Richard B. Priory
Chairman of the Board
Chief Executive Officer

WE ARE COMMITTED TO GROWING PROFITS FROM OUR CORE REGULATED BUSINESSES.

Duke Energy benefits from the balance within our portfolio between stable businesses like Duke Power and Duke Energy Gas Transmission – and the more cyclical merchant energy and Field Services businesses. These are supplemented by smaller but healthy contributors like Crescent Resources, which delivers solid performance in fluctuating business cycles. While our regulated businesses are not immune to weakness in the economy, they are robust and are expected to generate some 80 percent of our earnings in 2003.

Serving more than 2 million customers in North Carolina and South Carolina, Duke Power continued to provide a solid stream of earnings in 2002. The business delivered EBIT of $1.61 billion in 2002, just slightly down from 2001 EBIT of $1.63 billion. The stability of these earnings and cash flows is directly linked to Duke Power’s consistent, best-in-class performance. Operational excellence was evident in our 2002 performance, with our three nuclear stations achieving an unprecedented level of productivity, and our fossil and hydroelectric plants reaching record levels of commercial availability.

We were pleased by the passage of North Carolina’s clean air legislation in 2002. Thanks to the hard work of the state’s governor, legislators, regulators, environmentalists and electric utilities, a constructive plan was adopted that allows us to recover the costs of installing additional environmental controls at our fossil-fueled generating stations. Most importantly, the new legislation will result in significantly reduced emission levels. The legislation will freeze Duke Power electricity rates at their current levels for the next five years, while maintaining the company’s stable earnings and cash flows.

Duke Energy Gas Transmission performed exceptionally well, contributing $1.17 billion in EBIT for 2002, a 92 percent increase over 2001 EBIT of $608 million. We completed a major expansion of our gas transmission business with the acquisition of Westcoast Energy in Canada, which added significant gas pipeline, storage and field services capacity, as well as a local distribution company serving 1.1 million residential customers. The transaction closed on March 14, 2002, and the Westcoast business contributed $416 million in EBIT for the year. We expect that contribution to increase as we connect major supply basins with growing markets on both sides of the border. And responding to demand growth in key eastern U.S. markets, we undertook pipeline expansion projects to serve Florida, Tennessee, North Carolina, Virginia, Massachusetts, New York and New Jersey.