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    Duke-Energy-2006-AR-Entire-Report Duke-Energy-2006-AR-Entire-Report Document Transcript

    • Chnging minds. Chnging hbits. 2006 summary annual report  Duke energy 2006 summary annual report
    • In thIs report about the cover 1 Introduction — the new energy eqution liqin Jing is  lod forecst nlyst. ech dy, she uses temperture, humidity, wind nd other key metrics to forecst 3 Chirmn’s letter to stkeholders customer power demnd for Duke energy’s midwest opertions for 4 2006 achievements nd 2007 gols the next seven to 10 dys. she must be s precise s possible to 9 2007 Duke energy Chrter ensure tht dequte supplies of power re vilble to meet tht 11 2006 Finncil Highlights demnd. Her nlyses re just one exmple of how the Duke 13 Duke energy t  glnce energy tem works ech dy to blnce — nd ultimtely to solve 15 Defining the new energy eqution — the new energy eqution. 21 solving the new energy eqution 27 Chllenging Conventionl Wisdom 30 Consolidted Finncil sttements 35 Bord of Directors 37 executive mngement 38 non‑gaap Finncil mesures 40 Investor Informtion 41 sustinbility t Duke energy Forward‑lookIng statement this report includes sttements tht do not directly or exclusively relte to historicl fcts. such sttements re “forwrd‑looking sttements” within the mening of section 27a of the securities act of 1933 nd section 21e of the securities exchnge act of 1934. one cn typiclly identify forwrd‑ looking sttements by the use of forwrd‑looking words such s: my, will, could, project, believe, expect, estimte, continue, potentil, pln, forecst nd other similr words. those sttements represent Duke energy’s intentions, plns, expecttions, ssumptions nd beliefs bout future events nd re subject to risks, uncertinties nd other fctors, mny of which re outside Duke energy’s control nd could cuse ctul results to differ mterilly from the results expressed or implied by those forwrd‑looking sttements. those fctors include: stte, federl nd foreign legisltive nd regultory inititives tht ffect cost nd investment recovery, hve n impct on rte structures, nd ffect the speed t nd degree to which competition enters the electric nd nturl gs industries; the outcomes of litigtion nd regultory investigtions, proceedings or inquiries; industril, commercil nd residentil growth in Duke energy’s service territories; dditionl competition in Duke energy’s mrkets nd continued industry consolidtion; the influence of wether on compny opertions, including the economic, opertionl nd other effects of hurricnes, torndos or other nturl phenomen; the timing nd extent of chnges in commodity prices, interest rtes nd foreign currency exchnge rtes; generl economic conditions, including ny potentil effects rising from terrorist ttcks nd ny consequentil hostilities; chnges in environmentl nd other lws nd regultions to which Duke energy nd its subsidiries re subject; the results of finncing efforts, including Duke energy’s bility to obtin finncing on fvorble terms, which cn be ffected by vrious fctors, including Duke energy’s credit rtings nd generl economic conditions; declines in the mrket prices of equity securities nd resultnt csh funding requirements for Duke energy’s defined benefit pension plns; the level of creditworthiness of counterprties to Duke energy’s trnsctions; the mount of collterl required to be posted from time to time in Duke energy’s trnsctions; growth in opportunities for Duke energy’s business units, including the timing nd success of efforts to develop domestic nd interntionl power; the performnce of electric genertion fcilities; the effect of ccounting pronouncements issued periodiclly by ccounting stndrd‑setting bodies; the bility to successfully complete merger, cquisition or divestiture plns, including the prices t which Duke energy is ble to sell ssets; nd the success of the business following  merger, cquisition or divestiture. In light of these risks, uncertinties nd ssumptions, the events described in the forwrd‑looking sttements might not occur or might occur to  different extent or t  different time thn Duke energy hs described. Duke energy undertkes no obligtion to publicly updte or revise ny forwrd‑ looking sttements, whether s  result of new informtion, future events or otherwise. Informtion contined in this report is unudited, nd is subject to chnge.
    • … to solve the new energy eqution. We face a new energy equation with many variables. Increasing demand for energy is a key driver of rising energy prices. As a result, there is a renewed focus on renewable energy and energy efficiency — “save-a-watts” vs. megawatts. There is mounting concern about global climate change and further reducing air emissions. And, we must continue to grow earnings and dividends. These variables present both challenges and opportunities. We believe we can solve this new equation with our sustainability focus. This means working to balance the needs of all of our stakeholders. These efforts will keep our prices affordable and our service reliable as we continue to work to reduce our environmental footprint and earn superior returns. This delicate balancing act requires us to challenge conventional wisdom with new thinking and innovation. It means changing our own minds and habits and those of our stakeholders. We must still generate megawatts, but we believe we can produce significant save-a-watts as well. In 2006, we repositioned Duke Energy to do just that. Read on … 1 Duke energy 2006 summary annual report
    • 2
    • chaIrman’s letter to stakeholders dear fellow investors, customers, employees and all who have a vested interest in our success — our partners, suppliers, policymakers, regulators and communities: I want to thank the entire Duke Energy team for accomplishing both a merger and a spinoff last year. Never before in my career have I seen people work so hard to resolve so many complex issues. Our many financial, operational and policy accomplishments in 2006 were the result of your dedication and support. For our other stakeholders, let me summarize our key accomplishments simply by saying that we did what we said we would do in our 2006 Charter. 2006 ongoing diluted earnings per share of $1.81 exceeded 2005 ongoing diluted earnings per share of $1.73. Duke Energy’s total shareholder return for 2006, before the spinoff of Spectra Energy in early 2007, was 26.3 percent. We outperformed both the Philadelphia Stock Exchange Utility Sector Index (20 percent) and the S&P 500 Index (15.8 percent). The strategic steps we took last year positioned the company for growth in 2007 and beyond. We established an industry-leading electric power platform through the successful execution of the merger with Cinergy — and we did it in 11 months. (left) James e. RogeRs, ChaiRman, PResident and Chief exeCutive offiCeR 3 Duke energy 2006 summary annual report
    • looking bck. looking forwrd. 2006 was a transformational year for Duke Energy. By taking decisive actions, we lowered our risk profile and repositioned the company. As a leading pure-play electric company with a strong balance sheet, we are in a favorable position to achieve our 2007 goals, which will drive earnings and dividend growth over the long term. 2006 Major Achievements Goals for 2007* ✔ merged with Cinergy to increse the scle estblish the identity nd culture of the new nd scope of our power business. Duke energy, unifying our people, vlues, strtegy, processes nd systems. ✔ reduced our risk profile by selling our unregulted optimize our opertions by focusing on power plnts outside the midwest nd by selling sfety, simplicity, ccountbility, inclusion, our Commercil mrketing nd trding business. customer stisfction, cost mngement ✔ Formed  joint venture with morgn stnley nd employee development. rel estte Fund for Crescent resources. achieve public policy, regultory nd legisltive ✔ outcomes tht blnce our customers’ needs repurchsed $500 million of stock. for relible energy t competitive prices with our ✔ acquired, filed for certificte, or nnounced our shreholders’ expecttion of superior returns. intent to build new genertion ssets throughout Invest in energy infrstructure tht meets rising our five sttes. We estimte tht we will need to customer demnds for relible energy in n increse our generting cpcity by pproximtely efficient nd environmentlly sound mnner. 6,400 megwtts over the next 10 yers. achieve 2007 finncil objectives nd position ✔ announced numerous expnsions of the compny to meet future growth trgets. our gs trnsmission system. ✔ *See the 2007 Duke Energy Charter on page 9. achieved our 2006 employee incentive trget. ✔ spun off spectr energy on Jn. 2, 2007. 4
    • We reduced our ernings voltility nd business risk by In this eqution, we must meet our customers’ needs selling our commercil mrketing nd trding opertions, for ffordble nd relible electric power while meeting nd effectively hlf of our rel estte development compny, more stringent environmentl rules tht will inevitbly Crescent resources. these trnsctions rised lmost increse costs. $2 billion in fter‑tx csh, most of which will be invested We must rise cpitl for long‑term investments in more in our lower‑risk, energy infrstructure businesses. environmentlly friendly genertion cpcity, renewble In customer stisfction, we hve consistently rnked in the energy nd energy efficiency. and we must ressure investors who my be wry of long‑term cpitl top qurtile in severl independent utility studies. lst yer, construction progrms. our utility compnies in the south nd midwest finished in the top 10 ntionlly in the key account Benchmrk study. Blncing these fctors nd solving the new energy equ‑ In ddition, we rnked first in the south nd best in the tion will require  new pproch to utility regultion. It ntion mong smll nd mid‑sized business customers, will require us to chnge minds nd chnge hbits. It will ccording to J.D. power nd assocites. require us to see nd understnd the gols of ech of our stkeholder groups. this letter nd the rest of this report We provided ledership on industry issues. I currently serve will detil our plns to do tht. s chirmn of edison electric Institute nd I co‑chir the ntionl action pln on energy efficiency nd the allince to sve energy. other members of the Duke energy what Investors can expect In 2007 ledership tem lso help to shpe the stte nd federl and beyond policy decisions tht ffect our business. our strtegy to increse ernings nd dividends in the We continued to build  high‑performnce, sustinbility‑ long term is strightforwrd: focused culture chrcterized by diversity, inclusion, stedily improve our sles growth employee development nd ledership. and we estblished ■ ern solid returns on our significnt cpitl investments, new sfety incentives for 2007 to reinforce our concern ■ for ech other nd our customers. nd Continue chieving dditionl cost reductions from the ■ merger nd from our continuous improvement efforts. so why dId we choose to get larger and then get smaller? these three drivers — sles, investments nd cost Very simply, scle nd focus. svings — re essentil to chieving both our 2007 finncil objectives nd long‑term growth. our merger with Cinergy in april 2006 gve our electric business the scle it needed to stnd lone. to unlock even you cn red ll of our 2007 objectives in our Chrter on greter vlue, three months lter we nnounced tht we pge 9. our 2007 employee incentive trget of $1.15 per would seprte our nturl gs business nd our electric shre is bsed on ongoing diluted ernings. the $1.15 business into two strong pure‑ply compnies: spectr serves s the bsis for 4 to 6 percent nnul ernings growth through the end of 2009. We expect dividend energy for gs nd Duke energy for electric power. We growth to be in line with ernings growth. completed the spinoff of spectr energy in Jnury 2007. tody Duke energy is one of the top five electric compnies our business pln projects  qurterly dividend increse in the united sttes in mrket cpitliztion. of $0.01 beginning in the third qurter of 2007. this dividend increse — to be decided by the bord of Hving the strtegic focus of  pure‑ply electric compny directors — would be in line with our expecttion to will help us meet the chllenges nd seize the opportuni‑ ties to solve wht we cll the new energy eqution. increse dividends consistent with  70 to 75 percent pyout trget. 5 Duke energy 2006 summary annual report
    • solvIng the new energy eQuatIon: forecsts for customer power demnd nd study ll vible changIng mInds and changIng habIts nd economicl options to meet tht demnd. In the pst, we hve been successful in meeting our customer growth our ctions in 2006 put us in  strong position to grow by operting our power plnts efficiently, by purchsing s we ddress the vribles of the new energy eqution: peking power plnts nd by buying power on the whole‑ Building new power plnts to meet stedily sle mrket s needed. ■ incresing demnd tody’s growth projections suggest tht we will need using  diverse mix of fuels nd technologies t ■ to increse our generting cpcity by pproximtely our new plnts to limit our future price, relibility 6,400 megwtts over the next 10 yers. most of this nd environmentl risks new cpcity will be in the Crolins, nd the reminder Deploying new technologies to modernize our in Indin. ■ trnsmission nd distribution grids to boost even now, we need nerly 1,500 megwtts of new gener‑ efficiency nd relibility, nd to support new tion in ohio to meet existing demnd. We pln to build or energy efficiency inititives buy new genertion there if the stte encts legisltion tht obtining legisltion nd regultory tretment tht ■ will llow utilities to own genertion fcilities. will let us recover our finncing costs s we build new nd more efficient power plnts (megwtts) nd s our newest bse lod plnts — those designed to operte we promote energy efficiency (“sve‑‑wtts”) with round the clock — were completed in 1986 in the new inititives on both sides of the meter Crolins nd in 1991 in the midwest. It tkes six to 10 yers to pln, permit nd construct such plnts. We relizing the efficiencies nd cost svings from the ■ re seeking permits now for plnts tht we’ll need in merger while mintining our opertionl excellence, nd 2011, when we expect to hve more thn 250,000 shping new federl rules tht limit crbon emissions ■ dditionl customers. to ensure our customers nd other stkeholders re firly treted. We nticipte nnul cpitl expenditures of pproximtely $3.5 billion from 2007 through 2009 for expnsion of our We will solve the new energy eqution by chllenging genertion cpcity, environmentl retrofits, nucler fuel, conventionl wisdom. We will invest in new technology. mintennce nd other expenses. Included in this mount We will blnce the vribles by working collbortively is expnsion cpitl for: with ll stkeholders to find the best nd firest solutions. expnding genertion in north Crolin ■ let me briefly highlight ech vrible nd spell out our plnning  new clener‑col integrted gsifiction ■ strtegy for ddressing it. this will lso give you  good combined cycle (IgCC) plnt in Indin, nd overview of our ner‑term nd long‑term growth strtegies. exploring the development of  new nucler plnt in ■ south Crolin. building new power plants to meet steadily increasing demand. In the Crolins, we re dding between 40,000 We expect tht new genertion nd other infrstructure nd 60,000 new customers nnully. In Indin, kentucky investments over the next three yers will increse the nd ohio, we re dding 11,000 to 16,000 new custom‑ totl rte bse in our five sttes by bout 25 percent from ers ech yer. For the next three yers, we expect nnul the current $16 billion to $20 billion (less deprecition kilowtt‑hour sles growth of bout 1.5 percent in the nd mortiztion). the returns generted from  growing Crolins nd bout 1 percent in the midwest. rte bse will ultimtely trnslte into long‑term ernings growth — nd we expect our rtes to remin below the We re required by lw to meet the electric power needs ntionl verge. of our customers s economiclly nd relibly s possible. ech yer, we perform n extensive nlysis to updte our 6
    • comparIson oF 2006 total return comparIson oF FIve‑year cumulatIve total return oveR a five-yeaR PeRiod beginning deCembeR 31, 2001, duke eneRgy’s total shaReholdeR RetuRn (tsR) has lagged both the s&P 500 index and the PhiladelPhia stoCk exChange utility index. but, in 2006, investoRs ResPonded favoRably to the deCisive aCtions we took to loweR ouR Risk PRofile and RePosition duke eneRgy as a leading PuRe-Play eleCtRiC ComPany. duke eneRgy’s tsR foR 2006 (PRe-sPinoff of sPeCtRa eneRgy) was 26.3 PeRCent, whiCh exCeeded the PhiladelPhia stoCk exChange utility seCtoR index (20 PeRCent) and the s&P 500 index (15.8 PeRCent). using a diverse mix of fuels and technologies at our our cost estimtes were bsed on two units, nd we still new plants to limit our future price, reliability and need n ir permit for this project. so s you red this, environmental risks. one of the resons our verge we re studying the Cliffside project to determine how to price for electricity is below the ntionl verge is tht proceed. We won’t mke  decision until we hve  clerer 98 percent of our energy is generted from col nd understnding of the overll costs s well s the conditions nucler power. of the ir permit. We re lso evluting the possibility of enhncing nd ccelerting nturl gs‑fired plnts For our Cliffside sttion, we proposed building two new in our portfolio. 800‑megwtt units using supercriticl col technology. In Indin, we continue to explore development of  new this is the most environmentlly efficient pulverized col 630‑megwtt IgCC plnt. IgCC technology is less proven, technology vilble tody. Becuse of their incresed efficiencies, these plnts typiclly burn 10 percent less but hs the potentil to significntly reduce emissions. col thn conventionl units nd emit significntly less additionlly, the geology of the plnt loction is conducive sulfur dioxide nd nitrogen oxide. to underground storge of cptured crbon emissions. We believe tht investing in this next genertion of col‑ as I ws finishing this letter, we received  notice of deci‑ plnt technology is n importnt prt of meeting our sion from the north Crolin utilities Commission (nCuC), environmentl commitments. which uthorized building one of the two units. the com‑ mission lso ccepted our commitment to invest 1 percent Becuse the Cliffside nd IgCC projects use more of our revenues in the Crolins for energy efficiency, environmentlly friendly technologies, they were uthorized subject to pproprite regultory tretment, nd our for significnt federl tx credits by the u.s. Deprtment pln to retire older, less efficient units. of energy upon their completion. this is further evidence tht Duke energy is on the forefront of new clener col technology. 7 Duke energy 2006 summary annual report
    • We re lso proposing to build  new nucler plnt reduces our printing nd miling costs. you need to in south Crolin. new nucler plnts will encounter sign up only once, nd you cn do so t this Web link: chllenges, including used fuel storge, cost recovery https://www.icsdelivery.com/duk/index.html. nd  new licensing process. But nucler energy hs one big dvntge: It produces no greenhouse gs emissions, obtaining legislation and regulatory treatment that will nd we believe tht will help offset the other chllenges. let us recover our financing costs as we build new and more efficient power plants (megawatts) and as we deploying new technologies to modernize our promote energy efficiency (save‑a‑watts) with new transmission and distribution grids to boost efficiency initiatives on both sides of the meter. We re working and reliability, and to support new energy efficiency this yer to crete  regultory frmework tht blnces the initiatives. Complementing our cpitl investments in new needs of our customers, our investors nd our environment. genertion is our renewed commitment to energy efficiency. allowing us to recover finncing costs s we incur them our job is to educte nd support our customers — to would lower the overll cost of projects s well s llow us chnge minds nd hbits — to help them better mnge to spred out rte increses over the course of the building their energy use to reduce both pek nd overll demnd. cycle, voiding lrge one‑time increses. energy efficiency cn be mesured in sve‑‑wtts, the We re pursuing such legisltion in the Crolins tht number of megwtts we don’t need to supply when would cover both the Cliffside sttion in north Crolin nd  proposed new nucler sttion in south Crolin. We customers re being smrt bout their energy consumption. re lso seeking to recover our upfront development costs efficient energy prctices re just s importnt s col, for the nucler plnt. We hve been cler tht we will not nucler, nturl gs nd renewble energy. tht’s why we think of efficiency s the “fifth fuel.” move forwrd with  nucler plnt unless we know tht we cn recover our finncing costs in rtes s we build. With our strong customer reltionships nd bck office systems, we re well positioned to mke energy efficiency In ohio, we re pursuing  two‑prt regultory strtegy:  significnt prt of our portfolio. Duke energy hs First, we filed  request to extend the rte stbiliztion pln ppointed  vice president of energy efficiency,  chief through 2010. second, we re lso promoting legisltion technology officer nd  vice president of regultory tht would llow  regulted distribution compny the strtegy. you will meet them in the pges tht follow. choice of whether to build or to purchse new genertion. We believe tht their focused pproch will mke energy success on this front depends on our bility to chnge efficiency  new sset for ll of our stkeholders, especilly minds. We need to persude legisltors nd regultors to our customers nd investors. give energy efficiency investments the sme weight s energy efficiency is the core of our commitment to building new genertion investments. Conventionl wisdom sys  sustinble business model. We intend to mnge tht regultors rewrd us for selling more of our product, finncil, environmentl nd socil opportunities nd not less. We wnt to chnge the prdigm, by persuding risks effectively, so we’ll still be doing business mny them tht utilities should be rewrded for energy efficiency yers from now. s well s sles. If we cn ern lmost s much for sving  wtt s for mking  wtt, everyone will benefit. With you cn be prt of our commitment to sustinbility leder‑ this kind of economic imprtility, we cn provide relible ship, too. We re gin offering to mke  $1 dontion to service, conserve precious resources nd reduce emissions the nture Conservncy for every shreholder who signs while still delivering  fir return to our investors. up for electronic delivery of our nnul report, proxy stte‑ ment nd our other finncil informtion. Currently, more We believe we cn succeed with our regultory gend. thn 80,000 of you hve chosen electronic delivery, nd We re seeking  consensus on policies tht blnce we intend to mke n equivlent dontion in dollrs to the the needs of ll of our stkeholders. this collbortive nture Conservncy. electronic delivery helps us in two pproch hs produced constructive regultory outcomes wys: It preserves our nturl resources, nd it significntly for our stkeholders before. 8
    • 2007 Duke energy Chrter We are Duke Energy, a leading energy company focused on electric power and gas distribution operations in the Americas. We energize our communities and enhance the quality of life for the people who live there. Our purpose is to create superior and sustainable value for our customers, employees, communities and investors through the production, delivery and sale of energy and energy services. to be successful in 2007 and beyond, we must: estblish the identity nd culture of the new Duke energy, unifying our people, vlues, strtegy, processes nd systems. optimize our opertions by focusing on sfety, simplicity, ccountbility, inclusion, customer stisfction, cost mngement nd employee development. achieve public policy, regultory nd legisltive outcomes tht blnce our customers’ needs for relible energy t competitive prices with our shreholders’ expecttion of superior returns. Invest in energy infrstructure tht meets rising customer demnds for relible energy in n energy efficient nd environmentlly sound mnner. achieve 2007 finncil objectives nd position the compny to meet future growth trgets. In conducting our business, we value: Stewardship — a commitment to helth, sfety, environmentl responsibility nd our communities. Integrity — ethiclly nd honestly doing wht we sy we will do. Safety — a relentless commitment to working sfely nd looking out for the sfety of our co‑workers nd others with whom we do business.  RespectfortheIndividual — embrcing diversity nd inclusion, enhnced by openness, shring, trust, temwork nd involvement. HighPerformance — achieving superior business results, stretching our cpbilities nd vluing the contributions of every employee. Win-WinRelationships — Hving reltionships which focus on the cretion of vlue for ll prties. Initiative — Hving the courge, cretivity nd discipline to led chnge nd shpe the future. we will be successful when: our investors relize  superior return on their investment over time. our customers, suppliers nd communities benefit from our business reltionships. every employee strts ech dy with  sense of purpose, nd ends ech dy sfely with  sense of ccomplishment. 9 Duke energy 2006 summary annual report
    • “Our challenges are as great as our opportunities, but I am confident that by listening to all of our stakeholders and engaging them in our efforts, we will solve the new energy equation — for the benefit of all.” realizing the efficiencies and cost savings from the in prtnership with the u.s. Deprtment of energy, merger while maintaining our operational excellence. we re reserching underground crbon storge t We re on trck to relize $650 million in net svings our est Bend sttion in kentucky. from the Cinergy merger over the first five yers. We re beginning to see the full benefits of those svings s most patIence Is needed to change mInds of the merger‑relted rte reductions expire this yer. In and habIts 2007, we re focusing on continuous improvement. We the strtegies I’ve outlined will position Duke energy to intend to crefully mnge our costs nd simplify our be  leder on severl fronts, including new technologies, opertions to deliver our products nd services s relibly energy efficiency, continuous improvement nd sustinbil‑ nd efficiently s possible. ity. our chllenges re s gret s our opportunities, but I m confident tht by listening to ll of our stkeholders shaping new federal rules that limit carbon emissions to nd engging them in our efforts, we will solve the new ensure our customers and other stakeholders are fairly energy eqution — for the benefit of ll. treated. Duke energy is the third‑lrgest consumer of col in the united sttes, so we re mindful of our environmen‑ I gin thnk our employees, mngement nd bord tl responsibilities. a growing body of scientific evidence of directors — both pst nd present — for our mny suggests tht the burning of fossil fuels is chnging our successes in 2006. you chieved our strtegic gend climte. We re committed to mking the best technology while keeping the gs flowing nd the lights on. choices, ones tht will limit our emissions nd optimize our I thnk our investors for your support during the merger investments so tht we cn keep our prices competitive. nd the spinoff. your confidence in us is the best evidence reducing greenhouse gses with dvnced power gener‑ tht the new direction we hve tken to become one of the tion technology will tke decdes nd cost billions of ntion’s premier electric compnies is the right direction. dollrs. the work will continue well into this century. We re energized by the prospects of  bright future. We But if we don’t begin to solve the problem now, the costs hve  solid investment proposition, nd we re in  strong will go even higher. position to chnge minds nd hbits to crete significnt to demonstrte our corporte commitment to tckling this vlue for ll of our stkeholders. From  sustinbility issue, in Jnury 2007, Duke energy joined the united stndpoint, I believe tht our grndchildren will be proud sttes Climte action prtnership (usCap). this diverse of how we re ddressing the energy nd environmentl colition of businesses nd environmentl groups includes issues of our dy. alco, Dupont, Cterpillr, generl electric nd other utilities — Fpl group, pg&e Corp. nd pnm resources — s well s environmentl Defense, nturl resources Defense Council, World resources Institute nd the Jmes e. rogers pew Center on globl Climte Chnge. together, we hve Chirmn, president nd Chief executive officer begun  dilogue nd offered recommendtions on ntionl mrch 2, 2007 policies for deling with this pressing issue. additionlly, 10
    • FInancIal hIghlIghts  2003 c 2006 (In millions, except per‑shre mounts) 2005 2004 2002 statement of operations $ 15,184 operting revenues $ 16,297 $ 19,596 $ 17,623 $ 14,757 12,493 operting expenses 13,416 16,441 16,632 12,313 201 gins on sles of investments in commercil nd multi‑fmily rel estte 191 192 84 106 276 gins (losses) on sles of other ssets nd other, net 534 (416) (199) 32 3,168 operting income 3,606 2,931 876 2,582 1,008 other income nd expenses, net 1,809 304 550 352 1,253 Interest expense 1,066 1,282 1,331 1,116 61 minority interest expense 538 200 62 91 2,862 ernings from continuing opertions before income txes 3,811 1,753 33 1,727 843 Income tx expense (benefit) from continuing opertions 1,282 507 (52) 544 2,019 Income from continuing opertions 2,529 1,246 85 1,183 (156) (loss) income from discontinued opertions, net of tx (701) 244 (1,246) (149) 1,863 Income (loss) before cumultive effect of chnge in ccounting principle 1,828 1,490 (1,161) 1,034 Cumultive effect of chnge in ccounting principle, — net of tx nd minority interest (4) — (162) — 1,863 net income (loss) 1,824 1,490 (1,323) 1,034 — Dividends nd premiums on redemption of preferred nd preference stock 12 9 15 13 $ 1,863 ernings (loss) vilble for common stockholders $ 1,812 $ 1,481 $ (1,338) $ 1,021 ratio of earnings to Fixed charges d b 3.2 4.7 2.3 — 2.0 common stock data shres of common stock outstnding e 1,257 yer‑end 928 957 911 895 1,170 Weighted verge – bsic 934 931 903 836 1,188 Weighted verge – diluted 970 966 904 838 ernings (loss) per shre $ 1.59 Bsic $ 1.94 $ 1.59 $ (1.48) $ 1.22 $ 1.57 Diluted $ 1.88 $ 1.54 $ (1.48) $ 1.22 $ 1.26 Dividends per shre $ 1.17 $ 1.10 $ 1.10 $ 1.10 balance sheet $ 68,700 totl ssets $ 54,723 $ 55,770 $ 57,485 $ 60,122 $ 18,118 long‑term debt including cpitl leses, less current mturities $ 14,547 $ 16,932 $ 20,622 $ 20,221 Cpitliztion 55% Common equity 50% 45% 37% 36% 0% preferred stock 0% 0% 0% 1% 0% trust preferred securities 0% 0% 0% 3% 55% totl common equity nd preferred securities 50% 45% 37% 40% 2% minority interests 2% 4% 5% 5% 43% totl debt 48% 51% 58% 55% a Significant transactions reflected in the results above include: 2006 merger with Cinergy (see Note 2 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K, “Acquisitions and Dispositions”), 2006 Crescent joint venture transaction and subsequent deconsolidation effective September 7, 2006 (see Note 2 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K, “Acquisitions and Dispositions”), 2005 DENA disposition (see Note 13 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K, “Discontinued Operations and Assets Held for Sale”), 2005 deconsolidation of DEFS effective July 1, 2005 (see Note 2 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K, “Acquisitions and Dispositions”), 2005 DEFS sale of TEPPCO (see Note 2 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K, “Acquisitions and Dispositions”) and 2004 DENA sale of the Southeast plants (see Note 2 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K, “Acquisitions and Dispositions”). b Earnings were inadequate to cover fixed charges by $241 million for the year ended December 31, 2003. c As of January 1, 2003, Duke Energy adopted the remaining provisions of Emerging Issues Task Force (EITF) 02-03, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and for Contracts Involved in Energy Trading and Risk Management Activities” (EITF 02-03) and SFAS No. 143, “Accounting for Asset Retirement Obligations” (SFAS No. 143). In accordance with the transition guidance for these standards, Duke Energy recorded a net-of-tax and minority interest cumulative effect adjustment for change in accounting principles. (See Note 1 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K, “Summary of Significant Accounting Policies,” for further discussion.) d Includes pre-tax gains of approximately $0.9 billion, net of minority interest, related to the sale of TEPPCO GP and LP in 2005 (see Note 2 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K, “Acquisitions and Dispositions”). e 2006 increase primarily attributable to issuance of approximately 313 million shares in connection with Duke Energy’s merger with Cinergy (see Note 2 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K, “Acquisitions and Dispositions”). see notes to Consolidted Finncil sttements in Duke energy’s 2006 Form 10‑k. 11 Duke energy 2006 summary annual report
    • duke energy busIness segments U.S. Franchised Electric and Gas Commercial Power u.s. Frnchised electric nd gs, Duke energy’s Commercil power which opertes in north Crolin, south business owns nd opertes unregulted Crolin, Indin, ohio nd kentucky, power plnts, primrily in the midwest. is 2007 EBIT our lrgest businessEBIT 2007 segment nd EBIT almost ll of the results for this business 2007 EBIT 2007 2007 EBIT 2007 EBIT 2007 EBIT 2007 EBIT our primry source of ernings growth. CONTRIBUTION come from sles to retil customers in CONTRIBUTION CONTRIBUTION CONTRIBUTION CONTRIBUTION CONTRIBUTION CONTRIBUTION CONTRIBUTION ohio under tht stte’s rte stbiliztion We expect this segment to represent pln. also in this segment is Duke energy genertion pproximtely 79 percent of forecsted 2007 ongoing services (Degs), which develops, owns nd opertes totl segment ernings before interest nd txes (eBIt).* electric genertion sources tht serve lrge energy It includes: consumers, municiplities, utilities nd industril a $16 billion retil rte bse ■ fcilities. We expect this segment to represent pproxi‑ 3.9 million electric customers ■ mtely 7 percent of forecsted 2007 ongoing totl segment eBIt.* It includes: 500,000 gs customers in ohio nd kentucky ■ 8,100 megwtts of unregulted genertion, most 47,000 squre miles of service territory ■ ■ of which is dedicted to regulted customers. 28,000 megwtts of regulted genertion. ■ Duke Energy International Crescent Resources Duke energy’s interntionl electric Formed more thn 40 yers go by genertion opertions re locted in Duke energy, Crescent resources Centrl nd south americ. We expect this mnges lnd holdings nd develops segment2007represent pproximtely to EBIT high‑qulity commercil, residentil 2007 EBIT 2007 EBIT 2007 EBIT 2007 EBIT 2007 EBIT 2007 EBIT 11 percent of forecsted CONTRIBUTION 2007 ongoing CONTRIBUTION nd multi‑fmily rel estte projects. CONTRIBUTION CONTRIBUTION CONTRIBUTION CONTRIBUTION CONTRIBUTION totl segment eBIt.* It includes: We expect this segment to represent pproximtely 3 percent of forecsted 2007 ongoing approximtely 4,000 megwtts of genertion, ■ totl segment eBIt.* In 2006, Duke energy worked primrily hydroelectric power, in six countries: with morgn stnley rel estte Fund to crete n argentin, Brzil, ecudor, el slvdor, effective 50/50 joint venture. guteml nd peru. Crescent resources is in 10 sttes, primrily in ■ the southestern nd southwestern united sttes. tking the u.s. Frnchised electric nd gs nd Commercil power segments together, we expect more thn 85 percent of Duke energy’s forecsted 2007 ongoing totl segment eBIt will come from sles to regulted customers. *2007 forecasted ongoing total segment EBIT excludes results for the operations labeled Other. 12
    • duke energy at a glance: repositioning our business In January 2007, Duke Energy Corporation became one of the largest pure-play electric power holding companies in the United States. Our utility companies supply and deliver energy to 3.9 million U.S. customers. We have about 37,000 megawatts of electric generating capacity in the Midwest and the Carolinas, natural gas distribution services in Ohio and Kentucky, and approximately 4,000 megawatts of electric generation in Latin America. Duke Energy is also a joint-venture partner in a U.S. real estate company. gianna manes is senioR viCe PResident of Regulated PoRtfolio oPtimization and fuels at duke eneRgy’s u.s. fRanChised eleCtRiC and gas business. the oRganization she leads buys and sells eleCtRiCity in the wholesale maRket and PuRChases Coal and natuRal gas foR the geneRation fleet. 13
    • Changing minds by thinking differently Over the next three years, Duke Energy’s regulated We are working with policymakers to find the businesses plan to invest more than $9 billion to best way to address the timely recovery of these strengthen customer service and reliability, and to investments. We believe that recovering financing meet steadily growing demand. Besides investing costs as we build and implementing a regulatory in additional megawatt-hours from new plants, we framework that encourages investments in energy are supporting a “save-a-watt” business model efficiency will result in smaller, more manageable focused on energy efficiency to offset the need for rate increases. This is a win-win proposition for more plants, even as demand continues to grow. our customers and our investors. We also believe With this new model, energy efficiency becomes that investments in energy efficiency should be put a sustainable system resource that plays a more on an equal footing with investments in new gen- significant role in our plans to meet customers’ eration. With comparable earnings on investments, increasing demand for electricity. we would be economically impartial to meeting our customers’ growing demand for electricity with investments in energy efficiency or new generation. beveRly maRshall (left), viCe PResident foR fedeRal PoliCy and goveRnment affaiRs at duke eneRgy, and Julie gRiffith, viCe PResident foR state goveRnment affaiRs at duke eneRgy indiana, aRe two key membeRs of duke eneRgy’s PubliC PoliCy team. 14
    • Defining the new energy eqution For more than a century, we have supplied our customers with affordable and reliable electricity. Our product is considered an essential service. It has also made possible many innovative technologies that enhance our customers’ standard of living. And it has helped keep our local and state economies competitive in the global marketplace. Providing adequate power was once as simple as balancing supply and demand. Although that is still the core of what we do, times have changed. Today, we face the unprecedented challenge of solving a new energy equation. During a time of rising and volatile fuel prices, historic environmental challenges and industry restructuring, the demand for electricity continues to grow. With our commitment to sustainability, we must balance the growing demand for power with the investments needed to supply it — while reducing our environmental impact and keeping prices affordable. This requires new thinking on both the policy and technology fronts. 15 Duke energy 2006 summary annual report
    • polIcy leadershIp to meet the growing demnd for power, we re investing in  new genertion of highly efficient nd environmentlly our stkeholders, prticulrly our customers, investors nd dvnced power plnts, new environmentl controls for communities, expect us to ply  leding role in shping existing plnts, nd trnsmission nd distribution system  ntionl policy tht ddresses this ntionl nd globl upgrdes. our emphsis on new energy efficiency progrms chllenge. We tke tht responsibility seriously. our gol is nd technologies will help meet growing demnd.  policy tht will slow the growth of greenhouse gses nd then begin to reduce them — while protecting the economy We cll energy efficiency the “fifth fuel” becuse it comple‑ ments col, nucler power, nturl gs nd renewble nd our customers from price shocks. energy, the four primry sources of electric power for the another vrible is the prospect of mndtory renewble future. We see it s one of our most promising solutions, portfolio stndrds (rps) t both the federl nd stte level. becuse the most environmentlly sound, inexpensive nd twenty‑two sttes currently hve such stndrds, which relible kilowtt‑hour is the one we don’t hve to produce. require electric utilities to generte nywhere from 5 to generting “sve‑‑wtts” is just one prt of the eqution 20 percent of their power from “climte‑friendly” renewble tht requires our customers to chnge how they use elec‑ energy sources such s solr, wind, geotherml nd gri‑ tricity. We re looking t wys to help them do tht. culturl wste, over vrying periods of time. Congress is evluting legisltive proposls for  ntionl rps. understandIng the varIables as  compny focused on sustinbility, we hve invested solving the new energy eqution mens understnding ll in pilot projects involving wind nd griculturl wste so of its vribles. one of the most significnt nd unpredict‑ tht we cn gin n understnding of the technologies ble vribles is future environmentl regultion. tody’s nd costs tht would be required on  lrger scle before irregulr ptchwork of federl nd stte environmentl mndtory stndrds re put in plce. tody, we re lso requirements hs lredy prompted substntil investments. the second‑lrgest genertor of renewble hydroelectric power in the united sttes. recognition of globl wrming s  serious problem hs incresed the cll for regultion of greenhouse gses, like ny other publicly trded compny, we hve  primrily crbon. mndtory crbon dioxide (Co2) responsibility to meet our customers’ needs while emission reductions re being considered in Congress. recovering our investments nd erning  good return When legisltion psses, utilities will need to mke on those investments for our shreholders. to solve the substntil investments to comply. It is criticl tht ny new energy eqution, we must use nucler, col, nturl such crbon regultions be phsed in to void cusing gs, renewble energy nd energy efficiency. our strtegy economic disruption nd tht the ffected compnies for doing so is outlined on the following pges. receive emission llownces to defry the cost of complince. 16
    • Balancing supply and demand When you flip tht light switch, djust your ir conditioning, turn your television on or boot up your computer, you expect power. But do you think bout where it comes from? Duke energy genertes electricity from  vriety of fuels: col, nturl gs, nucler nd renewble hydroelectric sources. energy efficiency, the “fifth fuel,” is lso prt of the mix. this diversity mens tht we’re not overly dependent on ny single fuel, nd it helps us ddress fuel price fluctutions nd environmentl risks. We must lso keep our fuel mix in blnce to meet stedily growing demnd. this is ll prt of the compny’s Integrted resource pln, which determines the best options to meet our customers’ electricity needs over the next 20 yers. using input from mny stkeholders, we updte the pln periodiclly with the gol of finding the most efficient nd economicl resources — both in power genertion nd in energy efficiency — to meet future demnd. JaniCe hageR is managing diReCtoR of integRated ResouRCe Planning foR duke eneRgy. heR team ensuRes that duke eneRgy’s suPPly of eleCtRiCity keePs PaCe with gRowing CustomeR demand while ComPlying with enviRonmental RequiRements. 17 Duke energy 2006 summary annual report
    • Balancing regulated and non-regulated assets When electric genertion ws deregulted in ohio in 2001, mny people expected  fully competitive mrket to develop in the first five yers. But tht didn’t hppen. as the end of tht five‑yer period drew ner, regultors, utilities nd customers relized tht n immedite shift to mrket‑bsed rtes in 2006 would probbly result in lrge price increses over  short time, s hd occurred in other sttes. to minimize rte shock nd to permit  grdul trnsition to mrket‑bsed rtes, stte regultors worked with ohio’s electric utilities, including Duke energy ohio, to develop rte stbiliztion plns (rsps). these plns provide customers with stble, predictble rtes for  number of yers — in Duke energy’s cse, from 2006 through 2008. In lte 2006, Duke energy ohio sked regultors to extend its rsp by n dditionl two yers, through 2010. under the proposed extension, which is being reviewed, the utility’s unregulted generting ssets in ohio would continue to serve the stte’s retil customers. the pln supports continued electric system relibility nd sends cler price signls to customers, while helping to mintin  stble revenue strem for the compny. dave Celona, viCe PResident foR goveRnment and RegulatoRy affaiRs at duke eneRgy ohio, is woRking to PRovide stability to ohio’s eleCtRiC industRy by PRomoting the extension of the ComPany’s Rate stabilization Plan. 18
    • Balancing reliability and cost Just s demnd for electric power is incresing, so is the demnd for even greter relibility of tht power supply. this is primrily driven by our incresingly digitl society. more nd more pplinces nd equipment — from plsm televisions to utomted ssembly lines — re using more kilowtt‑hours to power more digitl circuits. a power interruption of even  few seconds is not only inconvenient, but it cn hve  mjor economic impct s well. at Duke energy, we work round the clock to supply power relibly. one wy we do tht is to ensure tht we operte our supply nd delivery opertions — genertion, trnsmission nd distribution — efficiently nd sfely, nd in  wy tht protects the environment. this blnced pproch helps keep our relibility nd customer stisfction high, nd it helps us better mnge our opertion nd mintennce costs, which is importnt to our investors. our power delivery networks ply  criticl role in our energy efficiency nd relibility efforts. Investing in  smrt grid will help us chieve our “fifth fuel” inititives nd enhnce our service nd relibility. theoPolis holeman is senioR viCe PResident of PoweR deliveRy foR duke eneRgy’s u.s. fRanChised eleCtRiC and gas oPeRations. his team is ResPonsible foR keePing PoweR quality and Reliability high — 24/7. 19 Duke energy 2006 summary annual report
    • Changing habits with a smarter grid We believe we can change energy habits, includ- Smart meters will also enhance our ability to ing our own, by deploying new energy-saving tech- measure and verify the impacts of our energy effi- nologies. One promising technology available now ciency programs. This is critical for energy efficiency is advanced metering — the replacement of the to become a reliable system resource for meeting simple billing meter with one capable of two-way customer demand for electricity. Remote metering communication over our distribution grid. The day over our network would also let us predict trouble, when all of our customers will be able to log in to pinpoint outages and restore power faster. This our Web site and see their hourly energy use is not solution should be more economical than paying far off. for a new power plant, and most of the smart grid’s cost would be offset by the operational and power With our customers’ permission, these new meters procurement savings. would give us the ability to control high-energy-use appliances and equipment during peak demand Advanced metering is just one of the energy and times, without inconveniencing customers or busi- cost-saving technologies we are exploring to change ness owners, who would also share in the savings. minds and habits. david mohleR (left) is viCe PResident and Chief teChnology offiCeR at duke eneRgy; ted sChultz is viCe PResident foR eneRgy effiCienCy. theiR teams aRe Committed to dePloying the best PRaCtiCes and teChnologies to helP ouR CustomeRs use eneRgy moRe wisely. 20
    • solving the new energy eqution It is clear that we need to invest in enhanced reliability and in the expansion of our capacity to generate electricity to meet growing customer demand. We know that investments in new state-of-the-art generation, renewables and energy efficiency can be made reasonably with appropriate and timely cost recovery. Historically, regulators have rewarded utilities for selling more of their product, not less. To solve the new energy equation, we need to change minds about the types of investments that should be eligible for recovery through rates. We are especially interested in building public support for investments in energy efficiency — the “fifth fuel,” which lowers overall customer demand and reduces or eliminates greenhouse gases and other emissions. 21 Duke energy 2006 summary annual report
    • buIldIng a consensus We re working to shift the prdigm in the wy regultors tret the business of energy efficiency nd in the wy to chieve this gol, we re collborting with numerous utilities develop nd deliver such progrms. We believe stkeholder groups. We hope to build  consensus tht will utilities re uniquely positioned to provide universl ccess convince lwmkers nd regultors tht everyone wins with to energy efficiency services nd new technologies to their pproprite regultory tretment of investments in efficiency customers. this would drmticlly chnge the wy utilities nd renewble energy. develop nd deliver energy efficiency progrms s prt of our new chief technology officer nd new vice president their stndrd customer offerings. of energy efficiency nd their tems re committed to to crete  sustinble “fifth fuel” system resource chieving success on these two fronts. they know tht our ccessible by ll customers, energy efficiency investments customers need innovtive products nd services to help must be on pr with new genertion investments. them better mnge their energy costs nd reduce their own environmentl footprints — while mintining the strIkIng a balance comfort nd conveniences they wnt nd expect. Chnging the regultory prdigm will lso help us void We believe tht this blnced strtegy is  winning proposi‑ some of the price jumps tht cn occur when  new plnt, tion for ll stkeholders. our customers will sve money, project, inititive or progrm finlly gets up nd running. the environment will be clener nd our investors will ern such constructive regultory tretment would give us nd fir returns on their investments. others in our industry further incentives to explore nd invest in these progrms nd projects. 22
    • Duke Energy provides the solution the u.s. environmentl protection agency (epa) fcility t reserch tringle prk in north Crolin is the gency’s mjor center for ir pollution reserch nd regultion. With 1.2 million squre feet for lbortories, computing fcilities nd offices, it is the lrgest fcility ever designed nd built by the epa. to led by exmple, the epa designed the complex — which ws completed in 2001 — to operte with sustinble building prctices, including energy efficiency. “the key to energy efficiency is hving the right informtion,” sys sm pgán, the fcility’s energy director. “our plns clled for  unified system to monitor nd meter ll of our energy use, nd we tried numerous vendors nd technologies. Duke energy ws the only compny to come up with nd deliver  vible solution —  Web‑bsed system tht monitors in rel time how much wter, nturl gs, fuel oil nd electricity we re using. We now hve the mechnism to better mnge our nnul energy needs nd sve the epa considerble energy dollrs.” sam Pagán is diReCtoR of the eneRgy management and ConseRvation staff at the ePa’s ReseaRCh tRiangle PaRk faCility in noRth CaRolina. the sPRawling ComPlex of labs, offiCes, and ComPuting faCilities uses an eneRgy-monitoRing solution CReated by duke eneRgy. 23 Duke energy 2006 summary annual report
    • (fRom left) John boone, business develoPment manageR, tom fenimoRe, manageR of eneRgy management seRviCes, and ken keRnodle, CustomeR Relations manageR, woRked on the duke eneRgy teams that designed, develoPed and deliveRed an eneRgy management solution foR the ePa. 24
    • advncing the “fifth fuel” — u.s. epa cse study As Sam Pagán of the U.S. Environmental Protection Agency (EPA) notes on a previous page, when the agency needed an energy management and monitoring system for its massive complex of labs, offices and computing facilities in Research Triangle Park in North Carolina, Duke Energy delivered. Three teams from Duke Energy — account management, business development and custom delivery — collaborated with the EPA’s energy management team to get the job done. The first idea was to measure the allocation of electric power and its costs building by building. But it soon became apparent that to achieve the EPA’s objective — to view total energy use in real time and analyze that data — a more comprehensive solution would be needed. The teams worked together to replace ineffective mea- surement and metering systems with a new energy monitoring and reporting system. The new system tracks the use of city water, natural gas, fuel oil, chilled and heated water, and electricity for the whole complex. It collects the data on a secure Web site and makes it available to campus energy management systems. Controllers working from a central office, or from anywhere on campus with a wireless laptop com- puter, can monitor and project the energy needs for individual buildings or for the entire complex. The Duke Energy team also earned the right to install and maintain the system, which may serve as a model for other EPA facilities. As part of the company’s renewed focus on energy efficiency, Duke Energy con- sults with its other large business customers on the benefits of total energy measurement systems. 25 DUKE ENERGy 2006 SUMMARy ANNUAL REPORT
    • Meeting steadily growing demand Plans to modernize our Cliffside Steam Station in North Carolina will ensure that our customers in the Carolinas have an affordable and reliable supply of power to support the region’s economic growth. Our plan called for replacing four old coal units with two supercritical and highly efficient 800-megawatt coal units using advanced emissions controls. In late February 2007, we received a notice of decision from the North Carolina Utilities Commission, which authorized building one of the two units. The commission also accepted our com- mitment to invest 1 percent of our revenues in the Carolinas for energy efficiency, subject to appropriate regulatory treatment, and our plan to retire older, less efficient units. Our estimates were based on two units, and as this annual report was being published, we still needed an air permit for this project. We are studying the commission’s decision and the project to determine how to proceed. We won’t make a decision until we have a clearer understanding of the overall costs as well as the conditions of the air permit. We are also evaluating the possibility of enhancing and accelerating natural gas-fired plants in our portfolio. Another important element of our generation strategy is the 2,234- megawatt William States Lee nuclear plant we are proposing to build in South Carolina’s Cherokee County. We also continue to explore building an advanced cleaner coal plant in Indiana, and we are pursuing additional energy efficiency programs and renewable technologies. The net result of these initiatives will help us meet steadily increasing customer demand while reducing multiple environ- mental impacts of our operations, including carbon emissions. RiCk RoPeR is geneRal manageR of duke eneRgy’s Cliffside steam station in westeRn noRth CaRolina. the 760-megawatt base load PoweR Plant has been in CommeRCial oPeRation sinCe 1940. 26
    • Chllenging conventionl wisdom Our customers want us to solve the new energy equation, and our track record gives them confidence that we can do it. They want better information about their own energy use and more options to control it. For Duke Energy, that means not only providing our customers with electricity, but also showing them how to personalize their energy use. That’s our commitment. We will start by digitizing our electric distribution and transmission grids. These huge networks already link meters, transformers, substations and other technologies with a communication and control infrastructure. By taking our mostly analog distribution grid and converting it to a digital network, we can create an information-rich communication system. Our plan is to create the “utility of the future.” 27 Duke energy 2006 summary annual report
    • utIlIty oF the Future the components of the energy delivery system will be linked through rel time communiction over wires as the electric grid goes digitl, we cn meet our customers’ lredy in plce in every home nd business. growing ppetite for better energy‑efficiency informtion, progrms nd technologies; for plug‑in electric hybrid We hve severl other inititives lredy under wy, vehicles; for distributed genertion, which is power including our brodbnd‑over‑power‑line (Bpl) pilot produced from smller nd more loclized generting progrms in Chrlotte, n.C., nd Cincinnti, ohio. our units, nd for more bse lod power generted from energy monitoring nd metering solution t the epa renewble sources. lbs nd computing center t reserch tringle prk in north Crolin (see pges 23‑25) cn be the pltform for the expnsion of this technology to a new busIness model residentil, commercil nd industril customers. the utility of the future will focus on generting, delivering nd using energy more efficiently. the business model FormIng allIances is bsed on cpturing informtion nd relying it to our customers, who cn use it to mke better energy decisions. our imgintive inititives ren’t limited to smrt this model will lso help us blnce supply nd demnd, metering nd exploring new technologies. to promote nd respond fster to service interruptions. energy efficiency, we re forming new collbortives with our stkeholders, including llinces with retilers nd For exmple, new “smrt meters” will tell customers suppliers, to inform customers — both smll nd lrge — exctly how much electricity they re using t ny given of redily vilble tools nd technologies to reduce time. these meters will lso tell us when, how nd in wht energy use. quntities customers re using power. this will llow us to provide exctly wht they need long the most efficient Duke energy is well positioned to solve energy problems distribution circuits. In essence, the meter becomes n for our customers. We understnd energy use, we hve interctive informtion gtewy, not just  pssive billing  low cost of cpitl, nd we re working through llinces device. the usge dt we compile will lso help us nd with third prties to implement the best solutions mke better long‑term decisions bout the need for for customers. new trnsmission nd distribution systems. the long‑term gol for the utility of the future is simple: the utility of the future will mke us ll more efficient. to provide greter relibility with less environmentl impct alredy on the drwing bord re designs for new trns‑ t  lower cost to our customers. new progrms delivered formers tht will convert voltges with greter efficiency through new chnnels will mke it hppen. for homes nd businesses. new electric wire lloys will let us trnsmit power with less resistnce. all of 28
    • Balancing customer and shareholder interests our primry gols re to deliver competitively priced, relible energy to our customers while protecting the environment nd erning resonble returns for our investors. In this growing economy, we need to mke mjor investments in  new genertion of power plnts, s well s in our trnsmission nd distribution systems, in order to meet incresing customer demnds for energy. given the uncertinties bout future environmentl regultions, we lso wnt to expnd our portfolio to include more energy‑efficient products nd services, nd more renewble energy options. We re convinced tht  diverse resource portfolio will be more cost‑effective nd sustinble over the long term. the new chllenges we fce demnd new regultory solutions. too often, trditionl regultory policies pit customer interests ginst shreholder interests. We re committed to finding regultory strtegies tht lign the interests of customers nd shreholders, resulting in benefits to both in ll five sttes where we do business. kay Pashos is viCe PResident foR RegulatoRy stRategy at duke eneRgy. heR team is ResPonsible foR PeRsuading state RegulatoRs to aPPRove the ComPany’s RegulatoRy stRategy, whiCh takes into aCCount the needs of both CustomeRs and shaReholdeRs. 29 Duke energy 2006 summary annual report
    • consolIdated statements oF operatIons yers ended December 31, 2006 (In millions, except per‑shre mounts) 2005 2004 operating revenues $ 3,158 non‑regulted electric, nturl gs, nturl gs liquids, nd other $ 7,212 $11,322 7,678 regulted electric 5,406 5,041 4,348 regulted nturl gs nd nturl gs liquids 3,679 3,233 15,184 totl operting revenues 16,297 19,596 operating expenses 1,829 nturl gs nd petroleum products purchsed 5,827 9,225 4,415 opertion, mintennce nd other 3,540 3,313 3,403 Fuel used in electric genertion nd purchsed power 1,610 1,576 2,049 Deprecition nd mortiztion 1,728 1,750 769 property nd other txes 571 513 28 Impirments nd other chrges 140 64 12,493 totl operting expenses 13,416 16,441 gains on sales of Investments in commercial and multi‑Family real estate 201 191 192 gains (losses) on sales of other assets and other, net 276 534 (416) operating Income 3,168 3,606 2,931 other Income and expenses 732 equity in ernings of unconsolidted ffilites 479 161 (20) (losses) gins on sles nd impirments of equity investments 1,225 (4) 15 gin on sle of subsidiry stock — — 281 other income nd expenses, net 105 147 1,008 totl other income nd expenses 1,809 304 Interest expense 1,253 1,066 1,282 minority Interest expense 61 538 200 earnings From continuing operations before Income taxes 2,862 3,811 1,753 Income tax expense from continuing operations 843 1,282 507 Income From continuing operations 2,019 2,529 1,246 (loss) Income From discontinued operations, net of tax (156) (701) 244 Income before cumulative effect of change in accounting principle 1,863 1,828 1,490 cumulative effect of change in accounting principle, net of tax and minority interest — (4) — net Income 1,863 1,824 1,490 dividends and premiums on redemption of preferred and preference stock — 12 9 earnings available For common stockholders $ 1,863 $ 1,812 $ 1,481 common stock data Weighted‑verge shres outstnding 1,170 Bsic 934 931 1,188 Diluted 970 966 ernings per shre (from continuing opertions) $ 1.73 Bsic $ 2.69 $ 1.33 $ 1.70 Diluted $ 2.60 $ 1.29 (loss) ernings per shre (from discontinued opertions) $ (0.14) Bsic $ (0.75) $ 0.26 $ (0.13) Diluted $ (0.72) $ 0.25 ernings per shre (before cumultive effect of chnge in ccounting principle) $ 1.59 Bsic $ 1.94 $ 1.59 $ 1.57 Diluted $ 1.88 $ 1.54 ernings per shre $ 1.59 Bsic $ 1.94 $ 1.59 $ 1.57 Diluted $ 1.88 $ 1.54 $ 1.26 Dividends per shre $ 1.17 $ 1.10 see notes to Consolidted Finncil sttements in Duke energy’s 2006 Form 10‑k. 30
    • consolIdated balance sheets December 31, 2006 (In millions, except per‑shre mounts) 2005 assets current assets $ 948 Csh nd csh equivlents $ 511 1,514 short‑term investments 632 receivbles (net of llownce for doubtful ccounts of $94 t December 31, 2006 2,256 nd $127 t December 31, 2005) 2,580 1,358 Inventory 863 28 assets held for sle 1,528 107 unrelized gins on mrk‑to‑mrket nd hedging trnsctions 87 729 other 1,756 6,940 totl current ssets 7,957 Investments and other assets 2,305 Investments in unconsolidted ffilites 1,933 1,775 nucler decommissioning trust funds 1,504 8,175 goodwill 3,775 905 Intngibles, net 65 224 notes receivble 138 248 unrelized gins on mrk‑to‑mrket nd hedging trnsctions 62 134 assets held for sle 3,597 Investments in residentil, commercil nd multi‑fmily rel estte — (net of ccumulted deprecition of $17 t December 31, 2005) 1,281 2,304 other 2,678 16,070 totl investments nd other ssets 15,033 property, plant and equipment 58,330 Cost 40,823 16,883 less ccumulted deprecition nd mortiztion 11,623 41,447 net property, plnt nd equipment 29,200 regulatory assets and deferred debits 320 Deferred debt expense 269 1,361 regultory ssets relted to income txes 1,338 2,562 other 926 4,243 totl regultory ssets nd deferred debits 2,533 total assets $68,700 $54,723 lIabIlItIes and common stockholders’ eQuIty current liabilities $ 1,686 accounts pyble $ 2,431 450 notes pyble nd commercil pper 83 434 txes ccrued 327 302 Interest ccrued 230 26 libilities ssocited with ssets held for sle 1,488 1,605 Current mturities of long‑term debt 1,400 134 unrelized losses on mrk‑to‑mrket nd hedging trnsctions 204 1,976 other 2,255 6,613 totl current libilities 8,418 long‑term debt 18,118 14,547 deferred credits and other liabilities 7,003 Deferred income txes 5,253 175 Investment tx credit 144 238 unrelized losses on mrk‑to‑mrket nd hedging trnsctions 10 18 libilities ssocited with ssets held for sle 2,085 2,301 asset retirement obligtions 2,058 7,327 other 5,020 17,062 totl deferred credits nd other libilities 14,570 commitments and contingencies minority Interests 805 749 common stockholders’ equity Common stock, $0.001 pr vlue, 2 billion shres uthorized; 1,257 million nd zero shres outstnding 1 t December 31, 2006 nd December 31, 2005, respectively — Common stock, no pr, 2 billion shres uthorized; zero nd 928 million shres outstnding — t December 31, 2006 nd December 31, 2005, respectively 10,446 19,854 additionl pid‑in cpitl — 5,652 retined ernings 5,277 595 accumulted other comprehensive income 716 26,102 totl common stockholders’ equity 16,439 total liabilities and common stockholders’ equity $68,700 $54,723 see notes to Consolidted Finncil sttements in Duke energy’s 2006 Form 10‑k. 31 Duke energy 2006 summary annual report
    • consolIdated statements oF cash Flows yers ended December 31, 2006 (In millions) 2005 2004 cash Flows From operatIng actIvItIes $ 1,863 net income $ 1,824 $ 1,490 adjustments to reconcile net income to net csh provided by operting ctivities: 2,215 Deprecition nd mortiztion (including mortiztion of nucler fuel) 1,884 2,037 — Cumultive effect of chnge in ccounting principle 4 — (201) gins on sles of investments in commercil nd multi‑fmily rel estte (191) (201) (365) gins on sles of equity investments nd other ssets (1,771) (193) 48 Impirment chrges 159 194 250 Deferred income txes 282 867 61 minority Interest 538 195 (732) equity in ernings of unconsolidted ffilites (479) (161) (14) purchsed cpcity leveliztion (14) 92 (172) Contributions to compny‑sponsored pension plns (45) (279) (Increse) decrese in (134) net relized nd unrelized mrk‑to‑mrket nd hedging trnsctions 443 216 844 receivbles (249) (231) (24) Inventory (80) (48) 1,276 other current ssets (944) (33) Increse (decrese) in (1,524) accounts pyble 117 (5) (69) txes ccrued 53 188 (594) other current libilities 622 91 (322) Cpitl expenditures for residentil rel estte (355) (322) 143 Cost of residentil rel estte sold 294 268 1,005 other, ssets 193 (155) 194 other, libilities 533 158 3,748 net csh provided by operting ctivities 2,818 4,168 cash Flows From InvestIng actIvItIes (3,381) Cpitl expenditures (2,327) (2,161) (89) Investment expenditures (43) (46) (284) acquisitions, net of csh cquired (294) — 147 Csh cquired from cquisition of Cinergy — — (33,436) purchses of vilble‑for‑sle securities (40,317) (65,929) 32,596 proceeds from sles nd mturities of vilble‑for‑sle securities 40,131 65,098 net proceeds from the sles of equity investments nd other ssets, 2,861 nd sles of nd collections on notes receivble 2,375 1,619 254 proceeds from the sles of commercil nd multi‑fmily rel estte 372 606 (163) settlement of net investment hedges nd other investing derivtives (296) — 152 Distributions from equity investments 383 — (228) purchses of emission llownces (18) — 194 sles of emission llownces — — 49 other (92) 20 (1,328) net csh used in investing ctivities (126) (793) cash Flows From FInancIng actIvItIes proceeds from the: 2,369 Issunce of long‑term debt 543 153 127 Issunce of common stock nd common stock relted to employee benefit plns 41 1,704 pyments for the redemption of: (2,098) long‑term debt (1,346) (3,646) (12) preferred stock of  subsidiry (134) (176) (2) Decrese in csh overdrfts — — (412) notes pyble nd commercil pper 165 (67) (304) Distributions to minority interests (861) (1,477) 247 Contributions from minority interests 779 1,277 (1,488) Dividends pid (1,105) (1,065) (500) repurchse of common shres (933) — 104 proceeds from Duke energy Income Fund 110 — 8 other 24 19 (1,961) net csh used in finncing ctivities (2,717) (3,278) (22) Chnges in csh nd csh equivlents included in ssets held for sle 3 39 437 net increse (decrese) in csh nd csh equivlents (22) 136 cash and cash equivalents at beginning of period 511 533 397 cash and cash equivalents at end of period $ 948 $ 511 $ 533 supplemental disclosures $ 1,154 Csh pid for interest, net of mount cpitlized $ 1,089 $ 1,323 $ 460 Csh pid (refunded) for income txes $ 546 $ (339) acquisition of Cinergy Corp. $ 17,304 Fir vlue of ssets cquired $ — $ — $ 12,709 libilities ssumed $ — $ — $ 8,993 Issunce of common stock $ — $ — significnt non‑csh trnsctions: $ 632 Conversion of convertible notes to stock $ 28 $ — $ 58 aFuDC‑equity component $ 30 $ 25 $ — trnsfer of DeFs Cndin Fcilities $ 97 $ — $ — Debt retired in connection with disposition of business $ — $ 840 $ — note receivble from sle of southestern plnts $ — $ 48 $ — remrketing of senior notes $ — $ 1,625 see notes to Consolidted Finncil sttements in Duke energy’s 2006 Form 10‑k. 32
    • consolIdated statements oF common stockholders’ eQuIty and comprehensIve Income accumulted other Comprehensive Income (loss) net gins minimum Common additionl Foreign (losses) on pension sFas stock Common pid‑in retined Currency Csh Flow libility no. 158 (In millions) shres stock Cpitl ernings adjustments Hedges adjustment adjustment other totl balance december 31, 2003 911 $ 9,513 $ — $ 4,066 $315 $ 298 $(444) $ — $ — $ 13,748 net income — — — 1,490 — — — — — 1,490 other Comprehensive Income Foreign currency trnsltion djustments — — — — 279 — — — — 279 Foreign currency trnsltion djustments reclssified into ernings s  result of the sle of asi‑pcific Business — — — — (54) — — — — (54) net unrelized gins on csh flow hedges b — — — — — 311 — — — 311 reclssifiction into ernings from csh flow hedges c — — — — — (83) — — — (83) minimum pension libility djustment d — — — — — — 28 — — 28 totl comprehensive income 1,971 Dividend reinvestment nd employee benefits 5 128 — — — — — — — 128 equity offering 41 1,625 — — — — — — — 1,625 Common stock dividends — — — (1,018) — — — — — (1,018) preferred nd preference stock dividends — — — (9) — — — — — (9) other cpitl stock trnsctions, net — — — (4) — — — — — (4) balance december 31, 2004 957 $11,266 $ — $ 4,525 $540 $ 526 $(416) $ — $ — $ 16,441 net income — — — 1,824 — — — — — 1,824 other Comprehensive Income Foreign currency trnsltion djustments  — — — — 306 — — — — 306 net unrelized gins on csh flow hedges b — — — — — 413 — — — 413 reclssifiction into ernings from csh flow hedges c — — — — — (1,026) — — — (1,026) minimum pension libility djustment d — — — — — — 356 — — 356 other f — — — — — — — — 17 17 totl comprehensive income 1,890 Dividend reinvestment nd employee benefits 3 85 — — — — — — — 85 stock repurchse (33) (933) — — — — — — — (933) Conversion of debt 1 28 — — — — — — — 28 Common stock dividends — — — (1,093) — — — — — (1,093) preferred nd preference stock dividends — — — (12) — — — — — (12) other cpitl stock trnsctions, net — — — 33 — — — — — 33 balance december 31, 2005 928 $10,446 $ — $ 5,277 $846 $ (87) $ (60) $ — $ 17 $ 16,439 net income — — — 1,863 — — — — — 1,863 other Comprehensive Income Foreign currency trnsltion djustments — — — — 103 — — — — 103 net unrelized gins on csh flow hedges b — — — — — 6 — — — 6 reclssifiction into ernings from csh flow hedges c — — — — — 36 — — — 36 minimum pension libility djustment d — — — — — — (1) — — (1) other f — — — — — — — — (15) (15) totl comprehensive income 1,992 retirement of old Duke energy shres (927) (10,399) — — — — — — — (10,399) Issunce of new Duke energy shres 927 1 10,398 — — — — — — 10,399 Common stock issued in connection with Cinergy merger 313 — 8,993 — — — — — — 8,993 Conversion of Cinergy options to Duke energy options — — 59 — — — — — — 59 Dividend reinvestment nd employee benefits 6 22 172 — — — — — — 194 stock repurchse (17) (69) (431) — — — — — — (500) Common stock dividends — — — (1,488) — — — — — (1,488) Conversion of debt to equity 27 — 632 — — — — — — 632 tx benefit due to conversion of debt to equity — — 34 — — — — — — 34 adjustment due to sFas no. 158 doption e — — — — — — 61 (311) — (250) other cpitl stock trnsctions, net — — (3) — — — — — — (3) balance december 31, 2006 1,257 $ 1 $19,854 $ 5,652 $949 $ (45) $ — $(311) $ 2 $ 26,102 a Foreign currency translation adjustments, net of $62 tax benefit in 2005. The 2005 tax benefit related to the settled net investment hedges (see Note 8 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K). Substantially all of the 2005 tax benefit is a correction of an immaterial accounting error related to prior periods. b Net unrealized gains on cash flow hedges, net of $3 tax expense in 2006, $233 tax expense in 2005, and $170 tax expense in 2004. c Reclassification into earnings from cash flow hedges, net of $19 tax expense in 2006, $583 tax benefit in 2005, and $45 tax benefit in 2004. Reclassification into earnings from cash flow hedges in 2006, is due primarily to the recognition of Duke Energy North America’s (DENA) unrealized net gains related to hedges on forecasted transactions which will no longer occur as a result of the sale to LS Power of substantially all of DENA’s assets and contracts outside of the Midwestern United States and certain contractual positions related to the Midwestern assets (see Notes 8 and 13 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K). d Minimum pension liability adjustment, net of $0 tax benefit in 2006, $228 tax expense in 2005, and $18 tax expense in 2004. e Adjustment due to SFAS No. 158 adoption, net of $144 tax benefit in 2006. Excludes $595 recorded as a regulatory asset (see Note 22 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K). f Net of $9 tax benefit in 2006, and $10 tax expense in 2005. see notes to Consolidted Finncil sttements in Duke energy’s 2006 Form 10‑k. 33 Duke energy 2006 summary annual report
    • WIllIam Barnet III g. alex BernHarDt sr. mICHael g. BroWnIng pHIllIp r. Cox ann maynarD gray James H. HanCe Jr. James t. rHoDes James e. rogers mary l. sCHapIro DuDley s. taFt 34
    • board oF dIrectors william barnet III James h. hance Jr. Chairman, President and CEO, The Barnet Co. Inc.; Retired Vice Chairman, Chief Financial Officer Chair, Finance and Risk Management Committee; and Board Member, Bank of America; Member, Nuclear Oversight Committee Chair, Compensation Committee; Member, Finance and Risk Management Committee Brnet joined Duke energy’s bord in 2005. He hs been myor of sprtnburg, s.C., since 2002. He serves on the Hnce joined Duke energy’s bord in 2005. a certified public bord of directors of Bnk of americ nd is  trustee of the ccountnt, he spent 17 yers with price Wterhouse. He serves Duke endowment. Brnet ws nmed to the south Crolin on the bords of directors for sprint nextel Corp., Cousins Business Hll of Fme in 2004. properties Inc. nd ryonier Corp. He is  trustee of Wshington university nd of Johnson & Wles university. g. alex bernhardt sr. James t. rhodes Chairman and CEO, Bernhardt Furniture Co.; Member, Audit and Nuclear Oversight Committees Retired Chairman, President and CEO, Institute of Nuclear Power Operations (INPO); Bernhrdt joined Duke energy’s bord in 1991. Besides leding Chair, Nuclear Oversight Committee; Member, Audit Committee the fmily business in lenoir, n.C., he serves on the bord of directors of Communities In schools. He is director emeritus nd rhodes becme  director of Duke energy in 2001. a former pst president of the americn Furniture mnufcturers assocition president nd Ceo of Virgini power, he is  member of the nd pst president of the Interntionl Home Furnishings electric power reserch Institute’s dvisory council. rhodes mrketing assocition. is  former bord member of Inpo, the nucler energy Institute, Virgini electric nd power Co., Dominion resources Inc., michael g. browning edison electric Institute, the southestern electric exchnge President and Chairman of the Board, Browning Investments Inc.; nd ntionsBnk n.a. Member, Compensation, Corporate Governance, and Finance James e. rogers and Risk Management Committees Chairman, President and CEO, Duke Energy Browning joined Cinergy’s bord in 1994. He is  former director of psI energy. He is  member of the bords of directors of the rogers becme chirmn of Duke energy in 2007. He ws chir‑ Indinpolis Convention & Visitors assocition nd the Indinpolis mn nd Ceo of Cinergy prior to its merger with Duke energy. museum of art. He serves on the st. Vincent Hospitl nd Helth rogers is chirmn nd serves on the executive Committee of the Cre Center dvisory bord nd on the Indin public officers edison electric Institute. He is  director of Fifth third Bncorp Compenstion Commission. nd Cign Corp. He is  member of the bords of directors of the nucler energy Institute, the Institute of nucler power opertions, phillip r. cox the allince to sve energy, the ntionl Col Council nd the President and CEO, Cox Financial Corp.; nichols Institute for environmentl policy solutions. Chair, Audit Committee mary l. schapiro Cox becme  Cinergy director in 1994. He is  former director Chairman and CEO, National Association of Securities of Cincinnti gs & electric. He is chirmn of the bord of Dealers (NASD); Cincinnti Bell. He is  bord member of touchstone mutul Member, Audit and Corporate Governance Committees Funds, the timken Compny nd Diebold Inc. He lso serves on the bords of the Cincinnti Business Committee nd the schpiro becme  Cinergy director in 1999. she is  member of university of Cincinnti. the bord of governors of nasD, the world’s lrgest privte‑sector securities regultor. previously, s chirmn of the Commodity ann maynard gray Futures trding Commission, she prticipted in the president’s Former President, Diversified Publishing Group of ABC Inc.; Working group on Finncil mrkets. she lso served s  Lead Director; Chair, Corporate Governance Committee; commissioner on the securities nd exchnge Commission for six Member, Compensation, and Finance and yers. she currently serves on the bord of directors of krft Foods Risk Management Committees Inc. nd the bord of trustees of Frnklin nd mrshll College. gry becme  Duke energy director in 1994. she hs held dudley s. taft  number of senior positions with americn Brodcsting President and CEO, Taft Broadcasting Co.; Compnies, including senior vice president of finnce, tresurer Member, Compensation and Nuclear Oversight Committees nd vice president of plnning. she serves on the bords of the phoenix Compnies nd eln Corp. plc, nd she is  pst member tft served on Cinergy’s bord beginning in 1994 nd ws  of the bord of trustees of J.p. morgn Funds. director of Cincinnti gs & electric from 1985 until 1995. He serves on the bords of the unifi mutul Holding Co., Fifth third Bncorp nd tribune Co. He is chirmn of the Cincinnti assocition for the arts nd  trustee of Boys nd girls Clubs of greter Cincinnti. 35 Duke energy 2006 summary annual report
    • Henry B. Barron Jr. paul H. Barry lynn J. gooD DaVID l. Hauser JulIa s. Janson marC e. manly WIllIam r. mCCollum Jr. sanDra p. meyer tHomas C. o’Connor CatHy s. roCHe CHrIstopHer C. rolFe ellen t. ruFF James l. turner JIm l. stanley r. sean trausCHke B. keItH trent 36
    • executIve management henry b. barron Jr. thomas c. o’connor Group Executive and Chief Nuclear Officer Group Executive and President, Commercial Businesses Brron becme Duke energy’s chief nucler officer in 2004. He is o’Connor is responsible for the midwest non‑regulted genertion, responsible for the sfe opertion of the compny’s three nucler Duke energy Interntionl, Duke energy genertion services, the generting sttions. He joined Duke power in 1972 s  nucler telecommunictions businesses, the compny’s equity interest in power plnt engineer. Crescent resources, nd ll corporte development nd merger nd cquisition ctivities. paul h. barry cathy s. roche Senior Vice President and Chief Development Officer Senior Vice President and Chief Communications Officer Brry is responsible for ll corporte development, mergers nd cquisitions. He previously served s group executive nd roche is responsible for directing nd mnging Duke energy’s president of Duke energy americs, where his responsibilities communictions with internl nd externl udiences, s well s included non‑regulted genertion nd services, trding nd executive communictions, corporte publictions, dvertising, mrketing, nd interntionl opertions. nd brnd mngement nd strtegy. lynn J. good christopher c. rolfe Senior Vice President and Treasurer Group Executive and Chief Administrative Officer good leds the tresury functions for the compny, s well s rolfe leds severl of Duke energy’s corporte functions, including insurnce, mrket nd credit risk mngement, nd corporte humn resources, informtion technology nd opertions services. finncil plnning nd nlysis. she previously served s He previously served s group executive nd chief humn executive vice president nd chief finncil officer for Cinergy. resources officer. david l. hauser ellen t. ruff Group Executive and Chief Financial Officer President, Duke Energy Carolinas Huser becme Duke energy’s CFo in 2004. He leds the ruff leds Duke energy’s utility business in north Crolin nd finncil function, which includes the controller’s office, tresury, south Crolin, which serves more thn 2.2 million customers. tx, risk mngement nd insurnce. since Huser joined she ws formerly group vice president of plnning nd externl Duke power in 1973, he hs held vrious ledership positions, reltions for Duke power. including controller. Jim l. stanley Julia s. Janson President, Duke Energy Indiana Senior Vice President, Ethics and Compliance, and stnley leds Duke energy’s Indin utility business, which Corporate Secretary serves more thn 760,000 customers. He previously served Jnson directs Duke energy’s ethics nd complince progrm nd s vice president of field opertions for Duke energy’s midwest serves s corporte secretry. until the recent merger, she ws with service re. Cinergy, where she ws nmed corporte secretry in 2000, nd r. sean trauschke chief complince officer in 2004. Vice President, Investor Relations marc e. manly truschke is responsible for monitoring trends in investment Group Executive and Chief Legal Officer mrkets nd for mintining key reltionships with investors, mnly leds  group tht comprises the legl deprtment, internl finncil nlysts nd finncil institutions. He ws formerly the udit services, the ethics nd complince office, nd the corporte compny’s vice president of risk mngement, chief risk officer secretry. He served s Cinergy’s executive vice president nd chief nd chief credit officer. legl officer from 2002 until Cinergy merged with Duke energy. b. keith trent william r. mccollum Jr. Group Executive and Chief Strategy and Policy Officer Group Executive and Chief Regulated Generation Officer trent is responsible for strtegy, federl policy nd government mcCollum is responsible for the compny’s regulted fossil fuel nd ffirs, energy efficiency nd technology inititives, environmentl hydroelectric power genertion, including portfolio optimiztion, helth nd sfety policy, corporte communictions, nd sustin‑ engineering, construction, project mngement nd procurement. bility nd community ffirs. He ws formerly chief development He joined Duke power s  nucler power plnt engineer in 1974. officer nd generl counsel. sandra p meyer . James l. turner President, Duke Energy Ohio and Duke Energy Kentucky Group Executive and President, U.S. Franchised Electric and Gas meyer leds Duke energy’s ohio nd kentucky opertions, turner hs overll profit nd loss responsibility for the compny’s which serve more thn 810,000 customers. she ws formerly u.s. Frnchised electric nd gs business, which serves group vice president of customer service, sles nd mrketing 3.9 million customers in five sttes. prior to the merger of for Duke power. Duke energy nd Cinergy, turner served s president of Cinergy. 37 Duke energy 2006 summary annual report
    • non‑gaap FInancIal measures 2006 and 2005 ongoIng dIluted earnIngs the following is the detil of the $0.88 in specil items impcting per share (“eps”) diluted eps for 2005: Duke energy’s 2006 summry annul report references 2005 diluted 2006 nd 2005 ongoing diluted eps of $1.81 nd $1.73, pre‑tax tax eps respectively. ongoing diluted eps is  non‑gaap (generlly amount effect Impact (In millions, except per‑shre mounts) ccepted ccounting principles) finncil mesure, s it gin on sle of teppCo gp represents diluted eps from continuing opertions plus the (net of minority interest of $343 million) $791 $(293) $ 0.51 per‑shre effect of ny discontinued opertions from our Crescent gin on sle of teppCo lp units 97 (36) 0.06 resources rel estte development compny (“Crescent”) prior to loss on de‑designtion of Field services’ the deconsolidtion of Crescent in september 2006, djusted for hedges, net of settlements on 2005 positions (23) 9 (0.01) the per‑shre impct of specil items. specil items represent additionl libilities relted to certin chrges nd credits which mngement believes will not mutul insurnce compnies (28) 10 (0.02) be recurring on  regulr bsis. the following is  reconcilition gin on trnsfer of 19.7 percent interest in DeFs to Conocophillips 576 (213) 0.37 of reported diluted eps from continuing opertions to ongoing Impirment of Cmpeche investment (20) 6 (0.01) diluted eps for 2006 nd 2005: Initil nd subsequent net mrk‑to‑mrket gins on de‑designting southest 2006 2005 Duke energy north americ $ 1.70 Diluted eps from continuing opertions, s reported $ 2.60 (“Dena”) hedges 21 (8) 0.01 (0.13) Diluted eps from discontinued opertions, s reported (0.72) loss on southest Dena contrct termintion (75) 28 (0.04) 1.57 Diluted eps, s reported 1.88 tx djustments — 12 0.01 adjustments to reported eps: total diluted eps impact $ 0.88 Diluted eps from discontinued opertions excluding Crescent resources, nd cumultive effect of chnge 0.13 in ccounting principle 0.73 proceeds From certaIn sIgnIFIcant 2006 Diluted eps impct of specil items dIsposItIon transactIons 0.11 (see detil below) (0.88) diluted eps, ongoing $1.81 $1.73 Duke energy’s 2006 summry annul report references the nerly $2 billion in fter‑tx proceeds rised from selling the the following is the detil of the $(0.11) in specil items impct‑ commercil mrketing nd trding (“Cmt”) opertions nd ing diluted eps for 2006: effectively hlf of Crescent. the following represents the components of the fter‑tx proceeds from these trnsctions: 2006 diluted pre‑tax tax eps (In millions) amount effect Impact (In millions, except per‑shre mounts) proceeds related to creation of crescent Joint venture nturl gs trnsmission gin on net proceeds from issunce of debt by Crescent $1,190 contrct settlement $ 24 $ (8) $ 0.01 proceeds received from sle of equity interest 415 Duke energy portion of gin on estimted income tx pyments resulting from trnsction (135) Duke energy Field services’ reduction in reported csh due to deconsolidtion of Crescent (30) (“DeFs”) sset sle 14 (5) 0.01 net fter‑tx proceeds $1,440 Costs to chieve the Cinergy merger (128) 45 (0.07) Costs to chieve the spinoff of spectr energy (60) 7 (0.05) proceeds on sale of cmt Impirment of Cmpeche investment (50) — (0.04) net proceeds received (including working cpitl nd bse price) $700 gin on sle of interest in Crescent 246 (124) 0.10 estimted income tx pyments resulting from trnsction (145) gin relted to the issunce of units of nturl gs trnsmission’s Cndin net fter‑tx proceeds $555 income fund 15 (5) 0.01 total combined net after‑tax proceeds $1,995 settlement reserves (165) 58 (0.09) Impirment of Bolivi investment (28) 31 — tx djustment — 8 0.01 total diluted eps impact $(0.11) 38
    • 2007 employee IncentIve target measure Forecasted 2007 ongoIng segment and total segment ebIt Duke energy’s 2006 summry annul report references the compny’s 2007 employee incentive trget. the eps mesure Duke energy’s 2006 summry annul report includes  used for employee incentive bonuses is bsed on ongoing diluted discussion of forecsted 2007 ongoing eBIt for ech of Duke eps. ongoing diluted eps is  non‑gaap finncil mesure s it energy’s reportble segments s  percentge of forecsted 2007 represents diluted eps from continuing opertions djusted for the ongoing totl segment eBIt. Forecsted 2007 ongoing segment per‑shre impct of specil items. specil items represent certin nd totl segment eBIt mounts re non‑gaap finncil chrges nd credits which mngement believes will not be mesures, s they reflect segment nd totl segment eBIt, recurring on  regulr bsis. the most directly comprble gaap djusted for the impct of specil items. specil items represent mesure for ongoing diluted eps is reported diluted eps from certin chrges nd credits which mngement believes will not continuing opertions, which includes the impct of specil items. be recurring on  regulr bsis. the most directly comprble Due to the forwrd‑looking nture of this non‑gaap finncil gaap mesure for forecsted ongoing segment eBIt is reported mesure, informtion to reconcile it to the most directly segment eBIt from continuing opertions, which includes the comprble gaap finncil mesure is not vilble t this time, impct of specil items. the most directly comprble gaap s mngement is unble to forecst ny specil items for ny mesure for ongoing totl segment eBIt is reported totl segment future periods. eBIt, which includes the impct of specil items. Due to the forwrd‑looking nture of these non‑gaap finncil mesures for future periods, informtion to reconcile these non‑gaap finncil antIcIpated ongoIng dIluted eps mesures to the most directly comprble gaap finncil growth percentages mesures is not vilble t this time, s mngement is Duke energy’s 2006 summry annul report references the unble to forecst ny specil items for ny future periods. compny’s nticipted growth in ongoing diluted eps through the end of 2009. these growth percentges re bsed on nticipted ongoing diluted eps. ongoing diluted eps is  non‑gaap finncil mesure, s it represents diluted eps from continuing opertions djusted for the per‑shre impct of specil items. specil items represent certin chrges nd credits which mngement believes will not be recurring on  regulr bsis. the most directly comprble gaap mesure for ongoing diluted eps is reported diluted eps from continuing opertions, which includes the impct of specil items. Due to the forwrd‑looking nture of this non‑gaap finncil mesure for future periods, informtion to reconcile this non‑gaap finncil mesure to the most directly comprble gaap finncil mesure is not vilble t this time, s mngement is unble to forecst ny specil items for ny future periods. 39 Duke energy 2006 summary annual report
    • Investor InFormatIon csh pyment of dividends. additionlly, annual meeting dividend payment prticipnts my register for Duk‑online, the 2007 annul meeting of Duke energy hs pid qurterly csh our online ccount mngement tool. Duke energy shreholders will be: dividends on its common stock for Dte: thursdy, my 10, 2007 80 consecutive yers. For the rest of 2007, Financial publications time: 10 .m. dividends on common stock re expected Duke energy’s current nnul report, plce: o.J. miller auditorium, to be pid, subject to declrtion by the seC Form 10‑k nd relted finncil energy Center Bord of Directors, on June 18, sept. 17 publictions cn be found on our Web 526 south Church street nd Dec. 17, 2007. site t www.duke‑energy.com/investors. Chrlotte, nC 28202 printed copies re lso vilble free of bond trustee chrge upon request. shareholder services If you hve questions regrding your shreholders my cll (800) 488‑3853 bond ccount, cll (800) 275‑2048, electronic delivery or (704) 382‑3853 with questions or write to: as prt of our commitment to sustinbility bout their stock ccounts, legl the Bnk of new york ledership, we re gin offering to mke trnsfer requirements, ddress chnges, globl trust services  $1 dontion to the nture Conservncy replcement dividend checks, replcement 101 Brcly street for every shreholder who signs up for of lost certifictes or other services. new york, ny 10286 electronic delivery of our nnul report, additionlly, registered users of Duk‑ proxy sttement nd our other finncil online, our online ccount mngement nyse ceo certification informtion. Currently, more thn 80,000 service, my ccess their ccounts through Duke energy Corportion hs filed the of you hve chosen electronic delivery, nd certifiction of its chief executive officer the Internet. we intend to mke n equivlent dontion nd chief finncil officer pursunt to in dollrs to the nture Conservncy. this section 302 of the srbnes‑oxley send written requests to: effort helps preserve our nturl resources act of 2002 s exhibits to its annul Investor reltions nd significntly reduces our printing nd report on Form 10‑k for the yer ended Duke energy miling costs. December 31, 2006. In november 2006, p.o. Box 1005 Duke energy Corportion’s chief executive Chrlotte, nC 28201‑1005 you only need to sign up once. officer, s required by section 303a.12() to enroll in electronic delivery, go to of the nyse listed Compny mnul, For electronic correspondence, visit https://www.icsdelivery.com/duk/index. certified to the nyse tht he ws not www.duke‑energy.com/contctIr. html. to lern more bout the work wre of ny violtion by Duke energy of the nture Conservncy, visit Corportion of the nyse’s corporte stock exchange listing http://www.nture.org. governnce listing stndrds. Duke energy’s common stock is listed on the new york stock exchnge. duplicate mailings send us Feedback the compny’s common stock trding If your shres re registered in different symbol is Duk. We welcome your opinion on Duke ccounts, you my receive duplicte energy’s 2006 summry annul report. milings of nnul reports, proxy web site addresses plese visit www.duke‑energy.com/ sttements nd other shreholder Corporte home pge: investors, where you cn view the online informtion. Cll Investor reltions for www.duke‑energy.com annul report nd provide feedbck instructions on eliminting duplictions Investor reltions: on both the print nd online versions. PHOTOGRAPHy: MARK GREEN / WWW.MPG2.COM or combining your ccounts. www.duke‑energy.com/investors or contct Investor reltions directly. transfer agent and registrar Investordirect choice plan Duke energy is n equl opportunity Duke energy mintins shreholder the InvestorDirect Choice pln provides employer. this report is published solely records nd cts s trnsfer gent nd  simple nd convenient wy to purchse to inform shreholders nd is not to be registrr for the compny’s common common stock directly through the considered n offer, or the solicittion stock issues. compny, without incurring brokerge of n offer, to buy or sell securities. fees. purchses my be mde weekly. Bnk drfts for monthly purchses, s well s  sfekeeping option for depositing certifictes into the pln, re vilble. DESIGN: PROWOLFE PARTNERS the pln lso provides for full reinvestment, direct deposit or 40
    • Sustainability At Duke Energy Duke energy is no newcomer to sustinbility. our commitment to conduct our business in  wy tht cretes long‑term benefits for our stkeholders, our environment nd our compny hs been prt of our core business philosophy for yers. as such, our pproch to sustinbility hs five focus res: provide innovative products and services for a carbon‑constrained, competitive world. Whyitmatters: our customers wnt products nd services tht keep them competitive regionlly nd globlly, yet respond to environmentl concerns. reduce our environmental footprint. Whyitmatters: as n energy compny, we hve  lrge impct on the environment nd depend on nturl resources for much of our fuel. attract and retain a diverse, high‑quality work force. Whyitmatters: energy compnies will be differentited by the qulity, cretivity nd customer focus of their employees. help build strong communities. Whyitmatters: our success is linked to the helth nd prosperity of the communities we serve. be profitable and demonstrate strong governance and transparency. Whyitmatters: Creting shreholder vlue nd erning the trust nd confidence of our mny stkeholders keeps us in business. Duke energy’s nnul nd periodic updtes on sustinbility products with  mixed sources lbel support the development of responsible forest mngement worldwide. the wood comes from performnce re vilble on our Web site t this link: Forest stewrdship Council (FsC)‑certified well‑mnged forests, http://www.duke‑energy.com/environment/sustinbility.sp. compny‑controlled sources nd/or recycled mteril. the recycling symbol identifies post‑consumer recycled content in these products. 41 Duke energy 2006 summary annual report
    • 526 south Church street Chrlotte, nC 28202‑1802 704.594.6200 www.duke‑energy.com