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16. Preferred and Preference Stock at Duke Energy

Authorized Shares of Duke Energy Preferred and Preference Stock as of December 31, 2003 and 2002

As of December 31, 2003 and 2002, there were no shares of preference stock outstanding at Duke Energy.

Preferred Stock with Sinking Fund Requirements.     Upon the adoption of SFAS No. 150, effective July 1, 2003, as discussed in Note 1, $23 million of preferred stock previously included on the Consolidated Balance Sheets as Preferred and Preference Stock with Sinking Fund Requirements was reclassified to Long-term Debt. The $23 million of preferred stock are mandatorily redeemable financial instruments under the provisions of SFAS No. 150, due to the annual $2 million sinking fund requirements in cash, at par value, through 2015.

Also, effective July 1, 2003, payments made to the holders of this preferred stock have been classified in the Consolidated Statements of Operations as Interest Expense, rather than Dividends and Premiums on Redemptions of Preferred and Preference Stock. In accordance with the requirements of SFAS No. 150, prior period amounts have not been reclassified.

Preferred Stock with Sinking Fund Requirements

See Note 14 for details on the December 31, 2003 outstanding balance of Preferred Stock with Sinking Fund Requirements.

Preferred Stock without Sinking Fund Requirements.     The following table details Preferred Stock without Sinking Fund Requirements, which are not mandatorily redeemable financial instruments under the provisions of SFAS No. 150, as of the December 31, 2003 and 2002 Consolidated Balance Sheets.

Preferred Stock without Sinking Fund Requirements

Duke Energy has the option, but not the obligation to redeem the Preferred Stock without Sinking Fund Requirements at prices above par, but not to exceed 104% of par value, plus accumulated dividends to the redemption date. Additionally, the holders of the Preferred Stock without Sinking Fund Requirements are entitled to redeem their preferred shares at par value in the event of an involuntary liquidation or dissolution of Duke Energy, or at 105% of par value in the event of a voluntary liquidation or dissolution of Duke Energy. Therefore, in accordance with SEC rules, the Preferred Stock without Sinking Fund Requirements, is classified in mezzanine equity as Preferred and Preference Stock.

Preferred and Preference Stock of Duke Energy's Subsidiaries.     Upon the adoption of SFAS No. 150 on July 1, 2003, $23 million of DEFS' preferred members' interest held by ConocoPhillips, which had previously been included on the Consolidated Balance Sheets as Minority Interests was reclassified to Long-term Debt. The $23 million of preferred members' interest were mandatorily redeemable financial instruments under the provisions of SFAS No. 150, since the redemption of the securities was required in cash, at par value, upon the earlier of 30 years from the date of issuance (August 2030) or an initial public offering of equity securities by DEFS. As of December 31, 2003, DEFS had redeemed all outstanding amounts of the preferred members' interest.

In connection with the Westcoast acquisition, Duke Energy assumed approximately $411 million of authorized and issued redeemable preferred and preference shares at Westcoast and Union Gas. As of December 31, 2003, these preferred and preference shares at Westcoast and Union Gas totaled $401 million. Since these preferred and preference shares are redeemable at the option of holder, as well as Westcoast and Union Gas, these preferred and preference shares do not meet the definition of a mandatorily redeemable instrument under SFAS No. 150. As such, these preferred and preference shares are considered contingently redeemable shares and are included in Minority Interests on the Consolidated Balance Sheets.