Address to Shareholders

Duke Energy Annual Meeting
Paul M. Anderson
Chairman of the Board and Chief Executive Officer
Duke Energy

The video you saw when you came in this morning celebrates a great company, and I’m sure that recap of Duke history made you proud. I believe—as the video said—that 100 years is a good start. And I also believe that the best is yet to come!

While this is a meeting of Duke Energy shareholders, many of you in the audience today are also retirees or current employees. As long-standing supporters of the company, I realize your faith in the company has been tested over the last couple of years. I want to assure you that the Board of Directors and the management team you see before you today are committed to restoring the luster of this great company. We are dedicated to building your support of, and your pride in, Duke Energy.

Restoring Duke Energy’s luster requires action on two fronts: We must continue to rebuild our financial strength, and we must restore trust with all our stakeholders. That includes you—our shareholders—as well as our customers, our employees, our regulators and elected officials.

I will begin this morning with a progress report on our rebuilding. Then I’ll turn the podium over to Fred Fowler, your chief operating officer, for a report on our operations and a discussion of the financial outlook for each of our business units.

Let me turn first to our investor proposition. By that I mean: What are we trying to produce for you—the owners of this company? And, what type of investor is Duke Energy trying to attract?

Defining our investor proposition was one of my first orders of business when I rejoined Duke on November 1. As you can imagine, I had no shortage of people on Wall Street eager to offer advice. Their main message was that we should cut the dividend!

I didn’t listen to that advice, and I hope you’re glad!

We didn’t listen to the analysts and the hedge funds and the day traders—we listened to our long-term investors. The Board has reaffirmed our commitment to maintain the dividend of $1.10 per share and concentrate on producing reliable income for our shareholders. We’re focused on an investor proposition of income with modest growth. I am committed to running this company so that our long-term investors will realize an attractive return.

My compensation package makes that commitment clear! As you’ve probably heard, my entire compensation is tied to Duke stock, which I cannot sell until 2007. How much stock I ultimately receive is tied to the success of the company. And of course how much it’s worth depends on the stock price. My alignment with your interests could not be closer.

By emphasizing modest growth instead of high growth, we are also lowering our risk profile. We won’t see double-digit growth rates, but we also don’t expect to be as battered by the risks of merchant power and energy trading. We will invest in our most stable businesses—and we will do it prudently and strategically.

Another early priority was putting together the management team to turn the company around. You may already know some of them, but I want you to have another chance to look them in the eye. I would like each of them to stand as I call their names. I’ll start with:

• Fred Fowler, our president and chief operating officer;
• David Hauser, chief financial officer;
• Jim Mogg, chief development officer;
• Rich Osborne, group vice president, public and regulatory policy;
• And, Martha Wyrsch, general counsel and secretary.
• Other key members of the team are the leaders of each business unit. Fred will introduce them when he discusses each business.

I want to share with you how Fred and I work together. Fred is focused on the operations and financial performance of the individual businesses. He is on top of their challenges and strategies and is paying close attention to just how they’re going to deliver the bacon—and how much bacon they’re going to deliver.

My focus is on our overall financial and business plan—on developing a go-forward strategy that will maximize the value of the entire portfolio of Duke’s assets. I also pay a lot of attention to policy issues—at both the federal and state level. And, I dedicate a lot of my time to communicating our business plan to Wall Street and others in the investment community.

Now, I’d like to summarize our financial progress to date.

I can sum it up by saying we’ve turned the corner. Momentum is now working for us instead of against us. We are no longer reacting to market conditions—we are in a position to selectively seek market opportunities.

We’ve made great headway toward strengthening our balance sheet. Debt reduction this year is off to a solid start, and we’re confident we will reach our 2004 debt reduction target of $3.5 to $4 billion—resulting in debt as a percent of capital being 52 percent at year’s end.

Asset sales are ahead of schedule. We’re just in the second quarter, and we’ve already exceeded our asset sales target for the full year.

We don’t see a need for further asset sales for the purpose of generating cash. Going forward, asset sales—and asset acquisitions—will be dictated by our portfolio strategy. Thanks to the progress we’ve made, we’re now in a position to pursue selective growth opportunities for our key businesses.

Fred will give you a progress report on each of the businesses and discuss their strategies going forward.

I’m proud of our financial progress to date. Two weeks ago, I met with a number of analysts in New York. Those meetings were much more cordial and focused on the future—quite an improvement from just a few months ago.

Of course I, like you, would like to see the stock price higher than it has been in recent days, but I am also aware that its daily movements are impacted by more than just Duke Energy’s performance. Interest rates, energy sector issues and economic growth have all recently helped to create short-term “trading” movements. We will continue to focus on long-term value creation—confident that as we meet our commitment to investors, the stock price will respond accordingly.

Of course, financial progress is only part of the story. Another part of our rebuilding has been to clearly define who we are as a company—how we do business and what we plan to achieve for our stakeholders. To accomplish that, I developed a charter for Duke Energy, and a copy of it is printed on the back of your program. I won’t take you through the entire charter, as it is explained fully in your annual report. But I would like to call your attention to how we will define success.

We will be successful when:

• Our investors realize a superior return on their investment.
• Our customers and suppliers benefit from our business relationships.
• The communities in which we operate value our citizenship, and
• Every employee starts each day with a sense of purpose and ends each day with a sense of accomplishment.
• Our charter is our roadmap forward, and I feel good that it’s taking us where we want to go—but I won’t be satisfied until we deliver on each of the commitments it outlines.

Now, I’m going to turn the podium over to Fred Fowler for a more detailed operational report. Fred…