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Compensation of Directors

Annual Retainer and Fees

Duke Energy pays outside directors an annual retainer of $40,000. Duke Energy also pays an outside director serving as Chairman of the Compensation, Corporate Governance, Nuclear Oversight or Finance and Risk Management Committee an additional $4,000 per year. An outside director serving as Chairman of the Audit Committee is paid $8,000 per year. Outside directors also receive a fee of $1,000 for attendance at each meeting of the Board of Directors, each committee meeting except the Audit Committee, and other functions requiring their presence, together with expenses of attendance. Outside directors serving on the Audit Committee receive a fee of $2,000 for attendance at each meeting. Fees for attendance at committee meetings are not limited for attendance at different committee meetings held on the same day, but are limited for attendance at multiple meetings of the same committee when held in association with a particular Board of Directors meeting.

A director may elect either to receive 50% of his or her retainer and attendance fees in the form of Duke Energy Common Stock or to defer, until termination of his or her service on the Board of Directors, that portion to an unfunded account for the director's benefit, the balance of which is adjusted for the performance of a phantom investment option that is based on Duke Energy Common Stock or for the performance of such other phantom investment option to which the director has subsequently elected to transfer all or a portion of the balance. Similarly, a director may elect either to receive the remaining 50% of such compensation in cash or to defer, until termination of his or her service on the Board of Directors, that portion to an unfunded account for the director's benefit, the balance of which is adjusted for the performance of those phantom investment options, including the Duke Energy Common Stock phantom investment option, that the director elects. The outside director will receive, generally upon termination of his or her service from the Board of Directors, deferred retainer and attendance fees in shares of Duke Energy Common Stock equal in market price to the portion of his or her account balance then "invested" in the Duke Energy Common Stock phantom investment option, with any remaining balance received in cash, on the basis of the distribution schedule that he or she has chosen.

Stock Awards and Stock Options

In January and July of each year, each outside director is credited with 200 phantom stock units, represented by an amount equal to the market price of a like number of shares of Duke Energy Common Stock, in an unfunded account for the director's benefit. The account balance is adjusted for the performance of the Duke Energy Common Stock phantom investment option or for the performance of such other phantom investment option to which the director has subsequently elected to transfer all or a portion of the balance. The outside director will receive, generally upon termination of his or her service from the Board of Directors, shares of Duke Energy Common Stock equal in market price to his or her account balance then "invested" in the Duke Energy Common Stock phantom investment option, with any remaining balance received in cash, on the basis of the distribution schedule that he or she has chosen.

Awards to outside directors under the Duke Energy 1998 Long-Term Incentive Plan are approved at the same time annual long-term incentive awards to executive officers are approved. During 2003, each outside director was granted an option for 4,000 shares. The 2004 grant, consisting of 1,500 phantom stock units to each outside director, was approved on February 24, 2004 , consistent with the approval of 2004 awards to executive officers.

Arrangement with Outgoing Westcoast Chief Executive Officer

Pursuant to an arrangement made in connection with Duke Energy's acquisition of Westcoast Energy, director Michael E.J. Phelps, the former Chairman and Chief Executive Officer of Westcoast Energy, entered into a noncompete agreement that expired in March 2004, under which he received C$41,000 monthly. Pursuant to the agreement, Mr. Phelps received a lump-sum payment in the amount of C$2,000,000 upon expiration of the agreement on March 14, 2004 .

Charitable Giving Program

After ten years on the Board of Directors, eligible directors participate in the Directors' Charitable Giving Program. Under this program, Duke Energy will make, upon the director's death, donations of up to $1,000,000 to charitable organizations selected by the director. A director may request that Duke Energy make donations under this program during the director's lifetime, in which case the maximum donation will be reduced on an actuarially-determined net present value basis. Duke Energy maintains life insurance policies upon eligible directors to fund donations under the program. Eligible directors include only those who were members of the Board of Directors on February 18, 1998 , and certain former directors who previously qualified for this benefit.

Stock Ownership Guidelines

Outside directors are subject to stock ownership guidelines which establish a target level of ownership of Duke Energy Common Stock (or Common Stock equivalents) of 4,000 shares. The targeted ownership level has been met by all directors.