order in the Federal Register, a tariff that offers unbundled transmission
services containing non-rate terms that conform to the FERC's Order No. 888 pro
forma tariff and to propose rates for these services. The rules indicate FERC's
willingness to defer to state regulators with respect to retail access,
recovery of retail stranded costs and the scope of state regulatory
jurisdiction.
Order No. 888 also provides for full recovery of those costs that were
prudently incurred to serve wholesale (and retail-turned wholesale) customers
that subsequently leave a utility's system. These costs will be recovered from
the departing customers. However, the FERC will not be the forum for recovery of
stranded costs arising when retail customers leave a utility's system, even if
their new suppliers rely on FERC-jurisdiction transmission services, unless
state regulators lack authority under state law to provide for recovery.
The second rule, Order No. 889, is the Open Access Same Time Information
rule (OASIS). This rule prohibits transmission owners and their affiliates from
gaining preferential access to information concerning transmission and
establishes a code of conduct to ensure the complete separation of a utility's
wholesale power marketing and transmission operation functions.
Finally, the FERC simultaneously issued a new NOPR on Capacity
Reservation Open Access Transmission Tariffs ("CRT"), which would require all
market participants to reserve firm capacity rights between designated receipt
and delivery points. If adopted, the CRT would replace the open access pro forma
tariff implemented in Order No. 888.
Duquesne is aware of the foregoing state and federal regulatory and business
uncertainties, and is attempting to position itself to operate in a more
competitive environment. Because of Duquesne's current electric generating
configuration, some of its baseload capacity is used less than optimally.
Duquesne is currently considering ways to align its generating capabilities more
closely with customer demand. Its current rate structure allows some flexibility
in setting rates to retain its customer base and attract new business. In
addition, although currently sales to wholesale customers do not account for a
significant portion of Duquesne's revenues, open access transmission offers
Duquesne the opportunity to sell power on a market basis to customers outside of
its service territory. Duquesne is currently evaluating the impact of the FERC's
recent action on its transmission access filings currently before the FERC.
(See "Transmission Access" discussion on page 17.)
Open access transmission requirements implicitly create the potential for
stranded costs. 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. The FERC Order No. 888 provides
for stranded cost recovery from wholesale customers, but the details of
implementation remain unclear. Recovery of retail stranded costs, if any, will
be determined at the state level when retail wheeling is addressed. The amended
petition for the sale of Duquesne's ownership interest in the Ft. Martin Power
Station currently before the PUC proposes an annual increase of $25 million for
three years in depreciation and amortization expense related to Duquesne's
nuclear investment. This amended 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. Finally, the amended petition proposes the recognition
of $51.1 million of deferred rate synchronization costs over a ten-year period.
(See "Sale of Ft. Martin" discussion on page 14.) These current and proposed
accelerated investment cost recovery measures will be absorbed by Duquesne
without an increase in base rates. Although Duquesne believes the initiatives
proposed in the amended petition will enable it to maintain and expand its
existing customer base, if the proposal is approved, 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.
Duquesne believes that these and similar strategies 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.
16
<PAGE>
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 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 is currently evaluating the impact of FERC actions (previously
discussed in "Competition") on these proceedings. 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 14.) 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.
17
<PAGE>
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.
------------------------------
Except for historical information contained herein, the matters discussed in
this Quarterly Report on Form 10-Q, 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.
18
<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 23, 1996.
b. The directors elected pursuant to the Unanimous Consent and whose
terms will expire in 1999 were:
Sigo Falk
Eric W. Springer
Wesley W. von Schack
The directors whose terms continue until 1998 are:
Doreen E. Boyce
David D. Marshall
Robert Mehrabian
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, 1996.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits:
EXHIBIT 12.1 - Calculation of Ratio of Earnings to Fixed Charges.
EXHIBIT 12.2 - Calculation of Ratio of Earnings to Combined Fixed
Charges and Preferred and Preference Dividend Requirements.
EXHIBIT 27.1 - Financial Data Schedule.
b. No Current Report on Form 8-K was filed during the three months
ended March 31, 1996.
A Report on Form 8-K was filed on May 13, 1996:
(1) May 13, 1996 - The following event was reported:
Item 7. Exhibit 12.2 - Statement re: Calculation of Ratio of
Earnings to Combined Fixed Charges and Preferred and
Preference Stock Dividend Requirements
No financial statements were filed with this report.
------------------------------
19
<PAGE>
SIGNATURES
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 15, 1996 /s/Gary L. Schwass
---------------------------- ----------------------------------
(Signature)
Gary L. Schwass
Senior Vice President and
Principal Financial Officer
Date May 15, 1996 /s/ Deborrah E. Beck
---------------------------- ----------------------------------
(Signature)
Deborrah E. Beck
Controller and
Principal Accounting Officer
20
<PAGE>
EXHIBIT 12.1
Duquesne Light Company and Subsidiary
Calculation of Ratio of Earnings to Fixed Charges
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
Three Months Ended -----------------------
March 31, 1996 1995 1994 1993 1992 1991
------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
FIXED CHARGES:
Interest on long-term debt $20,925 $ 89,139 $ 94,646 $102,938 $119,179 $127,606
Other interest 827 2,599 1,095 2,387 1,749 1,773
Amortization of debt discount,
premium and expense-net 1,526 6,252 6,381 5,541 4,223 3,892
Portion of lease payments
representing an interest factor 10,886 44,386 44,839 45,925 60,721 64,189
------- -------- -------- -------- -------- --------
Total Fixed Charges $34,164 $142,376 $146,961 $156,791 $185,872 $197,460
------- -------- -------- -------- -------- --------
EARNINGS:
Income from continuing operations $36,749 $151,070 $147,449 $144,787 $149,768 $143,133
Income taxes 17,039* 92,894* 84,191 77,237 110,993 104,067
Fixed charges as above 34,164 142,376 146,961 156,791 185,872 197,460
------- -------- -------- -------- -------- --------
Total Earnings $87,952 $386,340 $378,601 $378,815 $446,633 $444,660
------- -------- -------- -------- -------- --------
RATIO OF EARNINGS TO FIXED CHARGES 2.57 2.71 2.58 2.42 2.40 2.25
------- -------- -------- -------- -------- --------
</TABLE>
Duquesne's share of the fixed charges of an unaffiliated coal supplier,
which amounted to approximately $.8 million for the three months ended March 31,
1996, has been excluded from the ratio.
*Earnings related to income taxes reflect a $3.0 million decrease for the three
months ended March 31, 1996, and a $13.5 million decrease for the twelve months
ended December 31, 1995, due to a financial statement reclassification related
to SFAS 109. The Ratio of Earnings to Fixed Charges absent this
reclassification equals 2.66 and 2.81 for the three months ended March 31, 1996
and the year ended December 31, 1995, respectively.
<PAGE>
EXHIBIT 12.2
Duquesne Light Company and Subsidiary
Calculation of Ratio of Earnings to Combined Fixed Charges
and Preferred and Preference Stock Dividend Requirements
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
Three Months Ended -----------------------
March 31, 1996 1995 1994 1993 1992 1991
------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
FIXED CHARGES:
Interest on long-term debt $20,925 $ 89,139 $ 94,646 $102,938 $119,179 $127,606
Other interest 827 2,599 1,095 2,387 1,749 1,773
Amortization of debt discount,
premium and expense-net 1,526 6,252 6,381 5,541 4,223 3,892
Portion of lease payments
representing an interest factor 10,886 44,386 44,839 45,925 60,721 64,189
Preferred and Preference Dividends 1,560 7,374 9,355 14,368 17,940 18,307
------- -------- -------- -------- -------- --------
Total Fixed Charges $35,724 $149,750 $156,316 $171,159 $203,812 $215,767
======= ======== ======== ======== ======== ========
EARNINGS:
Income from continuing operations $36,749 $151,070 $147,449 $144,787 $149,768 $143,133
Income taxes 17,039* 92,894* 84,191 77,237 110,993 104,067
Fixed charges as above 35,724 149,750 156,316 171,159 203,812 215,767
------- -------- -------- -------- -------- --------
Total Earnings $89,512 $393,714 $387,956 $393,183 $464,573 $462,967
======= ======== ======== ======== ======== ========
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED AND PREFERENCE
STOCK DIVIDEND REQUIREMENTS 2.51 2.63 2.48 2.30 2.28 2.15
======= ======== ======== ======== ======== ========
</TABLE>
Duquesne's share of the fixed charges of an unaffiliated coal supplier,
which amounted to approximately $.8 million for the three months ended March 31,
1996, has been excluded from the ratio.
*Earnings related to income taxes reflect a $3.0 million decrease for the three
months ended March 31, 1996, and a $13.5 million decrease for the twelve months
ended December 31, 1995, due to a financial statement reclassification related
to SFAS 109. The Ratio of Earnings to Combined Fixed Charges and Preferred and
Preference Stock Dividend Requirements absent this reclassification equals 2.59
and 2.72 for the three months ended March 31, 1996 and the year ended December
31, 1995, respectively.
<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> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,954,513
<OTHER-PROPERTY-AND-INVEST> 163,847
<TOTAL-CURRENT-ASSETS> 266,112
<TOTAL-DEFERRED-CHARGES> 655,883
<OTHER-ASSETS> 47,779
<TOTAL-ASSETS> 4,088,134
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 833,281
<RETAINED-EARNINGS> 294,337
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,127,618
0
71,381<F1>
<LONG-TERM-DEBT-NET> 1,322,484
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 50,000
0
<CAPITAL-LEASE-OBLIGATIONS> 36,303
<LEASES-CURRENT> 21,828
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,458,520
<TOT-CAPITALIZATION-AND-LIAB> 4,088,134
<GROSS-OPERATING-REVENUE> 290,857
<INCOME-TAX-EXPENSE> 17,950
<OTHER-OPERATING-EXPENSES> 218,323
<TOTAL-OPERATING-EXPENSES> 236,273
<OPERATING-INCOME-LOSS> 54,584
<OTHER-INCOME-NET> 5,118
<INCOME-BEFORE-INTEREST-EXPEN> 59,702
<TOTAL-INTEREST-EXPENSE> 22,953
<NET-INCOME> 36,749
1,018
<EARNINGS-AVAILABLE-FOR-COMM> 35,731
<COMMON-STOCK-DIVIDENDS> 36,000
<TOTAL-INTEREST-ON-BONDS> 22,451
<CASH-FLOW-OPERATIONS> 95,617
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Includes 7,773 of Preference Stock
</TABLE>
