CORPORATE HOME

INVESTOR RELATIONS HOME

Page 5 of 7

[4]   How does the company manage its risk?

Duke Energy has one of the most comprehensive risk control structures in the energy industry. Led by our chief risk officer, systems and personnel throughout the organization ensure compliance with both internal controls and external regulatory procedures.

We monitor “daily earnings at risk” due to energy price fluctuations. By analyzing historic commodity prices, we can estimate the impact of future price movements on our portfolio. By design, the level of our daily earnings at risk is moderate, and it is constantly measured and monitored.

Effective risk management is embedded in our trading operations as well. We apply rigorous hedging discipline to all of our merchant generation and gas processing capacity, often selling future production through long-term contracts to lock in the spreads (the difference between the cost of production and the market price). That discipline protects us from dramatic swings in commodity prices. In the current market, we have hedged 91 percent of our merchant generation output for 2002, and 62 percent for 2003 and 2004.

You’ll find detailed explanations of our risk management and accounting practices in the Management’s Discussion and Analysis section of this report.

		* 2001 RECOGNITION						Energy Company of the Year Global Energy Awards FINANCIAL TIMES
		Best Company in North America Energy Services and Electricity GLOBAL FINANCE						Safety Achievement Award American Gas Association
		Top 100 E-Businesses INTERNET WEEK						Most Admired Energy Company FORTUNE
		Dow Jones Sustainability World Index						Conservation Achievement Award National Wildlife Federation

	To our shareholders
	[1]	What business is the company in?
	[2]	How does the company make money?
	[3]	How has the company performed?
	[4]	How does the company manage its risk?
	[5]	What is the company's future outlook?
	[6]	What about the company’s character?

RICHARD B. PRIORY

With the addition of Westcoast’s pipelines, Duke Energy will be able to deliver up to 30 percent of the Canadian gas supplies consumed in U.S. markets.