<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549



                                   FORM 10-K



     [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

          For the Fiscal Year Ended December 31, 1995
                                    -----------------

     [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

          For the Transition Period From ____________ to ____________


                            Commission File Number
                            ----------------------
                                     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

                                   Formerly:

                      One Oxford Centre, 301 Grant Street
                        Pittsburgh, Pennsylvania  15279
                        -------------------------------
              (Address of principal executive offices)(Zip Code)

      Registrant's telephone number, including area code:  (412) 393-6000


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.  Yes  X    No 
                       ---      ---

DQE is the holder of all shares of outstanding common stock, $1 par value, of
Duquesne Light Company consisting of 10 shares as of February 21, 1996.

     [X]  Indicate by check mark if disclosure of delinquent filers pursuant to
          Item 405 of Regulation S-K is not contained herein, and will not be
          contained, to the best of the registrant's knowledge, in definitive
          proxy or information statements incorporated by reference in Part III
          of this Form 10-K or any amendment to this Form 10-K.
<PAGE>
 
Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
                                                          Name of each exchange
  Registrant            Title of each class               on which registered
--------------     ------------------------------        -----------------------
<S>                <C>                                   <C>
Duquesne Light     Preferred Stock (par value $50)       New York Stock Exchange
  Company
</TABLE>

<TABLE>
<CAPTION>
                       Involuntary
     Series         Liquidation Value
     ------         -----------------
<S>                 <C>
      3.75%           $50 per share
      4.00%           $50 per share
      4.10%           $50 per share
      4.15%           $50 per share
      4.20%           $50 per share
     $2.10            $50 per share
</TABLE>


   Sinking Fund Debentures, due March 1, 2010 (5%)  New York Stock Exchange
<PAGE>
 
              TABLE OF CONTENTS

                          
                   PART I                 Page
                                          ----

ITEM 1.  BUSINESS
 
  General                                    1
  Results of Operations                      1
   Liquidity and Capital Resources           5
  Rate Matters                               6
  Property Plant & Equipment (PP&E)          7
  Employees                                 10
  Electric Utility Operations               10
  Fossil Fuel                               11
  Nuclear Fuel                              11
  Nuclear Decommissioning                   12
  Nuclear Insurance                         13
  Spent Nuclear Fuel Disposal               13
  Uranium Enrichment Decontamination and
    Decommissioning Fund                    14
  Environmental Matters                     14
  Outlook                                   15
  Other                                     17
  Executive Officers of the Registrant      18
 
ITEM 2.  PROPERTIES                         20
 
ITEM 3.  LEGAL PROCEEDINGS                  21
 
ITEM 4.  SUBMISSION OF MATTERS TO A
         VOTE OF SECURITY HOLDERS           21

 
                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S
         COMMON EQUITY AND RELATED
         SHAREHOLDER MATTERS                 21
 
ITEM 6.  SELECTED FINANCIAL DATA             22
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND
         ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS           22
 
ITEM 8.  CONSOLIDATED FINANCIAL
         STATEMENTS AND SUPPLEMENTARY
         DATA                                22
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS
         WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL
         DISCLOSURE                         22
 
 
                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE
         OFFICERS OF THE REGISTRANT         22
 
ITEM 11. EXECUTIVE COMPENSATION             22
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
         BENEFICIAL OWNERS AND
         MANAGEMENT                         22
 
ITEM 13. CERTAIN RELATIONSHIPS AND
         RELATED TRANSACTIONS               23
 
 
                   PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
         SCHEDULES AND REPORTS ON
         FORM 8-K                           23
 
         SCHEDULE II                        35
 
         SIGNATURES                         36
 
         GLOSSARY                           37

         REPORT OF INDEPENDENT
         CERTIFIED PUBLIC ACCOUNTANTS       38
 
         FINANCIAL STATEMENTS               39
 
         SELECTED FINANCIAL DATA            63

<PAGE>
 
                                    PART I
ITEM 1.  BUSINESS.

General
-------------------------------------------------------------------------------
 
Part I of this Annual Report, Form 10-K (Report) should be read in conjunction
with Duquesne's audited consolidated financial statements, which are set forth
on pages 38 through 62 in Part IV of this Report. Explanations of certain
financial and operating terms used in this Report are set forth in a glossary on
page 37 of this Report.

     Duquesne Light Company (Duquesne) is a wholly owned subsidiary of DQE, an
energy services holding company formed in 1989. Duquesne is engaged in the
production, transmission, distribution and sale of electric energy. Duquesne was
formed under the laws of Pennsylvania by the consolidation and merger in 1912 of
three constituent companies. Duquesne has one wholly owned subsidiary,
Monongahela Light and Power, also a Pennsylvania corporation, which currently
holds energy related lease investments.


Service Territory

     Duquesne provides electric service to customers in Allegheny County,
including the City of Pittsburgh, and Beaver County. This represents a service
territory of approximately 800 square miles in southwestern Pennsylvania. The
population of the area served by Duquesne, based on 1990 census data, is
approximately 1,510,000, of whom 370,000 reside in the City of Pittsburgh. In
addition to serving approximately 580,000 customers within this service area,
Duquesne also sells electricity to other utilities beyond its service territory.


Regulation

     Duquesne's operations are subject to regulation by the Pennsylvania Public
Utility Commission (PUC), as well as to regulation by the Federal Energy
Regulatory Commission (FERC) under the Federal Power Act with respect to rates
for interstate sales, transmission of electric power, accounting and other
matters.

     Duquesne's operations are also subject to regulation by the Nuclear
Regulatory Commission (NRC) under the Atomic Energy Act of 1954, as amended,
with respect to the operation of its jointly owned/leased nuclear power plants,
Beaver Valley Unit 1 (BV Unit 1), Beaver Valley Unit 2 (BV Unit 2) and Perry
Unit 1. Duquesne is also subject to the accounting and reporting requirements of
the United States Securities and Exchange Commission.

     Duquesne's consolidated financial statements report regulatory assets and
liabilities in accordance with Statement of Financial Accounting Standards No.
71, Accounting for the Effects of Certain Types of Regulation (SFAS No. 71) and
reflect the effects of the ratemaking process. In accordance with SFAS No. 71,
Duquesne's consolidated financial statements reflect regulatory assets and
liabilities based on current cost-based ratemaking regulations. The regulatory
assets represent probable future revenue to Duquesne because provisions for
these costs are currently included, or are expected to be included, in charges
to electric utility customers through the ratemaking process.

     Duquesne's operations currently satisfy the SFAS No. 71 criteria. However,
a company's utility operations or a portion of such operations could cease to
meet these criteria for various reasons, including a change in the PUC or the
FERC regulations. Should Duquesne's operations cease to meet the SFAS No. 71
criteria, Duquesne would be required to write off any regulatory assets or
liabilities for those operations that no longer meet these requirements.
Management will continue to evaluate significant changes in the regulatory and
competitive environment in order to assess Duquesne's overall consistency with
the criteria of SFAS No. 71.


Results of Operations
-------------------------------------------------------------------------------

Seasonality

     Sales of electricity to customers by Duquesne tend to increase during the
warmer summer and colder winter seasons because of greater customer use of
electricity for cooling and heating.

                                       1
<PAGE>
 
     In the near term, weather conditions and the overall level of business
activity in Duquesne's service territory are expected to continue to be the
primary factors affecting sales of electricity to customers. In the long-term,
Duquesne's electric sales may also be affected by increased competition in the
electric utility industry. (See "Competition" discussion on page 15.)


Sales of Electricity to Customers

     Operating revenues are derived from Duquesne's sales of electricity to
customers and are based on rates authorized by the PUC. These rates are cost-
based and are designed to recover Duquesne's energy and other operating expenses
and investment in electric utility assets and to provide a return on such
investment. Sales to Duquesne's 20 largest customers accounted for 14.2 percent
and 14.6 percent of customer revenues in 1995 and 1994, respectively. Sales to
USX Corporation, Duquesne's largest customer, accounted for 3.7 percent and 3.8
percent of total 1995 and 1994 customer revenues, respectively. Total kilowatt-
hour (KWH) sales to customers in 1995 increased 2.5 percent when compared to KWH
sales to customers in 1994. In response to extreme 1995 summer and winter
temperatures, residential and commercial KWH sales increased 4.9 percent and 3.0
percent, respectively. Industrial sales volume in 1995 declined when compared to
the prior year because of temporary production facility outages experienced by
some of Duquesne's large industrial customers. The severe weather conditions in
1995 also resulted in higher residential KWH sales volume when compared to 1993.

Components of Change in Operating Revenues from the Prior Year
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                    1995      1994
<S>                                                 <C>       <C>
                                    (Amounts in Millions of Dollars)
-------------------------------------------------------------------------------
Revenues from Sales of Electricity:
  Net customer revenues                             $ 7.8     $ 6.0 
  Utilities                                          (2.3)      7.6
-------------------------------------------------------------------------------
    Revenues from total sales of electricity          5.5      13.6 
-------------------------------------------------------------------------------
Other operating revenues                              5.7      (5.7)
-------------------------------------------------------------------------------
    Total Operating Revenues                        $11.2     $ 7.9 
=============================================================================== 
</TABLE>

     Customer revenues fluctuate as a result of changes in sales volume and
changes in fuel and other energy costs.

     Net customer revenues in 1995 when compared to 1994 increased by $7.8
million, or 0.7 percent. The change is the net result of higher sales, partially
offset by lower energy costs per megawatt hour (MWH), the benefits of which are
passed through to the customers in the form of lower rates. The significantly
hotter summer temperatures in 1995 resulted in increased sales of electricity to
residential customers in particular. Revenues attributable to electric sales to
residential customers in 1995 exceeded 1994 residential revenues by $13.2
million, or 3.3 percent. Net customer revenues also increased $6.0 million, or
0.6 percent, in 1994 when compared to 1993. The 1994 variation represented
higher sales to commercial and industrial customers, driven in part by an
expanded customer base.

     Net customer revenues for 1994 and 1993 include phase-in deferrals that
represented the deferral and subsequent recovery of revenues resulting from a
$232 million rate increase granted in early 1988. The PUC required Duquesne to
phase this increase in during a six-year period, which ended in April 1994.
During this phase-in period, the rate increase was recognized in operating
revenues. (See "1987 Rate Case" discussion in Note F to the consolidated
financial statements on page 48.)


Sales to Other Utilities

     Short-term sales to other utilities are regulated by the FERC and are made
at market rates. Short-term power sales to other utilities in 1995, 1994 and
1993 were 2,974,797 KWH, 3,212,110 KWH and 2,820,920

                                       2
<PAGE>
 
KWH, respectively. Fluctuations in electricity sales to other utilities are
related to Duquesne's customer energy requirements, the energy market and
transmission conditions and the availability of Duquesne's generating stations.
Revenues from sales to other utilities were $56.0 million, $58.3 million and
$50.7 million in 1995, 1994 and 1993, respectively. Sales to other utilities
were less prevalent in 1995 than in 1994 because severe weather conditions
resulted in greater sales to Duquesne's customers. (See "Sales of Electricity to
Customers" discussion on page 2.) Increased customer sales reduce power
available to sell to other utilities. Future levels of short-term sales to other
utilities will be affected by the resolution of Duquesne's proposed sale of its
ownership interest in the Ft. Martin Power Station and by the outcome of
Duquesne's FERC filings requesting firm transmission access. (See "Sale of Ft.
Martin" and "Transmission Access" discussions on pages 9 and 16, respectively.)

     Generally, Duquesne is permitted to recover (to the extent that such
amounts are not included in base rates) fuel and other energy costs from its
customers through an Energy Cost Rate Adjustment Clause (ECR), subject to the
PUC review. This revenue adjustment also includes a credit to Duquesne's
customers for profits from short-term sales to other utilities. The credit to
Duquesne's customers for profits from short-term sales to other utilities was
$15.5 million in 1995, $16.6 million in 1994 and $12.1 million in 1993. Included
in a petition currently before the PUC, Duquesne proposes a five-year annual $5
million credit to the ECR to compensate Duquesne's customers for the lost
profits from any reduced short-term power sales caused by the sale of its
ownership interest in the Ft. Martin Power Station. (See "Energy Cost Rate
Adjustment Clause (ECR)" and "Sale of Ft. Martin" discussions on pages 6 and 9,
respectively.)


Other Operating Revenues

     Duquesne's non-KWH revenues comprise other operating revenues in Duquesne's
statement of consolidated income. Other operating revenues are primarily
comprised of revenues from joint owners of BV Unit 1 and BV Unit 2 for their
shares of the administrative and general costs of operating these units. Other
operating revenues, therefore, fluctuate depending on the timing of scheduled
refueling and maintenance outages at Beaver Valley Power Station (BVPS) when
significant costs are incurred. Both BV Unit 1 and BV Unit 2 underwent refueling
outages in 1995 and in 1993. There were no refueling outages in 1994;
accordingly, other operating revenues increased $5.7 million in 1995, when
compared to the prior year. Conversely, other operating revenues decreased $5.7
million in 1994 when compared to 1993.


Operating Expenses

     Total operating expenses increased $6.5 million in 1995 when compared to
1994. Total operating expenses increased from 1993 to 1994 by $8.9 million. Fuel
and purchased power expense fluctuations generally result from changes in the
cost of fuel, the mix between coal and nuclear generation, the total KWHs sold
and generating station availability. Because of the ECR, changes in fuel and
purchased power cost normally do not impact earnings.


Components of Change in Fuel and Purchased Power Expense from the Prior Year
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                1995            1994
<S>                                             <C>             <C>
                                      (Amounts in Millions of Dollars)
-------------------------------------------------------------------------------
Average unit cost of fuel                     $ (2.3)           $(3.4)
Generation mix                                  (5.2)            (5.5)
Generation volume                               (6.4)             7.6
Purchased power                                  1.7              7.7
-------------------------------------------------------------------------------
    Total Energy Expense                      $(12.2)           $ 6.4
=============================================================================== 
</TABLE>

     The average unit cost of fuel is based on fuel costs divided by generation.
The average unit cost of fuel decreased in 1995 when compared to 1994 and 1993
largely because of lower nuclear fuel costs.

                                       3
<PAGE>
 
     Generation mix impacts fuel expense as Duquesne's nuclear fuel cost per KWH
is less than its fossil fuel cost per KWH. During 1993, compared to 1994 and
1995, Duquesne had more nuclear station outages, resulting in less nuclear
generation and more fossil fuel and purchased power expense.

     Generation volume during 1995 decreased 2.7 percent when compared to 1994
due to more generating station outages. Overall nuclear generation increased in
1995 due to strong performances at the nuclear units. (See "Beaver Valley Power
Station (BVPS)" and "Perry Unit 1" discussions on page 9.) Major outages at coal
stations, including an extended forced outage at the Ft. Martin Power Station,
resulted in reduced coal generation which more than offset the increased nuclear
generation. During 1994, generation increased 3.4 percent from 1993 due to fewer
generating station outages.

     Purchased power volume increased in 1995 when compared to 1994 primarily
due to generating station outages during periods of extreme weather conditions.
Purchased power volume increased in 1994 when compared to 1993 primarily due to
the performance of Perry Unit 1.

     Other operating expense continued to decrease in 1995. The $7.8 million
decrease from 1994 to 1995 and the $18.9 million decrease from 1993 to 1994, are
largely attributable to cost reduction measures instituted by Duquesne.

     Maintenance expense fluctuations primarily result from the timing of
scheduled generating station outages, the timing of scheduled transmission and
distribution line maintenance and the effect of storms on overhead lines and
transformers. Incremental maintenance expense incurred for scheduled refueling
outages at Duquesne's nuclear units is deferred for amortization over the period
between refueling outages (generally 18 months). Influenced by extreme weather
conditions and the timing of outages at both fossil and nuclear stations,
maintenance costs incurred by Duquesne in 1995 exceeded the prior year by $2.0
million. During 1994 and 1993, amortization of deferred nuclear refueling outage
expense increased, reflecting the higher costs of refueling outages. Offsetting
this increase in 1994 was a decrease in transmission and distribution line
maintenance expense.

     Duquesne changed, as of January 1, 1993, its method of accounting for
maintenance costs during scheduled major fossil generating station outages.
Under the new accounting policy, Duquesne accrues, over the periods between
outages, anticipated expenses for scheduled major fossil generating station
outages. The cumulative effect (approximately $5.4 million, net of income taxes
of approximately $3.9 million) of the change on prior years was included in net
income in 1993. The effect of the change in 1993 was to reduce income, before
the cumulative effect of changes in accounting principles, by approximately $2.4
million and to reduce net income, after the cumulative effect of changes in
accounting principles, by approximately $7.8 million.

     Depreciation and amortization expense increased $25.9 million in 1995,
primarily due to the change in Duquesne's composite depreciation rate from 3.0
percent to 3.5 percent effective January 1, 1995. Depreciation and amortization
expense increased $12.3 million in 1994 when compared to the prior year due to
increases in depreciable property and nuclear decommissioning expense.

     As part of Duquesne's plan to optimize generation capacity, a petition
pending before the PUC proposes an annual increase in depreciation and
amortization expense related to Duquesne's nuclear power investment of $25
million for three years. Consistent with the 1995 increase in the composite
depreciation rate, Duquesne is not seeking a rate increase to recover these
additional costs. (See "Sale of Ft. Martin" discussion on page 9.)

     Taxes other than income taxes were lower in 1993 compared to 1995 and 1994,
primarily as a result of a favorable resolution of certain property tax
assessments. In 1993, Duquesne recorded, on the basis of these revised
assessments, the expected refunds for overpayments in prior years.

     Income taxes were lower in 1993, when compared to 1995 and 1994, because of
a favorable settlement with the Internal Revenue Service (related to Duquesne's
1988 federal income tax return and DQE's 1989 consolidated federal income tax
return). The remaining fluctuations result from changes in taxable income.
During 1994 the statutory Pennsylvania income tax rate was reduced from 12.25
percent to 9.99 percent.

                                       4
<PAGE>
 
This resulted in a net decrease of $80.5 million in deferred tax liabilities and
a corresponding reduction in the regulatory receivable.


Other Income and Deductions

     Other income and deductions decreased $4.9 million in 1995 when compared to
1994 primarily due to increases in income taxes related to other income. The
$5.4 million decrease in other income and deductions from 1993 to 1994 reflects
the favorable corporate federal income tax settlements recorded in 1993 offset
that year by a $15.2 million long-term power sale write-off.


Capital Expenditures

     Duquesne spent approximately $78.7 million in 1995, $94.3 million in 1994
and $100.6 million in 1993 for construction. These amounts were expended to
improve and/or expand electric production, transmission and distribution
systems. Duquesne's capital expenditures for construction focus on extending
service to new customers, providing for the replacement of utility property and
modifying facilities consistent with the most current environmental and safety
regulations. Duquesne estimates that it will spend, excluding the allowance for
funds used during construction (AFC) and nuclear fuel, approximately $90
million, $90 million and $100 million for construction during 1996, 1997 and
1998, respectively. Approximately $5 million of capital expenditures for
reliability enhancements to the simple cycle units located at Brunot Island (BI)
contemplated in Duquesne's petition before the PUC are excluded from these
estimates. (See "Sale of Ft. Martin" discussion on page 9.) Duquesne expects
that funds generated from operations will continue to be sufficient to finance a
large part of its capital needs.


Investing

     Duquesne's long-term investments consist of Duquesne's holdings of DQE
common stock, investments in affordable housing, leasehold and other
investments, and Duquesne's nuclear decommissioning trusts. Investing activities
increased in 1995, after staying relatively constant in 1994 when compared to
1993. Duquesne invested $5.4 million and $5.3 million in affordable housing
funds during 1995 and 1994, respectively. In addition, Duquesne invested $57.5
million in other leases and investments during 1995.


Liquidity and Capital Resources
-------------------------------------------------------------------------------

Financing

     Duquesne expects to meet its current obligations and debt maturities
through the year 2000 with funds generated from operations and through new
financings. At December 31, 1995, Duquesne was in compliance with all of its
debt covenants.

     Duquesne's 1947 first mortgage bond indenture was retired in the third
quarter of 1995 following the maturity of the last bond series issued under the
indenture. All of Duquesne's First Collateral Trust Bonds have been issued under
a new mortgage indenture that was established in April 1992 (the 1992
Indenture). All First Collateral Trust Bonds became first mortgage bonds when
the 1947 mortgage indenture was retired. The 1992 Indenture includes more
flexible provisions and eliminates conventions such as mandatory sinking funds
and formula-derived maintenance and replacement clauses.

     On September 1, 1995, Duquesne redeemed all of its outstanding shares of
$7.20 Preferred Stock for $29.9 million. On August 29, 1995, Duquesne
repurchased $7 million of its 8-3/8% First Collateral Trust Bonds maturing in
2024.

     In May 1996, $50.0 million of First Collateral Trust Bonds will mature.
Duquesne expects to retire these bonds with internally generated funds or to
refinance the bonds.

                                       5
<PAGE>
 
Short-Term Borrowings

     At December 31, 1995, Duquesne had an extendible revolving credit
agreements with a group of banks totaling $150 million. This facility expires in
October 1996. Interest rates on this credit agreement vary. Commitment fees are
based on the unborrowed amount of the commitments. The credit facility contains
a two-year repayment period for any amount outstanding at the expiration of the
revolving credit period. At December 31, 1995 and 1994, there were no short-term
borrowings outstanding.


Interest Charges

     Duquesne achieved a $3.8 million and a $9.1 million reduction in interest
charges in 1995 and 1994, respectively, primarily due to the retirement of long-
term debt. Duquesne's interest on long-term debt and dividends on preferred and
preference stock declined to $100.7 million in 1995 from $107.1 million in 1994
and $117.7 million in 1993. Interest expense in 1996 will be influenced by
fluctuations in short-term rates and any new financing.


Sale of Accounts Receivable

     Duquesne and an unaffiliated corporation have an agreement that entitles
Duquesne to sell, and the corporation to purchase, on an ongoing basis, up to
$50 million of accounts receivable. At December 31, 1995, Duquesne had sold $7
million of receivables to the unaffiliated corporation. Duquesne had no
receivables sold at December 31, 1994. The accounts receivable sales agreement,
which expires in June 1996, is one of many sources of funds available to
Duquesne. Duquesne may attempt to extend the agreement, or to replace the
facility with a similar one or to eliminate it upon expiration.


Nuclear Fuel Leasing

     Duquesne finances its acquisitions of nuclear fuel through a leasing
arrangement under which it may finance up to $75 million of nuclear fuel. As of
December 31, 1995, the amount of nuclear fuel financed by Duquesne under this
arrangement totaled approximately $40.8 million. Duquesne plans to continue
leasing nuclear fuel to fulfill its requirements at least through September
1998, the remaining term of the leasing arrangement.


Rate Matters
--------------------------------------------------------------------------------

     Electric rates charged by Duquesne to its customers are regulated by the
PUC. Electric rates charged to the Borough of Pitcairn and rates charged for
sales to other electric utilities are regulated by the FERC. These rates are
designed to recover Duquesne's operating expenses, investment in utility assets,
and to provide a return on those investments. Sales to other utilities are made
at market rates. At this time, Duquesne has no pending base rate case and has no
immediate plans to file a base rate case. In Duquesne's petition currently
before the PUC for the sale of its ownership interest in the Ft. Martin Power
Station, Duquesne proposes to freeze its base rates for a five-year period. (See
"Sale of Ft. Martin" discussion on page 9.)


Energy Cost Rate Adjustment Clause (ECR)

     Through the ECR, Duquesne recovers (to the extent that such amounts are not
included in base rates) nuclear fuel, fossil fuel and purchased power expenses
and, also through the ECR, passes to its customers the profits from short-term
power sales to other utilities (collectively, ECR energy costs). Nuclear fuel
expense is recorded on the basis of the quantity of electric energy generated
and includes such costs as the fee imposed by the United States Department of
Energy (DOE) for future disposal and ultimate storage and disposition of

                                       6
<PAGE>
 
spent nuclear fuel. Fossil fuel expense includes the costs of coal, natural gas
and fuel oil used in the generation of electricity.

     On Duquesne's statement of consolidated income, these ECR revenues are
included as a component of operating revenues. For ECR purposes, Duquesne defers
fuel and other energy expenses for recovery, or refunding, in subsequent years.
The deferrals reflect the difference between the amount that Duquesne is
currently collecting from customers and its actual ECR energy costs. The PUC
annually reviews Duquesne's ECR energy costs for the fiscal year April through
March, compares them to previously projected ECR energy costs and adjusts the
ECR for over- or under-recoveries and for two PUC-established coal cost
standards. (See "Deferred Coal Costs" and "Warwick Mine Costs" discussions in
Note F to the consolidated financial statements on pages 49 and 50,
respectively.)


     Over- or under-recoveries from customers are recorded on the consolidated
balance sheet as payable to, or receivable from, customers. At December 31,
1995, $5.8 million was payable to customers and shown as other current
liabilities. At December 31, 1994, $5.9 million was receivable from customers
and shown as other current assets.


Deferred Rate Synchronization Costs

     In 1987, the PUC approved Duquesne's petition to defer initial operating
and other costs of Perry Unit 1 and BV Unit 2. Duquesne deferred the costs
incurred from November 17, 1987, when the units went into commercial operation,
until March 25, 1988, when a rate order was issued. In its order, the PUC
postponed ruling on whether these costs would be recoverable from Duquesne's
customers. At December 31, 1995, these costs totaled $51.1 million, net of
deferred fuel savings related to the two units. Duquesne is not earning a return
on the deferred costs. Duquesne believes that these costs are recoverable. In
1990 and 1995, the PUC permitted other Pennsylvania electric utilities rate
recovery of such costs.


Property, Plant and Equipment (PP&E)
--------------------------------------------------------------------------------

Investment in PP&E and Accumulated Depreciation

     Duquesne's total investment in property, plant and equipment and the
related accumulated depreciation balances for the following major classes of
property at December 31, 1995 and 1994, are as follows:

PP&E and Related Accumulated Depreciation at December 31
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                  (Amounts in Thousands of Dollars)
                                                          1995                                            1994
                                       -------------------------------------------------------------------------------------------- 
                                                         Accumulated      Net                          Accumulated          Net  
                                       Investment        Depreciation  Investment       Investment    Depreciation       Investment
                                       -------------------------------------------------------------------------------------------- 

<S>                                    <C>              <C>            <C>              <C>           <C>                <C>
Electric Production                    $2,501,974       $  885,389     $1,616,585        $2,474,032     $  796,338       $1,677,694
Electric Transmission                     296,953          110,242        186,711           295,512        105,217          190,295
Electric Distribution                   1,143,111          347,399        795,712         1,119,247        323,922          795,325
Electric General                          314,844          141,133        173,711           305,335        123,766          181,569
Property Held for Future Use              216,633           94,283        122,350           216,206         94,283          121,923
Property Held Under Capital Lease         133,381           74,874         58,507           161,775         91,376           70,399
Other                                      45,114           19,787         25,327            46,859         15,545           31,314
------------------------------------------------------------------------------------------------------------------------------------
Total                                  $4,652,010       $1,673,107     $2,978,903        $4,618,966     $1,550,447       $3,068,519
====================================================================================================================================

</TABLE>

                                       7
<PAGE>
 
Joint Interests in Generating Units

     Duquesne has various contracts with The Potomac Edison Company, Monongahela
Power Company, Ohio Edison Company, Pennsylvania Power Company, The Cleveland
Electric Illuminating Company (CEI) and The Toledo Edison Company that include
provisions for coordinated maintenance responsibilities, limited and qualified
mutual back-up in the event of outages and certain capacity and energy
transactions.

     Under the agreements governing the operation of these jointly owned
generating units, the day-to-day operating authority is assigned to a specific
company.  CEI has such authority for Perry Unit 1 and Eastlake Unit 5; Ohio
Edison Company has authority for Sammis Unit 7; Pennsylvania Power Company has
authority for Bruce Mansfield Units 1, 2 and 3; and Monongahela Power Company
operates Ft. Martin Unit 1.

     In September 1995, Duquesne served a demand for arbitration on CEI seeking,
among other things, a partition of Eastlake Unit 5 through a sale of Duquesne's
interest therein and a termination of its operating agreement with CEI for that
unit. The demand alleges, among other things, the improper allocation by CEI of
fuel and related costs between itself and Duquesne; the mismanagement by CEI of
the closing of the Saginaw Mine, which historically supplied coal to the unit;
and the concealment by CEI of information. In October 1995, CEI filed its own
arbitration demand and asserted counterclaims seeking Duquesne's alleged share
of costs relating to the unit. A panel of arbitrators has been appointed.

     Duquesne has a joint interest in the following nuclear power stations with
the following companies:

<TABLE>
<CAPTION>
 
                                                  Beaver Valley          
                                             ----------------------      Perry
                                              Unit 1         Unit 2      Unit 1
                                             -------       --------      ------
<S>                                          <C>          <C>           <C>
Duquesne                                     * 47.50%     * 13.74% (c)    13.74%
Ohio Edison Company                            35.00%       41.88%        30.00%
Pennsylvania Power Company (a)                 17.50%           -          5.24%
CEI (b)                                            -        24.47%      * 31.11%
Toledo Edison Company (b)                          -        19.91%        19.91%
</TABLE>

*Denotes Operator
(a) Subsidiary of Ohio Edison Company
(b) Subsidiary of Centerior Energy Corporation
(c) In 1987, Duquesne sold and subsequently leased back its 13.74 percent
interest in BV Unit 2; the sale was exclusive of transmission and common
facilities.  The total sales price of $537.9 million was the appraised value of
Duquesne's interest in the property.  Duquesne leased back its interest in the
unit for a term of 29.5 years.  The lease provides for semiannual payments and
is accounted for as an operating lease. Duquesne is responsible under the terms
of the lease for all costs of its interest in the unit. (See "Property, Plant
and Equipment," Note B to the consolidated financial statements on page 46.)

     Duquesne has a joint interest in the following fossil plants with the
following companies:

<TABLE>
<CAPTION>
 
                                                      Bruce Mansfield                         Ft.
                                  Sammis      -----------------------------     Eastlake     Martin
                                  Unit 7      Unit 1      Unit 2     Unit 3      Unit 5      Unit 1
                                  -----       ------      ------     ------      ------      ------     
<S>                               <C>         <C>        <C>        <C>         <C>         <C>  
Duquesne                           31.20%      29.30%      8.00%     13.74%       31.20%      50.00%
Ohio Edison Company               *48.00%      60.00%     39.30%     35.60%           -           -
Pennsylvania Power Company (a)     20.80%     * 4.20%    * 6.80%    * 6.28%           -           -
CEI (b)                                -        6.50%     28.60%     24.47%      *68.80%          -
Toledo Edison Company (b)              -           -      17.30%     19.91%           -           -
Potomac Edison Company (c)             -           -          -          -            -       25.00%
Monongahela Power Company (c)          -           -          -          -            -     * 25.00%
</TABLE>

*Denotes Operator
(a) Subsidiary of Ohio Edison Company
(b) Subsidiary of Centerior Energy Corporation
(c) Subsidiary of, and currently known as, Allegheny Power System

                                       8
<PAGE>
 
Beaver Valley Power Station

     BVPS continues to demonstrate excellence in operating performance. During
1995, BV Unit 1 and BV Unit 2 both underwent scheduled refueling outages, which
were completed in the shortest duration in both the units' history. Further
exemplifying BVPS' accomplishments, both refueling outages were completed under
budgeted cost. In spite of these scheduled refueling outages, the combined
capacity factor for the units averaged 80 percent during 1995. Capacity factor
is a key production measure and indicates how well the plant operated based on
its design capacity. It is the ratio of the power actually generated by a
facility to the facility's rated capacity during a given period of time. Also,
BV Unit 2 achieved an unplanned capability loss factor of 0.7 percent, which is
significantly better than the industry standard of 4.0 percent. This factor
measures how much power production was lost due to unplanned outages.

     In addition to optimizing generation and cost efficiency, BVPS management
continues to emphasize safety in operations. During 1995, BVPS employees
achieved the milestone of more than three million hours worked without incurring
a single lost time accident.


Perry Unit 1

     Duquesne has a 13.74 percent ownership interest in Perry Unit 1, a nuclear
generating unit located in Ohio and operated by CEI. Perry Unit 1 experienced
improved performance during 1995, a year without a refueling outage, and
achieved a capacity factor of 87.5 percent. CEI has submitted to the NRC an
action plan, called the Perry Course of Action (PCA). CEI management continues
to represent to Duquesne that the PCA is on schedule and will be an effective
program to ensure that Perry Unit 1 is in conformance with applicable industry
standards. The PCA is scheduled to be completed by the end of Perry Unit 1's
fifth refueling outage, presently scheduled for the spring of 1996. Duquesne
cannot predict the effectiveness of the PCA. Duquesne will continue to monitor
closely this situation.


Sale of  Ft. Martin

     On November 29, 1995, Duquesne and AYP Capital, Inc., an unregulated
subsidiary of the Allegheny Power System (APS), entered into an agreement for
the sale of Duquesne's 50 percent ownership interest in Unit 1 of the Ft. Martin
Power Station, for the sum of $169 million. The agreement is subject to all
necessary regulatory approvals. On December 20, 1995, Duquesne filed a Petition
for Declaratory Order with the PUC requesting approval for the sale in
conjunction with a six-point plan to be financed in part by the proceeds of the
Ft. Martin transaction.

     Under the plan, Duquesne offers to freeze its base rates for a period of
five years. If approved, the rate freeze is expected to produce a 14 percent
reduction in the real price of electricity based on an average annual inflation
rate of 2.7 percent. In addition, Duquesne proposes to record a one-time
reduction of approximately $130 million in the value of Duquesne's nuclear plant
investment. Duquesne also proposes to use the proceeds from the sale to finance
reliability enhancements to the simple cycle units located at BI, to retire debt
and to reduce equity. The BI simple cycle units will provide 135 megawatts (MW)
of summer peaking capacity and 168 MW of winter peaking capacity and permit
Duquesne to achieve greater operational flexibility in meeting peak system
demands. The plan also proposes an annual increase of $25 million for three
years in depreciation and amortization expense related to Duquesne's nuclear
investment, as well as additional annual contributions to its nuclear plant
decommissioning funds of $5 million for five years, without any increase in
existing electric rates. Lastly, Duquesne proposes a five-year annual $5 million
credit to the ECR to compensate Duquesne's customers for the lost profits from
any reduced short-term power sales foregone by the sale of its ownership
interest in the Ft. Martin Power Station. (See "Energy Cost Rate Adjustment
Clause (ECR)" discussion on page 6.)

     The PUC is currently reviewing Duquesne's petition.

                                       9
<PAGE>
 
Property Held for Future Use

     In 1986, the PUC approved Duquesne's request to remove Phillips Power
Station (Phillips) and a portion of BI from service and from rate base. Duquesne
expects to recover its net investment in these plants through future electricity
sales. Duquesne believes its investment in these plants will be necessary in
order to meet future business needs outlined in Duquesne's plans for optimizing
generation resources. (See "Generation Resource Optimization" discussion on page
17.) If business opportunities do not develop as expected, Duquesne will
consider the sale of these assets. In the event that market demand, transmission
access or rate recovery do not support the utilization or sale of the plants,
Duquesne may have to write off part or all of their costs. A portion of the BI
combustion turbine capacity currently held for future use may be returned to
service pending the outcome of the sale of Duquesne's ownership interest in Ft.
Martin. (See "Sale of Ft. Martin" discussion on page 9.) At December 31, 1995,
Duquesne's net investment in Phillips and BI held for future use was $77.4
million and $44.9 million, respectively.


Employees
--------------------------------------------------------------------------------

     At December 31, 1995, Duquesne had 3,515 employees, including 1,178
employees at Duquesne-operated BVPS. The International Brotherhood of Electrical
Workers (IBEW) union represents 2,086 of Duquesne's employees. The current
collective bargaining agreement with the IBEW expires on September 30, 1998.


Electric Utility Operations
--------------------------------------------------------------------------------

     Approximately 69 percent of the electric energy generated by Duquesne's
system during 1995 was produced by its coal-fired generating capacity and
approximately 31 percent was produced by its nuclear generating capacity.
Duquesne normally experiences its peak loads in the summer. The 1995 customer
system peak of 2,666 MW, the highest system peak in Duquesne's history, occurred
on August 16, 1995.

     Duquesne's fossil plants operated at 76 percent availability in 1995 and 85
percent availability in 1994. Duquesne's nuclear plants operated at 83 percent
availability in 1995 and 75 percent in 1994. The timing and duration of
scheduled maintenance and refueling outages, as well as the duration of forced
outages, affect the availability of power stations.

     Duquesne determines the need for and timing of generation resource
additions based on maintaining an adequate level of resources in reserve above
the projected weather normalized annual peak demand. In addition, capacity
resources throughout the region can supplement Duquesne's in-service generation
resources, if required, through Duquesne's substantial transmission import
capability, currently in excess of 4,000 MW. The North American Electric
Reliability Council, of which Duquesne is a member, uses "capacity margin" to
report generating capability when compared to customer demand. Capacity margin
is one of the criteria used by Duquesne in assessing the need for future
resources. Duquesne's capacity margin in 1995 was 11.7 percent. The capacity
portfolio reflected in Duquesne's capacity margin includes in-service generating
capacity, plus 21 MW capacity provided by non-utility generation contracts, plus
a portion of the capacity from property held for future use available to meet
customer needs during peaking or emergency conditions. The customer peak demand
reflected in Duquesne's capacity margin is based on the actual peak demand
experienced during the extraordinarily hot 1995 summer weather conditions, less
97 MW of interruptible load resources available from Duquesne's interruptible
customers, but not actually interrupted during the peak period.

     The successful resolution of Duquesne's proposed sale of its ownership
interest in Ft. Martin will reduce in-service capacity by 276 MW. Duquesne
expects to replace Ft. Martin capacity by(1) utilizing the 168 MW oil-fired
combustion turbines at the BI combined cycle facility, which is property held
for future use, and (2) acquiring seasonal peaking capacity from power
marketplace resources, as required. These additional resources ensure that
adequate capacity will be available to enable Duquesne to continue to maintain
the expected level of power generation reliability.

                                       10
<PAGE>
 
Fossil Fuel
--------------------------------------------------------------------------------

     Duquesne believes that sufficient coal for its coal-fired generating units
will be available from various sources to satisfy its requirements for the
foreseeable future. During 1995, approximately 2.6 million tons of coal were
consumed at Duquesne's two wholly owned coal-fired stations, Cheswick Power
Station (Cheswick) and Elrama Power Station (Elrama).

     Duquesne owns Warwick Mine, an underground mine located on the Monongahela
River approximately 83 river miles from Pittsburgh. Warwick Mine has been
excluded from rate base since 1981. Duquesne temporarily idled the mine in June
1988 due to excess coal inventories. In 1990, Duquesne restarted the mine and
entered into an agreement under which an unaffiliated company will operate the
mine until March 2000 and sell the coal produced. Production began in late 1990.
The mine produced 1.1 million tons of coal in 1995. The Warwick Mine coal
reserves include both high and low sulfur coal; the sulfur content averages in
the mid-range at 1.7 percent to 1.9 percent. More than 60 percent of the coal
mined at Warwick Mine currently is used by Duquesne. Duquesne receives a royalty
on any sales of Warwick coal in the open market. These royalties are credited to
Duquesne's ECR. The Warwick Mine currently supplies less than one-fifth of the
coal used in the production of electricity at the plants owned or jointly owned
by Duquesne. Duquesne estimates that, at December 31, 1995, its economically
recoverable coal reserves at Warwick Mine were 9.0 million tons. Costs at
Warwick Mine and Duquesne's investment in the mine are expected to be recovered
through the cost of coal in the ECR. Recovery is subject to the system-wide coal
cost standard. Duquesne also has an opportunity to earn a return on its
investment in the mine through the cost of coal during the period of the system-
wide coal cost standard. At December 31, 1995, Duquesne's net investment in the
mine was $14.9 million. The current estimated liability, including final site
reclamation, mine water treatment and certain labor liabilities, for mine
closing is $34.1 million, and Duquesne has recorded a liability on the
consolidated balance sheet of approximately $15.9 million toward these costs.
(See "Warwick Mine Costs" discussion in Note F to the consolidated financial
statements on page 50.)

     During 1995, 56 percent of Duquesne's coal supplies were provided by
contracts including Warwick Mine, with the remainder satisfied through purchases
on the spot market. Duquesne had four long-term contracts in effect at December
31, 1995, which, in combination with spot market purchases, are expected to
furnish an adequate future coal supply. Duquesne does not anticipate any
difficulty in replacing or renewing these contracts as they expire from 1996
through 2002. At December 31, 1995, Duquesne's wholly owned and jointly owned
generating units had on hand an average coal supply of 45 days.

     The PUC has established two market price coal cost standards. One applies
only to coal delivered at the Bruce Mansfield Power Station (Bruce Mansfield).
The other, the system-wide coal cost standard, applies to coal delivered to the
remainder of Duquesne's system. Both standards are updated monthly to reflect
prevailing market prices of similar coal. The PUC has directed Duquesne to defer
recovery of the delivered cost of coal to the extent that such cost exceeds
generally prevailing market prices for similar coal, as determined by the PUC.
The PUC allows deferred amounts to be recovered from customers when the
delivered costs of coal fall below such PUC-determined prevailing market prices.

     The system-wide coal cost standard extends through March 2000. The
unrecovered cost of Bruce Mansfield coal was $8.4 million and the unrecovered
cost of the remainder of the system-wide coal was $4.4 million at December 31,
1995. Duquesne estimates that all deferred coal costs will be recovered.
Duquesne's average cost per ton of coal consumed, including the cost of
delivery, during the past three years at generating units which it operates or
in which it has an ownership interest was $38.86, $39.12 and $40.08 in 1995,
1994 and 1993, respectively. The cost of coal, which falls within the market
price limitations, is recovered from Duquesne's customers through the ECR. (See
"Rate Matters" discussion on page 6, and also see "Deferred Coal Costs"
discussion in Note F to the consolidated financial statements on page 49.)


Nuclear Fuel
--------------------------------------------------------------------------------

     The cycle of production and utilization of nuclear fuel consists of (1)
mining and milling of uranium ore and processing the ore into uranium
concentrates, (2) converting uranium concentrates to uranium hex-

                                       11
<PAGE>
 
afluoride, (3) enriching the uranium hexafluoride, (4) fabricating fuel
assemblies, (5) utilizing the nuclear fuel in the generating station reactor and
(6) storing and disposing of spent fuel.

     Adequate supplies of uranium and conversion services are under contract for
Duquesne's requirements for its jointly owned/leased nuclear units through 1996.
Enrichment services are supplied under a 1984 United States Enrichment
Corporation Utility Services Contract entered into for a period of 30 years by
Duquesne for joint interests in Perry Unit 1, BV Unit 1 and BV Unit 2. Under the
terms and conditions of this contract, Duquesne is committed to 100 percent of
its enrichment needs through 1998 and 70 percent in 1999; Duquesne has
terminated, at zero cost, all of its enrichment services requirements for fiscal
years 2000 through 2005 and continues to review the need for further services on
an annual basis. Fuel fabrication contracts are in place to supply reload
requirements for the next two cycles for BV Unit 1, the next two cycles for BV
Unit 2 and the next sixteen cycles for Perry Unit 1. Duquesne will be required
to make arrangements for uranium supply and related services as existing
commitments expire.

     Each utility company is responsible for financing its proportionate share
of the costs of nuclear fuel for each nuclear unit in which it has an ownership
or leasehold interest. (See "Nuclear Fuel Leasing" discussion on page 6.)
Duquesne's nuclear fuel costs, which are amortized to reflect fuel consumed, are
charged to fuel expense and are recovered through rates. Duquesne estimates
that, over the next three years, the amortization of nuclear fuel consumed will
exceed the expenditures for new fuel by approximately $1.7 million. The actual
nuclear fuel costs to be financed and amortized during the period 1996 through
1998 will be influenced by such factors as changes in interest rates; lengths of
the respective fuel cycles; reload cycle design; and changes in nuclear material
costs and services, the prices and availability of which are not known at this
time. Such costs may also be influenced by other events not presently foreseen.

     Duquesne's nuclear fuel costs related to BV Unit 1, BV Unit 2 and Perry
Unit 1 under the fuel lease arrangement are charged to fuel expense based on the
quantity of energy generated. Nuclear fuel costs for these units averaged .750,
 .903 and .918 cents per KWH, inclusive of charges associated with spent fuel, in
1995, 1994 and 1993, respectively. Duquesne is recovering from its customers the
costs associated with the ultimate disposal of spent fuel.


Nuclear Decommissioning
--------------------------------------------------------------------------------

     The PUC ruled that recovery of the decommissioning costs for BV Unit 1
could begin in 1977, and that recovery for BV Unit 2 and Perry Unit 1 could
begin in 1988. Duquesne expects to decommission BV Unit 1, BV Unit 2 and Perry
Unit 1 no earlier than the expiration of each plant's operating license, 2016,
2027 and 2026, respectively. BV Unit 1 is expected to be placed in safe storage
until the expiration of the BV Unit 2 operating license, at which time the units
may be decommissioned together.

     Based on site-specific studies finalized in 1992 for BV Unit 2, and in 1994
for BV Unit 1 and Perry Unit 1, Duquesne's share of the total estimated
decommissioning costs, including removal and decontamination costs, currently
being used to determine Duquesne's cost of service, are $122 million for BV Unit
1, $35 million for BV Unit 2 and $67 million for Perry Unit 1.

     In conjunction with an August 18, 1994, PUC Accounting Order, Duquesne has
increased the annual contribution to its decommissioning trusts by approximately
$2 million to bring the total annual funding to approximately $4 million per
year. In collaboration with Duquesne and several other Pennsylvania utilities,
the PUC Office of Special Assistants is evaluating various decommissioning
issues, including funding methods. Duquesne expects that any action relating to
any forthcoming PUC report will result in further increases in annual
contributions to its decommissioning trusts. Consistent with these anticipated
future PUC actions, Duquesne's petition before the PUC for the sale of its
ownership interest in the Ft. Martin Power Station provides for additional
annual contributions to its nuclear decommissioning funds of $5 million for five
years without any increase in existing electric rates. (See "Sale of Ft. Martin"
discussion on page 9.)

     Duquesne records decommissioning costs under the category of depreciation
and amortization expense and accrues a liability, equal to that amount, for
nuclear decommissioning expense. Such nuclear decommis-

                                       12
<PAGE>
 
sioning funds are deposited in external, segregated trust accounts. The funds
are invested in a portfolio of municipal bonds, certificates of deposit and
United States government securities having a weighted average duration of four
to seven years. Trust fund earnings increase the fund balance and the recorded
liability. The market value of the aggregate trust fund balances at December 31,
1995, totaled approximately $28.5 million. On Duquesne's consolidated balance
sheet, the decommissioning trusts have been reflected in other long-term
investments, and the related liability has been recorded as other non-current
liabilities.


Nuclear Insurance
--------------------------------------------------------------------------------

     All of the companies with an interest in BV Unit 1, BV Unit 2 and Perry
Unit 1 maintain nuclear property insurance, which provides coverage for property
damage, decommissioning and decontamination liabilities. Duquesne's share of
this program provides for $1.2 billion of insurance coverage for its net
investment of $407.8 million in the BVPS and $565.5 million in Perry Unit 1,
plus its interest in BV Unit 2 with lease commitments of $405.2 million, at
December 31, 1995. The lease commitments of $405.2 million represent the net
present value of future lease payments discounted at 10.94 percent, the return
currently authorized Duquesne by the PUC. Duquesne would be responsible for its
share of any damages in excess of insurance coverage. In addition, if the
property damage reserves of Nuclear Electric Insurance Limited (NEIL), an
industry mutual insurance company, are inadequate to cover claims arising from
an incident at any United States nuclear site covered by that insurer, Duquesne
could be assessed retrospective premiums totaling a maximum of $10.9 million.

     The Price-Anderson Amendments to the Atomic Energy Act of 1954 limit public
liability from a single incident at a nuclear plant to $8.9 billion. Duquesne
has purchased $200 million of insurance, the maximum amount available, which
provides the first level of financial protection.

     Additional protection of $8.3 billion would be provided by an assessment of
up to $75.5 million per incident on each nuclear unit in the United States.
Duquesne's maximum total assessment, $56.6 million, which is based on its
ownership or leasehold interests in three nuclear generating units, would be
limited to a maximum of $7.5 million per incident per year. A further surcharge
of 5 percent could be levied if the total amount of public claims exceeded the
funds provided under the assessment program. Additionally, a state premium tax
may be charged on the assessment and surcharge. Finally, the United States
Congress could impose other revenue-raising measures on the nuclear industry if
funds prove insufficient to pay claims.

     Duquesne carries extra expense insurance which would pay the incremental
cost of any replacement power purchased (in addition to costs that would have
been incurred had the units been operating) and other incidental expense after
the occurrence of certain types of accidents at its nuclear units in a limited
amount for a limited period of time. The coverage provides for 100 percent of
the estimated extra expense per week during the 52-week period starting 21 weeks
after an accident and 80 percent of such estimate per week for the following 104
weeks, with no coverage thereafter. The amount and duration of actual extra
expense could substantially exceed insurance coverage. NEIL also provides this
insurance. If NEIL's reserves are inadequate to cover claims at any United
States nuclear site covered by that insurer, Duquesne could be assessed
retrospective premiums totaling a maximum of $3.5 million.


Spent Nuclear Fuel Disposal
--------------------------------------------------------------------------------

     The Nuclear Waste Policy Act of 1982 established a policy for handling and
disposing of spent nuclear fuel and a policy requiring the established final
repository to accept spent fuel. Electric utility companies have entered into
contracts with the DOE for the permanent disposal of spent nuclear fuel and
high-level radioactive waste in compliance with this legislation. The DOE has
indicated that its repository under these contracts will not be available for
acceptance of spent fuel before 2010 at the earliest. Existing on-site spent
fuel storage capacities at BV Unit 1, BV Unit 2 and Perry Unit 1 are expected to
be sufficient until 2016, 2010 and 2011, respectively.

                                       13
<PAGE>
 
Uranium Enrichment Decontamination and Decommissioning Fund
--------------------------------------------------------------------------------

     Nuclear reactor licensees in the United States are assessed annually for
the decontamination and decommissioning of DOE uranium enrichment facilities.
Assessments are based on the amount of uranium a utility had processed for
enrichment prior to enactment of the National Energy Policy Act of 1992 (NEPA)
and are to be paid by such utilities over a 15-year period. At December 31,
1995, Duquesne's liability for contributions is approximately $9.9 million
(subject to an inflation adjustment). Contributions, when made, are recovered
from electric utility customers through the ECR.


Environmental Matters
--------------------------------------------------------------------------------

     The Comprehensive Environmental Response, Compensation and Liability Act of
1980 and the Superfund Amendments and Reauthorization Act of 1986 (Superfund)
established a variety of informational and environmental action programs. The
United States Environmental Protection Agency (EPA) has informed Duquesne of its
involvement or potential involvement in three hazardous waste sites. Duquesne
has reached agreements to make minimal financial payments related to two of the
three sites in order to resolve any associated liability. If Duquesne is
ultimately determined to be a responsible party with respect to the remaining
site, it could be liable for all or a portion of the cleanup costs. However,
other solvent, potentially responsible parties that may bear all or part of any
liability are also involved. In addition, Duquesne believes that available
defenses, along with other factors (including overall limited involvement and
low estimated remediation costs) will limit any potential liability that
Duquesne may have for cleanup costs. Duquesne believes that it is adequately
reserved for all known liabilities and costs and, accordingly, that this matter
will not have a materially adverse effect on its financial position or results
of operations.

     In 1990, Congress approved amendments to the Clean Air Act, which
established the Emission Allowance Trading System. Allowances are issued by the
EPA to fossil-fired stations with generating capability of more than 25 MW that
were in existence as of the passage of the 1990 amendments. Allowances are part
of an innovative market-based approach to sulfur dioxide (SO\\2\\) reduction.
Emission allowances can also be obtained through purchases on the open market or
directly from other sources. Excess allowances may be banked for future use or
sold on the open market to other parties to offset their emissions.

     Although Duquesne has satisfied all of the Phase I requirements of the
Clean Air Act, Phase II requires significant additional reductions of SO\\2\\
and oxides of nitrogen (NO\\X\\) by the year 2000. Duquesne currently has 662 MW
of nuclear capacity, 1,187 MW of coal capacity equipped with SO\\2\\ emission
reducing equipment (including 300 MW of property held for future use at
Phillips) as well as 757 MW of capacity that meets the 1995 standards of the
Clean Air Act Amendments through the use of low sulfur coal. Through the year
2000, Duquesne is considering a combination of compliance methods that include
fuel switching; increased use of, and improvements in, SO\\2\\ emission reducing
equipment; low NO\\X\\ burner technology; and the purchase of emission
allowances. Flue gas conditioning and post combustion NO\\X\\ reduction
technologies may also be employed if economically justified. In addition,
Duquesne is examining and developing innovative emissions technologies designed
to reduce costs. Duquesne continues to work with the operators of its jointly
owned stations to implement cost-effective compliance strategies to meet these
requirements. NO\\X\\ reductions under Title IV of the Clean Air Act were
required at Cheswick, and the work to achieve the reductions was completed in
1993. The ozone attainment provisions of Title I of the Clean Air Act Amendments
also required NO\\X\\ reductions by mid-1995 at Cheswick, Elrama and Bruce
Mansfield. Duquesne achieved such reductions using innovative combustion system
modifications and low NO\\X\\ burner technology. Duquesne currently estimates
that additional capital costs to comply with Clean Air Act requirements through
the year 2000 will be approximately $20 million. This estimate is subject to the
finalization of federal and state regulations and the PUC approval of the sale
of Duquesne's interest in the Ft. Martin Power Station. (See "Sale of Ft.
Martin" discussion on page 9.)

     Duquesne has developed, patented and installed low NO\\X\\ burner 
technology for the Elrama boilers. These cost-effective NO\\X\\ reduction
systems installed on the Elrama roof fired boilers was specified as the
benchmark for the industry for this class of boilers in the EPA's pending Group
II rulemaking. Duquesne is also currently evaluating additional low cost,
developmental NO\\X\\ reduction technologies at Cheswick and

                                       14
<PAGE>
 
Elrama. An Artificial Neural Network control system enhancement, co-sponsored by
the Electric Power Research Institute and Duquesne, will be demonstrated at
Cheswick. The Gas Research Institute and Duquesne are sponsoring a targeted
natural gas reburn demonstration at Elrama. Both demonstrations will be
completed in 1996.

     As required by Title V of the Clean Air Act Amendments, Duquesne has filed
comprehensive air operating permit applications for Cheswick, Elrama, BI and
Phillips during the last half of 1995. Duquesne also filed its Title IV Phase II
Clean Air Act compliance plan with the PUC on December 27, 1995.

     Duquesne is closely monitoring other potential future air quality programs
and air emission control requirements, including additional NO\\X\\ control
requirements that were recommended for fossil fuel plants by the Ozone Transport
Commission and the potential for more stringent ambient air quality and emission
standards for SO\\2\\ particulates, and other by-products of coal combustion. As
these potential programs are in various stages of discussion and consideration,
it is impossible to make reasonable estimates of the potential costs and
impacts, if any.

     In 1992, the Pennsylvania Department of Environmental Protection (DEP)
issued Residual Waste Management Regulations governing the generation and
management of non-hazardous residual waste, such as coal ash. Duquesne is
assessing the sites which it utilizes and has developed compliance strategies
under review by the DEP. Capital compliance costs of $3.0 million were incurred
by Duquesne in 1995 to comply with these DEP regulations; on the basis of
information currently available, an additional $2.5 million will be incurred in
1996. The expected additional capital cost of compliance through the year 2000
is estimated, based on current information, to be approximately $25 million.
This estimate is subject to the results of ground water assessments and DEP
final approval of compliance plans.

     Duquesne is involved in various other environmental matters. Duquesne
believes that such matters, in total, will not have a materially adverse effect
on its financial position or results of operations.


Outlook
--------------------------------------------------------------------------------

Competition

     The electric utility industry is undergoing fundamental change in response
to the open transmission access and increased availability of energy
alternatives fostered by NEPA which has served to increase competition in the
industry. Previously captive customers are seeking freedom to choose alternative
suppliers of energy. These competitive pressures require utilities to offer
competitive pricing and terms to retain customers and to develop new markets for
the optimal utilization of their generation capacity.

     At the national level, NEPA was designed to encourage competition among
electric utility companies, improve energy resource planning and to encourage
the development of alternative sources of energy. NEPA authorizes the FERC to
require electric utilities to provide wholesale suppliers of electric energy
with nondiscriminatory access to the utility's wholesale transmission system. In
response to this mandate, the FERC has issued a Notice of Proposed Rulemaking
(NOPR) on Open Access Nondiscriminatory Transmission Services and a supplemental
NOPR on the Recovery of Stranded Costs. The NOPR on open access transmission
would define the terms under which independent power producers, neighboring
utilities and others could gain access to a utility's transmission grid to
deliver power to customers. The supplemental NOPR on stranded costs would
address the issue of recovery of a utility's unrecovered costs that were
incurred to provide service to customers that subsequently leave a utility's
system in favor of another supplier. A final order is expected in mid-1996 on
both NOPRs. Also, in January 1996, the FERC announced its plans to reconsider
its public utility merger guidelines. The FERC actions are expected to have a
significant impact on competition in the electric utility industry.

     In Pennsylvania, the PUC currently is conducting an investigation
concerning regulatory reform and has indicated an intention to issue a report to
the governor and the Pennsylvania General Assembly by June 1996. The PUC staff
issued an interim report in August 1995 that recommended that retail wheeling
not be

                                       15
<PAGE>
 
implemented at that time because of concerns that retail wheeling would benefit
large industrials at the expense of smaller customers and utility shareholders,
who would absorb the costs of stranded investments, and that service reliability
could be impaired. The report concludes that performance-based ratemaking,
wholesale competition and utility cost cutting could provide the benefits of
retail wheeling without the attendant disruptions.

     Duquesne is aware of the foregoing federal and state regulatory and
business uncertainties, and is attempting to position itself to operate in a
more competitive environment. Its current rate structure allows some flexibility
in setting rates to retain its customer base and attract new business.
Furthermore, as discussed below, open access transmission offers Duquesne the
opportunity to sell power on a market basis to customers outside of its service
territory.

     Duquesne has proposals before both the FERC and the PUC that address
specific issues relating to its competitive position. Because of Duquesne's
current electric generating configuration, some of its baseload capacity is used
less than optimally. Two options Duquesne is currently considering to align its
generating capabilities more closely with customer demand are discussed in
"Transmission Access" below and "Generation Resource Optimization" on page 17.
First, through open transmission access, Duquesne is seeking to increase its
level of fixed demand through the negotiation of long-term power sale contracts
to customers outside its service territory. Second, Duquesne proposes to change
its generation profile through the sale of its interest in the Ft. Martin Power
Station.

     As part of its petition currently before the PUC with respect to the sale
of its interest in Ft. Martin, Duquesne has proposed, among other concessions, a
five-year freeze on base rates and a five-year annual $5 million credit to the
ECR (which would otherwise remain unaffected by the freeze) to compensate
Duquesne's electric utility customers for short-term power sales foregone by the
sale of its interest in the plant. (See "Sale of Ft. Martin" discussion on page
9.) Although Duquesne believes a rate freeze will enable it to maintain and
expand its existing customer base, if the rate freeze is implemented, Duquesne
could face the risk of reduced rates of return if unforeseen costs arise and if
revenues from sales prove inadequate to fund those costs.

     Finally, as noted above, open access transmission requirements implicitly
create the potential for stranded costs. To address these issues, Duquesne has
implemented, and will continue to evaluate, the accelerated depreciation of its
generating assets as one method to guard against the competitive risks of
stranded investments. (See "Operating Expenses" discussion on page 4.) At
present, the FERC and the PUC appear supportive of stranded cost recovery;
however, implementation details for recovery of stranded costs are extremely
vague and far from decided. The petition for the sale of Duquesne's ownership
interest in the Ft. Martin Power Station currently before the PUC proposes to
further increase depreciation and amortization expense related to Duquesne's
nuclear power investment by $75 million over a three-year period. This petition
also proposes to record a one-time write-down in the value of Duquesne's nuclear
plant investment of approximately $130 million and to increase by $5 million the
annual contribution to Duquesne's nuclear plant decommissioning funds, for a
total of $25 million in contributions over the next five years. (See "Sale of
Ft. Martin" discussion on page 9.) These current and proposed accelerated
investment cost recovery measures will be absorbed by Duquesne without an
increase in base rates.

     Duquesne believes that these and similar initiatives will strengthen its
position to succeed in a more competitive environment by eliminating the need to
charge its electric utility customers in the future for these currently
recognized expenses. At this time, however, there is no assurance as to the
extent to which Company initiatives can or will ultimately eliminate regulatory
and other uncertainties associated with increased competition.


Transmission Access

     In March 1994, Duquesne submitted, pursuant to the Federal Power Act, two
separate "good faith" requests for transmission service with APS and the
Pennsylvania-New Jersey-Maryland Interconnection Association (PJM Companies),
respectively. Each request is based on 20-year firm service with flexible
delivery points for 300 MW of transfer capability over the APS and PJM Companies
transmission networks, which

                                       16
<PAGE>
 
together extend from western Pennsylvania to the East Coast. Because of a lack
of progress on pricing and other issues, on August 5 and September 16, 1994,
Duquesne filed with the FERC applications for transmission service from the PJM
Companies and APS, respectively. The applications are authorized under
Section 211 of the Federal Power Act, which requires electric utilities to
provide firm wholesale transmission service. In May 1995, the FERC issued
proposed orders instructing APS and the PJM Companies to provide transmission
service to Duquesne and directing the parties to negotiate specific rates, terms
and conditions. Duquesne was unable to agree to terms for transmission service
with either APS or the PJM Companies. Briefs were filed with the FERC outlining
the areas of disagreement among the companies. The matter is now pending before
the FERC. Duquesne cannot predict the final outcome of these proceedings.


Generation Resource Optimization

     Duquesne's plans for optimizing generation resources are designed to reduce
underutilized generating capacity, promote competition in the wholesale
marketplace, maintain stable prices and meet customer-specified levels of
service reliability. Duquesne is committed to explore firm energy sales to
wholesale customers, system power sales, system power sales with specific unit
back-up, unit power sales, generating asset sales and any other approach to
efficiently managing capacity and energy.

     The proposed sale of Duquesne's ownership interest in the Ft. Martin Power
Station demonstrates Duquesne's ongoing efforts to optimize the utilization of
generation resources. (See "Sale of Ft. Martin" discussion on page 9.) The sale
is expected to reduce power production costs by employing a cost-effective
source of peaking capacity through enhanced reliability of the simple cycle
units at BI. Implementation of the proposed plan will better align Duquesne's
generating capabilities with its native load requirements.


Customer Service Guarantees

     Duquesne's commitment to provide reliable, quality service to its customers
is characterized by its customer service guarantees. On March 6, 1995, Duquesne
became the first Pennsylvania regulated utility, and the third in the United
States, to offer its residential customers guarantees of its commitment to
courteous, reliable and efficient service. Duquesne offers a $25 credit to a
customer's account if Duquesne fails to provide accurate billings; to meet
punctual service appointments; to extend prompt, courteous and professional
service; or to connect new services within one day of the date requested by the
customer.


Customer Advanced Reliability System

     In January 1996, Duquesne announced its Customer Advanced Reliability
System, a new communications service that will provide its customers with
superior levels of service reliability, security and convenience. Duquesne has
signed a long-term, full service contract with Itron, Inc. (Itron), a leading
supplier of energy information and communication solutions to the electric
utility industry. Over the next two years, Itron will install, operate and
maintain a communications network that will provide Duquesne with an electronic
link to its 580,000 customers.

     The Customer Advanced Reliability System is designed to respond to customer
needs on the basis of immediate information about the status of power delivery
at individual homes and businesses. This electronic communications service is
another major element in Duquesne's multi-step plan to make Duquesne's
operations more competitive and efficient.


Other
--------------------------------------------------------------------------------

Financial Accounting Pronouncement

     The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of (SFAS No. 121),

                                       17
<PAGE>
 
in March 1995. This statement is effective for years beginning after December
15, 1995. Duquesne anticipates adopting this standard on January 1, 1996, and
does not expect that it will have a material impact on its financial position or
results of operations, based on the current regulatory structure in which it
operates. As competitive factors influence pricing in the utility industry, this
opinion may change in the future. The general requirements of SFAS No. 121 apply
to non-current assets and require impairment to be considered whenever evidence
suggests that it is no longer probable that future cash flows in an amount at
least equal to the asset will result.


Retirement Plan Measurement Assumptions

     Duquesne decreased the discount rate used to determine the projected
benefit obligation on Duquesne's retirement plans at December 31, 1995, to 7.0
percent. The assumed change in future compensation levels was also decreased to
reflect current market and economic conditions. The effects of these changes on
Duquesne's retirement plan obligations are reflected in the amounts shown in
"Employee Benefits," Note M to the consolidated financial statements on page 56.
The resulting change in related expenses for subsequent years is not expected to
be material.

                        ------------------------------

Except for historical information contained herein, the matters discussed in
this Annual Report on Form 10-K, are forward-looking statements that involve
risks and uncertainties including, but not limited to, economic, competitive,
governmental and technological factors affecting Duquesne's operations, markets,
products, services and prices, and other factors discussed in Duquesne's filings
with the Securities and Exchange Commission.


Executive Officers of the Registrant
--------------------------------------------------------------------------------

     Set forth below are the names, ages as of March 1, 1996, positions and
brief accounts of the business experience during the past five years of the
executive officers of Duquesne.

<TABLE>
<CAPTION>
 
         Name                  Age                             Office
         ----                  ---                             ------
<S>                            <C>          <C>
Wesley W. von Schack           51            Chairman of the Board since September 1987 and
                                              Chief Executive Officer since January 1986.
                                              President from January 1986 to February 1995.
                                         
David D. Marshall              43            President and Chief Operating Officer since February
                                              1995.  Executive Vice President from February 1992
                                              to February 1995, Assistant to the President from
                                              October 1990 to February 1992, and Vice President-
                                              Corporate Development from August 1987 to
                                              February 1992.
                                         
Gary L. Schwass                50            Senior Vice President since February 1995 and Chief
                                              Financial Officer since July 1989.  Vice President-
                                              Finance from May 1988 to February 1995.
</TABLE>

                                      18
<PAGE>
 
<TABLE>
<CAPTION>
 
         Name              Age                             Office
         ----              ---                             ------
<S>                        <C>      <C>
                                  
James E. Cross              49      Senior Vice President - Nuclear since February 1995.
                                     Vice President - Nuclear from September 1994 to
                                     February 1995.  Formerly Vice President, Thermal
                                     Operations, and Chief Nuclear Officer of Portland 
                                     General Electric from May 1993 to September 1994; 
                                     Vice President and Chief Nuclear Officer of       
                                     Portland General Electric from December 1991 to   
                                     May 1993; and Vice President, Nuclear, of Portland
                                     General Electric from May 1990 to December 1991.   
                                  
Dianna L. Green             49      Senior Vice President - Customer Operations since
                                     April 1995.  Senior Vice President - Administration 
                                     from February 1995 to April 1995.  Vice President - 
                                     Administrative Services from August 1988 to         
                                     February 1995.                                       
                                  
Roger D. Beck               59      Vice President - Customer Services since April 1995.
                                     Vice President - Marketing and Customer Services
                                     from August 1986 to April 1995. 
                                  
Gary R. Brandenberger       58      Vice President - Power Supply since August 1986.
                                  
William J. DeLeo            45      Vice President - Marketing and Corporate Performance
                                     since April 1995.  Vice President - Corporate 
                                     Performance and Information Services from     
                                     January 1991 to April 1995.                    
                                  
Victor A. Roque             49      Vice President since April 1995 and General Counsel since
                                     November 1994.  Previously Vice President, General
                                     Counsel and Secretary for Orange and Rockland     
                                     Utilities from April 1989 to November 1994.        
                                  
Donald J. Clayton           41      Treasurer since January 1995.  Assistant Treasurer from
                                     May 1990 to January 1995 and Manager, Valuation and 
                                     Property Records, from August 1985 to May 1990.      
                                  
Morgan K. O'Brien           35      Controller and Principal Accounting Officer since October
                                     1995.  Assistant Controller from December 1993 to 
                                     October 1995.  Manager, Corporate Taxes, from     
                                     September 1991 to December 1993.  Previously      
                                     Assistant Vice President - Corporate Taxes at PNC 
                                     Financial Corporation from 1990 to September 1991. 
</TABLE>

                                       19
<PAGE>
 
ITEM 2.  PROPERTIES.

     Duquesne's properties consist of electric generating stations, transmission
and distribution facilities, and supplemental properties and appurtenances,
comprising as a whole an integrated electric utility system, located
substantially in Allegheny and Beaver counties in southwestern Pennsylvania.

     Duquesne owns all or a portion of the following generating units except
Beaver Valley Unit 2, which is leased.

<TABLE>
<CAPTION>
 
                                                                       Duquesne's
                                                                        Share of         Net Plant Output
                                                                        Capacity            Year Ended
                                                                       (Megawatts)       December 31, 1995
Name and Location                         Type                       Summer   Winter      (Megawatt-hours)
-----------------                         ----                       ------   ------    -------------------
<S>                                       <C>                        <C>      <C>       <C>
 
Cheswick                                  Coal
  Springdale, Pa.                                                       562      570          3,431,410
Ft. Martin Unit 1 (1)                     Coal
  Maidsville, W. Va.                                                    276      276          1,054,790
Elrama                                    Coal
  Elrama, Pa.                                                           474      487          2,411,635
Sammis Unit 7 (1)                         Coal
  Stratton, Ohio                                                        187      187          1,008,249
Eastlake Unit 5 (1)                       Coal
  Eastlake, Ohio                                                        186      186            896,065
Beaver Valley Unit 1 (1)                  Nuclear
  Shippingport, Pa.                                                     385      385          2,598,215
Beaver Valley Unit 2 (1)                  Nuclear
  Shippingport, Pa.                                                     113      113            856,249
Perry Unit 1 (1)                          Nuclear
  North Perry, Ohio                                                     161      164          1,255,429
Bruce Mansfield Unit 1 (1)                Coal
  Shippingport, Pa.                                                     228      228          1,047,989
Bruce Mansfield Unit 2 (1)                Coal
  Shippingport, Pa.                                                      62       62            168,360
Bruce Mansfield Unit 3 (1)                Coal
  Shippingport, Pa.                                                     110      110            310,341
Brunot Island                             Oil
  Brunot Island, Pa.                                                     54       66               (858)
                                                                      -----    -----         ----------
Total                                                                 2,798    2,834         15,037,874
                                                                                             ----------
Property held for future use:
   Brunot Island                          Oil                           204      240
   Phillips                               Coal                          300      310
                                                                      -----    -----
      Total                                                           3,302    3,384
                                                                      -----    -----
</TABLE>

(1)  Amounts represent Duquesne's share of the unit which is owned by Duquesne
     in common with one or more other electric utilities (or, in the case of
     Beaver Valley Unit 2, leased by Duquesne).

     Duquesne owns 25 transmission substations (including interests in common in
the step-up transformers at Fort Martin Unit 1; Sammis Unit 7; Eastlake Unit 5;
Bruce Mansfield Unit 1; Beaver Valley Unit 1; Beaver Valley Unit 2; Perry Unit
1; Bruce Mansfield Unit 2; and Bruce Mansfield Unit 3) and 562 distribution
substations.  Duquesne has 714 circuit-miles of transmission lines, comprising
345,000, 138,000 and 69,000 volt lines.  Street lighting and distribution
circuits of 23,000 volts and less include approximately 50,000 miles of lines
and cable.

                                       20
<PAGE>
 
     Duquesne owns the Warwick Mine, including 4,849 acres owned in fee of
unmined coal lands and mining rights, located on the Monongahela River in Greene
County, Pennsylvania, approximately 83 river miles from Pittsburgh.  (See Item
1. BUSINESS. "Fossil Fuel" discussion on page 11.)

     Duquesne's 1947 mortgage bond indenture was retired in the third quarter of
1995 following the maturity of the last bond series issued under the indenture.
All First Collateral Trust Bonds have been issued under a new mortgage indenture
that was established in April 1992 (the 1992 Indenture). The 1992 Indenture
includes more flexible provisions and eliminates conventions such as mandatory
sinking funds and formula-derived maintenance and replacement clauses.

     Additional information relating to Item 2. PROPERTIES, is set forth in Note
B, "Property, Plant and Equipment," of the consolidated financial statements for
year ended December 31, 1995, on page 46.  The information is incorporated here
by reference.


ITEM 3.  LEGAL PROCEEDINGS.

Rate-Related Legal Proceedings, Property, Plant and Equipment-Related Legal
Proceedings and Environmental Legal Proceedings
---------------------------------------------------------------------------
Eastlake Unit 5

     In October 1995, CEI commenced an action (Action) in the Common Pleas Court
of Lake County, Ohio, seeking to enjoin Duquesne from seeking a partition of the
Unit, through arbitration or otherwise, on the basis of a waiver of partition
contained in the deed to the Unit.  It is Duquesne's position that the deed
covenant is unenforceable by CEI due to CEI's bad faith conduct toward Duquesne.
Duquesne removed the Action to the United States District Court for the Northern
District of Ohio, where it is now pending, and then, brought a motion requesting
that all claims in dispute between the parties (including its arbitration
claims) be heard by the Court or, alternatively, that the Court stay the Action
and compel arbitration of all claims and filed an answer and counterclaims.
This motion and nine other motions are pending before the Court.  Until order of
the federal court is issued on this issue, both the arbitration and the federal
litigation are proceeding.

     Proceedings involving Duquesne's rates are reported in Item 1. BUSINESS
"Rate Matters."  Proceedings involving Property, Plant and Equipment are
reported in Item 1. BUSINESS "Property, Plant and Equipment."  Proceedings
involving environmental matters are reported in Item 1. BUSINESS "Environmental
Matters."


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     Not applicable.


                                    PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHARE-HOLDER MATTERS.

     Duquesne's common stock is not publicly traded.  Effective July 7, 1989,
Duquesne became a wholly owned subsidiary of DQE, the holding company formed as
part of a shareholder-approved restructuring.  As a result of the restructuring,
Duquesne's shareholders received DQE common stock in exchange for their shares
of Duquesne common stock, which were cancelled.  DQE owns all of Duquesne's
outstanding common stock, which consists of 10 shares.  As such, this item is
not applicable to Duquesne because all its common equity is held solely by DQE.
During 1995 and 1994, Duquesne declared quarterly dividends on its common stock
totaling $144 million each year.

                                       21
<PAGE>
 
ITEM 6.  SELECTED FINANCIAL DATA.

     Selected financial data for Duquesne for each year of the six-year period
ended December 31, 1995, are set forth on page 63.  The financial data is
incorporated here by reference.


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDI-
           TION AND RESULTS OF OPERATIONS.

     Management's discussion and analysis of financial condition and results of
operations are set forth in Item 1. BUSINESS.  The discussion and analysis are
incorporated here by reference.


ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
           DATA.

     The Consolidated Balance Sheet of Duquesne Light Company and its Subsidiary
as of December 31, 1995 and 1994, and the related Statements of Consolidated
Income, Retained Earnings and Cash Flows for each of the three years in the
period ended December 31, 1995, together with the Independent Auditors' Report
dated January 30, 1996, are set forth in pages 38 to 62 of this Report.  The
consolidated financial statements and report are incorporated here by reference.
Quarterly financial information is included on page 62 in Note O to Duquesne's
consolidated financial statements and is incorporated here by reference.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
           ACCOUNTING AND FINANCIAL DISCLOSURE.

     None.


                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     All directors of DQE are also directors of Duquesne.  Information relating
to DQE's and Duquesne's board of directors is set forth on page 20 of the 1995
DQE Annual Report to Shareholders filed here as part of this Report in Exhibit
99.2.  The information is incorporated here by reference.  Information relating
to the executive officers of the Registrant is set forth in Part I of this
Report under the caption "Executive Officers of the Registrant."


ITEM 11.  EXECUTIVE COMPENSATION.

     The information relating to executive compensation is set forth in Exhibit
99.1, filed as part of this Report.  The information is incorporated here by
reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT.

     DQE is the beneficial owner and holder of all shares of outstanding Common
Stock, $1 par value, of Duquesne Light, consisting of 10 shares as of February
21, 1996.  Information relating to the ownership of equity securities of DQE and
Duquesne Light by directors and executive officers of Duquesne Light is set
forth in Exhibit 99.1, filed as part of this Report.  The information is
incorporated here by reference.

                                       22
<PAGE>
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     None.


                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
          REPORTS ON FORM 8-K.

     (a)(1) The following information is set forth here on pages 38 through 62:

            Report of Independent Certified Public Accountants.

            Statement of Consolidated Income for the Three Years Ended December
            31, 1995.

            Consolidated Balance Sheet, December 31, 1995 and 1994.

            Statement of Consolidated Cash Flows for the Three Years Ended
            December 31, 1995.

            Statement of Consolidated Retained Earnings for the Three Years
            Ended December 31, 1995.

            Notes to Consolidated Financial Statements.

     (a)(2) The following financial statement schedule and the related Report of
Independent Certified Public Accountants (See page 38.) are filed here as a part
of this Report:

     Schedule for the Three Years Ended December 31, 1995:

      II-  Valuation and Qualifying Accounts.

     The remaining schedules are omitted because of the absence of the
conditions under which they are required or because the information called for
is shown in the financial statements or notes to the financial statements.

     (a)(3) Exhibits are set forth in the Exhibit List on pages 24 through 34
and incorporated here by reference. Documents other than those designated as
being filed here are incorporated here by reference. Previously filed documents
incorporated by reference to a DQE Annual Report on Form 10-K, a Quarterly
Report on Form 10-Q or a Current Report on Form 8-K are at Securities and
Exchange Commission File No. 1-10290. Documents incorporated by reference to a
Duquesne Light Company Annual Report on Form 10-K, Quarterly Report on Form 10-Q
or a Current Report on Form 8-K are at Securities and Exchange Commission File
No. 1-956. The Exhibits include the management contracts and compensatory plans
or arrangements required to be filed as exhibits to this Form 10-K by Item
601(d)(10)(iii), of Regulation S-K.

     (b) Reports on Form 8-K filed during the twelve months ended December 31,
         1995:

         (1) May 22, 1995 - The following event was reported:

             Item 5.  Federal Energy Regulatory Commission responded favorably
                      to Section 211 applications filed by Duquesne Light
                      Company for transmission service from the Pennsylvania-New
                      Jersey-Maryland Power Pool and Allegheny Power System by
                      issuing proposed orders requiring the provision of firm
                      transmission service at comparable prices.

             No financial statements were filed with this report.

                                       23
<PAGE>
 
      (2) December 4, 1995 - The following event was reported:

          Item 5.  On November 29, 1995, Duquesne Light Company announced it
                   will seek approval from the Pennsylvania Public Utility
                   Commission for a five-year freeze on base rates, the sale of
                   Duquesne's interest in the Fort Martin Power Station, the
                   accelerated depreciation of Duquesne's investment in its
                   nuclear power plants and the return to service of three units
                   at the Brunot Island Power Station. In addition, Duquesne
                   reiterated its proposal for the inclusion of all Pennsylvania
                   electric utilities in a region wide independent transmission
                   organization, and reaffirmed its commitment to the highest
                   levels of guaranteed customer service.

          No financial statements were filed with this report.
 
 
                                EXHIBITS INDEX
<TABLE>
<CAPTION>

 Exhibit                                                                               Method of
   No.                             Description                                           Filing
--------       ------------------------------------------------------         ---------------------------- 
<S>            <C>                                                            <C>
  3.1          Restated Articles of Duquesne Light Company, as                Exhibit 3.1 to the Form 10-K
               amended through December 19, 1991 and as currently             Annual Report of Duquesne
               in effect.                                                     Light Company for the year
                                                                              ended December 31, 1991.
               
  3.2          By-Laws of Duquesne Light Company, as amended                  Exhibit 3.2 to the Form 10-K
               through December 19, 1991 and as currently in effect.          Annual Report of Duquesne
                                                                              Light Company for the year
                                                                              ended December 31, 1991.
               
  4.1          Indenture dated March 1, 1960, relating to Duquesne            Exhibit 4.3 to the Form 10-K
               Light Company's 5% Sinking Fund Debentures.                    Annual Report of DQE for the 
                                                                              year ended December 31, 1989.
               
  4.2          Indenture dated as of November 1, 1989 relating to the         Exhibit 4.4 to the Form 10-K
               issuance of Duquesne Light Company's unsecured                 Annual Report of DQE for the
               notes.                                                         year ended December 31, 1989.
               
  4.3          Indenture of Mortgage and Deed of Trust dated as of            Exhibit 4.3 to Registration
               April 1, 1992, securing Duquesne Light Company's               Statement (Form S-3)
               First Collateral Trust Bonds.                                  No. 33-52782.
                                      
  4.4          Supplemental Indentures supplementing the said
               Indenture of Mortgage and Deed of Trust -
                                     
               Supplemental Indenture No. 1.                                  Exhibit 4.4 to Registration
                                                                              Statement (Form S-3)             
                                                                              No. 33-52782.                    
                                      
               Supplemental Indenture No. 2 through Supplemental              Exhibit 4.4 to Registration                          
               Indenture No. 4.                                               Statement (Form S-3)
                                                                              No. 33-63602.
                                                                  
               Supplemental Indenture No. 5 through Supplemental              Exhibit 4.6 to the Form 10-K
               Indenture No. 7.                                               Annual Report of Duquesne Light
                                                                              Company for the year ended
                                                                              December 31, 1993.
</TABLE>
                                                                  

                                       24
<PAGE>
 
<TABLE>
<CAPTION>

Exhibit                                                                                Method of
  No.                          Description                                               Filing
-------        -------------------------------------------------              -------------------------------
<S>            <C>                                                            <C>
               Supplemental Indenture No. 8 and Supplemental                  Exhibit 4.6 to the Form 10-K
               Indenture No. 9.                                               Annual Report of Duquesne Light
                                                                              Company for the year ended
                                                                              December 31, 1994.

               Supplemental Indenture No. 10 through Supplemental             Filed here.
               Indenture No. 12.

                                  Agreements relating to Jointly Owned Generating Units:
 
 10.1          Administration Agreement dated as of September 14,             Exhibit 5.8 to Registration
               1967.                                                          Statement (Form S-7)
                                                                              No. 2-43106.
 
 10.2          Transmission Facilities Agreement dated as of September        Exhibit 5.9 to Registration
               14, 1967.                                                      Statement (Form S-7)
                                                                              No. 2-43106.
 
 10.3          Operating Agreement dated as of September 21, 1972             Exhibit 5.1 to Registration
               for Eastlake Unit No. 5.                                       Statement (Form S-7)
                                                                              No. 2-48164.
 
 10.4          Memorandum of Agreement dated as of July 1, 1982 re            Exhibit 10.14 to the Form 10-K
               reallocation of rights and liabilities of the companies        Annual Report of Duquesne
               under uranium supply contracts.                                Light Company for the year
                                                                              ended December 31, 1987.
 
 10.5          Operating Agreement dated August 5, 1982 as of                 Exhibit 10.17 to the Form 10-K
               September 1, 1971 for Sammis Unit No. 7.                       Annual Report of Duquesne
                                                                              Light Company for the year 
                                                                              ended December 31, 1988.
 
 10.6          Memorandum of Understanding dated as of March 31,              Exhibit 10.19 to the Form 10-K
               1985 re implementation of company-by-company                   Annual Report of DQE for the
               management of uranium inventory and delivery.                  year ended December 31, 1989.
 
 10.7          Restated Operating Agreement for Beaver Valley Unit            Exhibit 10.23 to the Form 10-K
               Nos. 1 and 2 dated September 15, 1987.                         Annual Report of Duquesne
                                                                              Light Company for the year
                                                                              ended December 31, 1987.
 
 10.8          Operating Agreement for Perry Unit No. 1 dated                 Exhibit 10.24 to the Form 10-K
               March 10, 1987.                                                Annual Report of Duquesne
                                                                              Light Company for the year
                                                                              ended December 31, 1987.
 
 10.9          Operating Agreement for Bruce Mansfield Units Nos. 1,          Exhibit 10.25 to the Form 10-K
               2 and 3 dated September 15, 1987 as of June 1, 1976.           Annual Report of Duquesne Light
                                                                              Company for the year ended
                                                                              ended December 31, 1987.
</TABLE>

                                       25
<PAGE>
 
<TABLE>
<CAPTION>
 
Exhibit                                                                                Method of
  No.                          Description                                               Filing
-------        -------------------------------------------------              -------------------------------
<S>            <C>                                                            <C>
 10.10         Basic Operating Agreement, as amended January 1,               Exhibit 10.10 to the Form 10-K
               1993.                                                          Annual Report of Duquesne Light
                                                                              Company for the year ended
                                                                              December 31, 1993.
 
 10.11         Amendment No. 1 dated December 23, 1993 to                     Exhibit 10.11 to the Form 10-K 
               Transmission Facilities Agreement (as of January 1,            Annual Report of Duquesne Light
               1993).                                                         Company for the year ended     
                                                                              December 31, 1993.              
 
 10.12         Microwave Sharing Agreement (as amended                        Exhibit 10.12 to the Form 10-K  
               January 1, 1993) dated December 23, 1993.                      Annual Report of Duquesne Light
                                                                              Company for the year ended     
                                                                              December 31, 1993.              
 
 10.13         Agreement (as of September 1, 1980) dated                      Exhibit 10.13 to the Form 10-K  
               December 23, 1993 for termination or construction              Annual Report of Duquesne Light
               of certain agreements.                                         Company for the year ended     
                                                                              December 31, 1993.              
 
 10.14         Fort Martin Construction and Operating Agreement               Exhibit 10.14 to the Form 10-K 
               dated April 30, 1965.                                          Annual Report of Duquesne Light
                                                                              Company for the year ended     
                                                                              December 31, 1993.              
 
 10.15         Fort Martin Transmission Agreement dated                       Exhibit 10.15 to the Form 10-K 
               March 15, 1967.                                                Annual Report of Duquesne Light
                                                                              Company for the year ended     
                                                                              December 31, 1993.              
 
 10.16         Amendment of January 1, 1988 to Fort Martin                    Exhibit 10.16 to the Form 10-K 
               Transmission Agreement.                                        Annual Report of Duquesne Light
                                                                              Company for the year ended     
                                                                              December 31, 1993.              
 
 10.17         Fort Martin Power Station Asset Purchase Agreement             Filed here.
               dated as of November 28, 1995.

                                       Agreements relating to the Sale and Leaseback
                                               of Beaver Valley Unit No. 2:

 10.18         Order of the Pennsylvania Public Utility Commission            Exhibit 28.2 to the Form 10-Q
               dated September 25, 1987 regarding the application             Quarterly Report of Duquesne
               of the Duquesne Light Company under Section 1102(a)(3)         Light Company for the quarter
               of the Public Utility Code for approval in connection with     ended September 30, 1987. 
               the sale and leaseback of its interest in Beaver Valley Unit
               No. 2.

</TABLE>

                                       26
<PAGE>
 
<TABLE>
<CAPTION>
 
Exhibit                                                                                Method of
  No.                          Description                                               Filing
-------        -------------------------------------------------              -------------------------------
<S>            <C>                                                            <C>
 10.19         Order of the Pennsylvania Public Utility Commission            Exhibit 10.28 to the Form 10-K
               dated October 15, 1992 regarding the Securities                Annual Report of Duquesne     
               Certificate of Duquesne Light Company for the                  Light Company for the year    
               assumption of contingent obligations under                     ended December 31, 1992.       
               financing agreements in connection with the
               refunding of Collateralized Lease Bonds.
 
x10.20         Facility Lease dated as of September 15, 1987 between          Exhibit (4)(c) to Registration
               The First National Bank of Boston, as Owner Trustee            Statement (Form S-3)          
               under a Trust Agreement dated as of September 15, 1987         No. 33-18144.                  
               with the limited partnership Owner Participant named
               therein, Lessor, and Duquesne Light Company, Lessee.
 
y10.21         Facility Lease dated as of September 15, 1987 between          Exhibit (4)(d) to Registration
               The First National Bank of Boston, as Owner Trustee            Statement (Form S-3)          
               under a Trust Agreement dated as of September 15,              No. 33-18144.                  
               1987, with the corporate Owner Participant named    
               therein, Lessor, and Duquesne Light Company, Lessee. 
 
x10.22         Amendment No. 1 dated as of December 1, 1987 to                Exhibit 10.30 to the Form 10-K
               Facility Lease dated as of September 15, 1987 between          Annual Report of Duquesne     
               The First National Bank of Boston, as Owner Trustee            Light Company for the year    
               under a Trust Agreement dated as of September 15,              ended December 31, 1987.       
               1987 with the limited partnership Owner Participant
               named therein, Lessor, and Duquesne Light Company,
               Lessee.
 
y10.23         Amendment No. 1 dated as of December 1, 1987 to                Exhibit 10.31 to the Form 10-K
               Facility Lease dated as of September 15, 1987 between          Annual Report of Duquesne     
               The First National Bank of Boston, as Owner Trustee            Light Company for the year    
               under a Trust Agreement dated as of September 15,              ended December 31, 1987.       
               1987 with the corporate Owner Participant named
               therein, Lessor, and Duquesne Light Company, Lessee.
 
x10.24         Amendment No. 2 dated as of November 15, 1992 to               Exhibit 10.33 to the Form 10-K
               Facility Lease dated as of September 15, 1987 between          Annual Report of Duquesne     
               The First National Bank of Boston, as Owner Trustee            Light Company for the year    
               under a Trust Agreement dated as of September 15,              ended December 31, 1992.       
               1987 with the limited partnership Owner Participant
               named therein, Lessor, and Duquesne Light Company,
               Lessee.
 
y10.25         Amendment No. 2 dated as of November 15, 1992 to               Exhibit 10.34 to the Form 10-K 
               Facility Lease dated as of September 15, 1987 between          Annual Report of Duquesne      
               The First National Bank of Boston, as Owner Trustee            Light Company for the year     
               under a Trust Agreement dated as of September 15,              ended December 31, 1992.        
               1987 with the corporate Owner Participant named
               therein, Lessor, and Duquesne Light Company, Lessee.
 
x10.26         Amendment No. 3 dated as of October 13, 1994 to                Exhibit 10.25 to the Form 10-K
               Facility Lease dated as of September 15, 1987 between          Annual Report of Duquesne     
               The First National Bank of Boston, as Owner Trustee            Light Company for the year    
               under a Trust Agreement dated as of September 15, 1987         ended December 31, 1994.       
               with the limited partnership Owner Participant named
               therein, Lessor, and Duquesne Light Company, Lessee.         
</TABLE>

                                       27
<PAGE>
 
<TABLE>
<CAPTION>
  
Exhibit                                                                                Method of
  No.                          Description                                               Filing
-------        -------------------------------------------------              -------------------------------
<S>            <C>                                                            <C>
y10.27         Amendment No. 3 dated as of October 13, 1994 to                Exhibit 10.26 to the Form 10-K
               Facility Lease dated as of September 15, 1987 between          Annual Report of Duquesne    
               The First National Bank of Boston, as Owner Trustee            Light Company for the year   
               under a Trust Agreement dated as of September 15, 1987         ended December 31, 1994.      
               with the corporate Owner Participant named therein,
               Lessor, and Duquesne Light Company, Lessee.
 
x10.28         Participation Agreement dated as of September 15,              Exhibit (28)(a) to Registration
               1987 among the limited partnership Owner                       Statement (Form S-3)
               Participant named therein, the Original Loan                   No. 33-18144.
               Participants listed in Schedule 1 thereto, as Original
               Loan Participants, DQU Funding Corporation, as Funding
               Corp, The First National Bank of Boston, as Owner
               Trustee, Irving Trust Company, as Indenture Trustee and
               Duquesne Light Company, as Lessee.
 
y10.29         Participation Agreement dated as of September 15,              Exhibit (28)(b) to Registration
               1987 among the corporate Owner Participant named               Statement (Form S-3)
               therein, the Original Loan Participants listed in              No. 33-18144.
               Schedule 1 thereto, as Original Loan Participants, DQU
               Funding Corporation, as Funding Corp, The First
               National Bank of Boston, as Owner Trustee, Irving
               Trust Company, as Indenture Trustee and Duquesne
               Light Company, as Lessee.
 
x10.30         Amendment No. 1 dated as of December 1, 1987 to                Exhibit 10.34 to the Form 10-K
               Participation Agreement dated as of September 15,              Annual Report of Duquesne
               1987 among the limited partnership Owner Participant           Light Company for the year
               named therein, the Original Loan Participants listed           ended December 31, 1987. 
               therein, as Original Loan Participants, DQU          
               Funding Corporation, as Funding Corp, The First      
               National Bank of Boston, as Owner Trustee, Irving    
               Trust Company, as Indenture Trustee and Duquesne     
               Light Company, as Lessee.                             
 
y10.31         Amendment No. 1 dated as of December 1, 1987 to                Exhibit 10.35 to the Form 10-K
               Participation Agreement dated as of September 15,              Annual Report of Duquesne
               1987 among the corporate Owner Participant named               Light Company for the year
               therein, the Original Loan Participants listed therein,        ended December 31, 1987.
               therein, as Original Loan Participants, DQU
               Funding Corporation, as Funding Corp, The First
               National Bank of Boston, as Owner Trustee, Irving
               Trust Company, as Indenture Trustee and Duquesne 
               Light Company, as Lessee.                         

x10.32         Amendment No. 2 dated as of March 1, 1988 to                   Exhibit (28)(c)(3) to
               Participation Agreement dated as of September 15,              Registration Statement
               1987 among the limited partnership Owner Participant           (Form S-3) No. 33-54648.
               named therein, DQU Funding Corporation, as Funding
               Corp, The First National Bank of Boston, as Owner
               Trustee, Irving Trust Company, as Indenture Trustee and
               Duquesne Light Company, as Lessee.

</TABLE>

                                       28
<PAGE>
 
<TABLE>
<CAPTION>
 
Exhibit                                                                                Method of
  No.                          Description                                               Filing
-------        -------------------------------------------------              -------------------------------
<S>            <C>                                                            <C>
y10.33         Amendment No. 2 dated as of March 1, 1988 to                   Exhibit (28)(c)(4) to
               Participation Agreement dated as of September 15,              Registration Statement
               1987 among the corporate Owner Participant named               (Form S-3) No. 33-54648.
               therein, DQU Funding Corporation, as Funding Corp,
               The First National Bank of Boston, as Owner Trustee,
               Irving Trust Company, as Indenture Trustee and Duquesne
               Light Company, as Lessee.
 
x10.34         Amendment No. 3 dated as of November 15, 1992 to               Exhibit 10.41 to the Form 10-K
               Participation Agreement dated as of September 15,              Annual Report of Duquesne
               1987 among the limited partnership Owner Participant           Light Company for the year
               named therein, DQU Funding Corporation, as Funding             ended December 31, 1992.
               Corp, DQU II Funding Corporation, as New Funding
               Corp, The First National Bank of Boston, as Owner
               Trustee, The Bank of New York, as Indenture Trustee and
               Duquesne Light Company, as Lessee.
 
y10.35         Amendment No. 3 dated as of November 15, 1992 to               Exhibit 10.42 to the Form 10-K
               Participation Agreement dated as of September 15,              Annual Report of Duquesne
               1987 among the corporate Owner Participant named               Light Company for the year
               therein, DQU Funding Corporation, as Funding Corp,             ended December 31, 1992.
               DQU II Funding Corporation, as New Funding Corp,
               The First National Bank of Boston, as Owner Trustee, The
               Bank of New York, as Indenture Trustee and Duquesne Light
               Company, as Lessee.

x10.36         Amendment No. 4 dated as of October 13, 1994 to                Exhibit 10.35 to the Form 10-K
               Participation Agreement dated as of September 15, 1987         Annual Report of Duquesne
               among the limited partnership Owner Participant named          Light Company for the year
               therein, DQU Funding Corporation, as Funding Corp,             ended December 31, 1994.
               DQU II Funding Corporation, as New Funding Corp,
               The First National Bank of Boston, as Owner Trustee,
               The Bank of New York, as Indenture Trustee and Duquesne
               Light Company, as Lessee.

y10.37         Amendment No. 4 dated as of October 13, 1994 to                Exhibit 10.36 to the Form 10-K
               Participation Agreement dated as of September 15, 1987         Annual Report of Duquesne
               among the corporate Owner Participant named therein,           Light Company for the year
               DQU Funding Corporation, as Funding Corp, DQU II               ended December 31, 1994.
               Funding Corporation, as New Funding Corp, The First
               National Bank of Boston, as Owner Trustee, The Bank of
               New York, as Indenture Trustee and Duquesne Light
               Company, as Lessee.

z10.38         Ground Lease and Easement Agreement dated as of                Exhibit (28)(e) to Registration
               September 15, 1987 between Duquesne Light Company,             Statement (Form S-3)
               Ground Lessor and Grantor, and The First National Bank         No. 33-18144.
               of Boston, as Owner Trustee under a Trust Agreement
               dated as of September 15, 1987 with the limited
               partnership Owner Participant named therein, Tenant
               and Grantee.
</TABLE>

                                       29
<PAGE>
 
<TABLE>
<CAPTION>
 
Exhibit                                                                                  Method of
  No.                               Description                                           Filing
-------        --------------------------------------------------------       -------------------------------
<S>            <C>                                                            <C>
 
z10.39         Assignment, Assumption and Further Agreement dated as          Exhibit (28)(f) to Registration
               of September 15, 1987 among The First National Bank of         Statement (Form S-3)
               Boston, as Owner Trustee under a Trust Agreement dated         No. 33-18144.
               as of September 15, 1987 with the limited partnership
               Owner Participant named therein, The Cleveland Electric
               Illuminating Company, Duquesne Light Company, Ohio
               Edison Company, Pennsylvania Power Company and The
               Toledo Edison Company.
 
z10.40         Additional Support Agreement dated as of September 15,         Exhibit (28)(g) to Registration
               1987 between The First National Bank of Boston, as             Statement (Form S-3)
               Owner Trustee under a Trust Agreement dated as of              No. 33-18144.
               September 15, 1987 with the limited partnership Owner
               Participant named therein, and Duquesne Light Company.
 
z10.41         Indenture, Bill of Sale, Instrument of Transfer and            Exhibit (28)(h) to Registration
               Severance Agreement dated as of October 2, 1987                Statement (Form S-3)
               between Duquesne Light Company, Seller, and The                No. 33-18144.
               First National Bank of Boston, as Owner Trustee under
               a Trust Agreement dated as of September 15, 1987 with
               the limited partnership Owner Participant named therein,
               Buyer.
 
z10.42         Tax Indemnification Agreement dated as of September 15,        Exhibit 28.1 to the Form 8-K
               1987 between the Owner Participant named therein and           Current Report of Duquesne
               Duquesne Light Company, as Lessee.                             Light Company dated
                                                                              November 20, 1987.
 
z10.43         Amendment No. 1 dated as of November 15, 1992 to               Exhibit 10.48 to the Form 10-K
               Tax Indemnification Agreement dated as of September 15,        Annual Report of Duquesne
               1987 between the Owner Participant named therein and           Light Company for the year
               Duquesne Light Company, as Lessee.                             ended December 31, 1992.
 
z10.44         Amendment No. 2 dated as of October 13, 1994 to Tax            Exhibit 10.43 to the Form 10-K
               Indemnification Agreement dated as of September 15,            Annual Report of Duquesne
               1987 between the Owner Participant named therein and           Light Company for the year
               Duquesne Light Company, as Lessee.                             ended December 31, 1994.
 
z10.45         Extension Letter dated December 8, 1992 from                   Exhibit 10.49 to the Form 10-K
               Duquesne Light Company, each Owner Participant, The            Annual Report of Duquesne
               First National Bank of Boston, the Lease Indenture             Light Company for the year
               Trustee, DQU Funding Corporation and DQU II                    ended December 31, 1992.
               Funding Corporation addressed to the New Collateral
               Trust Trustee extending their respective representations
               and warranties and covenants set forth in each of the
               Participation Agreements.
 
x10.46         Trust Indenture, Mortgage, Security Agreement and              Exhibit (4)(g) to Registration
               Assignment of Facility Lease dated as of September 15,         Statement (Form S-3)
               1987 between The First National Bank of Boston, as             No. 33-18144.
               Owner Trustee under a Trust Agreement dated as of
               September 15, 1987 with the limited partnership Owner
               Participant named therein, and Irving Trust Company,
               as Indenture Trustee.
 
</TABLE>

                                       30
<PAGE>
 
<TABLE>
<CAPTION>
 
Exhibit                                                                                  Method of
  No.                               Description                                           Filing
-------        --------------------------------------------------------       -------------------------------
<S>            <C>                                                            <C>
 
y10.47         Trust Indenture, Mortgage, Security Agreement and              Exhibit (4)(h) to Registration
               Assignment of Facility Lease dated as of September 15,         Statement (Form S-3)
               1987 between The First National Bank of Boston, as             No. 33-18144.
               Owner Trustee under a Trust Agreement dated as of
               September 15, 1987 with the corporate Owner
               Participant named therein, and Irving Trust Company,
               as Indenture Trustee.
 
x10.48         Supplemental Indenture No. 1 dated as of December 1,           Exhibit 10.45 to the Form 10-K
               1987 to Trust Indenture, Mortgage, Security Agreement          Annual Report of Duquesne
               and Assignment of Facility Lease dated as of September 15,     Light Company for the year
               1987 between The First National Bank of Boston, as Owner       ended December 31, 1987.
               Trustee under a Trust Agreement dated as of September 15,
               1987 with the limited partnership Owner Participant
               named therein, and Irving Trust Company, as Indenture
               Trustee.
 
y10.49         Supplemental Indenture No. 1 dated as of December 1,           Exhibit 10.46 to the Form 10-K
               1987 to Trust Indenture, Mortgage, Security Agreement          Annual Report of Duquesne
               and Assignment of Facility Lease dated as of September 15,     Light Company for the year
               1987 between The First National Bank of Boston, as             ended December 31, 1987.
               Owner Trustee under a Trust Agreement dated as of
               September 15, 1987 with the corporate Owner
               Participant named therein, and Irving Trust Company,
               as Indenture Trustee.
 
x10.50         Supplemental Indenture No. 2 dated as of November 15,          Exhibit 10.54 to the Form 10-K
               1992 to Trust Indenture, Mortgage, Security Agreement          Annual Report of Duquesne
               and Assignment of Facility Lease dated as of September 15,     Light Company for the year
               1987 between The First National Bank of Boston, as             ended December 31, 1992.
               Owner Trustee under a Trust Agreement dated as of
               September 15, 1987 with the limited partnership Owner
               Participant named therein, and The Bank of New York,
               as Indenture Trustee.
 
y10.51         Supplemental Indenture No. 2 dated as of November 15,          Exhibit 10.55 to the Form 10-K
               1992 to Trust Indenture, Mortgage, Security Agreement          Annual Report of Duquesne
               and Assignment of Facility Lease dated as of September 15,     Light Company for the year
               1987 between The First National Bank of Boston, as             ended December 31, 1992.
               Owner Trustee under a Trust Agreement dated as of
               September 15, 1987 with the corporate Owner
               Participant named therein, and The Bank of New York,
               as Indenture Trustee.
 
 10.52         Reimbursement Agreement dated as of October 1, 1994            Exhibit 10.51 to the Form 10-K
               among Duquesne Light Company, Swiss Bank                       Annual Report of Duquesne
               Corporation, New York Branch, as LOC Bank, Union               Light Company for the year
               Bank, as Administrating Bank, Swiss Bank                       ended December 31, 1994.
               Corporation, New York Branch, as Administrating Bank
               and The Participating Banks Named Therein.

 10.53         Collateral Trust Indenture dated as of November 15,            Exhibit 10.58 to the Form 10-K
               1992 among DQU II Funding Corporation, Duquesne                Annual Report of Duquesne
               Light Company and The Bank of New York, as Trustee.            Light Company for the year
                                                                              ended December 31, 1992.

</TABLE>

                                       31
<PAGE>
 
<TABLE>
<CAPTION>
 
Exhibit                                                                                  Method of
  No.                               Description                                           Filing
-------        --------------------------------------------------------       -------------------------------
<S>            <C>                                                            <C>
 
 10.54         First Supplemental Indenture dated as of November 15,          Exhibit 10.59 to the Form 10-K
               1992 to Collateral Trust Indenture dated as of                 Annual Report of Duquesne
               November 15, 1992 among DQU II Funding Corporation,            Light Company for the year
               Duquesne Light Company and The Bank of New  York, as           ended December 31, 1992.
               Trustee.
 
x10.55         Refinancing Agreement dated as of November 15, 1992            Exhibit 10.60 to the Form 10-K
               among the limited partnership Owner Participant                Annual Report of Duquesne
               named therein, as Owner Participant, DQU Funding               Light Company for the year
               Corporation, as Funding Corp, DQU II Funding                   ended December 31, 1992.
               Corporation, as New Funding Corp, The First
               National Bank of Boston, as Owner Trustee, The Bank
               of New York, as Indenture Trustee, The Bank of New
               York, as Collateral Trust Trustee, The Bank of New York,
               as New Collateral Trust Trustee, and Duquesne Light
               Company, as Lessee.
 
y10.56         Refinancing Agreement dated as of November 15, 1992            Exhibit 10.61 to the Form 10-K
               among the corporate Owner Participant named                    Annual Report of Duquesne
               therein, as Owner Participant, DQU Funding                     Light Company for the year
               Corporation, as Funding Corp, DQU II Funding                   ended December 31, 1992.
               Corporation, as New Funding Corp, The First
               National Bank of Boston, as Owner Trustee, The Bank
               of New York, as Indenture Trustee, The Bank of New
               York, as Collateral Trust Trustee, The Bank of New York,
               as New Collateral Trust Trustee, and Duquesne Light
               Company, as Lessee.

x10.57         Addendum dated December 8, 1992 to Refinancing                 Exhibit 10.62 to the Form 10-K
               Agreement dated as of November 15, 1992 among the              Annual Report of Duquesne
               limited partnership Owner Participant named therein,           Light Company for the year
               as Owner Participant, DQU Funding Corporation, as              ended December 31, 1992.
               Funding Corp, DQU II Funding Corporation, as New
               Funding Corp, The First National Bank of Boston, as
               Owner Trustee, The Bank of New York, as Indenture
               Trustee, The Bank of New York, as Collateral Trust
               Trustee, The Bank of New York, as New Collateral
               Trust Trustee, and Duquesne Light Company, as
               Lessee.

y10.58         Addendum dated December 8, 1992 to Refinancing                 Exhibit 10.63 to the Form 10-K
               Agreement dated as of November 15, 1992 among the              Annual Report of Duquesne
               corporate Owner Participant named therein, as                  Light Company for the year
               Owner Participant, DQU Funding Corporation, as                 ended December 31, 1992.
               Funding Corp, DQU II Funding Corporation, as New
               Funding Corp, The First National Bank of Boston, as
               Owner Trustee, The Bank of New York, as Indenture
               Trustee, The Bank of New York, as Collateral Trust
               Trustee, The Bank of New York, as New Collateral
               Trust Trustee, and Duquesne Light Company, as
               Lessee.

</TABLE>

                                       32
<PAGE>
 
<TABLE>
<CAPTION>
 
Exhibit                                                                                  Method of
  No.                               Description                                           Filing
-------        --------------------------------------------------------       -------------------------------
<S>            <C>                                                            <C>
 
                                                      Other Agreements:
 
*10.59         Deferred Compensation Plan for the Directors of                Exhibit 10.1 to the Form 10-K
               Duquesne Light Company, as amended to date.                    Annual Report of DQE for the
                                                                              year ended December 31, 1992.
 
*10.60         Incentive Compensation Program for Certain Executive           Exhibit 10.2 to the Form 10-K
               Officers of Duquesne Light Company, as amended to              Annual Report of DQE for the
               date.                                                          year ended December 31, 1992.
 
*10.61         Description of Duquesne Light Company Pension                  Exhibit 10.3 to the Form 10-K
               Service Supplement Program.                                    Annual Report of DQE for the
                                                                              year ended December 31, 1992.
 
*10.62         Duquesne Light Company Outside Directors'                      Filed here.
               Retirement Plan, as amended to date.
 
*10.63         Employment Agreement dated as of December 15,                  Exhibit 10.5 to the Form 10-K
               1992 between DQE, Duquesne Light Company and                   Annual Report of DQE for the
               Wesley W. von Schack.                                          year ended December 31, 1992.
 
*10.64         Duquesne Light/DQE Charitable Giving Program.                  Exhibit 10.6 to the Form 10-K
                                                                              Annual Report of DQE for the
                                                                              year ended December 31, 1992.
 
*10.65         Duquesne Light Company Performance Incentive                   Exhibit 10.7 to the Form 10-K
               Program.                                                       Annual Report of DQE for the
                                                                              year ended December 31, 1994.
 
*10.66         First Amendment dated as of October 25, 1994 to                Exhibit 10.8 to the Form 10-K
               Employment Agreement dated as of December 15,                  Annual Report of DQE for the
               1992 between DQE, Duquesne Light Company and                   year ended December 31, 1994.
               Wesley W. von Schack.
 
*10.67         Employment Agreement dated as of August 30, 1994               Exhibit 10.9 to the Form 10-K
               between DQE, Duquesne Light Company and                        Annual Report of DQE for the
               David D. Marshall.                                             year ended December 31, 1994.
 
*10.68         First Amendment dated as of June 27, 1995 to                   Filed here.
               Employment Agreement dated as of August 30, 1994
               between DQE, Duquesne Light Company and
               David D. Marshall.
 
*10.69         Employment Agreement dated as of August 30, 1994               Duquesne Light Company
               between DQE, Duquesne Light Company and                        Exhibit 10.10 to the Form 10-K
               Gary L. Schwass.                                               Annual Report of DQE for the
                                                                              year ended December 31, 1994.
 
*10.70         Employment Agreement dated as of August 30, 1994               Exhibit 10.68 to the Form 10-K
               between Duquesne Light Company and Dianna L.                   Annual Report of DQE for the
               Green.                                                         year ended December 31, 1994.

</TABLE>

                                       33
<PAGE>
 
<TABLE>
<CAPTION>
 
Exhibit                                                                                  Method of
  No.                               Description                                           Filing
-------        --------------------------------------------------------       -------------------------------
<S>            <C>                                                            <C>
 
*10.71         First Amendment dated as of June 27, 1995 to                   Filed here.
               Employment Agreement dated as of August 30, 1994
               between Duquesne Light Company and Dianna L.
               Green.
 
 12.1          Calculation of Ratio of Earnings to Fixed Charges.             Filed here.
 
 21.1          Subsidiaries of registrant:
               Duquesne has no significant subsidiaries.
 
 23.1          Independent Auditors' Consent.                                 Filed here.
 
 27.1          Financial Data Schedule.                                       Filed here.
 
 99.1          Executive Compensation of Duquesne Light Company               Filed here.
               Executive Officers for 1995 and Security Ownership
               of Duquesne Light Company Directors and
               Executive Officers as of February 21, 1996.
 
 99.2          Directors of DQE and Duquesne Light Company,                   Filed here.
               Page 20, 1995 DQE Annual Report to Shareholders.
</TABLE>

x    An additional document, substantially identical in all material respects to
     this Exhibit, has been entered into relating to one additional limited
     partnership Owner Participant.  Although the additional document may differ
     in some respects (such as name of the Owner Participant, dollar amounts and
     percentages), there are no material details in which the document differs
     from this Exhibit.

y    Additional documents, substantially identical in all material respects to
     this Exhibit, have been entered into relating to four additional corporate
     Owner Participants.  Although the additional documents may differ in some
     respects (such as names of the Owner Participants, dollar amounts and
     percentages), there are no material details in which the documents differ
     from this Exhibit.

z    Additional documents, substantially identical in all material respects to
     this Exhibit, have been entered into relating to six additional Owner
     Participants.  Although the additional documents may differ in some
     respects (such as names of the Owner Participants, dollar amounts and
     percentages), there are no material details in which the documents differ
     from this Exhibit.

*    This document is required to be filed as an exhibit to this form under Item
     14(c).


     Copies of the exhibits listed above will be furnished, upon request, to
     holders or beneficial owners of any class of Duquesne's stock as of
     February 21, 1996, subject to payment in advance of the cost of reproducing
     the exhibits requested.

                                       34
<PAGE>
 
                                                                     SCHEDULE II


                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
             For the Years Ended December 31, 1995, 1994 and 1993
                            (Thousands of Dollars)


<TABLE> 
<CAPTION> 
 Column A                                                     Column B        Column C      Column D       Column E    Column F
 --------                                                     --------        --------      --------       --------    --------
                                                                                    Additions
                                                                             ------------------------
                                                             Balance at      Charged to    Charged to                  Balance
                                                             Beginning       Costs and       Other                      at End
Description                                                   of Year         Expenses      Accounts      Deductions   of Year
-----------                                                  ----------      ----------    ----------     ----------   --------
<S>                                                          <C>             <C>           <C>            <C>          <C> 

Year Ended December 31, 1995
Reserve Deducted from the Asset
      to which it applies:
      Allowance for uncollectible accounts                    $15,021         $13,430      $3,567(A)      $14,099(B)   $17,919
                                                              -------         -------      ------         -------      -------
Year Ended December 31, 1994
Reserve Deducted from the Asset
      to which it applies:
      Allowance for uncollectible accounts                    $13,282         $11,890      $3,837(A)      $13,988(B)   $15,021
                                                              -------         -------      ------         -------      -------
Year Ended December 31, 1993
Reserve Deducted from the Asset
      to which it applies:
      Allowance for uncollectible accounts                    $ 7,707         $17,093      $2,925(A)      $14,443(B)   $13,282 
                                                              -------         -------      ------         -------      -------
Notes: (A) Recovery of accounts previously written off.
       (B) Accounts receivable written off.
</TABLE> 
 
                                       35
<PAGE>
 
                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

                                    DUQUESNE LIGHT COMPANY
                                        (Registrant)
 
Date:  March 26, 1996         By:  /s/ Wesley W. von Schack
                                  -------------------------
                                          (Signature)
                                      Wesley W. von Schack
                                     Chairman of the Board
                                  and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
       Signature                                Title                                Date
       ---------                                -----                                ----
<S>                             <C>                                             <C>
/s/ Wesley W. von Schack        Chairman of the Board, Chief Executive          March 26, 1996
------------------------         Officer and Director                          
 Wesley W. von Schack                                                          
                                                                          
/s/ David D. Marshall           President and Chief Operating Officer and       March 26, 1996
------------------------         Director                                      
 David D. Marshall                                                             
                                                                          
/s/ Gary L. Schwass             Senior Vice President and Chief Financial       March 26, 1996
------------------------         Officer                                       
 Gary L. Schwass                                                               
                                                                          
/s/ Morgan K. O'Brien           Controller and Principal                        March 26, 1996
------------------------         Accounting Officer                                          
 Morgan K. O'Brien                                           
                                                                          
/s/ Daniel Berg                 Director                                        March 26, 1996
------------------------                                                  
 Daniel Berg                                                              
                                                                          
/s/ Doreen E. Boyce             Director                                        March 26, 1996
------------------------                                                  
 Doreen E. Boyce                                                          
                                                                          
                                Director                                        March 26, 1996
------------------------                                                  
 Robert P. Bozzone                                                        
                                                                          
/s/ Sigo Falk                   Director                                        March 26, 1996
------------------------                                                  
 Sigo Falk                                                                
                                                                          
/s/ William H. Knoell           Director                                        March 26, 1996
------------------------                                                  
 William H. Knoell                                                        
                                                                          
/s/ Robert Mehrabian            Director                                        March 26, 1996
------------------------                                                  
 Robert Mehrabian                                                         
                                                                          
/s/ Thomas J. Murrin            Director                                        March 26, 1996
------------------------                                                  
 Thomas J. Murrin                                                         
                                                                          
/s/ Robert B. Pease             Director                                        March 26, 1996
------------------------                                                  
 Robert B. Pease                                                          
                                                                          
                                Director                                        March 26, 1996
------------------------
 Eric W. Springer
</TABLE>

                                       36
<PAGE>
  
Glossary of Terms

  Following are explanations of certain financial and operating terms used in 
this Report and unique in the utility business.

Allowance for Funds Used During Construction (AFC)
--------------------------------------------------------------------------------
  AFC is an amount recorded on the books of a utility during the period of
construction of utility assets. The amount represents the estimated cost of both
debt and equity used to finance the construction.

Baseload
--------------------------------------------------------------------------------
  The amount of electric power delivered or needed at the lowest point of demand
during the day.

Construction Work In Progress (CWIP)
--------------------------------------------------------------------------------
  This amount represents assets in the process of construction but not yet 
placed in service. The amount is shown on the consolidated balance sheet as a 
component of property, plant and equipment.

Deferred Energy Costs
--------------------------------------------------------------------------------
  In conjunction with the Energy Cost Rate Adjustment Clause, Duquesne records
deferred energy costs to offset differences between actual energy costs and the
level of energy costs currently recovered from electric utility customers.

Demand
--------------------------------------------------------------------------------
  The amount of electricity delivered to consumers at any instant or averaged 
over a period of time.

Energy Cost Rate Adjustment Clause (ECR)
--------------------------------------------------------------------------------
  Duquesne recovers through the ECR, to the extent that such amounts are not
included in base rates, the cost of nuclear fuel, fossil fuel and purchased
power costs and passes to its customers the profits from short-term power sales
to other utilities.

Federal Energy Regulatory Commission (FERC)
--------------------------------------------------------------------------------
  The FERC is an independent five-member commission within the United States
Department of Energy. Among its many responsibilities, the FERC sets rates and
charges for the wholesale transportation and sale of natural gas and
electricity, and licenses hydroelectric power projects.

Interruptible Customer
--------------------------------------------------------------------------------
  Interruptible customers receive a discount in exchange for allowing temporary
interruptions in their service during Duquesne's peak load periods or during
emergency conditions.

Kilowatt (KW)
--------------------------------------------------------------------------------
  A kilowatt is a unit of power or capacity. A kilowatt hour (KWH) is a unit of
energy or kilowatts times the length of time the kilowatts are used. For
example, a 100-watt bulb has a demand of .1 KW and, if burned continuously, will
consume 1 KWH in ten hours. One thousand KWs is a megawatt (MW). One thousand
KWHs is a megawatt hour (MWH).

Nuclear Decommissioning Costs
--------------------------------------------------------------------------------
  Decommissioning costs are expenses to be incurred in connection with the
entombment, decontamination, dismantlement, removal and disposal of the
structures, systems and components of a nuclear power plant that has permanently
ceased the production of electric energy.

Peak Demand
--------------------------------------------------------------------------------
  Peak demand is the amount of electricity required during periods of highest
usage. Peak periods fluctuate by season and generally occur in the morning hours
in winter and in late afternoon during the summer.

Pennsylvania Public Utility Commission (PUC)
--------------------------------------------------------------------------------
  The Pennsylvania governmental body that regulates all utilities (electric, 
gas, telephone, water, etc.), which is made up of five members nominated by the
governor and confirmed by the senate.

Regulatory Asset
--------------------------------------------------------------------------------
  Costs that Duquesne would otherwise have charged to expense which are
capitalized or deferred because these costs are currently being recovered or
because it is probable that the PUC and the FERC will allow recovery of these
costs through the ratemaking process.

Retail or Wholesale Access
--------------------------------------------------------------------------------
  The ability of customers to contract for electrical energy from competing
generating suppliers.

Stranded Cost
--------------------------------------------------------------------------------
  Stranded costs include any prudent utility investment, commitments or expenses
not yet recovered, made during a period when there was an obligation or
authorization to provide service at a regulated price, that are no longer
necessary or economical due to a change in statute or regulatory policy which
allows others to compete for the utility's customers. For example, Duquesne
recently refinanced its long-term debt. Refinancing costs will be recovered and
amortized for accounting purposes over the term of the debt, unless regulatory
changes prevent future recovery, and result in "stranded costs."

Wheeling
--------------------------------------------------------------------------------
  An electric operation wherein transmission facilities of one system are used
to transmit power of another system.

                                       37



<PAGE>
 
              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



To the Directors and Stockholder of Duquesne Light Company:

     We have audited the accompanying consolidated balance sheet of Duquesne
Light Company and its subsidiary (Duquesne) as of December 31, 1995 and 1994,
and the related consolidated statements of income, retained earnings, and cash
flows for each of the three years in the period ended December 31, 1995.  Our
audits also included the financial statement schedule listed in Item 14.  These
financial statements and financial statement schedule are the responsibility of
Duquesne's management.  Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Duquesne as of December 31,
1995 and 1994, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

     As discussed in Note A to the consolidated financial statements, effective
January 1, 1993, Duquesne changed its method of accounting for income taxes to
conform with Statement of Financial Accounting Standards No. 109, and Duquesne
changed its method of accounting for maintenance costs during scheduled major
fossil station outages.



                         /s/ Deloitte & Touche LLP

                         DELOITTE & TOUCHE LLP
                         Pittsburgh, Pennsylvania
                         January 30, 1996

                                       38
 
<PAGE>
 
<TABLE>
<CAPTION>
DUQUESNE LIGHT COMPANY                          (Thousands of Dollars)
STATEMENT OF CONSOLIDATED INCOME                Year Ended December 31,
--------------------------------                -----------------------
                                             1995         1994         1993
--------------------------------------------------------------------------------
<S>                                       <C>          <C>          <C>
Operating Revenues:
Sales of Electricity:
  Customers - net                         $1,088,737   $1,109,752   $1,175,287
  Phase-in deferrals                               -      (28,810)    (100,315)
--------------------------------------------------------------------------------
    Net customer revenues                  1,088,737    1,080,942    1,074,972
  Utilities                                   55,963       58,295       50,669
--------------------------------------------------------------------------------
Total Sales of Electricity                 1,144,700    1,139,237    1,125,641
Other                                         35,084       29,387       35,044
--------------------------------------------------------------------------------
    Total Operating Revenues               1,179,784    1,168,624    1,160,685
--------------------------------------------------------------------------------
Operating Expenses:                                   
Fuel                                         208,546      222,420      223,699
Purchased power                               23,422       21,715       14,032
Other operating                              260,541      268,303      287,166
Maintenance                                   81,516       79,488       80,292
Depreciation and amortization                189,146      163,219      150,925
Taxes other than income taxes                 86,349       85,839       70,404
Income taxes                                  88,665       90,740       96,270
--------------------------------------------------------------------------------
    Total Operating Expenses                 938,185      931,724      922,788
--------------------------------------------------------------------------------
Operating Income                             241,599      236,900      237,897
--------------------------------------------------------------------------------
Other Income and (Deductions):                                                
Allowance for equity funds used during           
 construction                                    721        1,295          869
Long-term power sale write-off                     -            -      (15,225)
Carrying charges on deferred revenues              -           30        1,801
Income taxes                                  (4,229)       6,549       19,033
Other - net                                   10,205        3,729       10,552
--------------------------------------------------------------------------------
    Total Other Income and (Deductions)        6,697       11,603       17,030
--------------------------------------------------------------------------------
Income Before Interest Charges               248,296      248,503      254,927
--------------------------------------------------------------------------------
Interest Charges:                                                             
Interest on long-term debt                    95,391      101,027      108,479
Other interest                                 2,599        1,095        2,387
Allowance for borrowed funds used 
 during construction                            (764)      (1,068)        (726)
--------------------------------------------------------------------------------
    Total Interest Charges                    97,226      101,054      110,140
--------------------------------------------------------------------------------
Income Before Cumulative Effect on           
 Prior Years of                              
 Changes in Accounting Principles            151,070      147,449      144,787 
Adoption of SFAS No. 109 - Income Taxes            -            -        8,000
Accounting for maintenance costs - net             -            -       (5,425)
--------------------------------------------------------------------------------
Net Income                                   151,070      147,449      147,362
Dividends on Preferred and Preference          
 Stock                                         5,320        6,046        9,188                               
--------------------------------------------------------------------------------
  Earnings for Common Stock               $  145,750   $  141,403   $  138,174
================================================================================
</TABLE>                                              
                                                      
See notes to consolidated financial statements.       

                                       39
<PAGE>
 
<TABLE>                                               
<CAPTION>                                             
DUQUESNE LIGHT COMPANY                      (Thousands of Dollars)
CONSOLIDATED BALANCE SHEET                    As of December 31,     
--------------------------                    ------------------
ASSETS                                        1995          1994
--------------------------------------------------------------------------------
<S>                                       <C>           <C> 
Property, Plant and Equipment:                        
Electric plant in service                 $ 4,262,670   $ 4,196,690
Construction work in progress                  38,133        43,763
Property held under capital leases            133,381       161,775
Property held for future use                  216,633       216,206
Other                                           1,193           532
--------------------------------------------------------------------------------
  Total                                     4,652,010     4,618,966
Less accumulated depreciation and          
 amortization                              (1,673,107)   (1,550,447)
--------------------------------------------------------------------------------
  Property, Plant and Equipment - Net       2,978,903     3,068,519
--------------------------------------------------------------------------------
Long-Term Investments:                                
Investment in DQE Common Stock                 66,757        43,057
Other investments                             102,648        31,212
--------------------------------------------------------------------------------
  Total Long-Term Investments                 169,405        74,269
--------------------------------------------------------------------------------
Current Assets:                                       
Cash and temporary cash investments             
 (at cost which approximates market)            2,490        15,904
--------------------------------------------------------------------------------
Receivables:
  Electric customer accounts receivable       103,821        96,157
  Other utility receivables                    22,441        26,008
  Other receivables                            11,842        25,171
  Less: Allowance for uncollectible
   accounts                                   (17,920)      (15,021)
--------------------------------------------------------------------------------
  Receivables less allowance for  
   uncollectible accounts                     120,184       132,315
  Less: Receivables sold                       (7,000)            -
--------------------------------------------------------------------------------
  Total Receivables                           113,184       132,315
--------------------------------------------------------------------------------
Materials and supplies (generally at
 average cost):
  Coal                                         25,454        30,484
--------------------------------------------------------------------------------
  Operating and construction                   53,298        58,262
--------------------------------------------------------------------------------
Other current assets                            7,955        15,795
--------------------------------------------------------------------------------
  Total Current Assets                        202,381       252,760
--------------------------------------------------------------------------------
Other Non-Current Assets:
Regulatory assets                             671,928       710,763
Other                                          45,048        43,556
--------------------------------------------------------------------------------
  Total Other Non-Current Assets              716,976       754,319
--------------------------------------------------------------------------------
    Total Assets                          $ 4,067,665   $ 4,149,867
================================================================================
 
</TABLE>
See notes to consolidated financial statements.

                                       40
<PAGE>
 
<TABLE>
<CAPTION>

DUQUESNE LIGHT COMPANY                                             (Thousands of Dollars)
CONSOLIDATED BALANCE SHEET                                            As of December 31,
--------------------------                                        ------------------------
CAPITALIZATION AND LIABILITIES                                          1995          1994
------------------------------------------------------------------------------------------
<S>                                                               <C>          <C>
Capitalization:
Common stock (authorized - 90,000,000 shares, issued and            
 outstanding - 10 shares)                                          $       --   $       --
Capital surplus                                                       837,265      823,193
Retained earnings                                                     294,069      292,319
------------------------------------------------------------------------------------------
    Total common stockholder's equity                               1,131,334    1,115,512
------------------------------------------------------------------------------------------
Non-redeemable preferred stock                                         63,608       90,340
Non-redeemable preference stock                                        29,615       29,857
------------------------------------------------------------------------------------------
    Total preferred and preference stock before deferred ESOP          
    benefit (involuntary liquidation values of $93,086 and
    $120,060 exceed par by $28,781 and $43,882, respectively)          93,223      120,197
Deferred employee stock ownership plan (ESOP) benefit                 (22,257)     (24,852)
------------------------------------------------------------------------------------------
    Total preferred and preference stock                               70,966       95,345
------------------------------------------------------------------------------------------
Long-term debt                                                      1,322,531    1,368,930
------------------------------------------------------------------------------------------
    Total Capitalization                                            2,524,831    2,579,787
------------------------------------------------------------------------------------------
Obligations Under Capital Leases                                       34,546       41,106
------------------------------------------------------------------------------------------
Current Liabilities:
Current maturities and sinking fund requirements                       71,051       85,691
Accounts payable                                                       76,435       60,654
Accrued liabilities                                                    53,930       81,035
Dividends declared                                                     37,015       35,469
Other                                                                   9,191        5,722
------------------------------------------------------------------------------------------
    Total Current Liabilities                                         247,622      268,571
------------------------------------------------------------------------------------------
Non-Current Liabilities:
Deferred income taxes-net                                             805,996      991,149
Deferred investment tax credits                                       115,760      123,591
Deferred income                                                       162,916            -
Other                                                                 175,994      145,663
------------------------------------------------------------------------------------------
    Total Non-Current Liabilities                                   1,260,666    1,260,403
------------------------------------------------------------------------------------------
Commitments and Contingencies
------------------------------------------------------------------------------------------
    Total Capitalization and Liabilities                           $4,067,665   $4,149,867
 =========================================================================================

</TABLE>
 

                                       41
<PAGE>
 
<TABLE>
<CAPTION>

DUQUESNE LIGHT COMPANY                                                    (Thousands of Dollars)
STATEMENT OF CONSOLIDATED CASH FLOWS                                      Year Ended December 31,
------------------------------------                                      -----------------------
                                                                         1995        1994          1993
---------------------------------------------------------------------------------------------------------
<S>                                                                 <C>         <C>           <C>
Cash Flows From Operating Activities:
Net income                                                          $ 151,070   $ 147,449     $ 147,362
Principal non-cash charges (credits) to net income:
    Depreciation and amortization                                     189,146     156,519       150,125
    Capital lease, nuclear fuel and other amortization                 32,670      36,940        32,428
    Deferred income taxes and investment tax credits - net            (41,411)    (29,705)      (44,420)
    Allowance for equity funds used during construction                  (721)     (1,295)         (869)
    Phase-in plan revenues and related carrying charges                    --       28,621       99,375
    Changes in working capital other than cash                         30,656      (36,884)     (96,799)
Other - net                                                            36,004       49,499       19,505
---------------------------------------------------------------------------------------------------------
    Net Cash Provided from Operating Activities                       397,414      351,144      306,707
---------------------------------------------------------------------------------------------------------
Cash Flows Used By Investing Activities:
Construction expenditures                                             (78,656)     (94,315)    (100,628)
Long-term investments                                                 (62,854)      (5,317)          --
Allowance for borrowed funds used during construction                    (764)      (1,068)        (726)
Other - net                                                            (3,770)       3,145      (12,317)
---------------------------------------------------------------------------------------------------------
    Net Cash Used by Investing Activities                            (146,044)     (97,555)    (113,671)
---------------------------------------------------------------------------------------------------------
Cash Flows Used In Financing Activities:
Sale of bonds                                                              --      114,110      740,500
(Decrease) increase in notes payable                                       --      (10,990)      10,990
Dividends on capital stock                                           (150,059)    (151,059)    (154,204)
Reductions of long-term obligations:
    Preferred and preference stock                                    (29,732)     (39,958)        (187)
    Long-term debt                                                    (56,114)    (114,835)    (735,048)
    Other obligations                                                 (26,373)     (33,522)     (27,751)
Premium on reacquired debt                                             (1,731)      (5,033)     (31,702)
Other - net                                                              (775)       3,602       (1,790)
---------------------------------------------------------------------------------------------------------
    Net Cash Used In Financing Activities                            (264,784)    (237,685)    (199,192)
---------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and temporary cash                    
    investments                                                       (13,414)      15,904       (6,156)
Cash and temporary cash investments at beginning of year               15,904           --        6,156
---------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of year                  $   2,490   $   15,904    $      --
=========================================================================================================

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid during the year for:

Interest (net of amount capitalized)                                $  95,521   $  102,944    $ 124,692
---------------------------------------------------------------------------------------------------------
Income taxes                                                        $ 115,504   $  111,614   $  133,303
---------------------------------------------------------------------------------------------------------
Non-cash investing and financing
 activities:
Capital lease obligations recorded                                  $  14,961   $   16,909   $   11,811
Contribution of DQE Common Stock from parent company                $      --   $   19,531   $       --
Preferred stock issued in conjunction with long-term investments    $   3,000   $       --   $       --
=========================================================================================================

 
</TABLE>

See notes to consolidated financial statements.

                                       42
<PAGE>
 
<TABLE>
<CAPTION>
DUQUESNE LIGHT COMPANY                                      (Thousands of Dollars)
STATEMENT OF CONSOLIDATED RETAINED EARNINGS                 Year Ended December 31,
                                                          1995          1994         1993
<S>                                                    <C>           <C>           <C>
Balance, January 1                                      $292,319      $294,916     $300,742 
Net Income for the Year                                  151,070       147,449      147,362 
-------------------------------------------------------------------------------------------
  Total                                                  443,389       442,365      448,104 
-------------------------------------------------------------------------------------------
Cash dividends declared:
  Preferred stock                                          3,870         4,592        4,740 
  Preference stock (net of tax benefit of                  1,450         1,454        4,448 
  ESOP dividend)
  Common stock                                           144,000       144,000      144,000 
-------------------------------------------------------------------------------------------
    Total Cash Dividends Declared                        149,320       150,046      153,188 
-------------------------------------------------------------------------------------------
Balance, December 31                                    $294,069      $292,319     $294,916 
===========================================================================================
</TABLE>

See notes to consolidated financial statements.

A.  Summary of Significant Accounting Policies

Notes to Consolidated Financial Statements

Consolidation
--------------------------------------------------------------------------------

  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 makes
long-term lease investments.

  All material intercompany balances and transactions have been eliminated in
the preparation of the consolidated financial statements of Duquesne.

Basis of Accounting
--------------------------------------------------------------------------------

  Duquesne is subject to the accounting and reporting requirements of the
Securities and Exchange Commission (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 F, on page
48.)

  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.

Revenues
--------------------------------------------------------------------------------

  Meters are read monthly and customers are billed on the same basis. Revenues
are recorded in the accounting periods for which they are billed, with the
exception of energy cost recovery revenues. Deferred revenues are associated
with Duquesne's 1987 rate case. (See "Energy Cost Rate Adjustment Clause (ECR)"
discussion on page 44 and "1987 Rate Case" discussion, Note F, on page 48).

                                       43
<PAGE>
 
Duquesne's Electric 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.

Net Customer Revenues for the Year ended December 31
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                                                                   1995          1994         1993 
                                                                   (Amounts in Thousands of Dollars)
<S>                                                              <C>          <C>          <C>
---------------------------------------------------------------------------------------------------------
Sales of Electricity:
  Customers                                                        $1,102,167   $1,121,642   $1,192,381 
  Provision for doubtful accounts                                     (13,430)     (11,890)     (17,094)
---------------------------------------------------------------------------------------------------------
    Customers - net                                                 1,088,737    1,109,752    1,175,287 
  Phase-in deferrals                                                        -      (28,810)    (100,315)
---------------------------------------------------------------------------------------------------------
    Net Customer Revenues                                          $1,088,737   $1,080,942   $1,074,972 
=========================================================================================================
</TABLE>

Energy Cost Rate Adjustment Clause (ECR)
--------------------------------------------------------------------------------

  Through the ECR, Duquesne recovers (to the extent that such amounts are not
included in base rates) nuclear fuel, fossil fuel and purchased power expenses
and, also through the ECR, passes to its customers the profits from short-term
power sales to other utilities (collectively, ECR energy costs). Nuclear fuel
expense is recorded on the basis of the quantity of electric energy generated
and includes such costs as the fee imposed by the United States Department of
Energy (DOE) for future disposal and ultimate storage and disposition of spent
nuclear fuel. Fossil fuel expense includes the costs of coal, natural gas and
fuel oil used in the generation of electricity.

  On Duquesne's statement of consolidated income, these energy cost recovery
revenues are included as a component of operating revenues. For ECR purposes,
Duquesne defers fuel and other energy expenses for recovery, or refunding, in
subsequent years. The deferrals reflect the difference between the amount that
Duquesne is currently collecting from customers and its actual ECR energy costs.
The PUC annually reviews Duquesne's ECR energy costs for the fiscal year April
through March, compares them to previously projected ECR energy costs and
adjusts the ECR for over- or under-recoveries and for two PUC-established coal
cost standards. (See "Deferred Coal Costs" and "Warwick Mine Costs" discussions,
Note F, on pages 49 and 50, respectively.)

  Over- or under-recoveries from customers are recorded in the consolidated
balance sheet as payable to, or receivable from, customers. At December 31,
1995, $5.8 million was payable to customers and shown as other current
liabilities. At December 31, 1994, $5.9 million was receivable from customers
and shown as other current assets.

Maintenance
--------------------------------------------------------------------------------

  Incremental maintenance expense incurred for refueling outages at Duquesne's
nuclear units is deferred for amortization over the period between refueling
outages (generally 18 months). Duquesne changed, as of January 1, 1993, its
method of accounting for maintenance costs during scheduled major fossil
generating station outages. Prior to that time, maintenance costs incurred for
scheduled major outages at fossil generating stations were charged to expense as
these costs were incurred. Under the new accounting policy, Duquesne accrues,
over the periods between outages, anticipated expenses for scheduled major
fossil generating station outages. Maintenance costs incurred for non-major
scheduled outages and for forced outages are charged to expense as such costs
are incurred. This method was adopted to match more accurately the maintenance
costs and the revenue produced during the periods between scheduled major fossil
generating station outages.

                                       44
<PAGE>
 
  The cumulative effect (approximately $5.4 million, net of income taxes of
approximately $3.9 million) of the change on prior years was included in net
income in 1993. The effect of the change in 1993 was to reduce income, before
the cumulative effect of changes in accounting principles, by approximately $2.4
million, and to reduce net income, after the cumulative effect of changes in
accounting principles, by approximately $7.8 million.

Depreciation and Amortization
--------------------------------------------------------------------------------

  Depreciation of property, plant and equipment, including plant-related
intangibles, is recorded on a straight-line basis over the estimated remaining
useful lives of properties. Amortization of other intangibles is recorded on a
straight-line basis over a five-year period. Depreciation and amortization of
other properties are calculated on various bases.

  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. Trust fund earnings increase the fund balance and the recorded
liability. The market value of the aggregate trust fund balances at December 31,
1995, totaled approximately $28.5 million. On Duquesne's consolidated balance
sheet, the decommissioning trusts have been reflected in other investments, and
the related liability has been recorded as other non-current liabilities. (See
"Nuclear Decommissioning" discussion, Note N, on page 59.)

  Depreciation and amortization expense increased $25.9 million primarily due to
the change in Duquesne's composite depreciation rate from 3.0 percent to 3.5
percent effective January 1, 1995.

Income Taxes
--------------------------------------------------------------------------------

  On January 1, 1993, Duquesne adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS No. 109). Implementation of
SFAS No. 109 involved a change in accounting principle. The cumulative $8
million effect on prior years was reported in 1993 as an increase in net income.

  SFAS No. 109 requires that the liability method be used in computing deferred
taxes on all differences between book and tax bases of assets. These book/tax
differences occur when events and transactions recognized for financial
reporting purposes are not recognized in the same period for tax purposes. SFAS
No. 109 also requires that a deferred tax liability or asset be adjusted in the
period of enactment for the effect of changes in tax laws or rates. During 1994,
the statutory Pennsylvania income tax rate was reduced from 12.25 percent to
9.99 percent. This resulted in a net decrease of $80.5 million in deferred tax
liabilities and a corresponding reduction in the regulatory receivable.

  Duquesne recognizes a regulatory asset for the deferred tax liabilities that
are expected to be recovered from customers through rates. (See "Rate Matters,"
Note F, and "Income Taxes," Note K, on pages 48 and 54, respectively.)

  With respect to the financial statement presentation of SFAS No. 109, Duquesne
reflects the amortization of the regulatory tax receivable resulting from
reversals of deferred taxes as depreciation and amortization expense. Reversals
of accumulated deferred income taxes are included in income tax expense.

  When applied to reduce Duquesne's income tax liability, investment tax credits
related to electric utility property generally were deferred. Such credits are
subsequently reflected, over the lives of the related assets, as reductions to
tax expense.

                                       45
<PAGE>
 
Property, Plant and Equipment
--------------------------------------------------------------------------------

  The asset values of Duquesne's properties are stated at original construction
cost, which includes related payroll taxes, pensions and other fringe benefits,
as well as administrative and general costs. Also included in original
construction cost is an allowance for funds used during construction (AFC),
which represents the estimated cost of debt and equity funds used to finance
construction. The amount of AFC that is capitalized will vary according to
changes in the cost of capital and in the level of construction work in progress
(CWIP). On a current basis, Duquesne does not realize cash from the AFC.
Duquesne does realize cash, during the service life of the plant, through
increased revenues reflecting a higher rate base (upon which a return is earned)
and increased depreciation. The AFC rates applied to CWIP were 8.7 percent in
1995, 9.0 percent in 1994 and 9.6 percent in 1993.

  Additions to, and replacements of, property units are charged to plant
accounts. Maintenance, repairs and replacement of minor items of property are
recorded as expenses when they are incurred. The costs of properties that are
retired (plus removal costs and less any salvage value) are charged to
accumulated depreciation and amortization.

  Substantially all of Duquesne's properties are subject to a first mortgage
lien.

Other Current Assets and Long-Term Investments
--------------------------------------------------------------------------------

  Duquesne's other current assets and long-term 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 (SFAS No. 115), these investments are classified as available-
for-sale and are stated at market value.

Financial Accounting Pronouncement
--------------------------------------------------------------------------------

  The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of (SFAS No. 121) in March 1995. This
statement is effective for years beginning after December 15, 1995. Duquesne
anticipates adopting this standard on January 1, 1996, and does not expect that
it will have a material impact on its financial position or results of
operations, based on the current regulatory structure in which it operates. As
competitive factors influence pricing in the utility industry, this opinion may
change in the future. The general requirements of SFAS No. 121 apply to non-
current assets and require impairment to be considered whenever evidence
suggests that it is no longer probable that future cash flows in an amount at
least equal to the asset will result.

Temporary Cash Investments
--------------------------------------------------------------------------------

  Temporary cash investments are short-term, highly liquid investments with
original maturities of three or fewer months. They are stated at market, which
approximates cost. Duquesne considers temporary cash investments to be cash
equivalents.

B.  Property, Plant and Equipment

Reclassifications
--------------------------------------------------------------------------------

  The 1994 and 1993 consolidated financial statements have been reclassified to
conform with accounting presentations adopted during 1995.

  In addition to its wholly owned generating units, Duquesne, together with
other electric utilities, has an ownership or leasehold interest in certain
jointly owned units. Duquesne is required to pay its share of the construction
and operating costs of the units. Duquesne's share of the operating expenses of
the units is included in the statement of consolidated income.

                                       46
<PAGE>
 
Generating Units at December 31, 1995
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                                           Utility             Fuel
Unit                                                Megawatts               Plant             Source
                                                 Summer      Winter  (Millions of Dollars)
------------------------------------------------------------------------------------------------------
<S>                                              <C>         <C>     <C>                     <C>
Cheswick                                           562         570         $  118.7              Coal
Elrama (a)                                         474         487             98.1              Coal
Ft. Martin Unit 1 (b)                              276         276             36.4              Coal
Eastlake Unit 5                                    186         186             42.7              Coal
Sammis Unit 7                                      187         187             53.1              Coal
Bruce Mansfield Unit 1 (a)                         228         228             66.2              Coal
Bruce Mansfield Unit 2 (a)                          62          62             19.1              Coal
Bruce Mansfield Unit 3 (a)                         110         110             52.1              Coal
Beaver Valley Unit 1 (c)                           385         385            234.0           Nuclear
Beaver Valley Unit 2 (d)(e)                        113         113             14.4           Nuclear
Beaver Valley Common Facilities                                               159.4
Perry Unit 1 (f)                                   161         164            565.5           Nuclear
Brunot Island                                       54          66              7.1          Fuel Oil
------------------------------------------------------------------------------------------------------
    Total                                        2,798       2,834          1,466.8
Property held for future use:
  Brunot Island (g)                                204         240             44.9          Fuel Oil
  Phillips (a)                                     300         310             77.4              Coal
------------------------------------------------------------------------------------------------------
    Total Generating Units                       3,302       3,384         $1,589.1
======================================================================================================
</TABLE> 

  (a) The unit is equipped with flue gas desulfurization equipment.
  (b) See "Sale of Ft. Martin" discussion below.
  (c) The Nuclear Regulatory Commission (NRC) has granted a license to operate
      through January 2016.
  (d) On October 2, 1987, Duquesne sold its 13.74 percent interest in Beaver
      Valley Unit 2 (BV Unit 2) and leased it back; the sale was exclusive of
      transmission and common facilities. Amounts shown represent facilities not
      sold and subsequent leasehold improvements.
  (e) The NRC has granted a license to operate through May 2027.
  (f) The NRC has granted a license to operate through March 2026.
  (g) Combustion turbine capacity held for future use representing 135 megawatts
      summer and 168 megawatts winter may be returned to service pending outcome
      of the sale of Ft. Martin. (See "Sale of Ft. Martin" discussion below.)

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
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 plan also proposes
an annual increase of $25 million for three years in depreciation and
amortization expense to Duquesne's nuclear investment, as well as additional
annual contributions to its nuclear plant decommissioning funds of $5 million
for five years, without any increase in existing electric rates. Lastly,
Duquesne proposes a five-year annual $5 million credit to the ECR to compensate
Duquesne's customers for the lost profits from any reduced short-term power
sales foregone by the sale of its ownership interest in the Ft. Martin Power
Station. (See "Energy Cost Rate Adjustment Clause (ECR)" discussion, Note A, on
page 44.) The PUC is currently reviewing Duquesne's petition.

  At December 31, 1995 and 1994, the fair market value of Duquesne's investment
in DQE common stock was $66.8 million and $43.1 million, respectively. At
December 31, 1995 and 1994, the cost of Duquesne's investment in DQE common
stock was $43.9 million and $45.9 million, respectively.

                                       47
<PAGE>

C.  Long-Term Investments
 
  Duquesne makes equity investments in affordable housing. At December 31, 1995,
Duquesne had investments in seven affordable housing funds.

  Deferred income primarily relates to Duquesne's leasehold investments.
Deferred amounts will be recognized as income over the lives of the underlying
leasehold investments over periods generally not exceeding five years.

  Duquesne's other investments are primarily in assets of nuclear
decommissioning trusts and marketable securities. In accordance with SFAS No.
115, these investments are classified as available-for-sale and are stated at
market value. The amount of unrealized holding gains related to marketable
securities at December 31, 1995, is $22.8 million ($13.4 million net of tax).
There were no material unrealized gains or losses on investments at December 31,
1994.

D.  Receivables

  Duquesne and an unaffiliated corporation have an agreement that entitles
Duquesne to sell, and the corporation to purchase, on an ongoing basis, up to
$50 million of accounts receivable. At December 31, 1995, Duquesne had sold $7
million of receivables to the unaffiliated corporation. Duquesne had no
receivables sold at December 31, 1994. The accounts receivable sales agreement,
which expires in June 1996, is one of many sources of funds available to
Duquesne. Duquesne may attempt to extend the agreement, or to replace the
facility with a similar one or to eliminate it upon expiration.

E.  Changes in Working Capital Other than Cash
 
Changes in Working Capital Other than Cash
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                     1995        1994      1993
                                                                  (Amounts in Thousands of Dollars)
----------------------------------------------------------------------------------------------------
<S>                                                               <C>         <C>        <C>
Receivables                                                        $ 19,131   $  6,708   $(87,671)
Materials and supplies                                                9,994      2,932     13,635 
Other current assets                                                  7,840     (6,929)     3,636 
Accounts payable                                                     15,781    (23,816)    (6,022)
Other current liabilities                                           (22,090)   (15,779)   (20,377)
----------------------------------------------------------------------------------------------------
Total                                                              $ 30,656   $(36,884)  $(96,799)
====================================================================================================
</TABLE>


F.   Rate Matters

1987 Rate Case
--------------------------------------------------------------------------------

  In March 1988, the PUC adopted a rate order that increased Duquesne's revenues
by $232 million annually. This rate increase was phased-in from April 1988
through April 1994. Deficiencies in current revenues which resulted from the
phase-in plan were included in the consolidated statement of income as phase-in
deferrals. Phase-in deferrals were recorded on the consolidated balance sheet as
a regulatory asset. As customers were billed for deficiencies related to prior
periods, this regulatory asset was reduced.

  At this time, Duquesne has no pending base rate case and has no immediate
plans to file a base rate case. In Duquesne's petition currently before the PUC
for the sale of its ownership interest in the Ft. Martin Power Station, Duquesne
proposes to freeze its base rates for a five-year period. (See "Sale of Ft.
Martin" discussion, Note B, on page 47.)

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.

                                       48
<PAGE>
 
  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.
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.

Regulatory Assets at December 31
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                              1995              1994
                                                        (Amounts in Thousands of Dollars)
------------------------------------------------------------------------------------------ 
<S>                                                     <C>                  <C>
Regulatory tax receivable (Note K)                           $414,543         $428,043  
Unamortized debt costs (Note I)(a)                             98,776          103,454 
Deferred rate synchronization costs (below)                    51,149           51,149 
Beaver Valley Unit 2 (BV Unit 2)                                                        
 sale/leaseback premium (Note L)(b)                            31,564           33,414  
Deferred employee costs (c)                                    31,218           31,012 
Extraordinary property loss (below)                             8,300           22,394 
Deferred nuclear maintenance outage                                                     
 costs (Note A)                                                 6,776           11,406  
DOE decontamination and decommissioning                        
 receivable (Note N)                                           10,687           10,932  
Deferred coal costs (below)                                    12,753           10,677 
Other                                                           6,162            8,282 
------------------------------------------------------------------------------------------ 
    Total Regulatory Assets                                  $671,928         $710,763 
========================================================================================== 
</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 BV 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.

Deferred Rate Synchronization Costs
--------------------------------------------------------------------------------

  In 1987, the PUC approved Duquesne's petition to defer initial operating and
other costs of Perry Unit 1 and BV Unit 2. Duquesne deferred the costs incurred
from November 17, 1987, when the units went into commercial operation, until
March 25, 1988, when a rate order was issued. In its order, the PUC postponed
ruling on whether these costs would be recoverable from Duquesne's customers.
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.

Extraordinary Property Loss
--------------------------------------------------------------------------------

  Duquesne abandoned its interest in the partially constructed Perry Unit 2 in
1986 and subsequently disposed of its interest in 1992. In the 1987 rate case,
the PUC approved recovery, over a 10-year period, of Duquesne's original $155
million investment in Perry Unit 2. Duquesne is not earning a return on the as-
yet-unrecovered portion of its investment in the unit.

Deferred Coal Costs
--------------------------------------------------------------------------------

  The PUC has established two market price coal cost standards. One applies only
to coal delivered at the Bruce Mansfield Power Station (Bruce Mansfield). The
other, the system-wide coal cost standard, applies to coal delivered to the
remainder of Duquesne's system. Both standards are updated monthly to reflect
prevailing market prices for similar coal. The

                                       49
<PAGE>
 
PUC has directed Duquesne to defer recovery of the delivered cost of coal to the
extent that such cost exceeds generally prevailing market prices for similar
coal, as determined by the PUC. The PUC allows deferred amounts to be recovered
from customers when the delivered costs of coal fall below such PUC-determined
prevailing market prices.

  In 1990, the PUC approved a joint petition for settlement that clarified
certain aspects of the system-wide coal cost standard and gave Duquesne options
to extend the standard through March 2000. In December 1991, Duquesne exercised
the first of two options that extended the standard through March 1996. In
December 1995, Duquesne exercised the second option to extend the standard
through March 2000. The unrecovered cost of coal used at Bruce Mansfield
amounted to $8.4 million and $7.3 million and the unrecovered cost of coal used
throughout the system amounted to $4.4 million and $3.4 million at December 31,
1995 and 1994, respectively. Duquesne believes that all deferred coal costs will
be recovered.

Warwick Mine Costs
--------------------------------------------------------------------------------

  The 1990 joint petition for settlement (See preceding discussion on "Deferred
Coal Costs.") also recognized costs at Duquesne's Warwick Mine, which had been
on standby since 1988, and allowed for recovery of such costs, including the
costs of ultimately closing the mine. In 1990, Duquesne entered into an
agreement under which an unaffiliated company will operate the mine until March
2000 and sell the coal produced. Production began in late 1990. The mine reached
a full production rate in early 1991. The Warwick Mine coal reserves include
both high and low sulfur coal; Duquesne's contract is for medium to high sulfur
(1.3 percent to 2.5 percent) coal. More than 60 percent of the coal mined at
Warwick Mine currently is used by Duquesne. Duquesne receives a royalty on sales
of Warwick coal in the open market. These royalties are credited to Duquesne's
ECR. In the past year, the Warwick Mine supplied slightly less than one-fifth of
the coal used in the production of electricity at Duquesne's wholly owned and
jointly owned plants.

  Costs at the Warwick Mine and Duquesne's investment in the mine are expected
to be recovered through the cost of coal in the ECR. Recovery is subject to the
system-wide coal cost standard. Duquesne also has an opportunity to earn a
return on its investment in the mine through the cost of coal during the period
of the system-wide coal cost standard including extensions. At December 31,
1995, Duquesne's net investment in the mine was $14.9 million. The current
estimated liability, including final site reclamation, mine water treatment and
certain labor liabilities, for mine closing is $34.1 million and Duquesne has
recorded a liability on the consolidated balance sheet of approximately $15.9
million toward these costs.

Property Held for Future Use
--------------------------------------------------------------------------------

  In 1986, the PUC approved Duquesne's request to remove Phillips Power Station
(Phillips) and a portion of BI from service and from rate base. Duquesne expects
to recover its net investment in these plants through future electricity sales.
Duquesne believes its investment in these plants will be necessary in order to
meet future business needs outlined in Duquesne's plans for optimizing
generation resources. If business opportunities do not develop as expected,
Duquesne will consider the sale of these assets. In the event that market
demand, transmission access or rate recovery do not support the utilization or
sale of the plants, Duquesne may have to write off part or all of their costs. A
portion of the BI combustion turbine capacity currently held for future use may
be returned to service pending the outcome of the sale of Duquesne's ownership
interest in Ft. Martin. (See "Sale of Ft. Martin" discussion, Note B, on page
47.) At December 31, 1995, Duquesne's net investment in Phillips and BI held for
future use was $77.4 million and $44.9 million, respectively.

                                       50
<PAGE>
 
G.  Common Stock and Capital Surplus

Common Stock and Capital Surplus
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Capital Surplus                                                 1995      1994       1993
Year Ended December 31,                                      (Amounts in Thousands of Dollars)
------------------------------------------------------------------------------------------------
<S>                                                          <C>        <C>        <C>
Capital Surplus                                              $      -   $      -   $      -
Premium on common stock                                       837,539    823,886    807,593 
Capital stock expense                                            (274)      (693)    (1,838)
------------------------------------------------------------------------------------------------
Total Capital Surplus                                        $837,265   $823,193   $805,755 
================================================================================================
</TABLE>

  In July 1989, Duquesne became a wholly owned subsidiary of DQE, the holding
company formed as part of a shareholder-approved restructuring. As a result of
the restructuring, DQE common stock replaced all outstanding shares of Duquesne
common stock, except for ten shares which DQE holds.

  DQE or its predecessor, Duquesne, has continuously paid dividends on common
stock since 1953. Dividends may be paid on DQE common stock to the extent
permitted by law and as declared by its board of directors. However, in
Duquesne's Restated Articles of incorporation, provisions relating to preferred
and preference stock may restrict the payment of Duquesne's common dividends. No
dividends or distributions may be made on Duquesne's common stock if Duquesne
has not paid dividends or sinking fund obligations on its preferred or
preference stock. Further, the aggregate amount of Duquesne's common stock
dividend payments or distributions may not exceed certain percentages of net
income if the ratio of common stockholder's equity to total capitalization is
less than specified percentages. As all of Duquesne's common stock is owned by
DQE, to the extent that Duquesne cannot pay common dividends, DQE may not be
able to pay dividends to its common shareholders. No part of the retained
earnings of Duquesne was restricted at December 31, 1995.

H.  Preferred and Preference Stock

  Holders of Duquesne's preferred stock are entitled to cumulative quarterly
dividends. If four quarterly dividends on any series of preferred stock are in
arrears, holders of the preferred stock are entitled to elect a majority of
Duquesne's board of directors until all dividends have been paid. At December
31, 1995, Duquesne had made all preferred stock dividend payments.

  Holders of Duquesne's preference stock are entitled to receive cumulative
quarterly dividends if dividends on all series of preferred stock are paid. If
six quarterly dividends on any series of preference stock are in arrears,
holders of the preference stock are entitled to elect two of Duquesne's
directors until all dividends have been paid. At December 31, 1995, Duquesne had
made all dividend payments. Preferred and preference dividends  were $5.3
million, $6.0 million and $9.2 million in 1995, 1994 and 1993, respectively.

  In December 1991, Duquesne established an Employee Stock Ownership Plan (ESOP)
to provide matching contributions for a 401(k) Retirement Savings Plan for
Management Employees. (See "Employee Benefits," Note M, on page 56.) Duquesne
issued and sold 845,070 shares of preference stock, plan series A to the trustee
of the ESOP. As consideration for the stock, Duquesne received a note valued at
$30 million from the trustee. The preference stock has an annual dividend rate
of $2.80 per share, and each share of the preference stock is exchangeable for
one and one half shares of DQE common stock. At December 31, 1995, $22.3 million
of preference stock issued in connection with the establishment of the ESOP had
been offset, for financial statement purposes, by the recognition of a deferred
ESOP benefit. Dividends on the preference stock and cash contributions from
Duquesne are used to repay the ESOP note. Duquesne made cash contributions of
approximately $2.1 million for 1995, $2.3 million for 1994 and $2.1 million for
1993. These cash contributions were the difference between the ESOP debt service
and the amount of dividends on ESOP shares (approximately $2.3 million in 1995,
$2.4 million in 1994 and $2.3 million in 1993). As shares of preference stock
are allocated to the accounts of participants in

                                       51
<PAGE>
 
the ESOP, Duquesne recognizes compensation expense, and the amount of the
deferred compensation benefit is amortized. Duquesne recognized compensation
expense related to the 401(k) plans of $2.3 million in 1995, $1.8 million in
1994 and $1.7 million in 1993.

  Outstanding preferred and preference stock is generally callable, on notice of
not less than thirty days, at stated prices plus accrued dividends. On September
1, 1995, Duquesne called for redemption of all of its outstanding shares of
$7.20 preferred stock. On January 14, 1994, Duquesne called for redemption of
all of its outstanding shares of $2.10 and $7.50 preference stock. None of the
remaining Duquesne preferred or preference stock issues has mandatory purchase
requirements.
 
Preferred and Preference Stock at December 31
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                         (Shares and Amounts in Thousands)
                                                               -----------------------------------------------------
                                                                      1995                 1994               1993
                                            Call Price         -----------------------------------------------------
                                            Per Share      Shares     Amount    Shares    Amount   Shares    Amount
-------------------------------------------------------------------------------------------------------------------- 
<S>                                       <C>            <C>        <C>        <C>      <C>        <C>      <C>
Preferred Stock Series:
3.75% (a) (b) (c)                             $  51.00        148   $  7,407      148   $  7,407      148   $  7,407 
4.00% (a) (b) (c)                                51.50        550     27,486      550     27,486      550     27,486 
4.10% (a) (b) (c)                                51.75        120      6,012      120      6,012      120      6,012 
4.15% (a) (b) (c)                                51.73        132      6,643      132      6,643      132      6,643 
4.20% (a) (b) (c)                                51.71        100      5,021      100      5,021      100      5,021 
$2.10 (a) (b) (c)                                51.84        159      8,039      159      8,039      159      8,039 
$7.20 (a) (c) (d)                                    -          -          -      298     29,732      319     31,915 
9.00% (e)                                            -          -      3,000        -          -        -          - 
-------------------------------------------------------------------------------------------------------------------- 
    Total Preferred Stock                                   1,209     63,608    1,507     90,340    1,528     92,523
-------------------------------------------------------------------------------------------------------------------- 
Preference Stock Series: (f)
$2.10 (c) (g)                                        -          -          -        -          -    1,175     29,383 
$7.50 (d) (h)                                        -          -          -        -          -       84      8,392 
Plan Series A (c) (i)                            37.18        834     29,615      841     29,857      844     29,956 
-------------------------------------------------------------------------------------------------------------------- 
    Total Preference Stock                                    834     29,615      841     29,857    2,103     67,731 
-------------------------------------------------------------------------------------------------------------------- 
Deferred ESOP benefit                                                (22,257)            (24,852)            (27,126)
-------------------------------------------------------------------------------------------------------------------- 
    Total Preferred and Preference Stock                            $ 70,966            $ 95,345            $133,128 
====================================================================================================================
</TABLE>
(a) Preferred stock: 4,000,000 authorized shares; $50 par value; cumulative
(b) $50 per share involuntary liquidation value 
(c) Non-redeemable       
(d) $100 per share involuntary liquidation value 
(e) 500 authorized shares; 10 issued $300,000 par value; involuntary liquidation
    value $300,000 per share; redeemable beginning August 2000
(f) Preference stock: 8,000,000 authorized shares; $1 par value; cumulative
(g) $25 per share involuntary liquidation value
(h) Redeemable
(i) $35.50 per share involuntary liquidation value

I. Long-Term  Debt

  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.

  The pollution control notes arise from the sale of bonds by public authorities
for the purposes of financing construction of pollution control facilities at
Duquesne's plants or refunding previously issued bonds. Duquesne is obligated to
pay the principal and interest on these bonds. For certain of the pollution
control notes, there is an annual commitment fee

                                       52
<PAGE>
 
for an irrevocable letter of credit. Under certain circumstances, the letter of
credit is available for the payment of interest on, or redemption of, all or a
portion of the notes. In late 1994, pollution control notes totaling $114.1
million with an average interest rate of 10.34 percent were refinanced at lower
adjustable interest rates.

Long-Term Debt at December 31
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                    Principal Outstanding
                                                              Interest         (Amounts in Thousands of Dollars)
                                                                Rate       Maturity          1995            1994
--------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>           <C>             <C>             <C>
First Collateral Trust Bonds/first
  mortgage bonds                                              4.75%-8.75%   1996-2025     $   903,000 (a)  $  950,400 (b)
Pollution control notes (c)                                       (d)       2003-2030         417,985         417,051
Sinking fund debentures                                            5%          2010             5,703           5,817
Miscellaneous                                                                                       -             152
Less unamortized debt discount and
  premium - net                                                                                (4,157)         (4,490)
--------------------------------------------------------------------------------------------------------------------------
  Total Long-Term Debt                                                                    $ 1,322,531      $1,368,930
==========================================================================================================================
</TABLE>


(a)  Excludes $50.0 million in 1995 related to a current maturity on May 15,
     1996.
(b)  Excludes $9.6 million in 1994 related to sinking fund requirements on the
     underlying first mortgage bonds and $49.0 million related to the maturity
     on June 1, 1995, of the last first mortgage bonds issued under the 1947
     indenture.
(c)  Excludes $0.9 million in 1994 related to sinking fund requirements on the
     underlying first mortgage bonds.
(d)  The pollution control notes have adjustable interest rates. The interest
     rates at year-end averaged 3.9 percent in 1995 and 4.3 percent in 1994.

  At December 31, 1995, sinking fund requirements (related solely to the sinking
fund debentures) and maturities of long-term debt outstanding for the next five
years were: $50.4 million in 1996; $50.7 million in 1997, $75.7 million in 1998,
$75.8 million in 1999 and $100.8 million in 2000.

  Total interest costs incurred were $103.3 million in 1995, $107.7 million in
1994 and $117.0 million in 1993. Interest costs attributable to long-term debt
and other interest were $98.0 million, $102.1 million and $110.9 million in
1995, 1994 and 1993, respectively. Interest costs incurred also include $5.3
million, $5.6 million and $6.1 million attributable to capital leases in 1995,
1994 and 1993, respectively. Of these amounts, $1.8 million in 1995, $2.0
million in 1994 and $2.0 million in 1993 were capitalized as AFC. Debt discount
or premium and related issuance expenses are amortized over the lives of the
applicable issues.

  During 1994, Duquesne's BV Unit 2 lease arrangement was amended to reflect an
increase in federal income tax rates. At the same time, the associated letter of
credit securing the lessor's equity interest in the unit was increased from $188
million to $194 million and the term of the letter of credit was extended to
1999. If certain specified events occur, the letter of credit could be drawn
down by the owners, the leases could terminate and collateralized lease bonds
($409 million at December 31, 1995) would become direct obligations of Duquesne.

  At December 31, 1995 and 1994, Duquesne was in compliance with all of its debt
covenants. At December 31, 1995, the fair value of Duquesne's long-term debt,
including current maturities and sinking fund requirements, estimated on the
basis of quoted market prices for the same or similar issues or current rates
offered to Duquesne for debt of the same remaining maturities, was $1,401.4
million. The principal amount included in Duquesne's consolidated balance sheet
is $1,376.7 million.

                                       53
<PAGE>
 
J.   Short-Term Borrowing and Revolving Credit Arrangements

  At December 31, 1995, Duquesne had an extendible revolving credit agreement
with a group of banks totaling $150 million. This facility expires in October
1996. Interest rates on this credit agreement vary. Commitment fees are based on
the unborrowed amount of the commitments. The credit facility contains a two-
year repayment period for any amount outstanding at the expiration of the
revolving credit period. At December 31, 1995 and 1994, there were no short-term
borrowings outstanding.

K.  Income Taxes

  Duquesne's federal income tax returns have been audited by the Internal
Revenue Service (IRS) for the tax years through 1989. The tax years 1990 through
1995 remain subject to IRS review. Duquesne does not believe that final
settlement of the federal income tax returns for these years will have a
materially adverse effect on its financial position or results of operations.
The effects of the 1993 adoption of SFAS No. 109 are discussed in "Income
Taxes," Note A, on page 45. Implementation of the standard involved a change in
accounting principle. The cumulative effect of $8 million on prior years was
reported in 1993 as an increase in net income. The SFAS No. 109 impact on 1993
income before cumulative effect of changes in accounting principles is
immaterial.

Deferred Tax Liabilities
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                     1995                 1994
                                                                (Amounts in Thousands of Dollars)
-----------------------------------------------------------------------------------------------------
At December 31, deferred tax assets (liabilities) were:
<S>                                                             <C>                  <C>        
  Investment tax credits unamortized                              $    48,033           $    51,282 
  Gain on sale/leaseback of BV Unit 2                                  64,124                67,120 
  Tax benefit - long-term investments                                 164,582                     - 
  Other                                                                41,509                52,037 
-----------------------------------------------------------------------------------------------------
  Deferred tax assets                                                 318,248               170,439 
-----------------------------------------------------------------------------------------------------
  Property depreciation                                              (871,539)             (880,342)
  Regulatory asset                                                   (172,008)             (177,610)
  Loss on reacquired debt unamortized                                 (35,340)              (38,066)
  Other                                                               (45,357)              (65,570)
-----------------------------------------------------------------------------------------------------
  Deferred tax liabilities                                         (1,124,244)           (1,161,588)
-----------------------------------------------------------------------------------------------------
    Net Deferred Tax Liabilities                                  $  (805,996)          $  (991,149)
=====================================================================================================
</TABLE> 

Income Taxes
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                                     1995       1994       1993
                                                                  (Amounts in Thousands of Dollars)
-----------------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>        <C>
Included in operating expenses:
Currently payable:      Federal                                    $100,491   $ 90,335   $100,521 
                        State                                        29,585     33,071     37,718 
Deferred - net:         Federal                                     (28,381)   (20,058)   (28,129)
                        State                                        (5,778)    (7,232)    (8,441)
Investment tax credits deferred - net                                (7,252)    (5,376)    (5,399)
-----------------------------------------------------------------------------------------------------
    Total Included in Operating Expenses                             88,665     90,740     96,270 
-----------------------------------------------------------------------------------------------------
Included in other income and deductions:
Currently payable:      Federal                                       4,979     (6,139)   (17,557)
                        State                                          (751)       335     (1,220)
Deferred - net:         Federal                                         442        (99)       251 
                        State                                           137        (39)       100 
Investment tax credits                                                 (578)      (607)      (607)
-----------------------------------------------------------------------------------------------------
    Total Included in Other Income and Deductions                     4,229     (6,549)   (19,033)
-----------------------------------------------------------------------------------------------------
    Total Income Tax Expense                                       $ 92,894   $ 84,191   $ 77,237
=====================================================================================================
</TABLE>

                                       54
<PAGE>
 
Total income taxes differ from the amount computed by applying the statutory
federal income tax rate to income before income taxes and before the cumulative
effect of changes in accounting principles.

Income Tax Expense Reconciliation
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                      1995        1994       1993
                                                                   (Amounts in Thousands of Dollars)
<S>                                                                 <C>        <C>         <C>
-----------------------------------------------------------------------------------------------------
Computed federal income tax at statutory rate                        $ 85,301   $ 81,074   $ 77,708 
Increase (decrease) in taxes resulting from:
  Tax audit settlement                                                      -          -    (15,000)
  State income taxes, net of federal income tax benefit                15,076     16,988     18,302 
  Amortization of deferred investment tax credits                      (7,831)    (5,983)    (6,006)
  Revenue requirement adjustment to regulatory taxes                        -    (12,178)         - 
  Other - net                                                             348      4,290      2,233 
-----------------------------------------------------------------------------------------------------
    Total Income Tax Expense                                         $ 92,894   $ 84,191   $ 77,237 
=====================================================================================================
</TABLE>

L.   Leases

  Duquesne leases nuclear fuel, a portion of a nuclear generating plant, certain
office buildings, computer equipment and other property and equipment.

<TABLE>
<CAPTION>
Capital Leases at December 31
-----------------------------------------------------------------------------------------------------
                                                                     1995           1994
                                                           (Amounts in Thousands of Dollars)
<S>                                                               <C>            <C>
-----------------------------------------------------------------------------------------------------
Nuclear fuel                                                       $112,573       $139,763 
Electric plant                                                       20,808         22,012 
-----------------------------------------------------------------------------------------------------
    Total                                                           133,381        161,775 
Less accumulated amortization                                       (74,874)       (91,376)
-----------------------------------------------------------------------------------------------------
Property Held Under Capital Leases - Net (a)                       $ 58,507       $ 70,399 
=====================================================================================================
</TABLE>

(a) Includes $2,910 in 1995 and $3,201 in 1994 of capital leases with associated
    obligations retired.

  In 1987, Duquesne sold and leased back its 13.74 percent interest in BV Unit
2; the sale was exclusive of transmission and common facilities. The total sales
price of $537.9 million was the appraised value of Duquesne's interest in the
property. Duquesne leased back its interest in the unit for a term of 29.5
years. The lease provides for semiannual payments and is accounted for as an
operating lease. Duquesne is responsible under the terms of the lease for all
costs of its interest in the unit. In December 1992, Duquesne participated in
the refinancing of collateralized lease bonds to take advantage of lower
interest rates and reduce the annual lease payments. The bonds were originally
issued in 1987 for the purpose of partially financing the lease of BV Unit 2. In
accordance with the BV Unit 2 lease agreement, Duquesne paid the premiums of
approximately $36.4 million as a supplemental rent payment to the lessors. This
amount was deferred and is being amortized over the remaining lease term. At
December 31, 1995, the deferred balance was approximately $31.6 million.

  Leased nuclear fuel is amortized as the fuel is burned. The amortization of
all other leased property is based on rental payments made. Payments for capital
and operating leases are charged to operating expenses on the statement of
consolidated income.

                                       55
<PAGE>
 
<TABLE>
<CAPTION>
Summary of Rental Payments
-----------------------------------------------------------------------------------------------------
                                                             1995        1994      1993
                                                           (Amounts in Thousands of Dollars)
-----------------------------------------------------------------------------------------------------
<S>                                                        <C>        <C>       <C>
Operating leases                                            $57,617   $56,437   $57,398  
Amortization of capital leases                               26,705    33,596    28,758 
Interest on capital leases                                    4,332     4,996     5,382 
-----------------------------------------------------------------------------------------------------
    Total Rental Payments                                   $88,654   $95,029   $91,538 
=====================================================================================================
</TABLE>

  Future minimum lease payments for capital leases are related principally to
the estimated use of nuclear fuel financed through leasing arrangements and
building leases. Minimum payments for operating leases are related principally
to BV Unit 2 and certain of the corporate offices. Future payments due to
Duquesne, as of December 31, 1995, under subleases of certain corporate office
space are approximately $4.4 million in 1996, $4.5 million in 1997 and $23.1
million thereafter.

<TABLE>
<CAPTION>
Future Minimum Lease Payments
-----------------------------------------------------------------------------------------------------
                                                              Operating Leases  Capital Leases
Year Ended December 31,                                       (Amounts in Thousands of Dollars)
-----------------------------------------------------------------------------------------------------
<S>                                                           <C>              <C>
1996                                                             $   58,095      $ 24,392
1997                                                                 57,870        13,862
1998                                                                 57,621         8,801
1999                                                                 57,206         5,130
2000                                                                 57,164         3,705
2001 and thereafter                                                 902,097        20,946
-----------------------------------------------------------------------------------------------------
    Total Minimum Lease Payments                                 $1,190,053        76,836
-----------------------------------------------------------------------------------------------------
Less amount representing interest                                                 (21,239)
-----------------------------------------------------------------------------------------------------
Present value of minimum lease payments for capital leases                       $ 55,597 (a)
=====================================================================================================
</TABLE>

(a) Includes current obligations of $21.1 million at December 31, 1995.

M.   Employee Benefits

Retirement Plans
--------------------------------------------------------------------------------

  Duquesne maintains retirement plans to provide pensions for all full-time
employees. Upon retirement, an employee receives a monthly pension based on his
or her length of service and compensation. The cost of funding the pension plan
is determined by the unit credit actuarial cost method. Duquesne's policy is to
record this cost as an expense and to fund the pension plans by an amount that
is at least equal to the minimum funding requirements of the Employee Retirement
Income Security Act of 1974 (ERISA) but not to exceed the maximum tax deductible
amount for the year. Pension costs charged to expense or construction were $6.1
million for 1995, $8.9 million for 1994 and $9.8 million for 1993.

                                       56
<PAGE>
 
Funded Status of the Retirement Plans and Amounts Recognized on the
Consolidated Balance Sheet at December 31
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
                                                            1995          1994
                                                   (Amounts in Thousands of Dollars)
------------------------------------------------------------------------------------
<S>                                                     <C>            <C>
Actuarial present value of benefits rendered to date:
Vested benefits                                           $378,344       $314,933 
Non-vested benefits                                         19,110         17,282 
------------------------------------------------------------------------------------
Accumulated benefits obligations based                   
 on compensation to date                                   397,454        332,215                                  
Additional benefits based on estimated                   
 future salary levels                                       53,757         59,318              
------------------------------------------------------------------------------------
Projected benefits obligation                              451,211        391,533 
Fair market value of plan assets                           490,870        412,724 
------------------------------------------------------------------------------------
Projected benefits obligation under                      
 plan assets                                              $ 39,659       $ 21,191              
====================================================================================
Unrecognized net gain                                     $124,794       $ 95,691 
Unrecognized prior service cost                            (37,535)       (30,365)
Unrecognized net transition liability                      (15,665)       (17,477)
Net pension liability per consolidated                   
 balance sheet                                             (31,935)       (26,658)             
------------------------------------------------------------------------------------
    Total                                                 $ 39,659       $ 21,191 
====================================================================================
Assumed rate of return on plan assets                         8.00%          8.00% 
------------------------------------------------------------------------------------
Discount rate used to determine                               7.00%          8.00% 
 projected benefits obligation
------------------------------------------------------------------------------------
Assumed change in compensation levels                         5.00%          5.50% 
------------------------------------------------------------------------------------
</TABLE>

  Pension assets consist primarily of common stocks, United States obligations
and corporate debt securities.

Components of Net Pension Cost
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
                                                                      1995       1994       1993
                                                                  (Amounts in Thousands of Dollars)
-----------------------------------------------------------------------------------------------------
<S>                                                                <C>         <C>        <C>
Service cost (benefits earned during the year)                      $  9,953   $ 12,482    $ 11,657 
Interest on projected benefits obligation                             30,063     28,221      27,423 
Return on plan assets                                                (99,246)     1,967     (41,725)
Net amortization and deferrals                                        65,316    (33,783)     12,454 
-----------------------------------------------------------------------------------------------------
    Net Pension Cost                                                $  6,086   $  8,887    $  9,809 
=====================================================================================================
</TABLE>


Retirement Savings Plan and Other Benefit Options
--------------------------------------------------------------------------------

  Duquesne sponsors separate 401(k) retirement plans for its management and
bargaining unit employees.

  The 401(k) Retirement Savings Plan for Management Employees provides that
Duquesne will match employee contributions to a 401(k) account up to a maximum
of six percent of an employee's eligible salary. Duquesne's match consists of a
$.25 base match per eligible contribution dollar and an additional $.25
incentive match per eligible contribution dollar, if Board-approved targets are
achieved. The 1995 incentive target for management was accomplished. Duquesne is
funding its matching contributions to the 401(k) Retirement Savings Plan for
Management Employees with payments to an ESOP established in December 1991. (See
"Preferred and Preference Stock," Note H, on page 51.)

  The 401(k) Retirement Savings Plan for IBEW Represented Employees provides
that beginning in 1995, Duquesne will match employee contributions to a 401(k)
account up to a maximum of four percent of an employee's eligible salary.
Duquesne's match consists of a $.25 base match per eli-

                                       57
<PAGE>
 
gible contribution dollar and an additional $.25 incentive match per eligible
contribution dollar, if certain non-occupational illness and injury targets are
met. In 1995, these incentive targets were not met by Duquesne's union-
represented employees.

  DQE's shareholders have approved a long-term incentive plan through which
Duquesne may grant management employees options to purchase, during the years
1987 through 2003, up to a total of 6.9 million shares of DQE's common stock at
prices equal to the fair market value of such stock on the dates the options
were granted. At December 31, 1995, approximately 2.6 million of these shares
were available for future grants.

  On April 19, 1995, DQE's board of directors declared a three-for-two stock
split for shareholders of record on May 1, 1995. One additional share of common
stock was issued for every two shares outstanding as of the record date.

  The following information is restated to reflect the 1995 stock split. As of
December 31, 1995, 1994 and 1993, respectively, active grants totaled 2,159,000;
2,118,000; and 1,763,000 shares. Exercise prices of these options ranged from
$8.2084 to $27.625 at December 31, 1995, and from $8.2084 to $23.0833 at
December 31, 1994 and December 31, 1993. Expiration dates of these grants ranged
from 1997 to 2005 at December 31, 1995; from 1997 to 2004 at December 31, 1994;
and from 1997 to 2003 at December 31, 1993. As of December 31, 1995, 1994 and
1993, respectively, stock appreciation rights (SARs) had been granted in
connection with 1,202,000; 1,190,000 and 1,193,000 of the options outstanding.
During 1995, 367,000 SARs were exercised; 133,000 options were exercised at
prices ranging from $8.2084 to $21.6667 and 28,000 options were cancelled.
During 1994, 1,254,000 SARs were exercised; 339,000 options were exercised at
prices ranging from $8.2084 to $18.9167; and 80,000 options were cancelled.
During 1993, 1,122,000 SARs were exercised; 227,000 options were exercised at
prices ranging from $8.2084 to $18.9167; and 78,000 options were cancelled. Of
the active grants at December 31, 1995, 1994 and 1993, respectively, 929,000;
918,000; and 867,000 were not exercisable.

Other Postretirement Benefits
--------------------------------------------------------------------------------

  In addition to pension benefits, Duquesne provides certain health care
benefits and life insurance for some retired employees. Substantially all of
Duquesne's full-time employees may, upon attaining the age of 55 and meeting
certain service requirements, become eligible for the same benefits available to
retired employees. Participating retirees make contributions, which are adjusted
annually, to the health care plan. The life insurance plan is non-contributory.
Company-provided health care benefits terminate when covered individuals become
eligible for Medicare benefits or reach age 65, whichever comes first. Duquesne
funds actual expenditures for obligations under the plans on a "pay-as-you-go"
basis. Duquesne has the right to modify or terminate the plans.

  As of January 1, 1993, Duquesne adopted Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions, which requires the actuarially determined costs of the aforementioned
postretirement benefits to be accrued over the period from the date of hire
until the date the employee becomes fully eligible for benefits. Duquesne has
adopted this standard prospectively and has elected to amortize the transition
liability over 20 years.

Components of Postretirement Cost
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------- 
                                                          1995              1994
                                                    (Amounts in Thousands of Dollars)
<S>                                                   <C>              <C>
--------------------------------------------------------------------------------------- 
Service cost (benefits earned during the period)       $  1,315           $  1,631
Interest cost on accumulated benefit obligation           2,340              2,294
Amortization of the transition obligation                                                     
 over twenty years                                        1,700              1,700 
Other                                                      (582)                 -
--------------------------------------------------------------------------------------- 
  Total Postretirement Cost                            $  4,773           $  5,625
======================================================================================= 
</TABLE> 

                                       58
<PAGE>
 
Funded Status of Postretirement Plan and Amounts Recognized on the
Consolidated Balance Sheet at December 31
<TABLE> 
<CAPTION> 
------------------------------------------------------------------------------------------------
                                                                     1995              1994
                                                              (Amounts in Thousands of Dollars)
------------------------------------------------------------------------------------------------
<S>                                                           <C>                 <C> 
Actuarial present value of benefits:
  Retirees                                                        $  7,359            $  6,292 
  Fully eligible active plan participants                            3,187               3,074 
  Other active plan participants                                    21,935              20,543 
------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation                       32,481              29,909 
Fair market value of plan assets                                         -                   - 
------------------------------------------------------------------------------------------------
Accumulated benefit obligation in excess of plan assets           $(32,481)           $(29,909) 
================================================================================================
Unrecognized net actuarial gains                                  $  8,427            $  9,481 
Unrecognized net transition liability                              (28,898)            (30,598)
Postretirement liability per consolidated balance sheet            (12,010)             (8,792) 
------------------------------------------------------------------------------------------------
  Total                                                           $(32,481)           $(29,909)
================================================================================================
Discount rate used to determine projected benefit obligation          7.00%               8.00%
------------------------------------------------------------------------------------------------
Health care cost trend rates:                                              
  For year beginning January 1                                        8.80%               8.60%
  Ultimate rate                                                       5.50%               6.50%
  Year ultimate rate is reached                                       2000                1999
------------------------------------------------------------------------------------------------
Effect of a one percent increase in health care cost trend rates:
  On accumulated projected benefit obligation                     $  3,228            $  3,137 
  On aggregate of annual service and interest costs               $    435            $    465 
------------------------------------------------------------------------------------------------
</TABLE>

  The accumulated postretirement benefit obligation comprises the present value
of the estimated future benefits payable to current retirees and a pro rata
portion of estimated benefits payable to active employees after retirement.

N.  Commitments and Contingencies

Construction
--------------------------------------------------------------------------------

  Duquesne estimates that it will spend, excluding AFC and nuclear fuel,
approximately $90 million, $90 million and $100 million on construction during
1996, 1997 and 1998, respectively. Approximately $5 million of capital
expenditures for the reliability enhancements to the simple cycle units located
at BI contemplated in Duquesne's petition before the PUC are excluded from these
estimates. (See "Sale of Ft. Martin" discussion, Note B, on page 47.)

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.

                                       59
<PAGE>
 
  Based on site-specific studies finalized in 1992 for BV Unit 2, and in 1994
for BV Unit 1 and Perry Unit 1, Duquesne's share of the total estimated
decommissioning costs, including removal and decontamination costs, currently
being used to determine Duquesne's cost of service, are $122 million for BV Unit
1, $35 million for BV Unit 2, and $67 million for Perry Unit 1.

  In conjunction with an August 18, 1994, PUC Accounting Order, Duquesne has
increased the annual contribution to its decommissioning trusts by approximately
$2 million to bring the total annual funding to approximately $4 million per
year. In collaboration with Duquesne and several other Pennsylvania utilities,
the PUC Office of Special Assistants is evaluating various decommissioning
issues, including funding methods. Duquesne expects that any action relating to
any forthcoming PUC report will result in further increases in annual
contributions to its decommissioning trusts. Consistent with these anticipated
future PUC actions, Duquesne's petition before the PUC for the sale of its
ownership interest in the Ft. Martin Power Station provides for additional
annual contributions to its nuclear decommissioning funds of $5 million for five
years without any increase in existing electric utility rates. (See "Sale of Ft.
Martin" discussion, Note B, on page 47.)

  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 December 31, 1995, totaled approximately $28.5
million. On Duquesne's consolidated balance sheet, the decommissioning trusts
have been reflected in other long-term investments, and the related liability
has been recorded as other non-current liabilities.

  Nuclear Insurance.  All of the companies with an interest in BV Unit 1, BV
Unit 2 and Perry Unit 1 maintain nuclear property insurance, which provides
coverage for property damage, decommissioning and decontamination liabilities.
Duquesne's share of this program provides for $1.2 billion of insurance coverage
for its net investment of $407.8 million in the Beaver Valley Power Station
(BVPS) and $565.5 million in Perry Unit 1, plus its interest in BV Unit 2 with
lease commitments of $405.2 million, at December 31, 1995. The lease commitments
of $405.2 million represent the net present value of future lease payments
discounted at 10.94 percent, the return currently authorized Duquesne by the
PUC. Duquesne would be responsible for its share of any damages in excess of
insurance coverage. In addition, if the property damage reserves of Nuclear
Electric Insurance Limited (NEIL), an industry mutual insurance company, are
inadequate to cover claims arising from an incident at any United States nuclear
site covered by that insurer, Duquesne could be assessed retrospective premiums
totaling a maximum of $10.9 million.

  The Price-Anderson Amendments to the Atomic Energy Act of 1954 limit public
liability from a single incident at a nuclear plant to $8.9 billion. Duquesne
has purchased $200 million of insurance, the maximum amount available, which
provides the first level of financial protection.

  Additional protection of $8.3 billion would be provided by an assessment of up
to $75.5 million per incident on each nuclear unit in the United States.
Duquesne's maximum total assessment, $56.6 million, which is based on its
ownership or leasehold interests in three nuclear generating units, would be
limited to a maximum of $7.5 million per incident per year. A further surcharge
of 5 percent could be levied if the total amount of public claims exceeded the
funds provided under the assessment program. Additionally, a state premium tax
may be charged on the assessment and surcharge. Finally, the United States
Congress could impose other revenue-raising measures on the nuclear industry if
funds prove insufficient to pay claims.

                                       60
<PAGE>
 
  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' units are equipped with
steam generators designed and built by Westinghouse Electric Corporation
(Westinghouse). Similar to other Westinghouse nuclear plants, stress corrosion
cracking (SCC) has occurred in the steam generator tubes of BV Unit 1. BV Unit
2, which was placed in service eleven years after BV Unit 1, has not yet
exhibited the degree of steam generator tube SCC experienced at BV Unit 1. It
is, however, too early in the life of BV Unit 2 to determine the extent to which
steam generator tube SCC may become a problem.

  Duquesne has undertaken certain measures, such as increased inspections and
tube plugging, to minimize the operational impact and to reduce susceptibility
to steam generator tube SCC. Although Duquesne has taken these steps to allay
the effects of steam generator tube SCC, the inherent potential for future SCC
in steam generator tubes of the Westinghouse design still exists. Material
acceleration in SCC could lead to loss of plant efficiency, significant repairs
or possible replacement of BV Unit 1's steam generators. Total replacement cost
of BV Unit 1 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.

  Duquesne continues to explore all viable means of mitigating steam generator
tube SCC, including new repair technologies. Both units will undergo 100 percent
tube inspection during scheduled refueling outages in 1996. 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 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 December 31, 1995, 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.

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<PAGE>
 
Guarantees
--------------------------------------------------------------------------------

  Duquesne and the owners of Bruce Mansfield have guaranteed certain debt and
lease obligations related to a coal supply contract for the Bruce Mansfield
plant. At December 31, 1995, Duquesne's share of these guarantees was $25.4
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. (See "Deferred Coal Costs" discussion, Note F, on page 49.) The
minimum future payments to be made by Duquesne solely in relation to these
obligations are $6.2 million in 1996, $5.9 million in 1997, $5.6 million in
1998, $5.3 million in 1999 and $4.2 million in 2000. Duquesne's total payments
for coal purchased under the contract were $28.9 million in 1995, $23.3 million
in 1994 and $26.5 million in 1993.

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
which it utilizes and has developed compliance strategies under review by the
DEP. Capital compliance costs of $3.0 million were incurred by Duquesne in 1995
to comply with these DEP regulations; on the basis of information currently
available, an additional $2.5 million will be incurred in 1996. The expected
additional capital cost of compliance through the year 2000 is estimated, based
on current information, to be approximately $25 million. This estimate is
subject to the results of ground water assessments and DEP final approval of
compliance plans.

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.

O. Quarterly Financial Information (Unaudited)
 
Summary of Selected Quarterly Financial Data (Thousands of Dollars)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
[The quarterly data reflect seasonal weather variations in Duquesne's service territory.]
---------------------------------------------------------------------------------------------------------
1995                                      First Quarter  Second Quarter  Third Quarter  Fourth Quarter
---------------------------------------------------------------------------------------------------------
<S>                                       <C>            <C>             <C>            <C>
Operating Revenues (a)                         $286,616        $274,669       $337,156        $281,343
Operating Income (a)                             57,542          55,705         76,001          52,351
Net Income                                       33,371          32,441         52,787          32,471
---------------------------------------------------------------------------------------------------------
1994
---------------------------------------------------------------------------------------------------------
Operating Revenues (a)                         $293,145        $281,054       $319,781        $274,644
Operating Income (a)                             60,345          54,373         71,670          50,512
Net Income                                       35,492          30,556         44,876          36,525
========================================================================================================= 
</TABLE>
 
(a)  Restated to conform with presentations adopted during 1995.
 
                              ------------------
 
Except for historical information contained herein, the matters discussed in
this Annual Report on Form 10-K are forward-looking statements that involve
risks and uncertainties including, but not limited to, economic, competitive,
governmental and technological factors affecting Duquesne's operations, markets,
products, services and prices, and other factors discussed in Duquesne's filings
with the Securities and Exchange Commission.
 

                                       62
<PAGE>
 
SELECTED FINANCIAL DATA
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amounts in Thousands of Dollars         1995         1994         1993         1992         1991         1990 
-----------------------------------------------------------------------------------------------------------------
<S>                                  <C>          <C>          <C>          <C>          <C>          <C>
INCOME STATEMENT ITEMS
Total operating revenues             $1,179,784   $1,168,624   $1,160,685   $1,150,380   $1,173,105   $1,115,360 
Operating income                     $  241,599   $  236,900   $  237,897   $  257,119   $  268,666   $  269,396 
Net income                           $  151,070   $  147,449   $  147,362   $  149,768   $  143,133   $  135,456 
Earnings for common stock            $  145,750   $  141,403   $  138,174   $  140,357   $  132,332   $  121,410 
-----------------------------------------------------------------------------------------------------------------
BALANCE SHEET ITEMS
Property, plant and equipment-net    $2,978,903   $3,068,519   $3,123,948   $3,018,641   $3,037,454   $3,042,920 
Total assets                         $4,067,665   $4,149,867   $4,388,103   $3,718,092   $3,802,626   $3,794,313
-----------------------------------------------------------------------------------------------------------------
Capitalization:
Common stockholder's equity          $1,131,334   $1,115,512   $1,100,671   $1,107,609   $1,064,104   $1,035,059 
Non-redeemable preferred and
  preference stock                       70,966       95,345      124,736      123,430      121,906      151,346
Redeemable preferred and
  preference stock                           --           --        8,392        8,579       15,437       37,747 
Long-term debt                        1,322,531    1,368,930    1,416,705    1,413,001    1,420,726    1,501,295 
-----------------------------------------------------------------------------------------------------------------
Total capitalization                 $2,524,831   $2,579,787   $2,650,504   $2,652,619   $2,622,173   $2,725,447
=================================================================================================================
</TABLE>

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