Richard B. Priory
Chairman of the Board
Chief Executive Officer

WE ARE ADDRESSING ISSUES IN OUR MERCHANT ENERGY BUSINESS.

We are resolutely focused on reducing our exposure in the merchant energy business. After contributing $1.49 billion of EBIT in 2001, DENA contributed only $165 million of EBIT in 2002. We took decisive action last year – deferring construction projects, renegotiating the terms of our turbine purchases and halting most new development efforts.

We realigned and substantially reduced our merchant energy organization. And, by consolidating our North American sales and marketing functions, we are gaining significant economies of scale. Additionally, we developed consistent policies, practices and systems, including enhanced controls to improve our monitoring and reporting capabilities.

While the wholesale energy industry is still reeling from the loss of so many participants, low market volatility and low liquidity, we view sales and marketing as an integral aspect of a competitive energy marketplace. Our energy professionals market energy commodities, manage risk, provide reliability and promote price transparency for our customers worldwide.

We are committed to preserving the value merchant energy provides – reliable power supply, competitive pricing and efficient, well-run plants. Going forward, there will be fewer but stronger suppliers in the merchant field – well capitalized, able to survive through market ups and downs, skilled in risk management, diversified to sustain earnings, with assets to back their commitments. And Duke Energy intends to be at the head of the pack.

Just as merchant energy suffered in the U.S., international energy markets saw a downturn last year as well. DEI reported an EBIT loss of $102 million for 2002, due primarily to goodwill and other asset impairments associated with changing market conditions in Europe and Latin America – and business decisions we made to respond to those conditions. We have exited the power trading business in Europe and we pulled back on development plans in Brazil. We are concentrating our efforts this year on organic growth within our international business, emphasizing sales and marketing of capacity from our generation facilities and pipelines.