Duke Energy & Duke Capital Lowered By Fitch Ratings.

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan. 14, 2003

Fitch Ratings has lowered the ratings of Duke Energy Corp. (Duke) and subsidiaries Duke Capital Corp., PanEnergy and Texas Eastern Transmission, LP as shown in the table below. The Rating Outlook for each of the Duke entities mentioned above remains Negative.

The downgrades reflect the credit impact of management's recent announcement that consolidated profits in 2002 and particularly 2003 will be well below previous expectations. Cyclical weakness in domestic and international merchant energy markets places continuing pressure on Duke's profitability and ratings, which together with the uncertain financial impact of on-going investigations by the Federal Energy Regulatory Commission (FERC) and the Securities Commission (SEC) and the execution risk attendant in management's plan to raise approximately $1 billion through non-core asset sales over the next year account for the Negative Outlook.

The lower profit outlook is driven primarily by continued weakness in the merchant energy markets served by Duke Capital subsidiary Duke Energy North America (DENA). DENA's EBIT for 2002 is expected to fall significantly from the 2001 level of more than $1 billion, with a further decline in 2003 to about $200 million. During this time period, DENA substantially increased its investment in merchant energy facilities including the addition of nine new generating plants in 2002 with an aggregate generating capacity of over 6,000 mw. The new capacity increased Duke Energy's investment in merchant energy facilities to about $9 billion. Other business segments, including natural gas transmission and franchised electric, are performing as expected. These two regulated business segments are expected to account for about 80% of 2003 consolidated EBIT.

Given the revised earnings forecast, credit protection measures will be weaker than previously expected, but consistent with the new ratings and current business risk. While recently announced reductions in capital expenditures to about $3.2 billion in 2003 and even lower in 2004 will ease external financing requirements, the company is relying on asset sales to fund a portion of capital expenditures in 2003. Duke Energy plans non-core asset sales of about $1 billion over the next year with a portion of the proceeds available to reduce debt. Duke's asset dispositions seem reasonably achievable, although subject to execution risk. Even with the assets sales, some new debt financing will be required at parent Duke Energy, but with an overall reduction in consolidated debt.

From a liquidity perspective the Duke Energy group is relatively well positioned. However, a majority of the available borrowing capacity is at Duke Capital. Duke Capital maintains bank credit facilities that total about $2.9 billion, with about $1.8 billion currently available. In addition, Duke Capital has about $500 million of cash available for use at Duke Energy or Duke Capital as needed. Duke Energy, which has greater capital market access, has credit facilities of $950 million, but unused capacity (net of commercial paper borrowings) of only about $70 million. While Duke Capital could upstream bank borrowings or cash to Duke Energy in the event of a short-term need, this arrangement tends to more closely link the ratings of the two entities. The company is in the process of addressing this situation by arranging for an additional liquidity source at Duke Energy and lowering the amount of Duke Energy's permanent commercial paper outstanding to $650 million from the current level of approximately $900 million.

The new ratings are as follows:

Duke Energy

-- First and refunding mortgage bonds to 'A' from 'A+';

-- Senior unsecured debt to 'A-' from 'A';

-- Preferred stock to 'BBB+' from 'A-';

-- Trust preferred securities issued by Duke Capital Energy Trust

(I & II) to 'BBB+' from 'A-';

-- Commercial paper rating to 'F2' from 'F1'.

Duke Capital

-- Senior unsecured debt to 'BBB' from 'A-';

-- Trust preferred securities issued by Duke Capital Financing Trust (I, II & III) to 'BBB-' from 'BBB+';

-- Commercial paper rating affirmed at 'F2'.

PanEnergy Corp.

-- Senior unsecured debt to 'BBB' from 'A-'.

Texas Eastern Transmission LP

-- Senior unsecured debt to 'BBB+, from 'A-'.