In 2000, Catawba River Associates, LLC (Catawba), a fully consolidated financing entity managed by a subsidiary of Duke Energy, issued $1,025 million of preferred member interests to a third-party investor. Catawba subsequently advanced the proceeds from the issuance to DE Power Generation, LLC (DEPG), a wholly owned subsidiary of Duke Energy, which indirectly owns or leases six merchant power generation facilities located in California, Maine and Indiana. Catawba was a limited liability company with a separate existence and identity from its preferred members, and the assets of Catawba are separate and legally distinct from Duke Energy. The preferred member interests received a quarterly preferred return equal to an adjusted floating reference rate (approximately 2.85% for the full year ended December 31, 2002 and 5.20% for the full year ended December 31, 2001).

The purpose of the transaction was to reimburse Duke Energy for a portion of its prior investment in the DEPG assets through separate venture financing with third-party investors, not requiring direct recourse to the credit of Duke Energy. The results of operations, cash flows and financial position of Catawba were consolidated with Duke Energy for financial reporting purposes. The preferred member interests were included in Minority Interest in Financing Subsidiary on the 2001 Consolidated Balance Sheet, and the payments made with respect to the preferred return were included in Minority Interest Expense on the 2001 Consolidated Statement of Income of Duke Energy. The initial term of the financing ends in September 2005 and is repayable at that time unless extended by mutual consent.

In September 2002, Catawba distributed the receivable from DEPG to the preferred member, THOR, which simultaneously withdrew its interest. As a result, the $1,025 million that DEPG previously owed to Catawba became an obligation to THOR and was reclassified on the 2002 Consolidated Balance Sheet to Long-term Debt. In October 2002, Duke Energy purchased the equity interests in THOR and effectively reduced the debt to $994 million. Additionally, Duke Capital Corporation financially guaranteed the $994 million in return for certain modifications to the terms of the credit agreement.

In connection with the Westcoast acquisition on March 14, 2002 (see Note 2), Duke Energy assumed $411 million of authorized and issued redeemable preferred and preference shares at Union Gas and Westcoast. These shares are included in Minority Interest on the Consolidated Balance Sheet as of December 31, 2002.