UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



---



FORM 10-Q



(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2006



or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from
                     to



Commission file number 0-23977



DUKE CAPITAL LLC

(Exact Name of Registrant as Specified in its Charter)



|                                              |  |                                  
|--------------------------------------------- |  | ---------------------------------
|Delaware                                      |  | 51-0282142                       
|(State or Other Jurisdiction ofIncorporation) |  | (IRS Employer Identification No.)



526 South Church Street

Charlotte, NC 28202-1803

(Address of Principal
Executive Offices)

(Zip code)



704-594-6200

(Registrants telephone number, including area
code)



Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No  ̈



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).



Large accelerated filer  ̈                    Accelerated filer  ̈                    Non-accelerated filer x



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes  ̈ No x



All of the registrants limited
liability company member interests are directly owned by Duke Energy Corporation (File No. 1-32853), which files reports and proxy materials pursuant to the Securities Exchange Act of 1934, as amended.



---

INDEX



DUKE CAPITAL LLC

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2006



|                              |  |                                                                                                                        |  |     
|----------------------------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | ----
|Item                          |  |                                                                                                                        |  | Page
|PART I. FINANCIAL INFORMATION |  |                                                                                                                       
|                              |  |                                                                                                                       
|1.                            |  | FINANCIAL STATEMENTS                                                                                                   |  | 3   
|                              |  |                                                                                                                       
|                              |  | CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005                               |  | 3   
|                              |  |                                                                                                                       
|                              |  | CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2006 AND DECEMBER 31, 2005                                                 |  | 4   
|                              |  |                                                                                                                       
|                              |  | CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005                               |  | 6   
|                              |  |                                                                                                                       
|                              |  | CONSOLIDATED STATEMENTS OF MEMBERS EQUITY AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005 |  | 7   
|                              |  |                                                                                                                       
|                              |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                             |  | 8   
|                              |  |                                                                                                                       
|2.                            |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                  |  | 31  
|                              |  |                                                                                                                       
|3.                            |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                             |  | 43  
|                              |  |                                                                                                                       
|4.                            |  | CONTROLS AND PROCEDURES                                                                                                |  | 44  
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                       
|                              |  |                                                                                                                       
|1.                            |  | LEGAL PROCEEDINGS                                                                                                      |  | 46  
|                              |  |                                                                                                                       
|1A.                           |  | RISK FACTORS                                                                                                           |  | 46  
|                              |  |                                                                                                                       
|6.                            |  | EXHIBITS                                                                                                               |  | 47  
|                              |  |                                                                                                                       
|                              |  | SIGNATURES                                                                                                             |  | 48  



SAFE HARBOR STATEMENT UNDER THE PRIVATE

SECURITIES LITIGATION REFORM ACT OF 1995



Duke Capital LLCs (Duke Capital) reports, filings and other public announcements may contain or incorporate by reference statements that do not directly or
exclusively relate to historical facts. Such statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can typically identify forward-looking statements by the use of
forward-looking words, such as may, will, could, project, believe, anticipate, expect, estimate, continue, potential,
plan, forecast and other similar words. Those statements represent Duke Capitals intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors.
Many of those factors are outside Duke Capitals control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Those factors include the risk factors set forth in
Item 1A of the Form 10-K of Duke Capital LLC for the year ended December 31, 2005 as well as the following:



| |  |  | State, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rate structures, and affect the speed at and degree to which
competition enters the electric and natural gas industries
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The outcomes of litigation and regulatory investigations, proceedings or inquiries
| | - |  | ----------------------------------------------------------------------------------



| |  |  | Industrial, commercial and residential growth in Duke Capitals service territories
| | - |  | -----------------------------------------------------------------------------------



| |  |  | Additional competition in electric or gas markets and continued industry consolidation
| | - |  | --------------------------------------------------------------------------------------



| |  |  | Political and regulatory uncertainty in other countries in which Duke Capital conducts business
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | The influence of weather and other natural phenomena on company operations, including the economic, operational and other effects of hurricanes and ice storms
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | General economic conditions, including any potential effects arising from terrorist attacks and any consequential hostilities or other hostilities
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Changes in environmental and other laws and regulations to which Duke Capital and its subsidiaries are subject
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | The results of financing efforts, including Duke Capitals ability to obtain financing on favorable terms, which can be affected by various factors, including Duke Capitals credit
ratings and general economic conditions
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Declines in the market prices of equity securities and resultant cash funding requirements of Duke Capital for Duke Energys defined benefit pension plans
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The level of creditworthiness of counterparties to Duke Capitals transactions
| | - |  | ------------------------------------------------------------------------------



| |  |  | The amount of collateral required to be posted from time to time in Duke Capitals transactions
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | Growth in opportunities for Duke Capitals business units, including the timing and success of efforts to develop domestic and international power, pipeline, gathering, processing and
other projects
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The performance of electric generation, pipeline and gas processing facilities and of projects undertaken by Duke Capitals non-regulated businesses
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The extent of success in connecting natural gas supplies to gathering and processing systems and in connecting and expanding gas and electric markets
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The effect of accounting pronouncements issued periodically by accounting standard-setting bodies
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | Conditions of the capital markets and equity markets during the periods covered by the forward-looking statements and
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | The ability to successfully complete merger, acquisition or divestiture plans, including the prices at which Duke Capital is able to sell assets; regulatory or other limitations imposed as a
result of a merger, acquisition or divestiture; and the success of the business following a merger, acquisition or divestiture
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



---

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

DUKE CAPITAL LLC

Consolidated Statements of Operations

(Unaudited)

(In millions)



|                                                                         |  |                             |       |   |      |   |       |  
|------------------------------------------------------------------------ |  | --------------------------- | ----- | - | ---- | - | ----- | -
|                                                                         |  | Three Months EndedMarch 31, |      
|                                                                         |  | 2006                        |       |   | 2005 |  
|Operating Revenues                                                       |  |                             |       |   |      |   |       |  
|Non-regulated electric, natural gas, natural gas liquids and other       |  | $                           | 515   |   |      | $ | 2,843 |  
|Regulated natural gas and natural gas liquids                            |  |                             | 1,319 |   |      |   | 1,168 |  
|Total operating revenues                                                 |  |                             | 1,834 |   |      |   | 4,011 |  
|Operating Expenses                                                       |  |                             |       |   |      |   |       |  
|Natural gas and petroleum products purchased                             |  |                             | 639   |   |      |   | 2,645 |  
|Operation, maintenance and other                                         |  |                             | 420   |   |      |   | 453   |  
|Fuel used in electric generation and purchased power                     |  |                             | 99    |   |      |   | 69    |  
|Depreciation and amortization                                            |  |                             | 164   |   |      |   | 227   |  
|Property and other taxes                                                 |  |                             | 71    |   |      |   | 77    |  
|Impairment and other charges                                             |  |                             |      |   |      |   | 121   |  
|Total operating expenses                                                 |  |                             | 1,393 |   |      |   | 3,592 |  
|Gains on Sales of Investments in Commercial and Multi-Family Real Estate |  |                             | 26    |   |      |   | 42    |  
|Gains on Sales of Other Assets and Other, net                            |  |                             | 28    |   |      |   | 7     |  
|Operating Income                                                         |  |                             | 495   |   |      |   | 468   |  
|Other Income and Expenses                                                |  |                             |       |   |      |   |       |  
|Equity in earnings of unconsolidated affiliates                          |  |                             | 175   |   |      |   | 41    |  
|Gains on sales of equity investments                                     |  |                             |      |   |      |   | 1,239 |  
|Other income and expenses, net                                           |  |                             | 7     |   |      |   | 23    |  
|Total other income and expenses                                          |  |                             | 182   |   |      |   | 1,303 |  
|                                                                         |  |                            
|Interest Expense                                                         |  |                             | 176   |   |      |   | 220   |  
|Minority Interest Expense                                                |  |                             | 15    |   |      |   | 420   |  
|Earnings From Continuing Operations Before Income Taxes                  |  |                             | 486   |   |      |   | 1,131 |  
|Income Tax Expense from Continuing Operations                            |  |                             | 222   |   |      |   | 431   |  
|Income From Continuing Operations                                        |  |                             | 264   |   |      |   | 700   |  
|Loss From Discontinued Operations, net of tax                            |  |                             | (48   | ) |      |   | (49   | )
|Net Income                                                               |  | $                           | 216   |   |      | $ | 651   |  
|                                                                         | 



See Notes to Unaudited
Consolidated Financial Statements



3



---

PART I

DUKE CAPITAL LLC

Consolidated Balance Sheets

(Unaudited)

(In millions)



|                                                                                                                                                            |  |           |        |              |   |       
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ------ | ------------ | - | ------
|                                                                                                                                                            |  | March 31, |        | December 31,
|                                                                                                                                                            |  | 2006      |        | 2005        
|ASSETS                                                                                                                                                      |  |           |        |              |   |       
|Current Assets                                                                                                                                              |  |           |        |              |   |       
|Cash and cash equivalents                                                                                                                                   |  | $         | 750    |              | $ | 485   
|Short-term investments                                                                                                                                      |  |           | 32     |              |   | 521   
|Receivables (net of allowance for doubtful accounts of $139 at March 31, 2006 and $106 at December 31, 2005)                                                |  |           | 1,507  |              |   | 1,920 
|Inventory                                                                                                                                                   |  |           | 297    |              |   | 426   
|Assets held for sale                                                                                                                                        |  |           | 326    |              |   | 1,528 
|Unrealized gains on mark-to-market and hedging transactions                                                                                                 |  |           | 22     |              |   | 41    
|Other                                                                                                                                                       |  |           | 933    |              |   | 1,529 
|Total current assets                                                                                                                                        |  |           | 3,867  |              |   | 6,450 
|Investments and Other Assets                                                                                                                                |  |           |        |              |   |       
|Investments in unconsolidated affiliates                                                                                                                    |  |           | 2,034  |              |   | 1,931 
|Goodwill                                                                                                                                                    |  |           | 3,782  |              |   | 3,775 
|Notes receivable                                                                                                                                            |  |           | 145    |              |   | 138   
|Unrealized gains on mark-to-market and hedging transactions                                                                                                 |  |           | 58     |              |   | 87    
|Assets held for sale                                                                                                                                        |  |           | 2,614  |              |   | 3,597 
|Investments in residential, commercial and multi-family real estate (net of accumulated depreciation of $17 at March 31, 2006 and $17 at
December 31, 2005) |  |           | 1,326  |              |   | 1,281 
|Other                                                                                                                                                       |  |           | 881    |              |   | 858   
|Total investments and other assets                                                                                                                          |  |           | 10,840 |              |   | 11,667
|Property, Plant and Equipment                                                                                                                               |  |           |        |              |   |       
|Cost                                                                                                                                                        |  |           | 19,704 |              |   | 19,335
|Less accumulated depreciation and amortization                                                                                                              |  |           | 3,833  |              |   | 3,648 
|Net property, plant and equipment                                                                                                                           |  |           | 15,871 |              |   | 15,687
|Regulatory Assets and Deferred Debits                                                                                                                       |  |           | 1,241  |              |   | 1,216 
|Total Assets                                                                                                                                                |  | $         | 31,819 |              | $ | 35,020
|                                                                                                                                                           



See Notes to Unaudited
Consolidated Financial Statements



4



---

PART I

DUKE CAPITAL LLC

Consolidated Balance Sheets

(Unaudited)

(In millions)



|                                                             |  |               |        |                  |   |       
|------------------------------------------------------------ |  | ------------- | ------ | ---------------- | - | ------
|                                                             |  | March 31,2006 |        | December 31,2005
|LIABILITIES AND MEMBERS EQUITY                              |  |               |        |                  |   |       
|                                                             |  |              
|Current Liabilities                                          |  |               |        |                  |   |       
|Accounts payable                                             |  | $             | 803    |                  | $ | 1,778 
|Notes payable and commercial paper                           |  |               |       |                  |   | 83    
|Taxes accrued                                                |  |               | 371    |                  |   | 258   
|Interest accrued                                             |  |               | 170    |                  |   | 155   
|Liabilities associated with assets held for sale             |  |               | 378    |                  |   | 1,488 
|Current maturities of long-term debt                         |  |               | 1,412  |                  |   | 1,394 
|Unrealized losses on mark-to-market and hedging transactions |  |               | 170    |                  |   | 159   
|Other                                                        |  |               | 1,637  |                  |   | 1,892 
|Total current liabilities                                    |  |               | 4,941  |                  |   | 7,207 
|Long-term Debt                                               |  |               | 8,841  |                  |   | 8,790 
|                                                             |  |              
|Deferred Credits and Other Liabilities                       |  |               |        |                  |   |       
|Deferred income taxes                                        |  |               | 3,047  |                  |   | 3,188 
|Unrealized losses on mark-to-market and hedging transactions |  |               | 14     |                  |   | 20    
|Liabilities associated with assets held for sale             |  |               | 988    |                  |   | 2,085 
|Other                                                        |  |               | 1,376  |                  |   | 1,398 
|Total deferred credits and other liabilities                 |  |               | 5,425  |                  |   | 6,691 
|                                                             |  |              
|Commitments and Contingencies                                |  |               |        |                  |   |       
|Minority Interests                                           |  |               | 727    |                  |   | 749   
|                                                             |  |              
|Members Equity                                              |  |               |        |                  |   |       
|Members Equity                                              |  |               | 11,140 |                  |   | 10,927
|Accumulated other comprehensive income                       |  |               | 745    |                  |   | 656   
|Total members equity                                        |  |               | 11,885 |                  |   | 11,583
|Total Liabilities and Members Equity                        |  | $             | 31,819 |                  | $ | 35,020
|                                                            



See Notes to Unaudited
Consolidated Financial Statements



5



---

PART I

DUKE CAPITAL LLC

Consolidated Statements of Cash Flows

(Unaudited)

(In millions)



|                                                                                                                     |  |                              |        |   |      |   |        |  
|-------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                     |  | Three Months Ended March 31, |       
|                                                                                                                     |  | 2006                         |        |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                                 |  |                              |        |   |      |   |        |  
|Net income                                                                                                           |  | $                            | 216    |   |      | $ | 651    |  
|Adjustments to reconcile net income to net cash provided by operating activities:                                    |  |                              |        |   |      |   |        |  
|Depreciation and amortization                                                                                        |  |                              | 166    |   |      |   | 253    |  
|Gains on sales of investments in commercial and multi-family real estate                                             |  |                              | (26    | ) |      |   | (42    | )
|Gains on sales of equity investments and other assets                                                                |  |                              | (6     | ) |      |   | (1,271 | )
|Impairment charges                                                                                                   |  |                              |       |   |      |   | 121    |  
|Deferred income taxes                                                                                                |  |                              | (143   | ) |      |   | (99    | )
|Minority Interest                                                                                                    |  |                              | 15     |   |      |   | 413    |  
|Equity in earnings of unconsolidated affiliates                                                                      |  |                              | (175   | ) |      |   | (41    | )
|Contribution to company-sponsored pension plans                                                                      |  |                              | (11    | ) |      |   | (13    | )
|(Increase) decrease in                                                                                               |  |                              |        |   |      |   |        |  
|Net realized and unrealized mark-to-market and hedging transactions                                                  |  |                              | 72     |   |      |   | 17     |  
|Receivables                                                                                                          |  |                              | 449    |   |      |   | 4      |  
|Inventory                                                                                                            |  |                              | 236    |   |      |   | 221    |  
|Other current assets                                                                                                 |  |                              | 790    |   |      |   | (30    | )
|Increase (decrease) in                                                                                               |  |                              |        |   |      |   |        |  
|Accounts payable                                                                                                     |  |                              | (970   | ) |      |   | 21     |  
|Taxes accrued                                                                                                        |  |                              | (65    | ) |      |   | 514    |  
|Other current liabilities                                                                                            |  |                              | (277   | ) |      |   | (126   | )
|Capital expenditures for residential real estate                                                                     |  |                              | (115   | ) |      |   | (91    | )
|Cost of residential real estate sold                                                                                 |  |                              | 42     |   |      |   | 38     |  
|Other, assets                                                                                                        |  |                              | 178    |   |      |   | (201   | )
|Other, liabilities                                                                                                   |  |                              | 1      |   |      |   | 22     |  
|Net cash provided by operating activities                                                                            |  |                              | 377    |   |      |   | 361    |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                                 |  |                              |        |   |      |   |        |  
|Capital expenditures                                                                                                 |  |                              | (221   | ) |      |   | (200   | )
|Investment expenditures                                                                                              |  |                              | (68    | ) |      |   | (4     | )
|Acquisitions, net of cash acquired                                                                                   |  |                              | (90    | ) |      |   |       |  
|Purchases of available-for-sale securities                                                                           |  |                              | (4,413 | ) |      |   | (9,368 | )
|Proceeds from sales and maturities of available-for-sale securities                                                  |  |                              | 4,866  |   |      |   | 9,411  |  
|Net proceeds from the sales of equity investments and other assets, and sales of and collections on notes receivable |  |                              | 22     |   |      |   | 1,322  |  
|Proceeds from the sales of commercial and multi-family real estate                                                   |  |                              | 56     |   |      |   | 51     |  
|Settlement of net investment hedges and other investing derivatives                                                  |  |                              | (36    | ) |      |   | (162   | )
|Other                                                                                                                |  |                              | (6     | ) |      |   | (3     | )
|Net cash provided by investing activities                                                                            |  |                              | 110    |   |      |   | 1,047  |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                                 |  |                              |        |   |      |   |        |  
|Proceeds from the issuance of long-term debt                                                                         |  |                              | 6      |   |      |   | 4      |  
|Payments for the redemption of long-term debt                                                                        |  |                              | (39    | ) |      |   | (168   | )
|Notes payable and commercial paper                                                                                   |  |                              | (84    | ) |      |   | (66    | )
|Distributions to minority interests                                                                                  |  |                              | (157   | ) |      |   | (195   | )
|Contributions from minority interests                                                                                |  |                              | 137    |   |      |   | 192    |  
|Advances to parent                                                                                                   |  |                              | (89    | ) |      |   |       |  
|Distributions to parent                                                                                              |  |                              |       |   |      |   | (750   | )
|Other                                                                                                                |  |                              | 4      |   |      |   | (3     | )
|Net cash used in financing activities                                                                                |  |                              | (222   | ) |      |   | (986   | )
|Changes in cash and cash equivalents included in assets held for sale                                                |  |                              |       |   |      |   | (1     | )
|Net increase in cash and cash equivalents                                                                            |  |                              | 265    |   |      |   | 421    |  
|Cash and cash equivalents at beginning of period                                                                     |  |                              | 485    |   |      |   | 503    |  
|Cash and cash equivalents at end of period                                                                           |  | $                            | 750    |   |      | $ | 924    |  
|                                                                                                                     | 
|Supplemental Disclosures                                                                                             |  |                              |        |   |      |   |        |  
|Significant non-cash transactions:                                                                                   |  |                              |        |   |      |   |        |  
|Advances from parent converted to equity                                                                             |  | $                            |       |   |      | $ | 267    |  
|AFUDCequity component                                                                                               |  | $                            | 3      |   |      | $ | 1      |  



See Notes to Unaudited
Consolidated Financial Statements



6



---

PART I

DUKE CAPITAL LLC

Consolidated Statements of Members Equity and Comprehensive Income

(Unaudited)

(In millions)



|                                                         |  |                |        |   |                                        |   |     |                                    |  |   |                                   |   |  |       |     |       |  |   |    |  |   |        |  
|-------------------------------------------------------- |  | -------------- | ------ | - | -------------------------------------- | - | --- | ---------------------------------- |  | - | --------------------------------- | - |  | ----- | --- | ----- |  | - | -- |  | - | ------ | -
|                                                         |  |                |        |   | Accumulated Other Comprehensive Income |   |     |                                   
|                                                         |  | MembersEquity |        |   | ForeignCurrencyAdjustments             |   |     | NetGains(Losses) onCash FlowHedges |  |   | MinimumPensionLiabilityAdjustment |   |  | Other |     | Total | 
|Balance December 31, 2004                                |  | $              | 11,307 |   |                                        | $ | 534 |                                    |  | $ | 536                               |   |  | $     | (21 | )     |  | $ |   |  | $ | 12,356 |  
|                                                         | 
|Net income                                               |  |                | 651    |   |                                        |   |    |                                    |  |   |                                  |   |  |       |    |       |  |   |   |  |   | 651    |  
|Other Comprehensive Income                               |  |                |        |   |                                        |   |     |                                    |  |   |                                   |   |  |       |     |       |  |   |    |  |   |        |  
|Foreign currency translation adjustments                 |  |                |        |   |                                        |   | (15 | )                                  |  |   |                                  |   |  |       |    |       |  |   |   |  |   | (15    | )
|Net unrealized gains on cash flow hedges (a)             |  |                |        |   |                                        |   |    |                                    |  |   | 144                               |   |  |       |    |       |  |   |   |  |   | 144    |  
|Reclassification into earnings from cash flow hedges (b) |  |                |        |   |                                        |   |    |                                    |  |   | 59                                |   |  |       |    |       |  |   |   |  |   | 59     |  
|                                                         |  |                |        |   |                                        |   |     |                                    |  |   |                                   |   |  |       |     |       |  |   |    |  |   |        |  
|Total comprehensive income                               |  |                |        |   |                                        |   |     |                                    |  |   |                                   |   |  |       |     |       |  |   |    |  |   | 839    |  
|                                                         |  |                |        |   |                                        |  
|Distribution to parent                                   |  |                | (750   | ) |                                        |   |    |                                    |  |   |                                  |   |  |       |    |       |  |   |   |  |   | (750   | )
|Advances from parent converted to equity                 |  |                | 267    |   |                                        |   |    |                                    |  |   |                                  |   |  |       |    |       |  |   |   |  |   | 267    |  
|Other, net                                               |  |                | (3     | ) |                                        |   |    |                                    |  |   |                                  |   |  |       |    |       |  |   |   |  |   | (3     | )
|Balance March 31, 2005                                   |  | $              | 11,472 |   |                                        | $ | 519 |                                    |  | $ | 739                               |   |  | $     | (21 | )     |  | $ |   |  | $ | 12,709 |  
|                                                         | 
|Balance December 31, 2005                                |  | $              | 10,927 |   |                                        | $ | 779 |                                    |  | $ | (79                               | ) |  | $     | (61 | )     |  | $ | 17 |  | $ | 11,583 |  
|                                                         | 
|Net income                                               |  |                | 216    |   |                                        |   |    |                                    |  |   |                                  |   |  |       |    |       |  |   |   |  |   | 216    |  
|Other Comprehensive Income                               |  |                |        |   |                                        |   |     |                                    |  |   |                                   |   |  |       |     |       |  |   |    |  |   |        |  
|Foreign currency translation adjustments                 |  |                |        |   |                                        |   | 59  |                                    |  |   |                                  |   |  |       |    |       |  |   |   |  |   | 59     |  
|Reclassification into earnings from cash flow hedges (b) |  |                |        |   |                                        |   |    |                                    |  |   | 14                                |   |  |       |    |       |  |   |   |  |   | 14     |  
|Other (c)                                                |  |                |        |   |                                        |   |    |                                    |  |   |                                  |   |  |       |    |       |  |   | 16 |  |   | 16     |  
|                                                         |  |                |        |   |                                        |   |     |                                    |  |   |                                   |   |  |       |     |       |  |   |    |  |   |        |  
|Total comprehensive income                               |  |                |        |   |                                        |   |     |                                    |  |   |                                   |   |  |       |     |       |  |   |    |  |   | 305    |  
|                                                         |  |                |        |   |                                        |  
|Other, net                                               |  |                | (3     | ) |                                        |   |    |                                    |  |   |                                  |   |  |       |    |       |  |   |   |  |   | (3     | )
|Balance March 31, 2006                                   |  | $              | 11,140 |   |                                        | $ | 838 |                                    |  | $ | (65                               | ) |  | $     | (61 | )     |  | $ | 33 |  | $ | 11,885 |  
|                                                         | 

|(a) | Net unrealized gains on cash flow hedges, net of $73 tax expense in 2005.
|--- | -------------------------------------------------------------------------

|(b) | Reclassification into earnings from cash flow hedges, net of $9 tax expense in 2006 and $30 tax expense in 2005. Reclassification into earnings from cash flow hedges for the three months
ended March 31, 2006, is due primarily to the recognition of Duke Energy North America's (DENA's) unrealized net gains related to hedges on forecasted transactions which will no longer occur as a result of the plan to sell or otherwise dispose
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 10 and 12).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Net of $8 tax expense in 2006.
|--- | ------------------------------



See Notes to Unaudited Consolidated Financial Statements



7



---

PART I



DUKE CAPITAL LLC

Notes To Consolidated Financial Statements

(Unaudited)



1. Basis of
Presentation

Nature of Operations and Basis of Consolidation.Duke Energy Holding Corp. (Duke Energy HC) was incorporated in Delaware on
May 3, 2005 as Deer Holding Corp., a wholly-owned subsidiary of Duke Energy Corporation (Old Duke Energy). On April 3, 2006, in accordance with their previously announced merger agreement, Old Duke Energy and Cinergy Corp.
(Cinergy) merged into wholly-owned subsidiaries of Duke Energy HC, resulting in Duke Energy HC becoming the parent entity. In connection with the closing of the merger transactions, Duke Energy HC changed its name to Duke Energy Corporation
(New Duke Energy or Duke Energy) and, on April 3, 2006, Old Duke Energy converted its form of organization from a North Carolina corporation to a North Carolina limited liability company named Duke Power Company LLC
(Duke Power).

On April 1, 2006, in connection with the above transactions, Old Duke Energy transferred the operations of Duke Energy Merchants,
LLC (DEM) and Duke Energy Merchant Finance, LLC to Duke Capital LLC (collectively with its subsidiaries, Duke Capital) and Duke Capital transferred the operations of its wholly-owned captive insurance subsidiary, Bison Insurance Company Limited
(Bison), to New Duke Energy. On April 3, 2006, Duke Power transferred to its parent, Duke Energy, all of its membership interests in its wholly-owned subsidiary Duke Capital. Additionally, in April 2006, Duke Capital indirectly transferred to
Cincinnati Gas & Electric Company (CG&E), a subsidiary of Cinergy, its ownership interest in Duke Energy North Americas (DENAs) Midwestern assets, representing a mix of combined cycle and peaking plants, with a combined
capacity of approximately 3,600 megawatts (MWs). In connection with this transfer, Duke Capital transferred to CG&E approximately $1.6 billion of assets at their carrying value and approximately $0.2 billion of liabilities at their carrying
value, for a net transfer of approximately $1.4 billion.

In connection with the transfer, Duke Capital and CG&E entered into an arrangement
through April 2016, unless otherwise extended by the parties, whereby Duke Capital will reimburse CG&E in the event of certain cash shortfalls that may result from CG&Es ownership of the Midwestern assets.

Duke Capital, a wholly-owned subsidiary of Duke Energy, is a leading energy company located in the Americas with a real estate subsidiary. Duke Capital is a limited
liability company which is a pass-through entity for U.S. income tax purposes. Duke Capital also owns corporations who file as part of the Duke Energy consolidated federal income tax return and file their own respective foreign and state corporate
income tax returns. The income tax expense related to these corporations is included in the income tax expense of Duke Capital.

These Consolidated
Financial Statements include, after eliminating intercompany transactions and balances, the accounts of Duke Capital and all majority-owned subsidiaries where Duke Capital has control, and those variable interest entities where Duke Capital is the
primary beneficiary.

These Consolidated Financial Statements reflect all normal recurring adjustments that are, in the opinion of management,
necessary to fairly present Duke Capitals financial position and results of operations. Amounts reported in the interim Consolidated Statements of Operations are not necessarily indicative of amounts expected for the respective annual periods
due to the effects of seasonal temperature variations on energy consumption, the timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices and other factors. These Consolidated Financial
Statements and other information included in this quarterly report should be read in conjunction with the Consolidated Financial Statements and Notes in Duke Capitals Form 10-K for the year ended December 31, 2005.

Effective July 1, 2005, Duke Capital deconsolidated Duke Energy Field Services, LLC (DEFS) due to a reduction in ownership and its inability to exercise
control over DEFS. DEFS has been accounted for as an equity method investment since July 1, 2005.

Use of Estimates.To conform with
generally accepted accounting principles (GAAP) in the United States, management makes estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and Notes. Although these estimates are based on
managements best available knowledge at the time, actual results could differ.

Reclassifications.In 2005, Duke Capital recorded prior
period reclassifications of management fees charged to an unconsolidated affiliate of Duke Capital (See Note 16).

Certain other prior period amounts
have been reclassified to conform to the presentation for the current period.



2.
Stock-Based Compensation

Duke Capital and its subsidiaries are allocated stock-based compensation expense from Old Duke Energy as certain of its
employees participate in Old Duke Energys stock-based compensation programs. Effective January 1, 2006, Old Duke Energy adopted the provisions



8



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



of Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment. SFAS No. 123(R) establishes accounting for stock-based
awards exchanged for employee and certain nonemployee services. Accordingly, for employee awards, equity classified stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over
the requisite service period. Old Duke Energy previously applied Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and FASB Interpretation (FIN) No. 44, Accounting for Certain
Transactions Involving Stock Compensation (an Interpretation of APB Opinion 25) and provided the required pro forma disclosures of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). Since the exercise
price for all options granted under those plans was equal to the market value of the underlying common stock on the grant date, no compensation cost was recognized in the accompanying Consolidated Statements of Operations.

Compensation expense for awards with graded vesting provisions is recognized in accordance with FIN 28, Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans. Old Duke Energy elected to adopt the modified prospective application method as provided by SFAS No.123(R), and accordingly, financial statement amounts from the prior periods presented in this Form 10-Q
have not been restated. There were no modifications to outstanding stock options prior to the adoption of SFAS 123(R).

Duke Capital recorded
stock-based compensation expense for the three months ended March 31, 2006 and 2005 as follows, the components of which are further described below:



|                          |  |                            |    |      |   |   
|------------------------- |  | -------------------------- | -- | ---- | - | --
|                          |  | Three Months EndedMarch 31
|                          |  | 2006                       |    | 2005
|                          |  | (in millions)             
|Stock Options             |  | $                          | 2  |      | $ |  
|Stock Appreciation Rights |  |                            |   |      |   | 1 
|Phantom Stock             |  |                            | 4  |      |   | 3 
|Performance Awards        |  |                            | 4  |      |   | 6 
|                          |  |                            |    |      |   |   
|Total                     |  | $                          | 10 |      | $ | 10
|                          |  |                            |    |      |   |   

The tax benefit associated with the recorded expense for the three months ended March 31, 2006 and 2005
was approximately $4 million. There were no material differences in income from continuing operations, income from income taxes, net income or cash flows from the adoption of SFAS No. 123(R).

The following table shows what net income would have been for Duke Capital if Old Duke Energy had applied the fair value recognition provisions of SFAS No. 123
to all stock-based compensation awards during prior periods.



Pro Forma Stock-Based
Compensation

|                                                                                                                                   |  |                                   |     |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | --- | -
|                                                                                                                                   |  | Three months ended March 31, 2005 |    
|                                                                                                                                   |  | (in millions)                     |    
|Net Income, as reported                                                                                                            |  | $                                 | 651 |  
|                                                                                                                                   |  |                                   |     |  
|Add: stock-based compensation expense included in reported net income, net of related tax effects                                  |  |                                   | 6   |  
|Deduct: total stock-based compensation expense determined under fair value-based method for all awards, net of related tax effects |  |                                   | (6  | )
|                                                                                                                                   |  |                                   |     |  
|Pro forma net income, net of related tax effects                                                                                   |  | $                                 | 651 |  
|                                                                                                                                   |  |                                   |     |  

Old Duke Energys 1998 Long-term Incentive Plan, as amended (the 1998 Plan), reserved 60 million
shares of common stock for awards to employees and outside directors. Under the 1998 Plan, the exercise price of each option granted cannot be less than the market price of Old Duke Energys common stock on the date of grant and the maximum
option term is 10 years. The vesting periods range from immediate to five years. Old Duke Energy issues new shares upon exercising or vesting of share-based awards.

Upon the acquisition of Westcoast Energy, Inc. (Westcoast), Old Duke Energy converted all stock options outstanding under the 1989 Westcoast Long-term Incentive Share Option Plan to Old Duke Energy stock options. Certain of
these options also provide for share appreciation rights under which the holder of a stock option may, in lieu of exercising the option, exercise the share appreciation right.



9



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



The exercise price of these options equals the market price on the date of grant and the maximum option term is 10 years. The vesting periods range from immediate to
four years.



Stock Option Activity

|                                 |  |                        |   |  |                                  |    |                                            |     |                                         |   |   
|-------------------------------- |  | ---------------------- | - |  | -------------------------------- | -- | ------------------------------------------ | --- | --------------------------------------- | - | --
|                                 |  | Options (in thousands) |   |  | Weighted- Average Exercise Price |    | Weighted-Average Remaining Life (in years) |     | Aggregate Intrinsic Value (in millions)
|Outstanding at December 31, 2005 |  | 19,493                 |   |  | $                                | 29 |                                            |     |                                         |   |   
|Exercised                        |  | (493                   | ) |  |                                  | 21 |                                            |     |                                         |   |   
|Forfeited or expired             |  | (125                   | ) |  |                                  | 33 |                                            |     |                                         |   |   
|                                 |  |                        |   |  |                                  |    |                                            |     |                                         |   |   
|Outstanding at March 31, 2006    |  | 18,875                 |   |  |                                  | 29 |                                            | 5.0 |                                         | $ | 78
|                                 |  |                        |   |  |                                  |    |                                            |     |                                         |   |   
|Exercisable at March 31, 2006    |  | 16,675                 |   |  | $                                | 31 |                                            | 4.6 |                                         |   | 49
|                                 |  |                        |   |  |                                  |    |                                            |     |                                         |   |   

On December 31, 2005, Duke Capital employees had 16 million exercisable Old Duke Energy options
with a $32 weighted-average exercise price. The total intrinsic value of options exercised during the three months ended March 31, 2006 and 2005 was approximately $4 million and $7 million, respectively. Cash received by Old Duke Energy from
options exercised during the three months ended March 31, 2006 was approximately $10 million, with a related tax benefit to Old Duke Energy of approximately $1 million.

There were no option grants during the three months ended March 31, 2006 or during the year ended December 31, 2005. Remaining compensation expense to be
recognized for unvested options was determined using a Black-Scholes model.

The 1998 Plan allows for a maximum of twelve million shares of common
stock to be issued under various stock-based awards. Payments for cash settled awards during the period were immaterial.

Stock-based performance
awards outstanding under the 1998 Plan vest over periods from three to seven years. Vesting for certain stock-based performance awards can occur in three years, at the earliest, if performance is met. Old Duke Energy awarded 1,002,710 shares (fair
value of approximately $27 million, based on the market price of Old Duke Energys common stock at the grant date) in the first quarter of 2005.

The following table summarizes information about stock-based performance awards to Duke Capital employees outstanding at March 31, 2006:



|                                          |  |           |   |  |                                        |   
|----------------------------------------- |  | --------- | - |  | -------------------------------------- | --
|                                          |  | Shares    |   |  | Weighted Average Grant Date Fair Value
|Number of Stock-based Performance Awards: |  |           |   |  |                                        |   
|Outstanding at December 31, 2005          |  | 2,351,972 |   |  | $                                      | 25
|Granted                                   |  |          |   |  |                                        |  
|Vested                                    |  | (114,000  | ) |  |                                        | 27
|Forfeited                                 |  | (63,656   | ) |  |                                        | 25
|Canceled                                  |  |          |   |  |                                        |  
|                                          |  |           |   |  |                                        |   
|Outstanding at March 31, 2006             |  | 2,174,316 |   |  | $                                      | 25
|                                          |  |           |   |  |                                        |   

The total fair value of the shares vested during the three months ended March 31, 2006 and 2005 was
approximately $3 million. As of March 31, 2006, Duke Capital had approximately $20 million of compensation expense which is expected to be recognized by Duke Capital over a weighted-average period of 1.2 years.

Phantom stock awards outstanding under the 1998 Plan vest over periods from one to five years. Old Duke Energy awarded 823,470 shares (fair value of approximately
$22 million, based on the market price of Old Duke Energys common stock at the grant date) to Duke Capital employees in the first quarter of 2005.



10



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



The following table summarizes information about phantom stock awards outstanding to Duke Capital employees at March 31, 2006:



|                                 |  |           |   |  |                                        |   
|-------------------------------- |  | --------- | - |  | -------------------------------------- | --
|                                 |  | Shares    |   |  | Weighted Average Grant Date Fair Value
|Number of Phantom Stock Awards:  |  |           |   |  |                                        |   
|Outstanding at December 31, 2005 |  | 2,009,641 |   |  | $                                      | 25
|Granted                          |  |          |   |  |                                        |  
|Vested                           |  | (396,283  | ) |  |                                        | 25
|Forfeited                        |  | (29,924   | ) |  |                                        | 25
|Canceled                         |  |          |   |  |                                        |  
|                                 |  |           |   |  |                                        |   
|Outstanding at March 31, 2006    |  | 1,583,433 |   |  | $                                      | 25
|                                 |  |           |   |  |                                        |   

The total fair value of the shares vested during the three months ended March 31, 2006 and 2005 was
approximately $10 million and $5 million, respectively. As of March 31, 2006, Duke Capital had approximately $18 million of compensation expense which is expected to be recognized by Duke Capital over a weighted-average period of 2.8 years.

Other stock awards outstanding under the 1998 Plan vest over periods from three to five years. Old Duke Energy awarded zero shares in the first
quarter of 2006 and 35,000 shares (fair value of approximately $1 million, based on the market price of Old Duke Energys common stock at the grant date) in the first quarter of 2005.

The following table summarizes information about other stock awards to Duke Capital employees outstanding at March 31, 2006:



|                                 |  |         |   |  |                                        |   
|-------------------------------- |  | ------- | - |  | -------------------------------------- | --
|                                 |  | Shares  |   |  | Weighted Average Grant Date Fair Value
|Number of Other Stock Awards:    |  |         |   |  |                                        |   
|Outstanding at December 31, 2005 |  | 122,937 |   |  | $                                      | 25
|Granted                          |  |        |   |  |                                        |  
|Vested                           |  | (18,630 | ) |  |                                        | 24
|Forfeited                        |  |        |   |  |                                        |  
|Canceled                         |  |        |   |  |                                        |  
|                                 |  |         |   |  |                                        |   
|Outstanding at March 31, 2006    |  | 104,307 |   |  | $                                      | 26

The total fair value of the shares vested during the three months ended March 31, 2006 and 2005 was less
than $1 million in both periods. As of March 31, 2006, Duke Capital had approximately $1 million of compensation expense which is expected to be recognized by Duke Capital over a weighted-average period of 1.8 years.



3. Inventory

Inventory is recorded at the lower of cost or market value, primarily using the average cost method.



Inventory

|                       |  |               |     |              |   |    
|---------------------- |  | ------------- | --- | ------------ | - | ---
|                       |  | March 31,     |     | December 31,
|                       |  | 2006          |     | 2005        
|                       |  | (in millions)
|                       |  |              
|Materials and supplies |  | $             | 142 |              | $ | 130
|Natural gas            |  |               | 140 |              |   | 269
|Petroleum products     |  |               | 15  |              |   | 27 
|                       |  |               |     |              |   |    
|Total inventory        |  | $             | 297 |              | $ | 426
|                       |  |               |     |              |   |    



4. Debt and Credit Facilities

Available Credit Facilities and Restrictive Debt Covenants. During the three months ended March 31, 2006, Duke Capitals consolidated credit capacity
decreased by $200 million due to the termination of a $100 million one-year bi-lateral credit facility and a $100 million 364-day bi-lateral credit facility.



11



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



The issuance of commercial paper, letters of credit and other borrowings reduces the amount available under the available credit
facilities.

Duke Capitals debt and credit agreements contain various financial and other covenants. Failure to meet those covenants beyond
applicable grace periods could result in accelerated due dates and/or termination of the agreements. As of March 31, 2006, Duke Capital was in compliance with those covenants. In addition, credit agreements allow for acceleration of payments or
termination of the agreements due to nonpayment, or in some cases, due to the acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the debt or credit agreements contain material adverse change clauses.



Credit Facilities Summary as of March 31, 2006

|                                    |  |                 |  |                          |       |                     |   |       |  |   |     |  |   |    
|----------------------------------- |  | --------------- |  | ------------------------ | ----- | ------------------- | - | ----- |  | - | --- |  | - | ---
|                                    |  | Expiration Date |  | CreditFacilitiesCapacity |       | Amounts Outstanding
|                                    |  |                 |  | Commercial Paper         |       | Letters of Credit   |   | Total
|                                    |  | (in millions)  
|Duke Capital LLC                    |  |                 |  |                          |       |                     |   |       |  |   |     |  |   |    
|$800 364-day syndicated (a), (b)    |  | June 2006       |  |                          |       |                     |   |       |  |   |     |  |   |    
|$600 multi-year syndicated (a), (b) |  | June 2009       |  |                          |       |                     |   |       |  |   |     |  |   |    
|$130 three-year bi-lateral (b)      |  | October 2007    |  |                          |       |                     |   |       |  |   |     |  |   |    
|$120 multi-year bi-lateral (b)      |  | July 2009       |  |                          |       |                     |   |       |  |   |     |  |   |    
|$260 364-day bi-lateral (a), (b)    |  | June 2006       |  |                          |       |                     |   |       |  |   |     |  |   |    
|Total Duke Capital LLC              |  |                 |  | $                        | 1,910 |                     | $ |      |  | $ | 408 |  | $ | 408
|                                    |  |                 |  |                          |      
|Westcoast Energy Inc.               |  |                 |  |                          |       |                     |   |       |  |   |     |  |   |    
|$86 364-day syndicated (b), (c)     |  | June 2006       |  |                          |       |                     |   |       |  |   |     |  |   |    
|$172 multi-year syndicated (b), (d) |  | June 2010       |  |                          |       |                     |   |       |  |   |     |  |   |    
|Total Westcoast Energy Inc.         |  |                 |  |                          | 258   |                     |   |      |  |   |    |  |   |   
|                                    |  |                 |  |                          |      
|Union Gas Limited                   |  |                 |  |                          |       |                     |   |       |  |   |     |  |   |    
|$258 364-day syndicated (e), (f)    |  | June 2006       |  |                          | 258   |                     |   |      |  |   |    |  |   |   
|                                    |  |                 |  |                          |       |                     |   |       |  |   |     |  |   |    
|Total                               |  |                 |  | $                        | 2,426 |                     | $ |      |  | $ | 408 |  | $ | 408
|                                    |  |                 |  |                          |       |                     |   |       |  |   |     |  |   |    

|(a) | Credit facility contains an option allowing borrowing up to the full amount of the facility on the day of initial expiration for up to one year.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Credit facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 65%.
|--- | -------------------------------------------------------------------------------------------------------

|(c) | Credit facility is denominated in Canadian dollars totaling 100 million Canadian dollars.
|--- | -----------------------------------------------------------------------------------------

|(d) | Credit facility is denominated in Canadian dollars totaling 200 million Canadian dollars.
|--- | -----------------------------------------------------------------------------------------

|(e) | Credit facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 75%. Credit facility is denominated in Canadian dollars totaling 300 million Canadian
dollars.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | Credit facility contains an option at maturity allowing for the conversion of all outstanding loans to a term loan repayable up to one year after maturity date but not exceeding 18 months
from the date of draw.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



5. Employee Benefit Obligations

Duke Capital participates in New Duke Energys non-contributory defined benefit retirement plan. Duke Capitals net periodic pension benefit as
allocated by Old Duke Energy for its U.S. plan, was $4 million and $5 million for the three months ended March 31, 2006 and 2005, respectively.

The following table shows the components of the net periodic pension costs for the Westcoast Energy, Inc. (Westcoast) Canadian retirement plans.



Components of Net Periodic Pension Costs for Westcoast (in millions)for the three months ended March 31,



|                                              |  |      |    |   |      |   |    |  
|--------------------------------------------- |  | ---- | -- | - | ---- | - | -- | -
|                                              |  | 2006 |    |   | 2005 |  
|Service cost                                  |  | $    | 3  |   |      | $ | 2  |  
|Interest cost on projected benefit obligation |  |      | 8  |   |      |   | 7  |  
|Expected return on plan assets                |  |      | (8 | ) |      |   | (6 | )
|Amortization of loss                          |  |      | 2  |   |      |   | 1  |  
|                                              |  |      |    |   |      |   |    |  
|Net periodic pension costs                    |  | $    | 5  |   |      | $ | 4  |  
|                                              |  |      |    |   |      |   |    |  

New Duke Energys policy is to fund amounts for its U.S. retirement plan on an actuarial basis to
provide assets sufficient to meet benefit payments to be paid to plan participants. Old Duke Energy has not made contributions to its U.S. retirement plan for the three months ended March 31, 2006. New Duke Energy does not anticipate making a
contribution to the U.S. retirement plan for the remainder of 2006.



12



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



Westcoasts policy is to fund the defined benefit (DB) retirement plans on an actuarial basis and in accordance with Canadian
pension standards legislation, in order to accumulate assets sufficient to meet benefit payments. Contributions to the defined contribution (DC) retirement plans are determined in accordance with the terms of the plans. Old Duke Energy has
contributed $10 million to the Westcoast DB plans for the three months ended March 31, 2006 compared to $12 million for the three months ended March 31, 2005. New Duke Energy anticipates that it will make additional contributions of
approximately $30 million for the remainder of 2006. Old Duke Energy has contributed $1 million to the Westcoast DC plans for the three months ended March 31, 2006 and March 31, 2005. New Duke Energy anticipates that it will make
additional contributions of approximately $2 million for the remainder of 2006.

Duke Capital, in conjunction with New Duke Energy, provide some
health care and life insurance benefits for retired employees on a contributory and non-contributory basis. Duke Capitals net periodic post-retirement costs as allocated by Old Duke Energy was $5 million for the three months ended
March 31, 2006 and 2005.

The following table shows the components of the net periodic post-retirement benefit costs for the Westcoast other
post-retirement benefit plans.



Components of Net Periodic Post-Retirement Benefit
Costs for Westcoast(in millions)for the three months ended March 31,



|                                                                |  |      |   |      |   |  
|--------------------------------------------------------------- |  | ---- | - | ---- | - | -
|                                                                |  | 2006 |   | 2005
|Service cost benefit                                            |  | $    | 1 |      | $ | 1
|Interest cost on accumulated post-retirement benefit obligation |  |      | 1 |      |   | 1
|Amortization of loss                                            |  |      | 1 |      |   | 
|                                                                |  |      |   |      |   |  
|Net periodic post-retirement benefit costs                      |  | $    | 3 |      | $ | 2
|                                                                |  |      |   |      |   |  

New Duke Energy also sponsors, and Duke Capital participates in, employee savings plans that cover
substantially all U.S. employees. Duke Capital expensed plan contributions, including amounts allocated by Old Duke Energy, of $9 million for the three months ended March 31, 2006 compared to $8 million for the three months ended March 31,
2005.



6. Marketable Securities

During the three months ended March 31, 2006, Duke Capitals Natural Gas Transmission business unit received shares of stock as consideration for
settlement of a customers transportation contracts. The market value of the equity securities, determined by quoted market prices on the date of receipt, of approximately $23 million is reflected in Gains on Sales of Other Assets and Other,
net in the Consolidated Statements of Operations for the three months ended March 31, 2006. Subsequent to receipt, these securities were accounted for under SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities, as trading securities. During the three months ended March 31, 2006, these securities were sold and an additional gain of approximately $1 million was recognized in Other Income and Expenses, net in the Consolidated
Statements of Operations for the three months ended March 31, 2006.



7.
Acquisitions and Dispositions

Acquisitions. Duke Capital consolidates assets and liabilities from acquisitions as of the purchase date,
and includes earnings from acquisitions in consolidated earnings after the purchase date. Assets acquired and liabilities assumed are recorded at estimated fair values on the date of acquisition. The purchase price minus the estimated fair value of
the acquired assets and liabilities meeting the definition of a business as defined in EITF Issue No. 98-3, Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business is recorded as
goodwill. The allocation of the purchase price may be adjusted if additional information on known contingencies existing at the date of acquisition becomes available within one year after the acquisition, and longer for certain income tax items.

During the first quarter of 2006, Duke Energy International (DEI) closed on two transactions which resulted in the acquisition of an additional 27.1%
interest in the Aguaytia Integrated Energy Project (Aguaytia), located in Peru, for approximately $31 million (approximately $18 million net of cash acquired). The projects scope includes the production and processing of natural gas, sale of
liquefied petroleum gas (LPG) and natural gas liquids and the generation, transmission and sale of electricity from a 169-megawatt power plant. These acquisitions increased DEIs ownership in Aguaytia to approximately 65% and resulted in Duke
Capital accounting for Aguaytia as a consolidated entity. Prior to the acquisition of this additional interest, Aguaytia was accounted for as an equity method investment.



13



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



During the first quarter of 2006, DENA acquired the remaining 33 1/3% interest in Bridgeport Energy LLC (Bridgeport) from United
Bridgeport Energy LLC (UBE) for approximately $71 million. The assets and liabilities of Bridgeport have been classified as Assets Held For Sale in the accompanying Consolidated Balance Sheet as of March 31, 2006, and are included as part of
DENAs power generation assets which were sold to a subsidiary of LS Power Equity Partners (LS Power) (see Note 10).

On April 3, 2006, the
previously announced merger between Old Duke Energy and Cinergy was consummated (see Note 1 for additional information). The merger will be accounted for under the purchase method of accounting with Old Duke Energy treated as the acquirer for
accounting purposes. Based on the market price of Old Duke Energy common stock during the period including the two trading days before through the two trading days after May 9, 2005, the date Old Duke Energy and Cinergy announced the merger,
the transaction is valued at approximately $9 billion and will result in incremental goodwill to New Duke Energy estimated at approximately $4 billion.

Dispositions.For the three months ended March 31, 2006, the sale of other assets and businesses resulted in approximately $22 million in proceeds and net pre-tax gains of $28 million recorded in Gains on Sales of Other Assets
and Other, net. These sales exclude assets that were held for sale and reflected in discontinued operations, both of which are discussed in Note 10, and sales by Crescent Resources LLC (Crescent) which are discussed separately below. Significant
sales of other assets during the three months ended March 31, 2006 are detailed as follows:

| |  |  | Natural Gas Transmissions sale of certain Stone Mountain natural gas gathering system assets resulted in proceeds of $18 million (which is reflected in Net proceeds from the sales of
equity investments and other assets, and sales of and collections on notes receivable within Cash Flows from Investing Activities in the Consolidated Statements of Cash Flows), and pre-tax gain of $5 million which was recorded in Gains on Sales of
Other Assets and Other, net in the accompanying Consolidated Statements of Operations. In addition, Natural Gas Transmissions sale of stock, received as consideration for the settlement of a customers transportation contracts, resulted
in proceeds of approximately $24 million (which is reflected in Other, assets within Cash Flows From Operating Activities in the Consolidated Statements of Cash Flows) and a pre-tax gain of $24 million, of which approximately $23 million was
recorded in Gains on Sales of Other Assets and Other, net and approximately $1 million was recorded in Other Income and Expenses, net in the accompanying Consolidated Statements of Operations (see Note 6).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For the three months ended March 31, 2006, Crescents commercial and multi-family real estate sales resulted in $56 million of proceeds and $26 million of
net pre-tax gains recorded in Gains on Sales of Investments in Commercial and Multi-Family Real Estate on the Consolidated Statements of Operations. Sales consisted of several large land tract sales.

For the three months ended March 31, 2005, the sale of other assets and businesses resulted in approximately $1.2 billion in proceeds, net pre-tax gains of $7
million recorded in Gains on Sales of Other Assets and Other, net and pre-tax gains of $1.2 billion recorded in Gains on Sales of Equity Investments on the Consolidated Statements of Operations. These sales exclude assets held for sale as of
March 31, 2005 and reflected in discontinued operations, both of which are discussed in Note 10, and sales by Crescent which are discussed separately below. Significant sales of other assets and equity investments during the three months ended
March 31, 2005 are detailed as follows:

| |  |  | In February 2005, DEFS sold its wholly owned subsidiary Texas Eastern Products Pipeline Company, LLC (TEPPCO GP), which is the general partner of TEPPCO Partners, LP (TEPPCO LP), for
approximately $1.1 billion and Duke Capital sold its limited partner interest in TEPPCO LP for approximately $100 million, in each case to Enterprise GP Holdings LP, an unrelated third party. These transactions resulted in pre-tax gains of $1.2
billion, which have been classified as Gains on Sales of Equity Investments in the Consolidated Statement of Operations for the three months ended March 31, 2005. Minority Interest Expense of $343 million was recorded in the Consolidated
Statement of Operations for the three months ended March 31, 2005 to reflect ConocoPhillips proportionate share in the pre-tax gain on sale of the TEPPCO GP.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For the three months ended March 31, 2005, Crescents commercial and multi-family real estate sales resulted in $51 million of proceeds and $42 million of
net pre-tax gains recorded in Gains on Sales of Investments in Commercial and Multi-Family Real Estate on the Consolidated Statements of Operations. Sales consisted of several large land tract sales.



8. Severance

As discussed further in Note 10, during the third quarter of 2005, the Board of Directors of Old Duke Energy authorized and directed management to execute the sale or disposition of substantially all of DENAs remaining
assets and contracts outside the



14



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



Midwestern United States and certain contractual positions related to the Midwestern assets. As a result of this exit plan, DENA anticipates involuntary termination of
approximately 250 employees by the end of the third quarter of 2006. Management anticipates future severance costs related to this exit plan not included in the following table will be immaterial.



Severance Reserve

|                         |  |                            |    |                        |   |    |                 |  |   |                           |   |  |   |   
|------------------------ |  | -------------------------- | -- | ---------------------- | - | -- | --------------- |  | - | ------------------------- | - |  | - | --
|                         |  | Balance at January 1, 2006 |    | Provision/ Adjustments |   |    | Cash Reductions |  |   | Balance at March 31, 2006
|                         |  | (in millions)             
|Natural Gas Transmission |  | $                          | 3  |                        | $ | (1 | )               |  | $ |                          |   |  | $ | 2 
|DENA                     |  |                            | 25 |                        |   | (8 | )               |  |   | (3                        | ) |  |   | 14
|Other                    |  |                            | 2  |                        |   | 1  |                 |  |   |                          |   |  |   | 3 
|                         |  |                            |    |                        |   |    |                 |  |   |                           |   |  |   |   
|Total (a)                |  | $                          | 30 |                        | $ | (8 | )               |  | $ | (3                        | ) |  | $ | 19
|                         |  |                            |    |                        |   |    |                 |  |   |                           |   |  |   |   

|(a) | Substantially all remaining severance payments are expected to be applied to the reserves within one year from the date that the provision was recorded.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------



9. Impairments and Other Charges

Field Services. During the three months ended March 31, 2005, the Field Services business unit recorded a charge of approximately $120 million due to
the reclassification into earnings of pre-tax unrealized losses from AOCI as a result of the discontinuance of certain cash flow hedges entered into to hedge Field Services commodity price risk. See Note 12 for a discussion of the impacts of
the DEFS disposition transaction on certain cash flow hedges.



10. Discontinued
Operations and Assets Held for Sale

The following table summarizes the results classified as Discontinued Operations, net of tax, in the
Consolidated Statements of Operations.



Discontinued Operations

|                                  |  |                   |     |                              |   |     |                            |  |   |                                  |   |  |                             |     |   |                  |   |      |                                |  |   |                                            |   |  |   |      |   |  |   |     |  
|--------------------------------- |  | ----------------- | --- | ---------------------------- | - | --- | -------------------------- |  | - | -------------------------------- | - |  | --------------------------- | --- | - | ---------------- | - | ---- | ------------------------------ |  | - | ------------------------------------------ | - |  | - | ---- | - |  | - | --- | -
|                                  |  |                   |     | Operating (Loss) Income      |   |     | Net Loss on Dispositions   |  |   |                                  |  
|                                  |  | OperatingRevenues |     | Pre-taxOperating(Loss)Income |   |     | IncomeTax(Benefit) Expense |  |   | OperatingIncome (Loss),Net ofTax |   |  | Pre-tax Loss onDispositions |     |   | IncomeTaxBenefit |   |      | Loss onDispositions,Net of Tax |  |   | Loss fromDiscontinuedOperations,Net of Tax |  
|                                  |  | (in millions)     |    
|Three Months Ended March 31, 2006 |  |                   |     |                              |   |     |                            |  |   |                                  |   |  |                             |     |   |                  |   |      |                                |  |   |                                            |   |  |   |      |   |  |   |     |  
|DENA                              |  | $                 | 354 |                              | $ | (10 | )                          |  | $ | (73                              | ) |  | $                           | 63  |   |                  | $ | (156 | )                              |  | $ | (57                                        | ) |  | $ | (99  | ) |  | $ | (36 | )
|International Energy              |  |                   |    |                              |   |    |                            |  |   |                                 |   |  |                             |    |   |                  |   | (19  | )                              |  |   | (7                                         | ) |  |   | (12  | ) |  |   | (12 | )
|                                  |  |                   |     |                              |   |     |                            |  |   |                                  |   |  |                             |     |   |                  |   |      |                                |  |   |                                            |   |  |   |      |   |  |   |     |  
|Total consolidated                |  | $                 | 354 |                              | $ | (10 | )                          |  | $ | (73                              | ) |  | $                           | 63  |   |                  | $ | (175 | )                              |  | $ | (64                                        | ) |  | $ | (111 | ) |  | $ | (48 | )
|                                  |  |                   |     |                              |   |     |                            |  |   |                                  |   |  |                             |     |   |                  |   |      |                                |  |   |                                            |   |  |   |      |   |  |   |     |  
|Three Months Ended March 31, 2005 |  |                   |     |                              |   |     |                            |  |   |                                  |   |  |                             |     |   |                  |   |      |                                |  |   |                                            |   |  |   |      |   |  |   |     |  
|Field Services                    |  | $                 | 4   |                              | $ |    |                            |  | $ |                                 |   |  | $                           |    |   |                  | $ | (1   | )                              |  | $ |                                           |   |  | $ | (1   | ) |  | $ | (1  | )
|DENA                              |  |                   | 491 |                              |   | 4   |                            |  |   | 54                               |   |  |                             | (50 | ) |                  |   |     |                                |  |   |                                           |   |  |   |     |   |  |   | (50 | )
|International Energy              |  |                   |    |                              |   | 2   |                            |  |   |                                 |   |  |                             | 2   |   |                  |   |     |                                |  |   |                                           |   |  |   |     |   |  |   | 2   |  
|                                  |  |                   |     |                              |   |     |                            |  |   |                                  |   |  |                             |     |   |                  |   |      |                                |  |   |                                            |   |  |   |      |   |  |   |     |  
|Total consolidated                |  | $                 | 495 |                              | $ | 6   |                            |  | $ | 54                               |   |  | $                           | (48 | ) |                  | $ | (1   | )                              |  | $ |                                           |   |  | $ | (1   | ) |  | $ | (49 | )
|                                  |  |                   |     |                              |   |     |                            |  |   |                                  |   |  |                             |     |   |                  |   |      |                                |  |   |                                            |   |  |   |      |   |  |   |     |  

The following table presents the carrying values of the major classes of assets and associated liabilities
held for sale in the Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005.



15



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



Summarized Balance Sheet Information for Assets and Associated Liabilities Held for Sale



|                                                       |  |               |       |                  |   |      
|------------------------------------------------------ |  | ------------- | ----- | ---------------- | - | -----
|                                                       |  | March 31,2006 |       | December 31,2005
|                                                       |  | (in millions)
|Current assets                                         |  | $             | 326   |                  | $ | 1,528
|Investments and other assets                           |  |               | 1,085 |                  |   | 2,059
|Property, plant and equipment, net                     |  |               | 1,529 |                  |   | 1,538
|                                                       |  |               |       |                  |   |      
|Total assets held for sale                             |  | $             | 2,940 |                  | $ | 5,125
|                                                       |  |               |       |                  |   |      
|Current liabilities                                    |  | $             | 378   |                  | $ | 1,488
|Long-term debt                                         |  |               | 61    |                  |   | 61   
|Deferred credits and other liabilities                 |  |               | 927   |                  |   | 2,024
|                                                       |  |               |       |                  |   |      
|Total liabilities associated with assets held for sale |  | $             | 1,366 |                  | $ | 3,573
|                                                       |  |               |       |                  |   |      



DENA

During the third quarter of 2005, Old Duke Energys Board of Directors authorized and directed management to execute the sale or disposition of
substantially all of DENAs remaining assets and contracts outside the Midwestern United States and certain contractual positions related to the Midwestern assets. The DENA assets to be divested include:

| |  |  | Approximately 6,100 MW of power generation located primarily in the Western and Eastern United States, including all of the commodity contracts (primarily forward gas and power contracts)
related to these facilities,
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | All remaining commodity contracts related to DENAs Southeastern generation operations, which were substantially disposed of in 2004, and certain commodity contracts related to
DENAs Midwestern power generation facilities, and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Contracts related to DENAs energy marketing and management activities, which include gas storage and transportation, structured power and other contracts.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

Management has transferred DENAs Midwestern generation assets, consisting of approximately 3,600 MW of power generation, and certain contracts related to the
Midwestern generating facilities to CG&E, as Old Duke Energys merger with Cinergy provides a sustainable business model for those assets (see Note 7 for further details on the Cinergy merger). The exit plan is expected to be completed by
the end of the third quarter of 2006. In addition, management will continue to wind down the limited remaining operations of Duke Energy Trading and Marketing, LLC (DETM). The financial statement presentation for the assets and contracts to be sold,
and the related results of operations, are discussed below.

Approximately $3 million of pre-tax deferred net losses remain in AOCI at March 31,
2006 related to hedges of forecasted transactions that are expected to occur prior to the anticipated disposal of the generation assets. This amount will be reclassified to earnings during the remainder of 2006 as the forecasted transactions occur.
In addition, as of the September 2005 exit announcement date, management anticipated that additional charges would be incurred related to the exit plan, including termination costs for gas transportation, storage, structured power and other
contracts of approximately $600 million to $800 million, which included approximately $40 million to $60 million of severance, retention and other transaction costs (see Note 8). Approximately $625 million has been incurred from the announcement
date through March 31, 2006, of which approximately $160 million was incurred during the three months ended March 31, 2006 and was recognized in Loss From Discontinued Operations, net of tax. The actual amount of future additional charges
related to the DENA exit plan will vary depending upon changes in market conditions and other factors, and could differ materially from the original estimate.

During 2006 and 2005, DENA entered into agreements to sell or terminate certain of its contract portfolio, including certain transportation contracts. The total cash paid by Duke Capital under such contract sales or terminations during 2006
was approximately $155 million, excluding approximately $600 million of cash paid to Barclays Bank, PLC (Barclays), as discussed hereafter. These transactions resulted in pre-tax losses on sale of approximately $160 million during the three months
ended March 31, 2006, which were recorded in Loss From Discontinued Operations, net of tax, and are included in the $625 million incurred from the announcement date through March 31, 2006, as discussed above. Included in this amount are
the effects of DENAs November 2005 agreement to sell substantially all of its commodity contracts related to the Southeastern generation operations, which were substantially disposed of in 2004, certain commodity contracts related to
DENAs Midwestern power generation facilities, and contracts related to DENAs energy marketing and management activities. Excluded from the contracts sold to Barclays are commodity contracts associated with the near-term value of



16



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



DENAs West and Northeastern generation assets and with remaining gas transportation and structured power contracts. Among other things, the agreement provided
that effective upon execution all economic benefits and burdens under the contracts were transferred to Barclays. Cash consideration paid to Barclays amounted to approximately $600 million in January 2006. Additionally, in January 2006 Barclays
provided DENA with cash equal to the net cash collateral posted by DENA under the contracts of approximately $540 million. DENA will continue to service, for a monthly fee, the contracts until novation or assignment. The novation or assignment of
physical power contracts was subject to FERC approval, which was received in January 2006.

In January 2006, a Duke Capital subsidiary signed an
agreement to sell to LS Power DENAs entire fleet of power generation assets outside the Midwest, representing approximately 6,100 megawatts of power generation located in the Western and Northeast United States. In May 2006, the transaction
with LS Power closed and total proceeds from the sale are expected to be approximately $1.56 billion, including certain working capital adjustments. Additional proceeds of up to approximately $40 million are subject to LS Power obtaining certain
state regulatory approvals. Subject to the resolution of these contingencies, an additional gain on the disposition of these assets could be recognized in a future period.

As of March 31, 2006 and December 31, 2005, DENAs assets and liabilities to be disposed of under the exit plan were classified as Assets Held for Sale in the Consolidated Balance Sheets.

The results of operations of DENAs Western and Eastern United States generation assets, including related commodity contracts, certain contracts related to
DENAs energy marketing and management activities and certain general and administrative costs, are required to be classified as discontinued operations for current and prior periods in the accompanying Consolidated Statements of Operations.
GAAP requires an ongoing assessment of the continued qualification for discontinued operations presentation for the period up through one year following disposal. While this assessment requires judgment, management is not currently aware of any
matters or events that are likely to occur that would impact the presentation of these operations as discontinued operations.

Although DENAs
Midwestern generation assets have been transferred to CG&E (see Note 1), the results of operations for these assets, including related commodity contracts, do not qualify for discontinued operations classification and remain in continuing
operations. Additionally, DENAs Southeastern generation operations, including related commodity contracts do not meet the requirements for discontinued operations classification due to Duke Capitals continuing involvement with these
operations. In addition, the results for DETM will continue to be reported in continuing operations until the wind down of these operations is complete.

In the first quarter of 2005, DENAs Grays Harbor facility was sold to an affiliate of Invenergy LLC, resulting in a pre-tax gain of approximately $21 million (excludes any potential contingent consideration).



International Energy

International Energy has recognized a receivable from Norsk Hydro ASA that relates to purchase price adjustments on the prior sale of International Energys
European business. During the three months ended March 31, 2006, based on managements best estimate of recoverability, International Energy recorded an allowance of approximately $19 million ($12 million after tax) against this
receivable, which was recorded in Loss From Discontinued Operations, net on the Consolidated Statements of Operations. At March 31, 2006 and December 31, 2005, the carrying value of the receivable was approximately $24 million and $42
million, respectively, and is included in Receivables in the Consolidated Balance Sheets.



Field Services

In December 2004, based upon managements assessment of the probable disposition of certain
plant and transportation assets in Wyoming, Field Services classified these assets as Assets Held for Sale in the Consolidated Balance Sheets as of December 31, 2004. The book value of those assets was written down by $4 million ($3 million net
of minority interest) to $10 million in December 2004, which represents the estimated fair value less cost to sell. The results of operations related to these assets were included in Loss From Discontinued Operations, net of tax, in the Consolidated
Statements of Operations. In February 2005, these assets were exchanged for certain gathering assets in Oklahoma of equivalent fair value.

In
September 2004, Field Services recorded a pre-tax impairment charge of approximately $23 million ($16 million net of minority interest) related to managements assessment of some additional gathering, processing, compression and transportation
assets in Wyoming being held for sale. The estimated fair value of these assets less cost to sell was $27 million and they were classified as Assets Held For Sale in the Consolidated Balance Sheets as of December 31, 2004. The after-tax loss
and results of operations were included in Loss From Discontinued Operations, net of tax, in the Consolidated Statements of Operations. In the first quarter of 2005, Field Services sold these assets for proceeds of approximately $28 million.



17



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



11. Business Segments

Duke Capital operates
the following business units: Natural Gas Transmission, Field Services, DENA, International Energy and Crescent. Duke Capitals chief operating decision maker regularly reviews financial information about each of these business units in
deciding how to allocate resources and evaluate performance. Except for DENA, all of the business units are considered reportable segments under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.
Prior to the September 2005 announcement of the exiting of the majority of DENAs businesses, DENAs operations were considered a separate reportable segment. There is no aggregation within Duke Capitals defined business segments.

The remainder of Duke Capitals operations is presented as Other. While it is not considered a business segment, Other primarily
includes DENAs continuing operations (which has been transferred to CG&E in April 2006), certain unallocated corporate costs, certain discontinued hedges, DukeNet Communications, LLC, Bison Insurance Company Limited (Bison), Duke
Capitals wholly owned, captive insurance subsidiary, and Duke Capitals 50% interest in Duke/Fluor Daniel (D/FD). See Note 1 for additional asset transfers into and out of Duke Capital in April 2006.

In February 2005, DEFS sold its wholly owned subsidiary TEPPCO GP, which is the general partner of TEPPCO LP, and Duke Capital sold its limited partner interest in
TEPPCO LP, in each case to Enterprise GP Holdings LP, an unrelated third party (see Note 7).

During the first quarter of 2005, Duke Capital
discontinued hedge accounting for certain contracts related to Field Services commodity price risk and changes in the fair value of these contracts subsequent to hedge discontinuance have been classified in Other. See Note 12 for further
discussion.

Duke Capitals reportable segments offer different products and services and are managed separately as business units. Accounting
policies for Duke Capitals segments are the same as those described in the Notes to the Consolidated Financial Statements in Duke Capitals Annual Report on Form 10-K for the year ended December 31, 2005. Management evaluates segment
performance based on earnings before interest and taxes from continuing operations, after deducting minority interest expense related to those profits (EBIT).

On a segment basis, EBIT excludes discontinued operations, represents all profits from continuing operations (both operating and non-operating) before deducting interest and taxes, and is net of the minority interest expense related to
those profits. Cash, cash equivalents and short-term investments are managed centrally by Duke Capital, so the associated realized and unrealized gains and losses from foreign currency transactions and interest and dividend income on those balances
are excluded from the segments EBIT.



18



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



Transactions between reportable segments are accounted for on the same basis as unaffiliated revenues and expenses in the accompanying
Consolidated Financial Statements.



Business Segment Data (a)

|                                  |  |                      |       |                      |   |      |                |  |   |                                                                               |   |  |   |       |  
|--------------------------------- |  | -------------------- | ----- | -------------------- | - | ---- | -------------- |  | - | ----------------------------------------------------------------------------- | - |  | - | ----- | -
|                                  |  | UnaffiliatedRevenues |       | IntersegmentRevenues |   |      | Total Revenues |  |   | Segment EBIT /ConsolidatedEarnings fromContinuingOperationsbefore IncomeTaxes |  
|                                  |  | (in millions)        |      
|Three Months Ended March 31, 2006 |  |                      |       |                      |   |      |                |  |   |                                                                               |   |  |   |       |  
|Natural Gas Transmission          |  | $                    | 1,468 |                      | $ | 6    |                |  | $ | 1,474                                                                         |   |  | $ | 438   |  
|Field Services (c)                |  |                      |      |                      |   |     |                |  |   |                                                                              |   |  |   | 144   |  
|International Energy              |  |                      | 231   |                      |   |     |                |  |   | 231                                                                           |   |  |   | 87    |  
|Crescent                          |  |                      | 71    |                      |   |     |                |  |   | 71                                                                            |   |  |   | 42    |  
|                                  |  |                      |       |                      |   |      |                |  |   |                                                                               |   |  |   |       |  
|Total reportable segments         |  |                      | 1,770 |                      |   | 6    |                |  |   | 1,776                                                                         |   |  |   | 711   |  
|Other                             |  |                      | 64    |                      |   | 10   |                |  |   | 74                                                                            |   |  |   | (57   | )
|Eliminations                      |  |                      |      |                      |   | (16  | )              |  |   | (16                                                                           | ) |  |   |      |  
|Interest expense                  |  |                      |      |                      |   |     |                |  |   |                                                                              |   |  |   | (176  | )
|Interest income and other (b)     |  |                      |      |                      |   |     |                |  |   |                                                                              |   |  |   | 8     |  
|                                  |  |                      |       |                      |   |      |                |  |   |                                                                               |   |  |   |       |  
|Total consolidated                |  | $                    | 1,834 |                      | $ |     |                |  | $ | 1,834                                                                         |   |  | $ | 486   |  
|                                  |  |                      |       |                      |   |      |                |  |   |                                                                               |   |  |   |       |  
|                                  |  |                      |       |                     
|Three Months Ended March 31, 2005 |  |                      |       |                      |   |      |                |  |   |                                                                               |   |  |   |       |  
|Natural Gas Transmission          |  | $                    | 1,155 |                      | $ | 36   |                |  | $ | 1,191                                                                         |   |  | $ | 411   |  
|Field Services (c)                |  |                      | 2,542 |                      |   | 116  |                |  |   | 2,658                                                                         |   |  |   | 919   |  
|International Energy              |  |                      | 168   |                      |   |     |                |  |   | 168                                                                           |   |  |   | 68    |  
|Crescent                          |  |                      | 64    |                      |   |     |                |  |   | 64                                                                            |   |  |   | 52    |  
|                                  |  |                      |       |                      |   |      |                |  |   |                                                                               |   |  |   |       |  
|Total reportable segments         |  |                      | 3,929 |                      |   | 152  |                |  |   | 4,081                                                                         |   |  |   | 1,450 |  
|Other                             |  |                      | 82    |                      |   | (100 | )              |  |   | (18                                                                           | ) |  |   | (115  | )
|Eliminations                      |  |                      |      |                      |   | (52  | )              |  |   | (52                                                                           | ) |  |   |      |  
|Interest expense                  |  |                      |      |                      |   |     |                |  |   |                                                                              |   |  |   | (220  | )
|Interest income and other (b)     |  |                      |      |                      |   |     |                |  |   |                                                                              |   |  |   | 16    |  
|                                  |  |                      |       |                      |   |      |                |  |   |                                                                               |   |  |   |       |  
|Total consolidated                |  | $                    | 4,011 |                      | $ |     |                |  | $ | 4,011                                                                         |   |  | $ | 1,131 |  
|                                  |  |                      |       |                      |   |      |                |  |   |                                                                               |   |  |   |       |  

|(a) | Segment results exclude results of any discontinued operations.
|--- | ---------------------------------------------------------------

|(b) | Other includes foreign currency transaction gains and losses, and additional minority interest expense not allocated to the segment results.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------

|(c) | In July 2005, Old Duke Energy caused a subsidiary of Duke Capital to complete the previously announced agreement with ConocoPhillips to reduce Duke Capitals ownership interest in DEFS
from 69.7% to 50%. Field Services segment data includes DEFS as a consolidated entity for the three months ended March 31, 2005 and as an equity method investment for the three months ended March 31, 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



19



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



Segment assets in the following table are net of intercompany advances, intercompany notes receivable, intercompany current assets,
intercompany derivative assets and investments in subsidiaries.



Segment Assets

|                                       |  |                |        |   |                   |   |        |  
|-------------------------------------- |  | -------------- | ------ | - | ----------------- | - | ------ | -
|                                       |  | March 31, 2006 |        |   | December 31, 2005 |  
|                                       |  | (in millions)  |       
|Natural Gas Transmission               |  | $              | 18,695 |   |                   | $ | 18,692 |  
|Field Services                         |  |                | 1,415  |   |                   |   | 1,423  |  
|DENA (a)                               |  |                | 4,097  |   |                   |   | 7,300  |  
|International Energy                   |  |                | 3,406  |   |                   |   | 3,163  |  
|Crescent                               |  |                | 1,662  |   |                   |   | 1,541  |  
|                                       |  |                |        |   |                   |   |        |  
|Total reportable segments              |  |                | 29,275 |   |                   |   | 32,119 |  
|Other                                  |  |                | 3,212  |   |                   |   | 3,667  |  
|Eliminations and reclassifications (b) |  |                | (668   | ) |                   |   | (766   | )
|                                       |  |                |        |   |                   |   |        |  
|Total consolidated assets              |  | $              | 31,819 |   |                   | $ | 35,020 |  
|                                       |  |                |        |   |                   |   |        |  

|(a) | DENAs segment assets include DENA assets held for sale and other assets not included in DENAs continuing operations as of March 31, 2006 and December 31, 2005.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Represents reclassification of federal tax balances in consolidation and the elimination of intercompany assets, such as accounts receivable and interest receivable.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

In conjunction with Old Duke Energys merger with Cinergy, effective April 3, 2006, Duke Capital has adopted new business segments that management
believes properly align the various operations of the merged companies with how the chief operating decision maker will view the business. Accordingly, effective with the second quarter of 2006, the Duke Capital reportable business segments are as
follows:

| |  |  | Natural Gas Transmissionsegment will be the same as former Duke Capital business segment
| | - |  | -----------------------------------------------------------------------------------------

| |  |  | Field Servicessegment will be the same as former Duke Capital business segment
| | - |  | -------------------------------------------------------------------------------

| |  |  | Internationalwill consist of Duke Energy International (DEI) and a portion of Cinergys international operations
| | - |  | -----------------------------------------------------------------------------------------------------------------

| |  |  | Crescentsegment will be the same as former Duke Capital business segment
| | - |  | -------------------------------------------------------------------------



12. Risk Management Instruments

The following table shows the carrying
value of Duke Capitals derivative portfolio as of March 31, 2006, and December 31, 2005.



Derivative Portfolio Carrying Value

|             |  |               |      |   |                  |   |     |  
|------------ |  | ------------- | ---- | - | ---------------- | - | --- | -
|             |  | March 31,2006 |      |   | December 31,2005 |  
|             |  | (in millions) |     
|Hedging      |  | $             | (13  | ) |                  | $ | (2  | )
|Trading      |  |               |     |   |                  |   | 5   |  
|Undesignated |  |               | (91  | ) |                  |   | (54 | )
|             |  |               |      |   |                  |   |     |  
|Total        |  | $             | (104 | ) |                  | $ | (51 | )
|             |  |               |      |   |                  |   |     |  

The amounts in the table above represent the combination of assets and (liabilities) for unrealized gains and
losses on mark-to-market and hedging transactions on Duke Capitals Consolidated Balance Sheets, excluding approximately $1.2 billion of derivative assets and $1.3 billion of derivative liabilities which were transferred to assets and
liabilities held for sale.

The $37 million decrease in the undesignated derivative portfolio fair value is due primarily to realization of
mark-to-market gains at DENA and mark-to-market movements as a result of higher commodity prices, partially offset by realized losses on certain contracts held by Duke Capital related to Field Services commodity price risk. As a result of the
transfer of 19.7% interest in DEFS to ConocoPhillips and the third quarter 2005 deconsolidation of its investment in DEFS, Duke Capital has discontinued hedge accounting for certain contracts held by Duke Capital related to Field Services
commodity price risk, which were previously accounted for as cash flow hedges. These contracts were originally entered into as hedges of forecasted future sales by Field Services, and have been retained as undesignated



20



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



derivatives. Since discontinuance of hedge accounting, these contracts have been marked-to-market in the Consolidated Statements of Operations. As a result,
approximately $230 million of pre-tax losses were recognized in earnings by Duke Capital as of March 31, 2005. These charges have been classified in the accompanying Consolidated Statements of Operations as follows: upon discontinuance of hedge
accounting approximately $120 million of pre-tax losses were recognized as a component of Impairments and Other Charges, while approximately $110 million of pre-tax losses were recognized prior to the deconsolidation of DEFS as a component of
Non-Regulated Electric, Natural Gas, Natural Gas Liquids, and Other Revenues as of March 31, 2005. Approximately $24 million of realized and unrealized pre-tax losses related to these contracts were recognized in earnings by Duke Capital during the
three months ended March 31, 2006 as a component of Other Income and Expenses, net as of a result of Duke Capitals investment in DEFS being accounted for using the equity method. Cash settlements on these contracts during the three months
ended March 31, 2006 of approximately $40 million are classified as a component of net cash used in investing activities in the accompanying Consolidated Statements of Cash Flows.

Included in Other Current Assets in the Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005 are collateral assets of approximately $558 million
and $1,209 million, respectively, which represents cash collateral posted by Duke Capital with other third parties. Included in Other Current Liabilities in the Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005 are collateral
liabilities of approximately $528 million and $608 million, respectively, which represents cash collateral posted by other third parties to Duke Capital. Subsequent to December 31, 2005, in connection with the sale to Barclays of contracts related
to DENAs energy marketing and management activities, which includes structured power and other contracts, Barclays provided DENA cash equal to the net collateral posted by DENA under the contracts. Net cash collateral received by Duke Capital
in January 2006 was approximately $540 million based on current market prices of the contracts (see Note 10).

During the first quarter of 2005, Duke
Capital settled certain hedges which were documented and designated as net investment hedges of the investment in Westcoast on their scheduled maturity and paid approximately $162 million. Losses recognized on this net investment hedge have been
classified in AOCI as a component of foreign currency adjustments and will not be recognized in earnings unless the complete or substantially complete liquidation of Duke Capitals investment in Westcoast occurs.

Commodity Cash Flow Hedges.Some Duke Capital subsidiaries are exposed to market fluctuations in the prices of various commodities related to their ongoing
power generating and natural gas gathering, distribution, processing and marketing activities. Duke Capital closely monitors the potential impacts of commodity price changes and, where appropriate, enters into contracts to protect margins for a
portion of future sales and generation revenues and fuel expenses. Duke Capital uses commodity instruments, such as swaps, futures, forwards and options as cash flow hedges for natural gas, electricity and natural gas liquid transactions. Duke
Capitals hedging exposures to the price variability of these commodities does not extend beyond one year.

As of March 31, 2006, $31 million of
the pre-tax deferred net losses on derivative instruments related to commodity cash flow hedges were accumulated on the Consolidated Balance Sheet in AOCI, and are expected to be recognized in earnings during the next 12 months as the hedged
transactions occur. This amount includes approximately $3 million of pre-tax deferred net losses related to the DENA exit plan discussed in Note 10. However, due to the volatility of the commodities markets, the corresponding value in AOCI will
likely change prior to its reclassification into earnings.

The ineffective portion of commodity cash flow hedges resulted in the recognition of
pre-tax losses of approximately $10 million and $25 million in the three months ended March 31, 2006 and March 31, 2005, respectively. The amount recognized for transactions that no longer qualified as cash flow hedges was not material as of
March 31, 2006 and was a pre-tax loss of approximately $120 million as of March 31, 2005, and are reported in Loss From Discontinued Operations, net of tax and Impairments and Other Charges in the Consolidated Statements of Operations,
respectively.

Commodity Fair Value Hedges. Some Duke Capital subsidiaries are exposed to changes in the fair value of some unrecognized firm
commitments to sell generated power or natural gas due to market fluctuations in the underlying commodity prices. Duke Capital actively evaluates changes in the fair value of such unrecognized firm commitments due to commodity price changes and,
where appropriate, uses various instruments to hedge its market risk. These commodity instruments, such as swaps, futures and forwards, serve as fair value hedges for the firm commitments associated with generated power. The ineffective portion of
commodity fair value hedges resulted in a pre-tax gain of $7 million and $1 million in the three months ended March 31, 2006 and March 31, 2005, respectively.



21



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



13. Regulatory Matters

Natural Gas
Transmission.Rate Related Information. In November 2005, The British Columbia Pipeline System (BC Pipeline) filed an application with the National Energy Board (NEB) for interim and final tolls for 2006. In December 2005, the NEB
approved the 2006 interim tolls as filed and BC Pipeline started negotiations with its shippers to reach a settlement on final tolls for years 2006 and 2007. BC Pipeline reached a toll settlement agreement in principle with its customers for the
2006 and 2007 fiscal years on March 30, 2006. This agreement includes an increase in the equity percentage used in rate purposes from 31% in 2005 to 35% in 2006 and 36% in 2007. The toll settlement agreement is in the process of being
finalized, at which time it will be presented to the NEB for approval.

Union Gas has rates that are approved by the OEB. Effective January 1,
2006, Union Gas implemented new rates approved by the OEB in December 2005, reflecting items previously approved. Union Gas earnings for 2006 continue to be subject to the earnings sharing mechanism implemented by the OEB in 2005.

In December 2005, Union Gas filed an application with the OEB for new rates effective January 1, 2007. A decision from the OEB is expected in late 2006.
Rates for the sale of gas are adjusted quarterly to reflect updated commodity price forecasts. The difference between the approved and the actual cost of gas incurred in the current period is deferred for future recovery from or return to customers,
subject to approval by the OEB. These differences are directly flowed through to customers and, therefore, no rate of return is earned on the related deferred balances. The OEBs review and approval of these gas purchase costs primarily
considers the prudence of the cost incurred.

Effective January 1, 2005, new rates for Maritimes & Northeast Pipeline L.L.C. (M&N)
took effect, subject to refund, as a result of a rate case filed by M&N in 2004. In June 2005, a settlement agreement to resolve the proceeding was reached with customers that would provide for a rate increase over rates charged prior to
January 1, 2005. This settlement agreement has been filed with FERC for its review and approval.

Management believes that the effects of these
matters will have no material adverse effect on Duke Capitals future consolidated results of operations, cash flows or financial position.



14. Commitments and Contingencies

Environmental

Duke Capital is subject to international, federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other
environmental matters.

Remediation activities. Like others in the energy industry, Duke Capital and its affiliates are responsible for
environmental remediation at various contaminated sites. These include some properties that are part of ongoing Duke Capital operations, sites formerly owned or used by Duke Capital entities, and sites owned by third parties. Remediation typically
involves management of contaminated soils and may involve groundwater remediation. Managed in conjunction with relevant federal, state and local agencies, activities vary with site conditions and locations, remedial requirements, complexity and
sharing of responsibility. If remediation activities involve statutory joint and several liability provisions, strict liability, or cost recovery or contribution actions, Duke Capital or its affiliates could potentially be held responsible for
contamination caused by other parties. In some instances, Duke Capital may share liability associated with contamination with other potentially responsible parties, and may also benefit from insurance policies or contractual indemnities that cover
some or all cleanup costs. All of these sites generally are managed in the normal course of business or affiliate operations. Management believes that completion or resolution of these matters will have no material adverse effect on Duke
Capitals consolidated results of operations, cash flows or financial position.

Clean Water Act. The U. S. Environmental Protection
Agencys (EPAs) final Clean Water Act Section 316(b) rule became effective July 9, 2004. The rule establishes aquatic protection requirements for existing facilities that withdraw 50 million gallons or more of water per day
from rivers, streams, lakes, reservoirs, estuaries, oceans, or other U.S. waters for cooling purposes. Duke Capitals three natural gas-fired generating facilities in California are affected sources under the rule. The three California
facilities are part of the DENA business and were sold as part of the transaction announced in January 2006 that closed in May 2006 (see Note 10). The rule requires a Comprehensive Demonstration Study (CDS) for each affected facility to provide
information needed to determine necessary facility-specific modifications and cost estimates for implementation. These studies will be completed over the next three to five years. Once compliance measures are determined and approved by regulators, a
facility will typically have five or more years to implement the measures. Due to the wide range of measures potentially applicable to a given facility, and since the final selection of compliance measures will be at least partially dependent upon
the CDS information, Duke Capital is not able to estimate its cost for complying with the rule at this time.



22



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



Extended Environmental Activities, Accruals. Included in Other Current Liabilities and Other Deferred Credits and Other
Liabilities on the Consolidated Balance Sheets were total accruals related to extended environmental-related activities of approximately $50 million as of both March 31, 2006 and December 31, 2005. These accruals represent Duke
Capitals provisions for costs associated with remediation activities at some of its current and former sites, as well as other relevant environmental contingent liabilities. Management believes that completion or resolution of these matters
will have no material adverse effect on Duke Capitals consolidated results of operations, cash flows or financial position.



Litigation

Western Energy and Natural Gas Litigation and Regulatory
Matters. Several affiliates of Duke Capital, as well as other energy companies, are parties to 34 lawsuits filed by or on behalf of electricity and/or natural gas purchasers in several Western states. Many of the suits seek class-action
certification. The plaintiffs allege that the defendants conspired to manipulate the electricity and/or natural gas markets in violation of state and/or federal antitrust, unfair business practices and other laws. Plaintiffs in some of the cases
further allege that such activities, including engaging in round trip trades, providing false information to natural gas trade publications and unlawfully exchanging information, resulted in artificially high energy prices. Plaintiffs
seek aggregate damages or restitution of billions of dollars from the defendants. Six of these cases were dismissed on filed rate and/or federal preemption grounds, and the plaintiffs in each of these dismissed cases have appealed their respective
rulings to the U.S. Ninth Circuit Court of Appeals. It is not possible to predict with certainty whether Duke Capital will incur any liability or to estimate the damages, if any, that Duke Capital might incur in connection with these lawsuits, but
Duke Capital does not presently believe the outcome of these matters will have a material adverse effect on its consolidated results of operations, cash flows or financial position.

In 2002, Southern California Edison Company (SCE) initiated arbitration proceedings regarding disputes with DETM relating to amounts owed in connection with the
termination of bi-lateral power contracts between the parties in early 2001. This matter proceeded to hearing in November 2005. In January 2006, the parties reached an agreement in principle to resolve the matters at issue in the arbitration. The
parties entered into a Settlement Agreement and Mutual Release dated as of March 10, 2006, and on March 24, 2006, DETM paid the settlement amount, including interest, into escrow. The agreement will require regulatory approval. Based on
the terms of the Settlement Agreement and Mutual Release, Duke Capital does not expect that the resolution of this matter will have a material adverse effect on its consolidated results of operations, cash flows or financial position.

Trading Related Litigation. Commencing August 2003, plaintiffs filed three class-action lawsuits in the U.S. District Court for the Southern District of New
York on behalf of entities who bought and sold natural gas futures and options contracts on the New York Mercantile Exchange during the years 2000 through 2002. DETM, along with numerous other entities, is named as a defendant. The plaintiffs claim
that the defendants violated the Commodity Exchange Act by reporting false and misleading trading information to trade publications, resulting in monetary losses to the plaintiffs. Plaintiffs seek class action certification, unspecified damages and
other relief. On September 24, 2004, the court denied a motion to dismiss the plaintiffs claims filed on behalf of DETM and other defendants, and on September 30, 2005, the court certified the class. DETM has reached an agreement
with the plaintiffs in these consolidated cases to resolve all issues and on February 8, 2006, the court granted preliminary approval of this settlement. The agreement is subject to final court approval after notification to all class members.
Duke Capital does not expect that the resolution of this matter will have a material adverse effect on its consolidated results of operations, cash flows or financial position.

On January 28, 2005, four plaintiffs filed suit in Tennessee Chancery Court against Duke Capital affiliates and other energy companies seeking class action
certification on behalf of indirect purchasers of natural gas who allege that they have been harmed by defendants manipulation of the natural gas markets by various means, including providing false information to natural gas trade publications
and unlawfully exchanging information, resulting in artificially high natural gas prices paid by plaintiffs in the State of Tennessee. Alleging that defendants violated state antitrust laws and other laws, plaintiffs seek unspecified damages and
other relief. Defendants removed this case to the United States District Court for the Western District of Tennessee in March 2005, and the case was transferred to a federal judge in Nevada in Multidistrict Litigation (MDL) proceeding 1566. By order
dated May 2, 2006, plaintiffs motion to remand the case to state court was granted. Duke Capital is unable to express an opinion regarding the probable outcome of these matters at this time.

On August 8, 2005, a plaintiff filed a lawsuit in state court in Kansas against Old Duke Energy and DETM, as well as other energy companies, claiming that the
plaintiff was harmed by the defendants alleged manipulation of the natural gas markets by various means, including providing false information to natural gas trade publications and entering into unlawful arrangements and agreements. Old Duke
Energy removed this case to the United States District Court for the District of Kansas on September 8, 2005, and the case was sub
-



23



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



sequently transferred to a federal judge in the MDL 1566 proceeding. Plaintiffs motion to remand the case to state court, was denied on April 26, 2006. On
September 26, 2005, a class action petition was filed by two plaintiffs in state court in Kansas against various defendants including Old Duke Energy and DETM, based on substantially similar allegations. This matter also was moved to federal
court, and defendants are seeking to have the case transferred to the MDL 1566 proceeding. Plaintiffs have filed a motion to remand the case to state court. The plaintiffs in the foregoing cases claim the defendants violated Kansas antitrust
laws and seek damages in unspecified amounts. Duke Capital is unable to express an opinion regarding the probable outcome of these matters at this time.

Trading Related Investigations.Beginning in February 2004, Old Duke Energy has received requests for information from the U.S. Attorneys office in Houston focused on the natural gas price reporting activities of certain
individuals involved in DETM trading operations. Old Duke Energy has cooperated with the government in this investigation and Duke Capital is unable to express an opinion regarding the probable outcome at this time.

Sonatrach/Sonatrading Arbitration. Duke Energy LNG Sales Inc. (Duke LNG), a subsidiary of Duke Capital, claims in an arbitration commenced in January 2001 in
London that Sonatrach, the Algerian state-owned energy company, together with its subsidiary, Sonatrading Amsterdam B.V. (Sonatrading), breached their shipping obligations under a liquefied natural gas (LNG) purchase agreement and related
transportation agreements (the LNG Agreements) relating to Duke LNGs purchase of LNG from Algeria and its transportation by LNG tanker to Lake Charles, Louisiana. Duke LNG seeks damages of approximately $27 million. Sonatrading and Sonatrach,
on the other hand, claim that Duke LNG repudiated the LNG Agreements by allegedly failing to diligently perform LNG marketing obligations. Sonatrading and Sonatrach seek damages in the amount of approximately $250 million. In 2003, an arbitration
tribunal issued a Partial Award on liability issues, finding that Sonatrach and Sonatrading breached their obligations to provide shipping. The tribunal also found that Duke LNG breached the LNG Purchase Agreement by failing to perform marketing
obligations. The final hearing on damages was concluded in March 2006 and the parties are awaiting a ruling from the tribunal.

Citrus Trading
Corporation (Citrus) Litigation. In conjunction with the Sonatrach LNG Agreements, Duke LNG entered into a natural gas purchase contract (the Citrus Agreement) with Citrus. Citrus filed a lawsuit in March 2003 in the U.S. District Court for the
Southern District of Texas against Duke LNG and PanEnergy Corp alleging that Duke LNG breached the Citrus Agreement by failing to provide sufficient volumes of gas to Citrus. Duke LNG contends that Sonatrach caused Duke LNG to experience a loss of
LNG supply that affected Duke LNGs obligations and termination rights under the Citrus Agreement. Citrus seeks monetary damages and a judicial determination that Duke LNG did not experience such a loss. After Citrus filed its lawsuit, Duke LNG
terminated the Citrus Agreement and filed a counterclaim asserting that Citrus had breached the agreement by, among other things, failing to provide sufficient security under a letter of credit for the gas transactions. Citrus denies that Duke LNG
had the right to terminate the agreement and contends that Duke LNGs termination of the agreement was itself a breach, entitling Citrus to terminate the agreement and recover damages in the amount of approximately $187 million. The parties
filed cross motions for partial summary judgment regarding the letter of credit issue which were subsequently denied by the Court. Other motions for partial summary judgment remain pending. No trial date has been set. It is not possible to predict
with certainty whether Duke Capital will incur any liability or to estimate the damages, if any, that Duke Capital might incur in connection with the Sonatrach and Citrus matters.

Exxon Mobil Disputes. In April 2004, Mobil Natural Gas, Inc. (MNGI) and 3946231 Canada, Inc. (3946231, and collectively with MNGI, Exxon Mobil) filed a
Demand for Arbitration against Old Duke Energy, DETMI, DTMSI Management Ltd. (DTMSI) and other affiliates of Duke Capital. MNGI and DETMI are the sole members of DETM. DTMSI and 3946231 are the sole beneficial owners of Duke Energy Marketing Limited
Partnership (DEMLP, and with DETM, the Ventures). Among other allegations, Exxon Mobil alleges that DETMI and DTMSI engaged in wrongful actions relating to affiliate trading, payment of service fees, expense allocations and distribution of earnings
in breach of agreements and fiduciary duties relating to the Ventures. Exxon Mobil seeks to recover actual damages, plus attorneys fees and exemplary damages; aggregate damages were not specified in the arbitration demand. Old Duke Energy
denies these allegations, and has filed counterclaims asserting that Exxon Mobil breached its Ventures obligations and other contractual obligations. By order dated May 2, 2005, the arbitrators granted Old Duke Energys Motion for Partial
Summary Judgment, effectively eliminating a significant portion of Exxon Mobils claims. Exxon Mobil filed a motion for reconsideration of the ruling as well as for an extension of the date for the arbitration hearing. Exxon Mobil also filed a
motion to dismiss certain of Old Duke Energys counterclaims. Following a hearing in December 2005 on the motion for reconsideration, the arbitrators issued their ruling on January 26, 2006, generally reaffirming the original order, with a
limited exception with respect to affiliate trades that is not expected to have a significant impact on the case. The panel also dismissed one of Old Duke Energys counterclaims. In response to a request from Exxon Mobil, the arbitration panel
has postponed the commencement date of the arbitration hearing from January 2006 to October 2006 in Houston, Texas. On February 28, 2006, Old



24



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



Duke Energy filed an expert report in support of its claims. On the same date, Exxon Mobil also filed a Second Amended Statement of Claim and various expert reports in
support of its claims. New Duke Energy is evaluating Exxon Mobils filings and expects to respond by August 2006. In August 2004, DEMLP initiated arbitration proceedings in Canada against certain Exxon Mobil entities asserting that those
entities wrongfully terminated two gas supply agreements with the Ventures and wrongfully failed to assume certain related gas supply agreements with other parties. A hearing in the Canadian arbitration, originally scheduled to commence in August
2005 in Calgary, Canada, was held in March 2006. The parties submitted post closing briefs and the arbitrators have scheduled oral arguments on May 16 and 17, 2006. Under the current procedural order governing the Arbitration, a ruling is
expected by the third quarter of 2006. It is not possible to predict with certainty whether Duke Capital will incur any liability or to estimate the damages, if any, that might be incurred by Duke Capital as a result of these matters.

Other Litigation and Legal Proceedings. Duke Capital and its subsidiaries are involved in other legal, tax and regulatory proceedings in various forums
regarding performance, contracts, royalty disputes, mismeasurement and mispayment claims (some of which are brought as class actions), and other matters arising in the ordinary course of business, some of which involve substantial amounts.
Management believes that the final disposition of these proceedings will have no material adverse effect on Duke Capitals consolidated results of operations, cash flows or financial position.

Duke Capital has exposure to certain legal matters that are described herein. As of March 31, 2006, Duke Capital has recorded reserves of approximately $60
million for these proceedings and exposures. These reserves represent managements best estimate of probable loss as defined by SFAS No. 5.

Duke Capital expenses legal costs related to the defense of loss contingencies as incurred.



Other Commitments and Contingencies

Other. As part of its normal business, Duke Capital is a party to various
financial guarantees, performance guarantees and other contractual commitments to extend guarantees of credit and other assistance to various subsidiaries, investees and other third parties. To varying degrees, these guarantees involve elements of
performance and credit risk, which are not included on the Consolidated Balance Sheets. The possibility of Duke Capital having to honor its contingencies is largely dependent upon future operations of various subsidiaries, investees and other third
parties, or the occurrence of certain future events. (For further information see Note 15.)

In addition, Duke Capital enters into various
fixed-price, non-cancelable commitments to purchase or sell power (tolling arrangements or power purchase contracts), take-or-pay arrangements, transportation or throughput agreements and other contracts that may or may not be recognized on the
Consolidated Balance Sheets. Some of these arrangements may be recognized at market value on the Consolidated Balance Sheets as trading contracts or qualifying hedge positions included in Unrealized Gains or Losses on Mark-to-Market and Hedging
Transactions.

See Note 15 for discussion of Calpine guarantee obligation.



15. Guarantees and Indemnifications

Duke
Capital and its subsidiaries have various financial and performance guarantees and indemnifications which are issued in the normal course of business. As discussed below, these contracts include performance guarantees, stand-by letters of credit,
debt guarantees, surety bonds and indemnifications. Duke Capital and its subsidiaries enter into these arrangements to facilitate a commercial transaction with a third party by enhancing the value of the transaction to the third party.

Duke Capital has issued performance guarantees to customers and other third parties that guarantee the payment and performance of other parties, including
certain non-wholly owned entities. The maximum potential amount of future payments Duke Capital could have been required to make under these performance guarantees as of March 31, 2006 was approximately $1,165 million. Of this amount,
approximately $600 million relates to guarantees of payments and performance of affiliated entities such as Duke Energy Merchants (DEM), which was transferred to Duke Capital in April 2006 (see Note 1), and approximately $375 million relates to
guarantees of the payment and performance of less than wholly owned consolidated entities. Approximately $130 million of the performance guarantees expire between 2006 and 2008, with the remaining performance guarantees expiring after 2008 or having
no contractual expiration. Additionally, Duke Capital has issued joint and several guarantees to some of the D/FD project owners, guaranteeing the performance of D/FD under its engineering, procurement and construction contracts and other
contractual commitments. These guarantees have no contractual expiration and no stated maximum amount of future payments that Duke Capital could be required to make. Additionally, Fluor Enterprises Inc., as 50% owner in D/FD, has issued similar
joint and several guarantees to the same D/FD project owners. In accordance



25



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



with the D/FD partnership agreement, each of the partners is responsible for 50% of any payments to be made under those guarantees.

Westcoast has issued performance guarantees to third parties guaranteeing the performance of unconsolidated entities, such as equity method investments, and of
entities previously sold by Westcoast to third parties. Those guarantees require Westcoast to make payment to the guaranteed third party upon the failure of such unconsolidated or sold entity to make payment under some of its contractual
obligations, such as debt, purchase contracts and leases. The maximum potential amount of future payments Westcoast could have been required to make under those performance guarantees as of March 31, 2006 was approximately $15 million. Of those
guarantees, approximately $10 million expire in 2006, with the remainder having no contractual expiration.

Duke Capital uses bank-issued stand-by
letters of credit to secure the performance of non-wholly owned entities to a third party or customer. Under these arrangements, Duke Capital has payment obligations to the issuing bank which are triggered by a draw by the third party or customer
due to the failure of the non-wholly owned entity to perform according to the terms of its underlying contract. The maximum potential amount of future payments Duke Capital could have been required to make under these letters of credit as of
March 31, 2006 was approximately $155 million. Of this amount, approximately $85 million was issued on behalf of less than wholly owned consolidated entities with the remaining amount issued on behalf of affiliated entities. Substantially all
of these letters of credit were issued on behalf of less than wholly owned consolidated entities and expire in 2006 or 2008.

Duke Capital has
guaranteed certain issuers of surety bonds, obligating itself to make payment upon the failure of a non-wholly owned entity to honor its obligations to a third party. As of March 31, 2006, Duke Capital had guaranteed approximately $10 million
of outstanding surety bonds related to obligations of non-wholly owned entities. The majority of these bonds expire in various amounts in 2006.

Natural Gas Transmission, International Energy, and Crescent have issued guarantees of debt and performance guarantees associated with non-consolidated entities and less than wholly owned consolidated entities. If such entities were to
default on payments or performance, Natural Gas Transmission, International Energy, or Crescent would be required under the guarantees to make payment on the obligation of the less than wholly owned entity. As of March 31, 2006, Natural Gas
Transmission was the guarantor of approximately $15 million of debt at Westcoast associated with less than wholly owned entities, which expire in 2019. International Energy was the guarantor of approximately $10 million of performance guarantees
associated with less than wholly owned entities. Substantially all of these guarantees expire between 2006 and 2008. Crescent was the guarantor of approximately $15 million of debt associated with less than wholly owned entities, which expire in
2006.

Duke Capital has issued guarantees to customers or other third parties related to the payment or performance obligations of certain entities
that were previously wholly owned by Old Duke Energy but which have been sold to third parties, such as DukeSolutions, Inc. (DukeSolutions) and Duke Engineering & Services, Inc. (DE&S). These guarantees are primarily related to payment
of lease obligations, debt obligations, and performance guarantees related to provision of goods and services. Duke Capital has received back-to-back indemnification from the buyer of DE&S indemnifying Duke Capital for any amounts paid by Duke
Capital related to the DE&S guarantees. Duke Capital also received indemnification from the buyer of DukeSolutions for the first $2.5 million paid by Duke Capital related to the DukeSolutions guarantees. Further, Duke Capital granted
indemnification to the buyer of DukeSolutions with respect to losses arising under some energy services agreements retained by DukeSolutions after the sale, provided that the buyer agreed to bear 100% of the performance risk and 50% of any other
risk up to an aggregate maximum of $2.5 million (less any amounts paid by the buyer under the indemnity discussed above). Additionally, for certain performance guarantees, Duke Capital has recourse to subcontractors involved in providing services to
a customer. These guarantees have various terms ranging from 2006 to 2019, with others having no specific term. Duke Capital is unable to estimate the total maximum potential amount of future payments under these guarantees, since some of the
underlying agreements have no limits on potential liability.

In connection with Duke Capitals sale of the Murray merchant generation facility
to KGen, in August 2004, Duke Capital guaranteed in favor of a bank the repayment of any draws under a $120 million letter of credit issued by the bank to Georgia Power Company. The letter of credit, which expires in 2006, is related to the
obligation of a KGen subsidiary under a seven-year power sales agreement, commencing in May 2005. Duke Capital will be required to ensure reissuance of this letter of credit or issue similar credit support until the power sales agreement expires in
2012. Duke Capital will operate the sold Murray facility under an operation and maintenance agreement with the KGen subsidiary. As a result, the guarantee has an immaterial fair value. Further, KGen has agreed to indemnify Duke Capital for any
payments Duke Capital makes with respect to the $120 million letter of credit.

In 1999, IDC issued approximately $100 million in bonds to purchase
equipment for lease to Hidalgo, a subsidiary of Duke Capital. Duke Capital unconditionally and irrevocably guaranteed the lease payments of Hidalgo to IDC through 2028. In 2000, Hidalgo was sold to Calpine Corporation and Duke Capital remained
obligated under the lease guaranty. In January 2006, Hidalgo and its subsidiaries filed for bankruptcy protection in connection with the previous bankruptcy filing by its parent, Calpine Corporation in December 2005. Gross exposure under the
guarantee obligation as of March 31, 2006 is approximately $200 million, which includes principal and interest. Duke



26



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



Capital does not believe a loss under the guarantee obligation is probable as of March 31, 2006, but continues to evaluate the situation. Therefore, no reserves
have been recorded for any contingent loss as of March 31, 2006. No demands for payment of principal or interest have been made under the guarantee. If future losses are incurred under the guarantee, Duke Capital has certain rights which should
allow it to mitigate such loss.

Duke Capital has entered into various indemnification agreements related to purchase and sale agreements and other
types of contractual agreements with vendors and other third parties. These agreements typically cover environmental, tax, litigation and other matters, as well as breaches of representations, warranties and covenants. Typically, claims may be made
by third parties for various periods of time, depending on the nature of the claim. Duke Capitals potential exposure under these indemnification agreements can range from a specified amount, such as the purchase price, to an unlimited dollar
amount, depending on the nature of the claim and the particular transaction. Duke Capital is unable to estimate the total potential amount of future payments under these indemnification agreements due to several factors, such as the unlimited
exposure under certain guarantees.

As of March 31, 2006, the amounts recorded for the guarantees and indemnifications mentioned above are
immaterial, both individually and in the aggregate.



16. Members Equity and
Related Party Transactions

As discussed in Note 7, in February 2005, DEFS sold its wholly owned subsidiary TEPPCO GP, the general partner of
TEPPCO Partners, L.P. (TEPPCO), for approximately $1.1 billion and Duke Capital sold its limited partner interest in TEPPCO for approximately $100 million. Prior to the completion of these sale transactions, Duke Capital accounted for its investment
in TEPPCO under the equity method of accounting. For the three months ended March 31, 2005, TEPPCO had operating revenues of approximately $1,524 million, operating expenses of approximately $1,463 million, operating income of approximately $61
million, income from continuing operations of approximately $46 million, and net income of approximately $47 million.

During the first quarter of
2006, Duke Capital advanced approximately $89 million to its parent, Old Duke Energy. The advance is presented as Advances to Parent within financing activities in the Consolidated Statements of Cash Flows for the three months ended March 31, 2006.

During the first quarter of 2005, Duke Capital distributed $750 million to Old Duke Energy, to provide funding for the execution of Old Duke
Energys accelerated share acquisition plan. The distribution was principally obtained from Duke Capitals portion of the cash proceeds realized from the sale by DEFS of TEPPCO GP and Duke Capitals sale of its limited partner
interest in TEPPCO, noted above.

During 2004, $267 million of cash advances were received by Duke Capital from Old Duke Energy as a partial return of
the income tax benefit associated with the transfer of deferred tax assets to Old Duke Energy in 2004. During the first quarter of 2005, Old Duke Energy forgave these advances of $267 million and Duke Capital classified the $267 million as an
addition to Members Equity. This forgiveness has been presented as a non-cash financing activity in the Consolidated Statements of Cash Flows for the three months ended March 31, 2005.

Balances due to or due from Old Duke Energy included in the Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005 are as follows:



|                              |  |               |     |   |                  |   |     |  
|----------------------------- |  | ------------- | --- | - | ---------------- | - | --- | -
|Assets/(Liabilities)          |  | March 31,2006 |     |   | December 31,2005 |  
|                              |  | (in millions) |    
|Advances receivable (b)       |  | $             | 195 |   |                  | $ | 123 |  
|Taxes receivable (a)          |  |               |    |   |                  |   | 187 |  
|Other current liabilities (c) |  |               | (30 | ) |                  |   | (2  | )

|(a) | The balance is classified as Other Current Assets on the Consolidated Balance Sheets.
|--- | -------------------------------------------------------------------------------------

|(b) | Advances receivable are included in Other within Investments and Other Assets on the Consolidated Balance Sheets. The advances do not bear interest, are carried as open accounts and are not
segregated between current and non-current amounts.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | The balance is classified as Other Current Liabilities on the Consolidated Balance Sheets.
|--- | ------------------------------------------------------------------------------------------



27



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



Duke Capital has certain derivative contracts with Old Duke Energy affiliates. Duke Capital has balances related to these contracts
included in the Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005 are as follows:



|                                 |  |               |      |   |                  |   |      |  
|-------------------------------- |  | ------------- | ---- | - | ---------------- | - | ---- | -
|                                 |  | March 31,2006 |      |   | December 31,2005 |  
|                                 |  | (in millions) |     
|Other current assets (a)         |  | $             |     |   |                  | $ | 48   |  
|Other noncurrent assets (b)      |  |               |     |   |                  |   | 1    |  
|Other current liabilities (c)    |  |               | (144 | ) |                  |   | (148 | )
|Other noncurrent liabilities (d) |  |               |     |   |                  |   | (2   | )

|(a) | The balance is classified as Unrealized Gains on Mark-to-Market and Hedging TransactionsCurrent Assets on the Consolidated Balance Sheets.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(b) | The balance is classified as Unrealized Gains on Mark-to-Market and Hedging TransactionsInvestments and Other Assets on the Consolidated Balance Sheets.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | The balances are classified as Unrealized Losses on Mark-to-Market and Hedging TransactionsCurrent Liabilities on the Consolidated Balance Sheets.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | The balance is classified as Unrealized Losses on Mark-to-Market and Hedging TransactionsDeferred Credits and Other Liabilities on the Consolidated Balance Sheets.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

For the three months ended March 31, 2006, and 2005, Duke Capital recorded revenues in the amount of $17 million and $41 million,
respectively, related to management fees charged to an unconsolidated affiliate of Duke Capital. These amounts are recorded in Non-regulated electric, natural gas, natural gas liquids, and other within Operating Revenues on the Consolidated
Statements of Operations. Previously, these amounts were recorded as a reduction of Operation, maintenance and other within Operating Expenses on the Consolidated Statements of Operations. Prior period amounts have been reclassified to revenue to
conform to the 2006 presentation. Additionally, for the three months ended March 31, 2006 and 2005, Duke Capital recognized recoveries of expenses in the amount of $27 million and $23 million, respectively. These amounts represent recoveries of
corporate governance costs allocated to an unconsolidated affiliate and are reflected as an offset within Operation, maintenance, and other within Operating Expenses on the Consolidated Statements of Operations.

Included in the Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005 are net expenses of $35 million and $26 million,
respectively, primarily consisting of settlements expensed to Old Duke Energy for NGLs, gas hedges, insurance premiums and Trading and Marketing net margin.

NorthSouth Insurance Company Limited is a subsidiary of Bison which insures exposures of Old Duke Energy. Included in Other Current Liabilities within the Consolidated Balance Sheets are unearned premiums of approximately $20 million and $2
million as of March 31, 2006 and December 31, 2005, respectively. Included in Non-regulated Electric, Natural Gas, Natural Gas Liquids, and Other within the Consolidated Statements of Operations are earned premiums of approximately $6 million and $5
million for the three months ended March 31, 2006 and 2005, respectively.

In July 2005, Old Duke Energy caused a Duke Capital subsidiary to complete
the transfer of a 19.7% interest in DEFS to ConocoPhillips, Duke Capitals co-equity owner in DEFS, which reduced Duke Capitals ownership interest in DEFS from 69.7% to 50% and resulted in Duke Capital and ConocoPhillips becoming equal
50% owners of DEFS. As a result of this transaction, Duke Capital deconsolidated its investment in DEFS and subsequently has accounted for the investment using the equity method of accounting. Duke Capitals 50% of equity in earnings of DEFS
for the three-months ended March 31, 2006 was approximately $146 million and Duke Capitals investment in DEFS as of March 31, 2006 was $1,379 million, which is included in Investments in Unconsolidated Affiliates in the accompanying
Consolidated Balance Sheets. During the three-months ended March 31, 2006, Duke Capital had gas sales to, purchases from, and other operating expenses from affiliates of DEFS of approximately $34 million, $8 million and $4 million,
respectively. As of March 31, 2006, Duke Capital had payables to affiliates of DEFS of approximately $83 million. Additionally, Duke Capital received approximately $90 million in distributions of earnings from DEFS in 2006, which are included
in Other, assets within Cash Flows from Operating Activities in the accompanying Consolidated Statements of Cash Flows. Duke Capital has recognized an approximate $60 million



28



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



receivable as of March 31, 2006 due to its share of a distribution declared by DEFS in March 2006 but paid in April 2006. Summary financial information for DEFS,
which is accounted for under the equity method, as of and for the three-months ended March 31, 2006 is as follows:



|                        |  |                                  |      
|----------------------- |  | -------------------------------- | -----
|                        |  | Three-months EndedMarch 31, 2006
|                        |  | (in millions)                   
|Operating revenues      |  | $                                | 3,309
|Operating expenses      |  | $                                | 2,994
|Operating income        |  | $                                | 315  
|Net income              |  | $                                | 291  
|                        | 
|                        |  | March 31, 2006                  
|                        |  | (in millions)                   
|Current assets          |  | $                                | 1,893
|Non-current assets      |  | $                                | 4,876
|Current liabilities     |  | $                                | 1,976
|Non-current liabilities |  | $                                | 2,015
|Minority interest       |  | $                                | 93   

DEFS is a limited liability company which is a pass-through entity for U.S. income tax purposes. DEFS also
owns corporations who file their own respective, federal, foreign and state income tax returns and income tax expense related to these corporations is included in the income tax expense of DEFS. Therefore, DEFS net income does not include
income taxes for earnings which are pass-through to the members based upon their ownership percentage and Duke Capital recognizes the tax impacts of its share of DEFS pass-through earnings in its income tax expense from continuing operations
in the accompanying Consolidated Statements of Operations.

Also see Notes 7, 9, 11 and 15 for additional related party information.



17. New Accounting Standards

The following new accounting standards were adopted by Duke Capital subsequent to March 31, 2005 and the impact of such adoption, if applicable, has been
presented in the accompanying Consolidated Financial Statements:

SFAS No. 153, Exchanges of Nonmonetary Assetsan amendment of APB
Opinion No. 29 (SFAS No. 153). In December 2004, the FASB issued SFAS No. 153 which amends APB Opinion No. 29, Accounting for Nonmonetary Transactions, by eliminating the exception to the fair-value
principle for exchanges of similar productive assets, which were accounted for under APB Opinion No. 29 based on the book value of the asset surrendered with no gain or loss recognition. SFAS No. 153 also eliminates APB Opinion
No. 29s concept of culmination of an earnings process. The amendment requires that an exchange of nonmonetary assets be accounted for at fair value if the exchange has commercial substance and fair value is determinable within reasonable
limits. Commercial substance is assessed by comparing the entitys expected cash flows immediately before and after the exchange. If the difference is significant, the transaction is considered to have commercial substance and should be
recognized at fair value. SFAS No. 153 is effective for nonmonetary transactions occurring on or after July 1, 2005. The adoption of SFAS No. 153 did not have a material impact on Duke Capitals consolidated results of
operations, cash flows or financial position.

FASB Interpretation No. 47 Accounting for Conditional Asset Retirement
Obligations (FIN 47).In March 2005, the FASB issued FIN 47, which clarifies the accounting for conditional asset retirement obligations as used in SFAS No. 143. A conditional asset retirement obligation is an unconditional
legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. Therefore, an entity is required to recognize a
liability for the fair value of a conditional asset retirement obligation under SFAS No. 143 if the fair value of the liability can be reasonably estimated. The provisions of FIN 47 were effective for Duke Capital as of December 31, 2005.

FASB Staff Position (FSP) No. APB 18-1, Accounting by an Investor for Its Proportionate Share of Accumulated Other Comprehensive
Income of an Investee Accounted for under the Equity Method in Accordance with APB Opinion No. 18 upon a Loss of Significant Influence (FSP No. APB 18-1). In July of 2005, the FASB staff issued FSP No. APB 18-1 which provides
guidance for how an investor should account for its proportionate share of an investees equity adjustments for other comprehensive income (OCI) upon a loss of significant influence. APB Opinion No. 18, The Equity Method of
Accounting for Investments in Common Stock (APB Opinion No. 18),



29



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



requires a transaction of an equity method investee of a capital nature be accounted for as if the investee were a consolidated subsidiary, which requires the investor
to record its proportionate share of the investees adjustments for OCI as increases or decreases to the investment account with corresponding adjustments in equity. FSP No. APB 18-1 requires that an investors proportionate share of an
investees equity adjustments for OCI should be offset against the carrying value of the investment at the time significant influence is lost and equity method accounting is no longer appropriate. However, to the extent that the offset results
in a carrying value of the investment that is less than zero, an investor should (a) reduce the carrying value of the investment to zero and (b) record the remaining balance in income. The guidance in FSP No. APB 18-1 was effective for
Duke Capital beginning October 1, 2005. The adoption of FSP No. APB 18-1 did not have a material impact on Duke Capitals consolidated results of operations, cash flows or financial position.

SFAS No. 123(R). In December of 2004, the FASB issued SFAS No. 123(R), which replaces SFAS No. 123 and supersedes APB Opinion No. 25.
SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. For Old Duke Energy, timing for implementation of SFAS
No. 123(R) was January 1, 2006. The pro forma disclosures previously permitted under SFAS No. 123 are no longer an acceptable alternative. Instead, Old Duke Energy is required to determine an appropriate expense for stock options and
record compensation expense in the Consolidated Statements of Operations for stock options. Old Duke Energy implemented SFAS No. 123(R) using the modified prospective transition method, which required Duke Capital to record compensation expense
for all unvested awards beginning January 1, 2006.

Duke Capital currently also has retirement eligible employees with outstanding share-based
payment awards (unvested stock awards, stock based performance awards and phantom stock awards). Compensation cost related to those awards was previously expensed over the stated vesting period or until actual retirement occurred. Effective
January 1, 2006, Duke Capital is required to recognize compensation cost for new awards granted to employees over the requisite service period, which generally begins on the date the award is granted through the earlier of the date the award
vests or the date the employee becomes retirement eligible. Awards, including stock options, granted to employees that are already retirement eligible will be deemed to have vested immediately upon issuance, and therefore, compensation cost for
those awards will be recognized on the date such awards are granted.

SFAS No. 123(R), which was adopted by Old Duke Energy effective
January 1, 2006, is not anticipated to have a material impact on its consolidated results of operations, cash flows or financial position in 2006 based on awards outstanding as of the implementation date. However, the impact to Duke Capital in
periods subsequent to adoption of SFAS No. 123(R) will be largely dependent upon the nature of any new share-based compensation awards issued to employees by New Duke Energy. (See Note 2).

Staff Accounting Bulletin (SAB) No. 107, Share-Based Payment (SAB 107). On March 29, 2005, the Securities and Exchange Commission (SEC)
staff issued SAB 107 to express the views of the staff regarding the interaction between SFAS No. 123R and certain SEC rules and regulations and to provide the staffs views regarding the valuation of share-based payment arrangements for
public companies. Duke Capital adopted SFAS No. 123R and SAB 107 effective January 1, 2006.

FSP No. FAS 115-1 and 124-1, The
Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments.The FASB issued FSP No. FAS 115-1 and 124-1 in November 2005 which was effective for Duke Capital beginning January 1, 2006. This FSP addresses the
determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an
other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amends SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, and SFAS No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations, and APB Opinion No. 18, The Equity Method of Accounting for
Investments in Common Stock. The adoption of FSP No. FAS 115-1 and 124-1 did not have a material impact on Duke Capitals consolidated results of operations, cash flows or financial position.

The following new accounting standards have been issued, but have not yet been adopted by Duke Capital as of March 31, 2006:

Statement of Financial Accounting Standards (SFAS) No. 155, Accounting for Certain Hybrid Financial Instrumentsan amendment of FASB Statements
No. 133 and 140In February 2006, the FASB issued FAS No. 155, Accounting for Certain Hybrid Financial Instrumentsan amendment of FASB Statements No. 133 and 140. SFAS No. 155 allows financial
instruments that have embeddedderivatives to be accounted for as a whole, eliminating the need to bifurcate the derivative from its host, if the holder elects to accountfor the whole instrument on a fair value basis. This Statement
is effective January 1, 2007. Duke Capital does not anticipate the adoption of SFAS No. 155 will have any material impact on its consolidated results of operations, cash flows or financial position.



30



---

PART I

DUKE CAPITAL LLC

Notes To Consolidated Financial Statements(Continued)



SFAS No. 156, Accounting for Servicing of Financial Assetsan amendment of FASB Statement No. 140 In
March 2006, the FASB issued FAS No. 156, Accounting for Servicing of Financial Assetsan amendment of FASB Statement No. 140. This Statement requires recognition of a servicing asset or liability when an entity enters into
arrangements to service financial instruments in certain situations. Such servicing assets or servicing liabilities are required to be initially measured at fair value, if practicable. SFAS No. 156 also allows an entity to subsequently measure
its servicing assets or servicing liabilities using either an amortization method or a fair value method. This Statement is effective January 1, 2007. Duke Capital does not anticipate the adoption of SFAS No. 156 will have any material
impact on its consolidated results of operations, cash flows or financial position.

FASB Staff Position (FSP) No. FIN 46 (R)-6, Determining
the Variability to Be Considered In Applying Interpretation No. 46(R)In April 2006, the FASB staff issued FSP No. FIN 46 (R)-6 to address how to determine the variability to be considered in applying FASB Interpretation
No. 46(R), Consolidation of Variable Interest Entities. The variability that is considered in applying Interpretation 46(R) affects the determination of whether the entity is a variable interest entity, which interests are variable interests in
the entity, and which party, if any, is the primary beneficiary of the VIE. The variability affects the calculation of expected losses and expected residual returns. This Statement is effective July 1, 2006. Duke Capital does not anticipate the
adoption of FSP No. FIN 46 (R)-6 will have any material impact of its consolidated results of operations, cash flows or financial position.

FSP
No. FAS 123(R)-4, Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent EventIn February 2006, the FASB staff issued FSP
No. 123(R)-4 to address the classification of options and similar instruments issued as employee compensation that allow for cash settlement upon the occurrence of a contingent event. The guidance amends SFAS 123(R). FSP 123(R)-4 provides that
cash settlement features that can be exercised only upon the occurrence of a contingent event that is outside the employees control does not require classifying the option or similar instrument as a liability until it becomes probable that the
event will occur. FSP 123(R)-4 applies only to options or similar instruments issued as part of employee compensation arrangements. The guidance in FSP 123(R)-4 is effective for Duke Capital as of April 1, 2006. Duke Capital adopted SFAS 123(R)
as of January 1, 2006 (see Note 2). The adoption of FSP No. FAS 123(R)-4 did not have a material impact on Duke Capitals consolidated statement of operations, cash flows or financial position.



18. Income Tax Expense

Although the outcome of tax audits is uncertain, management believes that adequate provisions for income and other taxes have been made for potential liabilities
resulting from such matters. As of March 31, 2006, Duke Capital has total provisions of approximately $116 million for uncertain tax positions, as compared to $115 million as of December 31, 2005, including interest. Management is not
aware of any issues for open tax years that upon final resolution are expected to have a material adverse effect on Duke Capitals consolidated results of operations, cash flows or financial position.

The effective tax rate for the three months ended March 31, 2006 was approximately 45.7% as compared to the effective tax rate of 38.1% for the same period in
2005. The increase in the effective tax rate is due to losses generated by Duke Capital entities for which Duke Capital does not receive a tax benefit as these losses flow-through to Old Duke Energy as a result of Duke Capital being a pass-through
entity for U.S. income tax purposes.

As of March 31, 2006 and December 31, 2005, approximately $203 million and $168 million, respectively,
of current deferred tax assets were included in Other within Current Assets on the Consolidated Balance Sheets. At March 31, 2006, this balance exceeded 5% of total current assets.



19. Subsequent Events

On April 3,
2006, Old Duke Energy consummated the previously announced merger with Cinergy. See Notes 1 and 7 for additional information. Additionally, as described in Note 1, in April 2006, Old Duke Energy transferred the operations of DEM and Duke Energy
Merchant Finance, LLC to Duke Capital and, Duke Capital transferred DENAs Midwestern assets to CG&E and transferred its interest in Bison to New Duke Energy.

For information on subsequent events related to basis of presentation, acquisitions and dispositions, discontinued operations and assets held for sale, business segments, and related party transactions, see Notes 1, 7, 10, 11,
and 16, respectively.



31



---

PART I

DUKE CAPITAL LLC



Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition.



INTRODUCTION

Managements Discussion and Analysis should be read in
conjunction with the Consolidated Financial Statements.

Duke Energy Holding Corp. (Duke Energy HC) was incorporated in Delaware on May 3, 2005
as Deer Holding Corp., a wholly-owned subsidiary of Duke Energy Corporation (Old Duke Energy). On April 3, 2006, in accordance with their previously announced merger agreement, Old Duke Energy and Cinergy Corp. (Cinergy) merged into
wholly-owned subsidiaries of Duke Energy HC, resulting in Duke Energy HC becoming the parent entity. In connection with the closing of the merger transactions, Duke Energy HC changed its name to Duke Energy Corporation (New Duke Energy
or Duke Energy) and, on April 3, 2006, Old Duke Energy converted its form of organization from a North Carolina corporation to a North Carolina limited liability company named Duke Power Company LLC (Duke Power).

On April 1, 2006, in connection with the above transactions, Old Duke Energy transferred the operations of Duke Energy Merchants, LLC (DEM) and Duke Energy
Merchant Finance, LLC to Duke Capital LLC (collectively with its subsidiaries, Duke Capital) and Duke Capital transferred the operations of its wholly-owned captive insurance subsidiary, Bison Insurance Company Limited (Bison), to New Duke Energy.
On April 3, 2006, Duke Power transferred to its parent, Duke Energy, all of its membership interests in its wholly-owned subsidiary Duke Capital. Additionally, in April 2006, Duke Capital indirectly transferred to Cincinnati Gas &
Electric Company (CG&E), a subsidiary of Cinergy, its ownership interest in Duke Energy North Americas (DENAs) Midwestern assets, representing a mix of combined cycle and peaking plants, with a combined capacity of approximately
3,600 megawatts (MWs). In connection with this transfer, Duke Capital transferred to CG&E approximately $1.6 billion of assets at their carrying value and approximately $0.2 billion of liabilities at their carrying value, for a net transfer of
approximately $1.4 billion.

In connection with the transfer, Duke Capital and CG&E entered into an arrangement through April 2016, unless
otherwise extended by the parties, whereby Duke Capital will reimburse CG&E in the event of certain cash shortfalls that may result from CG&Es ownership of the Midwestern assets.



Executive Overview

For the three months ended March 31, 2006, Duke Capital reported net income of $216 million as compared to net income of $651 million for the three months ended March 31, 2005. The decrease in net income was due
primarily to the pre-tax gain of approximately $900 million (net of minority interest of approximately $343 million) recorded in 2005 related to Duke Energy Field Services, LLCs (DEFS) sale of Texas Eastern Products Pipeline Company, LLC
(TEPPCO GP), which is the general partner of TEPPCO Partners, LP (TEPPCO LP), and Duke Capitals sale of its limited partner interests in TEPPCO LP and the recognition of prior year hedge losses. Despite historically mild winter weather, Duke
Capitals gas operations delivered solid performance for the three months ended March 31, 2006. Highlights for the quarter include:

| |  |  | Natural Gas Transmissions earnings increased for the three months ended March 31, 2006 as compared to the same period in the prior year, primarily due to an approximate $24 million
gain on the settlement of a customers transportation contracts. Excluding this gain, earnings growth was primarily the result of U.S. pipeline expansion projects, natural gas processing and favorable foreign exchange rate impacts from the
strengthening Canadian currency;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Field Services results benefited from strong commodity prices and gas marketing results, offset by the reduction in ownership percentage by Duke Capital as a result of the DEFS disposition
transaction whereby Duke Capital reduced its ownership interest in DEFS from 69.7% to 50% effective July 1, 2005;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | International Energy experienced improved results over the same period of the prior year primarily due to improved prices and volumes in Latin America, favorable foreign exchange rate impacts
in Brazil and increased margins at National Methanol Company;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Crescent Resources, LLC (Crescent) had lower earnings for the three months ended March 31, 2006 as compared to the same period of the prior year due to lower legacy land sales;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | DENAs discontinued operations incurred losses for the three months ended March 31, 2006, due primarily to certain contract terminations as a result of progress towards completing
the exit plan; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Additionally, earnings for the three months ended March 31, 2006 as compared to the prior year period were favorably impacted by reduced hedge losses as a result of the prior year
charges recognized in connection with the discontinuance of certain cash flow hedges entered into to hedge Field Services commodity price risk.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



32



---

PART I

DUKE CAPITAL LLC



On April 3, 2006, Old Duke Energy and Cinergy consummated the
previously announced merger, which combines the Old Duke Energy and Cinergy regulated franchises as well as deregulated generation in the Midwestern United States. Throughout the remainder of 2006, New Duke Energy management will be focused on
establishing an industry-leading electric power platform through successful execution of the merger plan, primarily the timely, cost-effective integration of the legacy Old Duke Energy and Cinergy businesses.

Duke Capital has made substantial progress in completing the DENA exit plan. Substantially all of DENAs portfolio of derivative contracts (approximately 95%)
has been transferred to Barclays Bank PLC (Barclays), which essentially eliminated Duke Capitals credit, collateral, market and legal risk associated with DENAs derivative trading positions. In May 2006, the transaction with a subsidiary
of LS Power Equity Partners (LS Power) closed and total proceeds from the sale are expected to be approximately $1.56 billion, including certain working capital adjustments. Additional proceeds of up to approximately $40 million are subject to LS
Power obtaining certain state regulatory approvals. Subject to the resolution of these contingencies, an additional gain on the disposition of these assets could be recognized in a future period.



33



---

PART I



RESULTS OF OPERATIONS

|                                                                         |  |                              |       |   |      |   |       |                     |  |   |        |  
|------------------------------------------------------------------------ |  | ---------------------------- | ----- | - | ---- | - | ----- | ------------------- |  | - | ------ | -
|Results of Operations and Variances                                      | 
|                                                                         |  | Three Months Ended March 31, |      
|                                                                         |  | 2006                         |       |   | 2005 |   |       | Increase (Decrease) | 
|                                                                         |  | (in millions)                |      
|Operating revenues                                                       |  | $                            | 1,834 |   |      | $ | 4,011 |                     |  | $ | (2,177 | )
|Operating expenses                                                       |  |                              | 1,393 |   |      |   | 3,592 |                     |  |   | (2,199 | )
|Gains on sales of investments in commercial and multi-family real estate |  |                              | 26    |   |      |   | 42    |                     |  |   | (16    | )
|Gains on sales of other assets and other, net                            |  |                              | 28    |   |      |   | 7     |                     |  |   | 21     |  
|                                                                         |  |                              |       |   |      |   |       |                     |  |   |        |  
|Operating income                                                         |  |                              | 495   |   |      |   | 468   |                     |  |   | 27     |  
|Other income and expenses, net                                           |  |                              | 182   |   |      |   | 1,303 |                     |  |   | (1,121 | )
|Interest expense                                                         |  |                              | 176   |   |      |   | 220   |                     |  |   | (44    | )
|Minority interest expense                                                |  |                              | 15    |   |      |   | 420   |                     |  |   | (405   | )
|                                                                         |  |                              |       |   |      |   |       |                     |  |   |        |  
|Earnings from continuing operations before income taxes                  |  |                              | 486   |   |      |   | 1,131 |                     |  |   | (645   | )
|Income tax expense from continuing operations                            |  |                              | 222   |   |      |   | 431   |                     |  |   | (209   | )
|                                                                         |  |                              |       |   |      |   |       |                     |  |   |        |  
|Income from continuing operations                                        |  |                              | 264   |   |      |   | 700   |                     |  |   | (436   | )
|Loss from discontinued operations, net of tax                            |  |                              | (48   | ) |      |   | (49   | )                   |  |   | 1      |  
|                                                                         |  |                              |       |   |      |   |       |                     |  |   |        |  
|Net income                                                               |  | $                            | 216   |   |      | $ | 651   |                     |  | $ | (435   | )
|                                                                         |  |                              |       |   |      |   |       |                     |  |   |        |  



Consolidated Operating Revenues

Three Months Ended March 31, 2006 as Compared to March 31, 2005.Consolidated operating revenues for the three months ended
March 31, 2006 decreased $2,177 million, compared to the same period in 2005. This change was driven primarily by:

| |  |  | A $2,658 million decrease due to the deconsolidation of DEFS, effective July 1, 2005
| | - |  | ------------------------------------------------------------------------------------

Partially offsetting this decrease in revenues were:

| |  |  | A $283 million increase at Natural Gas Transmission due to new Canadian assets, primarily the Empress System (approximately $145 million), recovery of higher natural gas commodity costs
(approximately $118 million), resulting from higher natural gas prices passed through to customers without a mark-up at Union Gas Limited (Union Gas), and favorable Canadian dollar foreign exchange impacts (approximately $55 million), partially
offset by lower gas usage due to unseasonably warmer weather (approximately $85 million)
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | An approximate $92 million increase in Other primarily related to the prior year impact of the realized and unrealized mark-to-market losses of Field Services hedges that had been
recorded in operating revenues prior to the deconsolidation of DEFS, and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | A $63 million increase at International Energy due to higher energy prices in Latin America (approximately $44 million) and increased ownership and resulting consolidation of Aguaytia
(approximately $20 million).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For a more detailed discussion of operating revenues, see the segment discussions that follow.



Consolidated Operating Expenses

Three Months Ended March 31, 2006 as Compared to March 31, 2005.Consolidated operating expenses for the three months ended March 31, 2006
decreased $2,199 million, compared to the same period in 2005. This change was driven primarily by:

| |  |  | A $2,571 million decrease due to the deconsolidation of DEFS, effective July 1, 2005
| | - |  | ------------------------------------------------------------------------------------

Partially offsetting this decrease in expenses were:

| |  |  | A $279 million increase at Natural Gas Transmission due to new Canadian assets, primarily the Empress System (approximately $131 million), recovery of higher natural gas commodity costs
(approximately $118 million), resulting from high natural gas prices passed through to customers without a mark-up at Union Gas, Canadian dollar foreign exchange impacts (approximately $44 million), partially offset by lower gas usage due to
unseasonably warmer weather (approximately $67 million), and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | A $38 million increase at International Energy primarily due to higher fuel prices and volumes in Latin America (approximately $18 million), and increased ownership and resulting
consolidation of Aguaytia (approximately $13 million).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For a more detailed discussion of operating expenses, see the segment
discussions that follow.



34



---

PART I



Consolidated Gains on Sales of Other Assets and Other, Net

Consolidated
gains on sales of other assets and other, net for the three months ended March 31, 2006 increased $21 million, compared to the same period in 2005. The increase was due primarily to a $23 million gain on the settlement of a customers
transportation contracts at Natural Gas Transmission.



Consolidated Operating Income

Consolidated operating income for the three months ended March 31, 2006 increased $27 million, compared to the same period in 2005.
Increased operating income was primarily driven by an approximate $230 million negative impact to operating income during the three months ended March 31, 2005 related to the discontinuance of certain cash flow hedges entered into to hedge
Field Services commodity price risk. This favorable variance for the three months ended March 31, 2006 as compared to the same period in the prior year was partially offset by impacts of the deconsolidation of DEFS, effective July 1,
2005. Other drivers to operating income are discussed above.

For more detailed discussions, see the segment discussions that follow.



Consolidated Other Income and Expenses, net

Consolidated other income and expenses, net for the three months ended March 31, 2006 decreased $1,121 million, compared to the same period in 2005. The
decrease was due primarily to the $1,239 million pre-tax gains recorded in 2005, associated with the sale of TEPPCO GP and Duke Capitals limited partner interest in TEPPCO LP, as discussed above, partially offset by an increase of
approximately $130 million in equity in earnings of unconsolidated affiliates primarily due to the deconsolidation of DEFS starting July 1, 2005.



Consolidated Interest Expense

Consolidated interest expense for the three
months ended March 31, 2006 decreased $44 million, compared to the same period in 2005. This decrease was due primarily to the deconsolidation of DEFS.



Consolidated Minority Interest Expense

Consolidated minority interest
expense for the three months ended March 31, 2006 decreased $405 million, compared to the same period in 2005. The decrease primarily resulted from the 2005 gain associated with the sale of TEPPCO GP and the impact of deconsolidation of DEFS,
as discussed above.



Consolidated Income Tax Expense from Continuing Operations

Consolidated income tax expense from continuing operations for the three months ended March 31, 2006 decreased $209 million, compared to the
same period in 2005. The decrease primarily resulted from lower earnings, due primarily to the 2005 gains associated with the sale of TEPPCO GP and Duke Capitals limited partner interest in TEPPCO LP as discussed above. The effective tax rate
for the first quarter 2006 was 45.7% compared to 38.1% for the same period in 2005. The increase in the effective tax rate is due to losses generated by Duke Capital entities for which Duke Capital does not receive a tax benefit as these losses
flow-through to Old Duke Energy as a result of Duke Capital being a pass-through entity for U.S. income tax purposes.



Consolidated Loss from Discontinued Operations, net of tax

Consolidated
loss from discontinued operations, net of tax for the three months ended March 31, 2006 was flat compared to the same period in 2005. Loss from discontinued operations was ($48) million for the first quarter 2006 and ($49) million for the first
quarter 2005. The decrease primarily resulted from an approximate $100 million after-tax loss associated with certain contract terminations at DENA, an approximate $12 million after-tax loss associated with an allowance recorded against a receivable
from Norsk Hydro, and a $21 million pre-tax gain related to DENAs sale of its Grays Harbor facility in the first three months of 2005. As a result of the DEA and Duke Capital pass-through, the above mentioned losses do not include certain
income tax expenses ($80 million for the first quarter 2006) and income tax benefits ($56 million for the first quarter 2005) associated with DEAs merchant generation facilities which were recognized at Old Duke Energy.



35



---

PART I



Segment Results

Management evaluates segment performance based on
earnings before interest and taxes from continuing operations, after deducting minority interest expense related to those profits (EBIT). On a segment basis, EBIT excludes discontinued operations, represents all profits from continuing operations
(both operating and non-operating) before deducting interest and taxes, and is net of the minority interest expense related to those profits. Cash, cash equivalents and short-term investments are managed centrally by Duke Capital, so the gains and
losses on foreign currency remeasurement, and interest and dividend income on those balances, are excluded from the segments EBIT. Management considers segment EBIT to be a good indicator of each segments operating performance from its
continuing operations, as it represents the results of Duke Capitals ownership interest in operations without regard to financing methods or capital structures.

Duke Capitals segment EBIT may not be comparable to a similarly titled measure of another company because other entities may not calculate EBIT in the same manner. Segment EBIT is summarized in the following table, and
detailed discussions follow.



|                                                                     |  |                              |      |   |      |   |       |  
|-------------------------------------------------------------------- |  | ---------------------------- | ---- | - | ---- | - | ----- | -
|EBIT by Business Segment                                             | 
|                                                                     |  | Three Months Ended March 31, |     
|                                                                     |  | 2006                         |      |   | 2005 |  
|                                                                     |  | (in millions)                |     
|Natural Gas Transmission                                             |  | $                            | 438  |   |      | $ | 411   |  
|Field Services (b)                                                   |  |                              | 144  |   |      |   | 919   |  
|International Energy                                                 |  |                              | 87   |   |      |   | 68    |  
|Crescent                                                             |  |                              | 42   |   |      |   | 52    |  
|                                                                     |  |                              |      |   |      |   |       |  
|Total reportable segment EBIT                                        |  |                              | 711  |   |      |   | 1,450 |  
|Other                                                                |  |                              | (57  | ) |      |   | (115  | )
|                                                                     |  |                              |      |   |      |   |       |  
|Total reportable segment and other EBIT                              |  |                              | 654  |   |      |   | 1,335 |  
|Interest expense                                                     |  |                              | (176 | ) |      |   | (220  | )
|Interest income and other (a)                                        |  |                              | 8    |   |      |   | 16    |  
|                                                                     |  |                              |      |   |      |   |       |  
|Consolidated earnings from continuing operations before income taxes |  | $                            | 486  |   |      | $ | 1,131 |  
|                                                                     |  |                              |      |   |      |   |       |  

|(a) | Includes interest income, foreign currency transaction gains and losses, additional minority interest expense not allocated to the segment results and intersegment eliminations.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | In July 2005, Old Duke Energy caused a Duke Capital subsidiary to complete the previously announced agreement with ConocoPhillips to reduce Duke Capitals ownership interest in DEFS from
69.7% to 50%. Field Services segment data includes DEFS as a consolidated entity for the three month period ended March 31, 2005 and as an equity method investment for the three months ended March 31, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The amounts discussed below include intercompany transactions that are eliminated in the Consolidated Financial Statements.



Natural Gas Transmission

|                                              |  |                                   |       |      |   |                     |  |   |     |  
|--------------------------------------------- |  | --------------------------------- | ----- | ---- | - | ------------------- |  | - | --- | -
|                                              |  | Three Months Ended March 31,      |      
|                                              |  | 2006                              |       | 2005 |   | Increase (Decrease) | 
|                                              |  | (in millions, except where noted) |      
|Operating revenues                            |  | $                                 | 1,474 |      | $ | 1,191               |  | $ | 283 |  
|Operating expenses                            |  |                                   | 1,068 |      |   | 789                 |  |   | 279 |  
|Gains on sales of other assets and other, net |  |                                   | 29    |      |   | 2                   |  |   | 27  |  
|                                              |  |                                   |       |      |   |                     |  |   |     |  
|Operating income                              |  |                                   | 435   |      |   | 404                 |  |   | 31  |  
|Other income and expenses, net                |  |                                   | 12    |      |   | 16                  |  |   | (4  | )
|Minority interest expense                     |  |                                   | 9     |      |   | 9                   |  |   |    |  
|                                              |  |                                   |       |      |   |                     |  |   |     |  
|EBIT                                          |  | $                                 | 438   |      | $ | 411                 |  | $ | 27  |  
|                                              |  |                                   |       |      |   |                     |  |   |     |  
|Proportional throughput, TBtu a               |  |                                   | 963   |      |   | 1,056               |  |   | (93 | )

|a | Trillion British thermal units. Revenues are not significantly impacted by pipeline throughput fluctuations since revenues are primarily composed of demand charges.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



36



---

PART I



Three Months Ended March 31, 2006 as Compared to March 31, 2005

Operating Revenues.The increase was driven primarily by:

| |  |  | A $166 million increase due to new Canadian assets, primarily the Empress System, higher processing revenues as a result of commodity prices, and U.S. business expansion
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | A $118 million increase from recovery of higher natural gas commodity costs, resulting from higher natural gas prices passed through to customers without a mark-up at Union Gas. This revenue
increase is offset in expenses.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | A $55 million increase due to foreign exchange rates favorably impacting revenues from the Canadian operations as a result of the strengthening Canadian dollar (partially offset by currency
impacts to expenses)
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | A $4 million increase from completed and operational pipeline expansion projects in the United States, partially offset by
| | - |  | --------------------------------------------------------------------------------------------------------------------------

| |  |  | An $85 million decrease in gas distribution revenues at Union Gas primarily resulting from lower gas usage due to unseasonably warmer weather.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------

Operating Expenses. The increase was driven primarily by:

| |  |  | A $159 million increase due to new Canadian assets, primarily gas purchase cost associated with the Empress System, U.S. expansion project provisions in 2006 and increased transmission and
storage operation expenses
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | A $118 million increase related to increased natural gas prices at Union Gas. This amount is offset in revenues
| | - |  | ---------------------------------------------------------------------------------------------------------------

| |  |  | A $44 million increase caused by foreign exchange impacts (offset by currency impacts to revenues, as discussed above), partially offset by
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | A $67 million decrease in gas purchase costs, primarily resulting from lower gas usage due to unseasonably warmer weather.
| | - |  | --------------------------------------------------------------------------------------------------------------------------

Gain on sale of other assets and other, net.The increase was driven primarily by a $23 million gain on the settlement of a customers transportation
contracts and a $5 million gain on the sale of Stone Mountain assets.

Other Income and expenses, net. The decrease was driven primarily by a
$5 million construction fee received from an affiliate as a result of the successful completion of the Gulfstream Natural Gas System LLC (Gulfstream), 50% owned by Duke Capital, Phase II project in 2005.

EBIT. The increase in EBIT was due primarily to the gain on settlement of a customers transportation contracts, U.S. Business Expansion projects and
strengthening Canadian currency, partially offset by the 2005 Gulfstream success fee and warmer weather at Union Gas.



Field Services

|                                                           |  |                                  |      |   |      |   |                     |  |   |        |  
|---------------------------------------------------------- |  | -------------------------------- | ---- | - | ---- | - | ------------------- |  | - | ------ | -
|                                                           |  | Three Months Ended March 31,     |     
|                                                           |  | 2006                             |      |   | 2005 |   | Increase (Decrease) | 
|                                                           |  | (in millions, except wherenoted) |     
|Operating revenues                                         |  | $                                |     |   |      | $ | 2,658               |  | $ | (2,658 | )
|Operating expenses                                         |  |                                  | 2    |   |      |   | 2,573               |  |   | (2,571 | )
|Gains on sales of other assets and other, net              |  |                                  |     |   |      |   | 2                   |  |   | (2     | )
|                                                           |  |                                  |      |   |      |   |                     |  |   |        |  
|Operating (loss) income                                    |  |                                  | (2   | ) |      |   | 87                  |  |   | (89    | )
|                                                           |  |                                  |      |   |      |   |                     |  |   |        |  
|Equity in earnings of unconsolidated affiliates (a)        |  |                                  | 146  |   |      |   |                    |  |   | 146    |  
|Other income and expenses, net                             |  |                                  |     |   |      |   | 1,251               |  |   | (1,251 | )
|Minority interest expense                                  |  |                                  |     |   |      |   | 419                 |  |   | (419   | )
|                                                           |  |                                  |      |   |      |   |                     |  |   |        |  
|EBIT (a)                                                   |  | $                                | 144  |   |      | $ | 919                 |  | $ | (775   | )
|                                                           |  |                                  |      |   |      |   |                     |  |   |        |  
|Natural gas gathered and processed/transported, TBtu/d (b) |  |                                  | 6.9  |   |      |   | 6.7                 |  |   | 0.2    |  
|NGL production, MBbl/d (c)                                 |  |                                  | 357  |   |      |   | 360                 |  |   | (3     | )
|Average natural gas price per MMBtu (d),(e)                |  | $                                | 8.98 |   |      | $ | 6.27                |  | $ | 2.71   |  
|Average NGL price per gallon (e)                           |  | $                                | 0.89 |   |      | $ | 0.73                |  | $ | 0.16   |  

|a | Includes Duke Capitals 50% equity in earnings of DEFS net income subsequent to the deconsolidation of DEFS effective July 1, 2005. Results of DEFS for the three months ended
March 31, 2005 are presented on a consolidated basis.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b | Trillion British thermal units per day
|- | --------------------------------------

|c | Thousand barrels per day
|- | ------------------------

|d | Million British thermal units. Average price based on NYMEX Henry Hub
|- | ---------------------------------------------------------------------

|e | Does not reflect results of commodity hedges.
|- | ---------------------------------------------



37



---

PART I



In July 2005, Old Duke Energy caused a Duke Capital subsidiary to complete the transfer of a 19.7% interest in DEFS to ConocoPhillips, Duke Capitals co-equity
owner in DEFS, which reduced Duke Capitals ownership interest in DEFS from 69.7% to 50% (the DEFS disposition transaction) and resulted in Duke Capital and ConocoPhillips becoming equal 50% owners in DEFS. As a result of the DEFS disposition
transaction, Duke Capital deconsolidated its investment in DEFS and subsequently has accounted for DEFS as an investment utilizing the equity method of accounting.



Three months ended March 31, 2006 as Compared to March 31, 2005

Operating Revenues.The decrease was due to the DEFS disposition transaction and subsequent deconsolidation of DEFS.

Operating Expenses. The decrease was due to the DEFS disposition transaction and subsequent deconsolidation of DEFS. Operating expenses for the three months
ended March 31, 2005 were impacted by approximately $120 million of losses recognized due to the reclassification of pre-tax unrealized losses in AOCI as a result of the discontinuance of certain cash flow hedges entered into to hedge Field
Services commodity price risk, which were previously accounted for as cash flow hedges.

Equity in Earnings of Unconsolidated Affiliates.The increase is due to Duke Capitals 50% of equity in earnings of DEFS net income for the three months ended March 31, 2006. DEFS earnings during the three months ended March 31, 2006 have continued to be favorably
impacted by increased commodity prices as compared to the prior period as well as a gain on sale of assets to an unrelated third party during the three months ended March 31, 2006 (of which Duke Capitals 50% share was approximately $14
million). These increases have been partially offset by higher operating costs and pipeline integrity work for the three months ended March 31, 2006.

Other Income, net of expenses. The decrease is due to the DEFS disposition transaction and subsequent deconsolidation of DEFS. During the three months ended March 31, 2005, DEFS had a pre-tax gain on the sale of its wholly-owned
subsidiary, TEPPCO GP, the general partner of TEPPCO LP of $1.1 billion, and Duke Capital had a pre-tax gain on the sale of its limited partner interest in TEPPCO LP of approximately $97 million. TEPPCO GP and Duke Capitals limited partner
interest in TEPPCO LP were each sold to Enterprise GP Holdings LP, an unrelated third party.

Minority Interest Expense.The decrease was due
to the DEFS disposition transaction and subsequent deconsolidation of DEFS. Minority interest expense for the three months ended March 31, 2005 was due primarily to the gain on the sale of TEPPCO GP to Enterprise GP Holdings LP for
approximately $1.1 billion, as discussed above.

EBIT. The decrease in EBIT resulted primarily from the gain on sale of TEPPCO GP and Duke
Capitals limited partner interest in TEPPCO LP during the three months ended March 31, 2005 and the DEFS disposition transaction, which reduced Duke Capitals ownership interest in DEFS from 69.7% to 50%. These decreases were
partially offset by increased commodity prices for the three months ended March 31, 2006 as compared to the prior period, a gain on sale of assets to an unrelated third party, and charges related to Duke Capitals discontinuance of certain
cash flow hedges entered into to hedge Field Services commodity price risk during the three months ended March 31, 2005. As a result of the discontinuance of hedge accounting treatment, approximately $120 million of pre-tax unrealized
losses in AOCI related to these contracts were recognized by Duke Capital in the first three months of 2005.



Supplemental Data

Below is supplemental information for DEFS operating results for the three months ended March 31,
2006:



|                              |  |                                |      
|----------------------------- |  | ------------------------------ | -----
|                              |  | Three MonthsEndedMarch 31,2006
|                              |  | (in millions)                 
|Operating revenues            |  | $                              | 3,309
|Operating expenses            |  |                                | 2,994
|                              |  |                                |      
|Operating income              |  |                                | 315  
|Other income, net of expenses |  |                                | 8    
|Interest expense, net         |  |                                | 31   
|Income tax expense            |  |                                | 1    
|                              |  |                                |      
|Net income                    |  | $                              | 291  
|                              |  |                                |      



38



---

PART I



International Energy

|                                            |  |                                   |       |      |   |                     |  |   |      |  
|------------------------------------------- |  | --------------------------------- | ----- | ---- | - | ------------------- |  | - | ---- | -
|                                            |  | Three Months Ended March 31,      |      
|                                            |  | 2006                              |       | 2005 |   | Increase (Decrease) | 
|                                            |  | (in millions, except where noted) |      
|Operating revenues                          |  | $                                 | 231   |      | $ | 168                 |  | $ | 63   |  
|Operating expenses                          |  |                                   | 157   |      |   | 119                 |  |   | 38   |  
|                                            |  |                                   |       |      |   |                     |  |   |      |  
|Operating income                            |  |                                   | 74    |      |   | 49                  |  |   | 25   |  
|Other income and expenses, net              |  |                                   | 20    |      |   | 21                  |  |   | (1   | )
|Minority interest expense                   |  |                                   | 7     |      |   | 2                   |  |   | 5    |  
|                                            |  |                                   |       |      |   |                     |  |   |      |  
|EBIT                                        |  | $                                 | 87    |      | $ | 68                  |  | $ | 19   |  
|                                            |  |                                   |       |      |   |                     |  |   |      |  
|Sales, GWh                                  |  |                                   | 4,998 |      |   | 4,535               |  |   | 463  |  
|Proportional megawatt capacity in operation |  |                                   | 3,988 |      |   | 4,139               |  |   | (151 | )



Three Months Ended
March 31, 2006 as Compared to March 31, 2005

Operating Revenues. The increase was primarily driven by:

| |  |  | A $21 million increase in El Salvador due to higher energy prices and a favorable change in regulatory price bid methodology
| | - |  | ----------------------------------------------------------------------------------------------------------------------------

| |  |  | A $20 million increase in Peru due to increased ownership and resulting consolidation of Aguaytia (See Note 7 to the Consolidated Financial Statements, Acquisitions and
Dispositions)
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | A $14 million increase in Brazil mainly due to favorable exchange rates and higher average energy prices, and
| | - |  | -------------------------------------------------------------------------------------------------------------

| |  |  | A $9 million increase in Argentina primarily due to higher energy prices and slightly increased generation.
| | - |  | -----------------------------------------------------------------------------------------------------------

Operating Expenses.The increase was primarily driven by:

| |  |  | A $18 million increase in El Salvador due primarily to higher fuel prices and increased fuel volumes as a result of increased generation
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

| |  |  | A $13 million increase in Peru due to increased ownership and resulting consolidation of Aguaytia (See Note 7 to the Consolidated Financial Statements, Acquisitions and
Dispositions), and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | A $6 million increase in Brazil mainly due to unfavorable exchange rates, partially offset by lower general and administrative expense.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------

Minority Interest Expense.The increase was primarily driven by increase in Peru due to increased ownership and resulting consolidation of Aguaytia (See Note
7 to the Consolidated Financial Statements, Acquisitions and Dispositions).

EBIT. The increase was due primarily to higher energy
prices in El Salvador and Argentina and favorable exchange rates in Brazil.



Crescent

|                                                                         |  |                              |    |      |   |                     |  |   |     |  
|------------------------------------------------------------------------ |  | ---------------------------- | -- | ---- | - | ------------------- |  | - | --- | -
|                                                                         |  | Three Months Ended March 31, |   
|                                                                         |  | 2006                         |    | 2005 |   | Increase (Decrease) | 
|                                                                         |  | (in millions)                |   
|Operating revenues                                                       |  | $                            | 71 |      | $ | 64                  |  | $ | 7   |  
|Operating expenses                                                       |  |                              | 61 |      |   | 51                  |  |   | 10  |  
|Gains on sales of investments in commercial and multi-family real estate |  |                              | 26 |      |   | 42                  |  |   | (16 | )
|                                                                         |  |                              |    |      |   |                     |  |   |     |  
|Operating income                                                         |  |                              | 36 |      |   | 55                  |  |   | (19 | )
|Other income and expenses, net                                           |  |                              | 8  |      |   |                    |  |   | 8   |  
|Minority interest expense                                                |  |                              | 2  |      |   | 3                   |  |   | (1  | )
|                                                                         |  |                              |    |      |   |                     |  |   |     |  
|EBIT                                                                     |  | $                            | 42 |      | $ | 52                  |  | $ | (10 | )
|                                                                         |  |                              |    |      |   |                     |  |   |     |  



39



---

PART I



Three Months Ended March 31, 2006 as Compared to March 31, 2005

Operating Revenues. The increase was driven primarily by an $8 million increase in residential developed lot sales due to increased sales at the Palmetto Bluff project in Bluffton, South Carolina.

Operating Expenses.The increase was driven primarily by a $4 million increase in the cost of residential developed lot sales associated with the increased
developed lot sales noted above along with a $4 million increase in corporate administrative expense due to increased incentive compensation accruals tied to budgeted operating results.

Gains on Sales of Investments in Commercial and Multi-Family Real Estate. The decrease was driven primarily by a $16 million reduction in legacy land sales
due to several large tract sales closed in the first quarter of 2005.

Other Income, net of expenses. The increase is primarily due to
approximately $5 million of equity earnings from a new residential joint venture in Austin, Texas along with an approximate $2 million gain from the sale of an interest in a portfolio of commercial office buildings.

EBIT. As discussed above, the decrease in EBIT was driven primarily by the decrease in legacy land sales in the first quarter of 2006 as compared to the
first quarter of 2005.



Other

|                                                  |  |                              |       |   |      |   |       |                     |  |   |      |  
|------------------------------------------------- |  | ---------------------------- | ----- | - | ---- | - | ----- | ------------------- |  | - | ---- | -
|                                                  |  | Three Months Ended March 31, |      
|                                                  |  | 2006                         |       |   | 2005 |   |       | Increase (Decrease) | 
|                                                  |  | (in millions)                |      
|Operating revenues                                |  | $                            | 74    |   |      | $ | (18   | )                   |  | $ | 92   |  
|Operating expenses                                |  |                              | 121   |   |      |   | 105   |                     |  |   | 16   |  
|Gains on sales of other assets and other, net     |  |                              |      |   |      |   | 3     |                     |  |   | (3   | )
|                                                  |  |                              |       |   |      |   |       |                     |  |   |      |  
|Operating loss                                    |  |                              | (47   | ) |      |   | (120  | )                   |  |   | 73   |  
|Other income and expenses, net                    |  |                              | (14   | ) |      |   | 4     |                     |  |   | (18  | )
|Minority interest benefit                         |  |                              | (4    | ) |      |   | (1    | )                   |  |   | (3   | )
|                                                  |  |                              |       |   |      |   |       |                     |  |   |      |  
|EBIT                                              |  | $                            | (57   | ) |      | $ | (115  | )                   |  | $ | 58   |  
|                                                  |  |                              |       |   |      |   |       |                     |  |   |      |  
|Actual plant production, GWh a                    |  |                              | 16    |   |      |   | 190   |                     |  |   | (174 | )
|Net proportional megawatt capacity in operation a |  |                              | 3,600 |   |      |   | 3,600 |                     |  |   |     |  
|                                                  |  |                              |       |   |      |   |       |                     |  |   |      |  

|a | DENA continuing operations
|- | --------------------------

During the third quarter of 2005, the Board of
Directors of Old Duke Energy authorized and directed management to execute the sale or disposition of substantially all of DENAs remaining assets and contracts outside the Midwestern United States and certain contractual positions related to
the Midwestern assets. As a result of this exit plan, DENAs continuing operations (which primarily include the operations of the Midwestern generation assets, DENAs remaining Southeastern operations related to the assets which were
disposed of in 2004, the remaining operations of Duke Energy Trading and Marketing, LLC (DETM), and certain general and administrative costs) are classified in Other. In April 2006, DENAs Midwestern assets were transferred to CG&E and, in
connection with the transfer, Duke Capital and CG&E entered into an arrangement through April 2016, unless otherwise extended by the parties, whereby Duke Capital will reimburse CG&E in the event of certain cash shortfalls that may result
from CG&Es ownership of the Midwestern assets.



Three Months
Ended March 31, 2006 as Compared to March 31, 2005

Operating Revenues. The increase was driven primarily by an approximate $110
million increase as a result of the prior year impact of realized and unrealized mark-to-market losses on certain discontinued cash flow hedges originally entered into to hedge Field Services commodity price risk which were accounted for as
Operating Revenues prior to the deconsolidation of DEFS, effective July 1, 2005.

Operating Expenses. The increase was driven primarily
by:

| |  |  | A $6 million increase due primarily to higher charges for liabilities associated with mutual insurance companies, and
| | - |  | ---------------------------------------------------------------------------------------------------------------------

| |  |  | A $5 million increase associated with merger costs to achieve in 2006.
| | - |  | ----------------------------------------------------------------------

Other Income and Expenses, net. The decrease was driven primarily by a $24 million net loss resulting from realized and unrealized mark-to-market impacts in 2006 of certain discontinued cash flow hedges originally entered into to
hedge Field Services commodity price risk which are recorded in Other income and expenses, net on the Consolidated Statements of Operations subsequent to the deconsolidation of DEFS, effective July 1, 2005.



40



---

PART I



EBIT.The increase was due primarily to the realized and unrealized mark-to-market impact of certain discontinued cash flow hedges originally entered into to
hedge Field Services commodity price risk and a favorable impact of approximately $10 million due to stronger period over period results at DENAs continuing operations. Partially offsetting these favorable results were higher operating
expenses, as discussed above.



LIQUIDITY AND CAPITAL RESOURCES

Operating Cash Flows

Net cash provided by operating activities increased
$16 million for the three months ended March 31, 2006 compared to the same period in 2005. This change was driven primarily by:

| |  |  | The settlement of the payable to Barclays (approximately $600 million) in 2006, offset by
| | - |  | -----------------------------------------------------------------------------------------

| |  |  | Collateral received by Duke Capital (approximately $540 million) during 2006 from Barclays
| | - |  | ------------------------------------------------------------------------------------------

(For additional information on the above, see Note 10 to the Consolidated Financial Statements, Discontinued Operations and Assets Held for Sale)



Investing Cash Flows

Cash flows provided by
investing activities decreased $937 million for the three months ended March 31, 2006 compared to the same period in 2005. This change was driven primarily by:

| |  |  | Approximately $1.2 billion in proceeds received in 2005 from the sale of TEPPCO GP and Duke Capitals interest in TEPPCO LP
| | - |  | ---------------------------------------------------------------------------------------------------------------------------

| |  |  | An approximate $175 million increase in 2006 capital and investment expenditures, primarily due to an increase in investments in real estate at Crescent of approximately $120 million and a
$71 million purchase of the remaining interest in the Bridgeport facility at DENA, partially offset by
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Approximately $370 million in net purchases (net of sales and maturities) of marketable securities at DEFS in 2005, which was deconsolidated effective July 1, 2005.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



Financing Cash Flows and Liquidity

Net cash used in financing activities decreased $764 million for the three months ended March 31, 2006, compared to the same period in 2005. This change
was driven primarily by:

| |  |  | A $750 million distribution to Old Duke Energy in 2005, partially offset by an approximate $90 million advance to Old Duke Energy in 2006
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------

| |  |  | An approximate $130 million decrease in redemptions of Long-term debt in 2006, primarily at DENA
| | - |  | ------------------------------------------------------------------------------------------------

Significant Financing Activities. During the three months ended March 31, 2006, Duke Capitals consolidated credit capacity decreased by $200 million due to the termination of a $100 million one-year
bi-lateral credit facility and a $100 million 364-day bi-lateral credit facility.

In December 2004, Duke Capital reached an agreement to sell its
partially completed Grays Harbor power generation facility to an affiliate of Invenergy LLC. In 2004, Duke Capital terminated its capital lease with the dedicated pipeline which would have transported natural gas to Grays Harbor. As a result of this
termination, approximately $94 million was paid by Duke Capital in January 2005.

On March 1, 2005, redemption notices were sent to the
bondholders of the $100 million PanEnergy 8.625% bonds due in 2025. These bonds were redeemed on April 15, 2005 at a redemption price of 104.03 or approximately $104 million.

Available Credit Facilities and Restrictive Debt Covenants.Duke Capitals debt and credit agreements contain various financial and other covenants.
Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements. As of March 31, 2006, Duke Capital was in compliance with those covenants. In addition, credit
agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or in some cases, due to the acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the debt or credit
agreements contain material adverse change clauses.

Credit Ratings. The credit ratings of Duke Capital and its subsidiaries were unchanged
through March 31, 2006 as disclosed in Managements Discussion and Analysis of Results of Operations and Financial Condition  Liquidity and Capital Resources in Duke Capitals Annual Report on Form 10-K for the year
ended December 31, 2005.

During March 2006, Moodys Investors Service (Moodys) placed the rating of Duke Capital under review
for possible upgrade. During April 2006, Moodys concluded their review and upgraded the credit ratings of Duke Capital and Texas Eastern Transmission, LP one



41



---

PART I



ratings level each to their respective ratings disclosed in the table below. Moodys concluded their ratings action with a stable outlook for Duke Capital and
Texas Eastern Transmission, LP.

During April 2006, S&P also made ratings changes subsequent to the consummation of Old Duke Energys
previously announced merger with Cinergy. S&P changed the credit rating for Duke Capital up one ratings level as disclosed in the table below. S&P concluded its actions placing Duke Capital and all of its subsidiaries on stable outlook.

The following table summarizes the May 1, 2006 credit ratings from the agencies retained by Duke Capital to rate its securities, its principal
funding subsidiaries and its trading and marketing subsidiary DETM.



Credit Ratings
Summary as of May 1, 2006

|                                           |  |                     |  |                          |  |                             
|------------------------------------------ |  | ------------------- |  | ------------------------ |  | ----------------------------
|                                           |  | Standard and Poors |  | Moodys Investor Service |  | Dominion Bond Rating Service
|Duke Capital LLC (a)                       |  | BBB                 |  | Baa2                     |  | Not applicable              
|Texas Eastern Transmission, LP (a)         |  | BBB                 |  | Baa1                     |  | Not applicable              
|Westcoast Energy Inc. (a)                  |  | BBB                 |  | Not applicable           |  | A(low)                      
|Union Gas (a)                              |  | BBB                 |  | Not applicable           |  | A                           
|Maritimes & Northeast Pipeline, LLC (b)    |  | A                   |  | A2                       |  | A                           
|Maritimes & Northeast Pipeline, LP (b)     |  | A                   |  | A2                       |  | A                           
|Duke Energy Trading and Marketing, LLC (c) |  | BBB-                |  | Not applicable           |  | Not applicable              

|(a) | Represents senior unsecured credit rating
|--- | -----------------------------------------

|(b) | Represents senior secured credit rating
|--- | ---------------------------------------

|(c) | Represents corporate credit rating
|--- | ----------------------------------

Duke Capitals credit ratings are
dependent on, among other factors, the ability to generate sufficient cash to fund capital and investment expenditures and balance distributions to its parent company, while maintaining the strength of its current balance sheet. If, as a result of
market conditions or other factors, Duke Capital is unable to maintain its current balance sheet strength, or if its earnings and cash flow outlook materially deteriorates, Duke Capitals credit ratings could be negatively impacted.

Duke Capital and its subsidiaries are required to post collateral under derivatives and other marketing contracts. Typically, the amount of the collateral is
dependent upon Duke Capitals economic position at points in time during the life of a contract and the credit rating of the subsidiary (or its guarantor, if applicable) obligated under the collateral agreement. Business activity by DENA
generates the majority of Duke Capitals collateral requirements. DENA conducts business throughout the United States and Canada through Duke Energy North America LLC and its 100% owned affiliates Duke Energy Marketing America, LLC (DEMA) and
Duke Energy Marketing Canada Corp (DEMC). DENA also participates in DETM. During the third quarter of 2005, the Board of Directors of Old Duke Energy authorized and directed management to execute the sale or disposition of substantially all of
DENAs remaining assets and contracts outside the Midwestern United States.

On November 18, 2005, Duke Capital announced it signed an
agreement to transfer substantially all of the DENA portfolio of derivatives contracts to Barclays. Under the agreement, Barclays acquired substantially all of DENAs outstanding gas and power derivatives contracts which essentially eliminated
Duke Capitals credit, collateral, market and legal risk associated with DENAs derivative trading positions effective on the date of signing. Substantially all of the underlying contracts have either already transferred (approximately 95%
of portfolio) or will transfer to Barclays over a period of months.

A reduction in DETMs credit rating to below investment grade as of
March 31, 2006 would have resulted in Duke Capital posting additional collateral of up to approximately $90 million. Additionally, in the event of a reduction in DETMs credit rating to below investment grade, collateral agreements may
require the segregation of cash held as collateral to be placed in escrow. As of March 31, 2006, Duke Capital would have been required to escrow approximately $130 million of such cash collateral held if DETMs credit rating had been
reduced to below investment grade. Amounts above reflect Duke Capitals 60% ownership of DETM and the allocation of collateral to DENA for contracts executed by DETM on its behalf.

A reduction in the credit rating of Duke Capital to below investment grade as of March 31, 2006 would have resulted in Duke Capital posting additional
collateral of up to approximately $330 million. Additionally, in the event of a reduction in Duke Capitals credit rating to below investment grade, certain interest rate and foreign exchange swap agreements may require settlement payments due
to termination of the agreements. As of March 31, 2006, Duke Capital could have been required to pay an immaterial amount in such settlement payments if Duke Capitals credit rating had been reduced to below investment grade. Duke Capital
would fund any additional collateral requirements through a combination of cash on hand and the use of credit facilities.



42



---

PART I



A majority of the additional collateral requirements stated above relate to the contracts that are in process of being transferred to Barclays. Any additional
posting requirements, for these contracts, as a result of downgrade of DETM or Duke Capital rating below investment grade would be reimbursed by Barclays.

If credit ratings for Duke Capital or its affiliates fall below investment grade there is likely to be a negative impact on its working capital and terms of trade that is not possible to quantify fully in addition to the posting of
additional collateral and segregation of cash described above.

Other Financing Matters.As of March 31, 2006, Duke Capital and its
subsidiaries had effective SEC shelf registrations for up to $592 million in gross proceeds from debt and other securities. Additionally, as of March 31, 2006, Duke Capital had access to 200 million Canadian dollars (approximately U.S.
$172 million) available under the Canadian shelf registrations for issuances in the Canadian market. In April 2006, an additional 500 million Canadian dollars (approximately U.S. $430 million) was added to the amount available under Canadian
shelf registrations. A shelf registration is effective in Canada for a 25-month period. The 200 million and 500 million Canadian dollars available under Canadian shelf registrations expire in July 2006 and May 2008, respectively.



Off-Balance Sheet Arrangements

During the first quarter of 2006, there were no material changes to Duke Capitals off-balance sheet arrangements. For information on Duke Capitals
off-balance sheet arrangements, see Off-Balance Sheet Arrangements in Duke Capitals Annual Report on Form 10-K for the year-ended December 31, 2005.



Contractual Obligations

Duke Capital enters
into contracts that require cash payment at specified periods, based on specified minimum quantities and prices. During the first quarter of 2006, there were no material changes in Duke Capitals contractual obligations. For an in-depth
discussion of Duke Capitals contractual obligations, see Contractual Obligations and Quantitative and Qualitative Disclosures about Market Risk in Managements Discussion and Analysis of Results of Operations
and Financial Condition in Duke Capitals Annual Report on Form 10-K for the year-ended December 31, 2005.



OTHER ISSUES

Old Duke Energys Merger with Cinergy.On
April 3, 2006, the previously announced merger between Old Duke Energy and Cinergy was consummated. In accordance with the terms of the merger, each outstanding share of Cinergy common stock was converted into 1.56 shares of common stock of
newly created holding company (which was renamed Duke Energy Corporation), which resulted in the issuance of approximately 313 million shares. Additionally, each common share of Old Duke Energy was converted into one share of the holding
company. The merger will be accounted for under the purchase method of accounting with New Duke Energy treated as the acquirer for accounting purposes. (For additional information on the merger, see Note 1 to the Consolidated Financial Statements,
Basis of Presentation.)

(For additional information on other issues related to Duke Capital, see Note 13 to the Consolidated Financial
Statements, Regulatory Matters.)



New Accounting Standards

The following new accounting standards have been issued, but have not yet been adopted by Duke Capital as of March 31, 2006:

Statement of Financial Accounting Standards (SFAS) No. 155, Accounting for Certain Hybrid Financial Instrumentsan amendment of FASB Statements
No. 133 and 140 In February 2006, the FASB issued FAS No. 155, Accounting for Certain Hybrid Financial Instrumentsan amendment of FASB Statements No. 133 and 140. SFAS No. 155 allows financial
instruments that have embedded derivatives to be accounted for as a whole, eliminating the need to bifurcate the derivative from its host, if the holder elects to account for the whole instrument on a fair value basis. This Statement is effective
January 1, 2007. Duke Capital does not anticipate the adoption of SFAS No. 155 will have any material impact on its consolidated results of operations, cash flows or financial position.

SFAS No. 156, Accounting for Servicing of Financial Assetsan amendment of FASB Statement No. 140 In March 2006, the FASB issued
FAS No. 156, Accounting for Servicing of Financial Assetsan amendment of FASB Statement No. 140. This Statement requires recognition of a servicing asset or liability when an entity enters into arrangements to service
financial instruments in certain situations. Such servicing assets or servicing liabilities are required to be initially measured at fair value, if practicable. SFAS No. 156 also allows an entity to subsequently measure its servicing assets or
servicing liabilities using either an amortization method or a fair value method. This Statement is effective January 1, 2007. Duke Capital does not anticipate the adoption of SFAS No. 156 will have any material impact on its consolidated
results of operations, cash flows or financial position.



43



---

PART I



FASB Staff Position (FSP) No. FIN 46 (R)-6, Determining the Variability to Be Considered In Applying Interpretation No. 46(R) In April 2006,
the FASB staff issued FSP No. FIN 46 (R)-6 to address how to determine the variability to be considered in applying FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities (VIE). The variability that is considered in applying
Interpretation 46(R) affects the determination of whether the entity is a variable interest entity, which interests are variable interests in the entity, and which party, if any, is the primary beneficiary of the VIE. The variability affects the
calculation of expected losses and expected residual returns. This Statement is effective July 1, 2006. Duke Capital does not anticipate the adoption of FSP No. FIN 46 (R)-6 will have any material impact of its consolidated results of
operations, cash flows or financial position.

FSP No. FAS 123(R)-4, Classification of Options and Similar Instruments Issued as Employee
Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent EventIn February 2006, the FASB staff issued FSP No. 123(R)-4 to address the classification of options and similar instruments issued as employee
compensation that allow for cash settlement upon the occurrence of a contingent event. The guidance amends SFAS 123(R). FSP 123(R)-4 provides that cash settlement features that can be exercised only upon the occurrence of a contingent event that is
outside the employees control does not require classifying the option or similar instrument as a liability until it becomes probable that the event will occur. FSP 123(R)-4 applies only to options or similar instruments issued as part of
employee compensation arrangements. The guidance in FSP 123(R)-4 is effective for Duke Capital as of April 1, 2006. Duke Capital adopted SFAS 123(R) as of January 1, 2006 (see Note 2 to the Consolidated Financial Statements, Stock
Based Compensation). The adoption of FSP No. FAS 123(R)-4 did not have a material impact on Duke Capitals consolidated statement of operations, cash flows or financial position.



Subsequent Events

On April 3, 2006, Old Duke Energy consummated the previously announced merger with Cinergy. See Note 1 to the Consolidated Financial Statements, Basis of Presentation, and Note 7 to the Consolidated Financial
Statements, Acquisitions and Dispositions, for additional information. Additionally, as described in Note 1 to the Consolidated Financial Statements, Basis of Presentation, in April 2006, Old Duke Energy transferred the
operations of DEM and Duke Merchant Finance, LLC to Duke Capital and Duke Capital transferred DENAs Midwestern assets to CG&E and transferred its interest in Bison to New Duke Energy.

For information on subsequent events related to basis of presentation, acquisitions and dispositions, discontinued operations and assets held for sale, business
segments, related party transactions, and income taxes see Notes 1, 7, 10, 11 and 16 to the Consolidated Financial Statements, respectively.



Item 3. Quantitative and Qualitative Disclosures about Market Risk

For an in-depth discussion of Duke Capitals
market risks, see Managements Discussion and Analysis of Quantitative and Qualitative Disclosures about Market Risk in Duke Capitals Annual Report on Form 10-K for the year ended December 31, 2005.



Commodity Price Risk

Duke Capital is exposed to the impact of market fluctuations in the prices of natural gas, electricity, NGLs and other energy-related products marketed and
purchased as a result of its ownership of energy related assets, remaining proprietary trading contracts, and interests in structured contracts classified as undesignated. Duke Capital employs established policies and procedures to manage its risks
associated with these market fluctuations using various commodity derivatives, including forward contracts, futures, swaps and options.

Duke
Capitals largest commodity exposure is due to market price fluctuations of NGLs primarily in the Field Services segment and, to a lesser extent, in the Natural Gas Transmission segment. Based on a sensitivity analysis as of March 31,
2006, it was estimated that price changes of fifteen cents per gallon and sixteen cents per gallon in the price of NGLs (net of related hedges and an equivalent price change in crude oil) would have a corresponding effect on pre-tax income of
approximately $120 million and $130 million, respectively, over the next 12 months. Comparatively, a fifteen cent price change sensitivity analysis as of December 31, 2005 would have impacted pre-tax income by approximately $105 million over
the next 12 months. The increase is due primarily to the NGL production after December 31, 2006 being included in the March 31, 2006 sensitivity which is currently not hedged.

Normal Purchases and Normal Sales. During 2005, the Board of Directors of Old Duke Energy authorized and directed management to execute the sale or
disposition of substantially all of DENAs remaining physical and commercial assets outside the Midwestern United States and certain contractual positions related to the Midwestern assets. As a result, Duke Capital recognized a pre-tax loss of
approximately $1.9 billion in 2005 for the disqualification of its power and gas forward sales contracts previously designated under the normal purchases normal sales exception. This loss is partially offset by the recognition of a pre-tax gain of
approximately $1.2 billion for the discontinuance of hedge accounting for natural gas and power cash flow hedges. In April 2006, Duke Capital transferred to CG&E the Midwestern generation assets of DENA, representing approximately 3,600
megawatts of power generation, and combined with Cinergys



44



---

PART I



commercial operations will provide a sustainable business model for these assets in the region (see Note 7 to the Consolidated Financial Statements, Acquisitions
and Dispositions, for further details on the completed Cinergy merger).

Trading and Undesignated Contracts. The risk in the
mark-to-market portfolio is measured and monitored on a daily basis utilizing a Value-at-Risk model to determine the potential one-day favorable or unfavorable Daily Earnings at Risk (DER) as described below. DER is monitored daily in comparison to
established thresholds. Other measures are also used to limit and monitor risk in the trading portfolio on monthly and annual bases. These measures include limits on the nominal size of positions and periodic loss limits.

DER computations are based on historical simulation, which uses price movements over an eleven day period. The historical simulation emphasizes the most recent
market activity, which is considered the most relevant predictor of immediate future market movements for natural gas, electricity and other energy-related products. DER computations use several key assumptions, including a 95% confidence level for
the resultant price movement and the holding period specified for the calculation. Duke Capitals DER amounts for commodity derivatives recorded using the mark-to-market model of accounting are shown in the following table.



Daily Earnings at Risk



|               |  |                                                                                                  |   |                                                                                                                    |   |                                                                                                       |  |                                                                                                       |    |                                                                                                      |   |    |  |   |  
|-------------- |  | ------------------------------------------------------------------------------------------------ | - | ------------------------------------------------------------------------------------------------------------------ | - | ----------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- | -- | ---------------------------------------------------------------------------------------------------- | - | -- |  | - | -
|               |  | March 31,2006 One-DayImpacton Pre-taxIncome fromContinuing andDiscontinuedOperationsfor
2006 (a) |   | EstimatedAverage One-Day Impact onPre-tax Incomefrom Continuingand DiscontinuedOperations forFirst
Quarter2006 (a) |   | EstimatedAverage One-Day Impact onPre-tax Incomefrom Continuingand DiscontinuedOperations
for2005 (a) |  | High One-DayImpact onPre-tax Incomefrom Continuingand DiscontinuedOperations forFirst
Quarter2006 (a) |    | Low One-DayImpact onPre-tax Incomefrom Continuingand DiscontinuedOperations
forFirst Quarter2006 (a)
|               |  | (in millions)                                                                                   
|Calculated DER |  | $                                                                                                | 1 |                                                                                                                    | $ | 6                                                                                                     |  | $                                                                                                     | 10 |                                                                                                      | $ | 13 |  | $ | 1

|(a) | DER measures the mark-to-market portfolios impact on earnings. While this calculation includes both trading and undesignated contracts, the trading portion, as defined by EITF Issue
No. 02-03, Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and for Contracts Involved in Energy Trading and Risk Management Activities, is not material.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The DER figures above do not include the hedges which were de-designated as a result of the transfer of 19.7% of Duke Capitals interest in DEFS to
ConocoPhillips (see Note 12 to the Consolidated Financial Statements, Risk Management Instruments). The calculated consolidated DER at March 31, 2006 consists of approximately $1 million related to discontinued operations and less
than a million related to continuing operations. DER has decreased since December 31, 2005 due to the continued wind down of DENA.



Credit Risk

Credit risk represents the loss that Duke Capital would incur
if a counterparty fails to perform under its contractual obligations. To reduce credit exposure, Duke Capital seeks to enter into payment netting agreements with counterparties that permit Duke Capital to offset receivables and payables with such
counterparties. Duke Capital attempts to further reduce credit risk with certain counterparties by entering into agreements that enable Duke Capital to obtain collateral or to terminate or reset the terms of transactions after specified time periods
or upon the occurrence of credit-related events. Duke Capital may, at times, use credit derivatives or other structures and techniques to provide for third-party credit enhancement of Duke Capitals counterparties obligations.

Duke Capitals principal customers for power and natural gas marketing and transportation services are industrial end-users, marketers, local distribution
companies and utilities located throughout the U.S., Canada and Latin America. Duke Capital has concentrations of receivables from natural gas and electric utilities and their affiliates, as well as industrial customers and marketers throughout
these regions. These concentrations of customers may affect Duke Capitals overall credit risk in that risk factors can negatively impact the credit quality of the entire sector. Where exposed to credit risk, Duke Capital analyzes the
counterparties financial condition prior to entering into an agreement, establishes credit limits and monitors the appropriateness of those limits on an ongoing basis.

In 1999, the Industrial Development Corp of the City of Edinburg, Texas (IDC) issued approximately $100 million in bonds to purchase equipment for lease to Duke
Hidalgo (Hidalgo), a subsidiary of Duke Capital. Duke Capital unconditionally and irrevocably guaranteed the lease payments of Hidalgo to IDC through 2028. In 2000, Hidalgo was sold to Calpine Corporation and Duke Capital remained obligated under
the lease guaranty. In January 2006, Hidalgo and its subsidiaries filed for bankruptcy protection in connection with the previous bankruptcy filing by its parent, Calpine Corporation in December 2005. Gross exposure under the guarantee obligation as
of March 31, 2006 is approximately $200 million, which includes principal and interest. Duke Capital does not believe a loss under the guarantee obligation is probable as of March 31, 2006, but continues to evaluate the situation.
Therefore, no reserves have been recorded



45



---

PART I



for any contingent loss as of March 31, 2006. No demands for payment of principal or interest have been made under the guarantee. If future losses are incurred
under the guarantee, Duke Capital has certain rights which should allow it to mitigate such loss.



Item 4. Controls and Procedures.

Duke Capitals management, including its President and Chief Financial Officer
and Controller, have evaluated the effectiveness of Duke Capitals disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) (Disclosure Controls Evaluation) and concluded that, as of the end of the period
covered by this report, the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion. The required information was
effectively recorded, processed, summarized and reported within the time period necessary to prepare this quarterly report. Duke Capitals disclosure controls and procedures are effective in ensuring that information required to be disclosed in
Duke Capitals reports under the Exchange Act are accumulated and communicated to management, including the President and the Chief Financial Officer and Controller, as appropriate to allow timely decisions regarding required disclosure.



Changes in Internal Control over Financial Reporting

Duke Capital continuously evaluates its internal control over financial reporting and implements or modifies procedures and controls as necessary or desirable to
enhance the reliability of Duke Capitals internal control. However, there have been no changes in internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, Duke Capitals internal control over financial reporting.



46



---

PART II. OTHER INFORMATION



Item 1. Legal Proceedings.

For information regarding legal proceedings that became reportable events or in which
there were material developments in the first quarter of 2006, see Note 13 to the Consolidated Financial Statements, Regulatory Matters and Note 14 to the Consolidated Financial Statements, Commitments and Contingencies.



Item 1A. Risk Factors

There have been no significant changes to the risk factors as presented in the Duke Capital
Annual Report on Form 10-K for the year ended December 31, 2005, except that with respect to the risk factor relating to the disposition of DENAs assets, there is no longer any significant risk associated with the sale of the power
generation assets outside the Midwest, since the sale of those assets to a subsidiary of LS Power was completed in May 2006 (see Note 10 to the Consolidated Financial Statements, Discontinued Operations and Assets Held For Sale).



47



---

PART II



Item 6. Exhibits

(a) Exhibits

Exhibits filed or furnished herewith are designated by an asterisk (*). All exhibits not so designated are incorporated by reference to a prior filing, as indicated.



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|3.1           |  | Certificate of Formation of registrant (filed as Exhibit 3.1 to Form 8-K of registrant, File No. 0-23977, March 3, 2004)                                                                                                                                                                                                                                                                                                                                                      
|              | 
|3.2           |  | Limited Liability Company Agreement (filed as Exhibit 3.2 to Form 8-K of registrant, File No. 0-23977, March 3, 2004)                                                                                                                                                                                                                                                                                                                                                         
|              | 
|3.2.1         |  | First Amendment to Limited Liability Company Agreement (filed as Exhibit 3.1 to Form 8-K of registrant, File No. 0-23977, April 7, 2006)                                                                                                                                                                                                                                                                                                                                      
|              | 
|10.2          |  | Purchase and Sale Agreement dated as of January 8, 2006, by and among Duke Energy Americas, LLC, and LSP Bay II Harbor Holding, LLC (filed with Form 10-Q of Duke Energy Corporation (formerly known as
Duke Energy Holding Corp.) for the quarter ended March 31, 2006, File No. 1-32853, as exhibit 10.2)                                                                                                                                                                   
|              | 
|10.2.1        |  | Amendment to Purchase and Sale Agreement, dated as of May 4, 2006, by and among Duke Energy Americas, LLC, LS Power Generation, LLC (formerly known as LSP Bay II Harbor Holding, LLC),LSP
Gen Finance Co, LLC, LSP South Bay Holdings, LLC, LSP Oakland Holdings, LLC, andLSP Morro Bay Holdings, LLC (filed with Form 10-Q of Duke Energy Corporation (formerly known as Duke Energy Holding Corp.) for the quarter ended March 31,
2006, File No. 1-32853, as exhibit 10.2)
|              | 
|*10.2.2       |  | Second Amendment to Purchase and Sale Agreement, dated as of May 4, 2006, by and among Duke Energy Americas, LLC, LS Power Generation, LLC (formerly known as LSP Bay II Harbor Holding, LLC),LSP Gen Finance Co, LLC, LSP South Bay Holdings, LLC, LSP Oakland Holdings, LLC, andLSP Morro Bay Holdings, LLC                                                                                                                                                                 
|              | 
|*31.1         |  | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                       
|              | 
|*31.2         |  | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                       
|              | 
|*32.1         |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                       
|              | 
|*32.2         |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                       



The total amount of securities
of the registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an exhibit does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant
agrees, upon request of the Securities and Exchange Commission, to furnish copies of any or all of such instruments to it.



48



---

PART II



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.



|                   |  |  |  |                                                       
|------------------ |  |  |  | ------------------------------------------------------
|                   |  |  |  | DUKE CAPITAL LLC                                      
|                   |  | 
|Date: May 15, 2006 |  |  |  | /s/    DAVID L. HAUSER                                
|                   |  |  |  | David L. Hauser President                             
|                   |  | 
|Date: May 15, 2006 |  |  |  | /s/    STEVEN K. YOUNG                                
|                   |  |  |  | Steven K. Young Chief
Financial Officer and Controller



49