To our Duke Energy Shareholders:   On June 18, 1997 we successfully completed the merger of Duke Power Company and PanEnergy Corp to create Duke Energy Corporation. We have joined the ranks of the world’s largest energy companies, ending the year with a market capitalization of $19.9 billion. It is more than our size however, that has captured the interest of investors, analysts and other industry-watchers around the world. In Duke Energy we have forged an enterprise that is uncommonly well equipped to grow and to serve regional, national and global markets. Richard Priory, Chairman and Chief Executive Officer, and Paul Anderson, President and Chief Operating Officer
	We devote the first part of our Annual Report to show you why we call Duke Energy "The Next Generation of Energy." Check out our highlights and accomplishments for 1997 under Year One Milestones. This new kind of energy company has been met with high expectations, based on our unmatched portfolio of assets and people. Along with Wall Street, our investors and our customers, we at Duke Energy share these high expectations. We are committed to exceeding them in every measure of performance.
	Although the creation of Duke Energy occurred at mid-year, all of 1997 was characterized by our drive and determination to lead a new, emerging energy services industry. We closed the merger swiftly, and we carried the momentum through our first six months as Duke Energy.
	Our executive team is in place; we are working together with a common purpose. We have successfully led a number of important initiatives including the launching of new businesses such as DukeSolutions and Duke Energy Industrial Asset Development.
	In addition to traditional business expansions, we have committed more than $1 billion to new projects that take advantage of our expanded capabilities. We: are developing and building the 520 megawatt Bridgeport Energy Project, our first merchant power plant in the Northeast; are acquiring from PG&E Corporation the Morro Bay, Moss Landing and Oakland power plants, totaling 2,645 megawatts of capacity and providing an entrée into California’s deregulating electricity market; and have acquired a 32.5 percent interest in American Ref-Fuel Company, the nation’s third largest waste-to-energy business — expanding our presence in the Northeast.
	Rapidly changing energy markets offer tremendous growth opportunities for well positioned energy companies. Duke Energy begins with a commitment to our customers. We combine that with our commercial capability, technical leadership, asset base and financial strength. When you add all of these up in Duke Energy, the whole is much greater than the sum of the parts.
	Duke Energy will grow by combining gas and electric capabilities to serve emerging, competitive energy markets. Consider these projections by the U.S. Energy Information Administration: U.S. energy consumption will increase 27 percent from 1996 to 2020. U.S. gas consumption will increase 46 percent from 1996 to 2020. Gas-fired power generation will grow to 33 percent of all U.S. generation by 2020. Worldwide energy demand will increase 50 percent over the next 20 years. Worldwide demand for electricity will increase by 75 percent from 1995 to 2015.
	Duke Energy is equipped and deployed to serve this growth in demand, by serving the entire "energy value chain." We gather, process, transport and market natural gas. We convert uranium, coal, gas, water and waste to electricity. We develop, design, construct, own and operate power generation facilities and market the output. We market multiple forms of energy. We provide integrated energy solutions, including energy efficiency services.
	Our financial goals are based on this growth potential. We will maintain financial strength and flexibility, reflected in our strong credit ratings. Our goal is growth in earnings per share of 8 to 10 percent annually.
	Equal to our commitment to growth is our rock-solid commitment to serving our existing customers. The Duke Power name, which backs up that commitment, is on offices, service trucks and power plants across the Carolinas. We continue to work closely with our industrial and commercial customers to provide reliable power at prices that enable them to operate competitively in their markets. We are available to residential and other customers 24 hours a day, seven days a week. As our customers in the Carolinas are offered greater choice among energy suppliers, we will continue to offer products and a level of service that will make Duke Power their first and best choice.
	Our natural gas pipeline customers will continue to benefit from our work to expand access to gas supplies stretching from the Canadian Maritimes to the Gulf of Mexico to Western Canada, and to transport that gas efficiently and reliably over North America’s best integrated pipeline system.   We are working closely with regulators, legislators, utilities and others to lead the development of a restructured electric industry — one that provides for fairness to all customers, ensures continued system reliability and fully recognizes the interests of our shareholders. As the gas and electric utility industries change and adapt to new regulations and new markets, we expect other companies to merge or join forces. Few, if any, will match our assets and capabilities — or our talented and experienced people in every key segment of the industry. Ours is the best team in the energy business.
	Wall Street has called Duke Energy the "First Mover" in the convergence of gas and electricity. Our lead position has been established. Now we must step up the pace. We have the momentum, skill, strength and speed. Duke Energy is The Next Generation of Energy.
	Richard Priory Chairman and Chief Executive Officer Paul Anderson President and Chief Operating Officer