##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period From  to
 Registrant; State of Incorporation;Commission File Number
    
    Address; Telephone Number
    
    IRS Employer Identification No.1-10290
    
    Duquesne Light Holdings, Inc.
    
    25-1598483(A Pennsylvania Corporation)411 Seventh AvenuePittsburgh, Pennsylvania 15219412-393-60001-956
    
    Duquesne Light Company
    
    25-0451600(A Pennsylvania Corporation)411 Seventh AvenuePittsburgh, Pennsylvania 15219412-393-6000
  Duquesne Light Holdings, Inc.
    
    Yes þ       No oDuquesne Light Company
    
    Yes þ       No o
  Duquesne Light Holdings, Inc.
    
    Large accelerated filer þ       Accelerated filer o       Non-accelerated filer oDuquesne Light Company
    
    Large accelerated filer o       Accelerated filer o       Non-accelerated filer þ
  Duquesne Light Holdings, Inc.
    
    Yes o       No þDuquesne Light Company
    
    Yes o       No þ




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##### 



PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements
 Duquesne Light Holdings, Inc.
Condensed Consolidated Statements of Income (Unaudited)
 (All Amounts in Millions,Except Per Share Amounts)Three Months Ended March 31,2006
    
    
    2005Operating Revenues:Retail sales of electricity
    
    $
    187.6
    
    
    $
    186.7Other
    
    
    36.3
    
    
    
    32.0Total Operating Revenues
    
    
    223.9
    
    
    
    218.7Operating Expenses:Purchased power
    
    
    96.5
    
    
    
    81.6Other operating and maintenance
    
    
    57.7
    
    
    
    55.7Depreciation and amortization
    
    
    20.7
    
    
    
    20.5Taxes other than income taxes
    
    
    13.7
    
    
    
    13.8Total Operating Expenses
    
    
    188.6
    
    
    
    171.6Operating Income
    
    
    35.3
    
    
    
    47.1Investment and Other Income
    
    
    4.3
    
    
    
    15.5Interest and Other Charges
    
    
    (17.8
    )
    
    
    (14.5
    )Income from Continuing Operations Before Income Taxes
and Limited Partners Interest
    
    
    21.8
    
    
    
    48.1Income Tax Expense
    
    
    (10.0
    )
    
    
    (16.0
    )Benefit from Limited Partners Interest
    
    
    2.6
    
    
    
    2.5Income from Continuing Operations
    
    
    14.4
    
    
    
    34.6Income from
Discontinued Operations  Net (Note 8)
    
    
    
    
    
    
    0.4Net Income
    
    $
    14.4
    
    
    $
    35.0Average Number of Common Shares Outstanding
    
    
    78.2
    
    
    
    77.3Basic Earnings Per Share of Common Stock:Earnings from Continuing Operations
    
    $
    0.18
    
    
    $
    0.45Earnings from Discontinued Operations
    
    
    
    
    
    
    Basic Earnings Per Share of Common Stock
    
    $
    0.18
    
    
    $
    0.45Diluted Earnings Per Share of Common Stock:Earnings from Continuing Operations
    
    $
    0.18
    
    
    $
    0.45Earnings from Discontinued Operations
    
    
    
    
    
    
    Diluted Earnings Per Share of Common Stock
    
    $
    0.18
    
    
    $
    0.45Dividends Declared Per Share of Common Stock
    
    $
    0.25
    
    
    $
    0.25
  2




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##### 



Duquesne Light Holdings, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
 (Millions of Dollars)March 31,
    
    
    December 31,2006
    
    
    2005AssetsCurrent Assets:Cash and temporary cash investments
    
    $
    21.6
    
    
    $
    79.2Receivables
    
    
    130.7
    
    
    
    114.3Prepaid expenses
    
    
    39.3
    
    
    
    6.9Other
    
    
    50.5
    
    
    
    91.8Discontinued operations
    
    
    
    
    
    
    1.7Total Current Assets
    
    
    242.1
    
    
    
    293.9Long-Term Investments
    
    
    549.5
    
    
    
    549.9Property, Plant and Equipment:Property plant and equipment
    
    
    2,360.1
    
    
    
    2,315.6Less: Accumulated depreciation and amortization
    
    
    (782.2
    )
    
    
    (773.5
    )Property,
Plant and Equipment  Net
    
    
    1,577.9
    
    
    
    1,542.1Other Non-Current Assets:Regulatory assets
    
    
    298.6
    
    
    
    300.0Other
    
    
    132.2
    
    
    
    134.7Total Other Non-Current Assets
    
    
    430.8
    
    
    
    434.7Total Assets
    
    $
    2,800.3
    
    
    $
    2,820.6Liabilities and CapitalizationCurrent Liabilities:Short-term debt and current debt maturities
    
    $
    88.3
    
    
    $
    40.3Accounts payable
    
    
    93.5
    
    
    
    93.0Other
    
    
    151.4
    
    
    
    182.7Discontinued operations
    
    
    1.4
    
    
    
    2.5Total Current Liabilities
    
    
    334.6
    
    
    
    318.5Non-Current Liabilities:Deferred
income taxes  net
    
    
    453.3
    
    
    
    451.4Other
    
    
    221.6
    
    
    
    254.1Total Non-Current Liabilities
    
    
    674.9
    
    
    
    705.5Limited partners interest
    
    
    32.9
    
    
    
    35.4Commitments and Contingencies (Note 7)Capitalization:Long-term debt
    
    
    957.8
    
    
    
    957.8Preferred and Preference Stock
    
    
    147.9
    
    
    
    147.5Common Shareholders Equity:Common stock  no par value (authorized 
187,500,000 shares; issued  126,929,154 shares)
    
    
    1,198.1
    
    
    
    1,200.5Retained earnings
    
    
    594.9
    
    
    
    600.0Treasury stock (at cost) (48,742,956 and 48,935,435 shares)
    
    
    (1,128.0
    )
    
    
    (1,132.5
    )Unearned compensation
    
    
    
    
    
    
    (1.8
    )Accumulated other comprehensive loss
    
    
    (12.8
    )
    
    
    (10.3
    )Total Common Shareholders Equity
    
    
    652.2
    
    
    
    655.9Total Capitalization
    
    
    1,757.9
    
    
    
    1,761.2Total Liabilities and Capitalization
    
    $
    2,800.3
    
    
    $
    2,820.6
  3




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##### 



Duquesne Light Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
 (Millions of Dollars)Three Months Ended March 31,2006
    
    
    2005Cash Flows from Operating Activities:Net income
    
    $
    14.4
    
    
    $
    35.0Adjustments to reconcile net income to net cash provided
from operating activities
    
    
    28.8
    
    
    
    (27.3
    )Changes in working capital other than cash
    
    
    (70.1
    )
    
    
    (40.9
    )Discontinued operations
    
    
    0.6
    
    
    
    (0.1
    )Net Cash Used in Operating Activities
    
    
    (26.3
    )
    
    
    (33.3
    )Cash Flows from Investing Activities:Capital expenditures
    
    
    (62.2
    )
    
    
    (16.7
    )Proceeds from disposition of investments/assets
    
    
    1.1
    
    
    
    13.9Other
    
    
    (2.2
    )
    
    
    0.1Discontinued operations
    
    
    
    
    
    
    0.9Net Cash Used in Investing Activities
    
    
    (63.3
    )
    
    
    (1.8
    )Cash Flows from Financing Activities:Revolving credit facility borrowings, net
    
    
    48.0
    
    
    
    5.0Dividends on common and preferred stock
    
    
    (16.9
    )
    
    
    (16.7
    )Other
    
    
    0.9
    
    
    
    0.5Net Cash Provided from (Used in) Financing Activities
    
    
    32.0
    
    
    
    (11.2
    )Net decrease in cash and temporary cash investments
    
    
    (57.6
    )
    
    
    (46.3
    )Cash and temporary cash investments at beginning of period
    
    
    79.2
    
    
    
    62.7Cash and temporary cash investments at end of period
    
    $
    21.6
    
    
    $
    16.4Supplemental Cash Flow InformationCapital expenditures included in accounts payable
    
    $
    12.0
    
    
    $
    Cash paid during the period:Interest (net of amount capitalized)
    
    $
    17.1
    
    
    $
    9.0Income taxes paid (refunded)
    
    $
    0.6
    
    
    $
    (2.0
    )
  Duquesne
Light Holdings, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)
 (Millions of Dollars)Three Months Ended March 31,2006
    
    
    2005Net income
    
    $
    14.4
    
    
    $
    35.0Other comprehensive income:Unrealized holding gains on cash flow hedging instruments,
net of tax of $0.1 and $
    
    
    0.7
    
    
    
    Reclassification adjustment for holding gains on cash flow
hedging instruments, net of tax
    
    
    (3.2
    )
    
    
    Comprehensive income
    
    $
    11.9
    
    
    $
    35.0
 
 4




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##### 



Duquesne Light Company
Condensed Consolidated Statements of Income (Unaudited)
 (Millions of Dollars)Three Months Ended March 31,2006
    
    
    2005Operating Revenues:Retail sales of electricity
    
    $
    167.7
    
    
    $
    179.1Other
    
    
    6.3
    
    
    
    12.4Total Operating Revenues
    
    
    174.0
    
    
    
    191.5Operating Expenses:Purchased power
    
    
    86.6
    
    
    
    82.0Other operating and maintenance
    
    
    35.8
    
    
    
    36.2Depreciation and amortization
    
    
    18.5
    
    
    
    17.8Taxes other than income taxes
    
    
    12.0
    
    
    
    12.9Total Operating Expenses
    
    
    152.9
    
    
    
    148.9Operating Income
    
    
    21.1
    
    
    
    42.6Investment and Other Income
    
    
    2.3
    
    
    
    5.8Interest and Other Charges
    
    
    (10.1
    )
    
    
    (12.4
    )Income Before Income Taxes
    
    
    13.3
    
    
    
    36.0Income Tax Expense
    
    
    4.9
    
    
    
    14.1Net Income
    
    
    8.4
    
    
    
    21.9Dividends on Preferred and Preference Stock
    
    
    2.0
    
    
    
    2.0Earnings Available for Common Stock
    
    $
    6.4
    
    
    $
    19.9
  5




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##### 



Duquesne Light Company
Condensed Consolidated Balance Sheets (Unaudited)
 (Millions of Dollars)March 31,
    
    
    December 31,2006
    
    
    2005AssetsCurrent Assets:Cash and temporary cash investments
    
    $
    21.1
    
    
    $
    76.1Receivables
    
    
    87.7
    
    
    
    93.8Prepaid expenses
    
    
    35.9
    
    
    
    6.0Other
    
    
    32.5
    
    
    
    33.2Total Current Assets
    
    
    177.2
    
    
    
    209.1Long-Term Investments
    
    
    22.7
    
    
    
    22.2Property, Plant and Equipment:Property, plant and equipment
    
    
    2,278.0
    
    
    
    2,235.8Less: Accumulated depreciation and amortization
    
    
    (745.8
    )
    
    
    (738.5
    )Property, Plant and Equipment  Net
    
    
    1,532.2
    
    
    
    1,497.3Other Non-Current Assets:Regulatory assets
    
    
    298.6
    
    
    
    300.0Other
    
    
    94.2
    
    
    
    94.5Total Other Non-Current Assets
    
    
    392.8
    
    
    
    394.5Total Assets
    
    $
    2,124.9
    
    
    $
    2,123.1Liabilities and CapitalizationCurrent Liabilities:Accounts payable
    
    $
    34.1
    
    
    $
    46.8Payable to affiliates
    
    
    32.3
    
    
    
    42.6Accrued liabilities
    
    
    57.3
    
    
    
    59.9Total Current Liabilities
    
    
    123.7
    
    
    
    149.3Non-Current Liabilities:Deferred income taxes  net
    
    
    350.3
    
    
    
    336.6Other
    
    
    202.8
    
    
    
    223.6Total Non-Current Liabilities
    
    
    553.1
    
    
    
    560.2Commitments and Contingencies (Note 7)Capitalization:Long-term debt
    
    
    636.5
    
    
    
    636.5Preferred and Preference Stock
    
    
    146.9
    
    
    
    146.5Common Shareholders Equity:Common stock (authorized  90,000,000 shares;
issued and outstanding  10 shares)
    
    
    
    
    
    
    Capital surplus
    
    
    596.5
    
    
    
    568.9Retained earnings
    
    
    94.5
    
    
    
    88.2Accumulated other comprehensive loss
    
    
    (26.3
    )
    
    
    (26.5
    )Total Common Stockholders Equity
    
    
    664.7
    
    
    
    630.6Total Capitalization
    
    
    1,448.1
    
    
    
    1,413.6Total Liabilities and Capitalization
    
    $
    2,124.9
    
    
    $
    2,123.1
  6




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##### 



Duquesne Light Company
Condensed Consolidated Statements of Cash Flows (Unaudited)
 (Millions of Dollars)Three Months Ended March 31,2006
    
    
    2005Cash Flows from Operating Activities:Net income
    
    $
    8.4
    
    
    $
    21.9Adjustments to reconcile net income to net cash provided
from operating activities
    
    
    15.6
    
    
    
    (20.9
    )Changes in working capital other than cash
    
    
    (43.4
    )
    
    
    (48.0
    )Net Cash Used in Operating Activities
    
    
    (19.4
    )
    
    
    (47.0
    )Cash Flows from Investing Activities:Investment in DQE Capital cash pool
    
    
    
    
    
    
    33.6Construction expenditures
    
    
    (59.8
    )
    
    
    (16.2
    )Other
    
    
    (1.5
    )
    
    
    (0.2
    )Net Cash (Used in) Provided from Investing Activities
    
    
    (61.3
    )
    
    
    17.2Cash Flows from Financing Activities:Equity contribution from parent
    
    
    27.6
    
    
    
    Net borrowings under affiliate demand note
    
    
    
    
    
    
    38.6Dividends on common and preferred stock
    
    
    (2.1
    )
    
    
    (9.1
    )Other
    
    
    0.2
    
    
    
    0.3Net Cash Provided from Financing Activities
    
    
    25.7
    
    
    
    29.8Net decrease in cash and temporary cash investments
    
    
    (55.0
    )
    
    
    Cash and temporary cash investments at beginning of period
    
    
    76.1
    
    
    
    Cash and temporary cash investments at end of period
    
    $
    21.1
    
    
    $
    Supplemental Cash Flow InformationCapital expenditures included in accounts payable
    
    $
    12.0
    
    
    $
    Cash paid during the period:Interest (net of amount capitalized)
    
    $
    7.1
    
    
    $
    9.1Income taxes paid
    
    $
    0.5
    
    
    $
    1.0
  Duquesne Light Company
Consolidated Statements of Comprehensive Income (Unaudited)
 (Millions of Dollars)Three Months Ended March 31,2006
    
    
    2005Net income
    
    $
    8.4
    
    
    $
    21.9Other comprehensive income (loss):Unrealized holding gains (losses) arising during the year,
net of tax of $ and $(0.4)
    
    
    0.2
    
    
    
    (0.7
    )Comprehensive income
    
    $
    8.6
    
    
    $
    21.2
  7




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##### 



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
   1. ACCOUNTING POLICIES
 Consolidation
   Continuing Operations
        Discontinued Operations
  Basis of Accounting
   8




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##### 



Earnings Per Share
  Diluted Earnings Per Share for the Three Months Ended March 31,
 (Millions of Dollars)
    
    2006
    
    
    2005Income from continuing
operations
    
    $
    14.4
    
    
    $
    34.6Dilutive effect of:ESOP dividends
    
    
    
    
    
    
    0.3Diluted Earnings from
Continuing Operations
for Common Stock
    
    $
    14.4
    
    
    $
    34.9
 (Millions of Shares)
    
    2006
    
    
    2005Basic average shares
    
    
    78.2
    
    
    
    77.3Dilutive effect of:ESOP shares
    
    
    
    
    
    
    0.8Holdings preferred stock
    
    
    
    
    
    
    0.1Performance share awards
and stock options
    
    
    
    
    
    
    0.2Diluted average shares
    
    
    78.2
    
    
    
    78.4Diluted Earnings
Per Share from
Continuing Operations
    
    $
    0.18
    
    
    $
    0.45
  2. RATE MATTERS
     9




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##### 



3. RECEIVABLES
  Holdings
 (Millions of Dollars)March 31,
    
    December 31,2006
    
    2005Electric customers
    
    $
    74.5
    
    
    $
    76.2Unbilled electric
customers
    
    
    29.2
    
    
    
    32.1Other
    
    
    47.1
    
    
    
    27.1Less: Allowance for uncollectible
accounts
    
    
    (20.1
    )
    
    
    (21.1
    )Total
    
    $
    130.7
    
    
    $
    114.3
 Duquesne Light
 (Millions of Dollars)March 31,
    
    December 31,2006
    
    2005Electric customers
    
    $
    68.9
    
    
    $
    72.5Unbilled electric
customers
    
    
    25.6
    
    
    
    28.9Affiliate receivables
    
    
    1.5
    
    
    
    3.3Other
    
    
    11.5
    
    
    
    9.9Less: Allowance for
uncollectible accounts
    
    
    (19.8
    )
    
    
    (20.8
    )Total
    
    $
    87.7
    
    
    $
    93.8
 4. DERIVATIVE INSTRUMENTS
   March 31, 2006(Millions of Dollars)AOCIExpectedto be Re-classifiedAOCI,
    
    to EarningsAssets
    
    
    Liabilities
    
    
    net
    
    within 12 monthsMark-to-Market:Energy contracts
    
    $
    24.1
    
    
    $
    10.1Cash Flow Hedges:Energy contracts
    
    
    8.0
    
    
    
    1.8
    
    
    $
    3.8
    
    
    $
    2.1Interest rate lock
    
    
    
    
    
    
    
    
    
    
    4.2
    
    
    
    0.2Natural gas price
swap
    
    
    5.4
    
    
    
    
    
    
    
    2.9
    
    
    
    2.9Total
    
    $
    37.5
    
    
    $
    11.9
    
    
    $
    10.9
    
    
    $
    5.2
 December 31, 2005(Millions of Dollars)Assets
    
    
    Liabilities
    
    
    AOCI, netMark-to-Market:Energy contracts
    
    $
    42.9
    
    
    $
    29.2Cash Flow Hedges:Energy contracts
    
    
    15.8
    
    
    
    
    
    
    $
    7.8Interest rate lock
    
    
    
    
    
    
    
    
    
    
    4.2Natural gas price swap
    
    
    2.2
    
    
    
    
    
    
    
    1.3Total
    
    $
    60.9
    
    
    $
    29.2
    
    
    $
    13.3
 Energy Contracts
  10




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##### 



Natural Gas Price Swap
  5. SHARE-BASED COMPENSATION
   Stock Options
   WeightedAverageShares
    
    PriceOptions outstanding,
beginning of period
    
    
    552,004
    
    
    $
    23.10Options granted
    
    
    
    
    
    
    Options exercised
    
    
    800
    
    
    $
    15.02Options canceled/forfeited
    
    
    
    
    
    
    Options outstanding and
exercisable, end of period
    
    
    551,204
    
    
    $
    23.10Shares available for future
grants, end of year
    
    
    2,623,038
 Outstanding and ExercisableAverageRemaining Life
    
    Weighted AverageExercise Price Range
    
    Number of Options
    
    (In Years)
    
    Exercise PriceUnder $20
    
    
    386,765
    
    
    
    6.2
    
    
    $
    16.12$20 - $40
    
    
    49,396
    
    
    
    3.9
    
    
    $
    32.51Over $40
    
    
    115,043
    
    
    
    3.9
    
    
    $
    42.57Options, End of
Period
    
    
    551,204
    
    
    
    
    
    
    $
    23.10
  Unvested Restricted Share Awards
  11




---



##### 



WeightedAverageGrant-DateShares
    
    Fair ValueUnvested shares,
beginning of period
    
    
    129,641
    
    
    $
    18.27Unvested shares granted
    
    
    
    
    
    
    Shares vested
    
    
    2,075
    
    
    $
    24.08Unvested shares canceled/
forfeited
    
    
    
    
    
    
    Unvested shares,
end of period
    
    
    127,566
    
    
    $
    18.18
 Performance Based Share Awards
     12




---



##### 



WeightedAverageGrant-DateShares
    
    Fair ValuePerformance shares,
beginning of period
    
    
    198,284
    
    
    $
    16.85Performance shares granted
    
    
    
    
    
    
    Performance shares vested
    
    
    
    
    
    
    Performance shares canceled/
forfeited
    
    
    
    
    
    
    Performance shares,
end of period
    
    
    198,284
    
    
    $
    16.85
 6. NOTES PAYABLE AND LONG-TERM DEBT
    7. COMMITMENTS AND CONTINGENCIES
 Guarantees
     13




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##### 



Income Taxes
      Employees
  Section 29 Tax Credits and Synthetic Fuel
  14




---



##### 



Proposed Acquisition
  Discontinued Operations
  8. DISCONTINUED OPERATIONS
   15




---



##### 



9. PENSION AND POSTRETIREMENT BENEFITS
  (Millions of Dollars)2006
    
    
    2005Service cost
    
    $
    3.0
    
    
    $
    2.2Interest cost
    
    
    11.6
    
    
    
    10.7Expected return on plan assets
    
    
    (15.1
    )
    
    
    (13.8
    )Amortization of unrecognized
net transition obligation
    
    
    
    
    
    
    Amortization of prior service
cost
    
    
    1.1
    
    
    
    0.8Amortization of actuarial gain
    
    
    0.1
    
    
    
    Net periodic pension benefit
cost (gain)
    
    $
    0.7
    
    
    $
    (0.1
    )
    (Millions of Dollars)2006
    
    
    2005Service cost
    
    $
    0.3
    
    
    $
    0.4Interest cost
    
    
    0.7
    
    
    
    0.9Amortization of unrecognized
net transition obligation
    
    
    0.2
    
    
    
    0.2Amortization of prior service
cost
    
    
    0.2
    
    
    
    (0.1
    )Net periodic postretirement
benefit cost
    
    $
    1.4
    
    
    $
    1.4
 10. DUQUESNE LIGHT TRANSACTIONS WITH AFFILIATES
    11. BUSINESS SEGMENTS AND RELATED
INFORMATION
   16




---



##### 



Duquesne Light Company
 Business Segments for the Three Months Ended March 31, 2006
 (Millions of Dollars)Electricity
    
    
    Duquesne LightDelivery
    
    
    Supply
    
    
    ConsolidatedOperating revenues
    
    $
    82.0
    
    
    $
    92.0
    
    
    $
    174.0Operating expenses
    
    
    42.6
    
    
    
    91.8
    
    
    
    134.4Depreciation and amortization expense
    
    
    18.5
    
    
    
    
    
    
    
    18.5Operating income
    
    
    20.9
    
    
    
    0.2
    
    
    
    21.1Other income  net
    
    
    2.3
    
    
    
    
    
    
    
    2.3Interest and other charges
    
    
    10.1
    
    
    
    
    
    
    
    10.1Income before income taxes
    
    
    13.1
    
    
    
    0.2
    
    
    
    13.3Income tax expense
    
    
    4.9
    
    
    
    
    
    
    
    4.9Net Income
    
    
    8.2
    
    
    
    0.2
    
    
    
    8.4Dividends on preferred and preference stock
    
    
    2.0
    
    
    
    
    
    
    
    2.0Earnings available for common stock
    
    $
    6.2
    
    
    $
    0.2
    
    
    $
    6.4Assets
    
    $
    2,124.9
    
    
    $
    
    
    
    $
    2,124.9Capital expenditures
    
    $
    50.1
    
    
    $
    
    
    
    $
    50.1
 Business Segments for the Three Months Ended March 31, 2005
 (Millions of Dollars)DuquesneElectricity
    
    
    LightDelivery
    
    
    Supply
    
    
    CTC
    
    
    ConsolidatedOperating revenues
    
    $
    80.2
    
    
    $
    108.9
    
    
    $
    2.4
    
    
    $
    191.5Operating expenses
    
    
    41.8
    
    
    
    89.2
    
    
    
    0.1
    
    
    
    131.1Depreciation and amortization expense
    
    
    15.6
    
    
    
    
    
    
    
    2.2
    
    
    
    17.8Operating income
    
    
    22.8
    
    
    
    19.7
    
    
    
    0.1
    
    
    
    42.6Other income  net
    
    
    5.8
    
    
    
    
    
    
    
    
    
    
    
    5.8Interest and other charges
    
    
    12.1
    
    
    
    0.3
    
    
    
    
    
    
    
    12.4Income before income taxes
    
    
    16.5
    
    
    
    19.4
    
    
    
    0.1
    
    
    
    36.0Income tax expense
    
    
    6.0
    
    
    
    8.1
    
    
    
    
    
    
    
    14.1Net Income
    
    
    10.5
    
    
    
    11.3
    
    
    
    0.1
    
    
    
    21.9Dividends on preferred and preference stock
    
    
    2.0
    
    
    
    
    
    
    
    
    
    
    
    2.0Earnings available for common stock
    
    $
    8.5
    
    
    $
    11.3
    
    
    $
    0.1
    
    
    $
    19.9Assets (a)
    
    $
    2,123.1
    
    
    $
    
    
    
    $
    
    
    
    $
    2,123.1Capital expenditures
    
    $
    16.2
    
    
    $
    
    
    
    $
    
    
    
    $
    16.2
  17




---



##### 



Duquesne Light Holdings
 Business Segments for the Three Months Ended March 31, 2006
 (Millions of Dollars)Electricity
    
    
    Electricity
    
    
    Energy
    
    
    
    
    
    
    
    
    
    
    All
    
    
    
    
    
    Consoli-Delivery
    
    
    Supply
    
    
    Solutions
    
    
    Financial
    
    
    Communications
    
    
    Other
    
    
    Eliminations
    
    
    datedOperating revenues
    
    $
    82.0
    
    
    $
    112.4
    
    
    $
    13.4
    
    
    $
    15.2
    
    
    $
    2.5
    
    
    $
    
    
    
    $
    (1.6
    )
    
    $
    223.9Operating expenses
    
    
    42.6
    
    
    
    105.7
    
    
    
    6.5
    
    
    
    11.0
    
    
    
    1.2
    
    
    
    2.5
    
    
    
    (1.6
    )
    
    
    167.9Depreciation and
amortization expense
    
    
    18.5
    
    
    
    
    
    
    
    0.4
    
    
    
    1.2
    
    
    
    0.5
    
    
    
    0.1
    
    
    
    
    
    
    
    20.7Operating income (loss)
    
    
    20.9
    
    
    
    6.7
    
    
    
    6.5
    
    
    
    3.0
    
    
    
    0.8
    
    
    
    (2.6
    )
    
    
    
    
    
    
    35.3Other income  net
    
    
    2.3
    
    
    
    0.1
    
    
    
    0.3
    
    
    
    2.2
    
    
    
    
    
    
    
    0.4
    
    
    
    (1.0
    )
    
    
    4.3Interest and other charges
    
    
    12.1
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    6.2
    
    
    
    (0.7
    )
    
    
    17.8Benefit from limited
partners interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.5
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    2.6Income (loss) before
income taxes
    
    
    11.1
    
    
    
    6.7
    
    
    
    6.8
    
    
    
    7.6
    
    
    
    0.9
    
    
    
    (8.4
    )
    
    
    (0.3
    )
    
    
    24.4Income tax expense
(benefit)
    
    
    4.9
    
    
    
    2.8
    
    
    
    2.9
    
    
    
    (0.8
    )
    
    
    0.4
    
    
    
    (0.2
    )
    
    
    
    
    
    
    10.0Income (loss) from
continuing operations
    
    $
    6.2
    
    
    $
    3.9
    
    
    $
    3.9
    
    
    $
    8.4
    
    
    $
    0.5
    
    
    $
    (8.2
    )
    
    $
    (0.3
    )
    
    $
    14.4Assets
    
    $
    2,103.5
    
    
    $
    66.5
    
    
    $
    17.7
    
    
    $
    569.7
    
    
    $
    30.2
    
    
    $
    12.7
    
    
    $
    
    
    
    $
    2,800.3Capital expenditures
    
    $
    50.1
    
    
    $
    
    
    
    $
    
    
    
    $
    1.0
    
    
    $
    1.4
    
    
    $
    
    
    
    $
    
    
    
    $
    52.5
 Business Segments for the Three Months Ended March 31, 2005
 (Millions of Dollars)Electricity
    
    
    Electricity
    
    
    
    
    
    
    Energy
    
    
    
    
    
    
    
    
    
    
    All
    
    
    Elimina-
    
    
    Consoli-Delivery
    
    
    Supply
    
    
    CTC
    
    
    Solutions
    
    
    Financial
    
    
    Communications
    
    
    Other
    
    
    tions
    
    
    datedOperating revenues
    
    $
    80.2
    
    
    $
    110.2
    
    
    $
    2.4
    
    
    $
    15.1
    
    
    $
    9.3
    
    
    $
    2.3
    
    
    $
    
    
    
    $
    (0.8
    )
    
    $
    218.7Operating expenses
    
    
    41.8
    
    
    
    90.6
    
    
    
    0.1
    
    
    
    8.1
    
    
    
    9.6
    
    
    
    0.9
    
    
    
    0.8
    
    
    
    (0.8
    )
    
    
    151.1Depreciation and
amortization expense
    
    
    15.6
    
    
    
    
    
    
    
    2.2
    
    
    
    0.4
    
    
    
    1.6
    
    
    
    0.5
    
    
    
    0.2
    
    
    
    
    
    
    
    20.5Operating income (loss)
    
    
    22.8
    
    
    
    19.6
    
    
    
    0.1
    
    
    
    6.6
    
    
    
    (1.9
    )
    
    
    0.9
    
    
    
    (1.0
    )
    
    
    
    
    
    
    47.1Other income  net
    
    
    5.8
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    9.7
    
    
    
    
    
    
    
    4.6
    
    
    
    (4.5
    )
    
    
    15.5Interest and other charges
    
    
    14.1
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.3
    
    
    
    (4.2
    )
    
    
    14.5Benefit from limited
partners interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.5Income (loss) before
income taxes
    
    
    14.5
    
    
    
    19.3
    
    
    
    0.1
    
    
    
    6.5
    
    
    
    10.3
    
    
    
    0.9
    
    
    
    (0.7
    )
    
    
    (0.3
    )
    
    
    50.6Income tax expense
(benefit)
    
    
    6.0
    
    
    
    8.0
    
    
    
    
    
    
    
    2.4
    
    
    
    (1.4
    )
    
    
    0.3
    
    
    
    0.7
    
    
    
    
    
    
    
    16.0Income (loss) from
continuing operations
    
    $
    8.5
    
    
    $
    11.3
    
    
    $
    0.1
    
    
    $
    4.1
    
    
    $
    11.7
    
    
    $
    0.6
    
    
    $
    (1.4
    )
    
    $
    (0.3
    )
    
    $
    34.6Assets (a)
    
    $
    2,100.1
    
    
    $
    68.1
    
    
    $
    
    
    
    $
    17.9
    
    
    $
    573.9
    
    
    $
    29.9
    
    
    $
    29.0
    
    
    $
    
    
    
    $
    2,818.9Capital expenditures
    
    $
    16.2
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0.1
    
    
    $
    0.4
    
    
    $
    
    
    
    $
    
    
    
    $
    16.7
  18




---



##### 



Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
 Part I, Item 2 of this combined Quarterly Report on Form 10-Q should be read in conjunction
with our combined Annual Report on Form 10-K for the year ended December 31, 2005 filed with the
Securities and Exchange Commission (SEC), and with the condensed consolidated financial statements,
set forth in Part I, Item 1 of this Report.
   Critical Accounting Policies
  Proposed Accounting Standards
    19




---



##### 



Forward-looking Statements
  
    
    Cash flow, earnings, earnings growth, capitalization, capital expenditures and dividends
will depend on the performance of Holdings subsidiaries, and board policy.
    
    Demand for and pricing of electricity and landfill gas, changing market conditions, and
weather conditions could affect earnings levels.
    
    Earnings will be affected by the number of customers who choose to receive electric
generation through Duquesne Lights provider-of-last-resort service (POLR), by our ability to
negotiate appropriate terms with suitable generation suppliers, by the performance of these
suppliers, and by changes in market value of energy commodity products under contract.
    
    Earnings will be affected by the timing of the Keystone and Conemaugh acquisition closing,
which in turn will depend on the timing and substance of the regulatory approval.
    
    Projected POLR supply requirements will depend on POLR customer retention, which in turn
may depend on market generation prices, as well as the marketing efforts of competing
generation suppliers.
    
    Distribution rate base and earnings will depend on the outcome of our distribution rate
case, which in turn is subject to Pennsylvania Public Utility Commission (PUC) review and
approval. Transmission rate base and earnings will depend on the ultimate structure of our
transmission rate case, which in turn will be subject to Federal Energy Regulatory Commission
(FERC) review and approval. Earnings will also be affected by rate base, equity and allowed
return levels.
    
    Regional transmission organization rules and FERC-mandated transmission charges could
affect earnings.
    
    Changes in electric energy prices could affect earnings as the fair value of our energy
commodity contracts fluctuates.
    
    The amount and timing of any debt reduction or refinancing will depend on the availability
of cash flows and appropriate replacement or refinancing vehicles.
    
    The amount and timing of any securities issuance (debt or equity) will depend on financial
market performance and the need for funds.
    
    The credit ratings received from the rating agencies could affect the cost of borrowing,
access to capital markets and liquidity.
    
    Changes in synthetic fuel plant operations could affect Duquesne Energy Solutions
earnings.
    
    Competition, operating costs and gas prices could affect earnings and expansion plans in
our landfill gas business, as well as the anticipated operating life of our landfill gas
sites.
    
    Earnings with respect to synthetic fuel operations, landfill gas and affordable housing
investments will depend, in part, on the continued availability of, and compliance with the
requirements for, applicable federal tax credits. The availability of synthetic fuel and
landfill gas tax credits depends in part on the average well-head price per barrel of domestic
crude oil.
    
    Demand for dark fiber will affect DQE Communications earnings.
    
    The final resolution of proposed adjustments regarding state income tax liabilities (which
could depend on negotiations with the appropriate authorities) could affect financial
position, earnings, and cash flows.
    
    Financial results and position could be affected by changes in pronouncements periodically
issued by accounting standard-setting bodies.
    
    Overall performance by Holdings and its affiliates could be affected by economic,
competitive, regulatory, governmental and technological factors affecting operations, markets,
products, services and prices, as well as the factors discussed in Holdings SEC filings made
to date.
 EXECUTIVE OVERVIEW
 Electricity Delivery Business
  20




---



##### 



Supply Business.
 Section 29
Tax Credits and Synthetic Fuel.
    Landfill Gas Business.
   Effective
tax rate.
 21




---



##### 



BUSINESS SEGMENTS
  RESULTS OF OPERATIONS
 Overall Performance
 Three months ended March 31, 2006.
 
    
    Income from the Holdings electricity supply
segment decreased $7.4 million from the first
quarter of 2005, primarily as a result of a
$9.8 million after-tax decrease in earnings
resulting from a decline in the fair value of certain
of Duquesne Powers derivative energy contracts,
partially offset by a $2.4 million after-tax increase
in electricity supply margins realized as compared
to the first quarter of 2005.
 
    
    Income from the Financial segment decreased
$3.3 million, primarily as a result of a $4.6 million
after-tax gain from the sale of an investment in a
natural gas operating partnership included in the
first quarter of 2005 results and the $2.3 million
decrease resulting from the estimated 2006 tax
credit phase-out. This was partially offset by a
$2.8 million increase in after-tax earnings from the
pipeline quality landfill gas sites in the first quarter
of 2006.
 
    
    The loss reported in the all other category
increased $6.8 million, primarily as a result of the
negative net $2.9 million impact to income taxes
resulting from the IRS settlement and the
recognition of certain state tax benefits in 2006,
as well as the $2.4 million after-tax gain in
2005 resulting from the favorable settlement of
an interest rate lock arrangement.
  Business Segment Performance
 Electricity Delivery Business Segment.
 Three months ended March 31, 2006.
   MWh Delivered(In Thousands)First Quarter
    
    2006
    
    
    2005
    
    
    ChangeResidential
    
    
    1,004
    
    
    
    995
    
    
    
    0.9
    %Commercial
    
    
    1,547
    
    
    
    1,613
    
    
    
    (4.1
    %)Industrial
    
    
    811
    
    
    
    813
    
    
    
    (0.2
    %)3,362
    
    
    
    3,421
    
    
    
    (1.7
    %)
  22




---



##### 



Duquesne Light Supply Business Segment.
 Three months ended March 31, 2006.
   MWh Supplied(In Thousands)2006First Quarter
    
    POLR I
    
    
    POLR III
    
    
    TotalResidential and small
commercial
    
    
    
    
    
    
    1,442
    
    
    
    1,442Large commercial
and industrial
    
    
    33
    
    
    
    69
    
    
    
    102Total Retail
    
    
    33
    
    
    
    1,511
    
    
    
    1,544Wholesale
    
    
    
    
    
    
    
    
    
    
    25POLR Customers (MWh basis):Residential and small commercial
    
    
    
    
    
    
    
    
    
    
    79
    %Large commercial and industrial
    
    
    
    
    
    
    
    
    
    
    7
    %
 MWh Supplied(In Thousands)2005First Quarter
    
    POLR I
    
    
    POLR III
    
    
    TotalResidential and small
commercial
    
    
    
    
    
    
    1,381
    
    
    
    1,381Large commercial
and industrial
    
    
    409
    
    
    
    109
    
    
    
    518Total Retail
    
    
    409
    
    
    
    1,490
    
    
    
    1,899Wholesale
    
    
    
    
    
    
    
    
    
    
    153POLR Customers (MWh basis):Residential and small commercial
    
    
    
    
    
    
    
    
    
    
    76
    %Large commercial and industrial
    
    
    
    
    
    
    
    
    
    
    32
    %
 Electricity Supply Business Segment.
 Three months ended March 31, 2006.
 Earnings(In Millions)First Quarter
    
    2006
    
    
    2005Electricity Supply
    
    $
    5.4
    
    
    $
    3.0Derivative energy contracts
    
    
    (1.5
    )
    
    
    8.3Total Earnings
    
    $
    3.9
    
    
    $
    11.3
  23




---



##### 



MWh Supplied(In Thousands)First Quarter
    
    2006
    
    
    2005
    
    
    ChangeRetail:Duquesne Light
    
    
    1,544
    
    
    
    1,899
    
    
    
    (18.7
    %)DLE
    
    
    358
    
    
    
    137
    
    
    
    161.3
    %Total Retail
    
    
    1,902
    
    
    
    2,036
    
    
    
    (6.6
    %)
  Energy Solutions Business Segment
 Three months ended March 31, 2006.
   Financial Business Segment.
 Three months ended March 31, 2006
    Communications Business Segment
 Three months ended March 31, 2006.
 All Other.
 Three months ended March 31, 2006.
 LIQUIDITY AND CAPITAL RESOURCES
  24




---



##### 



Cash Flows from Operating Activity.
 Cash Flows from Investing Activity.
 Cash Flows from Financing Activity.
  Liquidity
  Bank Credit Facilities.
   Committed
    
    
    
    
    
    
    LOCs
    
    
    AvailableCapacity
    
    
    Borrowed
    
    
    Issued
    
    
    CapacityHoldings
    
    $
    250.0
    
    
    $
    88.0
    
    
    $
    79.0
    
    
    $
    83.0Duquesne
Light
    
    
    150.0
    
    
    
    
    
    
    
    8.2
    
    
    
    141.8Total
    
    $
    400.0
    
    
    $
    88.0
    
    
    $
    87.2
    
    
    $
    224.8
   25




---



##### 



Committed
    
    
    
    
    
    
    LOCs
    
    
    AvailableCapacity
    
    
    Borrowed
    
    
    Issued
    
    
    CapacityHoldings
    
    $
    250.0
    
    
    $
    103.0
    
    
    $
    34.3
    
    
    $
    112.7Duquesne
Light
    
    
    150.0
    
    
    
    
    
    
    
    8.2
    
    
    
    141.8Total
    
    $
    400.0
    
    
    $
    103.0
    
    
    $
    42.5
    
    
    $
    254.5
  OFF-BALANCE SHEET ARRANGEMENTS
  RECENT DEVELOPMENTS
 Rate Cases
  Letter of Credit Facility
  Energy Facility Sale
  Natural Gas Price Collar
  Item 3.
    
    Quantitative and Qualitative
Disclosures About Market Risk.
   Interest Rate Risk
   26




---



##### 



Commodity Price Risk
  Electricity Supply.
       Landfill Gas Sales.
 27




---



##### 



Credit/Default Risk
          Tax Credit Phase-Out
   Item 4. Controls and Procedures.
 Disclosure Controls and Procedures
  28




---



##### 



Changes in Internal Control Over Financial Reporting
  
 PART II. OTHER INFORMATION.
 Item 1. Legal Proceedings.
    Item 6. Exhibits.
 12.1
    
    Holdings Ratio of Earnings to Fixed Charges and Preferred and
Preference Stock Dividend Requirements.12.2
    
    Duquesne Light Ratio of Earnings to Fixed Charges and Preferred and
Preference Stock Dividend Requirements.31.1
    
    Holdings CEO Section 302 Certification.31.2
    
    Holdings CFO Section 302 Certification.31.3
    
    Duquesne Lights CEO Section 302 Certification.31.4
    
    Duquesne Lights CFO Section 302 Certification.32.1
    
    Holdings CEO Section 906 Certification.32.2
    
    Holdings CFO Section 906 Certification.32.3
    
    Duquesne Lights CEO Section 906 Certification.32.4
    
    Duquesne Lights CFO Section 906 Certification.
 29




---



##### 



SIGNATURES
  Duquesne Light Holdings, Inc.(Registrant)Date: May 10, 2006
    
    /s/ Mark E. Kaplan(Signature)Mark E. KaplanSenior Vice President andChief Financial Officer(Duly Authorized Officer)Date: May 10, 2006
    
    /s/ Susan S. Betta(Signature)Susan S. BettaController(Principal Accounting Officer)
  Duquesne Light Company(Registrant)Date: May 10, 2006
    
    /s/ Mark E. Kaplan(Signature)Mark E. KaplanSenior Vice President andChief Financial Officer(Duly Authorized Officer)Date: May 10, 2006
    
    /s/ Susan S. Betta(Signature)Susan S. BettaController(Principal Accounting Officer)
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