##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period From  to
 Registrant; State of Incorporation;Commission File Number
    
    Address; Telephone Number
    
    IRS Employer Identification No.1-10290
    
    Duquesne Light Holdings, Inc.
    
    25-1598483(A Pennsylvania Corporation)411 Seventh AvenuePittsburgh, Pennsylvania 15219412-393-60001-956
    
    Duquesne Light Company
    
    25-0451600(A Pennsylvania Corporation)411 Seventh AvenuePittsburgh, Pennsylvania 15219412-393-6000
 Indicate by check mark whether each registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.Duquesne Light Holdings, Inc.
    
    Yes þ    No oDuquesne Light Company
    
    Yes þ    No oIndicate by check mark whether each registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (check one):Duquesne Light Holdings, Inc.
    
    Large accelerated filer þ    Accelerated filer o    Non-accelerated filer oDuquesne Light Company
    
    Large accelerated filer o    Accelerated filer o    Non-accelerated filer þIndicate by check mark whether either registrant is a shell company (as defined in Rule 12b-2 of the Act).Duquesne Light Holdings, Inc.
    
    Yes o    No þDuquesne Light Company
    
    Yes o    No þAs of July 31, 2006, there were 78,609,990 shares of Duquesne Light Holdings, Inc.s single class
of common stock outstanding.As of July 31, 2006, there were 10 shares of Duquesne Light Companys single class of common stock
outstanding, all held by Duquesne Light Holdings, Inc.




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II. OTHER INFORMATIONItem 1. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersItem 6. ExhibitsSIGNATURESEX-12.1EX-12.2EX-31.1EX-31.2EX-31.3EX-31.4EX-32.1EX-32.2EX-32.3EX-32.4    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Duquesne Light Holdings, Inc.
Condensed Consolidated Statements of Income (Unaudited)
 (All Amounts in Millions,Except Per Share Amounts)Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Operating Revenues:Retail sales of electricity
    
    $
    188.7
    
    
    $
    184.2
    
    
    $
    376.3
    
    
    $
    370.9Other
    
    
    35.6
    
    
    
    37.7
    
    
    
    71.9
    
    
    
    69.7Total Operating Revenues
    
    
    224.3
    
    
    
    221.9
    
    
    
    448.2
    
    
    
    440.6Operating Expenses:Purchased power
    
    
    97.0
    
    
    
    87.5
    
    
    
    193.5
    
    
    
    169.1Other operating and maintenance
    
    
    58.9
    
    
    
    62.4
    
    
    
    116.6
    
    
    
    118.1Depreciation and amortization
    
    
    20.7
    
    
    
    20.3
    
    
    
    41.4
    
    
    
    40.8Taxes other than income taxes
    
    
    13.4
    
    
    
    13.0
    
    
    
    27.1
    
    
    
    26.8Other (Notes 4, 8 and 13)
    
    
    0.7
    
    
    
    
    
    
    
    0.7
    
    
    
    Total Operating Expenses
    
    
    190.7
    
    
    
    183.2
    
    
    
    379.3
    
    
    
    354.8Operating Income
    
    
    33.6
    
    
    
    38.7
    
    
    
    68.9
    
    
    
    85.8Investment and Other Income
    
    
    1.1
    
    
    
    3.3
    
    
    
    5.4
    
    
    
    18.8Interest and Other Charges
    
    
    (18.3
    )
    
    
    (14.7
    )
    
    
    (36.1
    )
    
    
    (29.2
    )Income from Continuing Operations Before
Income Taxes and Limited Partners Interest
    
    
    16.4
    
    
    
    27.3
    
    
    
    38.2
    
    
    
    75.4Income Tax Expense
    
    
    (7.5
    )
    
    
    (8.1
    )
    
    
    (17.5
    )
    
    
    (24.1
    )Benefit from Limited Partners Interest
    
    
    2.4
    
    
    
    2.4
    
    
    
    5.0
    
    
    
    4.9Income from Continuing Operations
    
    
    11.3
    
    
    
    21.6
    
    
    
    25.7
    
    
    
    56.2Income from Discontinued Operations  Net (Note 9)
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    0.3Net Income
    
    $
    11.2
    
    
    $
    21.5
    
    
    $
    25.6
    
    
    $
    56.5Average Number of Common Shares Outstanding
    
    
    78.4
    
    
    
    77.6
    
    
    
    78.3
    
    
    
    77.4Basic Earnings Per Share of Common Stock:Earnings from Continuing Operations
    
    $
    0.14
    
    
    $
    0.28
    
    
    $
    0.33
    
    
    $
    0.73Earnings from Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Basic Earnings Per Share of Common Stock
    
    $
    0.14
    
    
    $
    0.28
    
    
    $
    0.33
    
    
    $
    0.73Diluted Earnings Per Share of Common Stock:Earnings from Continuing Operations
    
    $
    0.14
    
    
    $
    0.28
    
    
    $
    0.33
    
    
    $
    0.73Earnings from Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted Earnings Per Share of Common Stock
    
    $
    0.14
    
    
    $
    0.28
    
    
    $
    0.33
    
    
    $
    0.73Dividends Declared Per Share of Common Stock
    
    $
    0.25
    
    
    $
    0.25
    
    
    $
    0.50
    
    
    $
    0.50
  2




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Duquesne Light Holdings, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
 (Millions of Dollars)June 30,
    
    
    December 31,2006
    
    
    2005AssetsCurrent Assets:Cash and temporary cash investments
    
    $
    12.0
    
    
    $
    79.2Receivables
    
    
    124.7
    
    
    
    114.3Prepaid expenses
    
    
    28.7
    
    
    
    6.9Other
    
    
    63.9
    
    
    
    91.8Discontinued operations
    
    
    
    
    
    
    1.7Total Current Assets
    
    
    229.3
    
    
    
    293.9Long-Term Investments
    
    
    545.8
    
    
    
    549.9Property, Plant and Equipment:Property plant and equipment
    
    
    2,407.8
    
    
    
    2,315.6Less: Accumulated depreciation and amortization
    
    
    (793.9
    )
    
    
    (773.5
    )Property, Plant and Equipment  Net
    
    
    1,613.9
    
    
    
    1,542.1Other Non-Current Assets:Regulatory assets
    
    
    295.8
    
    
    
    300.0Other
    
    
    125.7
    
    
    
    134.7Total Other Non-Current Assets
    
    
    421.5
    
    
    
    434.7Total Assets
    
    $
    2,810.5
    
    
    $
    2,820.6Liabilities and CapitalizationCurrent Liabilities:Short-term debt and current debt maturities
    
    $
    133.3
    
    
    $
    40.3Accounts payable
    
    
    98.6
    
    
    
    93.0Other
    
    
    109.8
    
    
    
    182.7Discontinued operations
    
    
    1.9
    
    
    
    2.5Total Current Liabilities
    
    
    343.6
    
    
    
    318.5Non-Current Liabilities:Deferred income taxes  net
    
    
    466.8
    
    
    
    451.4Other
    
    
    219.6
    
    
    
    254.1Total Non-Current Liabilities
    
    
    686.4
    
    
    
    705.5Limited partners interest
    
    
    30.4
    
    
    
    35.4Commitments and Contingencies (Note 8)Capitalization:Long-term debt
    
    
    957.8
    
    
    
    957.8Preferred and Preference Stock
    
    
    147.8
    
    
    
    147.5Common Shareholders Equity:Common stock  no par value (authorized 
187,500,000 shares; issued  126,929,154 shares)
    
    
    1,197.0
    
    
    
    1,200.5Retained earnings
    
    
    586.5
    
    
    
    600.0Treasury stock (at cost) (48,491,446 and 48,935,435 shares)
    
    
    (1,122.3
    )
    
    
    (1,132.5
    )Unearned compensation
    
    
    
    
    
    
    (1.8
    )Accumulated other comprehensive loss
    
    
    (16.7
    )
    
    
    (10.3
    )Total Common Shareholders Equity
    
    
    644.5
    
    
    
    655.9Total Capitalization
    
    
    1,750.1
    
    
    
    1,761.2Total Liabilities and Capitalization
    
    $
    2,810.5
    
    
    $
    2,820.6
  3




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Duquesne Light Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
 (Millions of Dollars)Six Months Ended June 30,2006
    
    
    2005Cash Flows from Operating Activities:Net income
    
    $
    25.6
    
    
    $
    56.5Adjustments to reconcile net income to net cash provided
from operating activities
    
    
    54.1
    
    
    
    4.2Changes in working capital other than cash
    
    
    (98.1
    )
    
    
    (48.5
    )Discontinued operations
    
    
    1.1
    
    
    
    (0.8
    )Net Cash (Used in) Provided from Operating Activities
    
    
    (17.3
    )
    
    
    11.4Cash Flows from Investing Activities:Capital expenditures
    
    
    (111.3
    )
    
    
    (38.9
    )Proceeds from disposition of investments/assets
    
    
    4.1
    
    
    
    14.5Other
    
    
    (3.8
    )
    
    
    1.4Discontinued operations
    
    
    
    
    
    
    0.9Net Cash Used in Investing Activities
    
    
    (111.0
    )
    
    
    (22.1
    )Cash Flows from Financing Activities:Revolving credit facility borrowings, net
    
    
    93.0
    
    
    
    Dividends on common and preferred stock
    
    
    (33.9
    )
    
    
    (33.4
    )Other
    
    
    2.0
    
    
    
    2.0Net Cash Provided from (Used in) Financing Activities
    
    
    61.1
    
    
    
    (31.4
    )Net decrease in cash and temporary cash investments
    
    
    (67.2
    )
    
    
    (42.1
    )Cash and temporary cash investments at beginning of period
    
    
    79.2
    
    
    
    62.7Cash and temporary cash investments at end of period
    
    $
    12.0
    
    
    $
    20.6Supplemental Cash Flow InformationCapital expenditures included in accounts payable
    
    $
    15.4
    
    
    $
    Cash paid during the period:Interest
    
    $
    30.5
    
    
    $
    23.6Income taxes paid
    
    $
    56.2
    
    
    $
    15.9
  Duquesne Light Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 (Millions of Dollars)Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    11.2
    
    
    $
    21.5
    
    
    $
    25.6
    
    
    $
    56.5Other comprehensive income:Unrealized holding gains on cash flow
hedging instruments, net of tax of $0.9, $0.6,
$1.0 and $0.6
    
    
    2.0
    
    
    
    0.8
    
    
    
    2.7
    
    
    
    0.8Unrealized holding losses on interest rate
hedging instruments, net of tax of $, $(1.1),
$ and $(1.1)
    
    
    
    
    
    
    (1.6
    )
    
    
    
    
    
    
    (1.6
    )Reclassification adjustment for holding gains on
cash flow hedging instruments, net of tax
    
    
    (5.9
    )
    
    
    
    
    
    
    (9.1
    )
    
    
    Comprehensive income
    
    $
    7.3
    
    
    $
    20.7
    
    
    $
    19.2
    
    
    $
    55.7
  4




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Duquesne Light Company
Condensed Consolidated Statements of Income (Unaudited)
 (Millions of Dollars)Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Operating Revenues:Retail sales of electricity
    
    $
    162.4
    
    
    $
    173.5
    
    
    $
    330.1
    
    
    $
    352.6Other
    
    
    5.8
    
    
    
    16.4
    
    
    
    12.1
    
    
    
    28.8Total Operating Revenues
    
    
    168.2
    
    
    
    189.9
    
    
    
    342.2
    
    
    
    381.4Operating Expenses:Purchased power
    
    
    82.7
    
    
    
    87.9
    
    
    
    169.3
    
    
    
    169.9Other operating and maintenance
    
    
    37.0
    
    
    
    40.2
    
    
    
    72.8
    
    
    
    76.4Depreciation and amortization
    
    
    18.5
    
    
    
    17.5
    
    
    
    37.0
    
    
    
    35.3Taxes other than income taxes
    
    
    11.3
    
    
    
    12.0
    
    
    
    23.3
    
    
    
    24.9Total Operating Expenses
    
    
    149.5
    
    
    
    157.6
    
    
    
    302.4
    
    
    
    306.5Operating Income
    
    
    18.7
    
    
    
    32.3
    
    
    
    39.8
    
    
    
    74.9Investment and Other Income
    
    
    1.3
    
    
    
    5.3
    
    
    
    3.6
    
    
    
    11.1Interest and Other Charges
    
    
    (10.1
    )
    
    
    (13.2
    )
    
    
    (20.2
    )
    
    
    (25.6
    )Income Before Income Taxes
    
    
    9.9
    
    
    
    24.4
    
    
    
    23.2
    
    
    
    60.4Income Tax Expense
    
    
    4.0
    
    
    
    9.8
    
    
    
    8.9
    
    
    
    23.9Net Income
    
    
    5.9
    
    
    
    14.6
    
    
    
    14.3
    
    
    
    36.5Dividends on Preferred and Preference Stock
    
    
    2.0
    
    
    
    2.0
    
    
    
    4.0
    
    
    
    4.0Earnings Available for Common Stock
    
    $
    3.9
    
    
    $
    12.6
    
    
    $
    10.3
    
    
    $
    32.5
  5




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Duquesne Light Company
Condensed Consolidated Balance Sheets (Unaudited)
 (Millions of Dollars)June 30,
    
    
    December 31,2006
    
    
    2005AssetsCurrent Assets:Cash and temporary cash investments
    
    $
    12.2
    
    
    $
    76.1Receivables
    
    
    85.5
    
    
    
    93.8Prepaid expenses
    
    
    26.9
    
    
    
    6.0Other
    
    
    35.8
    
    
    
    33.2Total Current Assets
    
    
    160.4
    
    
    
    209.1Long-Term Investments
    
    
    22.0
    
    
    
    22.2Property, Plant and Equipment:Property, plant and equipment
    
    
    2,323.5
    
    
    
    2,235.8Less: Accumulated depreciation and amortization
    
    
    (755.9
    )
    
    
    (738.5
    )Property, Plant and Equipment  Net
    
    
    1,567.6
    
    
    
    1,497.3Other Non-Current Assets:Regulatory assets
    
    
    295.8
    
    
    
    300.0Other
    
    
    94.3
    
    
    
    94.5Total Other Non-Current Assets
    
    
    390.1
    
    
    
    394.5Total Assets
    
    $
    2,140.1
    
    
    $
    2,123.1Liabilities and CapitalizationCurrent Liabilities:Accounts payable
    
    $
    39.7
    
    
    $
    46.8Payable to affiliates
    
    
    38.0
    
    
    
    42.6Accrued liabilities
    
    
    56.6
    
    
    
    59.9Total Current Liabilities
    
    
    134.3
    
    
    
    149.3Non-Current Liabilities:Deferred income taxes  net
    
    
    350.3
    
    
    
    336.6Other
    
    
    203.5
    
    
    
    223.6Total Non-Current Liabilities
    
    
    553.8
    
    
    
    560.2Commitments and Contingencies (Note 8)Capitalization:Long-term debt
    
    
    636.6
    
    
    
    636.5Preferred and Preference Stock
    
    
    146.8
    
    
    
    146.5Common Shareholders Equity:Common stock (authorized  90,000,000 shares;
issued and outstanding  10 shares)
    
    
    
    
    
    
    Capital surplus
    
    
    596.4
    
    
    
    568.9Retained earnings
    
    
    98.5
    
    
    
    88.2Accumulated other comprehensive loss
    
    
    (26.3
    )
    
    
    (26.5
    )Total Common Stockholders Equity
    
    
    668.6
    
    
    
    630.6Total Capitalization
    
    
    1,452.0
    
    
    
    1,413.6Total Liabilities and Capitalization
    
    $
    2,140.1
    
    
    $
    2,123.1
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Duquesne Light Company
Condensed Consolidated Statements of Cash Flows (Unaudited)
 (Millions of Dollars)Six Months Ended June 30,2006
    
    
    2005Cash Flows from Operating Activities:Net income
    
    $
    14.3
    
    
    $
    36.5Adjustments to reconcile net income to net cash provided
from operating activities
    
    
    38.1
    
    
    
    5.1Changes in working capital other than cash
    
    
    (30.5
    )
    
    
    (38.2
    )Net Cash Provided from Operating Activities
    
    
    21.9
    
    
    
    3.4Cash Flows from Investing Activities:Investment in DQE Capital cash pool
    
    
    
    
    
    
    33.3Construction expenditures
    
    
    (106.8
    )
    
    
    (37.4
    )Other
    
    
    (2.5
    )
    
    
    (0.7
    )Net Cash Used in Investing Activities
    
    
    (109.3
    )
    
    
    (4.8
    )Cash Flows from Financing Activities:Equity contribution from parent
    
    
    27.6
    
    
    
    Net borrowings under affiliate demand note
    
    
    
    
    
    
    25.1Dividends on common and preferred stock
    
    
    (4.2
    )
    
    
    (24.2
    )Other
    
    
    0.1
    
    
    
    0.5Net Cash Provided from Financing Activities
    
    
    23.5
    
    
    
    1.4Net decrease in cash and temporary cash investments
    
    
    (63.9
    )
    
    
    Cash and temporary cash investments at beginning of period
    
    
    76.1
    
    
    
    Cash and temporary cash investments at end of period
    
    $
    12.2
    
    
    $
    Supplemental Cash Flow InformationCapital expenditures included in accounts payable
    
    $
    15.4
    
    
    $
    Cash paid during the period:Interest
    
    $
    19.2
    
    
    $
    23.9Income taxes paid
    
    $
    1.1
    
    
    $
    11.9
  Duquesne Light Company
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 (Millions of Dollars)Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    5.9
    
    
    $
    14.6
    
    
    $
    14.3
    
    
    $
    36.5Other comprehensive income (loss):Unrealized holding gains (losses) arising
during the year, net of tax of $, $0.3,
$ and $(0.1)
    
    
    
    
    
    
    0.6
    
    
    
    0.2
    
    
    
    (0.1
    )Unrealized holding gains on cash flow
hedging instruments, net of tax of $,
$0.6, $ and $0.6
    
    
    
    
    
    
    0.8
    
    
    
    
    
    
    
    0.8Comprehensive income
    
    $
    5.9
    
    
    $
    16.0
    
    
    $
    14.5
    
    
    $
    37.2
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##### Table of Contents



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




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##### Table of Contents



Recent Accounting Pronouncements
   Earnings Per Share
  Diluted Earnings Per Share for the Three Months Ended June 30,
 (Millions of Dollars)
    
    2006
    
    
    2005Income from continuing operations
    
    
    $11.3
    
    
    
    $21.6Dilutive effect of:ESOP dividends
    
    
    
    
    
    
    0.3Diluted Earnings from
Continuing Operations
for Common Stock
    
    
    $11.3
    
    
    
    $21.9(Millions of Shares)
    
    2006
    
    
    2005Basic average shares
    
    
    78.4
    
    
    
    77.6Dilutive effect of:ESOP shares
    
    
    
    
    
    
    0.8Performance share awards
and stock options
    
    
    
    
    
    
    0.1Diluted average shares
    
    
    78.4
    
    
    
    78.5Diluted Earnings
Per Share from
Continuing Operations
    
    
    $0.14
    
    
    
    $0.28
  Diluted Earnings Per Share for the Six Months Ended June 30,
 (Millions of Dollars)
    
    2006
    
    
    2005Income from continuing
operations
    
    $
    25.7
    
    
    $
    56.2Dilutive effect of:ESOP dividends
    
    
    
    
    
    
    0.6Diluted Earnings from
Continuing Operations
for Common Stock
    
    $
    25.7
    
    
    $
    56.8
 9




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##### Table of Contents



(Millions of Shares)
    
    2006
    
    
    2005Basic average shares
    
    
    78.3
    
    
    
    77.4Dilutive effect of:ESOP shares
    
    
    
    
    
    
    0.8Performance share awards
and stock options
    
    
    
    
    
    
    0.1Diluted average shares
    
    
    78.3
    
    
    
    78.3Diluted Earnings
Per Share from
Continuing Operations
    
    $
    0.33
    
    
    $
    0.73
  2. RATE MATTERS
       3. RECEIVABLES
  Holdings
 (Millions of Dollars)June 30,
    
    December 31,2006
    
    2005Electric customers
    
    $
    69.0
    
    
    $
    76.2Unbilled electric
customers
    
    
    33.6
    
    
    
    32.1Other
    
    
    40.1
    
    
    
    27.1Less: Allowance for uncollectible
accounts
    
    
    (18.0
    )
    
    
    (21.1
    )Total
    
    $
    124.7
    
    
    $
    114.3
 Duquesne Light
 (Millions of Dollars)June 30,
    
    December 31,2006
    
    2005Electric customers
    
    $
    61.8
    
    
    $
    72.5Unbilled electric
customers
    
    
    28.6
    
    
    
    28.9Affiliate receivables
    
    
    0.7
    
    
    
    3.3Other
    
    
    12.1
    
    
    
    9.9Less: Allowance for
uncollectible accounts
    
    
    (17.7
    )
    
    
    (20.8
    )Total
    
    $
    85.5
    
    
    $
    93.8
 10




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##### Table of Contents



4. DISPOSITIONS
  5. DERIVATIVE INSTRUMENTS
   June 30, 2006(Millions of Dollars)AOCIExpectedto beReclassifiedto EarningsAOCI,
    
    within 12Assets
    
    Liabilities
    
    net
    
    monthsEnergy contracts
    
    $
    14.4
    
    
    $
    8.9
    
    
    $
    (0.4
    )
    
    $
    (0.9
    )Interest rate lock
    
    
    
    
    
    
    
    
    
    
    4.2
    
    
    
    0.2Natural gas prices
    
    
    5.4
    
    
    
    
    
    
    
    3.1
    
    
    
    2.3Total
    
    $
    19.8
    
    
    $
    8.9
    
    
    $
    6.9
    
    
    $
    1.6
 December 31, 2005(Millions of Dollars)Assets
    
    Liabilities
    
    AOCI, netEnergy contracts
    
    $
    58.7
    
    
    $
    29.2
    
    
    $
    7.8Interest rate lock
    
    
    
    
    
    
    
    
    
    
    4.2Natural gas prices
    
    
    2.2
    
    
    
    
    
    
    
    1.3Total
    
    $
    60.9
    
    
    $
    29.2
    
    
    $
    13.3
 Energy Contracts
  (Millions of Dollars)Three months
    
    Six monthsended June 30,
    
    ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Mark-to-market
    
    $
    8.4
    
    
    $
    2.9
    
    
    $
    8.1
    
    
    $
    (11.3
    )Cash flow hedge
ineffectiveness
    
    
    (1.0
    )
    
    
    
    
    
    
    1.8
    
    
    
    Increase (Decrease)
    
    $
    7.4
    
    
    $
    2.9
    
    
    $
    9.9
    
    
    $
    (11.3
    )
 Natural Gas Prices
   6. SHARE-BASED COMPENSATION
  11




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##### Table of Contents



Stock Options
   WeightedAverageShares
    
    
    PriceOptions outstanding,
beginning of period
    
    
    552,004
    
    
    $
    23.10Options granted
    
    
    
    
    
    
    Options exercised
    
    
    800
    
    
    $
    15.02Options canceled/forfeited
    
    
    186,351
    
    
    $
    36.96Options outstanding and
exercisable, end of period
    
    
    364,853
    
    
    $
    16.04Shares available for future
grants, end of period
    
    
    2,615,239
  Unvested Restricted Share Awards
   12




---



##### Table of Contents



WeightedAverageGrant-DateShares
    
    
    Fair ValueUnvested shares,
beginning of period
    
    
    129,641
    
    
    $
    18.27Unvested shares granted
    
    
    20,000
    
    
    $
    16.52Shares vested
    
    
    19,575
    
    
    $
    19.77Unvested shares canceled/
forfeited
    
    
    6,660
    
    
    $
    24.79Unvested shares,
end of period
    
    
    123,406
    
    
    $
    17.34
 Performance Based Share Awards
     7.
    
    NOTES PAYABLE AND LONG-TERM DEBT
  13




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##### Table of Contents



8.
    
    COMMITMENTS AND CONTINGENCIES
 Guarantees
      Income Taxes
  14




---



##### Table of Contents



Employees
  Section 29 Tax Credits and Synthetic Fuel
   15




---



##### Table of Contents



Proposed Acquisition
  Discontinued Operations
  9. DISCONTINUED OPERATIONS
  10.
    
    PENSION AND POSTRETIREMENT BENEFITS
  (Millions of Dollars)Three Months EndedJune 30,2006
    
    
    2005Service cost
    
    $
    3.0
    
    
    $
    2.2Interest cost
    
    
    11.6
    
    
    
    10.7Expected return on plan assets
    
    
    (15.1
    )
    
    
    (13.8
    )Amortization of prior service cost
    
    
    1.1
    
    
    
    0.8Amortization of actuarial gain
    
    
    0.1
    
    
    
    Net periodic pension benefit
cost (gain)
    
    $
    0.7
    
    
    $
    (0.1
    )
 16




---



##### Table of Contents



(Millions of Dollars)Six Months EndedJune 30,2006
    
    
    2005Service cost
    
    $
    6.0
    
    
    $
    4.4Interest cost
    
    
    23.2
    
    
    
    21.4Expected return on plan assets
    
    
    (30.2
    )
    
    
    (27.6
    )Amortization of prior service cost
    
    
    2.2
    
    
    
    1.6Amortization of actuarial gain
    
    
    0.2
    
    
    
    Net periodic pension benefit
cost (gain)
    
    $
    1.4
    
    
    $
    (0.2
    )
    (Millions of Dollars)Three Months EndedJune 30,2006
    
    
    2005Service cost
    
    $
    0.3
    
    
    $
    0.4Interest cost
    
    
    0.7
    
    
    
    0.9Amortization of unrecognized
net transition obligation
    
    
    0.2
    
    
    
    0.2Amortization of prior service cost
    
    
    0.2
    
    
    
    Net periodic postretirement
benefit cost
    
    $
    1.4
    
    
    $
    1.5
 (Millions of Dollars)Six Months EndedJune 30,Service cost
    
    $
    0.6
    
    
    $
    0.8Interest cost
    
    
    1.4
    
    
    
    1.8Amortization of unrecognized
net transition obligation
    
    
    0.4
    
    
    
    0.4Amortization of prior service cost
    
    
    0.4
    
    
    
    (0.1
    )Net periodic postretirement
benefit cost
    
    $
    2.8
    
    
    $
    2.9
 11.
    
    DUQUESNE LIGHT TRANSACTIONS WITH AFFILIATES
    12.
    
    BUSINESS SEGMENTS AND RELATED INFORMATION
   17




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##### Table of Contents



Duquesne Light Company
 Business Segments for the Three Months Ended June 30, 2006
 (Millions of Dollars)Electricity
    
    
    Duquesne LightDelivery
    
    
    Supply
    
    
    ConsolidatedOperating revenues
    
    $
    79.9
    
    
    $
    88.3
    
    
    $
    168.2Operating expenses
    
    
    43.3
    
    
    
    87.7
    
    
    
    131.0Depreciation and amortization expense
    
    
    18.5
    
    
    
    
    
    
    
    18.5Operating income
    
    
    18.1
    
    
    
    0.6
    
    
    
    18.7Other income  net
    
    
    1.3
    
    
    
    
    
    
    
    1.3Interest and other charges
    
    
    10.1
    
    
    
    
    
    
    
    10.1Income before income taxes
    
    
    9.3
    
    
    
    0.6
    
    
    
    9.9Income tax expense
    
    
    3.7
    
    
    
    0.3
    
    
    
    4.0Net Income
    
    
    5.6
    
    
    
    0.3
    
    
    
    5.9Dividends on preferred and preference stock
    
    
    2.0
    
    
    
    
    
    
    
    2.0Earnings available for common stock
    
    $
    3.6
    
    
    $
    0.3
    
    
    
    3.9Assets
    
    $
    2,140.1
    
    
    $
    
    
    
    $
    2,140.1Capital expenditures
    
    $
    50.4
    
    
    $
    
    
    
    $
    50.4
 Business Segments for the Three Months Ended June 30, 2005
 (Millions of Dollars)DuquesneElectricity
    
    
    LightDelivery
    
    
    Supply
    
    
    CTC
    
    
    ConsolidatedOperating revenues
    
    $
    82.8
    
    
    $
    105.4
    
    
    $
    1.7
    
    
    $
    189.9Operating expenses
    
    
    45.4
    
    
    
    94.6
    
    
    
    0.1
    
    
    
    140.1Depreciation and amortization expense
    
    
    15.9
    
    
    
    
    
    
    
    1.6
    
    
    
    17.5Operating income
    
    
    21.5
    
    
    
    10.8
    
    
    
    
    
    
    
    32.3Other income  net
    
    
    5.0
    
    
    
    0.3
    
    
    
    
    
    
    
    5.3Interest and other charges
    
    
    12.8
    
    
    
    0.4
    
    
    
    
    
    
    
    13.2Income before income taxes
    
    
    13.7
    
    
    
    10.7
    
    
    
    
    
    
    
    24.4Income tax expense
    
    
    5.4
    
    
    
    4.4
    
    
    
    
    
    
    
    9.8Net Income
    
    
    8.3
    
    
    
    6.3
    
    
    
    
    
    
    
    14.6Dividends on preferred and preference stock
    
    
    2.0
    
    
    
    
    
    
    
    
    
    
    
    2.0Earnings available for common stock
    
    $
    6.3
    
    
    $
    6.3
    
    
    $
    
    
    
    $
    12.6Assets (a)
    
    $
    2,123.1
    
    
    $
    
    
    
    $
    
    
    
    $
    2,123.1Capital expenditures
    
    $
    21.2
    
    
    $
    
    
    
    $
    
    
    
    $
    21.2
 
 (a)
    
    Relates to assets as of December 31, 2005. 18




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Duquesne Light Company
 Business Segments for the Six Months Ended June 30, 2006
 (Millions of Dollars)Electricity
    
    
    Duquesne LightDelivery
    
    
    Supply
    
    
    ConsolidatedOperating revenues
    
    $
    161.9
    
    
    $
    180.3
    
    
    $
    342.2Operating expenses
    
    
    85.9
    
    
    
    179.5
    
    
    
    265.4Depreciation and amortization expense
    
    
    37.0
    
    
    
    
    
    
    
    37.0Operating income
    
    
    39.0
    
    
    
    0.8
    
    
    
    39.8Other income  net
    
    
    3.6
    
    
    
    
    
    
    
    3.6Interest and other charges
    
    
    20.2
    
    
    
    
    
    
    
    20.2Income before income taxes
    
    
    22.4
    
    
    
    0.8
    
    
    
    23.2Income tax expense
    
    
    8.6
    
    
    
    0.3
    
    
    
    8.9Net Income
    
    
    13.8
    
    
    
    0.5
    
    
    
    14.3Dividends on preferred and preference stock
    
    
    4.0
    
    
    
    
    
    
    
    4.0Earnings available for common stock
    
    $
    9.8
    
    
    $
    0.5
    
    
    $
    10.3Capital expenditures
    
    $
    100.5
    
    
    $
    
    
    
    $
    100.5
 Business Segments for the Six Months Ended June 30, 2005
 (Millions of Dollars)DuquesneElectricity
    
    
    LightDelivery
    
    
    Supply
    
    
    CTC
    
    
    ConsolidatedOperating revenues
    
    $
    163.0
    
    
    $
    214.3
    
    
    $
    4.1
    
    
    $
    381.4Operating expenses
    
    
    87.2
    
    
    
    183.8
    
    
    
    0.2
    
    
    
    271.2Depreciation and amortization expense
    
    
    31.5
    
    
    
    
    
    
    
    3.8
    
    
    
    35.3Operating income
    
    
    44.3
    
    
    
    30.5
    
    
    
    0.1
    
    
    
    74.9Other income  net
    
    
    10.8
    
    
    
    0.3
    
    
    
    
    
    
    
    11.1Interest and other charges
    
    
    24.9
    
    
    
    0.7
    
    
    
    
    
    
    
    25.6Income before income taxes
    
    
    30.2
    
    
    
    30.1
    
    
    
    0.1
    
    
    
    60.4Income tax expense
    
    
    11.4
    
    
    
    12.5
    
    
    
    
    
    
    
    23.9Net Income
    
    
    18.8
    
    
    
    17.6
    
    
    
    0.1
    
    
    
    36.5Dividends on preferred and preference stock
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    4.0Earnings available for common stock
    
    $
    14.8
    
    
    $
    17.6
    
    
    $
    0.1
    
    
    $
    32.5Capital expenditures
    
    $
    37.4
    
    
    $
    
    
    
    $
    
    
    
    $
    37.4
 19




---



##### Table of Contents



Duquesne Light Holdings
 Business Segments for the Three Months Ended June 30, 2006
 (Millions of Dollars)Electricity
    
    
    Electricity
    
    
    Energy
    
    
    
    
    
    
    Communi-
    
    
    All
    
    
    Elimina-
    
    
    Consoli-Delivery
    
    
    Supply
    
    
    Solutions
    
    
    Financial
    
    
    cations
    
    
    Other
    
    
    tions
    
    
    datedOperating revenues
    
    $
    79.9
    
    
    $
    115.0
    
    
    $
    15.7
    
    
    $
    13.0
    
    
    $
    2.5
    
    
    $
    
    
    
    $
    (1.8
    )
    
    $
    224.3Operating expenses
    
    
    43.3
    
    
    
    106.2
    
    
    
    4.2
    
    
    
    13.7
    
    
    
    1.0
    
    
    
    3.4
    
    
    
    (1.8
    )
    
    
    170.0Depreciation and
amortization expense
    
    
    18.5
    
    
    
    
    
    
    
    0.3
    
    
    
    1.3
    
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    20.7Operating income (loss)
    
    
    18.1
    
    
    
    8.8
    
    
    
    11.2
    
    
    
    (2.0
    )
    
    
    0.9
    
    
    
    (3.4
    )
    
    
    
    
    
    
    33.6Other income  net
    
    
    1.3
    
    
    
    
    
    
    
    0.4
    
    
    
    0.3
    
    
    
    
    
    
    
    0.3
    
    
    
    (1.2
    )
    
    
    1.1Interest and other charges
    
    
    12.1
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.0
    
    
    
    (0.9
    )
    
    
    18.3Benefit from limited
partners interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.4Income (loss) before
income taxes
    
    
    7.3
    
    
    
    8.7
    
    
    
    11.6
    
    
    
    0.7
    
    
    
    0.9
    
    
    
    (10.1
    )
    
    
    (0.3
    )
    
    
    18.8Income tax expense
(benefit)
    
    
    3.7
    
    
    
    3.6
    
    
    
    5.0
    
    
    
    (1.0
    )
    
    
    0.3
    
    
    
    (4.1
    )
    
    
    
    
    
    
    7.5Income (loss) from
continuing operations
    
    $
    3.6
    
    
    $
    5.1
    
    
    $
    6.6
    
    
    $
    1.7
    
    
    $
    0.6
    
    
    $
    (6.0
    )
    
    
    (0.3
    )
    
    $
    11.3Assets
    
    $
    2,120.1
    
    
    $
    43.6
    
    
    $
    17.9
    
    
    $
    568.8
    
    
    $
    30.3
    
    
    $
    29.8
    
    
    $
    
    
    
    $
    2,810.5Capital expenditures
    
    $
    50.4
    
    
    $
    
    
    
    $
    
    
    
    $
    1.2
    
    
    $
    0.9
    
    
    $
    
    
    
    $
    
    
    
    $
    52.5
 Business Segments for the Three Months Ended June 30, 2005
 (Millions of Dollars)Electricity
    
    
    Electricity
    
    
    
    
    
    
    Energy
    
    
    
    
    
    
    Communi-
    
    
    All
    
    
    Elimina-
    
    
    Consoli-Delivery
    
    
    Supply
    
    
    CTC
    
    
    Solutions
    
    
    Financial
    
    
    cations
    
    
    Other
    
    
    tions
    
    
    datedOperating revenues
    
    $
    82.8
    
    
    $
    107.0
    
    
    $
    1.7
    
    
    $
    17.1
    
    
    $
    11.7
    
    
    $
    2.4
    
    
    $
    
    
    
    $
    (0.8
    )
    
    $
    221.9Operating expenses
    
    
    45.4
    
    
    
    96.2
    
    
    
    0.1
    
    
    
    6.7
    
    
    
    12.1
    
    
    
    0.9
    
    
    
    2.3
    
    
    
    (0.8
    )
    
    
    162.9Depreciation and
amortization expense
    
    
    15.9
    
    
    
    
    
    
    
    1.6
    
    
    
    0.5
    
    
    
    1.6
    
    
    
    0.5
    
    
    
    0.2
    
    
    
    
    
    
    
    20.3Operating income (loss)
    
    
    21.5
    
    
    
    10.8
    
    
    
    
    
    
    
    9.9
    
    
    
    (2.0
    )
    
    
    1.0
    
    
    
    (2.5
    )
    
    
    
    
    
    
    38.7Other income  net
    
    
    5.0
    
    
    
    0.4
    
    
    
    
    
    
    
    0.2
    
    
    
    2.2
    
    
    
    0.1
    
    
    
    0.5
    
    
    
    (5.1
    )
    
    
    3.3Interest and other charges
    
    
    14.8
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.5
    
    
    
    (5.0
    )
    
    
    14.7Benefit from limited
partners interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.4Income (loss) before
income taxes
    
    
    11.7
    
    
    
    10.8
    
    
    
    
    
    
    
    10.1
    
    
    
    2.6
    
    
    
    1.1
    
    
    
    (6.5
    )
    
    
    (0.1
    )
    
    
    29.7Income tax expense
(benefit)
    
    
    5.4
    
    
    
    4.5
    
    
    
    
    
    
    
    3.8
    
    
    
    (4.5
    )
    
    
    0.5
    
    
    
    (1.6
    )
    
    
    
    
    
    
    8.1Income (loss) from
continuing operations
    
    $
    6.3
    
    
    $
    6.3
    
    
    $
    
    
    
    $
    6.3
    
    
    $
    7.1
    
    
    $
    0.6
    
    
    $
    (4.9
    )
    
    $
    (0.1
    )
    
    $
    21.6Assets (a)
    
    $
    2,100.1
    
    
    $
    68.1
    
    
    $
    
    
    
    $
    17.9
    
    
    $
    573.9
    
    
    $
    29.9
    
    
    $
    29.0
    
    
    $
    
    
    
    $
    2,818.9Capital expenditures
    
    $
    21.2
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1.0
    
    
    $
    
    
    
    $
    
    
    
    $
    22.2
 
 (a)
    
    Relates to assets as of December 31, 2005 and excludes discontinued operations assets. 20




---



##### Table of Contents



Duquesne Light Holdings
 Business Segments for the Six Months Ended June 30, 2006
 (Millions of Dollars)Electricity
    
    
    Electricity
    
    
    Energy
    
    
    
    
    
    
    Communi-
    
    
    All
    
    
    Elimina-
    
    
    Consoli-Delivery
    
    
    Supply
    
    
    Solutions
    
    
    Financial
    
    
    cations
    
    
    Other
    
    
    tions
    
    
    datedOperating revenues
    
    $
    161.9
    
    
    $
    227.4
    
    
    $
    29.1
    
    
    $
    28.2
    
    
    $
    5.0
    
    
    $
    
    
    
    $
    (3.4
    )
    
    $
    448.2Operating expenses
    
    
    85.9
    
    
    
    211.9
    
    
    
    10.7
    
    
    
    24.7
    
    
    
    2.2
    
    
    
    5.9
    
    
    
    (3.4
    )
    
    
    337.9Depreciation and
amortization expense
    
    
    37.0
    
    
    
    
    
    
    
    0.7
    
    
    
    2.5
    
    
    
    1.1
    
    
    
    0.1
    
    
    
    
    
    
    
    41.4Operating income (loss)
    
    
    39.0
    
    
    
    15.5
    
    
    
    17.7
    
    
    
    1.0
    
    
    
    1.7
    
    
    
    (6.0
    )
    
    
    
    
    
    
    68.9Other income  net
    
    
    3.6
    
    
    
    0.1
    
    
    
    0.7
    
    
    
    2.5
    
    
    
    
    
    
    
    0.7
    
    
    
    (2.2
    )
    
    
    5.4Interest and other charges
    
    
    24.2
    
    
    
    0.2
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    13.2
    
    
    
    (1.6
    )
    
    
    36.1Benefit from limited
partners interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.9
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    5.0Income (loss) before
income taxes
    
    
    18.4
    
    
    
    15.4
    
    
    
    18.4
    
    
    
    8.3
    
    
    
    1.8
    
    
    
    (18.5
    )
    
    
    (0.6
    )
    
    
    43.2Income tax expense
(benefit)
    
    
    8.6
    
    
    
    6.4
    
    
    
    7.9
    
    
    
    (1.8
    )
    
    
    0.7
    
    
    
    (4.3
    )
    
    
    
    
    
    
    17.5Income (loss) from
continuing operations
    
    $
    9.8
    
    
    $
    9.0
    
    
    $
    10.5
    
    
    $
    10.1
    
    
    $
    1.1
    
    
    $
    (14.2
    )
    
    $
    (0.6
    )
    
    $
    25.7Capital expenditures
    
    $
    100.5
    
    
    $
    
    
    
    $
    
    
    
    $
    2.2
    
    
    $
    2.3
    
    
    $
    
    
    
    $
    
    
    
    $
    105.0
 Business Segments for the Six Months Ended June 30, 2005
 (Millions of Dollars)Electricity
    
    
    Electricity
    
    
    
    
    
    
    Energy
    
    
    
    
    
    
    Communi-
    
    
    All
    
    
    Elimina-
    
    
    Consoli-Delivery
    
    
    Supply
    
    
    CTC
    
    
    Solutions
    
    
    Financial
    
    
    cations
    
    
    Other
    
    
    tions
    
    
    datedOperating revenues
    
    $
    163.0
    
    
    $
    217.2
    
    
    $
    4.1
    
    
    $
    32.2
    
    
    $
    21.0
    
    
    $
    4.7
    
    
    $
    
    
    
    $
    (1.6
    )
    
    $
    440.6Operating expenses
    
    
    87.2
    
    
    
    186.8
    
    
    
    0.2
    
    
    
    14.8
    
    
    
    21.7
    
    
    
    1.8
    
    
    
    3.1
    
    
    
    (1.6
    )
    
    
    314.0Depreciation and
amortization expense
    
    
    31.5
    
    
    
    
    
    
    
    3.8
    
    
    
    0.9
    
    
    
    3.2
    
    
    
    1.0
    
    
    
    0.4
    
    
    
    
    
    
    
    40.8Operating income (loss)
    
    
    44.3
    
    
    
    30.4
    
    
    
    0.1
    
    
    
    16.5
    
    
    
    (3.9
    )
    
    
    1.9
    
    
    
    (3.5
    )
    
    
    
    
    
    
    85.8Other income  net
    
    
    10.8
    
    
    
    0.4
    
    
    
    
    
    
    
    0.1
    
    
    
    11.9
    
    
    
    0.1
    
    
    
    5.1
    
    
    
    (9.6
    )
    
    
    18.8Interest and other charges
    
    
    28.9
    
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.8
    
    
    
    (9.2
    )
    
    
    29.2Benefit from limited
partners interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.9Income (loss) before
income taxes
    
    
    26.2
    
    
    
    30.1
    
    
    
    0.1
    
    
    
    16.6
    
    
    
    12.9
    
    
    
    2.0
    
    
    
    (7.2
    )
    
    
    (0.4
    )
    
    
    80.3Income tax expense
(benefit)
    
    
    11.4
    
    
    
    12.5
    
    
    
    
    
    
    
    6.2
    
    
    
    (5.9
    )
    
    
    0.8
    
    
    
    (0.9
    )
    
    
    
    
    
    
    24.1Income (loss) from
continuing operations
    
    $
    14.8
    
    
    $
    17.6
    
    
    $
    0.1
    
    
    $
    10.4
    
    
    $
    18.8
    
    
    $
    1.2
    
    
    $
    (6.3
    )
    
    $
    (0.4
    )
    
    $
    56.2Capital expenditures
    
    $
    37.4
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0.1
    
    
    $
    1.4
    
    
    $
    
    
    
    $
    
    
    
    $
    38.9
 21




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##### Table of Contents



13.
    
    SUBSEQUENT EVENTS
 Pending Merger
        22




---



##### Table of Contents



Synthetic Fuel
   Financing
  
 Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 Part I, Item 2 of this combined Quarterly Report on Form 10-Q should be read in conjunction
with our combined Annual Report on Form 10-K for the year ended December 31, 2005 filed with the
Securities and Exchange Commission (SEC), and with the condensed consolidated financial statements,
set forth in Part I, Item 1 of this Report.
   Pending Merger
  Critical Accounting Policies
  Recent Accounting Pronouncements
  Proposed Accounting Standards
  Forward-looking Statements
  23




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##### Table of Contents




    
    Cash flow, earnings, earnings growth, capitalization, capital expenditures and dividends
will depend on the performance of Holdings subsidiaries, and board policy.
    
    Demand for and pricing of electricity and landfill gas, changing market conditions, and
weather conditions could affect earnings levels.
    
    Earnings will be affected by the number of customers who choose to receive electric
generation through Duquesne Lights provider-of-last-resort service (POLR), by our ability to
negotiate appropriate terms with suitable generation suppliers, by the performance of these
suppliers, and by changes in market value of energy commodity products under contract.
    
    Earnings will be affected by the timing of the Keystone and Conemaugh acquisition closing.
    
    Projected POLR supply requirements will depend on POLR customer retention, which in turn
may depend on market generation prices, as well as the marketing efforts of competing
generation suppliers.
    
    Distribution rate base and earnings will depend on the outcome of our distribution rate
case, which in turn is subject to Pennsylvania Public Utility Commission (PUC) review and
approval. Transmission rate base and earnings will depend on the ultimate structure of our
transmission rate case, which in turn will be subject to Federal Energy Regulatory Commission
(FERC) review and approval. Earnings will also be affected by rate base, equity and allowed
return levels.
    
    Regional transmission organization rules and FERC-mandated transmission charges could
affect earnings.
    
    Changes in electric energy prices could affect earnings as the fair value of our energy
commodity contracts fluctuates.
    
    Earnings and cash flows may be affected by the ultimate timing of the merger closing, which
in turn depends on, among other things, the receipt of shareholder, PUC, FERC and other
regulatory approval. Regulatory approval depends on the procedures of the agencies involved.
    
    The amount and timing of any debt reduction or refinancing will depend on the availability
of cash flows and appropriate replacement or refinancing vehicles.
    
    The amount and timing of any securities issuance (debt or equity) will depend on financial
market performance and the need for funds.
    
    The credit ratings received from the rating agencies could affect the cost of borrowing,
access to capital markets and liquidity.
    
    Changes in synthetic fuel plant operations could affect Duquesne Energy Solutions
earnings.
    
    Competition, operating costs and gas prices could affect earnings and expansion plans in
our landfill gas business, as well as the anticipated operating life of our landfill gas
sites.
    
    Earnings with respect to synthetic fuel operations, landfill gas and affordable housing
investments will depend, in part, on the continued availability of, and compliance with the
requirements for, applicable federal tax credits. The availability of synthetic fuel and
landfill gas tax credits depends in part on the average well-head price per barrel of domestic
crude oil.
    
    Demand for dark fiber will affect DQE Communications earnings.
    
    The final resolution of proposed adjustments regarding state income tax liabilities (which
could depend on negotiations with the appropriate authorities) could affect financial
position, earnings, and cash flows.
    
    Financial results and position could be affected by changes in pronouncements periodically
issued by accounting standard-setting bodies.
    
    Overall performance by Holdings and its affiliates could be affected by economic,
competitive, regulatory, governmental and technological factors affecting operations, markets,
products, services and prices, as well as the factors discussed in Holdings SEC filings made
to date.
 EXECUTIVE OVERVIEW
 Electricity Delivery Business
 Supply Business.
 24




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##### Table of Contents



Section 29
Tax Credits and Synthetic Fuel.
    Landfill Gas Business.
   25




---



##### Table of Contents



Income tax expense.
 BUSINESS SEGMENTS
  RESULTS OF OPERATIONS
 Overall Performance
 Three months ended June 30, 2006.
 
    
    Income from the Financial segment decreased $5.4 million,
primarily as a result of a $7.0 million decrease in earnings
resulting from the estimated 2006 tax credit phase-out and the
$1.5 million after-tax impairment charge related to the passive
landfill gas investments. This was partially offset by a $1.8
million increase in earnings from the pipeline quality landfill
gas sites in the second quarter of 2006.
    
    Income from the Holdings electricity supply segment decreased $1.2
million from the second quarter of 2005, primarily as a result of
a $2.6 million decrease in earnings resulting from a decline in
the fair value of certain of Duquesne Powers derivative energy
contracts, partially offset by increased electricity supply
margins realized as compared to the second quarter of 2005.
    
    Earnings from the electricity delivery business segment decreased
$2.7 million from the second quarter of 2005, primarily as a
result of lower operating revenues attributable to unfavorable
weather.
  Six months ended June 30, 2006.
 
    
    Income from the Financial segment decreased $8.7
million, primarily as a result of a $9.3 million
decrease in earnings resulting from the estimated
2006 tax credit phase-out, the $4.6 million after-tax
gain from the sale of an investment in a natural gas
operating partnership included in the first six
months of 2005 results and the $1.5 million after-tax
impairment charge in 2006 related to the passive
landfill gas investments. This was partially offset
by a $4.6 million increase in earnings from
 26




---



##### Table of Contents



the pipeline quality landfill gas sites in the first six months of 2006.
    
    Income from the Holdings electricity supply segment
decreased $8.6 million from 2005, primarily as a
result of a $12.4 million after-tax decline in the
fair value of certain of Duquesne Powers derivative
energy contracts, partially offset by increased
electricity supply margins realized as compared to
the first six months of 2005.
    
    The loss reported in the all other category increased
$7.9 million, primarily as a result of the negative
net $2.9 million impact to income taxes resulting
from the IRS settlement and the recognition of
certain state tax benefits in 2006, the $2.4 million
after-tax gain in 2005 resulting from the favorable
settlement of an interest rate lock arrangement and
higher interest charges related to increased revolver
borrowings.
    
    Earnings from the electricity delivery business
segment decreased $5.0 million from the first six
months of 2005, primarily as a result of lower
operating revenues attributable to unfavorable
weather and lower other income.
  Business Segment Performance
 Electricity Delivery Business Segment.
 Three months ended June 30, 2006.
   MWh Delivered(In Thousands)Second Quarter
    
    2006
    
    
    2005
    
    
    ChangeResidential
    
    
    831
    
    
    
    874
    
    
    
    (4.9
    %)Commercial
    
    
    1,609
    
    
    
    1,639
    
    
    
    (1.8
    %)Industrial
    
    
    800
    
    
    
    779
    
    
    
    2.7
    %3,240
    
    
    
    3,292
    
    
    
    (1.6
    %)
     Six months ended June 30, 2006.
   27




---



##### Table of Contents



MWh Delivered(In Thousands)First Six Months
    
    2006
    
    
    2005
    
    
    ChangeResidential
    
    
    1,835
    
    
    
    1,869
    
    
    
    (1.8
    %)Commercial
    
    
    3,156
    
    
    
    3,252
    
    
    
    (3.0
    %)Industrial
    
    
    1,611
    
    
    
    1,592
    
    
    
    1.2
    %6,602
    
    
    
    6,713
    
    
    
    (1.7
    %)
    Duquesne Light Supply Business Segment.
 Three months ended June 30, 2006.
   MWh Supplied(In Thousands)Second Quarter
    
    
    
    
    
    2006POLR I
    
    
    POLR III
    
    
    TotalResidential and small
commercial
    
    
    
    
    
    
    1,312
    
    
    
    1,312Large commercial
and industrial
    
    
    12
    
    
    
    59
    
    
    
    71Total Retail
    
    
    12
    
    
    
    1,371
    
    
    
    1,383Wholesale
    
    
    
    
    
    
    
    
    
    
    11POLR Customers (MWh basis):Residential and small commercial
    
    
    
    
    
    
    
    
    
    
    80
    %Large commercial and industrial
    
    
    
    
    
    
    
    
    
    
    5
    %
 MWh Supplied(In Thousands)Second Quarter
    
    
    
    
    
    2005POLR I
    
    
    POLR III
    
    
    TotalResidential and small
commercial
    
    
    
    
    
    
    1,250
    
    
    
    1,250Large commercial
and industrial
    
    
    318
    
    
    
    64
    
    
    
    382Total Retail
    
    
    318
    
    
    
    1,314
    
    
    
    1,632Wholesale
    
    
    
    
    
    
    
    
    
    
    247POLR Customers (MWh basis):Residential and small commercial
    
    
    
    
    
    
    
    
    
    
    74
    %Large commercial and industrial
    
    
    
    
    
    
    
    
    
    
    24
    %
 Six months ended June 30, 2006.
  28




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##### Table of Contents



MWh Supplied(In Thousands)First Six Months
    
    
    
    
    
    2006POLR I
    
    
    POLR III
    
    
    TotalResidential and small
commercial
    
    
    
    
    
    
    2,754
    
    
    
    2,754Large commercial
and industrial
    
    
    45
    
    
    
    128
    
    
    
    173Total Retail
    
    
    45
    
    
    
    2,882
    
    
    
    2,927Wholesale
    
    
    
    
    
    
    
    
    
    
    36POLR Customers (MWh basis):Residential and small commercial
    
    
    
    
    
    
    
    
    
    
    80
    %Large commercial and industrial
    
    
    
    
    
    
    
    
    
    
    6
    %
 MWh Supplied(In Thousands)First Six Months
    2005POLR I
    
    
    POLR III
    
    
    TotalResidential and small
commercial
    
    
    
    
    
    
    2,631
    
    
    
    2,631Large commercial
and industrial
    
    
    727
    
    
    
    173
    
    
    
    900Total Retail
    
    
    727
    
    
    
    2,804
    
    
    
    3,531Wholesale
    
    
    
    
    
    
    
    
    
    
    400POLR Customers (MWh basis):Residential and small commercial
    
    
    
    
    
    
    
    
    
    
    75
    %Large commercial and industrial
    
    
    
    
    
    
    
    
    
    
    28
    %
 Electricity Supply Business Segment.
 Three months ended June 30, 2006.
 Earnings(In Millions)Second Quarter
    
    2006
    
    
    2005Electricity Supply
    
    $
    9.4
    
    
    $
    8.0Derivative energy contracts
    
    
    (4.3
    )
    
    
    (1.7
    )Net income
    
    $
    5.1
    
    
    $
    6.3
   MWh Supplied(In Thousands)Second Quarter
    
    2006
    
    
    2005
    
    
    ChangeRetail:Duquesne Light
    
    
    1,383
    
    
    
    1,632
    
    
    
    (15.3
    %)DLE
    
    
    439
    
    
    
    201
    
    
    
    118.4
    %Total Retail
    
    
    1,822
    
    
    
    1,833
    
    
    
    (0.6
    %)
  Six months ended June 30, 2006.
 Earnings(In Millions)First Six Months
    
    2006
    
    
    2005Electricity Supply
    
    $
    14.8
    
    
    $
    11.0Derivative energy contracts
    
    
    (5.8
    )
    
    
    6.6Net income
    
    $
    9.0
    
    
    $
    17.6
   29




---



##### Table of Contents



MWh Supplied(In Thousands)First Six Months
    
    2006
    
    
    2005
    
    
    ChangeRetail:Duquesne Light
    
    
    2,927
    
    
    
    3,531
    
    
    
    (17.1
    %)DLE
    
    
    797
    
    
    
    338
    
    
    
    135.8
    %Total Retail
    
    
    3,724
    
    
    
    3,869
    
    
    
    (3.7
    %)
  Energy Solutions Business Segment
 Three months ended June 30, 2006.
   Six months ended June 30, 2006.
   Financial Business Segment.
 Three months ended June 30, 2006.
     Six months ended June 30, 2006
 30




---



##### Table of Contents



Communications Business Segment
 Three and six months ended June 30, 2006.
 All Other.
 Three months ended June 30, 2006.
 Six months ended June 30, 2006.
 LIQUIDITY AND CAPITAL RESOURCES
   Cash Flows from Operating Activity.
 Cash Flows from Investing Activity.
 31




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##### Table of Contents



Cash Flows from Financing Activity.
  Liquidity
  Bank Credit Facilities.
   Committed
    
    
    
    
    
    
    LOCs
    
    
    AvailableCapacity
    
    
    Borrowed
    
    
    Issued
    
    
    CapacityHoldings
    
    $
    250.0
    
    
    $
    133.0
    
    
    $
    18.3
    
    
    $
    98.7Duquesne
Light
    
    
    150.0
    
    
    
    
    
    
    
    8.2
    
    
    
    141.8Total
    
    $
    400.0
    
    
    $
    133.0
    
    
    $
    26.5
    
    
    $
    240.5
    Committed
    
    
    
    
    
    
    LOCs
    
    
    AvailableCapacity
    
    
    Borrowed
    
    
    Issued
    
    
    CapacityHoldings
    
    $
    250.0
    
    
    $
    146.00
    
    
    $
    18.3
    
    
    $
    85.7Duquesne
Light
    
    
    150.0
    
    
    
    
    
    
    
    8.2
    
    
    
    141.8Total
    
    $
    400.0
    
    
    $
    146.00
    
    
    $
    26.5
    
    
    $
    227.5
  OFF-BALANCE SHEET ARRANGEMENTS
  RATE MATTERS
 Rate Cases
  32




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##### Table of Contents



RECENT DEVELOPMENTS
 Pending Merger
      33




---



##### Table of Contents



Proposed Acquisition
  Synthetic Fuel
    Financing
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
   Interest Rate Risk
   34




---



##### Table of Contents



Commodity Price Risk
  Electricity Supply.
       Landfill Gas Sales.
 35




---



##### Table of Contents



Credit/Default Risk
          Tax Credit Phase-Out
   36




---



##### Table of Contents



Item 4. Controls and Procedures.
 Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  
 PART II. OTHER INFORMATION.
 
 Item 1. Legal Proceedings.
    
 Item 4. Submission of Matters to a Vote of Security Holders
   For
    
    WithholdPritam M. Advani
    
    
    58,038,964
    
    
    
    1,898,021Robert P. Bozzone
    
    
    57,446,207
    
    
    
    1,898,021Joseph C. Guyaux
    
    
    56,747,302
    
    
    
    1,898,021
  37




---



##### Table of Contents



For
    
    Against
    
    Abstain58,118,648
    
    
    707,538
    
    
    
    482,675
 
 Item 6. Exhibits.
 2.1
    
    Agreement and Plan of Merger by and among Holdings, Castor Holdings
LLC and Castor Merger Sub, Inc., dated as of July 5, 2006
(incorporated by reference to Exhibit 2.1 to Holdings
Form 8-K filed
with the SEC on July 6, 2006).10.1
    
    Stock Purchase Agreement by and among Holdings, DUET Investment
Holdings Limited and IFM (International Infrastructure) Wholesale
Trust, dated as of July 5, 2006 (incorporated by reference to Exhibit
10.1 to Holdings
Form 8-K filed with the SEC on July 6, 2006).12.1
    
    Holdings Ratio of Earnings to Fixed Charges and Preferred and
Preference Stock Dividend Requirements.12.2
    
    Duquesne Light Ratio of Earnings to Fixed Charges and Preferred and
Preference Stock Dividend Requirements.31.1
    
    Holdings CEO Section 302 Certification.31.2
    
    Holdings CFO Section 302 Certification.31.3
    
    Duquesne Lights CEO Section 302 Certification.31.4
    
    Duquesne Lights CFO Section 302 Certification.32.1
    
    Holdings CEO Section 906 Certification.32.2
    
    Holdings CFO Section 906 Certification.32.3
    
    Duquesne Lights CEO Section 906 Certification.32.4
    
    Duquesne Lights CFO Section 906 Certification.
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##### Table of Contents



SIGNATURES
  Duquesne Light Holdings, Inc.(Registrant)Date: August 9, 2006
    
    /s/ Mark E. Kaplan(Signature)Mark E. KaplanSenior Vice President andChief Financial Officer(Duly Authorized Officer)Date: August 9, 2006
    
    /s/ Susan S. Betta(Signature)Susan S. BettaController(Principal Accounting Officer)
  Duquesne Light Company(Registrant)Date: August 9, 2006
    
    /s/ Mark E. Kaplan(Signature)Mark E. KaplanSenior Vice President andChief Financial Officer(Duly Authorized Officer)Date: August 9, 2006
    
    /s/ Susan S. Betta(Signature)Susan S. BettaController(Principal Accounting Officer)
 39