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Compensation of the Chief Executive Officer

The Compensation Committee, based upon input from the Corporate Governance Committee regarding the Chief Executive Officer's performance, reviews and approves annually the compensation of the Chief Executive Officer and informs the Board of Directors of any adjustments or actions. The annual review of the Chief Executive Officer's performance and compensation is conducted in February of each year to assure thorough consideration of year-end results. In 2004, the Corporate Governance Committee used an independent consultant to conduct a review of the Chairman and Chief Executive Officer's performance, in part for purposes of the Compensation Committee's determination of the number of shares, if any, that should vest as of December 31, 2004, under Mr. Anderson's performance share award, as described below.

The employment agreement between Duke Energy and Mr. Anderson (as described in "Employment Contracts and Termination of Employment and Change-in-Control Arrangements" under "Executive Compensation" below) establishes that Mr. Anderson's compensation will be provided 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, upon commencement of his employment in November 2003, Mr. Anderson received a nonqualified 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 under "Executive Compensation" below. All of the awards to Mr. Anderson were granted under the Duke Energy 1998 Long-Term Incentive Plan.

Mr. Anderson had the opportunity to vest in up to 120,000 of the performance shares based upon 2004 performance associated with goals established by the Compensation Committee in February 2004. Mr. Anderson's 2004 performance goals were based on EPS, ROCE, Cash Flow and individual objectives. These goals were weighted 32%, 32%, 16% and 20%, respectively. Mr. Anderson's individual objectives related to strategy development and execution, improvements in operating systems, safety, diversity, employee development, succession planning and performance management, and maintaining and improving credibility and trust of stakeholders. In February 2005 the Compensation Committee determined that the goals were exceeded as a result of above-target achievement on each of the EPS, ROCE and Cash Flow goals and aggregate achievement of individual objectives above target, resulting in 120,000 of Mr. Anderson's performance shares vesting as of December 31, 2004.

In 2004, Mr. Anderson earned $9,030,283, based on the value of stock-based award vestings and dividend equivalent payments associated with his phantom stock and performance shares as detailed below.

Performance Shares1,2	$3,195,600
Phantom Stock Units1,2	$2,235,850
Stock Options1,2	$2,889,333
Dividend Equivalent Payments	$709,500
Total	$9,030,283

¹ As described in "Employment Contracts and Termination of Employment and Change-in-Control Arrangements" under "Executive Compensation" below, Mr. Anderson does not receive payment of his vested performance shares and phantom stock units, nor are his vested stock options exercisable, until his employment with Duke Energy terminates.

² Amounts shown for performance shares and phantom stock units represent the values on the vesting dates, as defined in the Duke Energy 1998 Long-Term Incentive Plan. Amount shown for stock options represents the in-the-money value as of December 31, 2004 of options which vested during 2004 and is based on the closing price of a share of Duke Energy Common Stock as reported on the New York Stock Exchange Composite Transactions Tape on such date, which was $25.33.

The Committee believes the value of compensation earned by Mr. Anderson during 2004 is appropriate and reasonable considering Duke Energy's outstanding 2004 financial performance.

Mr. Anderson's 2005 performance goals for his opportunity to vest in up to 120,000 performance shares will be based on EPS, ROCE and individual objectives weighted 50%, 30% and 20%, respectively.