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The Noon Meeting was held March 10, 2003, in Charlotte, North Carolina. It was hosted by Rick Priory, chairman and CEO.

Rick Priory: The Executive Advisory Council and our Board of Directors have approved the 2003 strategic directives.

Our first directive is to generate positive net cash, which is of critical importance in the current capital-constrained environment. While Duke Energy, unlike most other companies in our sector, has access to capital, the cost is prohibitively high.

Employee Advocate: It costs Duke more to borrow money due to recent downgrades by the rating agencies. “Prohibitively high” is a relative term. To some, a fraction of a percent increase would be considered prohibitively high. It makes good sense not to pay higher interest rates for money that is not really needed.

But if you want to see a prohibitively high price increase, consider Duke’s 2001 electricity price surcharge in California. Duke imposed an eighty percent poor-credit surcharge!

Duke's Prices Up as Overall Charges Drop

Rick Priory: We will continue to invest in our strongest business sectors where we can produce growth going forward. The areas that have produced long-term consistent growth are the real-estate business, the pipeline business and the electric company.

Employee Advocate: Mr. Priory now sees value in hard assets that he was once ashamed of. Energy trading, embracing deregulation, and attempting to clone Enron did not work out for Mr. Priory. With hat in hand, he must now come back to the businesses that were here before he tried to conquer the world.

Rick Priory: We’re rightsizing our business and corporate functions to fit the new market realities, and that has involved adjusting our portfolio of businesses and our staffing levels – both at the business unit and corporate levels.

We will continue to address merchant energy issues and restructure our asset portfolio to reduce our exposure to cyclical markets. We’ve done a great deal of that, and will continue to manage our portfolio of assets in keeping with market conditions.

Employee Advocate: Translation: The get-rich-quick schemes are now getting the ax. They have proven to be utter failures – even to the most bullheaded.

Rick Priory: We are working to reduce regulatory and legal risks and uncertainty.

Employee Advocate: Those who obey the law usually face near zero legal risk.

Rick Priory: These directives affirm the basic, guiding principles of our company for the short term. The market is in a difficult period. So for 2003 and 2004, you’ll find us adhering closely to this strategy but looking for the opportunity to begin growing again. We don’t know when that will occur, but we hope that as we move beyond the economic and war issues we face today, the marketplace will return to rational behavior. Market rationality will be a prerequisite to our deployment of new capital.

Employee Advocate: Mr. Priory always tries to get a little too much mileage from the “bad economy” excuse. Some companies are doing just fine, even in this “bad economy.” These companies will not be in the energy speculating business.

Just because the market does not behave as one thinks it should, does not mean that it is irrational. It may mean that one has irrational expectations of the market. It may mean that one has an irrational view of reality. In any event, the market is always right. If the market values a share of stock at one dollar, that is exactly what it is worth at that instant. Executive rationality should be prerequisite to deploying new capital!

Rick Priory: The past few months have been challenging for energy sector stock, including DUK.

We’ve had a bumpy ride due to the uncertainty in our sector. Recent events in the industry have included credit rating cuts of giant magnitude, dividend cuts and equity issuances.

Employee Advocate: All the above mentioned items were not random occurrences. They were caused. Energy speculation will usually be found to be the culprit.

Rick Priory: We will have to wait until some issues get resolved, such as those between FERC and California. The good news is that FERC has said it will issue rulings on the California refund issues by the end of this month. The state has filed 3,000 pages worth of material on this matter, and our team is reviewing the documents and will present our facts on March 20…

Employee Advocate: FERC ruled that the California energy markers were indeed rigged. Duke is not off the hook. Dow Jones reported:

“Among those the staff accuses of gaming are…Duke Energy Corp…”

FERC Says California Markets Were Rigged

Rick Priory: We received a subpoena from the U.S. Attorney in the Western District of North Carolina.

We continue to cooperate with any group that wants to look into the Duke Power accounting audit. We are providing the U.S. Attorney’s office with the data that they need to make a decision.

Employee Advocate: Evidently Mr. Priory has caught on to the fact that further denials, at this point, are foolish.

Question: Compared to the index of utility stocks, Duke Energy’s stock has done substantially worse. What is your assessment of why that is the case? We’re a leader, yet we seem to be doing worse.

Rick Priory: The index is made up of a variety of energy companies, some of which are far more utility-oriented than Duke Energy. Any company with substantial exposure to the merchant market has seen its stock price fall. And those whose entire business is in the merchant area suffered a devastating hit. We are in between the two pure play extremes: a portion of our business is exposed to the merchant business, but we also have the strong underpinning of our regulated businesses. We held up because of the strength of our core businesses and the diversity of our portfolio.

The credit rating agencies have looked at our sector and downgraded merchant companies first. In late 2002 and early 2003, a number of players have seen dramatic credit downgrades.

Employee Advocate: Yes, Duke is a leader. And right now, Duke is leading energy stocks lower and lower.

Check out Mr. Priory’s correct explanation. The companies that did not get involved with energy trading, did not chase the deregulated market, and did not want to become another Enron are doing the best of all! Those that did fell flat on their faces. That was the very cause of the problems referred to by Mr. Priory. The problems did not mysteriously appear. They were not caused by sun spots. They were caused by greed and a lack of ethics.

Rick Priory: We are working hard to get the message across to the investment community that DUK is a good investment. And we provide specifics to back that up.

Employee Advocate: Here we go again. This whole debacle started when Mr. Priory became more interested in pumping up the stock price than in running the business. If the company has a viable business, it will be obvious; there will be no need to tout the stock day and night. When a stock cannot stand on its own merits, CEO’s feel the need to hit the circuit and “talk up the price.”

Question: We seem to be blaming our problems on a weak economy, but the U.S. Commerce Dept. Bureau of Economic Analysis reports Average Gross Domestic Product growth of 3.25% during the last quarter between 4th quarter 2001 to the 3rd quarter of 2002. What level of GDP growth do we need in order to be successful with our business strategy?

Rick Priory: I would not attribute the company’s problems to the economy. Most of the problems I talk about are sector-specific, and they relate to deregulation of the electric and gas industry. Certainly Duke Power has been affected by the economy. You see the effect in industrial sales, although weather has made up for some of that.

Employee Advocate: Good question! Now, Mr. Priory is backing away from the “bad economy” excuse. Heretofore, he has adamantly denied any responsibility for any problems. Eliminate each phony reason for failure, and the real reason will be left standing – standing and denying.

Rick Priory: The biggest problem in our sector has been a price collapse. Price caps were applied in the western region in 2001. There were allegations associated with high prices. There are investigations. Of course, the monster issue was Enron.

Employee Advocate: The price collapse did not come about for no reason. The price caps were not implemented for no reason. Yes, the monster issue was Enron. And, what CEO wanted his company to be an energy company like Enron?

Enron was the piper marching down the road of greed. Other companies merrily followed along, as so many rats.

Question: Under the employee incentive plan, one Duke Power department may receive a 7 percent payout. Another department may receive a 2.5 payout. Why don’t all departments receive the same amount?

Rick Priory: Each department has different goals and receives a different incentive payout depending upon how it does against the goals established by its management. Likewise, each business unit has different goals. They’re all dramatically different and they focus on those things that are of greatest interest to that area. Someone in management felt that the set of goals that were established for your area were appropriate. But the goals are not consistent across the company and never were intended to be.

Employee Advocate: As long as there is a built in confusion factor, employees will always have a difficult time figuring out anything. This is exactly the way management wants it. If everyone’s incentive payout is based on company profitability, there is zero confusion. But, that would jeopardize some empires. Bean counters would no longer be needed to concoct these tenuous schemes. The company would also lose “flexibility” in calculating the actual payout, if any. Some in management would lose the opportunity to pursue personal agendas. And a great opportunity for micromanaging would be lost.

Question: At a recent meeting, Ruth Shaw said to her managers, “In all categories of risk – financial, commercial, regulatory, physical security, reputation, and more – we must assure that we have adequate risk assessment and mitigation plans, and that we are informed early and clearly of the potential risks.” I agree that we need to be actively pursuing risk management, including monitoring indicators that warn of risky behavior. I am intrigued by the concept of reputation risk assessment and mitigation planning. Is this a Duke Power initiative or a board of directors’ initiative? Could you please explain how this will be done and managed? What indicators are monitored?

Answer: Reputation risk management has been an integral part of Duke Energy’s business for many years and is reflected in our intensive community outreach, the work of our Environmental Health and Safety group, and our proactive approach to public and media relations. Focus on the concept intensified in 2001 during the California energy crisis, when our reputation came under attack. We added brand advertising to our reputation management tools in 2001 and created a Market and Brand Strategy group in 2002. That group has undertaken extensive brand research with key stakeholders to assess Duke Energy’s reputation and support companywide efforts to protect and build it. This is an area in which every Duke Energy employee plays an important role. How we interact with customers, what we tell our family, friends and neighbors about the company, and how we participate in our communities all affect Duke Energy’s reputation. We are Duke Energy!

Employee Advocate: Only those with problems have the need to “manage” their reputation. Companies that treat employees, investors, and the public fairly will automatically build a good reputation. When actions, driven by greed, lead to a scandalous reputation – out come the spin doctors. But by that time, it is always too late. Executives do not know this. They feel that they can manage away anything. Their reputation managing attempts provide endless entertainment for employees and the public. Executives have not figured out yet that the downhill slide began when they tried to profit at the employees’ expense. The more they deny, the deeper they slide into the quagmire.

Duke can give up trying to micromanage employees on and off the job. Employees will tell the truth when asked about Duke Energy. If they feel the company has kept its promises to them, they will say so. If employees feel that they have been lied to and cheated by greedy executives, they will say just that. If unethical practices are continued by the executives, do not expect employees to lie about it. People will believe what employees tell them 100 to 1 over any Wall Street Journal ads!

Question: With the current business climate, should our executives take on additional duties as members of other companies’ boards of directors?

Answer: Our business doesn't operate in a vacuum. By serving on other companies’ boards of directors, Duke Energy’s leaders interact with other business leaders and are exposed to new and relevant business ideas. This is good high-level executive development and smart networking. Connecting with high-level leaders in other industries helps keep us in tune with the signals of industry and the economy. Having our executives serve on the boards of carefully selected companies is positive for Duke Energy.

Employee Advocate: You cannot expect Duke executives to give up this networking opportunity. What if another company found a way to take something from the employees, and Duke did not know about it? Duke would lose a “competitive advantage.” How do you think cash balance pension conversions caught on so fast?

Director A: We found a great way to take half of the employees’ pensions, and they do not even know what hit them!

Director B: That’s great! We eliminated the retirees’ health care. That means big bucks in our pockets!

Director C: We do all of that, plus our CEO gets millions in stock options for breathing!

Director D (from Duke): Keep talking; I’m taking notes.

Question: At the February Noon Meeting, Fred Fowler said that the current plan is to pay a dividend; that the board has approved this plan; and that paying the dividend is up to the board, not management. As an investor and employee, I fully anticipate the board will reduce the dividend this year, and our management will say, "We believed in our plan and attempted to execute it, but the board saw it differently." I believe the company and our stock are being beaten up based on anticipation of a reduction in dividend. Why don't we just go ahead and reduce the dividend now, rather than later? I think it would help our management’s credibility to take this action now.

Answer: Duke Energy’s board has approved a plan that includes paying the dividend, and, yes, the board ultimately decides whether to pay it. Management has clearly stated its intention to pay the dividend and stands by this plan. As for the stock price, many factors are at play – including war uncertainties and the actions of peers in the industry.

Employee Advocate: Some investors feel that Duke should reduce the dividend. Some advisors feel that Duke will be forced to reduce the dividend. The problem is that several executives have said that Duke will not cut the dividend. If it is cut, that will be just one more example of the executives saying one thing and doing something else. Duke has made promises to employees, investors, and customers, and broke them all! They keep producing rhetoric about rebuilding their reputation. Breaking even more promises will not be the way to do it. Somewhere, somehow, Duke must keep it word on something!

Question: I was told by the Retirement Benefits Center that I cannot roll funds back into the Retirement Savings Plan that were withdrawn and placed into a rollover IRA. Why? When I set up the IRA, I had the understanding that I could freely move money between my rollover IRA and RSP.

Answer: The plan booklet for the Retirement Savings Plan (RSP) states that withdrawals from the RSP cannot be rolled back into the RSP. The RSP offers very liberal withdrawal provisions and the distribution of funds associated with a withdrawal is considered final. Prohibiting the rolling back of funds previously withdrawn protects the RSP from multiple administrative costs for transactions involving the same funds.

Employee Advocate: We agree that the withdrawal provisions are liberal. The company would be foolish to allow employees to roll withdrawn funds back into the RSP. It is a lot like retiring. Do not retire and call up in a couple of months and say that you have changed your mind and want to come back to work. It is a one-way door. You can go out, but you cannot come back in.

The cash balance amount is completely different. If you are under age 55, you cannot roll over that money, even if you quit work! So much for the, much touted, “portability.”

Question: Following the release of 2002 year-end earnings, we have continued to receive questions regarding the funding status of the Duke Energy Retirement Cash Balance Plan (RCBP) and questions about whether the company will make contributions to the plan.

Answer: During the first half of each year, an independent actuary prepares an actuarial valuation which determines the minimum contribution needed to meet full funding requirements imposed by law and the maximum tax deductible contribution that can be made to the plan. Based on the 2002 valuation, the minimum contribution required in 2002 was $0. Based on the significant stock market decline during 2002, the fund has decreased in value and it is anticipated that the RCBP will have a required minimum contribution for 2003. The size of any required contribution will not be known until after the actuarial valuation has been completed.

Employee Advocate: Where employees lost money was during the Retirement Cash Balance Plan conversion. Some employees opening cash balance amount was one-half of the amount earned under the old plan. The early retirement subsidy was eliminated in the process.

Duke liabilities (money owed to employees) were sufficiently reduced so that contributions were not necessary. The crashing market threw a kink into Duke’s plan. The goal was to pay employees cheap interest rates, while investing the funds in equities. Duke would get to keep the spread between the two. Do not feel too sorry for Duke. If history is any guide, their plan will work in the long run. Either way, many employees will have less pensions than they were promised.

The Noon Meeting was held February 13, 2003, in Charlotte, North Carolina. It was hosted by Fred Fowler, the new president and chief operations officer.

Fred Fowler: I’m delighted to be with you today. I know this is one of Rick’s favorite forums, so I appreciate the chance to fill in for him this month. I hope you’ve got a bunch of good questions ready for me today.

Employee Advocate: (Snicker, snicker.) Mr. Fowler blew the snicker test, right off the bat.

With stock selling around a thirteen year low, with benefits and morale even lower, amid grand jury and FBI investigations, in the face of endless lawsuits, do you really think that he is delighted about answering questions from employees? If he had stated “I would rather be here than be boiled in oil,” we could have accepted it.

For the same reasons, do you really think that this is one of Mr. Priory’s favorite forums? And, as one employee asked “If he likes it so much, why is he not here?”

The statement about wanting a bunch of good questions could be true. Of course, management considers “good” questions to be easy-ball, suck-up, non-controversial, planted questions, such as “Please tell me more about EBIT.”

Fred Fowler: My business philosophy is simple and very much in line with Duke Energy’s tradition of leadership, ethics and accountability.

Employee Advocate: Warning. Warning. Problem. Red alert! If Mr. Fowler means that he is going to be more of the same thing that we have had for over six years, that is a real problem. Does he not realize that these are the things, or the lack of them, that has the company on the brink of the abyss?

But therein lies the fallacy of the “big management shakeup.” Only a couple of executives have quit (either voluntarily or under duress) and one has retired. Let’s not count the executive who worked for one month and quit. Nothing has changed but titles! It is like swapping all the marbles on a Chinese checker board to different holes, but ending up with all of the original holes filled. What has really changed? Nothing!

If all the members of the cast in a play swap costumes and roles, what has changed? Nothing. It is the same cast. The only difference is that they all have new roles that they know absolutely nothing about! Let the learning curve begin.

Rearranging all the deck chairs on the Titanic may produce a lot of feel good back-slapping. But the iceberg fissure remains, just beneath the surface of the water. The damage can be ignored for a time. But the affects of the damage will be felt eventually. When it is felt, it will be too powerful to be ignored, and it will be too late to do anything about it.

It has not gone unnoticed that during all the management changes, that the top two positions have remained the same. They are still filled by one person, Mr. Priory. If any of the new management gets out of line, Mr. Priory can overrule them. This will ensure that nothing ever really changes.

It was implied that the management changes would solve all of the many problems. It provided a flurry of activity that may have distracted some investors from the fact that nothing has changed. The real problems are still being denied.

Fred Fowler: I try to make sure that what we promise, we deliver. Delivering results for our customers, investors and employees means operational excellence across the enterprise. It means ethical performance, as well. It means maintaining the value of our reputation and our brand by acting with integrity in all our business dealings.

Employee Advocate: Mr. Fowler is preaching to the choir. But he cannot truthfully say that this is what Duke has delivered over the last six years. This is exactly the opposite of what has been delivered over the last six years. It is also the cause of all of the problems today. One thing was promised to employees, investors, and ratepayers. Something entirely different was delivered to each group. The only beneficiary of the actual delivery was Duke.

If the behavior over the last six years had been ethical, if management had acted with integrity, there would be no problems today. There would be no need for a concerted effort to manage the reputation. It would take care of itself, automatically. When one does the right thing, one acquires a good reputation, effortlessly. It is always those who do everything but the right thing that are dismayed with their, well deserved, bad reputation. It is those who want to distort the perception of their reputation and somehow make it look good. The Wall Street Journal has ad space to sell to these bozos.

Mr. Fowler could have said “Things are going to be different now. I am going to keep my promises.” But, you see, he still reports to Mr. Priory. Therefore, anything that he says will play to Mr. Priory. The net results is gobbledygook, empty-words, and oxymorons.

Fred Fowler: Results matter. Hype doesn’t.

Employee Advocate: That’s right. And plastering hype in Wall Street Journal ads will never conceal the blunders that prompted the ads! There is not enough ad space in the world to completely erase the truth.

Fred Fowler: I also keep a close watch on our safety performance. No matter what part of the energy business you’re in, safety is the number-one priority for all of us, all the time. Our employees deserve to go home as healthy as they were when they came into work. And we have an obligation to the communities in which we’re allowed to operate to run our facilities as safely as possible.

Employee Advocate: Mr. Fowler hit upon two important issues: employee safety and public safety. The problem in the past has been that management has been for safety as long as it was cheap safety. Safety was number one, except when it came to money. Everything always seem to come back to the sticking point of money. Senior management knows the right things to do, but the stumbling block of greed gets them every time!

Here are three things that Duke senior management should keep in mind:

• Senior management cannot have all the money in the world. They want it, but the rest of the population must also have some.

• Employee safety costs money. If management is too greedy to spend it, they may regret it.

• Public safety also costs money. If Duke blows this one, it may well be its final act. The money saved through greed would then be recognized to be insignificant. But there likely would be no second chance.

Fred Fowler: I have been doing quite a bit of homework in my new role, and I’m extremely impressed by what I see.

Here’s an example of outstanding performance: Last year was the best year ever for the nuclear team. They set records for overall performance as well as plant-specific goals…

Employee Advocate: Just imagine if the real assets had been sold off in the mad rush to be more like Enron! If all Duke had left were energy trading and operations peddling deregulated energy, where would earnings come from? The only thing that has saved Duke is that Enron was not completely cloned. It is the differences from Enron that has kept Duke alive, not the similarities.

Fred Fowler: As you know, our 2002 financial performance was far from our best. We were hurt by the virtual collapse of the merchant power markets, which pushed our year-end earnings down to $1.88 per share…

Employee Advocate: And the bold statements by Duke management that the Enron collapse would not affect energy trading turned out to be merely bluster. The same goes for the declaration that Duke would never cut back its energy trading operation. Now there is a lot of empty office space in Houston, and around the world.

Fred Fowler: We made a number of new disclosures about our energy trading business in the fourth quarter earnings release, following recommendations of the Committee of Chief Risk Officers…

Employee Advocate: The formation of the Committee of Chief Risk Officers was a desperate attempt by energy companies in a bid to seem like part of the solution, rather than part of the problem. The creation of the committee was not proactive. It was devised as a knee-jerk reaction to federal investigations. The problem is that no one trusts energy companies to police themselves. If they were capable of policing themselves, the problems would have never occurred!

A recent Reuters article had this to say about the Committee of Chief Risk Officers:

“Long-awaited industry plans to reform power and gas price reporting will likely fail to restore confidence in a sector hit by fraud and federal investigations since they only recycle principles and offer no binding initiatives, energy experts said.”

Many energy companies are not trusted by employees, investors, or the public because of the many recent indiscretions in the deregulated market. The people know that tough laws are needed. Regulations are needed. No amount of self-policing will ever keep the fox out of the hen house.

Revamping Energy Indexes Seen Falling Short

Fred Fowler: We have made organizational changes which will position us to take full advantage of markets when they recover.

Employee Advocate: More than a few issues seemed to have been side-stepped with this comment. There was no hint of recognizing the management errors made. The market problems were not coincidental – they were caused! They were caused by arrogant senior management, blinded by greed.

What is that statement saying? Is it saying that the previous management structure was positioned to lose money if the market recovers?

Fred Fowler: The energy markets will recover, as sure as the sun will rise. I don’t know when. When you’re in a trough, sometimes it seems like it goes on forever, but the markets will eventually rebound.

Employee Advocate: The problem with that statement is that there is never any guarantee that the sun will rise. Just because it always has, does not mean that it always will. Sector markets can crash and never come back. Who wants to buy stock in the buggy whip industry? Do you think it is guaranteed to come back?

A breakthrough in any one of several energy technologies would doom the energy market forever. A small economical device that could power homes and vehicles would make the electric grid obsolete, almost overnight. Gasoline and natural gas would, suddenly, no longer be necessities. The public could no longer be jerked around by shortages, real or otherwise. Companies would find it impossible to price gouge a public that does not need their product.

Such a breakthrough may not come anytime soon. It is only offered as an example to demonstrate that a recovery is never guaranteed, no matter what those who tout stock may say.

Fred Fowler: I can’t tell you how excited I am about my new team.

Employee Advocate: Rats! And, we were all keyed up to here about it.

Fred Fowler: I hope you’re all excited about Ruth’s new position.

Employee Advocate: We would certainly hate to burst anyone’s bubble, but who could possibly be interested in Ruth Shaw’s new position? The only one likely to be excited about it is Ms. Shaw. Executives may feel that they have achieved rock star status. They may feel that the employees are teetering with excitement, wondering just what executive will move into what slot. That is not the case.

Employees are concerned about what can be done to recover their lost pensions. They want to know how promises of retiree health care can be enforced. The want to know why the CEO is rolling in millions of dollars while other employees have not had a raise in a decade. Moving one Chinese checker marble to another slot does not constitute a major event in the lives of employees.

When someone moves into the CEO position and says “All employees are getting back everything that was ever promised to them, or I will draw no salary,” employees may become excited. The present CEO could say that. But he would face an enormous credibility issue; who would believe him? Everyone would be digging into the fine print looking for the catch!

Fred Fowler: Those of you who haven’t worked with Ruth will find her to be one of the best executives around. She is extremely smart, very focused, very hands on and tough; she has all the qualities I like on my team. She is well prepared to lead Duke Power to meet its goals.

Employee Advocate: For Ruth Shaw's recent comments on ethics and scandals, click the link below:

Ruth Shaw on Ethics and Scandals

Ms. Shaw also gave a TV interview on “Charlotte Tonight” just a few days ago. The link below leads to her comments:

You Bet Your Life

Fred Fowler: So what’s ahead for 2003? Again, it promises to be a year of challenges as the economy, and particularly the merchant energy sector, continue to struggle.

Employee Advocate: Duke is finally wising up and dumping deregulated power plants. Duke management does not like to admit mistakes. But they are curtailing energy trading and moving out of the deregulated market.

Duke May Sell Unregulated Plants

Fred Fowler: We have taken decisive actions to align our organization to address market realities.

Employee Advocate: It’s about time! Clinging to failed ventures rather that admitting the mistake only compounds the original mistake.

Fred Fowler: You’ve probably heard talk about "sweating our assets." To me, it’s one of the keys to financial success. It’s focusing on productivity: getting the maximum revenue from every power plant, transmission line and pipeline, with the minimum amount of capital expenditure and at the lowest cost.

Employee Advocate: If management gets too carried away with cheapness and causes a severe nuclear event, they will be sweating more than their assets. They will be sweating blood!

Fred Fowler: A priority at every level of the company is to uphold our commitment to ethics and integrity in every aspect of our business. If you’ve not yet completed your annual Code of Business Ethics training, I think you’ll find that this year it’s more user-friendly.

Employee Advocate: Ethics training needs to start in the boardroom. That’s is where all the problems originated! But do not expect miracles from the ethics training. If someone is a born con man, do you think that a one-hour computer based training course will make him straight as an arrow?

Fred Fowler: We’ve got to continue to deliver on our promises reliably. In my opinion, we’ve used up a lot of good will in the last year. And we under-delivered to the financial community. We’ve got a lot of rebuilding to do in terms of credibility.

Employee Advocate: No. That’s all wrong. One cannot continue to do what one has never done. Management can, however, start delivering on its promises. Make no mistake. This would be a new course; something that has not happened in the last six years.

The good will was not used up in only the last year. Duke has been steadily burning it for over six years. Duke has also under-delivered to the employees and customers.

Fred Fowler: An example of what I’m talking about by operational excellence is the performance of our Duke Power coal, hydro and combustion turbine fleet. They achieved 98 percent commercial availability in 2002. Electric Light and Power magazine ranked Marshall Steam Station and Belews Creek Steam Station as the country’s 2nd and 3rd most energy-efficient coal-fired generators.

Employee Advocate: Again, where would Duke be without any hard assets?

Fred Fowler: We are a proven, reliable performer…

Employee Advocate: That statement would have been true some years ago. There has been no reliability in the last six years. There has been only deception and con games.

Question: With respect to external indicators, you indicated how important it was for us to demonstrate that we’re meeting our promises. Are we going to be reporting more or less?

Fred Fowler: Clearly it will be more. That’s one result of the governance model and events of the last couple of years…

Employee Advocate: Why are the promises made to employees always completely ignored?

Mr. Priory was not here to point out the latest Duke article on TheStreet.com, so we will:

Duke Saw Slowdown, Kept Mum

This Noon Meeting was held January 31, 2003, in Boston. It was hosted by Rick Priory, chairman and CEO.

Tom O’Connor: Good morning. I’m Tom O’Connor, president of Duke Energy Gas Transmission. I’m delighted to be with you today. It’s a pleasure to welcome Rick Priory, our chairman and CEO, to Boston to host the Noon Meeting.

Rick Priory: Clearly, things have changed since our last Noon Meeting in Boston in 1999! Since I was here last, we acquired Westcoast Energy in an $8 billion transaction. Our pipelines have grown tremendously: We’ve added Alliance, Vector, Gulfstream and Maritimes & Northeast pipelines and produced terrific results from that growth.

The past four years have been very exciting; certainly last year was, and I’m sure next year will be too!

Employee Advocate: Mr. Priory is always in character. If a meteorite knocked Duke Energy off of the face of the earth, he would put a positive spin on it!

Yes, the past four years have been very exciting, and no doubt next year will be also. Being fried in an electric chair would also be very exciting. But perhaps that is merely describing the last four years. The root of the problems began over six years ago. It just took a few years for everything to unfold. Now that everyone is aware of just what is involved, the pace will intensify.

Question: Is there any thought about investing outside the energy sector to affect the stock?

Rick Priory: We’ve learned over the years to stick close to what we know. Having said that, there are instances where we may go outside our core businesses. When we do, it’s typically in the energy industry, but not necessarily in the sector we’re in. A good example is Canadian 88.

Employee Advocate: It is gratifying that Mr. Priory has learned some things over the years. Employees, investors, and ratepayers have paid a dear price for his education!

It is surprising to see Canadian 88 used as a good example. Evidently, anything is a good example, if a dollar is made. There was much bad press and bitter lawsuits over the Canadian 88 deal.

Noval Slams Duke Energy

Question: With recent business scandals, there is a lot of talk about reforming corporate America. I think Mr. Priory’s recent speech to the Economic Club of NY did a good job proposing several fixes. However, I still see two areas that deserve attention: U.S. tax structure and corporate executive salaries. The tax structure hurts poor and middle income employees; the salaries of corporate executives continue to grow by double – and in some cases, triple – digit increases. When will these be addressed?

Rick Priory: With respect to the tax structure portion of your question, the U.S. tax code is set by Congress. We can’t tell you exactly when this might be addressed, but we do agree that tax code revisions are needed.

Employee Advocate: But understand, the changes that Mr. Priory would like to see are probably not exactly what you had in mind.

Rick Priory: As far as executive salaries are concerned, executive compensation, much like compensation for any other profession, is determined by the marketplace (total compensation components include base salary, cash incentives, stock-based incentives, and benefits.)

A significant portion of an executive’s total pay at Duke Energy is provided in the form of stock-based incentives, thereby linking compensation to the value of a company’s stock over a period of years and to the return delivered to shareholders. This is a practice we share with many of our competitors. At Duke Energy, we continuously benchmark compensation to ensure we’re offering a competitive compensation mix. Executive compensation is no exception.

Employee Advocate: The CEO’s salary is determined by the board. Who has more influence over the board than the CEO? Is it any wonder who always ends up the biggest piece of the pie? CEO stock options are the cause of many of the problems across America today. CEO’s tend to become stock promoters, because it puts cash in their pockets. The long-term health of the company is only a secondary consideration. Yes, Duke continuously benchmarks compensation. There is one difference in how this benchmarking is performed. For most employees, the benchmarking is an attempt to justify taking more and more benefits away. For executives, benchmarking is an excuse to give more and more benefits and cash.

How Corporations Fool Investors

And, the comments made at the Economic Club were evasive and tended to point blame at others.

Priory Blows Smoke

Question: What severance compensation did Harvey Padewer receive when he resigned in December?

Rick Priory: We do not comment on any individual employee's compensation, except to the extent required in proxy disclosure. Any severance that Mr. Padewer will receive will be disclosed in the next proxy statement.

Employee Advocate: It is reasonable to assume that a non-disclosure clause was included. We can’t have former executives spilling the beans, now can we?

Question: With today’s economy and layoffs, why do we maintain five corporate jets and pilots when we could use commercial airlines?

Rick Priory: Duke Energy recently sold one plane and reduced the aviation workforce. We operate the remaining jets because their speed and flexibility provide us a competitive advantage – sometimes by getting to places that commercial flights rarely go and often in timeframes that accommodate business needs and tight schedules. We continually assess the usage of the jet fleet and adjust it appropriately to ensure that competitive advantage.

Employee Advocate: See there; everyone’s cutting back. Employees lost pension benefits, health benefits, retirement health benefits, and ten percent lost their jobs. Executives are down to only four jets!

Question: Now that so many of Charlotte’s big employers offer domestic partner benefits, why doesn’t Duke Energy?

Answer: We regularly benchmark our benefits program to plans offered at companies similar in size and scope to Duke Energy to ensure our program remains competitive. Currently, there are no plans to offer domestic partner benefits due primarily to cost. Human resources will continue to monitor and trend companies’ approaches to providing domestic partner benefits to help determine if changes are needed.

Employee Advocate: Are you beginning to see how benchmarking works? Benchmarking is used only to take away and deny things to employees. It does not matter if other companies are providing a certain benefit. If it cost money, you are not going to get it – period.

Mr. Priory has recommended articles about Duke on TheStreet.com. It must have been an oversight that he did not mention the ones linked below:

Duke Looking Less Regal

Cut Your Losses in Energy

One Notch Above Junk Status

Ripples From Enron's Fall

Quality Questions Tarnish Duke's Ascent

Duke Faces Two Federal Investigations

Duke’s 'Wash Trades' Reduce Earnings Estimates