Richard B. Priory
Chairman of the Board
Chief Executive Officer

WE ARE ACCOUNTABLE FOR OUR ACTIONS.

Duke Energy’s resilience in trying times and in good times is as much an outcome of corporate character as corporate performance. Integrity, trust, credibility and respect have been cornerstones of our company for nearly a century. And we are accountable for ensuring that any challenge to that foundation – any breach of ethics or misconduct – is addressed swiftly and resolutely.

For me, one of the most disappointing events of the year was finding instances where we did not meet our own high standards for conduct. We identified a small number of round-trip transactions that appear to have been conducted with no legitimate business purpose. While those instances were isolated and immaterial to earnings or revenue, we were forceful and forthright in our response: We have taken appropriate disciplinary actions and instituted new levels of control and accountability throughout our organization.

We have worked hard to reaffirm and communicate the values that Duke Energy stands for. Leadership sets the example for ethical conduct, and all employees are held accountable. Each year, every Duke Energy officer and employee reviews our Code of Business Ethics as we recommit ourselves to preserving and building our company’s reputation. Additionally, each of our energy marketing and risk control professionals signs a statement acknowledging in detail their commodity trading responsibilities at Duke Energy.

Another issue that grabbed headlines in 2002 was an inquiry into specific Duke Power regulatory accounting entries. Our own review and an outside audit resulted in the identification of unintentional errors – and the need for improved communication with the North Carolina and South Carolina utility commissions. Reconciling our conviction that we had acted in good faith with the need to move forward, we reached a settlement agreement with both commissions, and are cooperating with the Department of Justice as they review this issue as well.

We were gratified at year-end by the decision of the U.S. District Court in the Southern District of New York to dismiss, in all respects, a number of class-action lawsuits regarding round-trip transactions. And we were also pleased when a federal judge in California dismissed a lawsuit filed by a Washington plaintiff against our company and other California generators, alleging antitrust and unfair business practices under California state law.

Let me be clear here: Duke Energy will not tolerate unethical business conduct. If we find instances of wrongdoing, we will take swift corrective action. We will be equally vigilant in defending our corporate character against false allegations, misconceptions and the potent dynamic of “headline risk.” We will continue to defend ourselves vigorously as we respond with facts and candor to questions about our operations, our principles and our character.