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Notes to Consolidated Financial Statements for the
Years Ended December 31, 2001, 2000 and 1999

8. INVESTMENT IN AFFILIATES AND RELATED PARTY TRANSACTIONS

Investments in domestic and international affiliates that are not controlled by Duke Energy, but over which it has significant influence, are accounted for by the equity method. These investments include undistributed earnings of $166 million in 2001 and $70 million in 2000. Duke Energy received distributions of $158 million in 2001, $138 million in 2000 and $111 million in 1999 from these investments. Duke Energy’s share of net income from these affiliates is reflected in the Consolidated Statements of Income as Other Operating Revenues.

NATURAL GAS TRANSMISSION     Investments primarily include a 37.5% interest in the Maritimes & Northeast Pipeline and a 50% interest in Gulfstream Natural Gas System, LLC. The Maritimes & Northeast Pipeline is composed of Canadian and U.S. natural gas pipeline joint ventures that together transport natural gas into the U.S. from Canada. Gulfstream Natural Gas System, LLC is a joint interstate natural gas pipeline development that will extend from Mississippi and Alabama across the Gulf of Mexico to Florida.

FIELD SERVICES     Investments primarily include a 21.1% ownership interest in TEPPCO Partners, LP, a publicly traded limited partnership which owns and operates a network of pipelines for refined products and crude oil.

NORTH AMERICAN WHOLESALE ENERGY      Significant investments include a 50% interest in American Ref-Fuel Company, LLC and a 50% interest in Southwest Power Partners, LLC. American Ref-Fuel Company, LLC owns and operates facilities that convert waste to energy. Southwest Power Partners, LLC is a gas-fired combined-cycle facility under construction in Arizona. Once completed, this facility will serve markets in Arizona, Nevada and California.

INTERNATIONAL ENERGY     Significant investments include a 25% indirect interest in National Methanol Company, which owns and operates a methanol and MTBE (methyl tertiary butyl ether) business in Jubail, Saudi Arabia.

OTHER ENERGY SERVICES     Investments include participation in various construction and support activities for fossil-fueled generating plants.

DUKE VENTURES     Significant investments include various real estate development projects.

1.

Summary of Significant Accounting Policies
2.

Business Acquisitions and Dispositions
3.

Business Segments
4.

Regulatory Matters
5. Joint Ownership of Generating Facilities
6. Income Taxes
7. Derivative Instruments, Hedging Activities and Credit Risk

8.

Investment in Affiliates and Related Party Transactions
9. Property, Plant and Equipment
10. Debt and Credit Facilities
11. Nuclear Decommissioning Costs
12. Guaranteed Preferred Beneficial Interests in Subordinated Notes of Duke Energy or Subsidiaries
13. Minority Interest Financing
14. Preferred and Preference Stock
15. Commitments and Contingencies
16. Common Stock and Equity Offerings
17. Stock-Based Compensation
18. Employee Benefit Plans
19. Quarterly Financial Data (Unaudited)
20. Subsequent Event
INVESTMENT IN AFFILIATES
In millions December 31, 2001     December 31, 2000 December 31, 1999
  Domestic   International Total   Domestic International Total Domestic International Total
Natural Gas
    Transmission		   $ 565     $ 88     $ 653     $ 82 $ 88 $ 170 $ 67 $ 83 $ 150
Field Services     252       –       252     373 – 373 439 – 439
North American
    Wholesale
    Energy		     315       –       315     635 9 644 425 – 425
International
    Energy		     –       165       165     – 154 154 – 224 224
Other Energy
    Services		     53       7       60     11 7 18 51 6 57
Duke Ventures     30       –       30     23 – 23 10 – 10
Other Operations     5       –       5     5 – 5 – – –
Total   $ 1,220     $ 260     $ 1,480     $ 1,129 $ 258 $ 1,387 $ 992 $ 313 $ 1,305


EQUITY IN EARNINGS OF INVESTMENT
In millions Year Ended December 31, 2001   Year Ended December 31, 2000 Year Ended December 31, 1999
  Domestic   International Total   Domestic International Total Domestic International Total
Natural Gas
    Transmission		   $ 38     $ 7     $ 45     $ 13 $ 4 $ 17 $ 16 $ 9 $ 25
Field Services     45       –       45     39 – 39 44 – 44
North American
    Wholesale
    Energy		     35       –       35     36 – 36 47 – 47
International
    Energy		     –       39       39     – 43 43 – 10 10
Other Energy
    Services		     49       –       49     (13 ) – (13 ) 10 3 13
Duke Ventures     2       –       2     (9 ) – (9 ) (22 ) – (22 )
Other Operations     (47 )     –       (47 )   (10 ) – (10 ) (5 ) – (5 )
Total   $ 122     $ 46     $ 168     $ 56 $ 47 $ 103 $ 90 $ 22 $ 112


SUMMARIZED COMBINED FINANCIAL INFORMATION
OF UNCONSOLIDATED AFFILIATES		 December 31
In millions 2001 2000 1999
BALANCE SHEET          
Current assets   $ 1,239     $ 1,242 $ 1,544
Noncurrent assets     8,199     6,588 7,826
Current liabilities     1,202     888 1,155
Noncurrent liabilities     4,400     4,404 4,727
Net assets   $ 3,836     $ 2,538 $ 3,488
INCOME STATEMENT          
Operating revenues   $  5,202     $ 4,617 $ 3,510
Operating expenses     4,525     4,039 3,104
Net income     499     440 193


RELATED PARTY TRANSACTIONS     Outstanding notes receivable from affiliates were $25 million as of December 31, 2001 and $70 million as of December 31, 2000.

Duke Energy and Fluor Enterprises, Inc. formed the D/FD 50/50 partnership in 1989. The partnership provides full-service siting, permitting, licensing, engineering, procurement, construction, start-up, operating and maintenance services for fossil-fired plants in the U.S. and internationally. D/FD is the primary builder for NAWE’s merchant generation plants currently under construction. Fifty percent of the profit earned by D/FD for the construction of NAWE’s merchant generation plants, which is associated with Duke Energy’s ownership, is deferred in consolidation until the plant is sold as part of NAWE’s portfolio management strategy, or once the plant becomes operational it is amortized over the plant’s useful life. Fifty percent of the profit earned by D/FD for operating and maintenance services, which is associated with Duke Energy’s ownership, is eliminated in consolidation. For the year ended December 31, 2001, Duke Energy deferred profit of $54 million for D/FD construction contracts, and eliminated profit of $9 million for operating and maintenance services. For the year ended December 31, 2000, Duke Energy deferred profit of $16 million for construction contracts. There was no profit from operating and maintenance services to be eliminated in 2000. For the year ended December 31, 1999, Duke Energy deferred profit of $6 million for construction contracts. There was no profit from operating and maintenance services to be eliminated in 1999. In addition, as part of the D/FD partnership agreement, excess cash is loaned at current market rates to Duke Energy and Fluor Enterprises, Inc. (See Note 10.)

In the normal course of business, Duke Energy’s consolidated subsidiaries enter into energy trading contracts with one another. On a stand-alone basis, the accounting for such contracts may differ by counterparty. For example, DETM, an energy-trading subsidiary within the scope of EITF Issue No. 98-10, “Accounting for Energy Trading and Risk Management Activities,” may enter into a contract to purchase natural gas storage from DEFS. DEFS may treat this contract as a hedge position, and DETM may mark to market the contract through its current earnings. In the consolidation process, the effects of this contract are eliminated, and not reflected in Duke Energy’s Consolidated Financial Statements. In all cases, energy trading contracts (and any resulting mark-to-market gains or losses) between consolidated subsidiaries are eliminated in the consolidation process.

Also see Note 13, Minority Interest Financing, for additional related party information.