Duke Energy Reports Third Quarter 2005 Results

• Third quarter ongoing basic earnings per share of 59 cents versus 37 cents in prior year’s quarter
   
• Reported basic earnings per share, which reflect charges associated with the decision to exit DENA, of 4 cents in third quarter 2005 versus 41 cents in previous year
   
• Company confident of exceeding $1.65 employee incentive target based on annual ongoing basic EPS
   
• Weather, commodity prices and real estate operations help ongoing results

CHARLOTTE, N.C. -- Duke Energy today reported third quarter 2005 basic earnings per share (EPS) of $0.04, or $41 million in net income, compared to $0.41 per share in third quarter 2004, or $389 million in net income. This quarter’s results include charges related to the previously announced plan to exit substantially all of Duke Energy North America’s (DENA) business outside of the Midwest, which totaled $0.84 per share. This amount was partially offset by a gain on the transfer of a 19.7 percent interest of Duke Energy Field Services to ConocoPhillips, which totaled $0.39 per share.

Third quarter 2005 basic EPS from continuing operations was $0.99, or $924 million in income, compared to $0.40 per share in third quarter 2004, or $381 million in income. On a diluted basis, third quarter 2005 EPS from continuing operations was $0.96 per share, compared to $0.39 in the third quarter 2004.

Ongoing basic EPS for third quarter 2005 was $0.59 versus $0.37 in third quarter 2004. On a diluted basis, ongoing EPS for third quarter 2005 was $0.56 compared to $0.36 in third quarter 2004.

"The quality of our assets, along with the focused efforts of our employees, delivered outstanding results despite the external events affecting the energy industry. Not only did we perform for our customers during this period of supply disruptions, we delivered solid results for our investors," said Paul Anderson, Duke Energy’s chairman of the board and chief executive officer.

"Our strategic decision to exit much of our merchant generation business in DENA had a large earnings impact this quarter. But that move, along with our proposed merger with Cinergy, will position us for stronger long-term results going forward," he added.

Anderson said the company expects to exceed its employee incentive goal of $1.65 per share -- based on annual ongoing basic earnings. That figure was recently revised upward from $1.60 to reflect the exit of the DENA business.

Special items for the quarter include:

Special items EPS year-to-date impact:

BUSINESS UNIT RESULTS

Franchised Electric
Third quarter 2005 segment EBIT from continuing operations for Franchised Electric was $606 million, compared to $453 million in the prior year’s quarter. The increase was driven primarily by warmer weather, which pushed residential sales up 12.4 percent, and strong bulk power marketing (BPM) results.

Also, Franchised Electric recorded approximately $25 million less regulatory amortization this quarter than the prior year’s quarter. These increases to segment EBIT were partially offset by higher operating and maintenance expenses, primarily related to nuclear outage and maintenance costs.

Overall industrial kilowatt-hour sales were up 0.7 percent for the quarter as textile plant closings were more than offset by increased usage in other industries. Regional growth continued to add to Franchised Electric’s total customer base, with 43,000 customers -- about 2 percent -- over the prior year.

Year-to-date segment EBIT from continuing operations for Franchised Electric was $1.22 billion in both 2005 and 2004.

Natural Gas Transmission
Duke Energy Gas Transmission (DEGT) reported third quarter 2005 segment EBIT from continuing operations of $329 million compared to $269 million in the prior year’s quarter. The increase was driven by improved U.S. operations, domestic business expansion projects and higher earnings by natural gas distribution operations in eastern Canada. In addition, earnings benefited from operations in Canada that were purchased or transferred to DEGT in the third quarter.

DEGT’s third quarter earnings continued to benefit from the stronger Canadian currency over comparable periods. This was mainly offset by a gain of a prior year asset sale. The favorable Canadian currency impacts on DEGT’s EBIT were partially offset in Duke Energy’s net income by currency impacts on Canadian interest and taxes.

Year-to-date EBIT from continuing operations for Natural Gas Transmission was $1.04 billion, compared with $986 million in 2004.

Field Services
The Field Services business segment, which in the quarter represented Duke Energy's 50-percent interest in Duke Energy Field Services (DEFS), reported third quarter 2005 equity earnings of $126 million -- in addition to a one-time gain on the transfer of a 19.7 percent interest in DEFS of $576 million -- compared to $63 million in EBIT in third quarter 2004.

The equity earnings amount for the third quarter 2005 includes deductions primarily for interest totaling $15 million, which were not included in the prior quarter’s EBIT. The equity earnings amount for third quarter 2005 does not include the negative impact of hedge settlements during the quarter, which are now reported in Other and were reported in third quarter 2004 Field Services’ EBIT.

Results were driven by strong commodity prices, operational improvements and the absence of a $26 million impairment charge reported in the prior year’s quarter. These were partly offset by higher operating costs from pipeline integrity work and lower volumes due to hurricane interruptions.

On July 5, 2005, Duke Energy transferred a 19.7 percent interest in DEFS to ConocoPhillips in exchange for cash and assets of approximately $1.1 billion. DEFS is now a 50/50 joint venture between Duke Energy and ConocoPhillips.

Duke Energy North America
As a result of the decision to exit substantially all of the Duke Energy North America (DENA) business outside of the Midwest, results for DENA’s continuing operations for 2005 is included in Other. Its discontinued results are reported in Discontinued Operations.

International Energy
For third quarter 2005, Duke Energy International (DEI) reported segment EBIT from continuing operations of $63 million, compared to $64 million in third quarter 2004.

The 2005 results include a $20 million impairment charge on DEI’s investment in the Campeche plant in Mexico. Excluding that item, results were driven by favorable hydrology and pricing in Peru and Argentina, higher commodity prices at National Methanol and favorable currency impacts in Brazil – offset by higher expenses in Ecuador and Guatemala, and lower margins in Brazil. The favorable currency impacts on DEI’s EBIT were partially offset in Duke Energy’s net income by currency impacts on Brazilian interest and taxes.

Year-to-date EBIT from continuing operations for International Energy was $217 million, compared with $161 million in 2004.

Crescent Resources
Crescent Resources reported third quarter 2005 segment EBIT from continuing operations of $120 million, compared to $43 million in the previous year’s quarter.

The increase was driven by continued active management of Crescent’s real estate holdings, which this quarter included a gain on the sale of an interest in a portfolio of office buildings, the sale of a legacy land tract in South Carolina and increased residential lot sales. These were partially offset by a $16 million impairment on a residential development in South Carolina.

Year-to-date EBIT from continuing operations for Crescent Resources was $210 million, compared with $190 million in 2004.

Other
Other primarily includes the cost of corporate governance, Duke Energy’s captive insurance company, Bison Insurance Co. Limited, de-designated hedges resulting from the decision to transfer a 19.7 percent interest in DEFS to ConocoPhillips and DENA’s continuing operations for 2005. Other reported an EBIT loss from continuing operations of $175 million in third quarter 2005, compared to a loss of $25 million in third quarter 2004. The additional losses were due mainly to mark-to-market losses on 2005 and 2006 de-designated Field Services’ hedges, realized losses on the 2005 de-designated hedges due to settlements in the quarter, timing of recognition of losses at Bison and adjustments to the mutual insurance liability.

The reported losses were partially offset by a mark-to-market gain on de-designated Southeast DENA hedges.

Year-to-date EBIT loss from continuing operations for Other was $495 million, compared with a $56 million EBIT loss in 2004.

Discontinued Operations
Discontinued Operations showed a third quarter 2005 loss of $883 million, compared to a gain of $8 million in third quarter 2004. This is primarily due to the company’s decision to exit DENA.

Year-to-date, Discontinued Operations posted a loss of $894 million, compared with a gain of $183 million in 2004.

INTEREST EXPENSE

Interest expense was $228 million for third quarter 2005, compared to $329 million for third quarter 2004. The decrease was primarily due to the company’s debt reduction efforts in 2004 and the transfer of Duke Energy’s 19.7 percent interest in DEFS, which resulted in reporting Duke Energy’s proportionate share of DEFS’ interest expense in equity earnings.

Year-to-date interest expense was $813 million, compared with interest expense of $984 million in 2004.

INCOME TAX

Third quarter 2005 income tax expense from continuing operations was $487 million, compared to $147 million in third quarter 2004. This increase was primarily due to higher earnings during the quarter compared to last year’s quarter. The effective tax rate increased from 27.9 percent in the third quarter 2004 to 34.5 percent in the third quarter 2005 primarily due to benefits resulting from a change in effective state tax rates in the prior year. The effective tax rate calculation includes equity earnings in pre-tax income.

Year-to-date income tax expense from continuing operations was $1.1 billion, compared to $365 million in 2004.

LIQUIDITY AND CAPITAL RESOURCES

Duke Energy's consolidated capital structure at the end of third quarter 2005, including short-term debt, was 49 percent debt, 49 percent common equity and 2 percent minority interests. The company had approximately $1.44 billion in cash, cash equivalents and short-term investments at the end of third quarter 2005.

ADDITIONAL INFORMATION

Additional information, including EPS reconciliation data and a schedule for Duke Energy Field Services’ gas volume and margin by contract type can be obtained at Duke Energy’s third quarter 2005 earnings information Web site at: http://www.duke-energy.com/investors/.

NON-GAAP FINANCIAL MEASURES

The primary performance measure used by management to evaluate segment performance is segment EBIT from continuing operations, which at the segment level represents all profits from continuing operations (both operating and non-operating), including any equity in earnings of unconsolidated affiliates, before deducting interest and taxes, and is net of the minority interest expense related to those profits. Management believes segment EBIT from continuing operations, which is the GAAP measure used to report segment results, is a good indicator of each segment’s operating performance as it represents the results of our ownership interests in continuing operations without regard to financing methods or capital structures.

Duke Energy’s management uses ongoing basic and diluted EPS, which are non-GAAP financial measures as they represent basic and diluted EPS from continuing operations plus any discontinued operations from its Crescent Resources real estate unit, adjusted for the impact of special items, as two of the measures to evaluate operations of the company. Special items represent certain charges and credits which management believes will not be recurring on a regular basis. Management believes that the presentation of ongoing basic and diluted EPS provides useful information to investors, as it allows them to more accurately compare the company’s ongoing performance across all periods. Ongoing basic EPS is also the basis used for employee incentive bonuses. The most directly comparable GAAP measures for ongoing basic and diluted EPS are reported basic and diluted EPS from continuing operations, respectively, which include the impact of special items. Due to the forward-looking nature of ongoing basic and diluted EPS for future periods, information to reconcile such non-GAAP financial measures to the most directly comparable GAAP financial measure is not available at this time as the company is unable to forecast any special items for future periods.

Duke Energy is a diversified energy company with a portfolio of natural gas and electric businesses, both regulated and unregulated, and an affiliated real estate company. Duke Energy supplies, delivers and processes energy for customers in the Americas. Headquartered in Charlotte, N.C., Duke Energy is a Fortune 500 company traded on the New York Stock Exchange under the symbol DUK. More information about the company is available on the Internet at: www.duke-energy.com.

An earnings conference call for analysts is scheduled for 10 a.m. ET today. The conference call can be accessed via the investors' section of Duke Energy’s Web site http://www.duke-energy.com/investors/ or by dialing 800/967-7185 in the United States or 719/457-2634 outside the United States. The confirmation code is 8492249. Please call in five to 10 minutes prior to the scheduled start time. A replay of the conference call will be available until Nov. 11, 2005, midnight ET, by dialing 888/203-1112 with a confirmation code of 8492249. The international replay number is 719/457-0820, confirmation code 8492249. A replay and transcript also will be available by accessing the investors' section of the company’s Web site. The presentation may include certain non-GAAP financial measures as defined under SEC rules. In such event, a reconciliation of those measures to the most directly comparable GAAP measures will be available on our investor relations Web site at: http://www.duke-energy.com/investors/publications/gaap/.

This release includes statements that do not directly or exclusively relate to historical facts. Such statements are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Those statements represent Duke Energy’s intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, many of which are outside Duke Energy’s control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Those factors include: industrial, commercial and residential growth in Duke Energy’s service territories; the influence of weather and other natural phenomena on company operations, including the economic, operational and other effects of hurricanes Katrina and Rita; general economic conditions, including any potential effects arising from terrorist attacks and any consequential hostilities or other hostilities or other external factors over which Duke Energy has no control; changes in environmental and other laws and regulations to which Duke Energy and its subsidiaries are subject; the results of financing efforts, including Duke Energy’s ability to obtain financing on favorable terms, which can be affected by various factors, including Duke Energy’s credit ratings and general economic conditions; declines in the market prices of equity securities and resultant cash funding requirements for Duke Energy’s defined benefit pension plans; the performance of electric generation, pipeline and gas processing facilities; the extent of success in connecting natural gas supplies to gathering and processing systems and in connecting and expanding gas and electric markets; conditions of the capital markets and equity markets during the periods covered by the forward-looking statements; the effect of accounting pronouncements issued periodically by accounting standard-setting bodies; the outcomes of litigation and regulatory investigations, proceedings or inquiries and other contingencies; the level of creditworthiness of counterparties to Duke Energy’s transactions; the amount of collateral required to be posted from time to time in Duke Energy’s transactions; opportunities for Duke Energy’s business units, including the timing and success of efforts to develop domestic and international power, pipeline, gathering, liquefied natural gas, processing and other infrastructure projects; state, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rate structures, and affect the speed at and the degree to which competition enters the electric and natural gas industries; the timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates; competition and regulatory limitations affecting the success of Duke Energy’s divestiture plans, including the prices at which Duke Energy is able to sell its assets; the ability to successfully complete merger, acquisitions or divestiture plans (including the merger with Cinergy Corp.); regulatory or other limitations imposed as a result of a merger, acquisition or divestiture; and the success of the business following a merger, acquisition or divestiture.

In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than Duke Energy has described. Duke Energy undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Information contained in this release is unaudited, and is subject to change.

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