<PAGE>
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC  20549


                                   FORM 10-Q
                                        

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

     For the Quarterly Period Ended   March 31, 1999
                                    ------------------

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

     For the Transition Period From __________ to __________

                            Commission File Number
                            ----------------------
                                     1-956

                            Duquesne Light Company
                            ----------------------
            (Exact name of registrant as specified in its charter)

             Pennsylvania                              25-0451600
             ------------                              ----------
     (State or other jurisdiction of      (I.R.S. Employer Identification No.)
     incorporation or organization)

                               411 Seventh Avenue
                        Pittsburgh, Pennsylvania  15219
                        -------------------------------
              (Address of principal executive offices) (Zip Code)

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


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

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:

DQE, Inc. is the holder of all shares of common stock, $1 par value, of Duquesne
Light Company consisting of 10 shares as of March 31, 1999 and April 30, 1999.
<PAGE>
 
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

                             DUQUESNE LIGHT COMPANY
                   CONDENSED STATEMENT OF CONSOLIDATED INCOME
                             (Thousands of Dollars)
                                  (Unaudited)
                                        
<TABLE>
<CAPTION>
                                                                                     Three Months Ended
                                                                                          March 31,
                                                                              ---------------------------------
                                                                                   1999               1998
                                                                              --------------     --------------
<S>                                                                           <C>                <C>   
Operating Revenues
  Sales of Electricity:
    Customers - net                                                            $     254,419      $     268,363
    Utilities                                                                         13,653              7,072
                                                                               -------------      -------------
  Total Sales of Electricity                                                         268,072            275,435
  Other                                                                               13,904              9,722
                                                                               -------------      -------------
    Total Operating Revenues                                                         281,976            285,157
                                                                               -------------      -------------
 
Operating Expenses
  Fuel and purchased power                                                            46,911             59,533
  Other operating                                                                     71,708             68,826
  Maintenance                                                                         20,337             20,283
  Depreciation and amortization                                                       52,840             55,680
  Taxes other than income taxes                                                       23,590             19,565
  Income taxes                                                                        17,193             15,939
                                                                               -------------      -------------
    Total Operating Expenses                                                         232,579            239,826
                                                                               -------------      -------------
OPERATING INCOME                                                                      49,397             45,331
                                                                               -------------      -------------
Other Income and Deductions                                                            8,236             11,703
                                                                               -------------      -------------
Income Before Interest and Other Charges                                              57,633             57,034
Interest Charges                                                                      18,624             20,448
Monthly Income Preferred Securities
    Dividend Requirements                                                              3,141              3,141
                                                                               -------------      -------------
NET INCOME                                                                            35,868             33,445
                                                                               =============      =============
DIVIDENDS ON PREFERRED AND
  PREFERENCE STOCK                                                                       993                998
                                                                               -------------      -------------
EARNINGS FOR COMMON STOCK                                                      $      34,875      $      32,447
                                                                               =============      =============
</TABLE>

See notes to condensed consolidated financial statements.

                                       2
<PAGE>
 
                            DUQUESNE LIGHT COMPANY
                     CONDENSED CONSOLIDATED BALANCE SHEET
                            (Thousands of Dollars)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                      March 31,                 December 31,
                                                                         1999                       1998
                                                                 ------------------          -----------------
<S>                                                              <C>                         <C>     
ASSETS
Property, plant and equipment                                    $      4,589,130            $      4,589,140
Less:  Accumulated depreciation and amortization                       (3,136,067)                 (3,141,841)
                                                                 ----------------            ----------------
    Property, plant and equipment - net                                 1,453,063                   1,447,299
                                                                 ----------------            ----------------
Long-term investments                                                     191,909                     202,256
                                                                 ----------------            ----------------
Current assets:
  Cash and temporary cash investments                                      31,202                      53,151
  Receivables                                                              92,261                     125,956
  Other current assets, principally material and supplies                  92,220                      92,119
                                                                 ----------------            ----------------
    Total current assets                                                  215,683                     271,226
                                                                 ----------------            ----------------
Other non-current assets:                                      
  Transition costs                                                      2,084,098                   2,132,980
  Regulatory assets                                                        61,848                      64,568
  Other                                                                    63,229                      56,799
                                                                 ----------------            ----------------
    Total other non-current assets                                      2,209,175                   2,254,347
                                                                 ----------------            ----------------
        TOTAL ASSETS                                             $      4,069,830            $      4,175,128
                                                                 ================            ================
CAPITALIZATION AND LIABILITIES                                 
Capitalization:                                                
  Common stock - $1 par value (shares - 90,000,000             
    authorized; 10 issued)                                       $             --            $             --
  Capital surplus                                                         759,055                     813,528
  Retained earnings                                                            --                      27,646
  Accumulated other comprehensive Income                                   20,750                      27,326
                                                                 ----------------            ----------------
    Total common stockholder's equity                                     779,805                     868,500
                                                                 ----------------            ----------------
  Preferred and preference stock                                          228,478                     227,782
                                                                 ----------------            ----------------
  Long-term debt                                                        1,115,408                   1,160,348
                                                                 ----------------            ----------------
    Total capitalization                                                2,123,691                   2,256,630
                                                                 ----------------            ----------------
Obligations under capital leases                                           15,168                      36,596
                                                                 ----------------            ----------------
Current liabilities:                                           
  Current maturities and sinking fund requirements                        163,742                      96,137
  Other current liabilities                                               245,674                     268,141
                                                                 ----------------            ----------------
    Total current liabilities                                             409,416                     364,278
                                                                 ----------------            ----------------
Deferred income taxes - net                                               571,428                     610,272
                                                                 ----------------            ----------------
Deferred income                                                           122,314                     117,508
                                                                 ----------------            ----------------
Beaver Valley lease liability                                             475,570                     475,570
                                                                 ----------------            ----------------
Other non-current liabilities                                             352,243                     314,274
                                                                 ----------------            ----------------
Commitments and contingencies (Note 4)                         
                                                                 ----------------            ----------------
        TOTAL CAPITALIZATION AND LIABILITIES                     $      4,069,830            $      4,175,128
                                                                 ================            ================
</TABLE>

See notes to condensed consolidated financial statements.

                                       3
<PAGE>
 
                             DUQUESNE LIGHT COMPANY
                 CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
                             (Thousands of Dollars)
                                  (Unaudited)
                                        
<TABLE>
<CAPTION>
                                                                              Three Months Ended
                                                                                  March 31,
                                                                  --------------------------------------------
                                                                        1999                       1998
                                                                  -----------------          -----------------
<S>                                                               <C>                        <C>    
Cash Flows From Operating Activities
  Operations                                                        $       81,573             $       96,533
  Changes in working capital other than cash                                45,221                    (13,224)
  Increase in ECR                                                               --                     (7,270)
  Other                                                                     (2,101)                     4,598
                                                                    --------------             --------------
    Net Cash Provided By Operating Activities                              124,693                     80,637
                                                                    --------------             --------------
Cash Flows From Investing Activities
  Construction expenditures                                                (16,415)                   (13,384)
  Long-term investments                                                     (3,311)                    (3,020)
  Other                                                                     (3,311)                     4,834
                                                                    --------------             --------------
    Net Cash Used in Investing Activities                                  (23,037)                   (11,570)
                                                                    --------------             --------------
Cash Flows From Financing Activities
  Dividends on capital stock                                              (119,222)                      (998)
  Reductions of long-term obligations - net                                 (4,808)                   (98,163)
  Other                                                                        425                     (7,021)
                                                                    --------------             --------------
    Net Cash Used in Financing Activities                                 (123,605)                  (106,182)
                                                                    --------------             --------------
Net decrease in cash and temporary cash investments                        (21,949)                   (37,115)
Cash and temporary cash investments at beginning of period                  53,151                    165,169
                                                                    --------------             --------------
Cash and temporary cash investments at end of period                $       31,202             $      128,054
                                                                    ==============             ==============
Non-Cash Investing and Financing Activities
  Capital lease obligations recorded                                $        5,984             $        2,552
                                                                    ==============             ==============
 
</TABLE>

See notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
                             Duquesne Light Company
                 STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
                             (Thousands of Dollars)
                                  (Unaudited)
                                        
<TABLE>
<CAPTION>
                                                                                   Three Months Ended
                                                                                        March 31,
                                                                         -------------------------------------
                                                                              1999                   1998
                                                                         --------------         --------------
<S>                                                                      <C>                    <C>
NET INCOME                                                               $       35,868         $       33,445
Other Comprehensive Income:
  Unrealized holding gains (losses) during the
     quarter, net of tax of $(3,668) and $2,096                                  (5,171)                 2,956
  Less:  reclassification adjustment for gains
     included in net income, net of tax of $756 and $0                           (1,404)                    --
                                                                         --------------         --------------
        Total Other Comprehensive Income                                         (6,575)                 2,956
                                                                         --------------         --------------
Comprehensive Income                                                     $       29,293         $       36,401
                                                                         ==============         ==============
See notes to condensed consolidated financial statements.
</TABLE>


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.   CONSOLIDATION, RECLASSIFICATIONS AND ACCOUNTING POLICIES

     Duquesne Light Company (Duquesne) is a wholly owned subsidiary of DQE, Inc.
(DQE), a multi-utility delivery and services company. Duquesne is engaged in the
generation, transmission, distribution and sale of electric energy. Duquesne has
one wholly owned subsidiary, Monongahela Light and Power Company, which makes
long-term investments.

     The Pennsylvania Public Utility Commission (PUC) has approved Duquesne's
plan to divest itself of its generation assets through an auction (including an
auction of its provider of last resort service), and the pending exchange of
certain power station assets with FirstEnergy Corporation (FirstEnergy). Final
agreements governing these transactions must be approved by various regulatory
agencies. Duquesne currently expects these transactions to close in late 1999 or
early 2000. (See "Rate Matters," Note 2, on page 6.)

     The condensed consolidated financial statements include the accounts of
Duquesne and its wholly owned subsidiary.  All material intercompany balances
and transactions have been eliminated in the preparation of the condensed
consolidated financial statements.

     In the opinion of management, the unaudited condensed consolidated
financial statements included in this report reflect all adjustments that are
necessary for a fair presentation of the results of interim periods and are
normal, recurring adjustments.  Prior periods have been reclassified to conform
with accounting presentations adopted during 1999.

     These statements should be read with the financial statements and notes
included in the Annual Report on Form 10-K filed with the Securities and
Exchange Commission (SEC) for the year ended December 31, 1998.  The results of
operations for the three months ended March 31, 1999, are not necessarily
indicative of the results that may be expected for the full year.  The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.  The
reported amounts of revenues and expenses during the reporting period may also
be affected by

                                       5
<PAGE>
 
the estimates and assumptions management is required to make. Actual results
could differ from those estimates.

     Duquesne is subject to the accounting and reporting requirements of the
SEC. In addition, Duquesne's electric utility operations are subject to
regulation by the PUC, including regulation under the Pennsylvania Electricity
Generation Customer Choice and Competition Act (Customer Choice Act), and 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.

     As a result of the PUC's May 29, 1998, final order regarding Duquesne's
restructuring plan under the Customer Choice Act (see "Rate Matters," Note 2, on
page 6), the electricity generation portion of Duquesne's business does not meet
the criteria of Statement of Financial Accounting Standards (SFAS) No. 71,
Accounting for the Effects of Certain Types of Regulation (SFAS No. 71).
However, pursuant to the PUC's final restructuring order, certain of Duquesne's
generation-related regulatory assets are being recovered through a competitive
transition charge (CTC) collected in connection with providing transmission and
distribution services (the electricity delivery business segment). Duquesne
continues to apply SFAS No. 71 with respect to such assets. Additionally,
pursuant to the PUC's final restructuring order, Duquesne is recovering its
above-market investment in generation assets through the CTC, subject to receipt
of the proceeds from the generation asset auction. Remaining fixed assets
related to the generation portion of Duquesne's business are evaluated in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of (SFAS No. 121). The electricity
delivery business segment continues to meet SFAS No. 71 criteria and accordingly
reflects regulatory assets and liabilities consistent with 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. (See "Rate Matters," Note 2, below.)

     Through the Energy Cost Rate Adjustment Clause (ECR), Duquesne previously
recovered (to the extent that such amounts were not included in base rates)
nuclear fuel, fossil fuel and purchased power expenses. Also through the ECR,
Duquesne passed to its customers the profits from short-term power sales to
other utilities (collectively, ECR energy costs). As a consequence of the PUC's
final order regarding Duquesne's restructuring plan (see "Rate Matters," Note 2,
below), such fuel costs are no longer recoverable through the ECR. Instead,
effective May 29, 1998 (the date of the PUC's final restructuring order), fuel
costs are expensed as incurred and thus impact net income. Under-recoveries from
customers prior to May 29, 1998, were recorded on the consolidated balance sheet
as a regulatory asset. At March 31, 1999 and December 31, 1998, $42.7 million
was receivable from customers. Duquesne expects to recover this amount through
the CTC. (See "Restructuring Plan" discussion, Note 2, on page 7.)

     Duquesne's long-term investments include assets of nuclear decommissioning
trusts and marketable securities accounted for in accordance with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities.  These
investments are classified as available-for-sale and are stated at market value.
The amounts of unrealized holding gains related to marketable securities  were
$35.5 million ($20.8 million, net of tax) at March 31, 1999, and $46.5 million
($27.3 million, net of tax) at December 31, 1998.


2.  RATE MATTERS

Competition and the Customer Choice Act

     Under historical ratemaking practice, regulated electric utilities were
granted exclusive geographic franchises to sell electricity, in exchange for
making investments and incurring obligations to serve customers under the then-
existing regulatory framework. Through the ratemaking process, those prudently
incurred costs were recovered from customers, along with a return on the
investment. Additionally, certain operating costs were approved for deferral for
future recovery from

                                       6
<PAGE>
 
customers (regulatory assets). As a result of this process, utilities had assets
recorded on their balance sheets at above-market costs, thus creating transition
and stranded costs.

     In Pennsylvania, the Customer Choice Act went into effect on January 1,
1997. The Customer Choice Act enables Pennsylvania's electric utility customers
to purchase electricity at market prices from a variety of electric generation
suppliers (customer choice). Although the Customer Choice Act will give
customers their choice of electric generation suppliers, the existing,
franchised local distribution utility is still responsible for delivering
electricity from the generation supplier to the customer. The local distribution
utility is also required to serve as the provider of last resort for all
customers in its service territory, unless other arrangements are approved by
the PUC. The provider of last resort must provide electricity for any customer
who cannot or does not choose an alternative electric generation supplier, or
whose supplier fails to deliver. The Customer Choice Act provides that the
existing franchised utility may recover, through a CTC, an amount of transition
costs that are determined by the PUC to be just and reasonable. Pennsylvania's
electric utility restructuring is being accomplished through a two-stage process
consisting of an initial customer choice pilot period (which ended in December
1998) and a phase-in to competition period (which began in January 1999).

Phase-In to Competition

     The phase-in to competition began in January 1999, when 66 percent of
customers became eligible to participate in customer choice (including customers
covered by the pilot program); all customers will have customer choice in
January 2000. As of April 30, 1999, approximately 13 percent of Duquesne's
customers had chosen alternative generation suppliers. Customers that have
chosen an electricity generation supplier other than Duquesne pay that supplier
for generation charges, and pay Duquesne the CTC (discussed below) and charges
for transmission and distribution. Customers that continue to buy their
generation from Duquesne pay for their service at current regulated tariff rates
divided into generation, transmission and distribution charges, and the CTC.
Under the Customer Choice Act, an electric distribution company, such as
Duquesne, remains a regulated utility and may only offer PUC-approved rates,
including generation rates. Also under the Customer Choice Act, electricity
delivery (including transmission, distribution and customer service) remains
regulated in substantially the same manner as under historical regulation.

     In an effort to "jump start" retail competition, Duquesne has made 600
megawatts (MW) of power available to licensed electric generation suppliers, to
be used in supplying electricity to Duquesne's customers who have chosen
alternative generation suppliers. The power will be available for the first six
months of 1999 at a price of 2.6 cents per kilowatt-hour (KWH). This power
availability will be structured to ensure the power is used to benefit
Duquesne's retail customers.

Rate Cap

     An overall four-and-one-half-year rate cap from January 1, 1997, has been
imposed on the transmission and distribution charges of Pennsylvania electric
utility companies under the Customer Choice Act. Additionally, electric utility
companies may not increase the generation price component of rates as long as
transition costs are being recovered, with certain exceptions.

Restructuring Plan

     In its May 29, 1998, final restructuring order, the PUC determined that
Duquesne should recover most of the above-market costs of the generation assets,
including plant and regulatory assets through the collection of the CTC from
electric utility customers. The total of the transition costs to be recovered
was $2,133 million ($1,485 million, net of tax) over a seven-year period
beginning January 1, 1999, as may be adjusted to account for the proceeds of the
generation asset auction. In addition, the transition costs as reflected on the
consolidated balance sheet are being amortized over the same period that the CTC
revenues are being recognized. Duquesne is allowed to earn an 11 percent pre-tax
return on the unrecovered balance.

     As part of its restructuring plan filing, Duquesne requested recovery of
$11.5 million ($6.7 million, net of tax) through the CTC for energy costs
previously deferred under the ECR. Recovery

                                       7
<PAGE>
 
of this amount was approved in the PUC's final restructuring order. Duquesne
also requested recovery of an additional $31.2 million ($18.2 million, net of
tax) in deferred fuel costs. On December 18, 1998, the PUC denied recovery of
this additional amount. Duquesne has appealed the PUC's denial of recovery to
the Pennsylvania Commonwealth Court. Based upon the Customer Choice Act, which
mandates recovery of all regulatory assets, and the PUC's specific authorization
for Duquesne to create a regulatory asset for these costs, Duquesne believes
that it is probable that these costs will be recovered through retail rates. In
the event that Duquesne does not prevail in its appeal, these costs would be
written off as a charge against income.

     Restructuring Plan and Auction Plan. With respect to transition cost
recovery, the PUC's final order on the restructuring plan approved Duquesne's
proposal to auction its generation assets and use the proceeds to offset
transition costs. The remaining balance of such costs (with certain exceptions
described below) is expected to be recovered from ratepayers through the CTC.
Until the divestiture is complete, Duquesne has been ordered to use an interim
system average CTC and price to compare based on the methodology approved in its
pilot program (approximately 2.9 cents per KWH for the CTC and approximately 3.8
cents per KWH for the price to compare).

     On December 18, 1998, the PUC approved Duquesne's auction plan, including
an auction of its provider of last resort service, as well as an agreement in
principle to exchange certain generation assets with FirstEnergy. The assets to
be auctioned will include Duquesne's wholly owned Cheswick, Elrama, Phillips
and Brunot Island power stations, as well as the stations to be received from
FirstEnergy in the power station exchange described below. The auction plan
calls for a two-phase, sealed bid process similar to that used in other power
plant divestitures. The initial confidential bidding process began in April
1999, with potential buyers identified by Duquesne being asked to submit non-
binding bids. Final agreements governing the transactions must be approved by
various regulatory agencies, including the PUC, the FERC, the NRC, the
Department of Justice and/or the Federal Trade Commission. Duquesne currently
expects the sale to close at the end of 1999 or the beginning of 2000.

     Power Station Exchange. Pursuant to the definitive agreements entered into
on March 25, 1999 (which remain subject to regulatory approval), Duquesne and
FirstEnergy will exchange ownership interests in certain power stations.
Duquesne will receive 100 percent ownership rights in three coal-fired power
plants located in Avon Lake and Niles, Ohio and New Castle, Pennsylvania
(totaling approximately 1,300 MW), which Duquesne expects to sell simultaneously
as part of the auction of generation assets. FirstEnergy will acquire Duquesne's
interests in Beaver Valley Unit 1 (BV Unit 1), Beaver Valley Unit 2 (BV Unit 2),
Perry Unit 1, Sammis Unit 7, Eastlake Unit 5 and Bruce Mansfield Units 1, 2 and
3 (totaling approximately 1,400 MW). In connection with the power station
exchange, Duquesne anticipates terminating the BV Unit 2 lease in December 1999.
(See "Financing" discussion on page 18.) Pursuant to the December 18, 1998, PUC
order and subject to final approval, the proceeds from the sale of the power
stations received in the exchange will be used to offset the transition costs
associated with Duquesne's currently-held generation assets and costs associated
with completing the exchange. Duquesne expects this exchange to enhance the
value received from the auction, because participants will bid on plants that
are wholly owned by Duquesne, rather than plants that are jointly owned and/or
operated by another entity. Additionally, the auction will include only coal-
and oil-fired plants, which are anticipated to have a higher market value than
nuclear plants. These value-enhancing features, along with a minimum level of
auction proceeds guaranteed by FirstEnergy, are expected to maximize auction
proceeds, minimize transition costs required to be recovered through the CTC (by
shortening the length of the CTC recovery period), and thus reduce customer
bills as rapidly as possible. Other benefits of this exchange include the
resolution of all joint ownership issues, and other risks and costs associated
with the jointly-owned units. In December 1998 the PUC said the exchange appears
to be in the public interest. The definitive exchange agreement was submitted in
early May 1999 for PUC approval.  Certain aspects of the exchange will also have
to be approved by, among other agencies, the FERC, the NRC and the Department of
Justice. The power station exchange is expected to occur simultaneously with the
anticipated closing of the sale of Duquesne's generation through the auction at
the end of 1999 or in early 2000.

                                       8
<PAGE>
 
Termination of the AYE Merger

     On October 5, 1998, DQE announced its unilateral termination of the merger
agreement between DQE and Allegheny Energy, Inc. (AYE). DQE believes that AYE
suffered a material adverse effect as a result of the PUC's final restructuring
order regarding AYE's utility subsidiary, West Penn Power Company. AYE filed
suit in the United States District Court for the Western District of
Pennsylvania, seeking to compel DQE to proceed with the merger and seeking a
temporary restraining order and preliminary injunction to prevent DQE from
certain actions pending a trial, or in the alternative seeking an unspecified
amount of money damages. DQE and AYE continue to litigate this matter. (See
"Legal Proceedings" on page 24.)  In a letter dated February 24, 1999, the PUC
informed DQE that the merger application was deemed withdrawn and the docket was
closed.

3.   RECEIVABLES

     Components of receivables for the periods indicated are as follows:

<TABLE>
<CAPTION>
                                                          March 31,      March 31,     December 31,
                                                            1999           1998            1998
                                                               (Amounts in Thousands of Dollars)
----------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>           <C>
Electric customer accounts receivable                      $ 88,970      $ 84,323        $ 87,262
Other utility receivables                                    33,941        19,894          25,412
Other receivables                                            29,128        23,541          22,419
Less:  Allowance for uncollectible accounts                  (9,778)      (16,322)         (9,137)
----------------------------------------------------------------------------------------------------
Receivables less allowance for uncollectible                142,261       111,436         125,956
 accounts
Less:  Receivables sold                                     (50,000)            -               -
====================================================================================================
     Total Receivables                                     $ 92,261      $111,436        $125,956
====================================================================================================
</TABLE>

     Duquesne and an unaffiliated corporation have an agreement that entitles
Duquesne to sell and the corporation to purchase, on an ongoing basis, up to $50
million of accounts receivable. The accounts receivable sales agreement, which
expires in June 1999, is one of many sources of funds available to Duquesne.
Duquesne currently anticipates extending the agreement upon expiration.  At
March 31, 1999, Duquesne had sold $50 million of receivables. At March 31 and
December 31, 1998, Duquesne had not sold any receivables.

4.   COMMITMENTS AND CONTINGENCIES

     Duquesne anticipates divesting itself of its generation assets through the
auction and the power station exchange by early 2000 and, depending on the
regulatory approvals of the final agreements regarding the divestiture, expects
certain obligations related to the divested assets will be transferred to the
future owners. (See "Restructuring Plan" discussion, Note 2, on page 7.)

Construction

     Duquesne currently estimates that during 1999 it will spend, excluding the
Allowance for Funds Used During Construction and nuclear fuel, approximately
$110 million (including $30 million for generation) for electric utility
construction.

Nuclear-Related Matters

     Duquesne has an interest in three nuclear units, two of which it operates.
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.

                                       9
<PAGE>
 
     Nuclear Decommissioning. 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 in 2016, 2027 and 2026, respectively. At the end of its operating life,
BV Unit 1 may be placed in safe storage until BV Unit 2 is ready to be
decommissioned, at which time the units may be decommissioned together.

     Based on site-specific studies conducted in 1997 for BV Unit 1 and BV Unit
2, and a 1997 update of the 1994 study for Perry Unit 1, Duquesne's approximate
share of the total estimated decommissioning costs, including removal and
decontamination costs, is $170 million, $55 million and $90 million,
respectively. The amount currently used to determine Duquesne's cost of service
related to decommissioning all three nuclear units is $224 million. Funding for
nuclear decommissioning costs is deposited in external, segregated trust
accounts and invested in a portfolio of corporate common stock and debt
securities, municipal bonds, certificates of deposit and United States
government securities. The market value of the aggregate trust fund balances at
March 31, 1999, totaled approximately $65.8 million.

     As part of the power station exchange, FirstEnergy has agreed to assume the
decommissioning liability for each of the nuclear plants in exchange for the
balance in the decommissioning trust funds, plus the decommissioning costs
expected to be collected through the CTC.

     Nuclear Insurance. The Price-Anderson Amendments to the Atomic Energy Act
of 1954 limit public liability from a single incident at a nuclear plant to $9.8
billion. The maximum available private primary insurance of $200 million has
been purchased by Duquesne. Additional protection of $9.6 billion would be
provided by an assessment of up to $88.1 million per incident on each licensed
nuclear unit in the United States. Duquesne's maximum total possible assessment,
$66.1 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. This assessment is subject to indexing for inflation and may
be subject to state premium taxes. If assessments from the nuclear industry
prove insufficient to pay claims, the United States Congress could impose other
revenue-raising measures on the industry.

     Duquesne's share of insurance coverage for property damage, decommissioning
and decontamination liability is $1.2 billion. 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 that provides a portion of this coverage, 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 $7.3 million. Duquesne also participates in a NEIL program
that provides insurance for the increased cost of generation and/or purchased
power resulting from an accidental outage of a nuclear unit. Subject to the
policy deductible, terms and limit, the coverage provides for a weekly indemnity
of the estimated incremental costs during the 162-week period starting 17 weeks
after an accident, with no coverage thereafter. If NEIL's losses for this
program ever exceed its reserves, Duquesne could be assessed retrospective
premiums totaling a maximum of $2.6 million.

     Beaver Valley Power Station (BVPS). BVPS's two units are equipped with
steam generators designed and built by Westinghouse Electric Corporation
(Westinghouse). Similar to other Westinghouse nuclear plants, outside diameter
stress corrosion cracking (ODSCC) has occurred in the steam generator tubes of
both units. BV Unit 1, which was placed in service in 1976, has removed
approximately 17 percent of its steam generator tubes from service through a
process called "plugging." However, BV Unit 1 still has the capability to
operate at 100 percent reactor power and has the ability to return tubes to
service by repairing them through a process called "sleeving." No tubes at
either BV Unit 1 or BV Unit 2 have been sleeved to date. BV Unit 2, which was
placed in service 11 years after BV Unit 1, has not yet exhibited the degree of
ODSCC experienced at BV Unit 1. Approximately 3 percent of BV Unit 2's tubes are
plugged; however, it is too early in the life of the unit to determine the
extent to which ODSCC may become a problem at that unit.

     Duquesne has undertaken certain measures, such as increased inspections,
water chemistry control and tube plugging, to minimize the operational impact of
and reduce

                                       10
<PAGE>
 
susceptibility to ODSCC. Although Duquesne has taken these steps to allay the
effects of ODSCC, the inherent potential for future ODSCC in steam generator
tubes of the Westinghouse design still exists. Material acceleration in the rate
of ODSCC could lead to a loss of plant efficiency, significant repairs or the
possible replacement of the BV Unit 1 steam generators. The total replacement
cost of the BV Unit 1 steam generators is currently estimated at $125 million.
Duquesne would be responsible for $59 million of this total, which includes the
cost of equipment removal and replacement steam generators, but excludes
replacement power costs. The earliest that the BV Unit 1 steam generators could
be replaced during a currently scheduled refueling outage is the spring of 2003.

     Duquesne continues to explore all viable means of managing ODSCC, including
new repair technologies, and plans to continue to perform 100 percent tube
inspections during future refueling outages. However, Duquesne may be required
to perform an earlier inspection of BV Unit 1's tubes and other equipment during
a mid-cycle outage in 1999, to comply with NRC requirements to conduct such
inspections at BV Unit 1 at least every 20 months. Duquesne has requested
permission from the NRC to postpone these inspections until BV Unit 1's next
refueling outage, currently scheduled to begin in the spring of 2000. Duquesne
completed its inspection of BV Unit 2's tubes during a forced outage in 1998 to
comply with NRC requirements to conduct such inspections at BV Unit 2 at least
every 24 months. BV Unit 2 completed its seventh and, at 44 days, shortest
refueling outage in April 1999. No steam generator tube inspections were
performed during the refueling outage, and none will be performed until the next
refueling outage, currently scheduled for the fall of 2000. 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 federal policy for handling and disposing of spent nuclear fuel
and a policy requiring the establishment of a final repository to accept spent
nuclear fuel. Electric utility companies have entered into contracts with the
United States Department of Energy (DOE) for the permanent disposal of spent
nuclear fuel and high-level radioactive waste in compliance with this
legislation. The DOE has indicated that its repository under these contracts
will not be available for acceptance of spent nuclear fuel before 2010. The DOE
has not yet established an interim or permanent storage facility, despite a
ruling by the United States Court of Appeals for the District of Columbia
Circuit that the DOE was legally obligated to begin acceptance of spent nuclear
fuel for disposal by January 31, 1998. Existing on-site spent nuclear fuel
storage capacities at BV Unit 1, BV Unit 2 and Perry Unit 1 are expected to be
sufficient until 2018, 2012 and 2011, respectively.

     In early 1997, Duquesne joined 35 other electric utilities and 46 states,
state agencies and regulatory commissions in filing suit in the United States
Court of Appeals for the District of Columbia Circuit against the DOE. The
parties requested the court to suspend the utilities' payments into the Nuclear
Waste Fund and to place future payments into an escrow account until the DOE
fulfills its obligation to accept spent nuclear fuel. The DOE had requested that
the court delay litigation while it pursued alternative dispute resolution under
the terms of its contracts with the utilities. The court ruling, issued November
14, 1997, and affirmed on rehearing May 5, 1998, denied the relief requested by
the utilities and states and permitted the DOE to pursue alternative dispute
resolution, but prohibited the DOE from using its lack of a spent fuel
repository as a defense. The United States Supreme Court declined to review the
decision. The utilities' remaining remedies are to sue the DOE in federal court
for money damages caused by the DOE's delay in fulfilling its obligations, or to
pursue an equitable contract adjustment before the DOE contracting officer.

     Uranium Enrichment Obligations. 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, and are to be paid by such utilities over a 15-year period.
At March 31, 1999, Duquesne's liability for contributions is being recovered
through the CTC as part of transition costs.

                                       11
<PAGE>
 
Guarantees

     Duquesne and the other owners of Bruce Mansfield Power Station (Bruce
Mansfield) have guaranteed certain debt and lease obligations related to a coal
supply contract for Bruce Mansfield. At March 31, 1999, Duquesne's share of
these guarantees was $5.7 million.

Environmental Matters

     Various federal and state authorities regulate Duquesne with respect to air
and water quality and other environmental matters.  Duquesne believes it is in
current compliance with all material applicable environmental regulations.

Employees

     As previously reported, in connection with the anticipated divestiture,
Duquesne has developed early retirement programs and enhanced separation
packages.  To date, approximately 250 eligible employees have elected to
participate in early retirement.

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, results of
operations or cash flows.


5.   BUSINESS SEGMENTS AND RELATED INFORMATION

     Historically, Duquesne has been treated as a single integrated business
segment due to its regulated operating environment. The PUC authorized a
combined rate for supplying and delivering electricity to customers which was
cost-based and was designed to recover Duquesne's operating expenses and
investment in electric utility assets and to provide a return on the investment.
As a result of the Customer Choice Act, generation of electricity is deregulated
and charged at a separate rate from the delivery of electricity beginning in the
first quarter of 1999. For the purposes of complying with SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information (SFAS No.
131), Duquesne is required to disclose information about its business segments
separately. Accordingly, Duquesne has used the PUC-approved separate rates for
1999 to develop the financial information of the business segments for the
period ended March 31, 1998 (or as of December 31, 1998, with respect to
assets).

     Beginning in 1999, Duquesne has three principal business segments
(determined by products, services and regulatory environment) which consist of
the transmission and distribution by Duquesne of electricity (electricity
delivery business segment); the generation by Duquesne of electricity
(electricity generation business segment); and the collection of transition
costs (CTC business segment). To comply with SFAS No. 131, Duquesne has reported
the results for the first quarter of 1999 by these business segments and an "all
other" category. The all other category in the following table includes Duquesne
investments below the quantitative threshold for separate disclosure. However,
as Duquesne was not yet collecting transition costs prior to 1999, the 1998
results are reported by the electricity delivery and electricity generation
business segments.

     Financial data for business segments is provided as follows:

                                       12
<PAGE>
 
<TABLE>
<CAPTION>

Business Segments for the Three Months Ended March 31,
---------------------------------------------------------------------------------------------------------------
1999                                                        (Thousands of Dollars)
---------------------------------------------------------------------------------------------------------------
                                 Electricity      Electricity
                                   Delivery       Generation          CTC         All Other      Consolidated
                                -------------------------------------------------------------------------------
<S>                             <C>               <C>            <C>              <C>            <C>
Operating revenues               $   82,320        $106,631      $   93,025       $     --        $  281,976
Operating expenses                   46,635         108,867          23,843            394           179,739
Depreciation and
  amortization expense               14,350           8,857          29,633             --            52,840
---------------------------------------------------------------------------------------------------------------
  Operating income (loss)            21,335         (11,093)         39,549           (394)           49,397
Other income                            979           1,962              --          5,295             8,236
Interest and other charges            8,886           2,097          11,708             67            22,758
---------------------------------------------------------------------------------------------------------------
    Earnings (loss) for
      common stock               $   13,428        $(11,228)     $   27,841       $  4,834        $   34,875
===============================================================================================================
 
Assets                           $1,303,555        $558,409      $2,084,098       $123,768        $4,069,830
===============================================================================================================
 
Capital expenditures             $   13,426        $  2,989      $       --       $     --        $   16,415
===============================================================================================================
</TABLE>


<TABLE>
<CAPTION>

1998                                                       (Thousands of Dollars)
------------------------------------------------------------------------------------------------------------
                                   Electricity       Electricity
                                    Delivery         Generation        All Other             Consolidated
                                ----------------------------------------------------------------------------
<S>                             <C>                <C>              <C>                   <C>
Operating revenues                 $   78,943       $  206,214         $     --               $  285,157
Operating expenses                     46,172          137,938               36                  184,146
Depreciation and
  amortization expense                 12,169           43,511               --                   55,680
------------------------------------------------------------------------------------------------------------
  Operating income (loss)              20,602           24,765              (36)                  45,331
Other income                              953            1,906            8,844                   11,703
Interest and other charges              9,600           14,920               67                   24,587
------------------------------------------------------------------------------------------------------------
  Earnings (loss) for
    common stock                   $   11,955       $   11,751         $  8,741               $   32,447
============================================================================================================
 
Assets(1)                          $1,314,266       $2,711,533         $149,329               $4,175,128
============================================================================================================
 
Capital expenditures               $    8,938       $    4,446         $     --               $   13,384
============================================================================================================
</TABLE>
 
(1)  Relates to assets as of December 31, 1998.

                                       13
<PAGE>
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Part I, Item 2 of this Quarterly Report on Form 10-Q should be read in
conjunction with Duquesne Light Company's Annual Report on Form 10-K filed with
the Securities and Exchange Commission (SEC) for the year ended December 31,
1998 and its condensed consolidated financial statements, which are set forth on
pages 2 through 13 in Part I, Item 1 of this Report.

General
--------------------------------------------------------------------------------

     Duquesne Light Company (Duquesne) is a wholly owned subsidiary of DQE, Inc.
(DQE), a multi-utility delivery and services company. Duquesne is engaged in the
generation, transmission, distribution and sale of electric energy. Duquesne has
one wholly owned subsidiary, Monongahela Light and Power Company, which
currently holds energy-related investments.

     The Pennsylvania Public Utility Commission (PUC) has approved Duquesne's
plan to divest itself of its generation assets through an auction (including an
auction of its provider of last resort service), and the pending exchange of
certain power station assets with FirstEnergy Corporation (FirstEnergy). Final
agreements governing these transactions must be approved by various regulatory
agencies. Duquesne currently expects these transactions to close in late 1999 or
early 2000. (See "Rate Matters" on page 19.)

Service Territory

     Duquesne provides electric service to customers in Allegheny County
(including the City of Pittsburgh), Beaver County and to a limited extent
Westmoreland County. (See "Rate Matters" on page 19.) This territory represents
approximately 800 square miles in southwestern Pennsylvania. In addition to
serving approximately 580,000 direct customers, Duquesne also sells electricity
to other utilities.

Regulation

     Duquesne is subject to the accounting and reporting requirements of the
SEC. In addition, Duquesne's electric utility operations are subject to
regulation by the PUC, including regulation under the Pennsylvania Electricity
Generation Customer Choice and Competition Act (Customer Choice Act), and 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. (See "Rate Matters" on page 19.)

     Duquesne's electric utility 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.

     As a result of the PUC's May 29, 1998, final order regarding Duquesne's
restructuring plan under the Customer Choice Act (see "Rate Matters" on page
19), the electricity generation portion of Duquesne's business does not meet the
criteria of Statement of Financial Accounting Standards (SFAS) No. 71,
Accounting for the Effects of Certain Types of Regulation (SFAS No. 71).
However, pursuant to the PUC's final restructuring order, certain of Duquesne's
generation-related regulatory assets are being recovered through a competitive
transition charge (CTC) collected in connection with providing transmission and
distribution services (the electricity delivery business segment). Duquesne
continues to apply SFAS No. 71 with respect to such assets. Additionally,
pursuant to the PUC's final restructuring order, Duquesne is recovering its
above-market investment in generation assets through the CTC, subject to receipt
of the proceeds from the generation asset auction. Remaining fixed assets
related to the generation portion of Duquesne's business are evaluated in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of (SFAS No. 121). The electricity
delivery business segment continues to meet SFAS No. 71 criteria, and
accordingly reflects regulatory assets and liabilities consistent with cost-
based ratemaking regulations. The regulatory assets represent probable future
revenue to Duquesne, because provisions for these costs are currently included,
or are

                                       14
<PAGE>
 
expected to be included, in charges to electric utility customers through the
ratemaking process. (See "Rate Matters" on page 19.)

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

Overall Performance

     Duquesne's earnings available for common stock were $34.9 million in the
first quarter of 1999 compared to $32.4 million in the first quarter of 1998, an
increase of 7.5 percent.  The increase is due to higher sales and lower interest
costs.

Results by Business Segments

  Historically, Duquesne has been treated as a single integrated business
segment due to its regulated operating environment. The PUC authorized a
combined rate for supplying and delivering electricity to customers which was
cost-based and was designed to recover Duquesne's operating expenses and
investment in electric utility assets and to provide a return on the investment.
As a result of the Customer Choice Act, generation of electricity is deregulated
and charged at a separate rate from the delivery of electricity beginning in the
first quarter of 1999. For the purposes of complying with SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information (SFAS No.
131), Duquesne is required to disclose information about its business segments
separately. Accordingly, Duquesne has used the PUC-approved separate rates for
1999 to develop the financial information of the business segments for 1998.

     Beginning in 1999, Duquesne has three principal business segments
(determined by products, services and regulatory environment): (1) the
transmission and distribution by Duquesne of electricity (electricity delivery
business segment),  (2) the generation by Duquesne of electricity (electricity
generation business segment), and (3) the collection of transition costs (CTC
business segment). Duquesne has reported the results for the first quarter of
1999 by these business segments and an "all other" category. The all other
category includes Duquesne investments in leasing and gas reserve transactions.
However, as Duquesne was not yet collecting transition costs prior to 1999, the
1998 results are reported by the electricity delivery and electricity generation
business segments. (Additional information regarding Duquesne's business
segments is set forth in "Business Segments and Related Information," Note 5 to
the consolidated financial statements on page 12.)

     Electricity Delivery Business Segment. The electricity delivery business
segment contributed $13.4 million to net income in the first quarter of 1999
compared to $12.0 million in the first quarter of 1998, an increase of 12.3
percent. Operating revenues for this business segment are primarily derived from
Duquesne's delivery of electricity.

     Sales to residential and commercial customers are influenced by weather
conditions. Warmer summer and colder winter seasons lead to increased customer
use of electricity for cooling and heating. Commercial sales are also affected
by regional development. Sales to industrial customers are influenced by
national and global economic conditions.

     Operating revenues increased by $3.4 million or 4.3 percent in the first
quarter of 1999 due to an increase in electricity usage customers of 1.9
percent. Industrial sales decreased primarily due to a reduction in electricity
consumption by steel manufacturers, which experienced a decline in demand. The
following table sets forth kilowatt-hours (KWH) delivered to electric utility
customers.

                                       15
<PAGE>
 
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------- 
                                                                  KWH Delivered
                                            -------------------------------------------------------
                                                                  (In Millions)
                                            -------------------------------------------------------
March 31,                                           1999              1998              Change
---------------------------------------------------------------------------------------------------
<S>                                           <C>               <C>                <C>
Residential                                         916.6              868.4              5.6 %
Commercial                                        1,440.3            1,379.7              4.4 %
Industrial                                          850.9              900.9             (5.6)%
---------------------------------------------------------------------------------
  Sales to Electric Utility Customers             3,207.8            3,149.0              1.9 %
===================================================================================================
</TABLE>

     Operating expenses for the electricity delivery business segment are
primarily made up of costs to operate and maintain the transmission and
distribution system; meter reading and billing costs; customer service;
collection; administrative expenses; and income taxes. Operating expenses
increased $0.5 million or 1.0 percent in the first quarter of 1999.

     Depreciation and amortization expense increased $2.2 million or 17.9
percent in the first quarter of 1999 due to additions to the plant and
equipment.

     Interest and other charges include interest on long-term debt, other
interest and preferred stock dividends of Duquesne. In the first quarter of
1999, there was $0.7 million or 7.4 percent less in interest and other charges
compared to the first quarter of 1998. The decrease was the result of the
refinancing of long-term debt at lower interest rates and the maturity of
approximately $75 million of long-term debt during 1998.

     Electricity Generation and CTC Business Segments. In the first quarter of
1999, the electricity generation and CTC business segments reported net income
of $16.6 million compared to $11.8 million for the first quarter of 1998, an
increase of 41.4 percent.

     During 1998, five percent of Duquesne's electric utility customers
participated in the customer choice pilot program under the Customer Choice Act,
and purchased electricity from alternative generation suppliers.  Beginning in
the first quarter of 1999, up to 66 percent of Duquesne's electric utility
customers are eligible to participate in customer choice.  Currently
approximately 13 percent of Duquesne's customers are purchasing electricity from
alternative generation suppliers.

     For the electricity generation and CTC business segments, operating
revenues are primarily derived from Duquesne's supply of electricity for
delivery to retail customers, the supply of electricity to wholesale customers
and, beginning in 1999, the collection of generation-related transition costs
from electricity delivery customers. Under fuel cost recovery provisions
effective in the first quarter of 1998, fuel revenues generally equaled fuel
expense, as costs were recoverable from customers through the Energy Cost Rate
Adjustment Clause (ECR), including the fuel component of purchased power, and
did not affect net income. In 1999, due to the PUC's final restructuring order,
fuel costs are expensed as incurred, and impact net income to the extent fuel
costs exceed amounts included in Duquesne's authorized generation rates. (See
"Rate Matters" on page 19.)

     Energy requirements for electric utility customers are reduced as more
customers participate in customer choice.  Energy requirements for residential
and commercial customers are also influenced by weather conditions. Warmer
summer and colder winter seasons lead to increased customer use of electricity
for cooling and heating. Commercial energy requirements are also affected by
regional development. Energy requirements for industrial customers are also
influenced by national and global economic conditions.

     Short-term sales to other utilities are made at market rates. 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. Future levels of short-

                                       16
<PAGE>
 
term sales to other utilities will be affected by market rates, the level of
participation in customer choice and Duquesne's divestiture of its generation
assets. (See "Rate Matters" on page 19.)

     Operating revenues decreased by $6.6 million or 3.2 percent in the first
quarter of 1999. The decrease in revenues can be attributed to a decrease in
energy supplied to electric utility customers due to increased participation in
customer choice. Partially offsetting this decrease was a 74.6 percent increase
in energy supplied to other utilities in the first quarter of 1999, due to
Duquesne's decision to sell 600 MW to licensed generation suppliers to stimulate
competition, and increased capacity available to sell as a result of
participation in customer choice. The following table sets forth KWH supplied
for customers who have not chosen an alternative generation supplier.

<TABLE>
<CAPTION>
 
                                                                    KWH Supplied
                                            ---------------------------------------------------------
                                                                   (In Millions)
March 31,                                           1999               1998               Change
-----------------------------------------------------------------------------------------------------
<S>                                           <C>                <C>                <C>
Residential                                          822.7              826.3              (0.4)%
Commercial                                         1,152.4            1,310.5             (12.1)%
Industrial                                           822.6              888.9              (7.5)%
---------------------------------------------------------------------------------
  Sales to Electric Utility Customers              2,797.7            3,025.7              (7.5)%
---------------------------------------------------------------------------------
Sales to Other Utilities                             662.6              379.4              74.6 %
---------------------------------------------------------------------------------
     Total Sales                                   3,460.3            3,405.1               1.6 %
=====================================================================================================
</TABLE>

     Operating expenses for the electricity generation and CTC business segments
are primarily made up of energy costs; costs to operate and maintain the power
stations; administrative expenses; and income taxes.

     Fluctuations in energy costs generally result from changes in the cost of
fuel, the mix between coal and nuclear generation, total KWH supplied, and
generating station availability. Because of the ECR, changes in fuel and
purchased power costs did not impact earnings for the first quarter of 1998.

     Operating expenses decreased $5.2 million or 3.8 percent in the first
quarter of 1999 as a result of decreased energy costs, partially offset by
increased non-energy operating costs and taxes.

     In the first quarter of 1999, fuel and purchased power expense decreased by
$12.6 million or 21.2 percent compared to the first quarter of 1998. This
decrease was the result of decreased energy costs due to a favorable power
supply mix. During the first quarter of 1998, reduced availability of nuclear
generating stations due to an increase in outage hours required Duquesne to
purchase power and generate power from the higher fuel cost fossil stations.

     Depreciation and amortization expense includes the depreciation of the
power stations' plant and equipment, accrued nuclear decommissioning costs and
the amortization of transition costs. A decrease of $5.0 million or 11.5 percent
in the first quarter of 1999 was the result of accelerated transition cost
reduction efforts during that period. Beginning in 1999, Duquesne is recovering
its $2,133 million ($1,485 million, net of tax) of transition costs, as may be
adjusted to account for the proceeds of the generation asset auction, through
the CTC and is reflecting amortization expense related to this recovery based
upon the level of KWH delivered.

     Interest and other charges include interest on long-term debt, other
interest and preferred stock dividends of Duquesne. In the first quarter of 1999
there was a $1.1 million or 7.5 percent reduction in interest and other charges
compared to the first quarter of 1998. The decrease reflected the refinancing of
long-term debt at lower interest rates and the maturity of approximately $75
million of long-term debt during 1998.

     All Other. The all other category is comprised of earnings from leasing and
gas reserve investments.  The all other category contributed $4.8 million to net
income in the first quarter of 1999

                                       17
<PAGE>
 
compared to $8.7 million in the first quarter of 1998, a decrease of 44.8
percent. The decrease is primarily the result of lower lease income in 1999.

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

Financing

     Duquesne expects to meet its current obligations and debt maturities
through the year 2003 with funds generated from operations, through new
financings and short-term borrowings, and through the proceeds from the auction
of generation assets.  At March 31, 1999, Duquesne was in compliance with all of
its debt covenants.

     Mortgage bonds in the amount of $75 million will mature in July 1999.
Duquesne expects to retire these bonds with available cash, or to refinance the
bonds.

     In connection with the power station exchange with FirstEnergy, Duquesne
anticipates terminating the BV Unit 2 lease in December 1999, in which case the
lease liability recorded on the consolidated balance sheet would no longer be an
obligation of Duquesne. The underlying collateralized lease bonds ($371.0
million at March 31, 1999) would become obligations of Duquesne and be recorded
on the consolidated balance sheet. Duquesne anticipates redeeming the bonds on
December 1, 2002 (the first redemption date), using funds generated from
operations, the generation asset auction proceeds, the CTC, and/or through new
financings. Duquesne would also pay approximately $230 million in termination
costs, which Duquesne expects to recover through the proceeds of the generation
asset auction and the CTC. (See "Power Station Exchange" discussion on page 20.)

     In connection with customer choice,  Duquesne's cash flow from operations
will be reduced by an amount equal to the price to compare applicable to those
customers choosing alternative generation suppliers. This reduction is expected
to be offset in large part by reduced cash requirements associated with
supplying energy. The current impact on cash flows at Duquesne is also
minimized, as Duquesne continues to collect the CTC. A greater impact is
anticipated to occur when, as part of the divestiture, Duquesne auctions its
provider of last resort service and all customers will be buying generation from
alternative suppliers. The greatest impact is expected to occur when the CTC
collection period is completed. However, it is anticipated that Duquesne will
apply the proceeds of the auction of its generation assets and provider of last 
resort service in a manner that would reduce the impact of any resulting
shortfall by the end of the CTC collection period. The foregoing statements are
forward-looking regarding the impact on cash flows of customer choice and
Duquesne's divestiture. Actual results could materially differ from those
implied by such statements due to known and unknown risks and uncertainties,
including, but not limited to, the amount and timing of the receipt of auction
proceeds. (See "Restructuring Plan" on page 19.)

     Duquesne and an unaffiliated corporation have an agreement that entitles
Duquesne to sell, and the corporation to purchase, on an ongoing basis, up to
$50 million of accounts receivable. Duquesne currently anticipates extending the
accounts receivable sale arrangement upon its expiration in June 1999.  At March
31, 1999, Duquesne had sold $50 million of receivables.

     Duquesne maintains a $150 million revolving credit facility which was
extended during the third quarter to October 1999.  Interest rates can, in
accordance with the option selected at the time of the borrowing, be based on
prime, Eurodollar or certificate of deposit rates.  Commitment fees are based on
the unborrowed amount of the commitments.  The revolving credit facility
contains a two-year repayment period for any amounts outstanding at the
expiration of the revolving credit period.  No amounts were outstanding at March
31, 1999.

Investing
--------------------------------------------------------------------------------

    Duquesne's long-term investments consist of Duquesne's holdings of DQE
common stock, investments in affordable housing, lease investments, alternative
energy investments and nuclear decommissioning trust funds.  $3 million was
invested in nuclear decommissioning trust funds during the three months ended
March 31, 1999, and March 31, 1998.

                                       18
<PAGE>
 
Rate Matters
--------------------------------------------------------------------------------

Competition and the Customer Choice Act

    Under historical ratemaking practice, regulated electric utilities were
granted exclusive geographic franchises to sell electricity, in exchange for
making investments and incurring obligations to serve customers under the then-
existing regulatory framework. Through the ratemaking process, those prudently
incurred costs were recovered from customers, along with a return on the
investment. Additionally, certain operating costs were approved for deferral for
future recovery from customers (regulatory assets). As a result of this process,
utilities had assets recorded on their balance sheets at above-market costs,
thus creating transition and stranded costs.

     In Pennsylvania, the Customer Choice Act went into effect on January 1,
1997. The Customer Choice Act enables Pennsylvania's electric utility customers
to purchase electricity at market prices from a variety of electric generation
suppliers (customer choice). Although the Customer Choice Act will give
customers their choice of electric generation suppliers, the existing,
franchised local distribution utility is still responsible for delivering
electricity from the generation supplier to the customer. The local distribution
utility is also required to serve as the provider of last resort for all
customers in its service territory, unless other arrangements are approved by
the PUC. The provider of last resort must provide electricity for any customer
who cannot or does not choose an alternative electric generation supplier, or
whose supplier fails to deliver. The Customer Choice Act provides that the
existing franchised utility may recover, through a CTC, an amount of transition
costs that are determined by the PUC to be just and reasonable. Pennsylvania's
electric utility restructuring is being accomplished through a two-stage process
consisting of an initial customer choice pilot period (which ended in December
1998) and a phase-in to competition period (which began in January 1999).

Phase-In to Competition

     The phase-in to competition began in January 1999, when 66 percent of
customers became eligible to participate in customer choice (including customers
covered by the pilot program); all customers will have customer choice in
January 2000. As of April 30, 1999, approximately 13 percent of Duquesne's
customers had chosen alternative generation suppliers. Customers that have
chosen an electricity generation supplier other than Duquesne pay that supplier
for generation charges, and pay Duquesne the CTC (discussed below) and charges
for transmission and distribution. Customers that continue to buy their
generation from Duquesne pay for their service at current regulated tariff rates
divided into generation, transmission and distribution charges, and the CTC.
Under the Customer Choice Act, an electric distribution company, such as
Duquesne, remains a regulated utility and may only offer PUC-approved rates,
including generation rates. Also under the Customer Choice Act, electricity
delivery (including transmission, distribution and customer service) remains
regulated in substantially the same manner as under historical regulation.

     In an effort to "jump start" retail competition, Duquesne has made 600
megawatts (MW) of power available to licensed electric generation suppliers, to
be used in supplying electricity to Duquesne's customers who have chosen
alternative generation suppliers. The power will be available for the first six
months of 1999 at a price of 2.6 cents per kilowatt-hour (KWH). This power
availability will be structured to ensure the power is used to benefit
Duquesne's retail customers.

Rate Cap

     An overall four-and-one-half-year rate cap from January 1, 1997, has been
imposed on the transmission and distribution charges of Pennsylvania electric
utility companies under the Customer Choice Act. Additionally, electric utility
companies may not increase the generation price component of rates as long as
transition costs are being recovered, with certain exceptions.

Restructuring Plan

     In its May 29, 1998, final restructuring order, the PUC determined that
Duquesne should recover most of the above-market costs of the generation assets,
including plant and regulatory assets

                                       19
<PAGE>
 
through the collection of the CTC from electric utility customers. The total of
the transition costs to be recovered was $2,133 million ($1,485 million, net of
tax) over a seven-year period beginning January 1, 1999, as may be adjusted to
account for the proceeds of the generation asset auction. In addition, the
transition costs as reflected on the consolidated balance sheet are being
amortized over the same period that the CTC revenues are being recognized.
Duquesne is allowed to earn an 11 percent pre-tax return on the unrecovered
balance.

     As part of its restructuring plan filing, Duquesne requested recovery of
$11.5 million ($6.7 million, net of tax) through the CTC for energy costs
previously deferred under the ECR. Recovery of this amount was approved in the
PUC's final restructuring order. Duquesne also requested recovery of an
additional $31.2 million ($18.2 million, net of tax) in deferred fuel costs. On
December 18, 1998, the PUC denied recovery of this additional amount. Duquesne
has appealed the PUC's denial of recovery to the Pennsylvania Commonwealth
Court. Based upon the Customer Choice Act, which mandates recovery of all
regulatory assets, and the PUC's specific authorization for Duquesne to create a
regulatory asset for these costs, Duquesne believes that it is probable that
these costs will be recovered through retail rates. In the event that Duquesne
does not prevail in its appeal, these costs would be written off as a charge
against income.

     Restructuring Plan and Auction Plan. With respect to transition cost
recovery, the PUC's final order on the restructuring plan approved Duquesne's
proposal to auction its generation assets and use the proceeds to offset
transition costs. The remaining balance of such costs (with certain exceptions
described below) is expected to be recovered from ratepayers through the CTC.
Until the divestiture is complete, Duquesne has been ordered to use an interim
system average CTC and price to compare based on the methodology approved in its
pilot program (approximately 2.9 cents per KWH for the CTC and approximately 3.8
cents per KWH for the price to compare).

     On December 18, 1998, the PUC approved Duquesne's auction plan, including
an auction of its provider of last resort service, as well as an agreement in
principle to exchange certain generation assets with FirstEnergy. The assets to
be auctioned will include Duquesne's wholly owned Cheswick, Elrama, Phillips and
Brunot Island power stations, as well as the stations to be received from
FirstEnergy in the power station exchange described below. The auction plan
calls for a two-phase, sealed bid process similar to that used in other power
plant divestitures. The initial confidential bidding process began in April
1999, with potential buyers identified by Duquesne being asked to submit non-
binding bids. Final agreements governing the transactions must be approved by
various regulatory agencies, including the PUC, the FERC, the NRC, the
Department of Justice and/or the Federal Trade Commission. Duquesne currently
expects the sale to close at the end of 1999 or the beginning of 2000.

     Power Station Exchange. Pursuant to the definitive agreements entered into
on March 25, 1999 (which remain subject to regulatory approval), Duquesne and
FirstEnergy will exchange ownership interests in certain power stations.
Duquesne will receive 100 percent ownership rights in three coal-fired power
plants located in Avon Lake and Niles, Ohio and New Castle, Pennsylvania
(totaling approximately 1,300 MW), which Duquesne expects to sell simultaneously
as part of the auction of generation assets. FirstEnergy will acquire Duquesne's
interests in Beaver Valley Unit 1 (BV Unit 1), Beaver Valley Unit 2 (BV Unit 2),
Perry Unit 1, Sammis Unit 7, Eastlake Unit 5 and Bruce Mansfield Units 1, 2 and
3 (totaling approximately 1,400 MW). In connection with the power station
exchange, Duquesne anticipates terminating the BV Unit 2 lease in December 1999.
(See "Financing" discussion on page 18.) Pursuant to the December 18, 1998, PUC
order and subject to final approval, the proceeds from the sale of the power
stations received in the exchange will be used to offset the transition costs
associated with Duquesne's currently-held generation assets and costs associated
with completing the exchange. Duquesne expects this exchange to enhance the
value received from the auction, because participants will bid on plants that
are wholly owned by Duquesne, rather than plants that are jointly owned and/or
operated by another entity. Additionally, the auction will include only coal-
and oil-fired plants, which are anticipated to have a higher market value than
nuclear plants. These value-enhancing features, along with a minimum level of
auction proceeds guaranteed by FirstEnergy, are expected to maximize auction
proceeds, minimize transition costs required to be recovered through the CTC (by
shortening the length of the CTC recovery period), and thus reduce customer
bills as rapidly as

                                       20
<PAGE>
 
possible. Other benefits of this exchange include the resolution of all joint
ownership issues, and other risks and costs associated with the jointly-owned
units. In December 1998 the PUC said the exchange appears to be in the public
interest. The definitive exchange agreement was submitted in early May 1999 for
PUC approval. Certain aspects of the exchange will also have to be approved by,
among other agencies, the FERC, the NRC and the Department of Justice. The power
station exchange is expected to occur simultaneously with the anticipated
closing of the sale of Duquesne's generation through the auction at the end of
1999 or in early 2000.

Termination of the AYE Merger

     On October 5, 1998, DQE announced its unilateral termination of the merger
agreement between DQE and Allegheny Energy, Inc. (AYE). DQE believes that AYE
suffered a material adverse effect as a result of the PUC's final restructuring
order regarding AYE's utility subsidiary, West Penn Power Company.  AYE filed
suit in the United States District Court for the Western District of
Pennsylvania, seeking to compel DQE to proceed with the merger and seeking a
temporary restraining order and preliminary injunction to prevent DQE from
certain actions pending a trial, or in the alternative seeking an unspecified
amount of money damages. DQE and AYE continue to litigate this matter. (See
"Legal Proceedings" on page 24.)  In a letter dated February 24, 1999, the PUC
informed DQE that the merger application was deemed withdrawn and the docket was
closed.

Year 2000
--------------------------------------------------------------------------------

     Many existing computer programs and embedded microprocessors use only two
digits to identify a year (for example, "99" is used to represent "1999"). Such
programs read "00" as the year 1900, and thus may not recognize dates beginning
with the year 2000, or may otherwise produce erroneous results or cease
processing when dates after 1999 are encountered.

     Year 2000 Plan. Duquesne fully expects normal operations into the Year 2000
and beyond as a result of the extensive and systematic approach Duquesne has
taken to address the Year 2000 issue.  In 1994, Duquesne began reviewing its
critical information systems that impact operations and financial reporting in
order to develop a strategy to address required computer software and system
changes and upgrades. Duquesne has since assembled a Year 2000 team, comprised
of management representatives from all functional areas of Duquesne, which
continues to explore the exposure to Year 2000-related issues in computer
software and in devices and equipment (such as plant components, substations,
elevators, and heating and cooling systems) containing embedded microprocessors
that may not correctly identify the year. The team is also exploring potential
related issues that may originate with third parties with whom Duquesne does
business. To support the planning, organization and management of its efforts,
the team has retained Year 2000 consultants.

     In general, Duquesne's overall strategy to address the Year 2000 issue is
comprised of four phases that, in some cases, are performed simultaneously.
These phases are: inventory, assessment, remediation, and testing and
implementation.

     Inventory consists of identifying the various components, equipment,
hardware, and software used in Duquesne's operations that may potentially be
faced with Year 2000 issues.  Duquesne inventoried over 100,000 items during
this phase of the project.  The inventory process involved reviewing existing
listings and subsequent verification through physical inspections and walk-
downs.  This inventory effort was completed during the fourth quarter of 1998.

     Assessment consists of evaluating all inventoried items for Year 2000
compliance or readiness.  This was accomplished by contacting the vendors and
manufacturers, inspecting software and code, researching the results of other
companies' assessment of like components, and various other means. Assessment
activities were completed during the first quarter of 1999.  Duquesne's business
is dependent upon external suppliers for the reliable delivery of their products
and services.  Duquesne has inquired in writing of its suppliers and service
providers with regard to their Year 2000 readiness. Duquesne continues to meet
with critical suppliers and service providers to further validate evidence of
their Year 2000 readiness.

                                       21
<PAGE>
 
     Remediation refers to the activities necessary to fix or replace those
components that have Year 2000 issues that will adversely affect Duquesne's
operations.  Remediation concentrates first on those systems, components, and
equipment that substantially impact Duquesne's ability to perform its essential
business functions ("mission critical").  Remediation of mission critical
systems was completed during the first quarter of 1999.  This remediation is in
addition to previously planned improvements to Duquesne's systems with benefits
beyond Year 2000 solutions, such as total system replacements discussed below.

     Testing and implementation consists of placing renovated processes,
systems, equipment, and other items into use within Duquesne's operations.
Testing is performed on all mission critical processes, whether or not
remediation activities were involved in the process.   Testing and
implementation of mission critical processes was substantially completed in the
first quarter of 1999.

    Throughout the execution of its Year 2000 plan, Duquesne has been providing
and will continue to provide information on its activities to the PUC, the NRC
and the North American Electric Reliability Counsel (NERC), which coordinates
the network of interconnected utilities across the nation. Duquesne's plan is in
accordance with NRC guidelines, and Duquesne is working with the NRC to certify
that its nuclear power station safety and operations systems, and issues related
to suppliers, will be ready for the Year 2000. NERC has been requested by the
DOE to review the national electric power production and delivery infrastructure
to ensure a reliable power supply during the Year 2000 transition period.
Duquesne is working with NERC to address these issues through monthly status
reporting and participation in regional Year 2000 tests. Duquesne participated
in the industry-wide NERC communication drill that was conducted on  April 9,
1999. All of Duquesne's communications systems exercised in this drill performed
as expected. Duquesne will also be participating in the NERC Year 2000 readiness
drill to be conducted on September 9, 1999.  Duquesne also participates in the
Electric Power Research Institute's project to share information about technical
issues regarding Year 2000 with other entities in the electric utility industry.

     Risks and Contingency Plans.  Duquesne currently believes that
implementation of its plan will minimize the Year 2000 issues relating to its
systems and equipment.  Duquesne's goal is to ensure that all components and
services that in any material manner contribute to operational reliability,
customer relations, safety, revenue, and regulatory compliance will be suitable
for continued use beyond December 31, 1999.  Duquesne understands that many
variables outside the control of Duquesne may have an adverse affect on the
ability of Duquesne to perform its mission critical processes. Management
believes that the most reasonably likely worst case scenario would be a
temporary disruption of service to customers caused by potential disruptions in
the operations of critical suppliers, such as fuel supply or telecommunications.
In addition, there could be a temporary reduction in energy needs of customers
due to their Year 2000 issues.  In the event either scenario occurs, it is not
anticipated that Duquesne would incur a material adverse impact on financial
position or the consolidated results of operations.

     In the normal course of business Duquesne has developed redundant
operations and contingency plans to minimize the risk of interrupted operations.
As part of the Year 2000 program, Duquesne has reviewed these plans in terms of
Year 2000 related risks, and either refined the existing plans or developed new
contingency plans for all mission critical processes.  These contingency plans
address training, testing and rehearsal of procedures, as well as the need for
back-up equipment.  The contingency plans also include provisions for extra
staffing and back-up communications.  Duquesne continues to review its
operations and its critical external suppliers and service providers, in order
to determine any adverse scenarios it could face as a result of Year 2000
problems. To date, nothing has been found that would prevent Duquesne from
generating or providing electricity to the public.

     Costs.  The estimated total cost of implementing Duquesne's Year 2000 plan
is approximately $49 million, which includes costs related to total system
replacements (i.e., the Year 2000 solution comprises only a portion of the
benefit resulting from such replacements). These costs to date, primarily
incurred as a result of software and system changes and upgrades by Duquesne,
have been approximately $39 million. Of this amount, approximately $35 million
are capital costs attributable to

                                       22
<PAGE>
 
the licensing and installation of new software for total system replacements.
The remaining $4 million has been expensed as incurred. Funds for Duquesne's
Year 2000 plan have come from Duquesne's operating and capital budgets.
Approximately $10 million has been budgeted for 1999 to address Year 2000
issues. Duquesne does not anticipate that Year 2000 issues and related costs
will be material to Duquesne's operations, financial condition and results of
operations.

    The foregoing paragraphs contain forward-looking statements regarding the
timetable, effectiveness and ultimate cost of Duquesne's Year 2000 strategy.
Actual results could materially differ from those implied by such statements due
to known and unknown risks and uncertainties, including, but not limited to, the
possibility that changes and upgrades are not timely completed, that corrections
to the systems of other companies on which Duquesne's systems rely may not be
timely completed, and that such changes and upgrades may be incompatible with
Duquesne's systems; the availability and cost of trained personnel; and the
ability to locate and correct all relevant computer code and microprocessors.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

     Funding for nuclear decommissioning costs is deposited by Duquesne in
external, segregated trust accounts and invested in a portfolio of corporate
common stock and debt securities, municipal bonds, certificates of deposit and
United States government securities. The market value of the aggregate trust
fund balances at March 31, 1999, totaled approximately $65.8 million. The amount
funded into the trusts is based on estimated returns which, if not achieved as
projected, could require additional unanticipated funding requirements.

                         ______________________________

Except for historical information contained herein, the matters discussed in
this Quarterly Report on Form 10-Q are forward-looking statements that involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of Duquesne to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements.  Such factors may affect Duquesne's
operations, markets, products, services and prices, and include, among others,
the following: DQE's decision not to consummate the merger with AYE; the related
lawsuit initiated by AYE; Duquesne's plan to auction its generating assets; the
power station exchange; general and economic and business conditions; industry
capacity; changes in technology; changes in political, social and economic
conditions; pending regulatory decisions regarding industry restructuring in
Pennsylvania; the loss of any significant customers; and changes in business
strategy or development plans.

                                       23
<PAGE>
 
PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

Eastlake Unit 5

     In September 1995, Duquesne commenced arbitration against The Cleveland
Electric Illuminating Company (CEI), seeking damages, termination of the
operating agreement for Eastlake Unit 5 (Eastlake) and partition of the parties'
interests in Eastlake through a sale and division of the proceeds. The
arbitration demand alleged, among other things, the improper allocation by CEI
of fuel and related costs; the mismanagement of the administration of the
Saginaw coal contract in connection with the closing of the Saginaw mine, which
historically supplied coal to Eastlake; and the concealment by CEI of material
information. CEI also seeks monetary damages from Duquesne for alleged unpaid
joint costs in connection with the operation of Eastlake. Duquesne removed the
action to the United States District Court for the Northern District of Ohio,
Eastern Division, where it is now pending. Pursuant to the agreement regarding
the power station exchange between Duquesne and FirstEnergy, the parties have
jointly sought and received a court order staying all proceedings pending the
closing of the exchange. (See "Power Station Exchange" discussion on page 20.)

Termination of the AYE Merger

     On October 5, 1998, DQE announced its unilateral termination of the merger
agreement with AYE. More information regarding this termination is set forth in
Duquesne's Current Report on Form 8-K dated October 5, 1998. AYE promptly filed
suit in the United States District Court for the Western District of
Pennsylvania, seeking to compel DQE to proceed with the merger and seeking a
temporary restraining order and preliminary injunction to prevent DQE from
certain actions pending a trial, or in the alternative seeking an unspecified
amount of money damages. On October 28, 1998, the judge denied AYE's motion for
the temporary restraining order and preliminary injunction. AYE appealed to the
United States Court of Appeals for the Third Circuit, asking for an injunction
pending the appeal and expedited treatment of the appeal. On November 6, 1998,
the Third Circuit denied the motion for an injunction and granted the motion to
expedite the appeal.

     On March 11, 1999, the Third Circuit vacated the October 28 denial of a
preliminary injunction. The Third Circuit remanded the case to the District
Court for further proceedings to address certain issues, including whether AYE
could demonstrate a reasonable likelihood of success on the merits, before
determining whether any injunctive relief is warranted. On March 12, 1999, AYE
filed a motion for a temporary restraining order with the district court, and a
hearing was held that same day. On March 16, 1999, AYE and DQE entered into a
consent agreement, which was approved by the district court on March 18.
Pursuant to the consent agreement, AYE and DQE have agreed, among other things,
that pending the consolidated hearing on AYE's application for a preliminary
injunction and/or an expedited trial on the merits, both parties will give each
other 10 business days' notice before taking or omitting to take any action
which would prevent the merger from qualifying for "pooling of interests"
accounting treatment. This would not prevent either party from entering into any
agreement, but would require the 10 business days' notice prior to closing any
transaction which prevents pooling. The consent agreement shall terminate on
September 16, 1999, unless earlier terminated or extended by mutual agreement or
an order of the district court. On March 25, 1999, DQE petitioned the Third
Circuit for rehearing.

     DQE continues to believe that AYE's claim is entirely without merit in
light of the $1 billion disallowance of its stranded costs, which constituted a
material adverse effect under the merger agreement and entitled DQE to terminate
it as of October 5, 1998. DQE will continue to defend itself vigorously against
AYE's claims and intends to pursue a prompt resolution of the litigation. The
ultimate outcome of this suit cannot be determined at this time.

                                       24
<PAGE>
 
Item 6.  Exhibits and Reports on Form 8-K.

a.  Exhibits:

    EXHIBIT 10.1 - Amended and Restated Employment Agreement between Duquesne
                   and James E. Cross

    EXHIBIT 12.1 - Calculation of Ratio of Earnings to Fixed Charges

    EXHIBIT 27.1 - Financial Data Schedule

b.  Two Reports on Form 8-K were filed during the fiscal quarter ended March 31,
    1999.

    A report was filed March 19, 1999, to report the consent agreement entered
    into by DQE and AYE. No financial statements were filed with this report.
    A report was filed March 26, 1999, to report the execution of definitive
    power station exchange agreements.  No financial statements were filed with
    this report.

                         ______________________________

                                       25
<PAGE>
 
                                   SIGNATURES
                                        

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant identified below has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.


 
                                                   Duquesne Light Company
                                               ------------------------------
                                                        (Registrant)
                                                 
                                                 
                                                 
Date       May 11, 1999                             /s/ Gary L. Schwass
     ------------------------                  ------------------------------
                                                        (Signature)
                                                      Gary L. Schwass
                                                 Senior Vice President and
                                                  Chief Financial Officer



Date      May 11, 1999                              /s/ James E. Wilson
     ------------------------                  ------------------------------
                                                        (Signature)
                                                      James E. Wilson
                                                        Controller
                                               (Principal Accounting Officer)

                                       26