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Compensation of Directors

Annual Retainer and Fees. In 2004, compensation for each outside director was comprised of the following:

• An annual cash retainer of $40,000, which was increased to $45,000 effective May 1, 2004.
  
• An annual stock retainer of $50,000, which was paid in 2004 in the form of two awards of phantom stock units under the Duke Energy 1998 Long-Term Incentive Plan. One award for 1,500 phantom stock units was approved on February 24, 2004. Following approval of changes to directors' compensation in May, which included an annual stock retainer with an explicit target value of $50,000, a second award for 900 phantom stock units was granted on May 13, 2004, to make up for the difference between the annual target value and the value of the award made in February.
  
• An annual lead director retainer of $20,000, effective May 1, 2004, concurrent with establishment of a lead director.
  
• An annual committee chair retainer of $4,000 for the chairs of the Compensation, Corporate Governance, Finance and Risk Management and Nuclear Oversight Committees, and $8,000 for the chair of the Audit Committee. Annual committee chair retainers were increased effective May 1, 2004 to $7,500 for the chairs of the Compensation, Corporate Governance, Finance and Risk Management and Nuclear Oversight Committees, and $20,000 for the chair of the Audit Committee.
  
• An attendance fee of $1,000, which was increased to $1,500 effective May 1, 2004, for attendance at each meeting of the Board of Directors and other functions requiring their presence. For meetings of committees other than the Audit Committee, the attendance fee for meetings held in conjunction with a particular Board of Directors meeting was $1,000, increased to $1,500 effective May 1, 2004; and, effective May 1, 2004, is $2,500 for special, in-person meetings not held in conjunction with a particular Board of Directors meeting. The attendance fee for directors serving on the Audit Committee was $2,000 for attendance at each meeting until May 1, 2004, at which time the attendance fee was increased to $3,000 for in-person attendance at meetings held in conjunction with a particular Board of Directors meeting, with the fee for telephonic meetings, or telephonic participation in meetings held in conjunction with a particular Board of Directors meeting remaining at $2,000. 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.
  
• Expenses related to attendance at Board of Directors and committee meetings.

Effective May 1, 2004, an outside director may elect to receive all or a portion of annual compensation, consisting of retainers (other than in the form of stock awards) and attendance fees, in cash on a current basis, or defer all or a portion of such compensation. Up to 50% of such annual compensation may also be received on a current basis as Duke Energy Common Stock. Any amounts deferred go into an unfunded account for the director's benefit, the balance of which is adjusted for the performance of phantom investment options, including the Duke Energy Common Stock phantom investment option, that the director elects. The outside director will receive, generally following 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.

Prior to May 1, 2004, an outside director was able to elect either to receive up to 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 subsequently elects to transfer all or a portion of the balance. Similarly, a director was able to elect either to receive the remaining 50% of such compensation in cash or to defer, until after 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 elected.

Prior to May 1, 2004, each outside director was credited, in January and July of each year, 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 subsequently elects to transfer all or a portion of the balance. The outside director will receive, generally following 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. Following the January 2004 credit, this portion of outside directors' compensation was prospectively eliminated. Prior credits will be administered and distributed in accordance with the terms of this arrangement as in effect prior to elimination of this portion of outside directors' compensation.

Annual Stock Retainer for 2005. The 2005 stock retainer, consisting of 1,820 phantom stock units to each outside director, was granted on February 28, 2005, at the same time as the 2005 grant of long-term incentive 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 with Duke Energy that expired on March 14, 2004, under which he received approximately Canadian (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. In 2004, Duke Energy reimbursed Mr. Phelps C$1,086 for expenses related to his membership on the Duke Energy Canadian Advisory Council, which was established in connection with the acquisition of Westcoast Energy and which provides advice on strategic, social, commercial, national and local issues facing Duke Energy's Canadian businesses.

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. In 2004, donations of $473,500 were made by Duke Energy to charitable organizations at the request of James G. Martin, exhausting the donations available to Dr. Martin under this program. 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. The last three remaining directors who could become eligible for this program became eligible during 2004.

Reimbursement of Certain Expenses; Gifts. In August 2004, in connection with a Board of Directors meeting held in New York City, spouses of certain outside directors attended lunch and dinner events paid for by Duke Energy. In connection with this Board meeting Duke Energy also paid for a social event for spouses, tickets for a sporting event for an outside director, and round-trip transportation for the spouses of certain directors. The total cost of the foregoing was approximately $17,000. Duke Energy also presented a Christmas gift to each outside director in 2004, at a total cost of approximately $1,200.

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 but one director who, having joined the Board of Directors in 2004, has until 2009 to meet the target level.