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Compensation of the Chief Executive Officer

The Compensation Committee reviews annually the compensation of the Chief Executive Officer and informs the Board of Directors of any adjustments. In 2003, the Compensation Committee retained the consulting firm of Frederic W. Cook and Co. to conduct a review of the compensation of the current and prior Chief Executive Officers. The Chief Executive Officer participates in the same programs and receives compensation based upon the same criteria as Duke Energy's other executive officers. However, the Chief Executive Officer's compensation reflects the greater policy- and decision-making authority that the Chief Executive Officer holds and the higher level of responsibility he has with respect to the strategic direction of Duke Energy and its financial and operating results.

Mr. Anderson was elected Chairman of the Board and Chief Executive Officer effective November 1, 2003, concurrent with Mr. Priory's resignation from that position. The employment agreement between Duke Energy and Mr. Anderson (as described in "Employment Contracts and Termination of Employment and Change-in-Control Arrangements") establishes that Mr. Anderson's compensation will be provided solely in the form of stock-based compensation, in lieu of base salary, annual cash incentives and certain employee benefits. The purpose of the structure of this compensation package is to directly align Mr. Anderson's compensation with shareholders by making his compensation contingent upon stock price, Duke Energy performance and dividend yield. In accordance with his employment agreement, Mr. Anderson received a non-qualified stock option award with respect to 1,100,000 shares, a performance share award for 360,000 shares and a phantom stock award for 285,000 units, as described in the Summary Compensation Table and "Option Grants in 2003" under "Compensation". All of the awards to Mr. Anderson were granted under the Duke Energy 1998 Long-Term Incentive Plan on November 17, 2003.

It is the Compensation Committee's intention that, when taken together, the value of Mr. Anderson's compensation will result in compensation which approximates the 50th percentile of the market when incentive plan performance expectations are met and in compensation as high as the 75th percentile of the market when incentive plan performance expectations are exceeded.

The components of Mr. Priory's 2003 compensation were:

• Base Salary: After considering Duke Energy's overall performance and competitive practices, the Compensation Committee approved no increase in Mr. Priory's base salary during 2003.
   
• Annual Incentives: Annual incentive compensation for Mr. Priory was based upon EPS and Cash Flow results. Based upon 2003 EPS performance which was below the threshold performance level, and Cash Flow performance which was above the maximum performance level, Mr. Priory received a payment of $1,090,011, representing 100% of his target opportunity.
   
• Long-Term Incentive Compensation: In February 2003, Mr. Priory received a stock option award for 490,800 shares of Duke Energy Common Stock with an exercise price at fair market value on the date of grant ($13.77), and a performance share award for 155,710 shares. The stock option has a ten-year term and will vest 25% on each of the first four anniversaries of the grant date. Between 50% and 100% of the performance shares was to vest on the second through fifth anniversaries of the grant date based upon achievement of 2003 EPS within a specified range. Based upon 2003 EPS performance, all shares in Mr. Priory's performance share award were forfeited.

The Compensation Committee conducts its annual review of Chief Executive Officer performance and compensation in February of each year to assure thorough consideration of year-end results.

It was the Compensation Committee's intention that, when taken together, the components of Mr. Priory's pay, including base salary, annual incentives and long-term incentives, would result in compensation which approximated the 50th percentile of the market when incentive plan performance expectations were met and in compensation as high as the 75th percentile of the market when incentive plan performance expectations were exceeded.

This report has been provided by the Compensation Committee, as constituted on December 31, 2003.

Leo E. Linbeck, Jr., Chairman
George Dean Johnson, Jr.
James G. Martin