Fitch Upgrades Duke Energy; Places Duke Capital on Watch Positive.

NEW YORK -- Fitch Ratings has upgraded the outstanding debt ratings of Duke Power Company LLC (Duke Power, formerly Duke Energy Corp.) as shown below. The Rating Outlook is Stable. At the same time, Fitch has placed the ratings of Duke Capital LLC (Duke Capital) and Texas Eastern Transmission, LP on Rating Watch Positive and withdrawn the 'BBB' senior unsecured debt ratings of PanEnergy Corp. Fitch has also assigned a 'BBB' Issuer Default Rating (IDR) to the new Duke Energy Corp. with a Stable Rating Outlook. The ratings of Cinergy Corp. (Cinergy) and its subsidiaries are listed at the end of this release and remain unchanged.

The ratings upgrade of Duke Power reflects the substantial reduction in business risk that results from the corporate reorganization that was implemented in conjunction with the consummation of the Cinergy merger on April 3, 2006, and an expected reduction in leverage to be achieved in 2006 and 2007. Under the reorganization, Duke Energy distributed its ownership interest in Duke Capital to a new parent holding company and along with Duke Capital became a subsidiary of the new parent holding company, which was named Duke Energy Corp. (Duke Energy). The remaining regulated electric utility business was renamed Duke Power and continues to be the obligor of the outstanding debt and preferred stock obligations of the pre-merger Duke Energy. The newly formed parent Duke Energy will initially be debt free, but guarantees the senior unsecured debt of Duke Power.

The restructured Duke Power will have a relatively low risk business profile and credit measures supportive of the new ratings. Management intends to reduce leverage at the utility during 2006 and 2007 to achieve a capital structure of 52% equity and 48% debt. The ratio of funds from operations (FFO) to interest expense is expected to be well above 4.0 times (x). The expected proceeds from the announced sale of approximately 6,200 mw of Duke Energy North America's (DENA) electric generating capacity to LS Power will provide a source of funds to assist in de-levering Duke Power. The $1.5 billion asset sale is expected to close later this year. The primary credit concerns for Duke Power are rising capital requirements and achieving the merger savings that will be passed on to rate payers on an accelerated basis over the next 12-months. Duke Power has agreed to pass on approximately $158 million of total merger savings to customers in North Carolina and South Carolina through rate credit riders over a one-year period following the close of the merger. Duke Energy assumes all of the risk of achieving the merger savings, which are expected to be captured over the next five years.

For Duke Capital, the Rating Watch Positive reflects the significant reduction in business risk achieved over the past two years, primarily due to the successful disposition of non-core and/or unproductive assets, and the pending generation asset sale to LS Power. Going forward, Duke Capital will derive the majority of its earnings before interest and taxes (EBIT) from the regulated gas transmission business, with the remainder from international energy, real estate and its equity interest in Duke Energy Field Services. Fitch expects to resolve the Rating Watch Positive upon closing the proposed asset sale to LS Power, which will essentially complete Duke Capital's exit from the merchant power business and upon receiving further clarity regarding management plans to separate its electric and gas businesses, possibly as a spin-off of Duke Capital. Although management has stated publicly that any separation will not harm the credit quality of either Duke Energy or Duke Capital, the form of such separation may affect the ultimate ratings of Duke Energy and/or Duke Capital.

The ratings of the newly formed Duke Energy do not consider the potential separation of its electric and gas assets. While not considered likely, any disposition of the gas assets through a sale, spin-off or other strategic option without a corresponding transfer or significant reduction of Duke Capital's approximately $3.4 billion of direct debt would be severely negative for Duke Capital bondholders. Conversely, the ratings of Duke Energy could benefit from any disposition that removes Duke Capital's debt. The potential for shareholder friendly initiative to spur additional growth are also a credit concern.

Fitch upgrades the following ratings:

Duke Power Company LLC (formerly Duke Energy Corp.).

--Secured debt to 'A' from 'A-' (including York County (SC) pollution control facility revenue refunding bonds);

--Senior unsecured debt to 'A-' from 'BBB+' (including Gaston County (NC) and Oconee County (SC) pollution control revenue refunding bonds).

Fitch affirms the following ratings:

Duke Power Company LLC

--Commercial paper at 'F2'.

Fitch places the following on Rating Watch Positive:

Duke Capital LLC

--IDR 'BBB-';

--Senior unsecured debt 'BBB-';

--Commercial paper 'F3'.

Texas Eastern Transmission, LP

--IDR 'BBB';

--Senior unsecured debt 'BBB'.

Edinburg Texas Industrial Development Corp.

--Lease revenue bonds 'BBB-'.

Fitch assigns the following new rating:

Duke Energy Corp

--IDR 'BBB'.

Fitch withdraws the following rating:

PanEnergy Corp.

--IDR 'BBB-';

--Senior Unsecured debt 'BBB-'

The following ratings are unaffected by today's actions:

Cinergy Corp.

--IDR 'BBB';

--Senior unsecured debt 'BBB';

--Short-term 'F2'.

CC Funding Trust I

--Preferred trust securities 'BBB'.

Cincinnati Gas and Electric Co.

--IDR 'BBB';

--Senior unsecured debt 'BBB+';

--Preferred stock 'BBB';

--Short-term 'F2'.

PSI, Inc.

--IDR 'BBB';

--Secured debt 'A-';

--Senior unsecured debt 'BBB+';

--Preferred stock 'BBB';

--Short-term 'F2'.

Union Light Heat & Power Co.

--IDR 'BBB+';

--Senior unsecured 'BBB+'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.