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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 2005
  o
    
    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
    
    Registrant; State of Incorporation;No.
    
    Address; Telephone Number
    
    IRS Employer Identification1-10290
    
    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
 Securities registered pursuant to Section 12(b) of the Act:
 Name of Each ExchangeRegistrant
    
    Title of Each Class
    
    on Which RegisteredDuquesne Light Holdings, Inc.
    
    Common Stock (no par value)
    
    New York Stock ExchangePhiladelphia Stock ExchangeChicago Stock ExchangeDuquesne Light Company
    
    Preferred Stock ($50 per share liquidation value)
    
    New York Stock Exchange3.75% Series4.00% Series4.10% Series4.15% Series4.20% Series$2.10 Series6.50% Series6.7% Public Income Notes, due 2032
    
    New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act:
 Registrant
    
    Title of Each ClassDuquesne Light Company
    
    Preference Stock, Plan Series A
  þ o
 o þ
  o þ
 o þ
  þ o
 þ o
  þ
 þ
  þ o o
 o o þ
  o þ
 o þ
     Documents incorporated by reference:




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TABLE OF CONTENTS
 PageGLOSSARY OF TERMS
    
    
    4PART IITEM 1. BUSINESS
    
    
    5Corporate Structure
    
    
    5Forward-Looking Statements
    
    
    6Employees
    
    
    6Environmental Matters
    
    
    6Other
    
    
    7Executive Officers of the Registrants
    
    
    8ITEM 1A. RISK FACTORS
    
    
    9ITEM 1B. UNRESOLVED STAFF COMMENTS
    
    
    16ITEM 2. PROPERTIES
    
    
    16ITEM 3. LEGAL PROCEEDINGS
    
    
    17ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    17PART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    17ITEM 6. SELECTED FINANCIAL DATA
    
    
    18ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    19Business Strategy
    
    
    19Overview of Business Segments
    
    
    20Results of Operations
    
    
    23Critical Accounting Policies and Estimates
    
    
    29Liquidity and Capital Resources
    
    
    32Off-Balance Sheet Arrangements
    
    
    34Rate Matters
    
    
    35Forward-Looking Statements
    
    
    35ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    36ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    38Reports of Independent Registered Public Accounting Firm
    
    
    38Holdings Financial Statements
    
    
    41Duquesne Light Financial Statements
    
    
    46ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    89ITEM 9A. CONTROLS AND PROCEDURES
    
    
    89ITEM 9B. OTHER INFORMATION
    
    
    92PART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
    
    
    92ITEM 11. EXECUTIVE COMPENSATION
    
    
    92ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
    
    
    92ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    94ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
    
    
    94PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    94SCHEDULE I
    
    
    99SCHEDULE II
    
    
    103SIGNATURES
    
    
    104EX-10.5EX-10.11EX-10.19EX-10.22EX-10.23EX-10.25EX-10.26EX-12.1EX-12.2EX-21.1EX-23.1EX-23.2EX-31.1EX-31.2EX-31.3EX-31.4EX-32.1EX-32.2EX-32.3EX-32.4EX-99.1
  3




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GLOSSARY OF TERMS
 COMPETITIVE TRANSITION CHARGE (CTC) 
 CUSTOMER CHOICE  Pennsylvania Electricity Generation Customer Choice and Competition Act
 DISTRIBUTION 
 ENERGY COMMODITY CONTRACTS
 FEDERAL ENERGY REGULATORY COMMISSION (FERC) 
 PENNSYLVANIA PUBLIC UTILITY COMMISSION (PUC) 
 PROVIDER OF LAST RESORT (POLR) 
 REGIONAL TRANSMISSION ORGANIZATION (RTO) 
 REGULATORY ASSETS 
 SEAMS ELIMINATION CHARGE ADJUSTMENT (SECA) 
 TRANSITION COSTS 
 TRANSMISSION
 4




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PART I
 
 Item 1. Business.
 
 CORPORATE STRUCTURE
 Part I of this Annual Report on Form 10-K should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II,
Item 7, and with the audited consolidated financial statements, set forth in Part II, Item 8.
    Continuing Operations
  Pennsylvania Electricity Generation Customer Choice and Competition Act
     5




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Proposed Acquisition
  Service Areas and Customer Concentrations
   Regulation
  Business Segments
  
 FORWARD-LOOKING STATEMENTS
  
 EMPLOYEES
  
 ENVIRONMENTAL MATTERS
 Legacy Liabilities
 Residual Waste
Management Regulations
 6




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Discontinued Operations
 Safe Drinking Water Act Clean Water Act
    
 OTHER
 Recent Accounting Pronouncements
   Proposed Accounting Standards
  7




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Pending Litigation
  Available Information
  
 EXECUTIVE OFFICERS OF THE REGISTRANTS
   Morgan K. OBrien
  Joseph G. Belechak
  Maureen L. Hogel
  Mark E. Kaplan
   William F. Fields
  John R. Schmitt
 8




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Stevan R. Schott
  James E. Wilson
  
 Item 1A. Risk Factors.
 We are subject to substantial governmental regulation. If we receive unfavorable regulatory
treatment, our business could be negatively affected.
      Shifting federal and state regulatory policies impose risks on our operations.
   9




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Our financial obligations under the Seams Elimination Charge Adjustment remain uncertain.
 i.e.
    We may be required to make additional state tax payments for adjustments proposed by the
Pennsylvania Department of Revenue.
   We are subject to risks associated with our POLR III obligations.
  10




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We are subject to risks associated with procuring energy and capacity for Duquesne Lights
small customers and DLEs customers.
   The pending acquisition of ownership interests in the Keystone and Conemaugh generation
stations will subject us to risks that we do not currently face.
  
    
    the plants ability to operate at expected capacity factors;
    
    unforeseen operating problems and capital and other expenditures, including unforeseen
environmental compliance costs;
    
    equipment failures;
    
    the ability to comply with applicable regulations;
    
    unanticipated cost increases;
    
    labor force matters;
    
    weather-related incidents;
    
    the impact of changes in environmental laws and regulations; and
    
    the ability to finance the acquisition.
  
    
    cost and availability of fuel; and
    
    changes in market prices of power.
 Events or circumstances that adversely affect our financial position could result in defaults
under our credit agreements.
  11




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The cost of compliance with environmental laws is significant. The costs of compliance with
new environmental laws and the incurrence of environmental liabilities could adversely affect our
cash flow and profitability.
   Our operating results fluctuate on a seasonal basis and can be adversely affected by changes
in weather.
    We may be adversely affected by economic conditions.
  Our insurance coverage may not be sufficient to cover all casualty losses that we might incur.
  Our transmission facilities are interconnected with the facilities of other transmission
facility owners whose actions may have a negative impact on our operations.
  12




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Physical limitations in the electricity transmission system may give rise to increases in
electric transmission congestion charges.
  We are dependent on our ability to cost-effectively access capital markets. Our inability to
obtain capital on acceptable terms may adversely affect our business. A reduction in our credit
ratings could increase our borrowing costs.
    We may have difficulty retaining our aging utility workforce or finding skilled personnel to
replace them.
  Labor disputes may have a material adverse effect on our operations and profitability.
  13




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Our revenues and results of operations are subject to other risks beyond our control,
including, but not limited to, accidents, storms, natural catastrophes and terrorism.
  Changes in financial or regulatory accounting principles or policies could affect our future
earnings or cash flows.
  We may experience a significant reduction in our earnings as a result of the December 31, 2007
expiration or the earlier phase-out of certain tax credits related to our synthetic fuel and
landfill gas projects.
     Natural gas prices are volatile, and a decline in natural gas prices would significantly
affect our landfill gas business financial results and impede its growth.
  
    
    weather conditions;
    
    technological advances affecting energy consumption;
    
    governmental regulations;
    
    proximity and capacity of pipelines and other transportation facilities; and
    
    the price and availability of alternative fuels.
 Our significant indebtedness could adversely affect our business.
  14




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
    
    make it more difficult for us to satisfy our obligations related to any such indebtedness;
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    require us to dedicate a substantial portion of our cash flow from operations to payments
on our indebtedness, thereby reducing the availability of our cash flow to fund working
capital, capital expenditures, acquisitions and other general corporate purposes;
    
    limit our flexibility in planning for, or reacting to, changes in our business and the
industries in which we operate;
    
    place us at a disadvantage compared to competitors that have less debt; and
    
    limit our ability to borrow additional funds or refinance existing debt.
  Our ability to pay dividends or service indebtedness is largely dependent upon the earnings of
our subsidiaries and the distribution of such earnings to us.
     We cannot assure investors that future dividend payments will be made, or if made, in what
amounts they may be paid.
  15




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Because Duquesne Light is a wholly owned subsidiary of Holdings, Holdings can exercise
substantial control over its dividend policy and business and operations.
  
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties.
    Holdings PP&E and Related Accumulated Depreciation
 (Millions of Dollars)as of December 31, 2005Accumulated
    
    NetInvestment
    
    Depreciation
    
    InvestmentDuquesne Light
electric plant
    
    $
    2,235.8
    
    
    $
    738.5
    
    
    $
    1,497.3Fiber optic
network
    
    
    32.9
    
    
    
    9.2
    
    
    
    23.7Other energy
facilities
    
    
    21.1
    
    
    
    8.6
    
    
    
    12.5Landfill gas
    
    
    19.0
    
    
    
    11.9
    
    
    
    7.1Other  Holdings
    
    
    6.8
    
    
    
    5.3
    
    
    
    1.5Total
    
    $
    2,315.6
    
    
    $
    773.5
    
    
    $
    1,542.1
 (Millions of Dollars)as of December 31, 2004Accumulated
    
    NetInvestment
    
    Depreciation
    
    InvestmentDuquesne Light
electric plant
    
    $
    2,120.8
    
    
    $
    714.5
    
    
    $
    1,406.3Fiber optic
network
    
    
    30.1
    
    
    
    7.2
    
    
    
    22.9Other energy
facilities
    
    
    28.3
    
    
    
    10.4
    
    
    
    17.9Landfill gas
    
    
    22.2
    
    
    
    13.4
    
    
    
    8.8Other  Holdings
    
    
    9.0
    
    
    
    5.5
    
    
    
    3.5Total
    
    $
    2,210.4
    
    
    $
    751.0
    
    
    $
    1,459.4
  16




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Item 3.
    
    Legal Proceedings.
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders.
   
 PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities.
     (a)
    
    (b)
    
    (c)
    
    (d)Totalnumber
    
    Maximumof shares
    
    number ofpurchased
    
    shares thatas part of
    
    may yet beTotal
    
    Average
    
    publicly
    
    purchasednumber
    
    price
    
    announced
    
    under theof shares
    
    paid per
    
    plans or
    
    plans orPeriod
    
    purchased
    
    share
    
    programs
    
    programsOct. 1-31
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Nov. 1- 30
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Dec. 1- 31
    
    
    26,309
    
    
    $
    16.50
    
    
    
    
    
    
    
    Total
    
    
    26,309
    
    
    $
    16.50
    
    
    
    
    
    
    
    
  
 17




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Item 6. Selected Financial Data.
 Duquesne Light Holdings
    
    (Millions of Dollars, Except Per Share Amounts)2005
    
    2004
    
    2003
    
    2002
    
    2001Income Statement ItemsTotal operating revenues (a)
    
    $
    922.2
    
    
    $
    897.3
    
    
    $
    902.8
    
    
    $
    1,026.0
    
    
    $
    1,142.4Operating income (b)
    
    
    178.3
    
    
    
    150.7
    
    
    
    150.9
    
    
    
    95.7
    
    
    
    3.8Income (loss) from continuing operations
before taxes, limited partners interest
and cumulative effect of change in
accounting principle (b) (c)
    
    
    155.8
    
    
    
    100.4
    
    
    
    110.9
    
    
    
    15.1
    
    
    
    (121.9
    )Income tax expense (benefit)
    
    
    53.0
    
    
    
    20.6
    
    
    
    17.7
    
    
    
    (11.6
    )
    
    
    (77.4
    )Income (loss) from continuing operations
    
    
    112.9
    
    
    
    87.2
    
    
    
    93.2
    
    
    
    26.7
    
    
    
    (44.5
    )Cumulative effect of change in
accounting principle (d)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (113.7
    )
    
    
    Earnings (loss) available for common stock
    
    
    114.2
    
    
    
    87.0
    
    
    
    175.5
    
    
    
    (215.2
    )
    
    
    (153.9
    )Basic EPS from continuing operations (e)
    
    
    1.45
    
    
    
    1.14
    
    
    
    1.24
    
    
    
    0.40
    
    
    
    (0.80
    )Basic EPS (e)
    
    
    1.47
    
    
    
    1.14
    
    
    
    2.34
    
    
    
    (3.28
    )
    
    
    (2.75
    )Balance Sheet ItemsProperty, plant and equipment  net
    
    $
    1,542.1
    
    
    $
    1,459.4
    
    
    $
    1,437.3
    
    
    $
    1,425.5
    
    
    $
    1,431.5Total assets
    
    
    2,820.6
    
    
    
    2,632.8
    
    
    
    2,540.8
    
    
    
    2,800.8
    
    
    
    3,235.7CapitalizationCommon shareholders equity
    
    $
    655.9
    
    
    $
    610.4
    
    
    $
    575.4
    
    
    $
    452.6
    
    
    $
    508.5Preferred and preference stock (f)
    
    
    147.5
    
    
    
    146.9
    
    
    
    70.7
    
    
    
    93.2
    
    
    
    85.6Duquesne Light obligated mandatorily
redeemable preferred securities (g)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150.0
    
    
    
    150.0Long-term debt (g) (h)
    
    
    957.8
    
    
    
    958.0
    
    
    
    977.5
    
    
    
    1,082.0
    
    
    
    1,184.5Total Capitalization
    
    $
    1,761.2
    
    
    $
    1,715.3
    
    
    $
    1,623.6
    
    
    $
    1,777.8
    
    
    $
    1,928.6Dividends declared per share
    
    $
    1.00
    
    
    $
    1.00
    
    
    $
    1.00
    
    
    $
    1.34
    
    
    $
    1.68
 (a)
    
    Total operating revenues increased in 2005, primarily due to the higher average
generation rates charged, and the increase in pipeline quality landfill gas sales. Total
operating revenues declined from 2001 through 2004 due to the collection of Duquesne Lights
allocated CTC balance.(b)
    
    Operating income in 2005 was positively impacted by the $16.1 million increase in the fair
value of certain derivative energy contracts, the $13.2 million gain on asset sales, and was
negatively impacted by the $6.7 million charge related to an energy facility management
project. (See Notes 3 and 4.) Results were negatively impacted by the $8.3 million Sunbury
acquisition termination cost in 2004. (See Note 3.) Results were negatively impacted by
asset impairment charges of $30.2 million and $67.3 million and restructuring charges of
$5.2 million and $27.9 million in 2002 and 2001. (See Note 9.)(c)
    
    Results in 2005 were positively impacted by $24.1 million of gains on asset and investment
sales. Results were negatively impacted by investment impairment charges of $33.7 million
and $61.7 million in 2002 and 2001.(d)
    
    Holdings changed its method of accounting for goodwill and other intangible assets in 2002.(e)
    
    Beginning in 2002, earnings per share were impacted by the public offering of approximately
17 million shares of common stock.(f)
    
    This reflects the 2004 issuance, at par, of $75 million of Duquesne Light preferred stock.
(See Note 15.)(g)
    
    Adoption of SFAS No. 150 required reclassification to long-term debt.(h)
    
    Proceeds from the sale of AquaSource were used to reduce long-term debt in 2003. 18




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Duquesne Light Company
    
    (Millions of Dollars)2005
    
    2004
    
    2003
    
    2002
    
    2001Income Statement ItemsTotal operating revenues (a)
    
    $
    792.4
    
    
    $
    789.3
    
    
    $
    806.1
    
    
    $
    944.6
    
    
    $
    1,053.6Operating income (b)
    
    
    147.3
    
    
    
    141.7
    
    
    
    155.1
    
    
    
    161.5
    
    
    
    120.1Net income
    
    
    73.0
    
    
    
    67.8
    
    
    
    69.6
    
    
    
    75.4
    
    
    
    53.4Earnings available for common stock
    
    
    65.0
    
    
    
    61.2
    
    
    
    66.4
    
    
    
    72.1
    
    
    
    50.0Balance Sheet ItemsProperty, plant and equipment  net (c)
    
    $
    1,497.3
    
    
    $
    1,406.3
    
    
    $
    1,382.7
    
    
    $
    1,364.9
    
    
    $
    1,344.9Total assets (d)
    
    
    2,123.1
    
    
    
    2,293.0
    
    
    
    2,209.2
    
    
    
    2,488.2
    
    
    
    2,570.0CapitalizationCommon shareholders equity (e)
    
    $
    630.6
    
    
    $
    531.4
    
    
    $
    530.1
    
    
    $
    521.0
    
    
    $
    526.7Non-redeemable preferred and
preference stock (f)
    
    
    146.5
    
    
    
    145.9
    
    
    
    69.7
    
    
    
    69.8
    
    
    
    68.2Company obligated mandatorily redeemable
preferred securities (g)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150.0
    
    
    
    150.0Long-term debt (g) (h)
    
    
    636.5
    
    
    
    956.4
    
    
    
    857.7
    
    
    
    959.5
    
    
    
    1,061.1Total Capitalization
    
    $
    1,413.6
    
    
    $
    1,633.7
    
    
    $
    1,457.5
    
    
    $
    1,700.3
    
    
    $
    1,806.0Dividends declared (e)
    
    $
    13.0
    
    
    $
    58.0
    
    
    $
    65.0
    
    
    $
    75.0
    
    
    $
    52.7
 (a)
    
    Total operating revenues increased in 2005 due to the higher average generation rates
charged under the POLR III arrangement, partially offset by a decline in large commercial and
industrial customer retention. Total operating revenues declined from 2001 through 2004 due to
the collection of the allocated CTC balance.(b)
    
    Results were positively impacted by the $16.1 million increase in the fair value of certain
derivative energy contracts in 2005. (See Note 4.) Results were negatively impacted by the
$8.3 million Sunbury acquisition termination cost in 2004. (See Note 3.) Results were
negatively impacted by restructuring charges of $3.7 million and $10.8 million in 2002 and
2001. (See Note 9.)(c)
    
    During 2005, Duquesne Light embarked on a significant capital expenditure program.(d)
    
    This reflects the repayment from Holdings, of a $250 million loan in 2005.(e)
    
    As a result of the significant capital expenditure program started in 2005, Duquesne Light
has been retaining more of its earnings. During 2005, Duquesne Light received $82.5 million of
equity contributions from Holdings.(f)
    
    This reflects the 2004 issuance, at par, of $75 million of Duquesne Light preferred stock.
(See Note 15.)(g)
    
    Adoption of SFAS No. 150 required reclassification to long-term debt.(h)
    
    Duquesne Light used proceeds from the repayment of its loan to Holdings to reduce long-term
debt in 2005. (See Note 14.) Duquesne Light reduced its investment in the DQE Capital cash
pool to reduce long-term debt in 2003. 
 Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
  
 BUSINESS STRATEGY
  Duquesne Light:
 
    
    Continue to make prudent investments in both our transmission infrastructure and distribution infrastructure.
 
    
    Maintain our high standards for reliability and customer service.
 19




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
    
    File a distribution rate case with the PUC.
 
    
    File a transmission rate case with the FERC.
 Energy Supply Opportunities:
 
    
    Continue to actively manage supply requirements for both
Duquesne Lights residential and small commercial POLR III
customers and DLEs customers, through Duquesne Power or
our other unregulated subsidiaries, using sound risk
management policies.
 
    
    Maximize large commercial and industrial customer retention
through our unregulated retail electric generation
supplier, DLE.
 
    
    Strategically align our unregulated energy supply
subsidiaries outside Duquesne Light to provide greater
flexibility to capitalize on opportunities that may arise.
 
    
    Proceed with closing the planned acquisition of the
interests in the Keystone and Conemaugh power plants,
providing a physical hedge to complement our portfolio of
energy commodity contracts for our supply plan.
 
    
    Continue to evaluate additional power plant acquisitions.
 Complementary Businesses:
 
    
    Focus on expanding landfill gas and related businesses to
capitalize on current market conditions utilizing our
existing position within the marketplace, while helping to
solve a growing environmental challenge.
 
    
    Identify and develop other unregulated investments that are
both closely aligned with our business strategy and that
provide reasonable prospects for a fair return and moderate
growth.
 
    
    Continue to divest non-core investments that are not
consistent with our overall business strategy, while
maximizing sale proceeds.
 Financing:
 
    
    Use the most cost efficient sources of funds to finance the
continued infrastructure investment, proposed acquisition of
power plant interests, landfill gas investments and general
corporate purposes.
 
    
    Continue to improve credit quality and maintain acceptable
levels of liquidity.





OVERVIEW OF BUSINESS SEGMENTS








Electricity Delivery Business


20



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Supply Business.
      21




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2006 Supply Business Realignment.
   Landfill
Gas Business.
    22




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Energy Solutions Business.
 Asset Divestitures
  
 RESULTS OF OPERATIONS
 Overall Performance
 2005 Compared to 2004
    
    
    DES earnings increased $13.2 million, primarily as a result of $19.4 million in
after-tax gains on the sale of investments in three energy facility management projects
during 2005, partially offset by $6.7 million of charges related to another energy facility
management project.
    
    Earnings from DQE Financial increased $3.8 million, primarily as a result of a $4.9
million increase in earnings from operations related to pipeline quality landfill gas.
    
    DQE Communications earnings increased $0.8 million, as a result of increased revenues
from new and existing customers.
    
    Holdings earnings also include a $2.4 million after-tax gain resulting from the
settlement of an interest rate lock agreement during 2005, the reduction of $3.9 million in
after-tax administrative costs discussed above, partially offset by increased operating
expenses associated with the current IRS audit.
 2004 Compared to 2003
    23




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##### Table of Contents




    
    Earnings from DQE Financial decreased $6.8 million from
2003, primarily due to a $9.7 million decrease in earnings
from structured lease investments primarily as a result of the
IRS settlement and a $7.0 million after-tax gain, recognized
in 2003, on the sale of an investment in a natural gas
operating partnership. These decreases were partially offset
by an $8.2 million increase in earnings related to our
landfill gas business.
    
    Earnings from DES increased $2.4 million primarily due to
lower employee compensation costs.
    
    Earnings from DQE Communications increased $0.9 million
primarily due to revenue growth from new and existing
customers.
  RESULTS OF OPERATIONS BY BUSINESS SEGMENT
 2005 Compared to 2004
 Electricity Delivery Business Segment.
   MWh Delivered(In Thousands)2005
    
    2004
    
    ChangeResidential
    
    
    4,134
    
    
    
    3,886
    
    
    
    6.4
    %Commercial
    
    
    6,635
    
    
    
    6,522
    
    
    
    1.7
    %Industrial
    
    
    3,128
    
    
    
    3,229
    
    
    
    (3.1
    %)13,897
    
    
    
    13,637
    
    
    
    1.9
    %
    24




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##### Table of Contents



Duquesne Light Supply Business Segment.
 Earnings(In Millions)2005
    
    2004
    
    ChangeResidential and small
commercial
    
    $
    19.0
    
    
    $
    13.9
    
    
    $
    5.1Large commercial
and industrial
    
    
    
    
    
    
    4.6
    
    
    
    (4.6
    )Derivative energy
contracts
    
    
    9.4
    
    
    
    
    
    
    
    9.4Acquisition termination
cost
    
    
    
    
    
    
    (4.8
    )
    
    
    4.8Total Earnings
    
    $
    28.4
    
    
    $
    13.7
    
    
    $
    14.7
      MWh Supplied(In Thousands)2005POLR I
    
    POLR III
    
    TotalResidential and
small commercial
    
    
    
    
    
    
    5,631
    
    
    
    5,631Large commercial
and industrial
    
    
    912
    
    
    
    278
    
    
    
    1,190Total Retail
    
    
    912
    
    
    
    5,909
    
    
    
    6,821Wholesale
    
    
    
    
    
    
    
    
    
    
    1,048POLR Customers (MWh basis):Residential and small commercial
    
    
    
    
    
    
    
    
    
    
    75
    %Large commercial and industrial
    
    
    
    
    
    
    
    
    
    
    19
    %
 25




---



##### Table of Contents



MWh Supplied(In Thousands)2004POLR I
    
    POLR II
    
    TotalResidential and
small commercial
    
    
    
    
    
    
    5,322
    
    
    
    5,322Large commercial
and industrial
    
    
    1,622
    
    
    
    2,121
    
    
    
    3,743Total Retail
    
    
    1,622
    
    
    
    7,443
    
    
    
    9,065Wholesale
    
    
    
    
    
    
    
    
    
    
    311POLR Customers (MWh basis):Residential and small commercial
    
    
    
    
    
    
    
    
    
    
    74
    %Large commercial and industrial
    
    
    
    
    
    
    
    
    
    
    58
    %
    CTC Business Segment.
 Electricity Supply Business Segment.
   MWh Supplied(In Thousands)2005
    
    2004Duquesne Light
    
    
    6,821
    
    
    
    9,065DLE
    
    
    932
    
    
    
    Total Retail
    
    
    7,753
    
    
    
    9,065
 Energy Solutions Business Segment.
  26




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##### Table of Contents



Financial Business Segment.
      Communications Business Segment.
 All Other.
 2004 Compared to 2003
 Electricity Delivery Business Segment.
  27




---



##### Table of Contents



MWh Delivered
 (In Thousands)2004
    
    2003
    
    ChangeResidential
    
    
    3,886
    
    
    
    3,759
    
    
    
    3.4
    %Commercial
    
    
    6,522
    
    
    
    6,415
    
    
    
    1.7
    %Industrial
    
    
    3,229
    
    
    
    3,189
    
    
    
    1.3
    %13,637
    
    
    
    13,363
    
    
    
    2.1
    %
     Duquesne Light Supply and Electricity Supply Business Segments.
  MWh Supplied
 (In Thousands)2004POLR I
    
    POLR II
    
    TotalResidential
    
    
    
    
    
    
    2,886
    
    
    
    2,886Commercial
    
    
    84
    
    
    
    3,707
    
    
    
    3,791Industrial
    
    
    1,538
    
    
    
    850
    
    
    
    2,388Total
    
    
    1,622
    
    
    
    7,443
    
    
    
    9,065POLR Retention (MWh basis)
    
    
    
    
    
    
    
    
    
    
    66
    %
 MWh Supplied
 (In Thousands)2003POLR I
    
    POLR II
    
    TotalResidential
    
    
    57
    
    
    
    2,673
    
    
    
    2,730Commercial
    
    
    242
    
    
    
    4,110
    
    
    
    4,352Industrial
    
    
    1,641
    
    
    
    931
    
    
    
    2,572Total
    
    
    1,940
    
    
    
    7,714
    
    
    
    9,654POLR Retention (MWh basis)
    
    
    
    
    
    
    
    
    
    
    72
    %
   CTC Business Segment.
  Energy Solutions Business Segment
  28




---



##### Table of Contents



Financial Business Segment.
      Communications Business Segment.
 All Other.
 
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  29




---



##### Table of Contents



Accounting for the Effects of Regulation.
 Unbilled Electricity Revenues.
 Impairment of Long-Lived Assets and Investments.
 Pension and Other Postretirement Benefit Plan Assumptions.
  30




---



##### Table of Contents



Income Taxes.
   Derivative Instruments.
 31




---



##### Table of Contents



Contingent Liabilities.
 
 LIQUIDITY AND CAPITAL RESOURCES
  Cash Flows from Operating Activity.
 Cash Flows from Investing Activity.
   Cash Flows from Financing Activity.
 32




---



##### Table of Contents



Financing Plan
    Liquidity
   Bank Credit Facilities.
  33




---



##### Table of Contents



Committed
    
    
    
    
    
    LOCs
    
    AvailableCapacity
    
    Borrowed
    
    Issued
    
    CapacityHoldings
    
    $
    200.0
    
    
    $
    40.0
    
    
    $
    71.4
    
    
    $
    88.6Duquesne
Light
    
    
    100.0
    
    
    
    
    
    
    
    8.2
    
    
    
    91.8Total
    
    $
    300.0
    
    
    $
    40.0
    
    
    $
    79.6
    
    
    $
    180.4
   Committed
    
    
    
    
    
    LOCs
    
    AvailableCapacity
    
    Borrowed
    
    Issued
    
    CapacityHoldings
    
    $
    250.0
    
    
    $
    60.0
    
    
    $
    76.4
    
    
    $
    113.6Duquesne
Light
    
    
    150.0
    
    
    
    
    
    
    
    8.2
    
    
    
    141.8Total
    
    $
    400.0
    
    
    $
    60.0
    
    
    $
    84.6
    
    
    $
    255.4
  Current Maturities of Long-Term Debt.
 Ratings Triggers.
 
 OFF-BALANCE SHEET ARRANGEMENTS
  34




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##### Table of Contents



Contractual Obligations and Commitments
  Payments Due By Period
 (Millions of Dollars)Less than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsShort-Term Borrowings
    
    $
    40.0
    
    
    $
    40.0
    
    
    $
    
    
    
    $
    
    
    
    $
    Long-Term Debt  PrincipalDuquesne Light
    
    
    637.9
    
    
    
    
    
    
    
    40.0
    
    
    
    
    
    
    
    597.9Holdings and Other Affiliates (a)
    
    
    321.6
    
    
    
    0.3
    
    
    
    0.6
    
    
    
    0.6
    
    
    
    320.1Long-Term Debt  InterestDuquesne Light
    
    
    389.9
    
    
    
    38.2
    
    
    
    74.2
    
    
    
    71.2
    
    
    
    206.3Holdings and Other Affiliates
    
    
    323.6
    
    
    
    18.6
    
    
    
    37.1
    
    
    
    37.0
    
    
    
    230.9Energy Commodity Contracts
    
    
    799.4
    
    
    
    421.7
    
    
    
    377.7
    
    
    
    
    
    
    
    Operating LeasesDuquesne Light
    
    
    23.8
    
    
    
    4.6
    
    
    
    8.1
    
    
    
    7.6
    
    
    
    3.5Other Affiliates
    
    
    3.1
    
    
    
    0.5
    
    
    
    1.1
    
    
    
    1.0
    
    
    
    0.5IRS Settlement Payment
    
    
    53.6
    
    
    
    53.6
    
    
    
    
    
    
    
    
    
    
    
    Landfill Gas Contractual Obligation
    
    
    7.4
    
    
    
    7.4
    
    
    
    
    
    
    
    
    
    
    
    Legacy Liability Obligations  Duquesne Light
    
    
    29.8
    
    
    
    1.6
    
    
    
    2.4
    
    
    
    2.0
    
    
    
    23.8Restructuring  Duquesne Light
    
    
    0.8
    
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    2,630.9
    
    
    $
    587.3
    
    
    $
    541.2
    
    
    $
    119.4
    
    
    $
    1,383.0
 (a)
    
    Includes current maturities.
 
 RATE MATTERS
 Distribution Rate Case and Transmission Rate Case
   Seams Elimination Charge Adjustment
  
 FORWARD-LOOKING STATEMENTS
  35




---



##### 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.
    
    Duquesne Lights earnings will be affected by the number of customers who choose to
receive electric generation through POLR III, by our ability to negotiate appropriate terms
with suitable generation suppliers, and by the performance of these suppliers.
    
    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 ultimate structure of our
distribution rate case, which in turn will be subject to 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 FERC review and approval. Earnings will also be
affected by rate base, equity and allowed return levels.
    
    RTO rules and FERC-mandated transmission charges could affect earnings.
    
    Changes in electric energy prices could affect earnings as the fair value of our energy
commodity contracts fluctuates.
    
    The amount and timing of any debt reduction or refinancing will depend on the availability
of cash flows and appropriate replacement or refinancing vehicles.
    
    The amount and timing of any securities issuance (debt or equity) will depend on financial
market performance and the need for funds.
    
    The credit ratings received from the rating agencies could affect the cost of borrowing,
access to capital markets and liquidity.
    
    Changes in synthetic fuel plant operations owned by a single customer could affect DES
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.
    
    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.
 
 Item 7A.
    
    Quantitative and Qualitative
Disclosures About Market Risk.
   Interest Rate Risk.
  Commodity Price Risk.
  36




---



##### Table of Contents



Electricity Supply.
       Landfill Gas Sales.
 Credit/Default Risk.
  37




---



##### Table of Contents



Tax Credit Phase-Out.
     
 Item 8.
    
    Consolidated Financial Statements
and Supplementary Data.
 
 REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   38




---



##### Table of Contents



Internal ControlIntegrated
Framework
 
      39




---



##### Table of Contents



Internal ControlIntegrated Framework
  
 40




---



##### Table of Contents



Duquesne Light Holdings, Inc.
 Consolidated Statements of Income
 (All Amounts in Millions,Except Per Share Amounts)Year Ended December 31,2005
    
    
    2004
    
    
    2003Operating Revenues:Retail sales of electricity
    
    $
    772.6
    
    
    $
    761.8
    
    
    $
    780.8Other
    
    
    149.6
    
    
    
    135.5
    
    
    
    122.0Total Operating Revenues
    
    
    922.2
    
    
    
    897.3
    
    
    
    902.8Operating Expenses:Purchased power
    
    
    366.8
    
    
    
    382.0
    
    
    
    393.7Other operating and maintenance
    
    
    250.1
    
    
    
    224.4
    
    
    
    221.8Acquisition termination cost (Note 3)
    
    
    
    
    
    
    8.3
    
    
    
    Depreciation and amortization
    
    
    82.3
    
    
    
    83.4
    
    
    
    87.3Taxes other than income taxes
    
    
    54.0
    
    
    
    48.5
    
    
    
    49.1Other (Note 3)
    
    
    (9.3
    )
    
    
    
    
    
    
    Total Operating Expenses
    
    
    743.9
    
    
    
    746.6
    
    
    
    751.9Operating Income
    
    
    178.3
    
    
    
    150.7
    
    
    
    150.9Investment and Other Income
    
    
    40.1
    
    
    
    12.7
    
    
    
    34.4Interest and Other Charges
    
    
    (62.6
    )
    
    
    (63.0
    )
    
    
    (74.4
    )Income from Continuing Operations Before Income Taxes
and Limited Partners Interest
    
    
    155.8
    
    
    
    100.4
    
    
    
    110.9Income Tax Expense
    
    
    (53.0
    )
    
    
    (20.6
    )
    
    
    (17.7
    )Benefit from Limited Partners Interest
    
    
    10.1
    
    
    
    7.4
    
    
    
    Income from Continuing Operations
    
    
    112.9
    
    
    
    87.2
    
    
    
    93.2Income (Loss) from Discontinued Operations  Net (Note 17)
    
    
    1.3
    
    
    
    (0.2
    )
    
    
    82.7Net Income
    
    
    114.2
    
    
    
    87.0
    
    
    
    175.9Dividends on Preferred Stock (Note 15)
    
    
    
    
    
    
    
    
    
    
    0.4Earnings Available for Common Stock
    
    $
    114.2
    
    
    $
    87.0
    
    
    $
    175.5Average Number of Common Shares Outstanding
    
    
    77.7
    
    
    
    76.4
    
    
    
    75.0Basic Earnings Per Share of Common Stock:Earnings from Continuing Operations
    
    $
    1.45
    
    
    $
    1.14
    
    
    $
    1.24Earnings from Discontinued Operations
    
    
    0.02
    
    
    
    
    
    
    
    1.10Basic Earnings Per Share of Common Stock
    
    $
    1.47
    
    
    $
    1.14
    
    
    $
    2.34Diluted Earnings Per Share of Common Stock:Earnings from Continuing Operations
    
    $
    1.45
    
    
    $
    1.14
    
    
    $
    1.22Earnings from Discontinued Operations
    
    
    0.02
    
    
    
    
    
    
    
    1.07Diluted Earnings Per Share of Common Stock
    
    $
    1.47
    
    
    $
    1.14
    
    
    $
    2.29Dividends Declared Per Share of Common Stock
    
    $
    1.00
    
    
    $
    1.00
    
    
    $
    1.00
  41




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Duquesne Light Holdings, Inc.
Consolidated Balance Sheets
 (Millions of Dollars)As of December 31,2005
    
    
    2004AssetsCurrent Assets:Cash and temporary cash investments
    
    $
    79.2
    
    
    $
    62.7Receivables:Electric customers
    
    
    76.2
    
    
    
    75.8Unbilled electric customers
    
    
    32.1
    
    
    
    31.3Other
    
    
    27.1
    
    
    
    26.5Less: Allowance for uncollectible accounts
    
    
    (21.1
    )
    
    
    (18.1
    )Total Receivables  Net
    
    
    114.3
    
    
    
    115.5Materials and supplies (at average cost)
    
    
    18.1
    
    
    
    14.6Derivative instruments
    
    
    43.3
    
    
    
    0.8Deferred income taxes  net
    
    
    28.9
    
    
    
    Other
    
    
    8.4
    
    
    
    27.2Discontinued operations
    
    
    1.7
    
    
    
    Total Current Assets
    
    
    293.9
    
    
    
    220.8Long-Term Investments:Leases
    
    
    505.8
    
    
    
    512.1Gas rights and related investments
    
    
    9.9
    
    
    
    16.9Affordable housing
    
    
    31.5
    
    
    
    42.9Other
    
    
    2.7
    
    
    
    8.0Total Long-Term Investments
    
    
    549.9
    
    
    
    579.9Property, Plant and Equipment:Electric plant in service
    
    
    2,176.7
    
    
    
    2,052.9Construction work in progress  electric
    
    
    59.1
    
    
    
    67.9Fiber optic network
    
    
    32.9
    
    
    
    30.1Other energy facilities
    
    
    21.1
    
    
    
    28.3Landfill gas equipment
    
    
    19.0
    
    
    
    22.2Other
    
    
    6.8
    
    
    
    9.0Gross property plant and equipment
    
    
    2,315.6
    
    
    
    2,210.4Less: Accumulated depreciation and amortization
    
    
    (773.5
    )
    
    
    (751.0
    )Property, Plant and Equipment  Net
    
    
    1,542.1
    
    
    
    1,459.4Other Non-Current Assets:Regulatory assets
    
    
    300.0
    
    
    
    295.1Prepaid pension cost
    
    
    31.2
    
    
    
    26.1Intangible assets
    
    
    52.4
    
    
    
    16.3Other
    
    
    51.1
    
    
    
    35.2Total Other Non-Current Assets
    
    
    434.7
    
    
    
    372.7Total Assets
    
    $
    2,820.6
    
    
    $
    2,632.8
  42




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Duquesne Light Holdings, Inc.
Consolidated Balance Sheets
 (Millions of Dollars)As of December 31,2005
    
    
    2004Liabilities and CapitalizationCurrent Liabilities:Short-term debt and current debt maturities
    
    $
    40.3
    
    
    $
    0.2Accounts payable
    
    
    93.0
    
    
    
    91.7Accrued taxes
    
    
    64.6
    
    
    
    33.8Accrued
compensation
    
    
    20.0
    
    
    
    18.1Common stock dividends
    
    
    20.0
    
    
    
    19.5Pension liability
    
    
    20.0
    
    
    
    Accrued interest
    
    
    15.9
    
    
    
    9.8Other
    
    
    42.2
    
    
    
    33.7Discontinued operations
    
    
    2.5
    
    
    
    3.4Total Current Liabilities
    
    
    318.5
    
    
    
    210.2Non-Current Liabilities:Deferred income taxes  net
    
    
    451.4
    
    
    
    408.2Deferred income
    
    
    2.8
    
    
    
    12.3Pension liability
    
    
    92.8
    
    
    
    62.9Other postretirement benefits
    
    
    40.7
    
    
    
    38.1Legacy liabilities
    
    
    29.8
    
    
    
    32.1Other
    
    
    88.0
    
    
    
    105.7Total Non-Current Liabilities
    
    
    705.5
    
    
    
    659.3Limited partners interest
    
    
    35.4
    
    
    
    48.0Commitments and contingencies (Note 13)Capitalization:Long-term debt
    
    
    957.8
    
    
    
    958.0Preferred and Preference Stock:(aggregate involuntary liquidation value of $149.8 and $151.0):Preferred stock of subsidiaries
    
    
    136.6
    
    
    
    136.6Preference stock of subsidiaries
    
    
    13.3
    
    
    
    14.5Total preferred and preference stock before deferred
employee stock ownership plan (ESOP) benefit
    
    
    149.9
    
    
    
    151.1Deferred ESOP benefit
    
    
    (2.4
    )
    
    
    (4.2
    )Total Preferred and Preference Stock
    
    
    147.5
    
    
    
    146.9Common Shareholders Equity:Common stock  no par value (authorized 
187,500,000 shares; issued  126,929,154 shares)
    
    
    1,200.5
    
    
    
    1,206.7Retained earnings
    
    
    600.0
    
    
    
    563.6Treasury
stock (at cost) (48,935,435 and 49,927,343 shares)
    
    
    (1,132.5
    )
    
    
    (1,157.3
    )Unearned compensation (Note 12)
    
    
    (1.8
    )
    
    
    (2.6
    )Accumulated other comprehensive loss
    
    
    (10.3
    )
    
    
    Total Common Shareholders Equity
    
    
    655.9
    
    
    
    610.4Total Capitalization
    
    
    1,761.2
    
    
    
    1,715.3Total Liabilities and Capitalization
    
    $
    2,820.6
    
    
    $
    2,632.8
  43




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Duquesne Light Holdings, Inc.
Consolidated Statements of Cash Flows
 (Millions of Dollars)Year Ended December 31,2005
    
    
    2004
    
    
    2003Cash Flows From Operating Activities:Net income
    
    $
    114.2
    
    
    $
    87.0
    
    
    $
    175.9Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    82.3
    
    
    
    83.4
    
    
    
    87.3Bad debt expense
    
    
    19.3
    
    
    
    12.0
    
    
    
    10.8Derivative instruments
    
    
    (8.8
    )
    
    
    
    
    
    
    Impairment of long-lived assets
    
    
    3.9
    
    
    
    
    
    
    
    Acquisition termination cost
    
    
    
    
    
    
    8.3
    
    
    
    Capital lease and investment amortization
    
    
    4.2
    
    
    
    8.0
    
    
    
    13.0Investment income
    
    
    (6.2
    )
    
    
    (8.2
    )
    
    
    (20.8
    )Gain on disposition of investments/assets
    
    
    (37.5
    )
    
    
    
    
    
    
    (12.1
    )Deferred taxes
    
    
    17.4
    
    
    
    9.2
    
    
    
    (134.0
    )Pension contribution
    
    
    (32.1
    )
    
    
    
    
    
    
    Other
    
    
    (18.4
    )
    
    
    (7.0
    )
    
    
    (8.7
    )Changes in working capital other than cash (Note 19)
    
    
    (16.0
    )
    
    
    (9.0
    )
    
    
    (11.9
    )Discontinued operations
    
    
    (2.6
    )
    
    
    (5.4
    )
    
    
    (24.6
    )Net Cash Provided from Operating Activities
    
    
    119.7
    
    
    
    178.3
    
    
    
    74.9Cash Flows From Investing Activities:Proceeds from disposition of investments/assets
    
    
    61.0
    
    
    
    13.3
    
    
    
    21.4Long-term investments
    
    
    (1.9
    )
    
    
    (0.2
    )
    
    
    (3.7
    )Acquisitions
    
    
    
    
    
    
    (8.4
    )
    
    
    Capital expenditures
    
    
    (135.9
    )
    
    
    (86.4
    )
    
    
    (78.0
    )Other
    
    
    (0.1
    )
    
    
    (5.0
    )
    
    
    6.4Discontinued operations
    
    
    1.0
    
    
    
    (12.9
    )
    
    
    194.9Net Cash (Used in) Provided from Investing Activities
    
    
    (75.9
    )
    
    
    (99.6
    )
    
    
    141.0Cash Flows From Financing Activities:Issuance of long-term debt obligations
    
    
    320.0
    
    
    
    200.0
    
    
    
    Reductions of long-term debt obligations
    
    
    (320.1
    )
    
    
    (254.5
    )
    
    
    (204.8
    )Issuance of preferred stock
    
    
    
    
    
    
    73.1
    
    
    
    Revolving credit facility borrowings, net
    
    
    40.0
    
    
    
    
    
    
    
    Dividends on common and preferred stock (Note 16)
    
    
    (67.1
    )
    
    
    (66.0
    )
    
    
    (64.4
    )Repurchase of common and preferred stock
    
    
    
    
    
    
    (0.9
    )
    
    
    (6.0
    )Other
    
    
    (0.1
    )
    
    
    6.7
    
    
    
    (0.6
    )Discontinued operations
    
    
    
    
    
    
    (8.2
    )
    
    
    (0.2
    )Net Cash Used in Financing Activities
    
    
    (27.3
    )
    
    
    (49.8
    )
    
    
    (276.0
    )Net increase (decrease) in cash and temporary cash investments
    
    
    16.5
    
    
    
    28.9
    
    
    
    (60.1
    )Cash and temporary cash investments at beginning of year
    
    
    62.7
    
    
    
    33.8
    
    
    
    93.9Cash and temporary cash investments at end of year
    
    $
    79.2
    
    
    $
    62.7
    
    
    $
    33.8Supplemental Cash Flow InformationCash paid during the year:Interest (net of amount capitalized)
    
    $
    44.2
    
    
    $
    46.0
    
    
    $
    67.7Income taxes paid (refunded)
    
    $
    34.7
    
    
    $
    (5.6
    )
    
    $
    86.1
  44




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##### Table of Contents



Duquesne Light Holdings, Inc.
Consolidated Statements of Comprehensive Income
 (Millions of Dollars)Year Ended December 31,2005
    
    
    2004
    
    
    2003Net income
    
    $
    114.2
    
    
    $
    87.0
    
    
    $
    175.9Other comprehensive loss:Unrealized holding losses on securities, net of tax of $, $
and $(0.3)
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Unrealized holding gains on interest rate hedging instruments,
net of tax of $3.0, $and $
    
    
    4.2
    
    
    
    
    
    
    
    Unrealized holding gains on cash flow hedging instruments,
net of tax of $6.4, $and $
    
    
    9.1
    
    
    
    
    
    
    
    Minimum pension liability adjustment, net of tax of $(16.8), $
and $
    
    
    (23.6
    )
    
    
    
    
    
    
    Other comprehensive loss
    
    
    (10.3
    )
    
    
    
    
    
    
    (0.4
    )Reclassification adjustment for holding loss, net of tax
    
    
    
    
    
    
    
    
    
    
    0.7Comprehensive income
    
    $
    103.9
    
    
    $
    87.0
    
    
    $
    176.2
  Duquesne Light Holdings, Inc.
Consolidated Statements of Common Shareholders Equity
 AccumulatedOtherCommon
    
    Retained
    
    Treasury
    
    Unearned
    
    ComprehensiveStock
    
    Earnings
    
    Stock
    
    Compensation
    
    Income
    
    TotalBalances at December 31, 2002
    
    $
    1,219.1
    
    
    $
    452.9
    
    
    $
    (1,219.1
    )
    
    $
    
    
    
    $
    (0.3
    )
    
    $
    452.6Net Income
    
    
    
    
    
    
    175.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175.9Dividends on common stock ($1/share)
    
    
    
    
    
    
    (75.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (75.0
    )Issuance of treasury stock
    
    
    (10.4
    )
    
    
    
    
    
    
    29.4
    
    
    
    (3.4
    )
    
    
    
    
    
    
    15.6Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    0.3Deferred incentive payments
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.5Other
    
    
    5.2
    
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.5Balances at December 31, 2003
    
    $
    1,215.4
    
    
    $
    553.1
    
    
    $
    (1,189.7
    )
    
    $
    (3.4
    )
    
    $
    
    
    
    $
    575.4Net Income
    
    
    
    
    
    
    87.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87.0Dividends on common stock ($1/share)
    
    
    
    
    
    
    (76.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76.5
    )Issuance of treasury stock
    
    
    (6.8
    )
    
    
    
    
    
    
    32.4
    
    
    
    0.8
    
    
    
    
    
    
    
    26.4Preferred stock issuance costs
    
    
    (1.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.9
    )Balances at December 31, 2004
    
    $
    1,206.7
    
    
    $
    563.6
    
    
    $
    (1,157.3
    )
    
    $
    (2.6
    )
    
    $
    
    
    
    $
    610.4Net Income
    
    
    
    
    
    
    114.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114.2Dividends on common stock ($1/share)
    
    
    
    
    
    
    (77.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77.7
    )Issuance of treasury stock
    
    
    (6.4
    )
    
    
    
    
    
    
    24.4
    
    
    
    0.8
    
    
    
    
    
    
    
    18.8Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10.3
    )
    
    
    (10.3
    )Other
    
    
    0.2
    
    
    
    (0.1
    )
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    0.5Balances at December 31, 2005
    
    $
    1,200.5
    
    
    $
    600.0
    
    
    $
    (1,132.5
    )
    
    $
    (1.8
    )
    
    $
    (10.3
    )
    
    $
    655.9
  45




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##### Table of Contents



Duquesne Light Company
 Consolidated Statements of Income
 (Millions of Dollars)Year Ended December 31,2005
    
    
    2004
    
    
    2003Retail sales of electricity
    
    $
    723.2
    
    
    $
    761.8
    
    
    $
    780.8Other
    
    
    69.2
    
    
    
    27.5
    
    
    
    25.3Total Operating Revenues
    
    
    792.4
    
    
    
    789.3
    
    
    
    806.1Operating Expenses:Purchased power
    
    
    366.8
    
    
    
    382.0
    
    
    
    393.7Other operating and maintenance
    
    
    157.2
    
    
    
    138.0
    
    
    
    129.5Acquisition termination cost (Note 3)
    
    
    
    
    
    
    8.3
    
    
    
    Depreciation and amortization
    
    
    71.8
    
    
    
    71.4
    
    
    
    76.4Taxes other than income taxes
    
    
    49.3
    
    
    
    47.9
    
    
    
    51.4Total Operating Expenses
    
    
    645.1
    
    
    
    647.6
    
    
    
    651.0Operating Income
    
    
    147.3
    
    
    
    141.7
    
    
    
    155.1Investment and Other Income
    
    
    16.2
    
    
    
    16.6
    
    
    
    20.3Interest and Other Charges
    
    
    (48.0
    )
    
    
    (46.2
    )
    
    
    (54.1
    )Company Obligated Mandatorily Redeemable Preferred
Securities Dividend Requirements (Note 14)
    
    
    
    
    
    
    
    
    
    
    (6.3
    )Income Before Income Taxes
    
    
    115.5
    
    
    
    112.1
    
    
    
    115.0Income Tax Expense
    
    
    42.5
    
    
    
    44.3
    
    
    
    45.4Net Income
    
    
    73.0
    
    
    
    67.8
    
    
    
    69.6Dividends on Preferred and Preference Stock
    
    
    8.0
    
    
    
    6.6
    
    
    
    3.2Earnings Available for Common Stock
    
    $
    65.0
    
    
    $
    61.2
    
    
    $
    66.4
  46




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##### Table of Contents



Duquesne Light Company
Consolidated Balance Sheets
 (Millions of Dollars)As of December 31,2005
    
    
    2004AssetsCurrent Assets:Cash and temporary cash investments
    
    $
    76.1
    
    
    $
    Investment in DQE Capital cash pool
    
    
    
    
    
    
    135.8Receivables:Electric customers
    
    
    72.5
    
    
    
    75.8Unbilled electric customers
    
    
    28.9
    
    
    
    31.1Other
    
    
    9.9
    
    
    
    10.1Less: Allowance for uncollectible accounts
    
    
    (20.8
    )
    
    
    (17.9
    )Total Receivables  Net
    
    
    90.5
    
    
    
    99.1Affiliate Receivables:Loan receivable from parent
    
    
    
    
    
    
    250.0Other
    
    
    3.3
    
    
    
    1.8Total Affiliate Receivables
    
    
    3.3
    
    
    
    251.8Materials and supplies (at average cost)
    
    
    18.1
    
    
    
    14.6Deferred income taxes  net
    
    
    14.4
    
    
    
    Other
    
    
    6.7
    
    
    
    7.0Total Current Assets
    
    
    209.1
    
    
    
    508.3Long-Term Investments:Investment in parents common stock
    
    
    19.7
    
    
    
    22.8Other investments
    
    
    2.5
    
    
    
    2.8Total Long-Term Investments
    
    
    22.2
    
    
    
    25.6Property, Plant and Equipment:Electric plant in service
    
    
    2,176.7
    
    
    
    2,052.9Construction work in progress
    
    
    59.1
    
    
    
    67.9Gross property, plant and equipment
    
    
    2,235.8
    
    
    
    2,120.8Less: Accumulated depreciation and amortization
    
    
    (738.5
    )
    
    
    (714.5
    )Property, Plant and Equipment  Net
    
    
    1,497.3
    
    
    
    1,406.3Other Non-Current Assets:Regulatory assets
    
    
    300.0
    
    
    
    295.1Prepaid pension cost
    
    
    31.2
    
    
    
    26.1Pension intangible asset
    
    
    42.7
    
    
    
    5.8Other
    
    
    20.6
    
    
    
    25.8Total Other Non-Current Assets
    
    
    394.5
    
    
    
    352.8Total Assets
    
    $
    2,123.1
    
    
    $
    2,293.0
  47




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##### Table of Contents



Duquesne Light Company
Consolidated Balance Sheets
 (Millions of Dollars)As of December 31,2005
    
    
    2004Liabilities and CapitalizationCurrent Liabilities:Accounts payable
    
    $
    46.8
    
    
    $
    85.7Payable to affiliates
    
    
    42.6
    
    
    
    4.4Pension liability
    
    
    20.0
    
    
    
    Accrued compensation
    
    
    17.9
    
    
    
    17.0Accrued interest
    
    
    9.3
    
    
    
    9.6Other
    
    
    12.7
    
    
    
    14.2Total Current Liabilities
    
    
    149.3
    
    
    
    130.9Non-Current Liabilities:Deferred income taxes  net
    
    
    336.6
    
    
    
    323.1Pension liability
    
    
    92.8
    
    
    
    62.9Other postretirement benefits
    
    
    40.7
    
    
    
    38.1Legacy liabilities
    
    
    29.8
    
    
    
    32.1Other
    
    
    60.3
    
    
    
    72.2Total Non-Current Liabilities
    
    
    560.2
    
    
    
    528.4Commitments and Contingencies (Note 13)Capitalization:Long-term debt
    
    
    636.5
    
    
    
    956.4Preferred and Preference Stock:(aggregate involuntary liquidation value of $148.8 and $150.0):Non-redeemable preferred stock
    
    
    135.6
    
    
    
    135.6Non-redeemable preference stock
    
    
    13.3
    
    
    
    14.5Total preferred and preference stock before deferred ESOP benefit
    
    
    148.9
    
    
    
    150.1Deferred ESOP benefit
    
    
    (2.4
    )
    
    
    (4.2
    )Total Preferred and Preference Stock
    
    
    146.5
    
    
    
    145.9Common Shareholders Equity:Common stock (authorized  90,000,000 shares;
issued and outstanding  10 shares)
    
    
    
    
    
    
    Capital surplus
    
    
    568.9
    
    
    
    486.4Retained earnings
    
    
    88.2
    
    
    
    46.0Accumulated other comprehensive loss
    
    
    (26.5
    )
    
    
    (1.0
    )Total Common Stockholders Equity
    
    
    630.6
    
    
    
    531.4Total Capitalization
    
    
    1,413.6
    
    
    
    1,633.7Total Liabilities and Capitalization
    
    $
    2,123.1
    
    
    $
    2,293.0
  48




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##### Table of Contents



Duquesne Light Company
Consolidated Statements of Cash Flows
 (Millions of Dollars)Year Ended December 31,2005
    
    
    2004
    
    
    2003Cash Flows From Operating Activities:Net income
    
    $
    73.0
    
    
    $
    67.8
    
    
    $
    69.6Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    71.8
    
    
    
    71.4
    
    
    
    76.4Bad debt expense
    
    
    19.1
    
    
    
    11.9
    
    
    
    10.2Derivative
instruments
    
    
    (16.1
    )
    
    
    
    
    
    
    Acquisition termination cost
    
    
    
    
    
    
    8.3
    
    
    
    Deferred taxes
    
    
    12.6
    
    
    
    3.5
    
    
    
    (27.0
    )Pension contribution
    
    
    (32.1
    )
    
    
    
    
    
    
    Other
    
    
    (8.0
    )
    
    
    4.1
    
    
    
    0.7Changes in working capital other than cash (Note 19)
    
    
    (38.4
    )
    
    
    (54.8
    )
    
    
    (52.1
    )Net Cash Provided from Operating Activities
    
    
    81.9
    
    
    
    112.2
    
    
    
    77.8Cash Flows From Investing Activities:Construction expenditures
    
    
    (132.2
    )
    
    
    (83.5
    )
    
    
    (76.1
    )Investment in DQE Capital cash pool
    
    
    135.8
    
    
    
    (66.7
    )
    
    
    276.8Collection of loan to parent (Note 14)
    
    
    250.0
    
    
    
    
    
    
    
    Other
    
    
    (1.6
    )
    
    
    (7.3
    )
    
    
    0.4Net Cash Provided from (Used in) Investing Activities
    
    
    252.0
    
    
    
    (157.5
    )
    
    
    201.1Cash Flows From Financing Activities:Issuance of long-term debt obligations
    
    
    
    
    
    
    200.0
    
    
    
    Issuance of preferred stock, net
    
    
    
    
    
    
    73.1
    
    
    
    Reductions of long-term debt obligations
    
    
    (320.1
    )
    
    
    (150.0
    )
    
    
    (202.8
    )Net borrowings under affiliate demand note
    
    
    7.8
    
    
    
    
    
    
    
    Equity contributions from parent
    
    
    82.5
    
    
    
    
    
    
    
    Dividends on common and preferred stock
    
    
    (28.4
    )
    
    
    (76.9
    )
    
    
    (72.8
    )Other
    
    
    0.4
    
    
    
    (0.9
    )
    
    
    (3.3
    )Net Cash (Used in) Provided from Financing Activities
    
    
    (257.8
    )
    
    
    45.3
    
    
    
    (278.9
    )Net increase in cash and temporary cash investments
    
    
    76.1
    
    
    
    
    
    
    
    Cash and temporary cash investments at beginning of year
    
    
    
    
    
    
    
    
    
    
    Cash and temporary cash investments at end of year
    
    $
    76.1
    
    
    $
    
    
    
    $
    Supplemental Cash Flow InformationCash paid during the year:Interest (net of amount capitalized)
    
    $
    45.0
    
    
    $
    35.0
    
    
    $
    45.6Income taxes (Note 18)
    
    $
    26.0
    
    
    $
    84.0
    
    
    $
    94.5
  49




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##### Table of Contents



Duquesne Light Company
Consolidated Statements of Comprehensive Income
 (Millions of Dollars)Year Ended December 31,2005
    
    
    2004
    
    
    2003Net income
    
    $
    73.0
    
    
    $
    67.8
    
    
    $
    69.6Other comprehensive (loss) income:Unrealized holding gains on securities, net of tax of
$(1.2), $0.2 and $1.6
    
    
    (1.9
    )
    
    
    0.4
    
    
    
    2.3Unrealized holding gains on cash flow hedging
instruments, net of tax of $5.5, $and $
    
    
    7.8
    
    
    
    
    
    
    
    Minimum pension liability adjustment, net of tax of
$(16.8), $and $
    
    
    (23.6
    )
    
    
    
    
    
    
    Other comprehensive (loss) income
    
    
    (17.7
    )
    
    
    0.4
    
    
    
    2.3Comprehensive income
    
    $
    55.3
    
    
    $
    68.2
    
    
    $
    71.9
  Duquesne Light Company
Consolidated Statement of Common Shareholders Equity
 AccumulatedOtherCapital
    
    Retained
    
    ComprehensiveSurplus
    
    Earnings
    
    Loss
    
    TotalBalances at December 31, 2002
    
    $
    483.3
    
    
    $
    41.4
    
    
    $
    (3.7
    )
    
    $
    521.0Net Income
    
    
    
    
    
    
    69.6
    
    
    
    
    
    
    
    69.6Dividends on common stock
    
    
    
    
    
    
    (65.0
    )
    
    
    
    
    
    
    (65.0
    )Dividends on preferred and preference stock (See Note 15)
    
    
    
    
    
    
    (3.2
    )
    
    
    
    
    
    
    (3.2
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    2.3
    
    
    
    2.3Other
    
    
    5.3
    
    
    
    0.1
    
    
    
    
    
    
    
    5.4Balances at December 31, 2003
    
    $
    488.6
    
    
    $
    42.9
    
    
    $
    (1.4
    )
    
    $
    530.1Net Income
    
    
    
    
    
    
    67.8
    
    
    
    
    
    
    
    67.8Dividends on common stock
    
    
    
    
    
    
    (58.0
    )
    
    
    
    
    
    
    (58.0
    )Dividends on preferred and preference stock (See Note 15)
    
    
    
    
    
    
    (6.6
    )
    
    
    
    
    
    
    (6.6
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    0.4Preferred stock issuance costs
    
    
    (1.9
    )
    
    
    
    
    
    
    
    
    
    
    (1.9
    )Other
    
    
    (0.3
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.4
    )Balances at December 31, 2004
    
    $
    486.4
    
    
    $
    46.0
    
    
    $
    (1.0
    )
    
    $
    531.4Net Income
    
    
    
    
    
    
    73.0
    
    
    
    
    
    
    
    73.0Dividends on common stock
    
    
    
    
    
    
    (13.0
    )
    
    
    
    
    
    
    (13.0
    )Dividends on preferred and preference stock (See Note 15)
    
    
    
    
    
    
    (8.0
    )
    
    
    
    
    
    
    (8.0
    )Transfer subsidiary to parent
    
    
    
    
    
    
    (9.9
    )
    
    
    (7.8
    )
    
    
    (17.7
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    (17.7
    )
    
    
    (17.7
    )Equity contributions from parent
    
    
    82.5
    
    
    
    
    
    
    
    
    
    
    
    82.5Other
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Balances at December 31, 2005
    
    $
    568.9
    
    
    $
    88.2
    
    
    $
    (26.5
    )
    
    $
    630.6
  50




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   1. Accounting Policies
 CONSOLIDATION
    Continuing Operations
        Discontinued Operations
  BASIS OF ACCOUNTING
  51




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##### Table of Contents



Regulatory Assets as of December 31,
 (Millions of Dollars)2005
    
    
    2004Regulatory tax receivables
    
    $
    224.7
    
    
    $
    218.5Unamortized debt costs
    
    
    48.8
    
    
    
    49.3Transition costs
    
    
    
    
    
    
    4.7Deferred employee costs
    
    
    11.5
    
    
    
    11.3SECA charges (a)
    
    
    6.4
    
    
    
    Other
    
    
    8.6
    
    
    
    11.3Total
    
    $
    300.0
    
    
    $
    295.1
 (a)
    
    Seams elimination charge adjustment
   CUSTOMER CONCENTRATIONS
   REVENUES FROM UTILITY SALES
   OTHER OPERATING REVENUES
   52




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##### Table of Contents



OTHER INCOME
   STOCK-BASED COMPENSATION
  Duquesne Light Holdings
 (Millions of Dollars, Except Per Share Amounts)Year Ended December 31,2005
    
    
    2004
    
    
    2003Reported net income
    
    $
    114.2
    
    
    $
    87.0
    
    
    $
    175.9Add:Stock-based compensation determined under
the intrinsic value method for all option
awards, net of tax
    
    
    0.9
    
    
    
    1.1
    
    
    
    0.6Deduct:Stock-based compensation determined under
the fair value method for all option
awards, net of tax
    
    
    (2.2
    )
    
    
    (0.9
    )
    
    
    (0.5
    )Pro forma net income
    
    $
    112.9
    
    
    $
    87.2
    
    
    $
    176.0Basic earningsper share:Reported
    
    $
    1.47
    
    
    $
    1.14
    
    
    $
    2.34Pro forma
    
    $
    1.45
    
    
    $
    1.14
    
    
    $
    2.34Diluted earningsper share:Reported
    
    $
    1.47
    
    
    $
    1.14
    
    
    $
    2.29Pro forma
    
    $
    1.45
    
    
    $
    1.14
    
    
    $
    2.30
 Duquesne Light Company
 (Millions of Dollars)Year Ended December 31,2005
    
    
    2004
    
    
    2003Reported net income
    
    $
    73.0
    
    
    $
    67.8
    
    
    $
    69.6Add:Stock-based compensation determined under
the intrinsic value method for all option
awards, net of tax
    
    
    0.3
    
    
    
    0.4
    
    
    
    0.2Deduct:Stock-based compensation determined
under the fair value method for all option
awards, net of tax
    
    
    (1.4
    )
    
    
    (0.4
    )
    
    
    (0.3
    )Pro forma net income
    
    $
    71.9
    
    
    $
    67.8
    
    
    $
    69.5
 53




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##### Table of Contents



DEPRECIATION AND AMORTIZATION
   EARNINGS PER SHARE
  Holdings Diluted Earnings Per Share for the Year
Ended December 31,
 (Millions of Dollars)2005
    
    
    2004
    
    
    2003Income from
continuing operations
    
    $
    112.9
    
    
    $
    87.2
    
    
    $
    93.2Less: Preferred dividends
    
    
    
    
    
    
    
    
    
    
    0.4Earnings from
continuing operations
for common stock
    
    
    112.9
    
    
    
    87.2
    
    
    
    92.8Dilutive effect of:ESOP dividends
    
    
    1.1
    
    
    
    1.2
    
    
    
    1.4Preferred stock
dividends
    
    
    
    
    
    
    0.4
    
    
    
    0.8Diluted Earnings
from Continuing
Operations for
Common Stock
    
    $
    114.0
    
    
    $
    88.8
    
    
    $
    95.0
 (Millions of Shares)2005
    
    
    2004
    
    
    2003Basic average shares
    
    
    77.7
    
    
    
    76.4
    
    
    
    75.0Dilutive effect of:ESOP shares
    
    
    0.8
    
    
    
    0.8
    
    
    
    1.2Holdings preferred stock
    
    
    
    
    
    
    0.5
    
    
    
    1.4Performance share
awards and stock options
    
    
    
    
    
    
    0.3
    
    
    
    Diluted average shares
    
    
    78.5
    
    
    
    78.0
    
    
    
    77.6Diluted Earnings
Per Share from
Continuing Operations
    
    $
    1.45
    
    
    $
    1.14
    
    
    $
    1.22
  TEMPORARY CASH INVESTMENTS
  DQE CAPITAL CASH POOL
  54




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##### Table of Contents



RECEIVABLES
  INVESTMENT IN HOLDINGS STOCK
   PROPERTY, PLANT AND EQUIPMENT
     GOODWILL AND INTANGIBLE ASSETS
   INCOME TAXES
  55




---



##### Table of Contents



PENSION AND OTHER POSTRETIREMENT BENEFITS
  CONTINGENT LIABILITIES
  GUARANTEES
  DERIVATIVE INSTRUMENTS
    56




---



##### Table of Contents



DIVIDENDS
  RECLASSIFICATION
  RECENT ACCOUNTING PRONOUNCEMENTS
 Accounting for Conditional Asset Retirement Obligations
  Share-Based Payments
  2. Rate Matters
  COMPETITIVE TRANSITION CHARGE AND POLR I AND II
   57




---



##### Table of Contents



POLR III
    Seams Elimination Charge Adjustment
    Distribution Rate Case and Transmission Rate Case
  58




---



##### Table of Contents



3. Acquisitions and Dispositions
         59




---



##### Table of Contents



4. Derivative Instruments
  December 31, 2005(Millions of Dollars)AOCIExpectedto be Re-classifiedAOCI,
    
    to EarningsAssets
    
    Liabilities
    
    net
    
    in 2006Mark-to-Market:Energy contracts
    
    $
    42.9
    
    
    $
    29.2Cash Flow Hedges:Energy contracts
    
    
    15.8
    
    
    
    
    
    
    $
    7.8
    
    
    $
    5.4Interest rate lock
    
    
    
    
    
    
    
    
    
    
    4.2
    
    
    
    0.2Natural gas price
swap
    
    
    2.2
    
    
    
    
    
    
    
    1.3
    
    
    
    1.3Total
    
    $
    60.9
    
    
    $
    29.2
    
    
    $
    13.3
    
    
    $
    6.9
 December 31, 2004(Millions of Dollars)Assets
    
    LiabilitiesMark-to-Market:Energy contracts
    
    $
    0.8
    
    
    $
    0.7Total
    
    $
    0.8
    
    
    $
    0.7
 Energy Contracts
   60




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##### Table of Contents



Interest Rate Locks
   Natural Gas Price Swap
  5. Long-Term Investments
  Leases
  61




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##### Table of Contents



Net Lease Investments as of December 31,
 (Millions of Dollars)2005
    
    
    2004Rentals receivable  net
    
    $
    593.7
    
    
    $
    601.0Estimated residual value
    
    
    
    
    
    
    8.0Less: Unearned Income
    
    
    (87.9
    )
    
    
    (96.9
    )Lease investments
    
    
    505.8
    
    
    
    512.1Less: Deferred taxes
    
    
    (239.7
    )
    
    
    (238.6
    )Net Lease Investments
    
    $
    266.1
    
    
    $
    273.5
 Gas Rights and Related Investments
  (Millions of Dollars)2005
    
    
    2004Landfill gas rights, net
    
    $
    9.1
    
    
    $
    12.3Landfill gas equity investment
    
    
    0.8
    
    
    
    Natural gas equity investment
    
    
    
    
    
    
    4.6Total
    
    $
    9.9
    
    
    $
    16.9
   Affordable Housing
  6. Property, Plant and Equipment
    7. Intangible Assets
 Pension
  Purchased Intangibles
  62




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##### Table of Contents



Purchased Intangibles as of December 31,
 (Millions of Dollars)2005
    
    
    2004Amortized intangible assets:Contract intangibles
    
    $
    5.0
    
    
    $
    5.0Less: Accumulated amortization
    
    
    (0.5
    )
    
    
    Net amortized intangible assets
    
    
    4.5
    
    
    
    5.0Goodwill and unamortized intangible
assets:Goodwill
    
    
    4.6
    
    
    
    4.9Other
    
    
    0.6
    
    
    
    0.6Net Purchased Intangibles
    
    $
    9.7
    
    
    $
    10.5
 Intangible Assets Subject to Amortization.
 Goodwill and Indefinite Lived Intangible Assets.
 8.
    
    Short-Term Borrowing and
Revolving Credit Arrangements
     Committed
    
    
    
    
    
    LOCs
    
    AvailableCapacity
    
    Borrowed
    
    Issued
    
    CapacityHoldings
    
    $
    200.0
    
    
    $
    40.0
    
    
    $
    71.4
    
    
    $
    88.6Duquesne
Light
    
    
    100.0
    
    
    
    
    
    
    
    8.2
    
    
    
    91.8Total
    
    $
    300.0
    
    
    $
    40.0
    
    
    $
    79.6
    
    
    $
    180.4
 Holdings.
  63




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##### Table of Contents



Duquesne Light.
  9. Restructuring Charges
    Holdings Restructuring Liability
 (Millions of Dollars)EmployeeTermination
    
    
    LeaseBenefits
    
    
    Costs
    
    
    TotalBalance,
December 31, 2002 (a)
    
    $
    8.3
    
    
    $
    4.8
    
    
    $
    13.1Adjustments
    
    
    0.6
    
    
    
    (1.2
    )
    
    
    (0.6
    )Payments
    
    
    (5.6
    )
    
    
    (1.8
    )
    
    
    (7.4
    )Balance,
December 31, 2003 (a)
    
    
    3.3
    
    
    
    1.8
    
    
    
    5.1Adjustments
    
    
    (0.8
    )
    
    
    0.7
    
    
    
    (0.1
    )Payments
    
    
    (0.9
    )
    
    
    (1.1
    )
    
    
    (2.0
    )Balance,
December 31, 2004 (a)
    
    
    1.6
    
    
    
    1.4
    
    
    
    3.0Adjustments
    
    
    (0.8
    )
    
    
    (0.1
    )
    
    
    (0.9
    )Payments
    
    
    (0.6
    )
    
    
    (0.7
    )
    
    
    (1.3
    )Balance,
December 31, 2005 (a)
    
    $
    0.2
    
    
    $
    0.6
    
    
    $
    0.8
 (a)
    
    Excludes $2.3 million, $0.9 million, $0.1 million and zero of restructuring liabilities as
of December 31, 2002, 2003, 2004 and 2005 that are included in discontinued operations.
   64




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##### Table of Contents



Duquesne Light Restructuring Liability
 (Millions of Dollars)EmployeeTermination
    
    
    LeaseBenefits
    
    
    Costs
    
    
    TotalBalance,
December 31, 2002
    
    $
    4.9
    
    
    $
    1.9
    
    
    $
    6.8Adjustments
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.2
    )Payments
    
    
    (3.0
    )
    
    
    (0.3
    )
    
    
    (3.3
    )Balance,
December 31, 2003
    
    
    1.7
    
    
    
    1.6
    
    
    
    3.3Adjustments
    
    
    0.1
    
    
    
    
    
    
    
    0.1Payments
    
    
    (0.6
    )
    
    
    (0.3
    )
    
    
    (0.9
    )Balance,
December 31, 2004
    
    
    1.2
    
    
    
    1.3
    
    
    
    2.5Adjustments
    
    
    (0.4
    )
    
    
    
    
    
    
    (0.4
    )Payments
    
    
    (0.6
    )
    
    
    (0.7
    )
    
    
    (1.3
    )Balance,
December 31, 2005
    
    $
    0.2
    
    
    $
    0.6
    
    
    $
    0.8
  10. Income Taxes
        65




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##### Table of Contents



Duquesne
Light Holdings
Deferred Tax Assets (Liabilities) as of
December 31,
 (Millions of Dollars)2005
    
    2004Restructuring charges
and impairments
    
    $
    3.2
    
    
    $
    4.0Tax credit
carryforward (a)
    
    
    121.1
    
    
    
    118.3Capital loss carryforward
    
    
    17.5
    
    
    
    17.5Legacy liabilities
    
    
    12.0
    
    
    
    12.3Pension and benefit costs
    
    
    48.6
    
    
    
    43.5Other
    
    
    32.6
    
    
    
    26.0Deferred tax assets
    
    
    235.0
    
    
    
    221.6Property depreciation
    
    
    (276.5
    )
    
    
    (276.4
    )Lease investments
    
    
    (239.7
    )
    
    
    (238.6
    )Loss on reacquired debt
unamortized
    
    
    (19.2
    )
    
    
    (15.6
    )Regulatory assets
    
    
    (93.0
    )
    
    
    (90.7
    )Derivative
instruments
    
    
    (16.2
    )
    
    
    Other
    
    
    (12.9
    )
    
    
    (8.5
    )Deferred tax liabilities
    
    
    (657.5
    )
    
    
    (629.8
    )Net
    
    $
    (422.5
    )
    
    $
    (408.2
    )-
  Income Tax Expense (Benefit)
 (Millions of Dollars)Year Ended December 31,2005
    
    2004
    
    2003Current:Federal
    
    $
    26.6
    
    
    $
    4.1
    
    
    $
    142.8State
    
    
    9.0
    
    
    
    7.3
    
    
    
    8.9Deferred:Federal
    
    
    15.0
    
    
    
    10.3
    
    
    
    (132.9
    )State
    
    
    2.4
    
    
    
    (1.1
    )
    
    
    (1.1
    )Income Taxes
    
    $
    53.0
    
    
    $
    20.6
    
    
    $
    17.7
  66




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##### Table of Contents



Income Tax Expense Reconciliation
 (Millions of Dollars)Year Ended December 31,2005
    
    2004
    
    2003Computed federal
income tax
statutory rate (35%)
    
    $
    54.6
    
    
    $
    35.1
    
    
    $
    38.8Increase (decrease) in
taxes resulting from:State income taxes,
net of federal
income tax benefits
    
    
    8.3
    
    
    
    4.7
    
    
    
    5.2Tax credits
    
    
    (20.7
    )
    
    
    (25.7
    )
    
    
    (31.3
    )Non-deductible
expenses
    
    
    2.8
    
    
    
    2.2
    
    
    
    2.5Other
    
    
    8.0
    
    
    
    4.3
    
    
    
    2.5Total Income Tax
Expense
    
    $
    53.0
    
    
    $
    20.6
    
    
    $
    17.7
 Duquesne Light Company
Deferred Tax Assets (Liabilities) as of
December 31,
 (Millions of Dollars)2005
    
    2004Pension and benefit costs
    
    $
    48.0
    
    
    $
    42.7Legacy liabilities
    
    
    12.0
    
    
    
    12.3Other
    
    
    18.9
    
    
    
    16.1Deferred tax assets
    
    
    78.9
    
    
    
    71.1Property depreciation
    
    
    (281.2
    )
    
    
    (281.0
    )Loss on reacquired debt
unamortized
    
    
    (19.2
    )
    
    
    (15.6
    )Regulatory assets
    
    
    (93.0
    )
    
    
    (90.7
    )Other
    
    
    (7.7
    )
    
    
    (6.9
    )Deferred tax liabilities
    
    
    (401.1
    )
    
    
    (394.2
    )Net
    
    $
    (322.2
    )
    
    $
    (323.1
    )
 Income Tax Expense
 (Millions of Dollars)Year Ended December 31,2005
    
    2004
    
    2003Current:Federal
    
    $
    23.9
    
    
    $
    33.8
    
    
    $
    63.3State
    
    
    6.0
    
    
    
    7.0
    
    
    
    9.1Deferred:Federal
    
    
    10.3
    
    
    
    4.5
    
    
    
    (26.4
    )State
    
    
    2.3
    
    
    
    (1.0
    )
    
    
    (0.6
    )Income Taxes
    
    $
    42.5
    
    
    $
    44.3
    
    
    $
    45.4
  Income Tax Expense Reconciliation
 (Millions of Dollars)Year Ended December 31,2005
    
    2004
    
    2003Computed federal
income tax
statutory rate
(35%)
    
    $
    37.7
    
    
    $
    36.9
    
    
    $
    39.1Increase (decrease)
in taxes resulting
from:State income taxes,
net of federal
income tax benefits
    
    
    6.3
    
    
    
    4.5
    
    
    
    5.6Non-deductible
expenses
    
    
    2.8
    
    
    
    2.2
    
    
    
    1.1Tax credits
    
    
    (0.2
    )
    
    
    (0.3
    )
    
    
    (0.2
    )Other
    
    
    (4.1
    )
    
    
    1.0
    
    
    
    (0.2
    )Total Income
Tax Expense
    
    $
    42.5
    
    
    $
    44.3
    
    
    $
    45.4
 11. Leases
  Duquesne Light Holdings
Capital Leases as of December 31,
 (Millions of Dollars)2005
    
    2004Electric plant
    
    $
    10.1
    
    
    $
    10.1Less: Accumulated
amortization
    
    
    (8.8
    )
    
    
    (8.3
    )Capital Leases  Net
    
    $
    1.3
    
    
    $
    1.8
 Summary of Rental Expense
 (Millions of Dollars)Year Ended December 31,2005
    
    2004
    
    2003Operating leases
    
    $
    9.2
    
    
    $
    11.4
    
    
    $
    14.5Amortization of capital
leases
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.4Interest on capital
leases
    
    
    0.2
    
    
    
    0.2
    
    
    
    1.1Total Rental
Expense
    
    $
    9.9
    
    
    $
    12.1
    
    
    $
    16.0
 67




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Future Minimum Lease Payments
 (Millions of Dollars)Operating
    
    CapitalYear Ended December 31,
    
    Leases
    
    Leases2006
    
    $
    5.1
    
    
    $
    0.72007
    
    
    4.6
    
    
    
    0.82008
    
    
    4.6
    
    
    
    2009
    
    
    4.5
    
    
    
    2010
    
    
    4.1
    
    
    
    2011 and thereafter
    
    
    4.0
    
    
    
    Total
    
    $
    26.9
    
    
    $
    1.5Less: Amount representing
interest
    
    
    
    
    
    
    0.2Present value
    
    
    
    
    
    $
    1.3
 Duquesne Light Company
Capital Leases at December 31,
 (Millions of Dollars)2005
    
    2004Electric plant
    
    $
    10.1
    
    
    $
    10.1Less: Accumulated
amortization
    
    
    (8.8
    )
    
    
    (8.3
    )Capital Leases  Net
    
    $
    1.3
    
    
    $
    1.8
 Summary of Rental Expense
 (Millions of Dollars)Year Ended December 31,2005
    
    2004
    
    2003Operating leases
    
    $
    6.0
    
    
    $
    7.2
    
    
    $
    11.4Amortization of capital
leases
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.4Interest on capital
leases
    
    
    0.2
    
    
    
    0.2
    
    
    
    1.1Total Rental
Expense
    
    $
    6.7
    
    
    $
    7.9
    
    
    $
    12.9
 Future Minimum Lease Payments
 (Millions of Dollars)Operating
    
    CapitalYear Ended December 31,
    
    Leases
    
    Leases2006
    
    $
    4.6
    
    
    $
    0.72007
    
    
    4.1
    
    
    
    0.82008
    
    
    4.0
    
    
    
    2009
    
    
    4.0
    
    
    
    2010
    
    
    3.6
    
    
    
    2011 and thereafter
    
    
    3.5
    
    
    
    Total
    
    $
    23.8
    
    
    $
    1.5Less: Amount representing
interest
    
    
    
    
    
    
    0.2Present value
    
    
    
    
    
    $
    1.3
  12. Employee Benefits
 PENSION BENEFITS
    POSTRETIREMENT BENEFITS
  68




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##### Table of Contents



Funded Status of the Pension and Postretirement Benefit Plans as of December 31,
 (Millions of Dollars)Pension
    
    Postretirement2005
    
    2004
    
    2005
    
    2004Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    750.3
    
    
    $
    694.0
    
    
    $
    52.7
    
    
    $
    52.6Service cost
    
    
    8.9
    
    
    
    8.1
    
    
    
    1.4
    
    
    
    1.1Interest cost
    
    
    42.6
    
    
    
    42.2
    
    
    
    3.4
    
    
    
    3.0Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    0.5Actuarial loss (gain)
    
    
    62.4
    
    
    
    43.5
    
    
    
    (2.4
    )
    
    
    (0.5
    )Benefits paid
    
    
    (38.4
    )
    
    
    (37.5
    )
    
    
    (4.7
    )
    
    
    (4.0
    )Plan amendments
    
    
    10.6
    
    
    
    
    
    
    
    
    
    
    
    Benefit obligation at end of year
    
    
    836.4
    
    
    
    750.3
    
    
    
    50.9
    
    
    
    52.7Change in plan assets:Fair value of plan assets at beginning of year
    
    
    715.8
    
    
    
    679.0
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    50.3
    
    
    
    74.3
    
    
    
    
    
    
    
    Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    0.5Employer contributions
    
    
    32.1
    
    
    
    
    
    
    
    4.2
    
    
    
    3.5Benefits paid
    
    
    (38.4
    )
    
    
    (37.5
    )
    
    
    (4.7
    )
    
    
    (4.0
    )Fair value of plan assets at end of year
    
    
    759.8
    
    
    
    715.8
    
    
    
    
    
    
    
    Funded status
    
    
    (76.6
    )
    
    
    (34.5
    )
    
    
    (50.9
    )
    
    
    (52.7
    )Unrecognized net actuarial loss (gain)
    
    
    45.5
    
    
    
    (21.9
    )
    
    
    0.1
    
    
    
    2.9Unrecognized prior service cost
    
    
    32.6
    
    
    
    25.4
    
    
    
    5.2
    
    
    
    6.2Unrecognized net transition obligation
    
    
    
    
    
    
    
    
    
    
    4.9
    
    
    
    5.5Accrued benefit gain (cost)
    
    $
    1.5
    
    
    $
    (31.0)
    
    
    
    $(40.7)
    
    
    
    $(38.1
    )
  (Millions of Dollars)2005
    
    2004Prepaid pension cost
    
    $
    31.2
    
    
    $
    26.1Pension intangible assets
    
    
    42.7
    
    
    
    5.8Pension liability
    
    
    (112.8
    )
    
    
    (62.9
    )Accumulated other comprehensive income
    
    
    40.4
    
    
    
    Accrued pension plans benefit gain (cost)
    
    $
    1.5
    
    
    $
    (31.0
    )
 69




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Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets as of
December 31,
 (Millions of Dollars)2005
    
    2004Projected benefit obligation
    
    $
    769.0
    
    
    $
    683.0Accumulated benefit obligation
    
    
    751.3
    
    
    
    661.6Fair value of plan assets
    
    
    638.5
    
    
    
    598.8
 Weighted-Average Assumptions Used to Determine Projected Benefits Obligation as of December 31,
 Pension
    
    Postretirement2005
    
    2004
    
    2005
    
    2004Discount rate
    
    
    5.70
    %
    
    
    5.75
    %
    
    
    5.70
    %
    
    
    5.75
    %Assumed change in compensation levels
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    
    
    
    
    Ultimate health care cost trend rate
    
    
    
    
    
    
    
    
    
    
    4.75
    %
    
    
    4.75
    %
 Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost for the Years Ended
December 31,
 Pension Benefit
    
    Postretirement2005
    
    2004
    
    2005
    
    2004Discount rate
    
    
    5.75
    %
    
    
    6.25
    %
    
    
    5.75
    %
    
    
    6.25
    %Expected long-term return on plan assets
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    
    
    
    
    Rate of compensation increase
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    
    
    
    
    Ultimate health care costs trend rate
    
    
    
    
    
    
    
    
    
    
    4.75
    %
    
    
    5.00
    %
 Components of Net Periodic Pension Cost for the Years Ended December 31,
 (Millions of Dollars)2005
    
    2004
    
    2003Service cost
    
    $
    8.9
    
    
    $
    8.1
    
    
    $
    6.8Interest cost
    
    
    42.6
    
    
    
    42.2
    
    
    
    41.6Expected return on plan assets
    
    
    (55.3
    )
    
    
    (51.7
    )
    
    
    (50.5
    )Amortization of unrecognized net transition obligation
    
    
    
    
    
    
    0.8
    
    
    
    1.2Amortization of prior service cost
    
    
    3.4
    
    
    
    3.4
    
    
    
    2.6Amortization of actuarial gain
    
    
    
    
    
    
    (0.5
    )
    
    
    (3.7
    )Net periodic pension (gain) cost
    
    $
    (0.4
    )
    
    $
    2.3
    
    
    $
    (2.0
    )
 Components of Net Periodic Postretirement Cost for the Years Ended December 31,
 (Millions of Dollars)2005
    
    2004
    
    2003Service cost
    
    $
    1.4
    
    
    $
    1.1
    
    
    $
    1.5Interest cost
    
    
    3.4
    
    
    
    3.0
    
    
    
    2.9Amortization of unrecognized net transition obligation
    
    
    0.7
    
    
    
    0.7
    
    
    
    0.7Amortization of prior service cost
    
    
    1.0
    
    
    
    1.0
    
    
    
    Amortization of net loss
    
    
    0.4
    
    
    
    
    
    
    
    Net periodic postretirement cost
    
    $
    6.9
    
    
    $
    5.8
    
    
    $
    5.1
 70




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Effect of a One Percent Change in Health Care Cost Trend Rates as of December 31, 2005
 (Millions of Dollars)One Percent
    
    One PercentIncrease
    
    DecreaseEffect on total of service and interest cost components of net
periodic postretirement health care benefit cost
    
    $
    0.5
    
    
    $
    (0.4
    )Effect on the health care component of the accumulated
postretirement benefit obligation
    
    
    3.5
    
    
    
    (3.2
    )
 Expected Rate of Return On Plan Assets and Investment Policy
  Target InvestmentAsset Category
    
    AllocationEquity securities
    
    
    25% - 70
    %Fixed income securities
    
    
    25% - 55
    %Real estate investments
    
    
    0% - 15
    %Other investments
    
    
    0% - 10
    %
 Pension Plan Assets
  Plan Assets as of December 31,Asset Category
    
    2005
    
    2004Equity securities
    
    
    60.5
    %
    
    
    57.2
    %Fixed income securities
    
    
    25.5
    %
    
    
    30.8
    %Real estate investments
    
    
    11.4
    %
    
    
    10.5
    %Other investments
    
    
    2.6
    %
    
    
    1.5
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  Expected Benefit Payments for Future Years
  (Millions of Dollars)Year
    
    Pension
    
    Postretirement2006
    
    $
    39.7
    
    
    $
    3.42007
    
    
    41.3
    
    
    
    3.62008
    
    
    43.4
    
    
    
    3.82009
    
    
    45.5
    
    
    
    4.12010
    
    
    48.7
    
    
    
    4.52011 - 2015
    
    
    293.1
    
    
    
    25.3
 RETIREMENT SAVINGS PLANS
   71




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##### Table of Contents



STOCK OPTIONS
        72




---



##### Table of Contents



Millions of Options
    
    Weighted Average Price2005
    
    2004
    
    2003
    
    2005
    
    2004
    
    2003Options outstanding, beginning of year
    
    
    0.9
    
    
    
    2.0
    
    
    
    2.5
    
    
    $
    20.53
    
    
    $
    24.39
    
    
    $
    24.48Options granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16.23Options exercised
    
    
    (0.1
    )
    
    
    (0.4
    )
    
    
    
    
    
    
    15.16
    
    
    
    24.55
    
    
    
    38.77Options canceled/forfeited
    
    
    (0.3
    )
    
    
    (0.7
    )
    
    
    (0.5
    )
    
    
    17.34
    
    
    
    29.32
    
    
    
    23.02Options outstanding, end of year
    
    
    0.5
    
    
    
    0.9
    
    
    
    2.0
    
    
    
    23.10
    
    
    
    20.53
    
    
    
    24.39Options exercisable, end of year
    
    
    0.5
    
    
    
    0.7
    
    
    
    1.1
    
    
    
    23.10
    
    
    
    22.93
    
    
    
    30.73Shares available for future grants, end of year
    
    
    2.6
    
    
    
    2.4
    
    
    
    1.3
  Outstanding
    
    ExercisableNumber of
    
    Average
    
    Weighted
    
    Number of
    
    WeightedOptions
    
    Remaining
    
    Average
    
    Options
    
    AverageExercise Price Range
    
    (In Millions)
    
    Life
    
    Exercise Price
    
    (In Millions)
    
    Exercise Price(In Years)Under $20
    
    
    0.4
    
    
    
    6.5
    
    
    $
    16.12
    
    
    
    0.4
    
    
    $
    16.12$20 - $30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $30 - $40
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Over $40
    
    
    0.1
    
    
    
    4.2
    
    
    $
    42.57
    
    
    
    0.1
    
    
    $
    42.57Options, End of Year
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    0.5
  2003Expected dividend yield
    
    
    6.16
    %Risk-free interest rate
    
    
    3.34
    %Expected stock price volatility
    
    
    30.91
    %Expected term until exercise (years)
    
    
    10.0Weighted average fair value
    
    $
    2.40
 OTHER STOCK-BASED COMPENSATION
    73




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.
 13. Commitments and Contingencies
 GUARANTEES
     74




---



##### Table of Contents



EMPLOYEES
  LEGAL PROCEEDINGS
 Shareholder Class Action.
  SECTION 29 TAX CREDITS AND SYNTHETIC FUEL
     75




---



##### Table of Contents



OTHER
 Proposed Acquisition
  Legacy Liabilities
 Residual Waste
Management Regulations
   Discontinued Operations
 Safe Drinking Water Act Clean Water
Act
    76




---



##### Table of Contents



14. Long-Term Debt
 Long-Term Debt as of December 31,
 (Millions of Dollars)Principal OutstandingInterest Rate
    
    Maturity
    
    2005
    
    2004Duquesne Light first mortgage bonds (a)
    
    
    5.7%-6.7
    %
    
    
    2008-2032
    
    
    $
    540.0
    
    
    $
    540.0Duquesne Light pollution control notes (b) (c)
    
    Adjustable
    
    
    2020-2033
    
    
    
    
    
    
    
    320.1Duquesne Light pollution control notes (b)
    
    
    4.05%-4.35
    %
    
    
    2011-2013
    
    
    
    97.9
    
    
    
    97.9Holdings senior notes
    
    
    5.5%-6.25
    %
    
    
    2015-2035
    
    
    
    320.0
    
    
    
    Holdings miscellaneous
    
    
    
    
    
    
    
    
    
    
    1.6
    
    
    
    1.8Less: Unamortized debt discount and premium  net (d)
    
    
    
    
    
    
    
    
    
    
    (1.4
    )
    
    
    (1.6
    )Current maturities
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.2
    )Total Long-Term Debt
    
    
    
    
    
    
    
    
    
    $
    957.8
    
    
    $
    958.0
 (a)
    
    Excludes first mortgage bonds issued to secure pollution control notes.(b)
    
    Secured by an equal principal amount of first mortgage bonds.(c)
    
    These adjustable interest rates averaged 2.4%, 1.6% and 1.1% in 2005, 2004 and 2003.(d)
    
    Relates to Duquesne Light debt.
 Holdings.
      Duquesne Light
   77




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15. Preferred and Preference Stock
     78




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Preferred and Preference Stock as of December 31,
 (Millions of Dollars)2005
    
    2004Call PricePer Share
    
    Shares
    
    Amount
    
    Shares
    
    AmountPreferred Stock Series of Subsidiaries:Duquesne Light 3.75% (a)
    
    $
    51.00
    
    
    
    148,000
    
    
    $
    7.4
    
    
    
    148,000
    
    
    $
    7.4Duquesne Light 4.00% (a)
    
    
    51.50
    
    
    
    549,709
    
    
    
    27.5
    
    
    
    549,709
    
    
    
    27.5Duquesne Light 4.10% (a)
    
    
    51.75
    
    
    
    119,860
    
    
    
    6.0
    
    
    
    119,860
    
    
    
    6.0Duquesne Light 4.15% (a)
    
    
    51.73
    
    
    
    132,450
    
    
    
    6.7
    
    
    
    132,450
    
    
    
    6.7Duquesne Light 4.20% (a)
    
    
    51.71
    
    
    
    100,000
    
    
    
    5.0
    
    
    
    100,000
    
    
    
    5.0Duquesne Light $2.10 (a)
    
    
    51.84
    
    
    
    159,400
    
    
    
    8.0
    
    
    
    159,400
    
    
    
    8.0Duquesne Light 6.50% (a)
    
    
    50.00
    
    
    
    1,500,000
    
    
    
    75.0
    
    
    
    1,500,000
    
    
    
    75.0EnviroGas 6.5% (b)
    
    
    
    
    
    
    10
    
    
    
    1.0
    
    
    
    10
    
    
    
    1.0Total Preferred Stock of Subsidiaries
    
    
    
    
    
    
    
    
    
    
    136.6
    
    
    
    
    
    
    
    136.6Preference Stock Series of Subsidiaries:Duquesne Light Plan Series A (c)
    
    
    
    
    
    
    374,615
    
    
    
    13.3
    
    
    
    408,609
    
    
    
    14.5Deferred ESOP benefit
    
    
    
    
    
    
    
    
    
    
    (2.4
    )
    
    
    
    
    
    
    (4.2
    )Total Preferred and Preference Stock
    
    
    
    
    
    
    
    
    
    
    147.5
    
    
    
    
    
    
    
    146.9
 (a)
    
    4,000,000 authorized shares; $50 par value; cumulative; $50 per share involuntary
liquidation value.(b)
    
    1,500 authorized shares; $100,000 par value; $100,000 involuntary liquidation value; if
declared, holders entitled to 6.5 % annual dividend each September; $100,000 redemption price
per share. EnviroGas is a DQE Financial subsidiary.(c)
    
    8,000,000 authorized shares; $1 par value; cumulative; $35.50 per share liquidation value;
annual dividends of $2.80 per share.
         79




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16. Equity
 Holdings.
 Changes in the Number of Shares of Holdings Common Stock Outstanding as of December 31,
 (Millions of Shares)2005
    
    2004
    
    2003January 1
    
    
    77.0
    
    
    
    75.4
    
    
    
    74.3Issuances
    
    
    1.0
    
    
    
    1.6
    
    
    
    1.1December 31
    
    
    78.0
    
    
    
    77.0
    
    
    
    75.4
           Duquesne Light.
 80




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##### Table of Contents



17. Discontinued Operations
  AQUASOURCE
       PRO AM
   81




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##### Table of Contents



(Millions of Dollars)Year Ended December 31,2005
    
    2004
    
    2003Revenues
    
    $
    
    
    
    $
    
    
    
    $
    41.5Operating Results,
net of tax of $,
$0.5, and $1.8
    
    $
    
    
    
    $
    (0.9
    )
    
    $
    (1.5
    )Gain from sale,
net of tax of $0.8,
$0.4, and $(71.6)
    
    
    1.3
    
    
    
    0.7
    
    
    
    84.2Income (Loss) from
Discontinued
Operations
    
    $
    1.3
    
    
    $
    (0.2
    )
    
    $
    82.7
 18. Duquesne Light Transactions
With Affiliates
          82




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##### Table of Contents



(Millions of Dollars)Year Ended December 31,2005
    
    2004
    
    2003Revenues and Other
Income:Interest income
    
    $
    10.1
    
    
    $
    14.3
    
    
    $
    15.6Dividend income
from Holdings
common stock
    
    
    1.2
    
    
    
    1.2
    
    
    
    1.2Wholesale energy
sales
    
    
    45.1
    
    
    
    
    
    
    
    Transmission
revenue
    
    
    1.8
    
    
    
    
    
    
    
    Duct and pole
rental revenue
    
    
    1.2
    
    
    
    1.1
    
    
    
    1.1Expenses:Administrative cost
allocations (a)
    
    $
    (2.0
    )
    
    $
    (8.3
    )
    
    $
    (6.9
    )Interest on Powers note with
Holdings
    
    
    1.0
    
    
    
    
    
    
    
    Rental of
communication
fiber
    
    
    0.5
    
    
    
    0.4
    
    
    
    0.2Company use
energy
    
    
    1.5
    
    
    
    
    
    
    
    
 (a)
    
    Allocated labor charges include the associated fringe benefits, including pension and health
care costs.
 19. Supplemental Cash Flow Disclosure
     Holdings Changes in Working Capital Other than Cash (a) for the Year Ended December 31,
 (Millions of Dollars)2005
    
    2004
    
    2003Receivables
    
    $
    (16.1
    )
    
    $
    (10.1
    )
    
    $
    1.1Other current assets
    
    
    6.6
    
    
    
    3.4
    
    
    
    8.9Accounts payable
    
    
    (20.4
    )
    
    
    (11.2
    )
    
    
    (2.8
    )Other current
liabilities
    
    
    13.9
    
    
    
    8.9
    
    
    
    (19.1
    )Total
    
    $
    (16.0
    )
    
    $
    (9.0
    )
    
    $
    (11.9
    )
 (a)
    
    The amounts shown exclude the effects of acquisitions, dispositions and restructuring
charges.
 Duquesne Light Changes in Working Capital Other than Cash (a) for the Year Ended December 31,
 (Millions of Dollars)2005
    
    2004
    
    2003Receivables
    
    $
    (18.7
    )
    
    $
    (5.7
    )
    
    $
    12.8Other current assets
    
    
    (4.3
    )
    
    
    3.4
    
    
    
    (4.5
    )Accounts payable
    
    
    (20.7
    )
    
    
    (3.8
    )
    
    
    (26.0
    )Other current
liabilities
    
    
    5.3
    
    
    
    (48.7
    )
    
    
    (34.4
    )Total
    
    $
    (38.4
    )
    
    $
    (54.8
    )
    
    $
    (52.1
    )
 (a)
    
    The amounts shown exclude the effects of restructuring charges and the transfer of the
subsidiary.
 20. Business Segments and Related
Information
   83




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##### Table of Contents



Duquesne Light Company
 Business Segments for the Twelve Months Ended December 31, 2005
 (Millions of Dollars)DuquesneElectricity
    
    LightDelivery
    
    Supply
    
    CTC
    
    ConsolidatedOperating revenues
    
    $
    343.5
    
    
    $
    443.8
    
    
    $
    5.1
    
    
    $
    792.4Operating expenses
    
    
    178.2
    
    
    
    394.8
    
    
    
    0.3
    
    
    
    573.3Depreciation and amortization expense
    
    
    67.1
    
    
    
    
    
    
    
    4.7
    
    
    
    71.8Operating income
    
    
    98.2
    
    
    
    49.0
    
    
    
    0.1
    
    
    
    147.3Other income  net
    
    
    15.9
    
    
    
    0.3
    
    
    
    
    
    
    
    16.2Interest and other charges
    
    
    47.0
    
    
    
    1.0
    
    
    
    
    
    
    
    48.0Income before income taxes
    
    
    67.1
    
    
    
    48.3
    
    
    
    0.1
    
    
    
    115.5Income tax expense
    
    
    22.6
    
    
    
    19.9
    
    
    
    
    
    
    
    42.5Net Income
    
    
    44.5
    
    
    
    28.4
    
    
    
    0.1
    
    
    
    73.0Dividends on preferred and preference stock
    
    
    8.0
    
    
    
    
    
    
    
    
    
    
    
    8.0Earnings available for common stock
    
    $
    36.5
    
    
    $
    28.4
    
    
    $
    0.1
    
    
    $
    65.0Assets
    
    $
    2,123.1
    
    
    $
    
    
    
    $
    
    
    
    $
    2,123.1Capital expenditures
    
    $
    153.9
    
    
    $
    
    
    
    $
    
    
    
    $
    153.9
 84




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##### Table of Contents



Duquesne Light Company
 Business Segments for the Twelve Months Ended December 31, 2004
 (Millions of Dollars)DuquesneElectricity
    
    LightDelivery
    
    Supply
    
    CTC
    
    ConsolidatedOperating revenues
    
    $
    344.7
    
    
    $
    434.5
    
    
    $
    10.1
    
    
    $
    789.3Operating expenses
    
    
    164.7
    
    
    
    402.8
    
    
    
    0.4
    
    
    
    567.9Acquisition termination cost
    
    
    
    
    
    
    8.3
    
    
    
    
    
    
    
    8.3Depreciation and amortization expense
    
    
    62.3
    
    
    
    
    
    
    
    9.1
    
    
    
    71.4Operating income
    
    
    117.7
    
    
    
    23.4
    
    
    
    0.6
    
    
    
    141.7Other income  net
    
    
    16.6
    
    
    
    
    
    
    
    
    
    
    
    16.6Interest and other charges
    
    
    46.2
    
    
    
    
    
    
    
    
    
    
    
    46.2Income before income taxes
    
    
    88.1
    
    
    
    23.4
    
    
    
    0.6
    
    
    
    112.1Income tax expense
    
    
    34.4
    
    
    
    9.7
    
    
    
    0.2
    
    
    
    44.3Net Income
    
    
    53.7
    
    
    
    13.7
    
    
    
    0.4
    
    
    
    67.8Dividends on preferred and preference stock
    
    
    6.6
    
    
    
    
    
    
    
    
    
    
    
    6.6Earnings available for common stock
    
    $
    47.1
    
    
    $
    13.7
    
    
    $
    0.4
    
    
    $
    61.2Assets
    
    $
    2,287.1
    
    
    $
    1.2
    
    
    $
    4.7
    
    
    $
    2,293.0Capital expenditures
    
    $
    83.4
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    83.5
 Business Segments for the Twelve Months Ended December 31, 2003
 (Millions of Dollars)DuquesneElectricity
    
    LightDelivery
    
    Supply
    
    CTC
    
    ConsolidatedOperating revenues
    
    $
    338.4
    
    
    $
    450.2
    
    
    $
    17.5
    
    
    $
    806.1Operating expenses
    
    
    157.3
    
    
    
    416.5
    
    
    
    0.8
    
    
    
    574.6Depreciation and amortization expense
    
    
    60.7
    
    
    
    
    
    
    
    15.7
    
    
    
    76.4Operating income
    
    
    120.4
    
    
    
    33.7
    
    
    
    1.0
    
    
    
    155.1Other income  net
    
    
    20.3
    
    
    
    
    
    
    
    
    
    
    
    20.3Interest and other charges
    
    
    60.4
    
    
    
    
    
    
    
    
    
    
    
    60.4Income before income taxes
    
    
    80.3
    
    
    
    33.7
    
    
    
    1.0
    
    
    
    115.0Income tax expense
    
    
    31.0
    
    
    
    14.0
    
    
    
    0.4
    
    
    
    45.4Net Income
    
    
    49.3
    
    
    
    19.7
    
    
    
    0.6
    
    
    
    69.6Dividends on preferred and preference stock
    
    
    3.2
    
    
    
    
    
    
    
    
    
    
    
    3.2Earnings available for common stock
    
    $
    46.1
    
    
    $
    19.7
    
    
    $
    0.6
    
    
    $
    66.4Assets
    
    $
    2,200.8
    
    
    $
    
    
    
    $
    8.4
    
    
    $
    2,209.2Capital expenditures
    
    $
    76.1
    
    
    $
    
    
    
    $
    
    
    
    $
    76.1
 85




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##### Table of Contents



Duquesne Light Holdings
 Business Segments for the Twelve Months Ended December 31, 2005
 (Millions of Dollars)Electricity
    
    
    Electricity
    
    
    
    
    
    
    Energy
    
    
    
    
    
    
    Communi-
    
    
    All
    
    
    Elimina-
    
    
    Consoli-Delivery
    
    
    Supply
    
    
    CTC
    
    
    Solutions
    
    
    Financial
    
    
    cations
    
    
    Other
    
    
    tions
    
    
    datedOperating revenues
    
    $
    343.5
    
    
    $
    451.4
    
    
    $
    5.1
    
    
    $
    68.6
    
    
    $
    49.0
    
    
    $
    9.5
    
    
    $
    
    
    
    $
    (4.9
    )
    
    $
    922.2Operating expenses
    
    
    178.2
    
    
    
    402.4
    
    
    
    0.3
    
    
    
    25.0
    
    
    
    49.6
    
    
    
    3.8
    
    
    
    7.2
    
    
    
    (4.9
    )
    
    
    661.6Depreciation and
amortization expense
    
    
    67.1
    
    
    
    
    
    
    
    4.7
    
    
    
    1.7
    
    
    
    5.9
    
    
    
    2.1
    
    
    
    0.8
    
    
    
    
    
    
    
    82.3Operating income (loss)
    
    
    98.2
    
    
    
    49.0
    
    
    
    0.1
    
    
    
    41.9
    
    
    
    (6.5
    )
    
    
    3.6
    
    
    
    (8.0
    )
    
    
    
    
    
    
    178.3Other income  net
    
    
    15.9
    
    
    
    0.4
    
    
    
    
    
    
    
    19.1
    
    
    
    12.6
    
    
    
    0.2
    
    
    
    6.2
    
    
    
    (14.3
    )
    
    
    40.1Interest and other charges
    
    
    55.0
    
    
    
    1.1
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    
    
    
    
    19.6
    
    
    
    (13.3
    )
    
    
    62.6Benefit from limited
partners interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.1Income (loss) before
income taxes
    
    
    59.1
    
    
    
    48.3
    
    
    
    0.1
    
    
    
    60.9
    
    
    
    16.1
    
    
    
    3.8
    
    
    
    (21.4
    )
    
    
    (1.0
    )
    
    
    165.9Income tax expense
(benefit)
    
    
    22.6
    
    
    
    19.9
    
    
    
    
    
    
    
    25.0
    
    
    
    (14.1
    )
    
    
    1.3
    
    
    
    (1.8
    )
    
    
    0.1
    
    
    
    53.0Income (loss) from
continuing operations
    
    $
    36.5
    
    
    $
    28.4
    
    
    $
    0.1
    
    
    $
    35.9
    
    
    $
    30.2
    
    
    $
    2.5
    
    
    $
    (19.6
    )
    
    $
    (1.1
    )
    
    $
    112.9Assets (a)
    
    $
    2,100.1
    
    
    $
    68.1
    
    
    $
    
    
    
    $
    17.9
    
    
    $
    573.9
    
    
    $
    29.9
    
    
    $
    29.0
    
    
    $
    
    
    
    $
    2,818.9Capital expenditures
    
    $
    153.9
    
    
    $
    
    
    
    $
    
    
    
    $
    0.1
    
    
    $
    0.4
    
    
    $
    3.2
    
    
    $
    
    
    
    $
    
    
    
    $
    157.6
 
 (a)
    
    Excludes discontinued operations assets. Business Segments for the Twelve Months Ended December 31, 2004
 (Millions of Dollars)Electricity
    
    
    Electricity
    
    
    
    
    
    

    Energy
    
    
    
    
    
    
    Communi-
    
    
    All
    
    
    Elimina-
    
    
    Consoli-Delivery
    
    
    Supply
    
    
    CTC
    
    
    Solutions
    
    
    Financial
    
    
    cations
    
    
    Other
    
    
    tions
    
    
    datedOperating revenues
    
    $
    344.7
    
    
    $
    434.5
    
    
    $
    10.1
    
    
    $
    68.4
    
    
    $
    32.8
    
    
    $
    8.1
    
    
    $
    0.4
    
    
    $
    (1.7
    )
    
    $
    897.3Operating expenses
    
    
    164.7
    
    
    
    402.8
    
    
    
    0.4
    
    
    
    32.5
    
    
    
    40.7
    
    
    
    3.3
    
    
    
    12.1
    
    
    
    (1.6
    )
    
    
    654.9Acquisition termination cost
    
    
    
    
    
    
    8.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.3Depreciation and
amortization expense
    
    
    62.3
    
    
    
    
    
    
    
    9.1
    
    
    
    1.9
    
    
    
    7.3
    
    
    
    1.9
    
    
    
    0.9
    
    
    
    
    
    
    
    83.4Operating income (loss)
    
    
    117.7
    
    
    
    23.4
    
    
    
    0.6
    
    
    
    34.0
    
    
    
    (15.2
    )
    
    
    2.9
    
    
    
    (12.6
    )
    
    
    (0.1
    )
    
    
    150.7Other income  net
    
    
    16.6
    
    
    
    
    
    
    
    
    
    
    
    1.4
    
    
    
    9.5
    
    
    
    0.1
    
    
    
    1.3
    
    
    
    (16.2
    )
    
    
    12.7Interest and other charges
    
    
    52.8
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    
    
    
    
    26.0
    
    
    
    (16.0
    )
    
    
    63.0Benefit from limited
partners interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.4Income (loss) before
income taxes
    
    
    81.5
    
    
    
    23.4
    
    
    
    0.6
    
    
    
    35.3
    
    
    
    1.6
    
    
    
    3.0
    
    
    
    (37.3
    )
    
    
    (0.3
    )
    
    
    107.8Income tax expense
(benefit)
    
    
    34.4
    
    
    
    9.7
    
    
    
    0.2
    
    
    
    12.6
    
    
    
    (24.8
    )
    
    
    1.3
    
    
    
    (13.1
    )
    
    
    0.3
    
    
    
    20.6Income (loss) from
continuing operations
    
    $
    47.1
    
    
    $
    13.7
    
    
    $
    0.4
    
    
    $
    22.7
    
    
    $
    26.4
    
    
    $
    1.7
    
    
    $
    (24.2
    )
    
    $
    (0.6
    )
    
    $
    87.2Assets
    
    $
    1,879.5
    
    
    $
    1.1
    
    
    $
    4.7
    
    
    $
    32.6
    
    
    $
    604.4
    
    
    $
    28.6
    
    
    $
    81.9
    
    
    $
    
    
    
    $
    2,632.8Capital expenditures
    
    $
    83.4
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    0.1
    
    
    $
    0.9
    
    
    $
    1.9
    
    
    $
    
    
    
    $
    
    
    
    $
    86.4
 86




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##### Table of Contents



Duquesne Light Holdings
 Business Segments for the Twelve Months Ended December 31, 2003
 (Millions of Dollars)Electricity
    
    
    Electricity
    
    
    
    
    
    
    Energy
    
    
    
    
    
    

    Communi-
    
    
    All
    
    
    Elimina-
    
    
    Consoli-Delivery
    
    
    Supply
    
    
    CTC
    
    
    Solutions
    
    
    Financial
    
    
    cations
    
    
    Other
    
    
    tions
    
    
    datedOperating revenues
    
    $
    338.4
    
    
    $
    450.2
    
    
    $
    17.5
    
    
    $
    63.5
    
    
    $
    27.8
    
    
    $
    6.7
    
    
    $
    0.3
    
    
    $
    (1.6
    )
    
    $
    902.8Operating expenses
    
    
    157.3
    
    
    
    416.5
    
    
    
    0.8
    
    
    
    33.1
    
    
    
    45.4
    
    
    
    3.7
    
    
    
    8.6
    
    
    
    (0.8
    )
    
    
    664.6Depreciation and
amortization expense
    
    
    60.7
    
    
    
    
    
    
    
    15.7
    
    
    
    2.1
    
    
    
    6.4
    
    
    
    1.8
    
    
    
    0.6
    
    
    
    
    
    
    
    87.3Operating income (loss)
    
    
    120.4
    
    
    
    33.7
    
    
    
    1.0
    
    
    
    28.3
    
    
    
    (24.0
    )
    
    
    1.2
    
    
    
    (8.9
    )
    
    
    (0.8
    )
    
    
    150.9Other income  net
    
    
    20.3
    
    
    
    
    
    
    
    
    
    
    
    1.8
    
    
    
    29.4
    
    
    
    
    
    
    
    0.7
    
    
    
    (17.8
    )
    
    
    34.4Interest and other charges
    
    
    63.6
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    1.8
    
    
    
    
    
    
    
    25.5
    
    
    
    (16.7
    )
    
    
    74.4Income (loss) before
income taxes
    
    
    77.1
    
    
    
    33.7
    
    
    
    1.0
    
    
    
    29.9
    
    
    
    3.6
    
    
    
    1.2
    
    
    
    (33.7
    )
    
    
    (1.9
    )
    
    
    110.9Income tax expense
(benefit)
    
    
    31.0
    
    
    
    14.0
    
    
    
    0.4
    
    
    
    9.6
    
    
    
    (29.6
    )
    
    
    0.4
    
    
    
    (8.1
    )
    
    
    
    
    
    
    17.7Income (loss) from
continuing operations
    
    
    46.1
    
    
    
    19.7
    
    
    
    0.6
    
    
    
    20.3
    
    
    
    33.2
    
    
    
    0.8
    
    
    
    (25.6
    )
    
    
    (1.9
    )
    
    
    93.2Dividends on preferred
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    0.4Earnings (loss) from
continuing operations
available for common
stock
    
    $
    46.1
    
    
    $
    19.7
    
    
    $
    0.6
    
    
    $
    20.3
    
    
    $
    33.2
    
    
    $
    0.8
    
    
    $
    (26.0
    )
    
    $
    (1.9
    )
    
    $
    92.8Assets
    
    $
    1,866.6
    
    
    $
    
    
    
    $
    8.4
    
    
    $
    34.2
    
    
    $
    572.1
    
    
    $
    30.0
    
    
    $
    29.5
    
    
    $
    
    
    
    $
    2,540.8Capital expenditures
    
    $
    76.1
    
    
    $
    
    
    
    $
    
    
    
    $
    0.4
    
    
    $
    0.3
    
    
    $
    1.0
    
    
    $
    0.2
    
    
    $
    
    
    
    $
    78.0
 87




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##### Table of Contents



21. Quarterly Financial Information (Unaudited)
 Summary of Selected Quarterly Financial Data  Duquesne Light Holdings
 (Millions of Dollars, Except Per Share Amounts)2005 (a)
    
    First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth QuarterOperating revenues
    
    $
    218.7
    
    
    $
    221.9
    
    
    $
    263.3
    
    
    $
    218.3Operating income
    
    
    47.1
    
    
    
    38.7
    
    
    
    58.8
    
    
    
    33.7Income from continuing operations
    
    
    34.6
    (b)
    
    
    21.6
    
    
    
    43.5
    (b)
    
    
    13.2
    (b)Income (loss) from discontinued operations
    
    
    0.4
    
    
    
    (0.1
    )
    
    
    0.1
    
    
    
    0.9Net income
    
    
    35.0
    
    
    
    21.5
    
    
    
    43.6
    
    
    
    14.1Basic earnings (loss) per share:Continuing operations
    
    
    0.45
    
    
    
    0.28
    
    
    
    0.56
    
    
    
    0.17Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.01Total
    
    
    0.45
    
    
    
    0.28
    
    
    
    0.56
    
    
    
    0.18Stock price:High
    
    
    19.17
    
    
    
    19.25
    
    
    
    19.43
    
    
    
    17.40Low
    
    
    17.43
    
    
    
    17.30
    
    
    
    17.17
    
    
    
    16.142004 (a)
    
    First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth QuarterOperating revenues
    
    $
    217.1
    
    
    $
    218.9
    
    
    $
    242.8
    
    
    $
    218.5Operating income
    
    
    35.2
    
    
    
    36.4
    
    
    
    40.2
    (c)
    
    
    38.9Income from continuing operations
    
    
    21.7
    
    
    
    23.0
    
    
    
    23.4
    
    
    
    19.1Income (loss) from discontinued operations
    
    
    0.1
    
    
    
    0.4
    
    
    
    0.2
    
    
    
    (0.9
    )Net income
    
    
    21.8
    
    
    
    23.4
    
    
    
    23.6
    
    
    
    18.2Basic earnings (loss) per share:Continuing operations
    
    
    0.29
    
    
    
    0.30
    
    
    
    0.31
    
    
    
    0.25Discontinued operations
    
    
    
    
    
    
    0.01
    
    
    
    
    
    
    
    (0.01
    )Total
    
    
    0.29
    
    
    
    0.31
    
    
    
    0.31
    
    
    
    0.24Stock price:High
    
    
    20.44
    
    
    
    19.70
    
    
    
    19.62
    
    
    
    19.25Low
    
    
    18.05
    
    
    
    17.71
    
    
    
    17.96
    
    
    
    17.01
 
 (a)
    
    The quarterly data reflect seasonal weather variations in the electric utilitys service
territory. Stock prices reflect New York Stock Exchange data.(b)
    
    First quarter results include a $8.3 million increase in the fair value of certain derivative
energy contracts at Duquesne Light and a $4.6 million gain on the sale of an investment at DQE
Financial. Third quarter results include a $11.7 million gain on the sale of an energy
facility management project at DES and an $6.5 million increase in the fair value of certain
derivative energy contracts at Duquesne Light. Fourth quarter results include a $7.8 million
gain on the sale of two energy facility management projects at DES, a $3.7 million decrease in
the fair value of certain derivative energy contracts at Duquesne Light and $6.7 million of
charges related to an energy facility management project.(c)
    
    Third quarter results include a pre-tax charge of $8.3 million at Duquesne Light for
the write-off of deposits and deferred costs related to the termination of the acquisition of
a generation station. (See Note 3.) 88




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##### Table of Contents



Duquesne Light Company
 (Millions of Dollars)2005 (a)
    
    First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth QuarterOperating revenues
    
    $
    191.5
    
    
    $
    189.9
    
    
    $
    225.8
    
    
    $
    185.2Operating income
    
    
    42.6
    (b)
    
    
    32.3
    
    
    
    52.5
    (b)
    
    
    19.9
    (b)Net income
    
    
    21.9
    
    
    
    14.6
    
    
    
    27.3
    
    
    
    9.22004 (a)
    
    First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth QuarterOperating revenues
    
    $
    194.6
    
    
    $
    193.8
    
    
    $
    213.1
    
    
    $
    187.8Operating income
    
    
    36.6
    
    
    
    36.2
    
    
    
    34.9
    (c)
    
    
    34.0Net income
    
    
    17.8
    
    
    
    18.3
    
    
    
    17.0
    
    
    
    14.7
 
 (a)
    
    The quarterly data reflect seasonal weather variations in our service territory.(b)
    
    First quarter results include a $8.3 million increase in the fair value of certain derivative
energy contracts. Third quarter results include an $6.5 million increase in the fair value of
certain derivative energy contracts. Fourth quarter results include a $3.7 million decrease in
the fair value of certain derivative energy contracts.(c)
    
    Third quarter results include an $8.3 million pre-tax charge for the write-off of deposits
and deferred costs related to the termination of the acquisition of a generation station. (See
Note 3.) 
 Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Disclosure Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
   Internal Control-Integrated Framework
  Changes in Internal Control Over Financial Reporting
  89




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##### Table of Contents



REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Internal ControlIntegrated Framework
    Internal ControlIntegrated Framework Internal ControlIntegrated Framework
   
 90




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##### Table of Contents



Internal ControlIntegrated Framework
    Internal ControlIntegrated Framework Internal ControlIntegrated Framework
   
 91




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##### Table of Contents



Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrants.
    
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management.
   92




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##### Table of Contents



Equity Compensation Plan Information
  (a)
    
    
    (b)
    
    
    (c)Number ofsecuritiesremaining availableNumber of
    
    
    
    
    
    
    for future issuancesecurities to be
    
    
    
    
    
    
    under equityissued upon
    
    
    Weighted average
    
    
    compensation plansexercise of
    
    
    exercise price of
    
    
    (excludingoutstanding
    
    
    outstanding
    
    
    securitiesoptions, warrants
    
    
    options, warrants
    
    
    reflected in columnPlan Category
    
    and rights (1)
    
    
    and rights
    
    

(a)) (2)Equity compensation
plans approved by
security holders
    
    
    1,130,602
    
    
    $
    23.10
    
    
    
    2,622,280Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,130,602
    
    
    $
    23.10
    
    
    
    2,622,280
 
 (1)
    
    Includes 352,373 shares of common stock issuable upon exercise of options granted under
our prior Long-Term Incentive Plan (discontinued in 2002) and 199,631 shares of common
stock issuable upon exercise of options granted under our current Incentive Plan. Reflects
363,200 and 33,367 deferred stock units awarded in 2003 and 2005, which may or may not be
earned depending on our achieving cumulative total shareholder return and earnings per
share goals through 2006. Awardees may earn up to 100% of the amounts awarded. Reflects
52,390 restricted stock units awarded in 2004, which may or may not be earned depending on
our achieving cumulative total shareholder return goals through 2006. Awardees may earn up
to 100% of the amounts awarded. Reflects 186,417; 20,000; and 36,292 restricted shares
issued in 2003, 2004 and 2005.(2)
    
    All of these shares are available under our current Incentive Plan. 93




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##### Table of Contents



Item 13. Certain Relationships and Related Transactions.
  
 Item 14. Principal Accounting Fees and Services.
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
                I   Condensed Financial Information of Registrant (Holdings)II  Valuation and Qualifying Accounts (Holdings)II  Valuation and Qualifying Accounts (Duquesne
Light)
  
  94




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##### Table of Contents



Exhibit No.
    
    Description
    
    Method of Filing3.1
    
    Holdings Articles of Incorporation effective January 5, 1989.
    
    Exhibit 3.1 to the Holdings Form
10-K for the year ended December
31, 1989.3.2
    
    Holdings Articles of Amendment effective April 27, 1989.
    
    Exhibit 3.2 to the Holdings Form
10-K for the year ended December
31, 1989.3.3
    
    Holdings Articles of Amendment effective February 8, 1993.
    
    Exhibit 3.3 to the Holdings Form
10-K for the year ended December
31, 1992.3.4
    
    Holdings Articles of Amendment effective May 24, 1994.
    
    Exhibit 3.4 to the Holdings Form
10-K for the year ended December
31, 1994.3.5
    
    Holdings Articles of Amendment effective April 20, 1995.
    
    Exhibit 3.5 to the Holdings Form
10-K for the year ended December
31, 1995.3.6
    
    Holdings Articles of Amendment effective September 30, 2003.
    
    Exhibit 3.6 to the Holdings Form
10-K for the year ended December
31, 2002.3.7
    
    Holdings Statement with respect to the Preferred Stock, Series A (Convertible).
    
    Exhibit 3.1 to the Holdings Form
10-Q for the quarter ended
September 30, 1997.3.8
    
    Duquesne Light Restated Articles of Incorporation currently in effect.
    
    Exhibit 3.1 to the Duquesne
Light Form 10-Q for the quarter
ended
June 30, 1999.3.9
    
    Holdings By-Laws, as amended through September 30, 2003, and as currently in effect.
    
    Exhibit 3.1 to the Holdings Form
10-Q for the quarter ended
September 30, 2003.3.10
    
    Duquesne Light By-Laws, as amended through October 13, 2003, and as currently in
effect.
    
    Exhibit 3.1 to the Duquesne
Light Form 10-Q for the quarter
ended September 30, 2003.3.11
    
    Form of Duquesne Light Statement with respect to the 6.50% Preferred Stock.
    
    Exhibit 3.3 to Registration
Statement (Form S-3) No.
333-112929.4.1
    
    Indenture of Mortgage and Deed of Trust dated as of April 1, 1992, between Duquesne
Light Company and JP Morgan Chase (a restatement of the Indenture in its entirety as
amended through 2004).
    
    Exhibit 4.1 to the Holdings Form
10-K for the year ended December
31, 2004.4.2
    
    Indenture dated as of August 16, 2005 between Holdings and
J.P. Morgan Trust Company, National Association, as Trustee.
    
    Exhibit 4.1 to the Holdings Form
8-K dated August 17, 2005.4.3
    
    Form of 2015 Senior Note.
    
    Exhibit 4.2 to the Holdings Form
8-K dated August 17, 2005.
 95




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##### Table of Contents



4.4
    
    Form of 2035 Senior Note.
    
    Exhibit 4.3 to the Holdings Form
8-K dated August 17, 2005.4.5
    
    Form of Officers Certificate for the 2015 Senior Note.
    
    Exhibit 4.4 to the Holdings Form
8-K dated August 17, 2005.4.6
    
    Form of Officers Certificate for the 2035 Senior Note.
    
    Exhibit 4.5 to the Holdings Form
8-K dated August 17, 2005.4.7
    
    Indenture, dated as of August 1, 1999, from DQE Capital
Corporation and Holdings to The First National Bank of
Chicago, as Trustee.
    
    Exhibit 4.1 to the Form 8-A of
DQE Capital Corporation and
Holdings, filed September 16,
1999.4.8
    
    Form of Note.
    
    Exhibit 4.2 to the Form 8-A of
DQE Capital Corporation and
Holdings, filed September 16,
1999.10.1
    
    Deferred Compensation Plan for Directors of Duquesne Light Company, as amended to
date.
    
    Exhibit 10.1 to the Holdings Form
10-K for the year ended December
31, 1992.10.2
    
    Restated Pension Service Supplement Program.
    
    Exhibit 10.2 to the Holdings Form
10-K for the year ended December
31, 2004.10.3
    
    Duquesne Light Charitable Giving Program, as amended.
    
    Exhibit 10.6 to the Holdings Form
10-K Annual Report for the year
ended December 31, 2001.10.4
    
    Severance Agreement dated December 23, 2003 for Morgan K. OBrien, with a schedule
listing substantially identical agreements with Joseph G. Belechak, Maureen L.
Hogel, Stevan R. Schott and James E. Wilson.
    
    Exhibit 10.11 to the Holdings
Form 10-K for the year ended
December 31, 2003.10.5
    
    Schedule to Exhibit 10.4 listing substantially identical agreements with Joseph G.
Belechak, Maureen L. Hogel, Mark E. Kaplan, Stevan R. Schott and James E. Wilson.
    
    Filed here.10.6
    
    Employment Agreement dated as of September 14, 2001 between Holdings and Morgan K.
OBrien.
    
    Exhibit 10.8 to the Holdings Form
10-K for the year ended December
31, 2001.10.7
    
    Non-Competition and Confidentiality Agreement dated as of September 14, 2001 for
Morgan K. OBrien.
    
    Exhibit 10.13 to the Holdings
Form 10-K for the year ended
December 31, 2001.10.8
    
    Non-Competition and Confidentiality Agreement dated as of August 17, 2000 for
William F. Fields.
    
    Exhibit 10.7 to the Holdings Form
10-K for the year ended December
31, 2004.10.9
    
    Non-Competition and Confidentiality Agreement dated as of August 1, 2000 for Joseph
G. Belechak.
    
    Exhibit 10.7 to the Duquesne
Light Form 10-K for the year
ended December 31, 2001.
 96




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##### Table of Contents



10.10
    
    Non-Competition and Confidentiality Agreement dated as of April 2, 1997 for Maureen
L. Hogel.
    
    Exhibit 10.8 to the Duquesne
Light Form 10-K for the year
ended December 31, 2001.10.11
    
    Schedule to Exhibit 10.9 listing substantially identical agreements with Mark E.
Kaplan, Stevan R. Schott and James E. Wilson.
    
    Filed here.10.12
    
    Form of Stock Option Agreement for Officers (with change in control)
    
    Exhibit 10.11 to the Holdings
Form 10-K for the year ended
December 31, 2004.10.13
    
    Form of Stock Option Agreement for Officers
    
    Exhibit 10.12 to the Holdings
Form 10-K for the year ended
December 31, 2004.10.14
    
    Form of Deferred Stock Unit Agreement for Officers
    
    Exhibit 10.13 to the Holdings
Form 10-K for the year ended
December 31, 2004.10.15
    
    Form of Performance Share Agreement for Officers
    
    Exhibit 10.14 to the Holdings
Form 10-K for the year ended
December 31, 2004.10.16
    
    Form of Restricted Stock Agreement for Officers
    
    Exhibit 10.15 to the Holdings
Form 10-K for the year ended
December 31, 2004.10.17
    
    Form of Stock Option Agreement for Directors
    
    Exhibit 10.16 to the Holdings
Form 10-K for the year ended
December 31, 2004.10.18
    
    Form of Restricted Stock Agreement for Directors
    
    Exhibit 10.17 to the Holdings
Form 10-K for the year ended
December 31, 2004.10.19
    
    Description of Executive Benefits
    
    Filed here.10.20
    
    Description of Directors Fees and Plans
    
    Exhibit 10.19 to the Holdings
Form 10-K for the year ended
December 31, 2004.10.21
    
    Holdings Amended and Restated $200 Million Credit Agreement dated as of July 27,
2005.
    
    Exhibit 10.1 to the Holdings
Form 10-Q for the quarter ended
June 30, 2005.10.22
    
    Increasing Lender Agreement between Holdings and Union Bank of California, N.A.,
dated January 31, 2006, modifying Holdings Amended and Restated $200 Million Credit
Agreement, together with a schedule listing substantially identical agreements with
the other lenders.
    
    Filed here.10.23
    
    Accession and Amendment Agreement between Holdings and Keybank National Association,
dated January 31, 2006, including Keybank as a lender under Holdings Amended and
Restated $200 Million Credit Agreement.
    
    Filed here.
 97




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##### Table of Contents



10.24
    
    Duquesne Lights Third Amended and Restated $100 Million Credit Agreement dated as
of July 27, 2005.
    
    Exhibit 10.2 to the Duquesne
Light Form 8-K dated July 27,
2005.10.25
    
    Increasing Lender Agreement between Duquesne Light and JPMorgan Chase, N.A., dated
January 31, 2006, modifying Duquesne Lights Third Amended and Restated $100 Million
Credit Agreement, together with a schedule listing substantially identical
agreements with the other lenders.
    
    Filed here.10.26
    
    Accession and Amendment Agreement between Duquesne Light and Keybank National
Association, dated January 31, 2006, including Keybank as a lender under Duquesne
Lights Third Amended and Restated $100 Million Credit Agreement.
    
    Filed here.10.27
    
    POLR Agreement, dated as of September 24, 1999 by and between Duquesne Light Company
and Orion Power Holdings, Inc.
    
    Exhibit 2.2 to the Holdings Form
8-K dated September 24, 1999.10.28
    
    Amended and Restated POLR II Agreement by and between Duquesne Light Company and
Orion Power MidWest, L.P., dated as of December 7, 2000.
    
    Exhibit 10.11 to the Duquesne
Light Form 10-K for the year
ended December 31, 2000.10.29
    
    Purchase and Sale Agreement by and between Atlantic City Electric Company and
Holdings dated November 14, 2005.
    
    Exhibit 10.1 to the Holdings
Form 8-K dated November 14,
2005.12.1
    
    Holdings Ratio of Earnings.
    
    Filed here.12.2
    
    Duquesne Lights Ratio of Earnings.
    
    Filed here.21.1
    
    Subsidiaries of the registrants.
    
    Filed here.23.1
    
    Consent of Independent Registered Public Accounting Firm regarding Holdings.
    
    Filed here.23.2
    
    Consent of Independent Registered Public Accounting Firm regarding Duquesne Light.
    
    Filed here.31.1
    
    Section 302 Certification of Holdings CEO.
    
    Filed here.31.2
    
    Section 302 Certification of Holdings CFO.
    
    Filed here.31.3
    
    Section 302 Certification of Duquesne Lights CEO.
    
    Filed here.31.4
    
    Section 302 Certification of Duquesne Lights CFO.
    
    Filed here.32.1
    
    Section 906 Certification of Holdings CEO.
    
    Filed here.32.2
    
    Section 906 Certification of Holdings CFO.
    
    Filed here.32.3
    
    Section 906 Certification of Duquesne Lights CEO.
    
    Filed here.32.4
    
    Section 906 Certification of Duquesne Lights CFO.
    
    Filed here.99.1
    
    Information regarding Duquesne Light directors, executive compensation and security
ownership.
    
    Filed here.
 98




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##### Table of Contents



SCHEDULE I
 Condensed Financial Information of Registrant (Parent Company)
 Duquesne Light Holdings, Inc.
 Schedule I  Condensed Financial Information of Registrant (Parent Company)
 Statements of Income
 (All Amounts in Millions,Except Per Share Amounts)Year Ended December 31,2005
    
    
    2004
    
    
    2003Operating Expenses:Operating and administrative
    
    $
    6.9
    
    
    $
    4.7
    
    
    $
    1.3Intercompany administrative expenses
    
    
    
    
    
    
    6.6
    
    
    
    5.8Depreciation and amortization
    
    
    0.8
    
    
    
    0.8
    
    
    
    1.7Total Operating Expenses
    
    
    7.7
    
    
    
    12.1
    
    
    
    8.8Operating Loss
    
    
    (7.7
    )
    
    
    (12.1
    )
    
    
    (8.8
    )Other Income  net
    
    
    5.1
    
    
    
    
    
    
    
    (0.5
    )Intercompany Interest Expense
    
    
    (11.3
    )
    
    
    (23.8
    )
    
    
    (24.1
    )Interest and Other Charges
    
    
    (7.5
    )
    
    
    (0.4
    )
    
    
    (0.3
    )Loss Before
Income Taxes and Equity in Income of Unconsolidated Subsidiaries

    
    
    (21.4
    )
    
    
    (36.3
    )
    
    
    (33.7
    )Income Tax Expense
    
    
    (29.8
    )
    
    
    (15.6
    )
    
    
    (83.7
    )Equity in Income of Unconsolidated Subsidiaries
    
    
    165.4
    
    
    
    138.9
    
    
    
    293.3Net Income
    
    
    114.2
    
    
    
    87.0
    
    
    
    175.9Dividends on Preferred Stock
    
    
    
    
    
    
    
    
    
    
    0.4Earnings Available for Common Stock
    
    $
    114.2
    
    
    $
    87.0
    
    
    $
    175.5Average Number of Common Shares Outstanding
    
    
    77.7
    
    
    
    76.4
    
    
    
    75.0Basic Earnings Per Share of Common Stock
    
    $
    1.47
    
    
    $
    1.14
    
    
    $
    2.34Diluted Earnings Per Share of Common Stock
    
    $
    1.47
    
    
    $
    1.14
    
    
    $
    2.29Dividends Declared Per Share of Common Stock
    
    $
    1.00
    
    
    $
    1.00
    
    
    $
    1.00See notes to condensed financial statements.
 99




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##### Table of Contents



Duquesne Light Holdings, Inc.
 Schedule I  Condensed Financial Information of Registrant (Parent Company)
 Balance Sheets
 (Millions of Dollars)As of December 31,Assets
    
    2005
    
    
    2004Current Assets:Cash and temporary cash investments
    
    $
    
    
    
    $
    0.1Receivables
    
    
    
    
    
    
    13.2Receivables  unconsolidated subsidiaries
    
    
    1.0
    
    
    
    11.8Notes receivable  unconsolidated subsidiaries
    
    
    7.8
    
    
    
    Deferred income taxes  net
    
    
    18.1
    
    
    
    Derivative instruments
    
    
    2.2
    
    
    
    Other
    
    
    0.1
    
    
    
    0.1Total Current Assets
    
    
    29.2
    
    
    
    25.2Investments
in Unconsolidated Subsidiaries (Note 2)
    
    
    1,047.2
    
    
    
    943.6Other Non-Current Assets:Deferred income taxes  net
    
    
    117.3
    
    
    
    137.1Other
    
    
    9.0
    
    
    
    5.4Total Other Non-Current Assets
    
    
    126.3
    
    
    
    142.5Total Assets
    
    $
    1,202.7
    
    
    $
    1,111.3Liabilities and CapitalizationCurrent Liabilities:Short-term debt
    
    $
    40.0
    
    
    $
    Accounts payable
    
    
    0.5
    
    
    
    0.2Accounts payable  unconsolidated subsidiaries
    
    
    44.9
    
    
    
    24.6Notes payable  unconsolidated subsidiaries
    
    
    55.7
    
    
    
    384.5Income taxes payable
    
    
    56.2
    
    
    
    32.7Common stock dividends
    
    
    20.0
    
    
    
    19.7Other
    
    
    8.8
    
    
    
    22.7Total Current Liabilities
    
    
    226.1
    
    
    
    484.4Total Non-Current Liabilities
    
    
    0.7
    
    
    
    16.5Commitments and ContingenciesCapitalization:Long-term debt
    
    
    320.0
    
    
    
    Common Shareholders Equity:Common stock  no par value (authorized 
187,500,000 shares; issued  126,929,154 shares)
    
    
    1,200.5
    
    
    
    1,206.7Retained earnings
    
    
    600.0
    
    
    
    563.6Treasury stock (at cost) (48,935,435 and 49,927,343 shares)
    
    
    (1,132.5
    )
    
    
    (1,157.3
    )Unearned compensation
    
    
    (1.8
    )
    
    
    (2.6
    )Accumulated other comprehensive income
    
    
    (10.3
    )
    
    
    Total Common Shareholders Equity
    
    
    655.9
    
    
    
    610.4Total Capitalization
    
    
    975.9
    
    
    
    610.4Total Liabilities and Capitalization
    
    $
    1,202.7
    
    
    $
    1,111.3
  100




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Duquesne Light Holdings, Inc.
 Schedule I  Condensed Financial Information of Registrant (Parent Company)
 Statements of Cash Flows
 (Millions of Dollars)Year Ended December 31,2005
    
    
    2004
    
    
    2003Net Cash Provided from Operating Activities
    
    $
    123.3
    
    
    $
    81.6
    
    
    $
    100.7Cash Flows From Investing Activities:Loans to unconsolidated subsidiaries, net
    
    
    (7.8
    )
    
    
    
    
    
    
    Investments in unconsolidated subsidiaries
    
    
    (85.0
    )
    
    
    
    
    
    
    (7.1
    )Return of capital from unconsolidated subsidiaries
    
    
    10.0
    
    
    
    179.5
    
    
    
    Capital expenditures
    
    
    
    
    
    
    
    
    
    
    (0.2
    )Net Cash (Used in) Provided from Investing Activities
    
    
    (82.8
    )
    
    
    179.5
    
    
    
    (7.3
    )Cash Flows From Financing Activities:Issuance of long-term debt obligations
    
    
    320.0
    
    
    
    
    
    
    
    Borrowings from unconsolidated subsidiaries
    
    
    96.8
    
    
    
    17.0
    
    
    
    66.1Repayments of unconsolidated subsidiary borrowings
    
    
    (425.6
    )
    
    
    (210.2
    )
    
    
    (94.4
    )Revolving credit facility borrowings, net
    
    
    40.0
    
    
    
    
    
    
    
    Dividends on common and preferred stock
    
    
    (67.1
    )
    
    
    (66.0
    )
    
    
    (64.4
    )Other
    
    
    (4.7
    )
    
    
    (1.8
    )
    
    
    (0.7
    )Net Cash Used in Financing Activities
    
    
    (40.6
    )
    
    
    (261.0
    )
    
    
    (93.4
    )Net (decrease) increase in cash and temporary cash investments
    
    
    (0.1
    )
    
    
    0.1
    
    
    
    Cash and temporary cash investments at beginning of year
    
    
    0.1
    
    
    
    
    
    
    
    Cash and temporary cash investments at end of year
    
    $
    
    
    
    $
    0.1
    
    
    $
    Supplemental Cash Flow InformationDividends
received from unconsolidated subsidiaries
    
    $
    97.1
    
    
    $
    114.0
    
    
    $
    103.5Cash paid during the year:Interest
    
    $
    13.6
    
    
    $
    24.6
    
    
    $
    24.2Income taxes paid (refunded)
    
    $
    28.4
    
    
    $
    (20.4
    )
    
    $
    80.9
  101




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##### Table of Contents



Duquesne Light Holdings, Inc.
 Schedule I  Condensed Financial Information of Registrant (Parent Company)
 Notes to Condensed Financial Statements
 1. Basis of Presentation
  Accounting for subsidiaries
 Income
taxes
 2. Restricted Net Assets of Subsidiaries
  102




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##### Table of Contents



SCHEDULE II
 Valuation and Qualifying Accounts
For the Years Ended December 31, 2005, 2004 and 2003
Reserve deducted from the Asset to which it applies: Allowance for uncollectible accounts
 (Millions of Dollars)AdditionsBalance at
    
    
    Charged to
    
    
    Charged to
    
    
    
    
    
    
    BalanceBeginning
    
    
    Costs and
    
    
    Other
    
    
    
    
    
    
    at EndDescription
    
    of Year
    
    
    Expenses
    
    
    Accounts (a)
    
    
    Deductions (b)
    
    
    of YearDUQUESNE LIGHT HOLDINGSYear Ended December 31, 2005
    
    $
    18.1
    
    
    $
    19.3
    
    
    $
    3.3
    
    
    $
    19.6
    
    
    $
    21.1Year Ended December 31, 2004
    
    
    19.9
    
    
    
    12.0
    
    
    
    4.2
    
    
    
    18.0
    
    
    
    18.1Year Ended December 31, 2003
    
    
    21.7
    
    
    
    10.8
    
    
    
    3.6
    
    
    
    16.2
    
    
    
    19.9DUQUESNE LIGHT COMPANYYear Ended December 31, 2005
    
    $
    17.9
    
    
    $
    19.1
    
    
    $
    3.2
    
    
    $
    19.4
    
    
    $
    20.8Year Ended December 31, 2004
    
    
    19.9
    
    
    
    11.9
    
    
    
    4.1
    
    
    
    18.0
    
    
    
    17.9Year Ended December 31, 2003
    
    
    21.7
    
    
    
    10.2
    
    
    
    3.6
    
    
    
    15.6
    
    
    
    19.9
 
 Notes: (a) Recovery of accounts previously written off.(b) Accounts receivable written off. 103




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##### Table of Contents

================================================================================

SIGNATURES
  Duquesne Light Holdings, Inc.
(Registrant)Date: March 7, 2006
    
    By: /s/ Morgan K. OBrien(Signature)Morgan K. OBrienPresident and Chief Executive Officer
  Signature
    
    Title
    
    Date/s/ Morgan K. OBrien
    
    President, Chief Executive Officer and Director
    
    March 7, 2006Morgan K. OBrien/s/ Mark E. Kaplan
    
    Senior Vice President and Chief Financial Officer
    
    March 7, 2006Mark E. Kaplan/s/ Susan S. Betta
    
    Controller
    
    March 7, 2006Susan S. Betta
    
    (Principal Accounting Officer)/s/ Pritam M. Advani
    
    Director
    
    March 7, 2006Pritam M. Advani/s/ Doreen E. Boyce
    
    Director
    
    March 7, 2006Doreen E. Boyce/s/ Robert P. Bozzone
    
    Director
    
    March 7, 2006Robert P. BozzoneDirectorCharles C. Cohen/s/ Sigo Falk
    
    Director
    
    March 7, 2006Sigo Falk/s/ Joseph C. Guyaux
    
    Director
    
    March 7, 2006Joseph C. Guyaux/s/ David M. Kelly
    
    Director
    
    March 7, 2006David M. Kelly/s/ Steven S. Rogers
    
    Director
    
    March 7, 2006Steven S. Rogers/s/ John D. Turner
    
    Director
    
    March 7, 2006John D. Turner
 104




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##### Table of Contents



SIGNATURES
  Duquesne Light Company
(Registrant)Date: March 7, 2006
    
    By: /s/ Morgan K. OBrien

(Signature)Morgan K. OBrienPresident and Chief Executive Officer
  Signature
    
    Title
    
    Date/s/ Morgan K. OBrien

Morgan K. OBrien
    
    Director, President and Chief Executive Officer
    
    March 7, 2006/s/ Mark E. Kaplan

Mark E. Kaplan
    
    Director, Senior Vice President and
Chief Financial Officer
    
    March 7, 2006/s/ Susan S. Betta

Susan S. Betta
    
    Controller
(Principal Accounting Officer)
    
    March 7, 2006/s/ Joseph G. Belechak

Joseph G. Belechak
    
    Director
    
    March 7, 2006/s/ Maureen L. Hogel

Maureen L. Hogel
    
    Director
    
    March 7, 2006
 105