<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
July 28, 1998
DQE, Inc.
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(Exact name of registrant as specified in its charter)
Pennsylvania 1-10290 25-1598483
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(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
Cherrington Corporate Center, Suite 100
500 Cherrington Parkway, Coraopolis, Pennsylvania 15108-3184
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 262-4700
N/A
(Former name or former address, if changed since last report.)
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Items 1-4. Not applicable.
Item 5. Other Events.
Incorporated herein by reference as Exhibit 99.1 is a letter dated July 28,
1998, from David D. Marshall (President and Chief Executive Officer of DQE,
Inc.) to Alan J. Noia (Chairman, President and Chief Executive Officer of
Allegheny Energy, Inc.).
Also incorporated herein by reference as Exhibit 99.2 is the Earnings
Release of DQE, Inc. for the quarter ended June 30, 1998.
Item 6. Not applicable.
Item 7. Exhibits.
99.1 Letter dated July 28, 1998, from David D. Marshall to Alan J. Noia
99.2 Earnings Release of DQE, Inc. for the quarter ended June 30, 1998
Items 8-9. Not applicable
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DQE, Inc.
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(Registrant)
Date July 28, 1998 /s/Morgan K. O'Brien
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(Signature)
Morgan K. O'Brien
Vice President and Controller
2
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Exhibit 99.1
July 28, 1998
Mr. Alan J. Noia
Chairman, President and Chief Executive Officer
Allegheny Energy, Inc.
10435 Downsville Pike
Hagerstown, MD 21740-1766
Dear Al:
Having reviewed the PaPUC's orders regarding the proposed merger and
associated restructuring plans, DQE's Board of Directors today determined that
the findings contained therein will result in a failure of the conditions to
DQE's obligation to consummate the merger. Specifically, the findings
constitute a material adverse effect under the Agreement and Plan of Merger.
Under the merger agreement, DQE is not required to consummate the merger under
these circumstances and we do not intend to do so.
The PaPUC order on West Penn's restructuring plan disallows approximately
$1 billion in stranded costs. $830 million of that amount relates to the
administrative determination of market value adopted by the PaPUC. Allegheny
has testified that this disallowance will cause severe financial harm.
Duquesne's restructuring plan, by contrast, permits recovery of all but
$140 million of Duquesne's stranded costs. The positive results associated with
this plan are due to the PaPUC's acceptance of divestiture as the means for
determining Duquesne's generation-related stranded costs. All customer
representatives, including the City of Pittsburgh, the Office of Consumer
Advocate, the Industrial Intervenors, and the PaPUC Trial Staff, strongly
supported this proposal as the fairest method for determining and mitigating
stranded costs.
In April 1997, when DQE and Allegheny entered into the merger agreement,
Pennsylvania had recently adopted the Customer Choice Act, which required both
Duquesne and West Penn to file restructuring plans to recover their stranded
costs. The merger agreement provided for the possibility that the PaPUC orders
could adversely affect one company such that the other would not be obligated to
close the transaction. That, unfortunately, has now occurred. DQE cannot,
under these circumstances, proceed with the transaction.
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Mr. Alan J. Noia
July 28, 1998
Page 2
It also is relevant that, in addition to the disallowances incurred by West
Penn, Duquesne would incur an additional $370 million disallowance if the merger
were to be consummated. Together, the stranded cost disallowances applicable to
the merged company under the merger restructuring plan would total $1.5 billion.
Of that amount, $1.2 billion would represent the disallowances associated with
the PaPUC's administrative determination of stranded costs ($830 million for
West Penn; $370 million for Duquesne).
DQE also does not accept the market power mitigation conditions contained
in the PaPUC's July 23, 1998 order on reconsideration. The conditions institute
another trial at the PaPUC on market power in January 2000. The PaPUC will have
the authority, at the conclusion of the trial, to order 2500 MW of divestiture
and to exercise authority over which plants are sold and which purchasers are
eligible to bid on them. This is particularly troublesome given that, once the
plants are sold, there is no provision for adjusting the companies' stranded
cost recovery, including for generation synergies foregone as a result of the
divestiture. Both companies have previously stated that a merger approval
containing such an open-ended condition would be unacceptable.
In consideration of the foregoing, DQE's Board of Directors has concluded
that it cannot, consistent with its fiduciary duty to shareholders, consummate
the merger under these circumstances.
Having now received final PaPUC orders, DQE believes that it currently has
the right to terminate the agreement unilaterally on several grounds. However,
in view of the considerable efforts that both companies have spent on this
project, and out of respect for you and Allegheny's Board of Directors, we
invite Allegheny to join with us in promptly agreeing to a termination by mutual
consent. Such a mutual termination would permit both companies to return to
business in the ordinary course and devote their full attention to a timely
implementation of retail choice in Pennsylvania while avoiding the distractions
that could be associated with a unilateral termination. In the event, however,
that Allegheny is not willing to consider such a termination by mutual consent,
please be advised that DQE will exercise its right to terminate the agreement
unilaterally not later than the October 5, 1998 date set forth in Section 8.2 if
circumstances do not change sufficiently to remedy the adverse effects described
above.
Consistent with its obligations under the securities laws, DQE will
disclose this letter publicly.
Sincerely,
/s/ David
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Exhibit 99.2
Information
for the
Financial
Community
LOGO OF DQE
Box 68
Pittsburgh, PA 15230-0068 Financial Data
Second Quarter & Year Ended June 30
(All figures in thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
June 30, June 30,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Total operating revenues $ 300,760 $284,000 $1,228,375 $1,219,904
Net income <loss> after
restructuring charge ($42,344) $ 46,778 $ 110,012 $ 189,736
Net income excluding
non-recurring items $ 40,204(a) $ 39,760(b) $ 186,336(a, c) $ 182,718(b)
Average number of common
shares outstanding 77,720 77,394 77,671 77,275
Basic earnings (loss) per share
of common stock ($0.54) $ 0.61 $ 1.42 $ 2.46
Basic earnings per share of
common stock excluding
non-recurring items $ 0.52(a) $ 0.52(b) $ 2.40(a,c) $ 2.37(b)
Dividend declared per share
of common stock $ 0.36 $ 0.34 $ 1.42 $ 1.34
</TABLE>
(a) Earnings per share of common stock excluding the extraordinary
restructuring charge in June 1998
(b) Excluding non-recurring $.09 gain associated with sale of Chester
Engineers in May 1997
(c) Excluding non-recurring $.08 gain associated with sale of Exide
Electronics' stock in November 1997.
Duquesne Light Company, an electric utility, is the largest of the DQE
subsidiaries, and had the following sales in millions of kilowatt-hours for the
periods indicated.
<TABLE>
<CAPTION>
Direct Sales:
<S> <C> <C> <C> <C>
Residential 687 697 3,192 3,253
Commercial 1,338 1,338 5,595 5,663
Industrial 840 875 3,501 3,382
Other 17 20 76 83
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Total sales to customers 2,882 2,930 12,364 12,381
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</TABLE>
July 28, 1998
