Print

Compliance with Section 162(m) of the Internal Revenue Code

Under Section 162(m) of the Internal Revenue Code, Duke Energy generally may not deduct for federal income tax purposes annual compensation in excess of $1 million paid to certain employees, generally its Named Executive Officers. Certain performance based compensation paid pursuant to the Duke Energy 1998 Long-Term Incentive Plan and the Executive Short-Term Incentive Plan is not subject to the deduction limit. While the Compensation Committee generally intends to structure and administer executive compensation plans and arrangements so that they will not be subject to the deduction limit, the Compensation Committee may from time to time approve payments that cannot be deducted in order to maintain flexibility in structuring appropriate compensation programs in the interest of shareholders. Payments subject to the deduction limit include those associated with the 2004 phantom stock awards described in "Components of Compensation—Long-Term Incentive Compensation" above.

This report has been provided by the Compensation Committee, as constituted on February 22, 2005.

James G. Martin, Chairman
Roger Agnelli
Ann M. Gray
Leo E. Linbeck, Jr.