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Components of Compensation

• Base Salary: Base salaries for executives are determined based upon job responsibilities, level of experience, individual performance, comparisons to the salaries of executives in similar positions obtained from market surveys, internal comparisons, and competitive data obtained from consultants and staff research. The goal for the base salary component is to compensate executives at a level that approximates the median salaries of individuals in comparable positions and markets. The Compensation Committee approves all salary increases for executive officers. Base salary increases were approved, effective January 1, 2004, for Messrs. Fowler and Hauser, and effective March 1, 2004 for Messrs. Mogg and Hauser. Mr. Mogg's increase was approved following completion of a management reorganization and an associated review of internal compensation comparisons. Mr. Hauser's second increase was coincident with his appointment to Group Vice President and Chief Financial Officer. Dr. Shaw did not receive a base salary increase in 2004. Mr. Anderson does not receive a base salary.
  
• Annual Incentives: Annual cash incentives are provided to executives to promote the achievement of performance objectives of Duke Energy and an executive's particular business unit. In 2004, the Compensation Committee administered the Duke Energy Corporation Executive Short-Term Incentive Plan, which provides for the award of annual cash incentives to executive officers, including the Named Executive Officers set forth in the Summary Compensation Table under "Executive Compensation" below. Target incentive opportunities for executives under the plan are established as a percentage of base salary, using survey data for individuals in comparable positions and markets and internal comparisons. Incentive amounts are intended to provide total cash compensation at the market median for individuals in comparable positions and markets when target performance is achieved and above the market median when outstanding financial and operational results are achieved. Target incentive opportunities for 2004 as a percentage of base salary for Messrs. Fowler, Mogg and Hauser and Dr. Shaw were 90%, 69%, 69% and 70%, respectively.
  
  During the first quarter of 2004, the Compensation Committee established threshold, target and maximum performance for Named Executive Officers associated with financial measures and individual objectives, which consisted of a combination of strategic and operational measures. Depending on performance, Named Executive Officers could receive up to 190% of their short-term incentive targets. The financial measures were based upon Duke Energy's earnings per share (EPS), return on capital employed (ROCE) and cash from operations less capital expenditures, plus or minus the change in outgoing letters of credit (Cash Flow). In addition, Dr. Shaw had financial measures associated with Duke Power's earnings before interest and taxes (EBIT) and ROCE. The financial goals were established consistent with the 2004 financial plan but excluded certain potential transactions contemplated in the financial plan that the Compensation Committee did not consider to be representative of ongoing operations. Performance goals for each Named Executive Officer were weighted as follows:

Incentive Goals	Messrs. Fowler, Mogg and Hauser	Dr. Shaw
Duke Energy EPS	32%	16%
Duke Energy ROCE	32%	16%
Duke Energy Cash Flow	16%	8%
Duke Power EBIT	—	20%
Duke Power ROCE	—	20%
Individual Objectives	20%	20%

The Compensation Committee structured 2004 short-term incentives to provide that certain executives, including the Named Executive Officers, would receive no short-term incentive payment if the EPS threshold goal was not achieved. In addition, all other executives would receive no payment associated with Duke Energy ROCE and Cash Flow, and certain payout caps were to be applied to business unit financial and individual objectives, if the EPS threshold goal was not achieved.

Following evaluation of 2004 performance, the Compensation Committee approved payments to Messrs. Fowler, Mogg and Hauser and Dr. Shaw, representing 161%, 166%, 167% and 153% of their respective target awards. In determining the bonuses for Named Executive Officers, and in consideration of overall 2004 performance, the Compensation Committee exercised its discretion under the Duke Energy Corporation Executive Short-Term Incentive Plan to reduce award payments calculated in accordance with the 2004 short-term incentive plan formula. Such reductions were in recognition of certain 2004 transactions that were not contemplated in the financial plan and that the Committee did not consider to be representative of ongoing operations. Results for an individual objective established for each of Messrs. Fowler and Hauser and Dr. Shaw and representing 2%, 4% and 0.66% of their total target bonus opportunities, respectively, were not known at the time this proxy statement was filed. Mr. Anderson does not have an annual cash incentive opportunity.

Awards under the Executive Short-Term Incentive Plan to executive officers, other than the Named Executive Officers, were determined on the basis of a combination of goals based on the following: (1) EPS, (2) ROCE, (3) Cash Flow, (4) EBIT equivalent measures unique to individual business groups, such as interest savings, and (5) individual objectives. Payments ranged from 122% to 168% of target awards. EPS, ROCE, Cash Flow, EBIT equivalent goals, if applicable, and individual objectives determined, on average, 31%, 32%, 18%, 3% and 16%, respectively, of each executive officer's bonus.

• Long-Term Incentive Compensation: The Compensation Committee structured 2004 long-term incentive compensation with the objectives of increasing stock ownership, providing a focus on long-term value creation and enhancing executive retention. Fifty percent (50%) of the value of the target 2004 long-term incentive opportunity of each executive officer, including Named Executive Officers, was awarded in the form of performance shares and 50% was awarded in the form of phantom stock units. All awards of performance shares and phantom stock were granted under the Duke Energy 1998 Long-Term Incentive Plan.

The purpose of such performance shares and phantom stock units is to align compensation directly with increases in shareholder value. The number of performance shares granted in 2004 is the number of shares that may vest based upon achievement of the performance goal at the maximum level. The number of shares granted was determined by first dividing the portion of target long-term incentive value awarded to executives in the form of performance shares by the fair market value of a share of Duke Energy Common Stock on the date of grant (target shares), then by multiplying the target shares by 125%. The number of phantom stock units granted in 2004 was determined by dividing the portion of target long-term incentive value awarded to executives in the form of phantom stock by the fair market value of a share of Duke Energy Common Stock on the date of grant. The grant of the performance shares is reported in "Long-Term Incentive Plan—Awards in Last Fiscal Year" below, whereas the grant of phantom stock units is reported in the Summary Compensation Table under "Executive Compensation" below. Mr. Anderson did not receive any long-term incentive compensation in 2004.

Target long-term incentive opportunities for executives are established as a percentage of base salary using survey data for individuals in comparable positions and markets and internal comparisons. In determining target long-term incentive opportunities, the Compensation Committee, or, in some cases, its designee, also considers the grant recipient's qualitative and quantitative performance, the size of stock option and other stock-based awards in the past, and expectations of the grant recipient's future performance.