Duke Energy and certain of its subsidiaries have various financial and performance guarantees and indemnifications which are issued in the normal course of business. As discussed below, these contracts include performance guarantees, stand-by letters of credit, guarantees of debt, surety bonds, and indemnifications. Duke Energy enters into these arrangements to facilitate a commercial transaction with a third party by enhancing the value of the transaction to the third party.

Mixed Oxide (MOX) Guarantees. DCS is the prime contractor to the DOE under a contract (the Prime Contract) in which DCS will design, construct, operate and deactivate a MOX fuel fabrication facility (MOX FFF). The domestic MOX fuel project was precipitated by the U.S. and the Russian Federation agreeing to dispose of excess plutonium in their respective nuclear weapons programs through efforts to fabricate and irradiate MOX fuel in commercial nuclear reactors. As of December 31, 2002, Duke Energy, through its indirect wholly owned subsidiary, Duke Project Services Group, Inc. (DPSG), held a 40% ownership interest in DCS. Additionally, Duke Power has entered into a subcontract (the Duke Power Subcontract) under which Duke Power has agreed to prepare its McGuire and Catawba nuclear reactors (the Nuclear Reactors) for use of the MOX fuel and to purchase MOX fuel produced at the MOX FFF for use in the Nuclear Reactors.

As required under the Prime Contract, DPSG and the other owners of DCS have issued a guarantee (the DOE Guarantee) pursuant to which the owners of DCS jointly and severally guarantee to DOE all of DCS’ payment and performance obligations under the Prime Contract. The Prime Contract consists of a “Base Contract” phase and three optional phases, with the DOE having the right to extend the term of the Prime Contract to cover the three optional phases on a sequential basis, subject to DCS and the DOE reaching agreement through good faith negotiations on certain remaining open terms applying to each of these option phases. Each of the three option phases will be negotiated separately, as the time for exercising such option phase becomes due under the Prime Contract. If the DOE does not exercise its right to extend the term of the Prime Contract to cover any or all of the optional phases, DCS’ performance obligations under the Prime Contract will end upon completion of the then current performance phase. The Base Contract phase covers the design of the MOX FFF and design modifications to the Nuclear Reactors. The Base Contract phase provides for DCS to receive cost reimbursement plus a fixed fee. The first option phase includes construction and cold startup of the MOX FFF and modification of the Nuclear Reactors. The first option phase provides for DCS to receive cost reimbursement plus an incentive fee. The second option phase provides for taking the MOX FFF from cold to hot startup, operation of the MOX FFF, and irradiation of the MOX fuel in the Nuclear Reactors. The second option phase provides for DCS to receive a cost reimbursement plus an incentive fee through hot startup and, thereafter, cost-sharing plus a fee. The third option phase provides for the deactivation of the MOX FFF. As of December 31, 2002, DCS’ performance obligations under the Prime Contract extended only to the Base Contract phase since the DOE has not yet exercised its option to extend the term of performance under the Prime Contract to the first option phase and DCS and the DOE have not yet agreed on all open terms and conditions applicable to such phase.

Additionally, DPSG and the other owners of DCS have issued a guarantee (the Duke Power Guarantee) pursuant to which the owners of DCS jointly and severally guarantee to Duke Power all of DCS’ payment and performance obligations under the Duke Power Subcontract or any other agreement between DCS and Duke Power implementing the Prime Contract. The Duke Power Subcontract consists of a “Base Subcontract” phase and two optional phases, with DCS having the right to extend each phase of the contract on a sequential basis, subject to Duke Power and DCS reaching agreement through good faith negotiations on certain remaining open terms applying to each of these option phases. Under the Base Subcontract phase, Duke Power will perform technical and regulatory work required to prepare the Nuclear Reactors to use MOX fuel. The Base Subcontract phase provides for Duke Power to receive cost reimbursement plus a fixed fee. The first option phase provides for modification to the Nuclear Reactors as well as additional technical and regulatory work. The first option phase provides for Duke Power to receive cost reimbursement plus a fee. The second option phase provides for Duke Power to purchase from DCSMOX fuel produced at the MOX FFF for use in the Nuclear Reactors, at discounts to prices of equivalent uranium fuel, over a 15 year period commencing upon completion of the first option phase. As of December 31, 2002, DCS’ performance obligations under the Duke Power Subcontract extended only to the Base Subcontract phase since DCS has not yet exercised its option to extend the term of performance under the Duke Power Subcontract to the first option phase and DCS and Duke Power have not yet agreed on all open terms and conditions applicable to such phase.

The cost reimbursement nature of DCS’ commitment under the Prime Contract and the Duke Power Subcontract limits the exposure of DCS. Credit risk to DCS is limited by the fact the Prime Contract is with the DOE, a U.S. governmental entity. DCS is under no obligation to perform any contract work under the Prime Contract before funds have been appropriated from the U.S. Congress.

Duke Energy is unable to estimate the maximum potential amount of future payments DPSG could be required to make under the DOE Guarantee and the Duke Power Guarantee due to the uncertainty of whether: DOE will exercise its options under the Prime Contract, the parties to the Prime Contract and the Duke Power Subcontract, respectively, will reach agreement on remaining open terms for each option phase under such contracts, and the U.S. Congress will authorize funding for DCS’ work under the Prime Contract. Any liability of DPSG under the DOE Guarantee and the Duke Power Guarantee is directly related to and limited by the Prime Contract and the Duke Power Subcontract, respectively. DPSG also has recourse to the other owners of DCS for any amounts paid under the DOE Guarantee or the Duke Power Guarantee in excess of its proportional ownership percentage of DCS.

Other Guarantees and Indemnifications. Duke Capital Corporation has issued performance guarantees to customers and other third parties that guarantee the payment and performance of other parties, including certain unconsolidated entities. The maximum potential amount of future payments Duke Capital Corporation could have been required to make under these performance guarantees as of December 31, 2002 was approximately $575 million. Approximately $200 million of these performance guarantees expire between 2003 and 2004, with the remaining performance guarantees not having a contractual expiration. Additionally, Duke Capital Corporation has issued joint and several guarantees to certain of the D/FD project owners, which guarantee the performance of D/FD under its engineering, procurement and construction (EPC) contracts and other contractual commitments. These guarantees do not have a contractual expiration and do not have a stated maximum amount of future payments Duke Capital Corporation could be required to make under these performance guarantees. Additionally, Fluor Enterprises, Inc., as 50% owner in D/FD, has also issued similar joint and several guarantees to the same D/FD project owners. In accordance with the D/FD partnership agreement, each of the partners to D/FD is responsible for 50% of any payments to be made under these guarantee contracts.

Westcoast has issued performance guarantees or indemnifications to third parties which guarantee the performance of unconsolidated entities, such as equity method projects, and entities previously sold by Westcoast to third parties. These performance guarantees require Westcoast to make payment to the guaranteed third party upon the failure of the unconsolidated entity to make payment under certain of its contractual obligations, such as debt, purchase contracts and leases. The maximum potential amount of future payments Westcoast could have been required to make under these performance guarantees as of December 31, 2002 was approximately $325 million. Of these guarantees, approximately $150 million expire in 2003 and approximately $25 million expire from 2004 to 2007. The remainder expire after 2007 or do not have a contractual expiration.

Stand-by letters of credit are conditional commitments issued to guarantee the performance of non-wholly owned entities to a third party or customer. Duke Capital Corporation and Westcoast have obligations to make payment under these agreements and are triggered by the failure of the non-wholly owned entity to make payment to the third party or customer according to the terms of the underlying contract. These contracts expire in various amounts between 2003 and 2004. The maximum potential amount of future payments Duke Capital Corporation and Westcoast could have been required to make under these contracts as of December 31, 2002 was approximately $475 million. Related to these letters of credit, Duke Capital Corporation has received collateral from the non-wholly owned entities in the amount of approximately $250 million at December 31, 2002.

Duke Capital Corporation has guaranteed the issuance of surety bonds, which obligates itself to a surety to make payment upon the failure of a non-wholly owned entity to honor its obligations to a third party. As of December 31, 2002, Duke Capital Corporation had guaranteed approximately $175 million of surety bonds outstanding related to obligations of non-wholly owned entities. These bonds expire in various amounts primarily between 2003 and 2004.

Field Services and Natural Gas Transmission have issued certain guarantees of debt associated with non- wholly owned entities. In the event that the non-wholly owned subsidiaries default on the debt payments, Field Services or Natural Gas Transmission would be required to perform under the guarantees and make payment on the outstanding debt balance of the non-wholly owned subsidiaries. As of December 31, 2002, Field Services was the guarantor of approximately $100 million of debt associated with non-wholly owned entities and Natural Gas Transmission was the guarantor of approximately $5 million of debt associated with the non-wholly owned entities. These guarantees expire in 2003 for Field Services and 2019 for Natural Gas Transmission.

Duke Energy has certain guarantees issued to customers or other third parties related to the payment or performance obligations of certain entities that were previously wholly owned but which have been sold to third parties, such as DukeSolutions and DE&S. These guarantees are primarily related to payment of lease obligations, debt obligations and performance guarantees related to goods and services provided. In connection with the sale of DE&S, Duke Energy has received back-to-back indemnification from the buyer indemnifying Duke Energy for any amounts paid by Duke Energy related to the DE&S guarantees. In connection with the sale of DukeSolutions, Duke Energy received indemnification from the buyer for the first $2.5 million paid by Duke Energy related to the DukeSolutions guarantees. Additionally, for certain performance guarantees, Duke Energy has recourse to subcontractors involved in providing services to a customer. These guarantees have various terms, ranging from 2003 to 2019 with others having no specific term. Duke Energy is unable to estimate the total maximum potential amount of future payments under these guarantees since most of the underlying guaranteed agreements do not contain any limits on potential liability.

Duke Energy has entered into various indemnification agreements related to purchase and sale agreements and other types of contractual agreements with vendors and other third parties. These indemnification agreements typically cover environmental, tax, litigation and other matters, as well as breaches of representations, warranties and covenants set forth in these agreements. Typically, claims may be made by third parties under these indemnification agreements for various periods of time depending on the nature of the claim. The maximum potential exposure of Duke Energy under these indemnification agreements can range from a specified dollar amount to an unlimited amount depending on the nature of the claim and the particular transaction. Duke Energy is unable to estimate the total maximum potential amount of future payments under these indemnification agreements due to several factors, including uncertainty as to whether claims will be made under these indemnities.