UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.               )

 

 

Proxy
Statement

and notice of
2006 Annual Meeting

526 South Church Street
Charlotte, NC 28202-1802

September 15, 2006

Dear Shareholder:

I am pleased to invite you to our annual meeting to be held on October 24, 2006, in the O. J. Miller Auditorium located in our Charlotte headquarters building.

As explained in the enclosed proxy statement, at this year’s meeting you will be asked to vote for the election of directors, approve the Duke Energy Corporation 2006 Long-Term Incentive Plan, ratify the selection of the independent public accountant and consider any other business that may properly come before the meeting.

It is important that all Duke Energy shareholders, regardless of the number of shares owned, participate in the affairs of the Company. At Duke Energy’s last annual meeting, in May 2005, over 85 percent of Duke Energy’s shares were represented in person or by proxy.

Even if you plan to attend this year’s meeting, it is a good idea to vote your shares now before the meeting, in the event your plans change. You may mark, date and sign the proxy card and return it using the enclosed, postage-paid envelope. Alternatively, you may also vote by telephone or the Internet. Please follow the voting instructions that are printed on your enclosed proxy card.

Whether you choose to vote by telephone, Internet or mail, your response is greatly appreciated.

We hope you will find it possible to attend this year’s meeting, and thank you for your continued interest in Duke Energy.

	Sincerely,
	James E. Rogers
	President and
	Chief Executive Officer

 

Duke Energy Corporation
526 South Church Street
Charlotte, NC 28202-1802

Notice of Annual Meeting of Shareholders
October 24, 2006

September 15, 2006

We will hold the annual meeting of shareholders of Duke Energy Corporation on Tuesday, October 24, 2006, at 10:00 a.m. in the O. J. Miller Auditorium in the Energy Center located at 526 South Church Street in Charlotte, North Carolina.

The purpose of the annual meeting is to consider and take action on the following:

1.                             Election of directors;

2.                             Approval of the Duke Energy Corporation 2006 Long-Term Incentive Plan;

3.                             Ratification of Deloitte & Touche LLP as Duke Energy’s independent public accountant for 2006; and

4.                             Transact any other business that may properly come before the meeting (or any adjournment or postponement of the meeting).

Shareholders of record as of the close of business on August 25, 2006, may vote at the annual meeting. It is important that your shares be represented at this meeting.

Whether or not you expect to be present at the annual meeting, please vote by marking, dating and signing the enclosed proxy card and return it using the enclosed, postage-paid envelope. You may also vote by telephone or Internet. Please follow the voting instructions that are printed on your enclosed proxy card. Regardless of the manner in which you vote, we urge and greatly appreciate your prompt response.

 

Table of Contents

		Page
Commonly Asked Questions and Answers about the Annual Meeting		1
Proposal 1: Election of Directors		5
The Board of Directors		5
Information on the Board of Directors		10
Proposal 2: Approval of the Duke Energy Corporation 2006 Long-Term Incentive Plan		19
Proposal 3: Ratification of Deloitte & Touche LLP as Duke Energy’s Independent Public Accountant for 2006		28
Security Ownership of Certain Beneficial Owners and Management		29
Report of the Audit Committee		31
Report of the Compensation Committee		33
Executive Compensation		42
Report of the Corporate Governance Committee		55
Performance Graph		59
Other Information		60
Appendix A – Duke Energy Corporation 2006 Long-Term Incentive Plan		A-1

 

Commonly Asked Questions and Answers about the Annual Meeting

Q:	What am I voting on?
A:	·  Election of directors;
	·  Approval of the Duke Energy Corporation 2006 Long-Term Incentive Plan; and
	·  Ratification of Deloitte & Touche LLP as Duke Energy’s independent public accountant for 2006.
Q:	Who can vote?
A:	Holders of Duke Energy Corporation (Duke Energy) common stock as of the close of business on the record date, August 25, 2006, may vote at the annual meeting, either in person or by proxy. Each share of Duke Energy common stock has one vote.
Q:	How do I vote?
A:	By Proxy – Before the annual meeting, you can give a proxy to vote your shares of Duke Energy common stock in one of the following ways:
	·  by telephone;
	·  by using the Internet; or
	·  by completing and signing your proxy card and mailing it in time to be received prior to the annual meeting.
	The telephone and Internet voting procedures are designed to confirm your identity, to allow you to give your voting instructions and to verify that your instructions have been properly recorded. If you wish to vote by telephone or Internet, please follow the instructions that are printed on your enclosed proxy card.
	If you mail us your properly completed and signed proxy card, or vote by telephone or Internet, your shares of Duke Energy common stock will be voted according to the choices that you specify. If you sign and mail your proxy card without marking any choices, your proxy will be voted:
	·  FOR the election of all nominees for director;
	·  FOR the approval of the Duke Energy Corporation 2006 Long-Term Incentive Plan; and
	·  FOR the ratification of the selection of Deloitte & Touche LLP as Duke Energy’s independent public accountant for 2006.
	We do not expect that any other matters will be brought before the annual meeting. However, by giving your proxy, you appoint the persons named as proxies as your representatives at the annual meeting. If an issue comes up for vote at the annual meeting that is not included in the proxy material, the proxy holders will vote your shares in accordance with their best judgment.

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	In Person – You may come to the annual meeting and cast your vote there. If your shares are held in the name of your broker, bank or other nominee and you wish to vote at the annual meeting, you must bring an account statement or letter from the nominee indicating that you were the owner of the shares on August 25, 2006.
Q:	May I change or revoke my vote?
A:	You may change your vote or revoke your proxy at any time by:
	·  notifying Duke Energy’s Corporate Secretary in writing that you are revoking your proxy;
	·  giving another signed proxy that is dated after the proxy you wish to revoke;
	·  using the telephone or Internet voting procedures; or
	·  attending the annual meeting and voting in person.
Q:	Will my shares be voted if I do not provide my proxy?
A:	It depends on whether you hold your shares in your own name or in the name of a brokerage firm. If you hold your shares directly in your own name, they will not be voted unless you provide a proxy or vote in person at the meeting. Brokerage firms generally have the authority to vote customers’ unvoted shares on certain “routine” matters. If your shares are held in the name of a brokerage firm, the brokerage firm can vote your shares for the election of directors and for Proposals 2 and 3 if you do not timely provide your proxy because these matters are considered “routine” under the applicable rules.
Q:	As a participant in the Duke Energy Retirement Savings Plan, how do I vote shares held in my plan account?
A:	If you are a participant in the Duke Energy Retirement Savings Plan, you have the right to provide voting directions to the plan trustee, by submitting your proxy card, for those shares of Duke Energy common stock that are held by the plan and allocated to your account. Plan participant proxies are treated confidentially.
	If you elect not to provide voting directions to the plan trustee, shares allocated to your plan account are to be voted by the plan trustee in the same proportion as those shares held by the plan for which the plan trustee has received voting directions from plan participants. The plan trustee will follow participants’ voting directions, and the plan procedure for voting in the absence of voting directions, unless it determines that to do so would be contrary to the Employee Retirement Income Security Act of 1974. Because the plan trustee must process voting instructions from participants before the date of the annual meeting, you are urged to deliver your instructions well in advance of the annual meeting so that the instructions are received no later than Wednesday, October 18, 2006.

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Q:	As a participant in the legacy Cinergy 401(k) plans, how do I vote shares held in my plan account?
A:	Cinergy sponsors three 401(k) plans that hold shares of Duke Energy common stock: the Cinergy Corp. Non-Union Employees’ 401(k) Plan; the Cinergy Corp. Union Employees’ 401(k) Plan; and the Cinergy Corp. Union Employees’ Savings Incentive Plan. These plans are collectively referred to herein as the “Cinergy 401(k) Plan.” If you are a participant in the Cinergy 401(k) Plan, you have the right to provide voting directions to the plan trustee by submitting your proxy card for those shares of Duke Energy common stock that are held by the Cinergy 401(k) Plan and allocated to your plan account. Plan participant voting directions are treated confidentially. The plan trustee will follow participants’ voting directions unless it determines that to do so would be contrary to the Employee Retirement Income Security Act of 1974. If you elect not to provide voting directions, the plan trustee will vote the Duke Energy common stock allocated to your plan account as it determines in its discretion. Because the plan trustee must process voting instructions from participants before the date of the annual meeting, you are urged to deliver your instructions well in advance of the annual meeting so that the instructions are received no later than Wednesday, October 18, 2006.
Q:	What constitutes a quorum?
A:	As of the record date 1,254,144,806 shares of Duke Energy common stock were issued and outstanding and entitled to vote at the annual meeting. In order to conduct the annual meeting, a majority of the shares entitled to vote must be present in person or by proxy. This is referred to as a “quorum.” If you submit a properly executed proxy card or vote by telephone or on the Internet, you will be considered part of the quorum. Abstentions and broker “non-votes” will be counted as present and entitled to vote for purposes of determining a quorum. A broker “non-vote” occurs when a broker or other nominee who holds shares for another person has not received voting instructions from the owner of the shares and, under New York Stock Exchange listing standards, does not have discretionary authority to vote on a proposal.
Q:	What vote is needed for these proposals to be adopted?
A:	Directors are elected by a plurality of the votes cast at the meeting. “Plurality” means that the nominees receiving the largest number of votes cast are elected as directors up to the maximum number of directors to be chosen at the meeting. The affirmative vote of a majority of the shares present and entitled to vote at the annual meeting is required to approve Proposals 2 and 3. In tabulating the vote on any matter other than the election of directors, abstentions will have the same effect as votes against the matter and shares that are the subject of a broker non-vote will be deemed absent and will have no effect on the outcome of the vote.

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Q:

Who conducts the proxy solicitation and how much will it cost?

A:

Duke Energy is requesting your proxy for the annual meeting and will pay all the costs of requesting shareholder proxies. We have hired Georgeson Shareholder Communications, Inc. to help us send out the proxy materials and request proxies. Georgeson’s fee for these services is $20,000, plus out-of-pocket expenses. We can request proxies through the mail or personally by telephone, telegram, fax or other means. We can use directors, officers and regular employees of Duke Energy to request proxies. These people do not receive additional compensation for these services. We will reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding solicitation material to the beneficial owners of Duke Energy common stock.

 

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PROPOSAL 1: ELECTION OF DIRECTORS

The Board of Directors

The Board of Directors of Duke Energy currently consists of 15 members. We have a declassified Board of Directors, which means all of the directors are voted on every year at the annual meeting.

The Board of Directors has nominated the following directors for election:

Roger Agnelli, Paul M. Anderson, William Barnet, III, G. Alex Bernhardt, Sr., Michael G. Browning, Phillip R. Cox, William T. Esrey, Ann Maynard Gray, James H. Hance, Jr., Dennis R. Hendrix, Michael E.J. Phelps, James T. Rhodes, James E. Rogers, Mary L. Schapiro and Dudley S. Taft.

If any director is unable to stand for election, the Board of Directors may reduce the number of directors or designate a substitute. In that case, shares represented by proxies may be voted for a substitute director. We do not expect that any nominee will be unavailable or unable to serve.

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THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH NOMINEE.

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Information on the Board of Directors

Board Meetings and Attendance

The Board of Directors had 9 meetings during 2005. No director attended less than 75% of the total of the Board meetings and the meetings of the committees upon which he or she served. Ann M. Gray was appointed as lead director on May 12, 2004. The lead director is responsible for presiding at Board meetings when the Chairman is not present, presiding at executive sessions of the nonmanagement directors, assisting in developing the Board agenda in collaboration with the Chairman, calling special meetings of the Board of Directors, and serving as a liaison between the independent directors and the Chairman and the Chief Executive Officer. In 2005, the directors met 6 times in executive session without management present and 4 times in executive session with independent directors only. Directors are encouraged to attend the annual meeting of shareholders. Eleven of 13 directors attended Duke Energy’s last annual meeting of shareholders.

Independence of Directors

The Board of Directors may determine a director to be independent if the Board has affirmatively determined that the director has no material relationship with Duke Energy or its subsidiaries (references in this proxy statement to Duke Energy’s subsidiaries shall mean its consolidated subsidiaries), either directly or as a shareholder, director, officer or employee of an organization that has a relationship with Duke Energy or its subsidiaries. Independence determinations will be made on an annual basis at the time the Board of Directors approves director nominees for inclusion in the annual proxy statement and, if a director joins the Board between annual meetings, at such time.

The Board of Directors has determined that the following directors have no material relationship with Duke Energy or its subsidiaries and are independent under the listing standards of the New York Stock Exchange: Roger Agnelli, William Barnet, III, G. Alex Bernhardt, Sr., Michael G. Browning, Phillip R. Cox, William T. Esrey, Ann M. Gray, James H. Hance, Jr., Dennis R. Hendrix, Michael E.J. Phelps, James T. Rhodes, Mary L. Schapiro and Dudley S. Taft. In reaching this conclusion, the Board of Directors considered all transactions and relationships between each director or any member of his or her immediate family and Duke Energy and its subsidiaries. See “Certain Relationships and Related Transactions” beginning on page 60 for additional information regarding certain relationships.

To assist in this determination, the Board of Directors adopted the following categorical standards for relationships that are deemed not to impair a director’s independence:

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*                                  An “associated” company or charity is one (a) for which the director or immediate family member is an officer, director, advisory board member, trustee, general partner, principal or employee, or (b) of which the director and immediate family members together own more than 5%.

For purposes of these standards, immediate family members include a director’s spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers-and sisters-in-law, and anyone (other than domestic employees) who shares the director’s home. For purposes of the contribution relationship described under “Charitable Relationships” above, payments exclude amounts contributed or pledged to match employee contributions or pledges.

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Board Committees

The Board of Directors has the five standing committees described below:

·              The Audit Committee selects and retains a firm of independent public accountants to conduct audits of the accounts of Duke Energy and its subsidiaries. It also reviews with the independent public accountants the scope and results of their audits, as well as the accounting procedures, internal controls, and accounting and financial reporting policies and practices of Duke Energy and its subsidiaries, and makes reports and recommendations to the Board as it deems appropriate. The Audit Committee is responsible for approving all audit and permissible non-audit services provided to Duke Energy by its independent public accountants. Pursuant to this responsibility, the Audit Committee adopted the policy on Engaging External Auditor for Services which provides that the Committee will annually establish detailed services and related fee levels that may be provided by the independent public accountants. See “Independent Public Accountants” for additional information on the Audit Committee’s pre-approval policy.

The Board has determined that Ms. Mary L. Schapiro and Messrs. William T. Esrey and James T. Rhodes are “audit committee financial experts” as such term is defined in Item 401(h) of Regulation S-K. See above for a description of their business experience.

This Committee met 16 times during 2005. During 2005, the Audit Committee members were Messrs. William T. Esrey (Chair), William Barnet, III, G. Alex Bernhardt, Sr., A. Max Lennon and James T. Rhodes. All of the members were determined to be “independent” within the meaning of Sections 303.01(B)(2)(a), 303.01(B)(3) and 303A.02 of the NYSE’s listing standards and Rule 10A-3 of the Securities Exchange Act of 1934 and the company’s categorical standards for independence. In addition, each Audit Committee member meets the expertise requirements for audit committee membership under the NYSE’s rules and the rules and regulations of the SEC. As of April 3, 2006, the Audit Committee members were Messrs. Phillip R. Cox (Chair), William Barnet, III, G. Alex Bernhardt, Sr., William T. Esrey and James T. Rhodes and Ms. Mary L. Schapiro. All of these members have been determined to be “independent” within the meaning of Sections 303.01(B)(2)(a), 303.01(B)(3) and 303A.02 of the NYSE’s listing standards and Rule 10A-3 of the Securities Exchange Act of 1934 and the company’s categorical standards for independence. In addition, each of these members meet the expertise requirements for audit committee membership under the NYSE’s rules and the rules and regulations of the SEC.

·              The Compensation Committee sets the salaries and other compensation of certain employees, including all executive officers of Duke Energy. This Committee also makes recommendations to the Board of Directors on compensation for outside directors. The Subcommittee for Performance Based Compensation, which is comprised of each member of the Compensation Committee who is an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code, sets performance-based compensation for executive officers for purposes of Section 162(m) of the Internal Revenue Code.

This Committee met 7 times during 2005. During 2005, the Compensation Committee members were Messrs. James G. Martin (Chair), Roger Agnelli, Dennis R. Hendrix and Leo E. Linbeck, Jr. and Ms. Ann M. Gray. Each member was determined to be a “non-employee director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 and “independent” within the meaning of Section 303A.02 of the NYSE’s listing standards and

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the company’s categorical standards for independence, and each of Messrs. James G. Martin (Chair), Roger Agnelli and Leo E. Linbeck, Jr. and Ms. Ann M. Gray has been determined to be an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code. As of April 3, 2006, the Compensation Committee members were Messrs. James H. Hance, Jr. (Chair), Roger Agnelli, Dennis R. Hendrix and Dudley S. Taft and Ms. Ann M. Gray. Each of these members has been determined to be a “non-employee director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 and “independent” within the meaning of Section 303A.02 of the NYSE’s listing standards and the company’s categorical standards for independence. Each of these members, other than Mr. Hendrix, has been determined to be an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code.

·              The Corporate Governance Committee considers matters related to corporate governance and formulates and periodically revises governance principles. It recommends the size and composition of the Board of Directors and its committees and recommends potential successors to the Chief Executive Officer. This committee also recommends to the Board the slate of nominees, including any nominees recommended by shareholders, for director for each year’s annual meeting and, when vacancies occur, names of individuals who would make suitable directors of Duke Energy. This committee may engage an external search firm or third party to identify or evaluate or to assist in identifying or evaluating a potential nominee.

This Committee met 6 times during 2005. During 2005, the Corporate Governance members were Ms. Ann M. Gray (Chair) and Messrs. James H. Hance, Jr., James G. Martin and Michael E.J. Phelps. All of the members were determined to be “independent” within the meaning of Section 303A.02 of the NYSE’s listing standards and the company’s categorical standards for independence. As of April 3, 2006, the Corporate Governance Committee members were Ms. Ann M. Gray (Chair), Messrs. Michael G. Browning, William T. Esrey, Dennis R. Hendrix and Michael E.J. Phelps and Ms. Mary L. Schapiro. Each of these members have been determined to be “independent” within the meaning of Section 303A.02 of the NYSE’s listing standards and the company’s categorical standards for independence.

·              The Finance and Risk Management Committee reviews Duke Energy’s financial and fiscal affairs and makes recommendations to the Board of Directors regarding dividends, financing and fiscal policies. It reviews the financial exposure of Duke Energy, as well as mitigating strategies, and determines whether actions taken by management with respect to financial matters are consistent with Duke Energy’s internal controls.

This Committee met 11 times during 2005. During 2005, the Finance and Risk Management members were Messrs. Michael E.J. Phelps (Chair), Roger Agnelli, James H. Hance, Jr. and Dennis R. Hendrix and Ms. Ann M. Gray. As of April 3, 2006, the Finance and Risk Management Committee members were Messrs. Michael E.J. Phelps (Chair), Roger Agnelli, James H. Hance, Jr. and Dennis R. Hendrix and Ms. Ann M. Gray.

·              The Nuclear Oversight Committee provides oversight of the nuclear safety, operational and financial performance, and long-term plans and strategies of Duke Energy’s nuclear power program. The oversight role is one of review, observation and comment and in no way alters management authority, responsibility or accountability.

This Committee met 4 times during 2005. During 2005, the Nuclear Oversight Committee members were Messrs. James T. Rhodes (Chair), G. Alex Bernhardt, Sr., A. Max Lennon and James G. Martin.

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As of April 3, 2006, the Nuclear Oversight Committee members were Messrs. James T. Rhodes (Chair), William Barnet, III, G. Alex Bernhardt, Sr., Michael G. Browning and Dudley S. Taft.

Each committee operates under a written charter adopted by the Board of Directors. The charters are posted on our website at www.duke-energy.com/investors/corporate and are available in print to any shareholder upon request.

Board Committee Membership Roster (as of September 15, 2006)

Ÿ                                  Committee Chair

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Compensation of Directors

Annual Retainer and Fees.   As of December 31, 2005, the fees paid to our outside directors consisted of:

 

Effective as of the April 3, 2006 consummation of the merger with Cinergy, the retainer and meeting fees listed above were modified, as reflected in the following chart (with changes in italics):

 

Annual Stock Retainer for 2005.   In 2005, the portion of the annual Board retainer payable in stock was paid in the form of two awards of phantom stock units under the Duke Energy 1998 Long-

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Term Incentive Plan. One award, for 1,820 phantom stock units, was approved on February 28, 2005. Following approval of changes to the directors’ compensation program in May 2005, at which time the stock retainer was increased to $65,000 from $50,000, a second award for 540 phantom stock units was granted on May 12, 2005, to approximate the difference between the annual target value and the value of the award made in February. The units vest ratably over five years, or, if earlier, upon (1) termination of service after attaining age 70, (2) termination of service after attaining age 62 with at least 10 years of service, (3) termination of service due to death or disability, or (4) upon a change in control.

Deferral Plans and Stock Purchases.   Generally, directors may elect to receive all or a portion of their annual compensation, consisting of retainers and attendance fees, on a current basis, or defer all or a portion of such compensation under an applicable deferred compensation plan or arrangement, including the Duke Energy Corporation Directors’ Savings Plan II and the Cinergy Corp. Directors’ Deferred Compensation Plan. Up to 50% of annual cash compensation may also be received on a current basis in the form of Duke Energy common stock. Deferred amounts are credited to an unfunded account for the director’s benefit, the balance of which is adjusted for the performance of phantom investment options, including the Duke Energy common stock fund, as elected by the director. The outside director will receive deferred amounts credited to his or her account generally following termination of his or her service from the Board of Directors, in accordance with his or her distribution elections.

Charitable Giving Program.   Duke Energy maintains a Directors’ Charitable Giving Program under which certain of our current directors remain eligible. Eligibility for this program has been frozen and no director who is not currently eligible may become eligible in the future. Under this program, Duke Energy will make, upon the director’s death, donations of up to $1,000,000 to charitable organizations selected by the director. A director may request that Duke Energy make donations under this program during the director’s lifetime, in which case the maximum donation will be reduced on an actuarially-determined net present value basis. In 2005, donations of $310,750 were made by Duke Energy to charitable organizations at the request of Mr. Robert J. Brown, who retired from the Board of Directors effective with the 2005 annual shareholder meeting. Duke Energy maintains life insurance policies upon eligible directors to fund donations under the program. Eligible directors include only those who were members of the Board of Directors on February 18, 1998, and certain former directors who previously qualified for this benefit. In addition, Duke Energy maintains The Duke Energy Foundation Matching Gifts Program under which directors are eligible for matching contributions of up to $5,000 per director per calendar year to qualifying institutions.

Expense Reimbursement and Insurance.   Duke Energy provides travel insurance to directors, and reimburses directors for expenses reasonably incurred in connection with attendance and participation at Board and Committee meetings and special functions.

Reimbursement of Certain Expenses; Gifts.   In August, 2005, in connection with a Board of Directors meeting held in Washington D.C., spouses of certain outside directors attended lunch and dinner events paid for by Duke Energy. In connection with this Board meeting, Duke Energy also paid for a reception and tours and round-trip transportation for the spouses of certain directors. The total cost of the foregoing was approximately $27,000. Duke Energy also presented a holiday gift to each outside director in 2005, at a total cost of approximately $3,700.

Stock Ownership Guidelines.   Outside directors are subject to stock ownership guidelines which establish a target level of ownership of Duke Energy common stock (or common stock equivalents) of 4,000 shares. As of the date of this proxy statement, the targeted ownership level has been met by all but one director who, having joined the Board of Directors in 2004 has until 2009 to meet the target level.

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The following table sets forth the compensation earned during 2005 by each individual who served as an outside director during 2005.

(1)                         Effective April 3, 2006, the following individuals were appointed to the Board of Directors of Duke Energy Corporation in connection with the merger with Cinergy Corp.: Michael G. Browning, Phillip R. Cox, James E. Rogers, Mary L. Schapiro and Dudley S. Taft. In addition, Messrs. Barnet and Hance joined the Board of Directors in 2005 and Messrs. Brown and Linbeck retired from the Board of Directors in 2005.

(2)                         Mr. Esrey received an overpayment of $45 for his 2005 compensation. Mr. Esrey’s 2006 compensation has been reduced by the amount of this overpayment.

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PROPOSAL 2: APPROVAL OF the DUKE ENERGY CORPORATION 2006 LONG-TERM INCENTIVE PLAN

Introduction

The Board of Directors of Duke Energy considers equity-based compensation an essential tool to attract, motivate and retain our officers, key employees and directors and to align their interests with the interests of our shareholders. Consistent with this view, on August 29, 2006 the Board of Directors unanimously adopted, subject to the approval of Duke Energy’s shareholders at the annual meeting, the Duke Energy Corporation 2006 Long-Term Incentive Plan (the “2006 Plan”). The 2006 Plan will maintain the flexibility that we need to keep pace with our competitors and effectively attract, motivate and retain the caliber of employees and directors essential to our success.

Duke Energy has historically granted equity awards under various plans, including the Duke Energy Corporation 1998 Long-Term Incentive Plan, as amended, and the Cinergy Corp. 1996 Long-Term Incentive Compensation Plan, as amended (the “Prior Plans”). If approved by our shareholders, the 2006 Plan will become effective and no further awards will be made under the Prior Plans. Awards granted under the Prior Plans prior to shareholder approval of the 2006 Plan will remain outstanding in accordance with their terms.

The following is a summary of the 2006 Plan. The full text of the 2006 Plan has been filed as an appendix to this Proxy Statement and is available on the SEC’s website at www.sec.gov.

Our shareholders are asked to approve the 2006 Plan to qualify stock options for treatment as incentive stock options for purposes of Section 422 of the Internal Revenue Code, to qualify certain compensation under the 2006 Plan as performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code, and to satisfy New York Stock Exchange guidelines relating to equity compensation.

Plan Highlights

The 2006 Plan authorizes the grant of equity-based compensation to our key employees and non-employee directors in the form of stock options, stock appreciation rights, restricted shares, performance shares, performance units, phantom stock, stock bonuses and dividend equivalents.

In designing the 2006 Plan, we have incorporated a number of key features in the plan, which we believe demonstrates our commitment to effectively managing our equity compensation program and protecting the interests of our shareholders. Some of these key features are highlighted below and are more fully described under the heading “Summary of the Plan.”

·              If approved by our shareholders, the 2006 Plan will become effective and no further awards will be made under the Prior Plans. Awards granted under the Prior Plans prior to shareholder approval of the 2006 Plan will remain outstanding in accordance with their terms.

·              The 2006 Plan contains a fungible share limit, which means that so-called “full value awards” such as restricted shares, performance awards, phantom stock, dividend

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equivalents paid in the form of Duke Energy common stock and stock bonuses are counted against the 60,000,000 share reserve as four shares for every one share that is issued in connection with such award. The result is that only up to 15,000,000 shares may be issued as full value awards.

·              The 2006 Plan imposes certain sub-limits on awards granted to any one individual during any one calendar year. As a result, no individual may be granted, during any calendar year: (i) stock options covering more than 3,000,000 shares, (ii) stock appreciation rights covering more than 3,000,000 shares of Duke Energy common stock, (iii) restricted shares covering more than 600,000 shares of Duke Energy common stock, (iv) performance units paying a maximum amount of more than $3,750,000 or (v) performance shares covering more than 600,000 shares of Duke Energy common stock.

·              The 2006 Plan does not permit what has been labeled by some shareholder groups as “liberal share counting” when determining the number of shares that have been granted. Only awards that are cancelled, forfeited or which are paid in cash can be added back to the 60,000,000 share reserve.

·              Stock options and stock appreciation rights must be granted with an exercise price or base price at least equal to the fair market value of a share of Duke Energy’s common stock on the date of grant. In other words, the 2006 Plan prohibits the use of “discounted” stock options or stock appreciation rights.

·              The repricing of stock options and stock appreciation rights is prohibited without shareholder approval.

·              The 2006 Plan is designed to allow awards made under the plan to qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code.

Summary of the Plan

Reservation of Shares.   Duke Energy has reserved, subject to shareholder approval of the 2006 Plan, 60,000,000 shares of common stock for issuance under the 2006 Plan, which may include authorized but unissued shares, treasury shares, or a combination thereof. Shares of common stock that are issued in connection with all awards other than stock options and stock appreciation rights shall be counted against the 60,000,000 limit described above as four shares of common stock for every one share of common stock that is issued in connection with an award.

Shares covered by an award granted under the 2006 Plan shall not be counted as used unless and until they are actually issued and delivered to a participant. Shares covering awards that expire, are forfeited or are cancelled will again be available for issuance under the 2006 Plan, and upon payment in cash of the benefit provided by any award granted under the 2006 Plan, any shares that were covered by that award will be available for issue under the 2006 Plan. However, the following shares of common stock will not be added back to the aggregate plan limit described above: (1) shares tendered in payment of the option price of a stock option; (2) shares withheld by Duke Energy to satisfy the tax withholding obligation; and (3) shares that are repurchased by Duke Energy in connection with the exercise of a stock option granted under the 2006 Plan. Moreover, all shares of Duke Energy common stock covered by a stock appreciation right, to the extent that it is exercised and settled in shares, and whether or not shares are actually issued to the participant upon exercise of the right, shall be considered issued or transferred pursuant to the 2006 Plan.

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In addition to the aggregate limit on awards described above, the 2006 Plan imposes various sub-limits on the number of shares of Duke Energy common stock that may be issued or transferred thereunder. In order to comply with the rules applicable to incentive stock options, the 2006 Plan provides that the aggregate number of shares of Duke Energy common stock actually issued or transferred upon the exercise of incentive stock options may not exceed 60,000,000 shares. In order to comply with the exemption from Section 162(m) of the Internal Revenue Code relating to performance-based compensation, the 2006 Plan imposes the following additional sub-limits on awards granted to any one individual during any calendar year: (i) stock options covering more than 3,000,000 shares, (ii) stock appreciation rights covering more than 3,000,000 shares of Duke Energy common stock, (iii) restricted shares covering more than 600,000 shares of Duke Energy common stock, (iv) performance units paying a maximum amount of more than $3,750,000 or (v) performance shares covering more than 600,000 shares of Duke Energy common stock.

The maximum number of shares of Duke Energy common stock which may be awarded under the 2006 Plan and the various sub-limits described above are subject to adjustment in the event of any merger, consolidation, liquidation, issuance of rights or warrants to purchase securities, recapitalization, reclassification, stock dividend, spin-off, split-off, stock split, reverse stock split or other distribution with respect to the shares of common stock, or any similar corporate transaction or event in respect of the common stock.

Administration.   The 2006 Plan will be administered by the Compensation Committee. Subject to the limitations set forth in the 2006 Plan, the Compensation Committee has the authority to determine the persons to whom awards are granted, the types of awards to be granted, the time at which awards will be granted, the number of shares, units or other rights subject to each award, the exercise, base or purchase price of an award (if any), the time or times at which the award will become vested, exercisable or payable, the performance criteria, performance goals and other conditions of an award, and the duration of the award. The Compensation Committee may provide for the acceleration of the vesting or exercise period of an award at any time prior to its termination or upon the occurrence of specified events. With the consent of the affected participant, the Compensation Committee has the authority to cancel and replace awards previously granted with new awards for the same or a different number of shares and for the same or different exercise or base price and may amend the terms of any outstanding award, provided that the Compensation Committee shall not have the authority to reduce the exercise or base price of an award by amendment or cancellation and substitution of an existing award without approval of Duke Energy’s shareholders. The Compensation Committee shall have the right, from time to time, to delegate to one or more officers or directors of Duke Energy the authority to grant and determine the terms and conditions of awards under the 2006 Plan, subject to such limitations as the Compensation Committee shall determine. With respect to awards granted under the 2006 Plan to non-employee members of the Board of Directors, all rights, powers and authorities vested in the Compensation Committee under the 2006 Plan shall instead be exercised by the Board of Directors.

Eligibility.   All key employees of Duke Energy and its subsidiaries (or any person who has agreed to serve in such capacity) and all non-employee directors are eligible to be granted awards under the 2006 Plan, as selected from time to time by the Compensation Committee in its sole discretion. Accordingly, currently approximately 700 employees and 13 non-employee directors are eligible for awards under the 2006 Plan.

Stock Options.   The 2006 Plan authorizes the grant of nonqualified stock options and incentive stock options. Nonqualified stock options may be granted to employees and non-employee directors.

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Incentive stock options may only be granted to employees. The exercise price of an option may be determined by the Compensation Committee, provided that the exercise price per share of an option may not be less than the fair market value of a share of Duke Energy’s common stock on the date of grant (which date may not be earlier than the date that the Compensation Committee takes action with respect thereto). The fair market value of a share of Duke Energy’s common stock as reported on the New York Stock Exchange on August 25, 2006 was $29.45. The value of common stock (determined at the date of grant) that may be subject to incentive stock options that become exercisable by any one employee in any one year is limited to $100,000. The maximum term of stock options granted under the 2006 Plan is ten years from the date of grant. The Compensation Committee shall determine the extent to which an option shall become and/or remain exercisable in the event of termination of employment or service of a participant under certain circumstances, including retirement, death or disability, subject to certain limitations for incentive stock options. Under the 2006 Plan, the exercise price of an option is payable by the participant (i) in cash, (ii) in the discretion of the Compensation Committee, in shares of common stock that are already owned by the option holder and have a value at the time of exercise equal to the option price, (iii) in the discretion of the Compensation Committee, from the proceeds of sale through a broker on the date of exercise of some or all of the shares of common stock to which the exercise relates, (iv) in the discretion of the Compensation Committee, by withholding from delivery shares of common stock for which the option is otherwise exercised, or (v) by any other method approved of by the Compensation Committee. Nonqualified stock options granted under the 2006 Plan are intended to qualify for exemption under section 162(m) of the Internal Revenue Code.

Stock Appreciation Rights.   The 2006 Plan authorizes the grant of awards of stock appreciation rights. A stock appreciation right may be granted either in tandem with an option or without relationship to an option. A stock appreciation right entitles the holder, upon exercise, to receive a payment based on the difference between the base price of the stock appreciation right and the fair market value of a share of Duke Energy common stock on the date of exercise, multiplied by the number of shares as to which such stock appreciation right will have been exercised. A stock appreciation right granted in tandem with an option will have a base price per share equal to the per share exercise price of the option, will be exercisable only at such time or times as the related option is exercisable and will expire no later than the time when the related option expires. Exercise of the option or the stock appreciation right as to a number of shares results in the cancellation of the same number of shares under the tandem right. A stock appreciation right granted without relationship to an option will be exercisable as determined by the Compensation Committee, but in no event after ten years from the date of grant. The base price assigned to a stock appreciation right granted without relationship to an option shall not be less than 100% of the fair market value of a share of Duke Energy’s common stock on the date of grant (which date may not be earlier than the date that the Compensation Committee takes action with respect thereto). Stock appreciation rights are payable in cash, in shares of common stock, or in a combination of cash and shares of common stock, in the discretion of the Compensation Committee. Stock appreciation rights granted under the 2006 Plan are intended to qualify for exemption under section 162(m) of the Internal Revenue Code.

Performance Awards.   The 2006 Plan authorizes the grant of performance awards, which are units denominated on the date of grant either in shares of common stock (“performance shares”) or in specified dollar amounts (“performance units”). Performance awards are payable upon the achievement of performance criteria established by the Compensation Committee at the beginning of the performance period, which may not exceed ten years from the date of grant. At the time of grant, the Compensation Committee establishes the number of units, the duration of the performance period or periods, the applicable performance criteria, and, in the case of performance units, the target unit value or range of unit values for the performance awards. At the end of the performance period, the

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Compensation Committee determines the payment to be made based on the extent to which the performance goals have been achieved. Performance awards are payable in cash, in shares of common stock, or in a combination of cash and shares of common stock, in the discretion of the Compensation Committee.

The Compensation Committee may grant performance awards that are intended to qualify for exemption under section 162(m) of the Internal Revenue Code, as well as performance awards that are not intended to so qualify. The performance criteria for a section 162(m) qualified award, which may relate to Duke Energy, any subsidiary, any business unit or any participant, and may be measured on an absolute or relative to peer group or other market measure basis, shall be limited to total shareholder return; stock price increase; return on equity; return on capital; earnings per share; EBIT (earnings before interest and taxes); EBITDA (earnings before interest, taxes, depreciation and amortization); ongoing earnings; cash flow (including operating cash flow, free cash flow, discounted cash flow return on investment, and cash flow in excess of costs of capital); EVA (economic value added); economic profit (net operating profit after tax, less a cost of capital charge); SVA (shareholder value added); revenues; net income; operating income; pre-tax profit margin; performance against business plan; customer service; corporate governance quotient or rating; market share; employee satisfaction; safety; employee engagement; supplier diversity; workforce diversity; operating margins; credit rating; dividend payments; expenses; fuel cost per million BTU; costs per kilowatt hour; retained earnings; completion of acquisitions, divestitures and corporate restructurings; and individual goals based on objective business criteria underlying the goals listed above and which pertain to individual effort as to achievement of those goals or to one or more business criteria in the areas of litigation, human resources, information services, production, inventory, support services, site development, plant development, building development, facility development, government relations, product market share or management. In the case of a performance award that is not intended to qualify for exemption under Section 162(m) of the Internal Revenue Code, the Compensation Committee shall designate performance criteria from among the foregoing or such other business criteria as it shall determine it its sole discretion.

Restricted Stock Awards.   The 2006 Plan authorizes the grant of awards of restricted stock. An award of restricted stock represents shares of common stock that are issued subject to such restrictions on transfer and on incidents of ownership and such forfeiture conditions as the Compensation Committee deems appropriate. The restrictions imposed upon an award of restricted stock will lapse in accordance with the vesting requirements specified by the Compensation Committee in the award agreement. Such vesting requirements may be based on the continued employment of the participant for a specified time period (not less than one year) or on the attainment of specified business goals or performance criteria established by the Compensation Committee. The Compensation Committee may, in connection with an award of restricted stock, require the payment of a specified purchase price. Subject to the transfer restrictions and forfeiture restrictions relating to the restricted stock award, the participant will otherwise have the rights of a shareholder of Duke Energy, including all voting and dividend rights, during the period of restriction unless the Compensation Committee determines otherwise at the time of the grant. The Compensation Committee may grant awards of restricted stock that are intended to qualify for exemption under section 162(m) of the Internal Revenue Code, as well as awards that are not intended to so qualify. An award of restricted stock that is intended to qualify for exemption under section 162(m) shall have its vesting requirements limited to the performance criteria described above under the heading “Performance Awards.”

Phantom Stock.   The 2006 Plan authorizes the grant of awards of phantom stock. An award of phantom stock gives the participant the right to receive payment at the end of a fixed vesting period based on the value of a share of Duke Energy’s common stock at the time of vesting. No vesting

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period shall exceed ten years from the date of grant. Phantom stock units are subject to such restrictions and conditions to payment as the Compensation Committee determines are appropriate. Phantom stock awards are payable in cash or in shares of common stock having an equivalent fair market value on the applicable vesting dates, or in a combination thereof, in the discretion of the Compensation Committee.

Stock Bonus.   The 2006 Plan authorizes the grant of stock bonuses. A stock bonus represents a specified number of shares of common stock that are issued without restrictions on transfer or forfeiture conditions. The Compensation Committee may require the payment of a specified purchase price for a stock bonus.

Dividend Equivalents.   The 2006 Plan authorizes the grant of awards of dividend equivalents. Dividend equivalent awards entitle the holder to a right to receive cash payments determined by reference to dividends declared on Duke Energy common stock during the term of the award, which shall not exceed ten years from the date of grant. Dividend equivalent awards may be granted on a stand-alone basis or in tandem with other awards under the 2006 Plan. Dividend equivalent awards granted on a tandem basis with other awards shall expire at the time the underlying award is exercised, otherwise becomes payable, or expires. Dividend equivalent awards are payable in cash or in shares of Duke Energy’s common stock, as determined by the Compensation Committee.

Change in Control.   The Compensation Committee may provide for the effect of a “change in control” (as defined in the 2006 Plan or in an award agreement granted thereunder) on an award granted under the 2006 Plan. Such provisions may include (i) the acceleration or extension of time periods for purposes of exercising, vesting in, or realizing gain from an award, (ii) the waiver or modification of performance or other conditions related to payment or other rights under an award, (iii) providing for the cash settlement of an award, or (iv) such other modification or adjustment to an award as the Compensation Committee deems appropriate to maintain and protect the rights and interests of participants upon or following the change in control.

Adjustments to Awards.   In the event of any merger, consolidation, liquidation, issuance of rights or warrants to purchase securities, recapitalization, reclassification, stock dividend, spin-off, split-off, stock split, reverse stock split or other distribution with respect to the shares of common stock, or any similar corporate transaction or event in respect of the common stock, then the Compensation Committee shall, in the manner and to the extent that it deems appropriate and equitable to the participants and consistent with the terms of the 2006 Plan, cause a proportionate adjustment to be made in the number and kind of shares of common stock, share units, or other rights subject to the then-outstanding awards, the price for each share or unit or other right subject to then outstanding awards without change in the aggregate purchase price or value as to which such awards remain exercisable or subject to restrictions, the performance targets or goals appropriate to any outstanding performance awards (subject to such limitations as appropriate for awards intended to qualify for exemption under Section 162(m) of the Internal Revenue Code) or any other terms of an award that are affected by the event. Moreover, in the event of any such transaction or event, the Compensation Committee, in its discretion, may provide in substitution for any or all outstanding awards under the 2006 Plan such alternative consideration (including cash) as it, in good faith, may determine to be equitable under the circumstances and may require in connection therewith the surrender of all awards so replaced.

Transferability of Awards.   In general, awards granted under the 2006 Plan will not be transferable by a participant other than by will or the laws of descent and distribution, and during the lifetime

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of a participant the awards shall be exercised by, or paid to, only such participant or by his guardian or legal representative. However, the Compensation Committee may provide in the terms of an award agreement that the participant shall have the right to designate a beneficiary or beneficiaries who shall be entitled to any rights, payments or other specified benefits under an award following the participant’s death. Moreover, to the extent permitted by the Compensation Committee, nonqualified stock options may be transferred to members of a participant’s immediate family, to certain other entities which are owned or controlled by members of a participant’s immediate family, or to any other persons or entities.

Non-United States Participants.   The Compensation Committee may provide for such special terms for awards to participants who are foreign nationals, who are employed by Duke Energy or any subsidiary outside of the United States or who provide services to Duke Energy under an agreement with a foreign nation or agency, as the Compensation Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Compensation Committee may approve such supplements to, or amendments, restatements or alternative versions of, the 2006 Plan as it may consider necessary or appropriate for such purposes. However, no such special terms, supplements, amendments or restatements shall include any provisions that are inconsistent with the terms of the 2006 Plan unless it could have been amended to eliminate such inconsistency without further approval by Duke Energy’s shareholders.

Term and Amendment.   The 2006 Plan has a term of ten years, subject to earlier termination or amendment by the Board of Directors. To the extent permitted under applicable laws and rules, the Board of Directors may amend the 2006 Plan at any time, except that shareholder approval is required for amendments that would change the persons eligible to participate in the 2006 Plan, increase the number of shares of common stock reserved for issuance under the 2006 Plan, allow the grant of stock options or stock appreciation rights at an exercise price below fair market value, or allow the repricing of stock options or stock appreciation rights without shareholder approval.

Federal Income Tax Consequences

The following is a general summary of the United States federal income tax consequences to participants and Duke Energy relating to awards that may be granted under the 2006 Plan. This summary is not intended to be complete and does not describe state, local, foreign or other tax consequences.

A participant will not recognize income upon the grant of a nonqualified stock option to purchase shares of common stock. Upon exercise of the option, the participant will recognize ordinary compensation income equal to the excess of the fair market value of the shares of common stock on the date the option is exercised over the exercise price for such shares. Duke Energy generally will be entitled to a deduction equal to the amount of ordinary compensation income recognized by the participant. The deduction will be allowed at the same time the participant recognizes the income.

A participant will not recognize income upon the grant of an incentive stock option to purchase shares of common stock and will not recognize income upon exercise of the option, provided the participant was an employee of Duke Energy or a subsidiary at all times from the date of grant until three months prior to exercise. Where a participant who has exercised an incentive stock option sells the shares of common stock acquired upon exercise more than two years after the grant date and more than one year after exercise, capital gain or loss will be recognized equal to the difference between

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the sales price and the exercise price. A participant who sells such shares of common stock within two years after the grant date or within one year after exercise will recognize ordinary compensation income in an amount equal to the lesser of the difference between (a) the exercise price and the fair market value of such shares on the date of exercise, or (b) the exercise price and the sales proceeds. Any remaining gain or loss will be treated as a capital gain or loss. Duke Energy generally will be entitled to a deduction equal to the amount of ordinary compensation income recognized by the optionee in this case. The deduction will be allowable at the same time the participant recognizes the income.

The federal income tax consequences of other awards authorized under the 2006 Plan are generally in accordance with the following: stock appreciation rights are subject to taxation in substantially the same manner as nonqualified stock options; restricted stock subject to a substantial risk of forfeiture results in income recognition in an amount equal to the excess of the fair market value of the shares of common stock over the purchase price (if any) only at the time the restrictions lapse (unless the recipient elects to accelerate recognition as of the date of grant); performance awards, phantom stock and dividend equivalents are generally subject to tax, as ordinary compensation income, at the time of payment. Stock bonuses are generally subject to tax, as ordinary compensation income, on the date of grant. In each of the foregoing cases, Duke Energy will generally have a corresponding deduction at the same time the participant recognizes income.

The American Jobs Creation Act of 2004, enacted on October 22, 2004, revised the federal income tax law applicable to certain types of awards that may be granted under the 2006 Plan. To the extent applicable, it is intended that the 2006 Plan and any awards granted under the 2006 Plan comply with the provisions of this new law, which are contained in Section 409A of the Internal Revenue Code. The 2006 Plan and any awards granted under the 2006 Plan will be administered in a manner consistent with this intent, and any provision of the 2006 Plan that would cause the 2006 Plan or any award granted under the 2006 Plan to fail to satisfy Section 409A shall have no force and effect until amended to comply with such Code Section (which amendment may be retroactive to the extent permitted by applicable law).

Registration with the SEC

Duke Energy intends to file a Registration Statement on Form S-8 relating to the issuance of shares of common stock under the 2006 Plan with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, as soon as is practicable after approval of the 2006 Plan by Duke Energy’s shareholders.

Plan Benefits

It is not possible to determine specific amounts and types of awards that may be awarded in the future under the 2006 Plan because the grant of awards under the 2006 Plan is discretionary.

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Current Equity Compensation Plan Information

The following table sets forth information, as of December 31, 2005, about securities to be issued upon exercise of outstanding options, warrants and rights under Duke Energy’s equity compensation plans, along with the weighted-average exercise price of the outstanding options, warrants and rights and the number of securities remaining available for future issuance under the plans.

(1)                         Duke Energy has not granted any warrants or rights under any equity compensation plans. Amounts do not include 1,063,999 outstanding options with a weighted average exercise price of $25.28 assumed in connection with various mergers and acquisitions. Does not include shares of Duke Energy common stock to be issued upon exercise of outstanding options, warrants and rights granted by Cinergy prior to the April 3, 2006 merger date and outstanding immediately following April 3, 2006.

(2)                         Does not include 5,457,788 shares of Duke Energy common stock to be issued upon vesting, if shares vest, of phantom stock and performance share awards outstanding as of December 31, 2005.

(3)                         Includes 4,701,521 shares remaining available for issuance for awards of restricted stock, performance shares or phantom stock under the Duke Energy Corporation 1998 Long-Term Incentive Plan.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE DUKE ENERGY CORPORATION 2006 LONG-TERM INCENTIVE PLAN.

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PROPOSAL 3: RATIFICATION OF DELOITTE & TOUCHE LLP AS DUKE ENERGY’S INDEPENDENT PUBLIC ACCOUNTANT FOR 2006

Independent Public Accountants

Representatives of Deloitte are expected to be present at the annual meeting. They will have an opportunity to make a statement, if they desire to do so, and will be available to respond to appropriate questions. Information on Deloitte’s fees for services rendered in 2004 and 2005 follows.

(a)                         Audit Fees are fees billed or expected to be billed by Deloitte for professional services for the audit of Duke Energy’s consolidated financial statements included in Duke Energy’s annual report on Form 10-K and review of financial statements included in Duke Energy’s quarterly reports on Form 10-Q, services that are normally provided by Deloitte in connection with statutory, regulatory or other filings or engagements or any other service performed by Deloitte to comply with generally accepted auditing standards and include comfort and consent letters in connection with SEC filings and financing transactions.

(b)                        Audit-Related Fees are fees billed by Deloitte for assurance and related services that are reasonably related to the performance of an audit or review of Duke Energy’s financial statements, including assistance with acquisitions and divestitures, internal control reviews, employee benefit plan audits and general assistance with the implementation of the SEC rules pursuant to the Sarbanes-Oxley Act.

(c)                         Tax Fees are fees billed by Deloitte for tax return assistance and preparation, tax examination assistance, and professional services related to tax planning and tax strategy.

(d)                        All Other Fees are fees billed by Deloitte for any services not included in the first three categories, primarily translation of audited financials into foreign languages, accounting training and conferences.

To safeguard the continued independence of the independent public accountant, the Audit Committee adopted a policy that provides that the independent public accountants are only permitted to provide services to Duke Energy and its subsidiaries that have been pre-approved by the Audit Committee. Pursuant to the policy, detailed audit services, audit-related services, tax services and certain other services have been specifically pre-approved up to certain fee limits. In the event that the cost of any of these services may exceed the pre-approved limits, the Audit Committee must pre-approve the service. All other services that are not prohibited pursuant to the SEC’s or other applicable regulatory bodies’ rules or regulations must be specifically pre-approved by the Audit Committee. All services performed in 2005 by the independent public accountant were approved by the Audit Committee pursuant to its pre-approval policy.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF DELOITTE & TOUCHE LLP AS DUKE ENERGY’S INDEPENDENT PUBLIC ACCOUNTANT FOR 2006.

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Security Ownership of Certain Beneficial Owners and Management

The following table indicates the amount of Duke Energy common stock beneficially owned by the directors, the executive officers listed in the Summary Compensation Table under “Executive Compensation” below (referred to as the Named Executive Officers), and by all directors and executive officers as a group as of August 25, 2006, the record date.

*                                 Represents less than 1%.

(1)                         Includes the following number of shares with respect to which directors and executive officers have the right to acquire beneficial ownership within sixty days of the record date: R. Agnelli – 0; P.M. Anderson – 733,334; W. Barnet, III – 36; G.A. Bernhardt, Sr. – 17,200; M.G. Browning – 5,342; P.R. Cox – 5,342; W.T. Esrey – 41,687; F.J. Fowler – 1,014,616; A.M. Gray – 46,043; J.H. Hance, Jr. – 0; D.L. Hauser – 187,816; D.R. Hendrix – 8,000; J.W. Mogg – 410,488; M.E.J. Phelps – 8,751; J.T. Rhodes – 6,924; J.E. Rogers – 1,013,637; M.L. Schapiro – 39,080; R.G. Shaw – 590,600; D.S. Taft – 15,600; and all directors and executive officers as a group – 4,900,052

(2)                         Mr. Hendrix disclaims beneficial ownership of 20,895 shares.

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The following table lists the beneficial owners of 5% or more of Duke Energy’s outstanding shares of common stock as of December 31, 2005. This information is based on the most recently available reports filed with the SEC and provided to us by the companies listed.

(1)                         According to its Schedule 13G, Capital Research and Management Company is the beneficial owner as a result of acting as investment adviser to various investment companies, and has no voting power or sole dispositive power with respect to these shares.

(2)                         According to the Schedule 13G filed by Dodge & Cox, these shares are beneficially owned by its clients, and Dodge & Cox has sole voting power with respect to 49,615,836 shares, shared voting power with respect to 735,200 shares, and sole dispositive power with respect to all of these shares.

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Report of the Audit Committee

The following is the report of the Audit Committee with respect to Duke Energy’s audited financial statements for the fiscal year ended December 31, 2005.

The purpose of the Audit Committee is to assist the Board in its general oversight of Duke Energy’s financial reporting, internal controls and audit functions. The Audit Committee Charter describes in greater detail the full responsibilities of the Committee and is available on our website at www.duke-energy.com/investors/governance.

The Audit Committee has reviewed and discussed the consolidated financial statements with management and Deloitte & Touche LLP, (“Deloitte”) the Company’s independent public accountants. Management is responsible for the preparation, presentation and integrity of Duke Energy’s financial statements; accounting and financial reporting principles; establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)); establishing and maintaining internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)); evaluating the effectiveness of disclosure controls and procedures; evaluating the effectiveness of internal control over financial reporting; and, evaluating any change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting. Deloitte is responsible for performing an independent audit of the consolidated financial statements and expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in the United States of America, as well as expressing an opinion on (i) management’s assessment of the effectiveness of internal control over financial reporting and (ii) the effectiveness of internal control over financial reporting.

We reviewed with management and Deloitte, the Company’s audited financial statements, and met separately with both management and Deloitte to discuss and review those financial statements and reports prior to issuance. These discussions also addressed the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. Management has represented, and Deloitte has confirmed, to us that the financial statements were prepared in accordance with generally accepted accounting principles.

In addition, management completed the documentation, testing and evaluation of Duke Energy’s system of internal control over financial reporting in response to the requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations. The Audit Committee was kept apprised of the progress of the evaluation and provided oversight and advice to management during the process. In connection with this oversight, the Audit Committee received periodic updates provided by management and Deloitte at each regularly scheduled Committee meeting. At the conclusion of the process, management provided the Audit Committee with, and the Audit Committee reviewed, a report on the effectiveness of the Company’s internal control over financial reporting. The Audit Committee also reviewed the report of management contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (“Form 10-K”) filed with the SEC, as well as Deloitte’s Report of Independent Registered Public Accounting Firm included in the Company’s Form 10-K related to its audit of (i) the consolidated financial statements and financial statement schedule, (ii) management’s assessment of the effectiveness of internal control over financial reporting, and (iii) the effectiveness of internal control over financial reporting. The Audit Committee

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continues to oversee the Company’s efforts related to its internal control over financial reporting and management’s preparations for the evaluation in fiscal 2006.

The Audit Committee has discussed with Deloitte the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, “Communication with Audit Committees” and PCAOB Auditing Standard No. 2, “An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements.” In addition, Deloitte has provided the Audit Committee with the written disclosures and the letter required by the Independence Standards Board Standard No. 1, as amended, “Independence Discussions with Audit Committees,” that relates to Deloitte’s independence from Duke Energy and its subsidiaries and the Audit Committee has discussed with Deloitte the firm’s independence.

Based on its review of the consolidated financial statements and discussions with and representations from management and Deloitte referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in Duke Energy’s Form 10-K, for filing with the SEC.

	Audit Committee
	William T. Esrey (Chair)
	William Barnet, III
	G. Alex Bernhardt, Sr.
	James T. Rhodes

 

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Report of the Compensation Committee

The Committee’s Responsibilities

The Compensation Committee of the Board of Directors is composed entirely of non-employee directors, all of whom are independent under the currently applicable standards of the New York Stock Exchange. The Compensation Committee is responsible for setting and administering policies which govern Duke Energy’s executive compensation programs. The purpose of this report is to summarize the compensation philosophy and policies that the Compensation Committee applied in making executive compensation decisions in 2005.

Compensation Philosophy

The Compensation Committee has approved compensation programs intended to:

·           Attract and retain talented executive officers and key employees by providing total compensation competitive with that of other executives and key employees employed by companies of similar size, complexity and lines of business;

·           Motivate executives and key employees to achieve strong financial and operational performance;

·           Emphasize performance-based compensation, which balances rewards for short-term and long-term results;

·           Reward individual performance;

·           Link the interests of executives with shareholders by providing a significant portion of total pay in the form of stock-based incentives and requiring target levels of stock ownership; and

·           Encourage long-term commitment to Duke Energy.

Stock Ownership Guidelines

To underscore the importance of linking executive and shareholder interests, Duke Energy has adopted stock ownership guidelines for executive officers and all key employees who are eligible to receive long-term incentive awards. To reinforce the importance of stock ownership, the Compensation Committee has implemented a policy whereby employees subject to the guidelines who do not achieve their ownership target by their target ownership date may elect to deposit any annual cash payouts under short-term incentive plans into an account and apply such deposits to purchase shares of Duke Energy common stock until their target ownership level is achieved. Those employees who make such election but do not retain the purchased shares, and those who do not make such election, become ineligible for future long-term incentive awards until they demonstrate that they have otherwise achieved and maintained their target ownership level. Employees who fail to maintain their

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ownership target following initial achievement become ineligible for future long-term incentive awards until such time as they again meet the ownership target. As of December 31, 2005, the stock ownership guidelines were as follows:

 

Each employee subject to the guidelines is expected to achieve the ownership target within five years from the date on which the employees became subject to the guideline. All executive officers whose stock ownership guideline target date was on or before December 31, 2005, have met the ownership target.

Compensation Methodology

Each year the Compensation Committee reviews data from market surveys, proxy statements and independent consultants to assess Duke Energy’s competitive position with respect to the following three components of executive compensation:

·           base salary;

·           annual incentives; and

·           long-term incentive compensation.

The Compensation Committee also considers individual performance, level of responsibility, skills and experience, internal comparisons and other existing compensation awards or arrangements in making compensation decisions for each executive. Decisions regarding adjustments to each of the above three components of executive compensation are made simultaneously (generally in December), concurrent with initial assessments of the executives’ performance for the current year. Adjustments generally become effective January 1 of the following year. The Chief Executive Officer’s performance and compensation is discussed in “Compensation of the Chief Executive Officer” below.

In making compensation decisions, the Compensation Committee reviews a variety of market surveys for each executive position, where available, in order to ensure that its compensation actions are appropriate and reasonable and consistent with its philosophy, considering the various markets in which Duke Energy competes for talent. The market surveys reviewed by the Compensation Committee consist of energy services industry data, which includes many of the companies included in the Dow Jones utility index used in the “Performance Graph” below, and general industry data, which includes companies similar in size to Duke Energy across a variety of industries. Additionally, the Compensation Committee reviews special market surveys for certain operations positions for which data is not found in energy services or general industry surveys. The Compensation Committee does not limit its analysis to survey data relating to the Dow Jones utility index used in the “Performance Graph” because the use of data applicable to the most relevant talent pool (i.e., energy services industry data and/or general industry and special market data) allows it to more precisely tailor

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compensation packages to the demands of the market. In accordance with its compensation philosophy, the Compensation Committee believes that executives’ interests are better aligned with shareholders when significant portions of total pay are provided in the form of long-term incentives. Accordingly, the proportion of the 2005 total annual pay opportunity for Messrs. Fowler, Mogg and Hauser and Dr. Shaw provided in the form of stock-based long-term incentives was approximately 60 percent, which is generally in alignment with general industry survey benchmarks, as compared to lower proportions in the energy services industry. In addition, as discussed in more detail in “Employment Contracts and Termination of Employment and Change-in-Control Arrangements” under “Executive Compensation” below, Messrs. Anderson and Rogers are both compensated substantially in the form of stock-based compensation which also is intended to align their interests with the interests of Duke Energy’s shareholders and other stakeholders.

Components of Compensation

Base Salary:   Base salaries for executives are determined based upon job responsibilities, level of experience, individual performance, comparisons to the salaries of executives in similar positions obtained from market surveys and internal comparisons. The goal for the base salary component is to compensate executives at a level that approximates the median salaries of individuals in comparable positions and markets. The Compensation Committee approves all salary increases for executive officers. Base salary increases were approved, effective January 1, 2005, for Messrs. Fowler, Mogg and Hauser and Dr. Shaw. Mr. Anderson does not receive a base salary, and Mr. Rogers was not employed by Duke Energy in 2005.

Annual Incentives:   Annual cash incentives are provided to executives to promote the achievement of performance objectives of Duke Energy and an executive’s particular business unit. In 2005, the Compensation Committee administered the Duke Energy Corporation Executive Short-Term Incentive Plan (the “STI Plan”), which provides for the award of annual cash incentives to executive officers, including all of the Named Executive Officers except Messrs. Anderson and Rogers who did not participate in the STI Plan. Target incentive opportunities for executives under the plan are established as a percentage of base salary, using survey data for individuals in comparable positions and markets and internal comparisons. Incentive amounts are intended to provide total cash compensation at the market median for individuals in comparable positions and markets when target performance is achieved and above the market median when outstanding financial and operational results are achieved. Target incentive opportunities for 2005 as a percentage of base salary for Messrs. Fowler, Mogg and Hauser and Dr. Shaw were 90%, 80%, 80% and 75%, respectively.

During the first quarter of 2005, the Subcommittee for Performance Based Compensation established threshold, target and maximum performance for the Named Executive Officers (other than Messrs. Anderson and Rogers who did not participate in this program in 2005) associated with financial measures and individual objectives, which consisted of a combination of strategic and operational measures. Depending on performance, participating Named Executive Officers could receive up to 190% of their short-term incentive targets. The financial measures were based upon Duke Energy’s ongoing basic earnings per share as defined in Duke Energy’s 2005 earnings releases (EPS) and return on capital employed (ROCE). In addition, Dr. Shaw had financial measures associated with Duke Power’s earnings before interest and taxes (EBIT), ROCE and cash flow. The financial goals were established consistent with Duke Energy’s 2005 financial plan but excluded certain potential transactions contemplated in the financial plan that the Compensation Committee did not consider to be representative of ongoing operations. In the third quarter of 2005, the Subcommittee for Performance Based Compensation revised the EPS performance target (but not the threshold or maximum

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EPS performance levels) upward following Duke Energy’s announcement of its intent to divest certain assets of Duke Energy North America (DENA).

Performance goals for each participating Named Executive Officer were weighted as follows:

 

To encourage continued focus on safety and to help instill a strong safety culture at Duke Energy, the Compensation Committee structured 2005 short-term incentives to provide that the total of any short-term incentive payments earned by certain executives, including the participating Named Executive Officers, would be reduced by five percent in the event of a fatality of a Duke Energy employee, contractor or sub-contractor during 2005.

Following evaluation of 2005 performance, the Subcommittee for Performance Based Compensation approved payments to Messrs. Fowler, Mogg and Hauser and Dr. Shaw, representing 166%, 173%, 177% and 174% of their respective target awards. In determining the bonuses for Messrs. Fowler, Mogg and Hauser and Dr. Shaw, and in consideration of overall 2005 performance the Subcommittee for Performance Based Compensation exercised its discretion under the STI Plan to reduce award payments calculated in accordance with the 2005 short-term incentive plan formula. Such reductions were in recognition of the positive impact on EPS of a transaction not contemplated when the EPS performance targets were originally established and the fact that it did not adjust the maximum EPS performance target upward as it did for the EPS target when Duke Energy announced its plans to divest of certain DENA assets. The payments to Messrs. Fowler, Mogg and Hauser and Dr. Shaw also reflect a five percent reduction to the total incentive payments, as a result of not achieving a safety goal, that they otherwise earned.

Awards under the STI Plan to executive officers, other than the Named Executive Officers, were determined on the basis of a combination of goals based on the following: (1) EPS, (2) ROCE, (3) EBIT equivalent measures unique to individual business groups, such as interest savings, and (4) individual objectives. Payments ranged from 171% to 177% of target awards. EPS, ROCE, EBIT equivalent goals, if applicable, and individual objectives determined, on average, 52%, 33%, 1% and 14%, respectively, of each executive officer’s bonus, after application of the five percent safety penalty discussed above.

For 2006, the short-term incentive opportunities of the executive officers are based on Duke Energy’s ongoing diluted EPS, as defined in Duke Energy’s 2006 earnings releases, business unit

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financials (EBIT, ROCE) and individual objectives. For executive officers, including the Named Executive Officers, the corporate and business unit financial objectives and individual objectives are weighted 80% and 20%, respectively.

Long-Term Incentive Compensation:   The Compensation Committee structured the 2005 long-term incentive compensation program with the objectives of increasing stock ownership, providing a focus on long-term value creation and enhancing executive retention. Fifty percent (50%) of the value of the 2005 target long-term incentive opportunity of each executive officer, including the Named Executive Officers (other than Messrs. Anderson and Rogers who did not participate in this program in 2005), was awarded under the Duke Energy 1998 Long-Term Incentive Plan in the form of performance shares and 50% was awarded in the form of phantom stock units.

The purpose of such performance shares and phantom stock units is to align compensation directly with increases in shareholder value. The number of performance shares granted was determined by first dividing the portion of target long-term incentive value awarded to executives in the form of performance shares by the fair market value of a share of Duke Energy common stock on the date of grant, then by multiplying the target shares by 125%. The number of performance shares granted in 2005 represents the number of shares that may vest based upon achievement of the performance goal at the maximum level. The number of phantom stock units granted in 2005 was determined by dividing the portion of target long-term incentive value awarded to executives in the form of phantom stock by the fair market value of a share of Duke Energy common stock on the date of grant. The grant of the performance shares is reported in “Long-Term Incentive Plan – Awards in Last Fiscal Year” below, whereas the grant of phantom stock units is reported in the Summary Compensation Table under “Executive Compensation” below.

Target long-term incentive opportunities for executives, including participating Named Executive Officers, are established as a percentage of base salary using survey data for individuals in comparable positions and markets and internal comparisons. In determining target long-term incentive opportunities, the Compensation Committee, or, in some cases, its designee, also considers the grant recipient’s qualitative and quantitative performance, historical stock-based awards, and expectations of the grant recipient’s future performance. The target 2005 long-term incentive opportunities, expressed as a percentage of base salary, for Messrs. Fowler, Mogg and Hauser and Dr. Shaw were 330%, 250%, 250% and 250%, respectively.

One fifth of the 2005 phantom stock award vests on each of the first five anniversaries of the grant date provided the recipient continues to be employed by Duke Energy or his or her employment terminates on account of retirement. If the recipient’s employment terminates as a result of death, disability, or by Duke Energy without cause or as a result of a divestiture, units in the award are prorated to reflect actual service during the installment vesting period and are immediately vested, and any remaining unvested units are forfeited. In the event employment is terminated by Duke Energy without cause within two years following a “change in control” of Duke Energy, all outstanding unvested units will vest. Vesting ceases if, at the time the recipient’s Duke Energy employment terminates, he or she is retirement eligible and subsequently becomes employed by, or otherwise provides service to, a Duke Energy competitor to the detriment of Duke Energy.

The performance shares generally will vest only to the extent that Duke Energy’s total shareholder return (TSR) targets for the three-year period from January 1, 2005 to December 31, 2007 are met as compared with the TSR of a peer group of companies. TSR refers to the change in fair market value over a specified period of time, expressed as a percentage of an initial investment in common

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stock, with dividends reinvested and with the average TSR for the final 30 business days of the period considered the TSR at the end of the period. For this purpose, Duke Energy’s peer group consists of the companies in the S&P 500. The following table illustrates how the performance share payouts directly align participants’ pay to Duke Energy’s performance:

 

Performance shares earned are interpolated for TSR performance between these percentiles. Payment of any shares earned will be made following the determination in early 2008 of the extent to which the performance goal has been achieved, unless an election (to the extent permitted by applicable law) is made by the executive to defer payment of the performance shares until termination of employment. Any shares not earned are forfeited. In addition, following a determination that the performance goal has been achieved, participants will receive a cash payment equal to the amount of cash dividends paid on one share of Duke Energy common stock during the performance period multiplied by the number of performance shares earned, unless an election is made by the executive to defer payment of the performance shares and tandem dividend equivalents until termination of employment. If the recipient’s employment terminates during the performance period as a result of retirement, death, disability, or by Duke Energy without cause or as a result of a divestiture, following determination that the TSR goal has been achieved the number of shares earned will be adjusted to reflect actual service during the performance period. If the recipient’s employment terminates during the performance period for any other reason, all shares in the award will be forfeited. In the event of a “change in control” (as defined in the Duke Energy 1998 Long-Term Incentive Plan) prior to December 31, 2007, achievement of target TSR performance is assumed and the number of shares earned are adjusted to reflect actual service during the performance period prior to the change in control. Vesting ceases if, at the time the recipient’s Duke Energy employment terminates, he or she is retirement eligible, as defined in the award agreement, and subsequent to such termination of employment becomes employed by, or otherwise provides service to, a Duke Energy competitor to the detriment of Duke Energy.

Additional Awards

The Compensation Committee may grant additional short-term or long-term awards to recognize increased responsibilities or special contributions, to attract new hires, to retain executives, or to recognize other special circumstances. In 2006, Duke Energy granted retention awards to several of its executive officers, including Mr. Hauser and Dr. Shaw (see more detail in “Employment Contracts and Termination of Employment and Change-in-Control Agreements” under “Executive Compensation” below).

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Other Programs

Duke Energy also provides its executive officers with life and medical insurance, pension, savings and compensation deferral programs and other benefits that are competitive with market practices. Limited perquisites are also provided based on an executive’s specific role. The Compensation Committee considers all benefits when reviewing the total compensation of the executive officers.

Compensation of the Chief Executive Officer

The Compensation Committee, based upon input from the Corporate Governance Committee regarding the Chief Executive Officer’s performance, reviews and approves annually the compensation of the Chief Executive Officer and informs the Board of Directors of any adjustments or actions. The annual review of the Chief Executive Officer’s performance and compensation is conducted annually to assure thorough consideration of prior year results. In 2005, the Corporate Governance Committee used an independent consultant to conduct a review of Mr. Anderson’s performance, in part for purposes of the Compensation Committee’s determination of the number of shares, if any, that should vest as of December 31, 2005, under Mr. Anderson’s performance share award, as described below.

The employment agreement between Duke Energy and Mr. Anderson (as described in “Employment Contracts and Termination of Employment and Change-in-Control Arrangements” under “Executive Compensation” below) establishes that Mr. Anderson’s compensation will be provided in the form of stock-based compensation in lieu of base salary, annual cash incentives and certain employee benefits. The purpose of the structure of this compensation package is to directly align Mr. Anderson’s compensation with shareholders by making his compensation contingent upon stock price, Duke Energy performance and dividend yield. In accordance with his employment agreement, upon commencement of his employment in November 2003, Mr. Anderson received a nonqualified stock option award with respect to 1,100,000 shares, a performance share award for 360,000 shares and a phantom stock award for 285,000 units. Mr. Anderson does not receive payment of his vested performance shares and phantom stock units, and his vested stock options are not exercisable, until his employment with Duke Energy terminates. Mr. Anderson receives dividend equivalent payments on performance shares and phantom stock until such shares are forfeited or paid out. All of the awards to Mr. Anderson were granted under the Duke Energy 1998 Long-Term Incentive Plan.

Mr. Anderson had the opportunity to vest in up to 120,000 of the performance shares based upon 2005 performance associated with pre-established goals. Mr. Anderson’s 2005 performance goals were based on ongoing basic EPS, ROCE and strategic objectives. These goals were weighted 50%, 30% and 20%, respectively. The EPS and ROCE performance targets established for Mr. Anderson were consistent with those of the other Named Executive Officers, other than Mr. Rogers who did not participate in the STI Plan in 2005. Mr. Anderson’s 2005 goals also specified that any performance shares earned by Mr. Anderson based on 2005 performance were to be reduced by five percent in the event of a fatality of a Duke Energy employee, contractor or subcontractor during 2005. Mr. Anderson’s strategic objectives included goals related to long-term strategy development and execution, safety, development and communication of Duke Energy’s positions on key issues, process simplification, succession planning, management development and merchant operations strategy. In February 2006 the Subcommittee for Performance Based Compensation determined that 114,000 of these performance shares vested on December 31, 2005 based on above-target achievement on each of the EPS, ROCE and aggregate strategic goals, with 6,000 performance shares being forfeited as a result of not achieving the safety goal.

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In 2005, Mr. Anderson earned $9,924,236, which is equal to the value of stock-based awards that vested based on 2005 performance and employment and dividend equivalent payments associated with his phantom stock and performance shares, as detailed below. The Committee believes the value of compensation earned by Mr. Anderson during 2005 is appropriate and reasonable considering Duke Energy’s outstanding 2005 financial performance.

(1)                         As described in “Employment Contracts and Termination of Employment and Change-in-Control Arrangements” under “Executive Compensation” below, Mr. Anderson does not receive payment of his vested performance shares and phantom stock units, nor are his vested stock options exercisable, until his employment with Duke Energy terminates.

(2)                         Amounts shown for performance shares and phantom stock units represent the values on the vesting dates, as defined in the Duke Energy 1998 Long-Term Incentive Plan. Amount shown for stock options represents the in-the-money value as of December 30, 2005 of options which vested during 2005 and is based on the closing price of a share of Duke Energy Common Stock as reported on the New York Stock Exchange Composite Transactions Tape on such date, which was $27.45.

In light of his new role, effective April 3, 2006 concurrent with the merger with Cinergy Corp., Mr. Anderson agreed to the reduction of his 2006 performance share opportunity from 120,000 shares to 70,000 shares with the vesting of 30,000 of such shares being based 80% on Duke Energy’s ongoing diluted earnings per share and 20% on strategic objectives and with the vesting of the 40,000 remaining shares based entirely on strategic objectives established effective with his new role.

On April 3, 2006, Mr. Rogers became President and Chief Executive Officer of Duke Energy. In connection with his new position, Mr. Rogers agreed to a restated employment contract that is described in more detail in “Employment Contracts and Termination of Employment and Change-in-Control Arrangements” under “Executive Compensation” below.

Compliance with Section 162(m) of the Internal Revenue Code

Under Section 162(m) of the Internal Revenue Code, Duke Energy generally may not deduct for federal income tax purposes annual compensation in excess of $1 million paid to certain employees. Certain performance-based compensation paid pursuant to shareholder-approved plans is not subject to the deduction limit as long as such compensation is approved by “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code. A Subcommittee for Performance Based Compensation comprised of all of the Compensation Committee members who qualify as independent under Section 162(m) of the Internal Revenue Code has been formed to approve the compensation of the relevant group of executives in order to satisfy the performance-based compensation exception. While the Compensation Committee generally intends to structure and administer executive compensation plans and arrangements so that they will not be subject to the deduction limit, the Compensation Committee may from time to time approve payments that cannot be deducted in order to maintain flexibility in structuring appropriate compensation programs in the interest of

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shareholders. For example, phantom stock awards received by certain employees may not be deductible for federal income tax purposes, depending on the amount and other types of compensation received by such employees.

Compensation Committee

Roger Agnelli

Ann M. Gray

Dennis R. Hendrix

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Executive Compensation

Summary Compensation Table

The following table sets forth information regarding the compensation paid to the Chief Executive Officer and the other four most highly compensated executive officers of Duke Energy who were serving as executive officers at the end of 2005, for services to Duke Energy and its subsidiaries for the years ended December 31, 2005, 2004 and 2003. We sometimes refer to the persons listed below as the “Named Executive Officers.”

 

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Option/SAR Grants Table

Duke Energy did not grant any stock options or stock appreciation rights (SARs) in 2005 to the Named Executive Officers or any other persons.

Aggregated Option/SAR Exercises and Year End Option/SAR Values Table

This table shows aggregate exercises of options during 2005 by the Named Executive Officers and the aggregate year-end value of the unexercised options held by them. The value assigned to each unexercised “in-the-money” stock option is based on the positive spread between the per share exercise price of the stock option and the closing price of a share of Duke Energy common stock as reported on the New York Stock Exchange Composite Transactions Tape on December 30, 2005, which was $27.45. The ultimate value of a stock option will depend on the market value of the underlying shares at the time of exercise.

 

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