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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Mark One)

For the fiscal year ended December 31, 2004 or

For the transition period from  __________________  to  __________________

Commission file number 0-23977

DUKE CAPITAL LLC

(Exact name of registrant as specified in its charter)

704-594-6200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Title of class

Limited Liability Company Member Interests

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 and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes  ¨  No  x

The registrant meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format. Items 4, 10, 11, 12 and 13 have been omitted in accordance with Instruction I(2)(c).

All of the registrant’s limited liability company member interests are directly owned by Duke Energy Corporation (File No. 1-4928), which files reports and proxy material pursuant to the Securities Exchange Act of 1934, as amended.

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DUKE CAPITAL LLC

FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004

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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:

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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.

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Item 1. Business.

GENERAL

Duke Capital LLC (collectively with its subsidiaries, Duke Capital), a wholly owned subsidiary of Duke Energy Corporation (Duke Energy), is a leading energy company located in the Americas with an affiliated real estate operation. Duke Capital provides its services through the business segments described below. On March 1, 2004, Duke Capital changed its form of organization from a corporation to a Delaware limited liability company by effecting a conversion pursuant to section 266 of the General Corporation Law of the State of Delaware and Section 18-214 of the Delaware Limited Liability Company act. Pursuant to the conversion, all rights and liabilities of Duke Capital in its previous corporate form vested in Duke Capital as a limited liability company.

Duke Capital operates the following business units: Natural Gas Transmission, Field Services, Duke Energy North America (DENA), International Energy and Crescent Resources, LLC (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. The entities under each business unit have similar economic characteristics, services, production processes, distribution methods and regulatory concerns. All of the Duke Capital business units are considered reportable segments under Statement of Financial Accounting Standards (SFAS) No. 131, “Disclosures about Segments of an Enterprise and Related Information.”

Natural Gas Transmission provides transportation and storage of natural gas for customers along the U.S. East Coast, the Southeast, and in Canada. Natural Gas Transmission also provides natural gas sales and distribution service to retail customers in Ontario, and natural gas processing services to customers in Western Canada. Natural Gas Transmission does business primarily through Duke Energy Gas Transmission, LLC. Duke Energy Gas Transmission, LLC’s natural gas transmission and storage operations in the U.S. are primarily subject to the Federal Energy Regulatory Commission’s (FERC’s) and the U.S. Department of Transportation’s (DOT’s) rules and regulations, while natural gas gathering, processing, transmission, distribution and storage operations in Canada are primarily subject to the rules and regulations of the National Energy Board (NEB) and the Ontario Energy Board (OEB). Texas Eastern Transmission LP (Texas Eastern) is an indirect subsidiary of Natural Gas Transmission and was also a separate Securities and Exchange Commission (SEC) reporting entity. On December 15, 2004, Texas Eastern announced that it filed a Form 15 with the SEC to suspend its reporting obligations under the Securities Exchange Act of 1934. Texas Eastern is eligible to suspend its reporting obligation under the 1934 Act because it has fewer than 300 holders of record of any class of its securities.

Field Services gathers, compresses, treats, processes, transports, trades and markets, and stores natural gas; and fractionates, transports, trades and markets, and stores natural gas liquids (NGLs). It conducts operations primarily through Duke Energy Field Services, LLC (DEFS), which is approximately 30% owned by ConocoPhillips and approximately 70% owned by Duke Capital. Field Services gathers raw natural gas through gathering systems located in eight major natural gas producing regions: Permian Basin, Mid-Continent, ArklaTex, Gulf Coast, South, Central, Rocky Mountains and Western Canada. DEFS, which previously was a separate SEC reporting entity, announced January 31, 2005 that it filed a Form 15 with the SEC to suspend its reporting obligations under the Securities Exchange Act of 1934. DEFS is eligible to suspend its reporting obligations under the 1934 Act because it has fewer than 300 holders of record of any class of its securities.

In February 2005, Duke Energy executed an agreement with ConocoPhillips whereby Duke Energy has agreed to cause a Duke Capital subsidiary to transfer a 19.7% interest in DEFS to ConocoPhillips for direct and indirect monetary and non-monetary consideration of approximately $1.1 billion. Upon completion of this transaction, DEFS will be owned 50% by Duke Capital and 50% by ConocoPhillips. As a result, Duke Capital expects to account for its investment in DEFS using the equity method subsequent to closing of the transaction. This transaction, which is subject to customary U.S. and Canadian regulatory approvals, is expected to close in the latter half of 2005. Additionally, in February 2005, DEFS sold its wholly-owned subsidiary, Texas Eastern Products Pipeline Company LLC (TEPPCO), the general partner of TEPPCO Partners, L.P., for approximately $1.1 billion and Duke Capital sold its limited partner interest in TEPPCO Partners, L.P. for approximately $100 million, in each

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case to Enterprise GP Holdings L.P. (EPCO), an unrelated third party. TEPPCO Partners, L.P. is a publicly traded master limited partnership which owns one of the largest common-carrier pipelines of refined petroleum products and liquefied petroleum gases in the United States, as well as natural gas gathering systems, petrochemical and NGL pipelines, and is engaged in crude oil transportation, storage, gathering and marketing. TEPPCO is responsible for the management and operations of TEPPCO Partners, L.P.

DENA operates and manages power plants and markets electric power and natural gas related to these plants and other contractual positions. DENA conducts business throughout the U.S. and Canada through Duke Energy North America, LLC and its 100% owned affiliates Duke Energy Marketing America, LLC and Duke Energy Marketing Canada Corp. DENA also participates in Duke Energy Trading and Marketing, LLC (DETM). DETM is 40% owned by ExxonMobil Corporation and 60% owned by Duke Capital.

International Energy operates and manages power generation facilities, and engages in sales and marketing of electric power and natural gas outside the U.S. and Canada. It conducts operations primarily through Duke Energy International, LLC (DEI) and its activities target power generation in Latin America. Additionally, International Energy owns an equity investment in National Methanol Company, located in Saudi Arabia, which is a leading regional producer of methanol and methyl tertiary butyl ether (MTBE).

Crescent develops and manages high-quality commercial, residential and multi-family real estate projects primarily in the southeastern and southwestern United States. Some of these projects are developed and managed through joint ventures. Crescent also manages “legacy” land holdings in North and South Carolina.

The remainder of Duke Capital’s operations is presented as “Other”. While it is not considered a business segment, Other primarily includes certain unallocated corporate costs, DukeNet Communications, LLC (DukeNet), 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). DukeNet develops, owns and operates a fiber optic communications network primarily in the Carolinas, serving wireless, local and long-distance communications companies, Internet service providers and other businesses and organizations. Bison’s principle activities, as a captive insurance entity, include the insurance and reinsurance of various business risks and losses, such as workers compensation, property, business interruption and general liability of subsidiaries and affiliates of Duke Capital. Bison also participates in reinsurance activities with certain third parties, on a limited basis. D/FD is a 50/50 partnership between subsidiaries of Duke Capital and Fluor Corporation. During 2003, Duke Capital and Fluor Corporation announced that they would dissolve the D/FD partnership. The D/FD partners adopted a plan for an orderly wind-down of the business which is expected to be completed by December 2005. Previously, D/FD provided comprehensive engineering, procurement, construction, commissioning and operating plant services for fossil-fueled electric power generating facilities worldwide. During 2003, Duke Capital decided to exit the merchant finance business conducted by Duke Capital Partners, LLC (DCP). DCP had been previously included in Other. At December 31, 2004 Duke Capital had exited the merchant finance business, and all of the results of operations for DCP have been classified as discontinued operations in the accompanying Consolidated Statements of Operations.

Terms used to describe Duke Capital’s business are defined below.

Accrual Model of Accounting (Accrual Model). An accounting term used by Duke Capital to refer to contracts for which there is generally no recognition in the Consolidated Statements of Operations for any changes in fair value until the service is provided or the associated delivery period occurs or there is hedge ineffectiveness. As discussed further in Note 1 to the Consolidated Financial Statements, this term is applied to derivative contracts that are accounted for as cash flow hedges, fair value hedges, and normal purchases or sales, as well as to non-derivative contracts used for commodity risk management purposes. As this term is not explicitly defined within U.S. Generally Accepted Accounting Principles (GAAP), Duke Capital’s application of this term could differ from that of other companies.

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Allowance for Funds Used During Construction (AFUDC). A non-cash accounting convention of regulatory utilities that represents the estimated composite interest costs of debt and a return on equity funds used to finance construction. The allowance is capitalized in the property accounts and included in income.

British Thermal Unit (Btu). A standard unit for measuring thermal energy or heat commonly used as a gauge for the energy content of natural gas and other fuels.

Cubic Foot (cf). The most common unit of measurement of gas volume; the amount of natural gas required to fill a volume of one cubic foot under stated conditions of temperature, pressure and water vapor.

Derivative. A financial instrument or contract in which its price is based on the value of underlying securities, equity indices, debt instruments, commodities or other benchmarks or variables. Often used to hedge risk, derivatives involve the trading of rights or obligations, but not the direct transfer of property. Gains or losses on derivatives are often settled on a net basis.

Distribution. The system of lines, transformers, switches and mains that connect electric and natural gas transmission systems to customers.

Energy Marketing. Identification and execution of physical energy related transactions, generally with customized provisions to meet the needs of the customer or supplier, throughout the supply chain.

Environmental Protection Agency (EPA). The U.S. agency that is responsible for researching and setting national standards for a variety of environmental programs, and delegates to states the responsibility for issuing permits and for monitoring and enforcing compliance.

Federal Energy Regulatory Commission (FERC). The U.S. agency that regulates the transportation of electricity and natural gas in interstate commerce and authorizes the buying and selling of energy commodities at market-based rates.

Forward Contract. A contract in which the buyer is obligated to take delivery, and the seller is obligated to deliver a specified amount of a commodity with a predetermined price formula on a specified future date, at which time payment is due in full.

Fractionation/Fractionate. The process of separating liquid hydrocarbons from natural gas into propane, butane, ethane and other related products.

Futures Contract. A contract, usually exchange traded, in which the buyer is obligated to take delivery and the seller is obligated to deliver a fixed amount of a commodity at a predetermined price on a specified future date.

Gathering System. Pipeline, processing and related facilities that access production and other sources of natural gas supplies for delivery to mainline transmission systems.

Generation. The process of transforming other forms of energy, such as nuclear or fossil fuels, into electricity. Also, the amount of electric energy produced, expressed in megawatt-hours.

Independent System Operator (ISO). An entity that acts as the transmission provider for a regional transmission system, providing customers access to the system and clearing all bilateral contract requests for use of the electric transmission system. An ISO also shares responsibility for maintaining bulk electric system reliability.

Liquefied Natural Gas (LNG). Natural gas that has been converted to a liquid by cooling it to minus 260 degrees Fahrenheit.

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Liquidity. The ease with which assets or products can be traded without dramatically altering the current market price.

Local Distribution Company (LDC). A company that obtains the major portion of its revenues from the operations of a retail distribution system for the delivery of electricity or gas for ultimate consumption.

Logistics & Optimization. The act of maximizing returns from physical positions through arbitrage, especially on contractual assets such as storage, transportation, generation and transmission.

Mark-to-Market Model of Accounting (MTM Model). An accounting term used by Duke Capital to refer to derivative contracts for which an asset or liability is recognized at fair value and the change in the fair value of that asset or liability is recognized in the Consolidated Statements of Operations. As discussed further in Note 1 to the Consolidated Financial Statements, this term is applied to trading and undesignated non-trading derivative contracts. As this term is not explicitly defined within U.S. GAAP, Duke Capital’s application of this term could differ from that of other companies.

Natural Gas. A naturally occurring mixture of hydrocarbon and non-hydrocarbon gases found in porous geological formations beneath the earth’s surface, often in association with petroleum. The principal constituent is methane.

Natural Gas Liquids (NGLs). Liquid hydrocarbons extracted during the processing of natural gas. Principal commercial NGLs include butanes, propane, natural gasoline and ethane.

No-notice Bundled Service. A pipeline delivery service which allows customers to receive or deliver gas on demand without making prior nominations to meet service needs and without paying daily balancing and scheduling penalties.

Origination. Identification and execution of physical energy related transactions, generally with customized provisions to meet the needs of the customer or supplier, throughout the supply chain.

Option. A contract that gives the buyer a right but not the obligation to purchase or sell an underlying asset at a specified price at a specified time.

Peak Load. The amount of electricity required during periods of highest demand. Peak periods fluctuate by season, generally occurring in the morning hours in winter and in late afternoon during the summer.

Portfolio. A collection of assets, liabilities, transactions, or trades.

Regional Transmission Organization (RTO). An independent entity which is established to have “functional control” over utilities’ transmission systems, in order to expedite transmission of electricity. RTO’s typically operate markets within their territories.

Reliability Must Run. Generation that an ISO determines is required to be on-line to meet applicable reliability criteria requirements.

Residue Gas. Gas remaining after the processing of natural gas.

Spark Spread. The difference between the value of electricity and the value of the gas required to generate the electricity at a specified heat rate.

Swap. A contract to exchange cash flows in the future according to a prearranged formula.

Throughput. The amount of natural gas or NGLs transported through a pipeline system.

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Tolling. Arrangement whereby a buyer provides fuel to a power generator and receives generated power in return for a specified fee.

Transmission System (Natural Gas). An interconnected group of natural gas pipelines and associated facilities for transporting natural gas in bulk between points of supply and delivery points to industrial customers, LDCs, or for delivery to other natural gas transmission systems.

Volatility. An annualized measure of the fluctuation in the price of an energy contract.

Watt. A measure of power production or usage equal to one joule per second.

The following sections describe the business and operations of each of Duke Capital’s business segments. (For more information on the operating outlook of Duke Capital and its segments, see “Management’s Discussion and Analysis of Results of Operations and Financial Condition, Introduction—Overview of Business Strategy and Economic Factors for Duke Capital’s Business”. For financial information on Duke Capital’s business segments, see Note 3 to the Consolidated Financial Statements, “Business Segments.”)

NATURAL GAS TRANSMISSION

Natural Gas Transmission provides transportation and storage of natural gas for customers along the U.S. East Coast, the Southeast, and in Canada. Natural Gas Transmission also provides natural gas sales and distribution service to retail customers in Ontario, and gas processing services to customers in western Canada. Natural Gas Transmission does business primarily through Duke Energy Gas Transmission LLC.

For 2004, Natural Gas Transmission’s proportional throughput for its pipelines totaled 3,332 trillion British thermal units (TBtu), compared to 3,362 TBtu in 2003. This includes throughput on Natural Gas Transmission’s wholly owned U.S. and Canadian pipelines and its proportional share of throughput on pipelines that are not wholly owned. A majority of Natural Gas Transmission’s contracted transportation volumes are under long-term firm service agreements with LDC customers in the pipelines’ market areas. Firm transportation services are also provided to gas marketers, producers, other pipelines, electric power generators and a variety of end-users. In addition, the pipelines provide both firm and interruptible transportation to various customers on a short-term or seasonal basis. Demand on Natural Gas Transmission’s pipeline systems is seasonal, with the highest throughput occurring during colder periods in the first and fourth calendar quarters. Natural Gas Transmission’s pipeline systems consist of more than 17,500 miles of transmission pipelines. The pipeline systems receive natural gas from major North American producing regions for delivery to markets primarily in the Mid-Atlantic, New England and Southeastern states, Ontario, Alberta, and British Columbia. (For detailed descriptions of Natural Gas Transmission’s pipeline systems, see “Properties—Natural Gas Transmission”.)

Natural Gas Transmission, through Market Hub Partners (MHP), wholly owns natural gas salt cavern storage facilities in southeast Texas and Louisiana. MHP markets natural gas storage services to pipelines, LDCs, producers, end users and natural gas marketers. Texas Eastern and East Tennessee Natural Gas, LLC (ETNG) also provide firm and interruptible open-access storage services. Storage is offered as a stand-alone unbundled service or as part of a no-notice bundled service with transportation.

Natural Gas Transmission provides retail distribution services through its subsidiary, Union Gas Limited (Union Gas). Union Gas owns and operates natural gas transmission, distribution and storage facilities in Ontario. Union Gas distributes natural gas to approximately 1.2 million residential, commercial and industrial customers in northern, southwestern and eastern Ontario and provides storage, transportation and related services to utilities and other industry participants in the gas markets of Ontario, Quebec and the central and eastern United States.

Natural Gas Transmission’s processing plants in western Canada provide services primarily to natural gas producers to remove impurities from the raw gas stream including water, carbon dioxide, hydrogen sulphide and

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other substances. In addition, where required the facilities remove liquid hydrocarbons including propane, butane and pentanes plus. Natural Gas Transmission receives a volume based fee for these processing services under contracts that have an average duration of one to three years.

In February 2005, Duke Energy executed an agreement with ConocoPhillips whereby Duke Energy has agreed to cause a Duke Capital subsidiary to transfer a 19.7% interest in DEFS to ConocoPhillips for direct and indirect monetary and non-monetary consideration of approximately $1.1 billion. Upon closing of this transaction, Natural Gas Transmission expects to receive Canadian assets being transferred from DEFS and assets in Alberta and Saskatchewan, Canada from ConocoPhillips, which will allow Natural Gas Transmission to continue building scope, scale and diversity within its Canadian asset portfolio.

Competition

Natural Gas Transmission’s transportation, storage and gas gathering and processing businesses compete with other pipeline and storage facilities that serve its market areas in the transportation, processing and storage of natural gas. The principal elements of competition are rates, terms of service, and flexibility and reliability of service.

Natural gas competes with other forms of energy available to Natural Gas Transmission’s customers and end-users, including electricity, coal and fuel oils. The primary competitive factor is price. Changes in the availability or price of natural gas and other forms of energy, the level of business activity, conservation, legislation, governmental regulations, the ability to convert to alternative fuels, weather and other factors affect the demand for natural gas in the areas served by Natural Gas Transmission.

Union Gas’ distribution sales to industrial customers are affected by weather, economic conditions and the price of competitive energy sources. Most of Union Gas’ industrial and commercial customers, and a portion of residential customers, purchase their natural gas supply directly from suppliers or marketers. Because Union Gas earns income from the distribution of natural gas and not the sale of the natural gas commodity, the gas distribution margin is not affected by the source of the customer’s gas supply.

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Regulation

Most of Natural Gas Transmission’s pipeline and storage operations in the U.S. are regulated by the FERC. The FERC has authority to regulate rates and charges for natural gas transported or stored for U.S. interstate commerce or sold by a natural gas company via interstate commerce for resale. (For more information on rate matters, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters—Natural Gas Transmission.”) The FERC also has authority over the construction and operation of U.S. pipelines and related facilities used in the transportation, storage and sale of natural gas in interstate commerce, including the extension, enlargement or abandonment of such facilities. In addition, certain operations are subject to state regulatory commissions.

FERC regulations restrict access to U.S. interstate pipeline natural gas transmission customer data by marketing and other energy affiliates, and place certain conditions on services provided by the U.S. interstate pipelines to their affiliated gas marketing entities. These regulations affect the activities of non-regulated affiliates with Natural Gas Transmission.

The FERC is continually proposing and implementing new rules and regulations affecting those segments of the natural gas industry, most notably interstate natural gas transmission companies, which remain subject to the FERC’s jurisdiction. These initiatives may also affect the intrastate transportation of gas under certain circumstances. The stated purpose of these regulatory changes is to promote competition among the various sectors of the natural gas industry.

Natural Gas Transmission’s U.S. operations are subject to the jurisdiction of the EPA and state environmental agencies. (For a discussion of environmental regulation, see “Environmental Matters” in this section.) Natural Gas Transmission’s interstate natural gas pipelines are subject to the regulations of the DOT concerning pipeline safety. DOT regulations have incorporated certain provisions of the Natural Gas Pipeline Safety Act of 1968 (and subsequent acts). The DOT developed new regulations, effective February 14, 2004, that establish mandatory inspections for all natural gas transmission pipelines in high-consequence areas within 10 years. These regulations require pipeline operators to implement integrity management programs, including more frequent inspections, and other safety protections in areas where the consequences of potential pipeline accidents pose the greatest risk to life and property. Management believes that compliance with these DOT regulations for Natural Gas Transmission will not have a material adverse effect on the consolidated results of operations, cash flows or financial position of Duke Capital.

The natural gas gathering, processing, transmission, storage and distribution operations in Canada are subject to regulation by the NEB and provincial agencies in Canada, such as the OEB. These agencies have authorization similar to the FERC for regulating rates, regulating the operations of facilities and construction of any additional facilities.

FIELD SERVICES

Field Services gathers, compresses, treats, processes, transports, trades and markets, and stores natural gas; and fractionates, transports, trades and markets, and stores NGLs. It conducts operations primarily through DEFS, which is approximately 30% owned by ConocoPhillips and approximately 70% owned by Duke Capital. In February 2005, Duke Energy executed an agreement with ConocoPhillips whereby Duke Energy has agreed to cause a Duke Capital subsidiary to transfer a 19.7% interest in DEFS to ConocoPhillips for direct and indirect monetary and non-monetary consideration of approximately $1.1 billion. Upon closing of this transaction, DEFS expects to transfer its Canadian assets to Duke Capital’s Natural Gas Transmission segment and receive certain U.S. Midstream assets or cash from ConocoPhillips. Upon completion of this transaction, DEFS will be owned 50% by Duke Capital and 50% by ConocoPhillips. As a result, Duke Capital expects to account for its investment in DEFS using the equity method subsequent to closing of the transaction. This transaction, which is subject to customary U.S. and Canadian regulatory approvals, is expected to close in the latter half of 2005. Additionally, in February 2005, DEFS sold its wholly-owned subsidiary, TEPPCO, the general partner of TEPPCO Partners, L.P., for approximately $1.1 billion and Duke Capital sold its limited partner interest in TEPPCO Partners, L.P. for approximately $100 million, in each case to EPCO, an unrelated third party.

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Field Services gathers raw natural gas through gathering systems located in eight major natural gas producing regions: Permian Basin, Mid-Continent, ArklaTex, Gulf Coast, South, Central, Rocky Mountains and Western Canada. Field Services owns and operates approximately 59,000 miles of gathering and transmission pipe, with approximately 34,000 active receipt points.

Field Services’ natural gas processing operations separate raw natural gas that has been gathered on its own systems and third-party systems into condensate, NGLs and residue gas. Field Services processes the raw natural gas at 57 natural gas processing facilities that it owns and operates and at nine third-party operated facilities in which it has an equity interest.

The NGLs separated from the raw natural gas are either sold and transported as NGL raw mix, or further separated through a fractionation process into their individual components (ethane, propane, butanes and natural gasoline) and then sold as components. Field Services fractionates NGL raw mix at ten processing facilities that it owns and operates and at four third-party-operated facilities in which it has an equity interest. In addition, Field Services operates a propane wholesale marketing business. Field Services sells NGLs to a variety of customers ranging from large, multinational petrochemical and refining companies to small regional retail propane distributors. Substantially all of its NGL sales are at market-based prices.

The residue gas separated from the raw natural gas is sold at market-based prices to marketers and end-users, including large industrial customers and natural gas and electric utilities serving individual consumers. Field Services markets residue gas directly or through its wholly owned gas marketing company and its affiliates. Field Services also stores residue gas at its 6 billion-cubic-foot (Bcf) natural gas storage facility.

Field Services uses NGL trading and storage at the Mont Belvieu, Texas and Conway, Kansas NGL market centers to manage its price risk and to provide additional services to its customers. Asset-based gas trading and marketing activities are supported by ownership of the Spindletop storage facility and various intrastate pipelines which provide access to market centers/hubs such as Katy, Texas, and the Houston Ship Channel. Field Services undertakes these NGL and gas trading activities through the use of fixed forward sales, basis and spread trades, storage opportunities, put/call options, term contracts and spot market trading. Field Services believes there are additional opportunities to grow its services with its customer base.

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The following map includes Field Services’ natural gas gathering systems, intrastate pipelines, regional offices and supply areas. The map also shows Natural Gas Transmission’s interstate pipeline systems.

Field Services’ operating results are significantly impacted by changes in average NGL prices, which increased approximately 28% in 2004 compared to 2003. Field Services closely monitors the risks associated with these price changes, using NGL and crude forward contracts to mitigate the effect of such fluctuations on operating results. (See “Management’s Discussion and Analysis of Results of Operations and Financial Condition, Quantitative and Qualitative Disclosures About Market Risk” for a discussion of Field Services’ exposure to changes in commodity prices.)

Competition

In gathering and processing natural gas and in marketing and transporting natural gas and NGLs, Field Services competes with major integrated oil companies, major interstate and intrastate pipelines, national and local natural gas gatherers, and brokers, marketers and distributors of natural gas supplies. Competition for natural gas supplies is based primarily on the reputation, efficiency and reliability of operations, the availability of gathering and transportation to high-demand markets, the pricing arrangement offered by the gatherer/processor and the ability of the gatherer/processor to obtain a satisfactory price for the producer’s residue gas and extracted NGLs. Competition for sales to customers is based primarily upon reliability, services offered, and price of delivered natural gas and NGLs.

Regulation

The intrastate natural gas and NGL pipelines owned by Field Services are subject to state regulation. To the extent that the natural gas intrastate pipelines provide services under Section 311 of the Natural Gas Policy Act

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of 1978, they are also subject to FERC regulation. The interstate natural gas pipeline owned and operated by Field Services is subject to FERC regulation, but its natural gas gathering and processing activities are not subject to FERC regulation.

Field Services is subject to the jurisdiction of the EPA and state environmental agencies. (For more information, see “Environmental Matters” in this section.) Field Services’ natural gas transmission pipelines and some gathering pipelines are subject to the regulations of the DOT, and in some cases, state agencies, concerning pipeline safety. DOT regulations have incorporated certain provisions of the Natural Gas Pipeline Safety Act of 1968 (and subsequent acts). The DOT has developed new regulations, effective February 14, 2004, that establish mandatory inspections for all natural gas transmission pipelines in high-consequence areas within ten years, with reassessments at prescribed intervals thereafter. The new regulations require pipeline operators to implement integrity management programs, including more frequent inspections, and other safety protections in areas where the consequences of potential pipeline accidents pose the greatest risk to life and property, Management believes that compliance with these new DOT regulations will not have a material adverse effect on the consolidated results of operations, cash flows or financial position of Duke Capital.

Field Services’ Canadian assets are regulated by the Alberta Energy and Utilities Board and the NEB.

DENA

DENA operates and manages power plants and markets electric power and natural gas related to these plants and other contractual positions. DENA conducts business throughout the U.S. and Canada through Duke Energy North America, LLC and its 100% owned affiliates Duke Energy Marketing America, LLC and Duke Energy Marketing Canada Corp. DENA also participates in DETM. DETM is 40% owned by ExxonMobil Corporation and 60% owned by Duke Capital. The following summarizes certain key events from 2004.

Generation Assets

DENA currently owns or operates approximately 9,890 net MW of operating generation. In August 2004, DENA completed the sale of the Southeast Plants. DENA also completed the sales of its partially completed power plants in Moapa, Nevada in October 2004 and Luna, New Mexico in November 2004. DENA also entered into an agreement in December 2004 to divest of its interests in the partially completed Grays Harbor (Washington) power plant and associated contracts. (See Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions” for further discussion.)

On September 21, 2004, DENA signed a purchase and sale agreement to sell DENA’s 75% interests in Bayside Power L.P. (See Note 12 to the Consolidated Financial Statements, “Discontinued Operations and Assets Held for Sale,” for further discussion.)

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The following map shows DENA’s power generation facilities.

Marketing Portfolio

Much of DENA’s portfolio of purchase and sales agreements incorporate market-sensitive pricing terms. To minimize the impact of changing market conditions to DENA, physical purchases and sales are generally hedged with financial derivatives. Additionally, DENA continues to sell fixed capacity contracts in addition to volume based sales and purchases. (For information concerning DENA’s risk-management activities, see “Management’s Discussion and Analysis of Results of Operations and Financial Condition, Quantitative and Qualitative Disclosures About Market Risk” and Note 7 to the Consolidated Financial Statements, “Risk Management and Hedging Activities, Credit Risk, and Financial Instruments.”)

DENA is active in the Western (California and Southwest), Northeast and Midwest power markets including the associated gas supply, transport and storage in those markets. DENA has a strong focus on increasing its percentage of contracted energy ($/MWh) and capacity ($/kW/month) versus energy/capacity sold into the spot/non-contracted markets. Additionally, DENA continues to sell fixed capacity contracts in addition to volume based sales and purchases.

Competition

The price of commodities and services, along with the quality and reliability of services provided, drive competition in the energy marketing business. DENA’s competitors include the following: utilities, financial institutions and hedge funds engaged in commodity trading, major interstate pipelines and their marketing affiliates, marketers and distributors, major integrated oil companies, other merchant electric generation companies in North America, brokers, and other domestic and international electric power and natural gas marketers.

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Regulation

DENA’s energy marketing activities are subject to the jurisdiction of the FERC in some circumstances. Current FERC policies permit DENA’s trading and marketing entities to market natural gas, electricity and other energy-related commodities at market-based rates. Ongoing regulatory initiatives at both state and federal levels addressing market design, such as the development of capacity markets and real-time electricity markets, impact financial results from DENA’s marketing and generation activities.

Litigation at the state level is ongoing related to DENA’s activities in California during the electricity supply situation in 2000 and 2001. (See Note 16 to the Consolidated Financial Statements, “Commitments and Contingencies—Litigation,” for further discussion.)

The operation and maintenance of DENA’s power plants in California are now subject to regulation pursuant to guidelines recently promulgated by state authorities. The new guidelines are intended to increase the reliability of the generation supply in California by setting operating and maintenance standards and regulating when plants may be taken out of service for routine maintenance. Duke Capital does not believe that the new guidelines will have a material impact on the operation of its power plants in California.

DENA is subject to the jurisdiction of the EPA and state environmental agencies. (For a discussion of environmental regulation, see “Environmental Matters” in this section.)

INTERNATIONAL ENERGY

International Energy operates and manages power generation facilities, and engages in sales and marketing of electric power and natural gas outside the U.S. and Canada. It conducts operations primarily through DEI and its activities target power generation in Latin America. Additionally, International Energy owns an equity investment in National Methanol Company, located in Saudi Arabia, which is a leading regional producer of methanol and MTBE.

International Energy’s customers include retail distributors, electric utilities, independent power producers, marketers and large industrial companies. International Energy is committed to building integrated regional businesses that provide customers with a full range of innovative and competitively priced energy services.

International Energy’s current strategy is focused on maximizing the returns and cash flow from its current portfolio of energy businesses by creating organic growth through its sales and marketing efforts in all regions in which it currently does business, optimizing the output and efficiency of its various facilities and controlling and reducing costs.

International Energy owns, operates or has substantial interests in approximately 4,139 net MW of generation facilities. The following map shows the locations of International Energy’s facilities, including projects under construction and non-generation facilities in Mexico and Saudi Arabia. The capacities shown in the map are gross MW values (for net MW values see “Properties—International Energy”).

During 2004, Duke Capital completed the sale of the Asia-Pacific power generation and natural gas transmission business (the Asia-Pacific Business) to Alinta Ltd. All gains related to this transaction and the results of operations for these assets are included in Discontinued Operations, net of tax, in the Consolidated Statements of Operations. (See Note 12 to the Consolidated Financial Statements, “Discontinued Operations and Assets Held for Sale,” for further discussion.)

Also in 2004, International Energy completed the sale of its 30% equity interest in Compañia de Nitrógeno de Cantarell, S.A. de C.V. (Cantarell) a nitrogen production and delivery facility in the Bay of Campeche, Gulf of Mexico. (See Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions,” for further discussion.)

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Competition and Regulation

International Energy’s sales and marketing of electric power and natural gas competes directly with other generators and marketers serving its market areas. Competitors are country and region-specific but include government owned electric generating companies, LDC’s with self-generation capability and other privately owned electric generating companies. The principal elements of competition are price and availability, terms of service, flexibility and reliability of service.

A high percentage of International Energy’s portfolio consists of base-load hydro electric generation facilities which compete with other forms of electric generation available to International Energy’s customers and end-users, including natural gas and fuel oils. Economic activity, conservation, legislation, governmental regulations, weather and other factors affect the supply and demand for electricity in the regions served by International Energy.

International Energy’s operations are subject to both country-specific and international laws and regulations. (See “Environmental Matters” in this section.)

CRESCENT

Crescent develops and manages high-quality commercial, residential and multi-family real estate projects, and manages land holdings, primarily in the southeastern and southwestern U.S. As of December 31, 2004, Crescent owned 0.5 million square feet of commercial, industrial and retail space, with an additional 1.2 million square feet under construction. This portfolio included 0.9 million square feet of office space, 0.5 million square feet of warehouse space and 0.3 million square feet of retail space. Crescent’s residential developments include high-end country club and golf course communities, with individual lots sold to custom builders and tract developments sold to national builders. Crescent had three multi-family communities at December 31, 2004, including one operating property and two properties under development. As of December 31, 2004, Crescent also managed approximately 132,000 acres of land.

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Competition and Regulation

Crescent competes with multiple regional and national real estate developers across its various business lines in the southeastern and southwestern U.S. Crescent’s residential division sells developed lots to regional and national home builders and retail buyers, competing with other developers and home builders who have inventories of developed lots. Crescent’s commercial division leases office, industrial and retail space, competing with other public and private developers and owners of commercial property, including national real estate investment trusts (REITs). Similarly, Crescent’s multi-family division leases apartment units primarily to individuals, competing with other private developers and multi-family REITs.

Crescent is subject to the jurisdiction of the EPA and state and local environmental agencies. (For a discussion of environmental regulation, see “Environmental Matters” in this section.)

OTHER

During 2004, Other primarily included certain unallocated corporate costs, DukeNet, Duke Capital’s 50% interest in D/FD, and Bison. DCP had been previously included in Other, however at December 31, 2004 Duke Capital had exited the merchant finance business, and all of the results of operations for DCP for the years ended December 31, 2004, 2003 and 2002 have been classified as discontinued operations.

DukeNet develops, owns and operates a fiber optic communications network, primarily in the Carolinas, serving wireless, local and long-distance communications companies, Internet service providers and other businesses and organizations.

D/FD is a 50/50 partnership between subsidiaries of Duke Capital and Fluor Corporation. During 2003, Duke Capital and Fluor Corporation announced that they would dissolve the D/FD partnership. The D/FD partners adopted a plan for an orderly wind-down of the business which is expected to be completed by December 2005. Previously, D/FD provided comprehensive engineering, procurement, construction, commissioning and operating plant services for fossil-fueled electric power generating facilities worldwide.

Bison’s principle activities, as a captive insurance entity, include the insurance and reinsurance of various business risks and losses, such as workers compensation, property, business interruption, and general liability of subsidiaries and affiliates of Duke Capital. Bison also participates in reinsurance activities with certain third parties, on a limited basis.

Competition and Regulation

The entities within Other are subject to the jurisdiction of the EPA and state and local environmental agencies. (For a discussion of environmental regulation, see “Environmental Matters” in this section.)

ENVIRONMENTAL MATTERS

Duke Capital is subject to international, federal, state and local laws and regulations with regard to air and water quality, hazardous and solid waste disposal and other environmental matters. Environmental laws and regulations affecting Duke Capital include, but are not limited to:

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(For more information on environmental matters involving Duke Capital, including possible liability and capital costs, see Note 16 to the Consolidated Financial Statements, “Commitments and Contingencies—Environmental.”)

Except to the extent discussed in Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” and Note 16 to the Consolidated Financial Statements, “Commitments and Contingencies,” compliance with international, federal, state and local provisions regulating the discharge of materials into the environment, or otherwise protecting the environment, is not expected to have a material adverse effect on the competitive position, consolidated results of operations, cash flows or financial position of Duke Capital.

GEOGRAPHIC REGIONS

For a discussion of Duke Capital’s foreign operations and the risks associated with them, see “Management’s Discussion and Analysis of Results of Operations and Financial Condition, Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Risk,” and Notes 3 and 7 to the Consolidated Financial Statements, “Business Segments” and “Risk Management and Hedging Activities, Credit Risk, and Financial Instruments.”

EMPLOYEES

On December 31, 2004, Duke Capital had approximately 11,700 employees. A total of 1,998 operating, and maintenance employees were represented by unions. This amount consists of the following:

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Item 2. Properties.

NATURAL GAS TRANSMISSION

Texas Eastern’s gas transmission system extends approximately 1,700 miles from producing fields in the Gulf Coast region of Texas and Louisiana to Ohio, Pennsylvania, New Jersey and New York. It consists of two parallel systems, one with three large-diameter parallel pipelines and the other with one to three large-diameter pipelines. Texas Eastern’s onshore system consists of approximately 8,600 miles of pipeline and 73 compressor stations.

Texas Eastern also owns and operates two offshore Louisiana pipeline systems, which extend approximately 100 miles into the Gulf of Mexico and include approximately 500 miles of Texas Eastern’s pipeline system.

Texas Eastern has two joint-venture storage facilities in Pennsylvania and one wholly owned and operated storage field in Maryland. Texas Eastern’s total working capacity in these three fields is 75 Bcf.

Algonquin transmission system connects with Texas Eastern’s facilities in New Jersey, and extends approximately 250 miles through New Jersey, New York, Connecticut, Rhode Island and Massachusetts. The system consists of approximately 1,100 miles of pipeline with six compressor stations.

ETNG’s transmission system crosses Texas Eastern’s system at two points in Tennessee and consists of two mainline systems totaling approximately 1,400 miles of pipeline in Tennessee, Georgia, North Carolina and Virginia, with 18 compressor stations.

ETNG has an LNG storage facility in Tennessee with a total working capacity of 1.2 Bcf.

Maritimes & Northeast Pipeline, LLC and Maritimes & Northeast Pipeline, LP (collectively, Maritimes & Northeast) transmission system (approximately 78% owned by Duke Capital) extends approximately 900 miles from producing fields in Nova Scotia through New Brunswick, Maine, New Hampshire and Massachusetts, connecting to Algonquin in Beverly, Massachusetts. It has two compressor stations on the system.

The British Columbia Pipeline System consists of two divisions. The field services division operates more than 1,840 miles of gathering pipelines in British Columbia, Alberta, the Yukon Territory and the Northwest Territories, as well as 22 field compressor stations; four gas processing plants located in British Columbia near Fort Nelson, Taylor, Chetwynd and in the Sikanni area northwest of Fort St. John, and three elemental sulphur recovery plants located at Fort Nelson, Taylor and Chetwynd. Total contractible capacity is approximately 1.8 Bcf of residue gas per day. The pipeline division has approximately 1,740 miles of transmission pipelines in British Columbia and Alberta, as well as 18 mainline compressor stations.

Union Gas owns and operates natural gas transmission, distribution and storage facilities in Ontario. Union Gas’ distribution system consists of approximately 22,000 miles of distribution pipelines. Union Gas’ underground natural gas storage facilities have a working capacity of approximately 150 Bcf in 20 underground facilities located in depleted gas fields. Its transmission system consists of approximately 3,000 miles of pipeline and six mainline compressor stations.

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MHP owns and operates two natural gas storage facilities, Moss Bluff and Egan, with a total storage capacity of approximately 31 Bcf. The Moss Bluff facility consists of three storage caverns located in southeast Texas and has access to five pipeline systems. The Egan facility consists of three storage caverns located in south central Louisiana and has access to eight pipeline systems.

Natural Gas Transmission also has an investment in Gulfstream National Gas System, LLC (Gulfstream), a 691-mile interstate natural gas pipeline system owned and operated jointly by Duke Capital and The Williams Company, Inc. The Gulfstream gas pipeline has a capacity of 1.1 Bcf of natural gas per day and transports gas from the Mobile Bay area, across the Gulf of Mexico, to growing gas markets in south and central Florida. Gulfstream began initial service in May 2002.

(For a map showing natural gas transmission and storage properties, see “Business—Natural Gas Transmission” earlier in this section.)

FIELD SERVICES

(For information and a map showing Field Services’ properties, see “Business—Field Services” earlier in this section.)

DENA

The following table provides information about DENA’s generation portfolio in continuing operations as of December 31, 2004.

(For a map showing DENA’s properties, see “Business—DENA” earlier in this section.)

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INTERNATIONAL ENERGY

The following table provides information about International Energy’s generation portfolio in continuing operations as of December 31, 2004.

In addition to those generating facilities, International Energy owns a 25% equity interest in National Methanol Company (NMC), located in Saudi Arabia, which is a leading producer of methanol and MTBE. In 2004, the NMC produced approximately 900 thousand metric tons of methanol and one million metric tons of MTBE. International Energy also owns a 50% equity interest in Compañía de Servicios de Compresión de Campeche, S.A. de C.V. (Campeche), located in the Cantarell oil field in the Bay of Campeche, Mexico, which compresses and dehydrates natural gas and extracts NGLs. Campeche has an installed processing capacity of 270 Mmcf/d. (For additional information and a map showing International Energy’s properties, see “Business—International Energy” earlier in this section.)

CRESCENT

(For information regarding Crescent’s properties, see “Business—Crescent” earlier in this section.)

OTHER

(For information regarding the properties of the business unit now known as Other, see “Business-Other” earlier in this section.)

Item 3. Legal Proceedings.

In July 2003, a fire occurred at the Moss Landing Power Plant in California, operated by Duke Energy Moss Landing LLC (DEML), a subsidiary of DENA, when fuel oil was ignited by a contractor performing tank clean out and dismantling activities. The Monterey County District Attorney initiated civil enforcement action against DEML alleging violations of the California Health and Safety Code and the Business and Professions Code. The alleged violations concerned the handling of hazardous materials at the site and unlawful release of hazardous materials into the environment. DEML denied the allegations but agreed to settle the civil enforcement action by committing to expend a total of $752,287, the majority of which entails reimbursement of costs to the county and expenditures for safety/environmental training efforts by the company, but also includes a $100,000 civil penalty payment. The district attorney also settled a related action against DEML’s contractor for alleged violations in the incident. Both settlements were announced on September 22, 2004.

(For information regarding legal proceedings, including regulatory and environmental matters, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters” and Note 16 to the Consolidated Financial Statements, “Commitments and Contingencies—Litigation” and “Commitments and Contingencies—Environmental.”)

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PART II.

Item 5. Market for Registrant’s Member’s/Common Equity and Related Stockholder Matters.

All of the outstanding limited liability company member interests of Duke Capital are owned by Duke Energy. There is no market for Duke Capital’s limited liability company member interest. Distributions on Duke Capital’s limited liability company member interests will be paid when declared by the Board of Directors. Duke Capital did not pay distributions on its member’s/common equity in 2004, 2003 or 2002. Duke Capital continues to review its policy with respect to paying future distributions and anticipates making periodic distributions over the next three years to facilitate Duke Energy’s stock repurchase program announced in February 2005.

On March 23, 2005, Duke Capital distributed $750 million to its parent, Duke Energy, to provide funding for the execution of Duke Energy’s accelerated share acquisition plan. The distribution was principally obtained from Duke Capital’s portion of the cash proceeds realized from the recent sale by DEFS of the general partner of TEPPCO Partners, L.P. and Duke Capital’s sale of its limited partner interests in TEPPCO Partners, L.P.

Item 6. Selected Financial Data.

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Item 7. 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.

Overview of Business Strategy.    Duke Capital’s business strategy is to develop integrated energy businesses in targeted regions where Duke Capital’s capabilities in developing energy assets; operating power plants, natural gas liquid (NGL) plants and natural gas pipelines; optimizing commercial operations (including its affiliated real estate operation); and managing risk can provide comprehensive energy solutions for customers and create value for its parent company.

For the past few years, the energy industry including Duke Capital experienced a number of challenges, including the substantial imbalance between supply and demand for electricity, the pace of economic recovery, and regulatory and legal uncertainties. In response to these challenges, Duke Capital’s focus for 2004 was to reduce risks and restructure its business. By selling assets such as Duke Energy North America’s (DENA’s) eight natural gas-fired merchant power plants: Hot Spring (Arkansas); Murray and Sandersville (Georgia); Marshall (Kentucky); Hinds, Southaven, Enterprise and New Albany (Mississippi) in the southeastern United States; (collectively, the Southeast Plants) and International Energy’s Asia-Pacific power generation and natural gas transmission business (the Asia-Pacific Business), Duke Capital eliminated some of its lowest return assets. These asset sales provided cash proceeds allowing Duke Capital to pay down debt and strengthen its balance sheet. Progress was also made in 2004 in resolving some critical legal and regulatory issues.

As a result of the efforts in 2004, Duke Capital’s objectives for 2005 include establishing industry-leading positions in core businesses and identifying new energy-related growth strategies, focused in the Americas. Increased demand for natural gas supplies in the United States and changing logistics among source of supply are providing opportunities for growth. To capitalize on this market dynamic, Natural Gas Transmission is evaluating longer-term opportunities to provide pipeline capacity and storage facilities for the expected expansion of the liquefied natural gas (LNG) market. Additionally, the strength of the natural gas market provides incentives for producers to increase exploration and production, which in turn, provides business sustainability and growth opportunities for Field Services. International Energy is expected to grow organically for the near term.

In February 2005, Duke Energy Field Services LLC (DEFS) sold Texas Eastern Products Pipeline Company LLC (TEPPCO) for approximately $1.1 billion and Duke Capital sold its limited partner interest in TEPPCO Partners, L.P. for approximately $100 million, in each case to EPCO, an unrelated third party. These transactions closed in the first quarter of 2005.

In February 2005, Duke Energy executed an agreement with ConocoPhillips whereby Duke Energy has agreed to cause a Duke Capital subsidiary to transfer a 19.7% interest in DEFS to ConocoPhillips for direct and indirect monetary and non-monetary consideration of approximately $1.1 billion. Upon completion of this transaction, DEFS will be owned 50% by Duke Capital and 50% by ConocoPhillips. As a result, Duke Capital expects to account for its investment in DEFS using the equity method subsequent to closing of the transaction, which is expected to occur in the latter half of 2005.

Duke Capital believes merchant energy will play a vital role in meeting the United States’ energy demand. Another key objective for 2005 is to position DENA to be a successful merchant operator. During 2004, DENA’s business model changed to focus on selling fixed capacity contracts in addition to volume based sales and purchases. Duke Capital is pursuing various options to create a sustainable business model for DENA, including consideration of potential business partners. A sustainable business model will include fuel and geographic diversity, sufficient size and scope for a substantial market presence and will enable DENA to better withstand the cyclical nature of the industry. Depending on the option selected, there is a risk that material impairments or

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losses could be recorded, including the potential disqualification of certain contracts and the recognition of unrealized losses associated with DENA power forward sales contracts designated under the normal purchases and normal sales exemption, which totaled approximately $900 million (pre-tax) as of December 31, 2004. This unrealized loss represents the difference in the normal purchases and normal sales contract prices compared to the forward market prices of power and is partially offset by unrealized gains on natural gas positions of approximately $800 million (pretax) as of December 31, 2004. (For more information see Commodity Price Risk discussion under Quantitative and Qualitative Disclosures About Market Risk).

With cash, cash equivalents and short-term investments on hand at December 31, 2004 of approximately $1.6 billion and a more stable business environment, Duke Capital has financial flexibility to invest incrementally or pay down additional debt. Duke Capital is evaluating these options and will determine the best economic decisions to ensure the long-term financial strength of Duke Capital.

Other key objectives for Duke Capital in 2005 are to build stakeholder relationships through effective leadership on key policy issues related to energy, regulation and the environment, and also to focus on safety, inclusion and diversity, employee development, business structure and process simplification.

Economic Factors for Duke Capital’s Business.    Duke Capital’s business model provides diversification between stable, less cyclical businesses like Natural Gas Transmission, and the traditionally higher-growth and more cyclical energy businesses like DENA, International Energy and Field Services. Additionally, Crescent Resources LLC’s (Crescent’s) portfolio strategy is diversified between residential, commercial and multi-family development. All of Duke Capital’s businesses can be negatively affected by sustained downturns or sluggishness in the economy, including low market price of commodities, all of which are beyond Duke Capital’s control, and could impair Duke Capital’s ability to meet its goals for 2005 and beyond.

Natural Gas Transmission is subject to mandated tariff rates and recovery of certain fuel costs. Lower economic output would also cause the Natural Gas Transmission and Field Services businesses to experience a decline in the volume of natural gas shipped through their pipelines, gathered and processed at their plants, or distributed by their local distribution company, resulting in lower revenue and cash flows. Natural Gas Transmission continues to experience positive renewals of its customer contracts as they expire.

If negative market conditions persist over time and estimated cash flows over the lives of Duke Capital’s individual assets do not exceed the carrying value of those individual assets, asset impairments may occur in the future under existing accounting rules and diminish results of operations. Furthermore, a change in management’s intent about the use of individual assets (held for use versus held for sale) or a change in fair value of assets held for sale could also result in impairments or losses.

Duke Capital’s goals for 2005 can also be substantially at risk due to the regulation of its businesses. Duke Capital’s businesses in North America are subject to regulations on the federal and state level. The majority of Duke Capital’s Canadian natural gas assets is also subject to various degrees of federal or provincial regulation and is subject to the same risks. Regulations, applicable to the gas transmission and storage industry, have a significant impact on the nature of the businesses and the manner in which they operate. Changes to regulations are ongoing and Duke Capital cannot predict the future course of changes in the regulatory environment or the ultimate effect that any future changes will have on its business.

Additionally, Duke Capital’s investments and projects located outside of the United States expose it to risks related to laws of other countries, taxes, economic conditions, fluctuations in currency rates, political conditions and policies of foreign governments. Changes in these factors are difficult to predict and may impact Duke Capital’s future results. Duke Capital’s recent restructuring, which focuses its non-United States operations on only Latin America and Canada, will help mitigate this exposure.

Duke Capital also relies on access to both short-term money markets and longer-term capital markets as a source of liquidity for capital requirements not met by the cash flow from its operations. If Duke Capital is not

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able to access capital at competitive rates, its ability to implement its strategy could be adversely affected. Market disruptions or a downgrade of Duke Capital’s credit rating may increase its cost of borrowing or adversely affect its ability to access one or more sources of liquidity.

RESULTS OF OPERATIONS

Overview of Drivers and Variances for 2004 and 2003

Year Ended December 31, 2004 as Compared to December 31, 2003.    For 2004, Duke Capital had a net loss of $127 million, compared to a net loss of $1,798 million in 2003. Significant items that contributed to the improved results in 2004 included:

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Partially offsetting these increases and prior year charges were:

For additional information on specific business unit related items, see the segment discussions that follow. For a detailed discussion of interest, taxes and the impact of changes in accounting principles, see “Other Impacts on Net (Loss) Income” at the end of this section.

Consolidated Operating Revenues

Year Ended December 31, 2004 as Compared to December 31, 2003.    Consolidated operating revenues for 2004 increased $479 million, compared to 2003. This change was driven by:

Year Ended December 31, 2003 as Compared to December 31, 2002.    Consolidated operating revenues for 2003 increased $4,994 million, compared to 2002. This change was primarily driven by:

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Consolidated Operating Expenses

Year Ended December 31, 2004 as Compared to December 31, 2003.    Consolidated operating expenses for 2004 decreased $3,036 million, compared to 2003. The change was primarily driven by:

Year Ended December 31, 2003 as Compared to December 31, 2002.    Consolidated operating expenses for 2003 increased $8,053 million, compared to 2002. The increase in consolidated operating expenses was driven primarily by impairments and other related charges, as discussed above, and by the same drivers that affected consolidated operating revenues: increased purchase costs for NGLs, the adoption of the final consensus on EITF Issue No. 02-03, and additional expenses due to the acquisition of Westcoast.

Consolidated Gains on Sales of Investments in Commercial and Multi-Family Real Estate

Consolidated gains on sales of investments in commercial and multi-family real estate were $192 million in 2004, $84 million in 2003, and $106 million in 2002. For a detailed discussion of this item see the Crescent segment discussion below.

Consolidated Losses on Sales of Other Assets, net

Consolidated losses on sales of other assets, net were $240 million for 2004 and $203 million for 2003. The loss in 2004 was due primarily to pre-tax losses on the sale of the Southeast Plants (approximately $360 million) at DENA and the termination and sale of DETM contracts ($65 million) offset by gains on the sales of two partially completed plants, Moapa ($140 million) and Luna ($40 million) at DENA. The loss for 2003 was primarily comprised of a $208 million loss at DENA primarily related to charges on DETM contracts ($127 million) resulting from the wind-down of DETM’s operations, and impairments recorded on assets held for sale, including a 25% undivided interest in the wholly-owned Vermillion facility ($18 million) and stored turbines and related equipment ($66 million).

Consolidated Operating Income

Year Ended December 31, 2004 as Compared to December 31, 2003.    For 2004, consolidated operating income increased $3,586 million, compared to 2003. Increased operating income was driven primarily by increased operating income at DENA, as a result of impairments and other related charges in 2003.

Year Ended December 31, 2003 as Compared to December 31, 2002.    For 2003, consolidated operating income decreased $3,284 million, compared to 2002. Lower operating income was driven primarily by asset impairments and related charges at DENA of $2,903 million, as discussed above.

Consolidated Other Income and Expenses

Consolidated other income and expenses decreased $241 million for the year ended December 31, 2004 as compared to December 31, 2003. The decrease primarily resulted from the $178 million pre-tax gain on the sale

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of DENA’s 50% interest in Ref-Fuel in 2003 and Natural Gas Transmission’s $90 million gain on sales of various investments in 2003, offset by foregone earnings from those investments. The increase in 2003 compared to 2002 was also a result of the gain from the Ref-Fuel sale as discussed above.

Segment Results

Management evaluates segment performance primarily 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 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. EBIT excludes discontinued operations. Cash, cash equivalents and short-term investments are managed centrally by Duke Capital, so the gains and losses on foreign currency remeasurement associated with cash balances and interest 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. Business segment EBIT is summarized in the following table, and detailed discussions follow.

EBIT by Business Segment

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

Natural Gas Transmission

Year Ended December 31, 2004 as Compared to December 31, 2003

Operating Revenues.    The increase was driven primarily by:

Operating Expenses.    The increase was driven primarily by:

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Other Income, net of expenses.    The decrease was driven primarily by:

Minority Interest Expenses.    The decrease was driven primarily by the sale of PNG in December 2003, as well as lower earnings on Maritimes & Northeast Pipeline.

EBIT.    EBIT decreased primarily as a result of gains from sales of equity investments recorded in the prior year and foregone earnings from the investments sold. Those decreases were mostly offset by earnings from expansion projects and foreign exchange EBIT impacts from the strengthening Canadian currency.

Matters Impacting Future Natural Gas Transmission Results

Natural Gas Transmission plans to continue earnings growth through capital efficient expansions in existing markets, optimization of existing systems, and organizational efficiencies and cost control. Natural Gas Transmission expects modest annual EBIT growth over the next three years from its 2004 EBIT, generally consistent with growth in demand. Demand for natural gas is expected to grow two to three percent in DEGT’s key markets. The average contract life for the U.S. pipelines is eight years. Changes in the Canadian dollar, weather, throughput and the ability to renew service contracts would impact future financial results at Natural Gas Transmission.

In February 2005, Duke Energy executed an agreement with ConocoPhillips whereby Duke Energy has agreed to cause a Duke Capital subsidiary to transfer a 19.7% interest in DEFS to ConocoPhillips for direct and indirect monetary and non-monetary consideration of approximately $1.1 billion. Upon closing of this transaction, DEFS expects to transfer its Canadian assets to Duke Capital’s Natural Gas Transmission segment. Also as part of this transaction, Natural Gas Transmission expects to receive assets in Alberta, Canada from ConocoPhillips. This transaction, which is subject to customary U.S. and Canadian regulatory approval, is expected to close in the latter half of 2005.

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Year Ended December 31, 2003 as Compared to December 31, 2002

Operating Revenues.    This increase was driven primarily by:

Operating Expenses.    This increase was driven primarily by:

For the year ended December 31, 2003, Natural Gas Transmission’s operating expenses increased approximately 39% when compared to the same period in 2002, while operating revenues increased approximately 30%. The difference was due to the Westcoast operations that were acquired in March 2002. The operating expenses, as a percentage of operating revenues, of the acquired Westcoast natural gas distribution business, are greater than the previously owned natural gas transmission business. Gas commodity costs related to the Westcoast distribution business are recovered from customers by increasing revenues by the amount of gas commodity costs expensed (i.e. flowed through to customers with no incremental profit).

Other Income, net of expenses.    This decrease was driven primarily by:

Minority Interest Expense.    Minority interest expense increased in 2003 compared to 2002. This resulted from the recognition of a full year of minority interest expense in 2003, versus only ten months during 2002, from less than wholly owned subsidiaries acquired in the March 2002 acquisition of Westcoast.

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EBIT.    EBIT increased in 2003 compared to 2002, due primarily to incremental EBIT related to assets acquired or consolidated as part of the March 2002 acquisition of Westcoast, gains on asset sales, and business expansion projects in the U.S. These items were partially offset by earnings in 2002 from operations that were sold in the fourth quarter of 2002 and during 2003, and 2003 severance charges in excess of 2002 amounts.

Field Services

Year Ended December 31, 2004 as Compared to December 31, 2003

Operating Revenues.    The increase was primarily driven by:

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Operating Expenses.    The increase was driven primarily by:

Other Income, Net of Expenses.    The decrease was driven primarily by:

Minority Interest Expense.    Minority interest expense increased in 2004 compared to 2003 due to increased earnings from DEFS, Duke Capital’s joint venture with ConocoPhillips. The increase was not proportionate to the increase in Field Services’ earnings, as the Field Services segment includes the results of incremental hedging activities contracted at the Duke Capital corporate level that are not included in DEFS’ results.

EBIT.    The increase in EBIT in 2004 compared to 2003 resulted primarily from the favorable effects of commodity prices and improved results from trading and marketing activities, partially offset by NGL and raw natural gas sales volume declines and impairments. The full impact from the effects of commodity prices were not realized as some sales volumes were previously hedged at prices different than actual market prices at settlement.

Matters Impacting Future Field Services Results

Field Services has developed significant size and scope in natural gas gathering and processing and NGL marketing and plans to focus on operational excellence and organic growth. Field Services’ revenues and expenses are significantly dependent on prevailing commodity prices for NGLs and natural gas, and past and current trends in price changes of these commodities may not be indicative of future trends. Field Services anticipates that current price levels will continue to stimulate drilling and help to offset declining raw natural gas supplies. Although the prevailing price of natural gas has less short term significance to its operating results than the price of NGLs, in the long term, the growth and sustainability of Field Services’ business depends on natural gas prices being at levels sufficient to provide incentives and capital for producers to increase natural gas exploration and production.

In February 2005, Duke Energy executed an agreement with ConocoPhillips whereby Duke Energy has agreed to cause a Duke Capital subsidiary to transfer a 19.7 % interest in DEFS to ConocoPhillips for direct and indirect monetary and non-monetary consideration of approximately $1.1 billion. In connection with this transaction, DEFS expects to transfer its Canadian assets to Duke Capital’s Natural Gas Transmission segment and receive certain U.S. Midstream assets or cash from ConocoPhillips. Upon completion of this transaction, DEFS will be owned 50 percent by Duke Capital and 50 percent by ConocoPhillips. As a result, Duke Capital

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expects to account for its investment in DEFS using the equity method subsequent to closing of the transaction. This transaction, which is subject to customary U.S. and Canadian regulatory approval, is expected to close in the latter half of 2005. This transaction is estimated to result in a pretax gain to Field Services of approximately $600 million. Additionally, in February 2005, DEFS sold its general partner in TEPPCO for approximately $1.1 billion and Duke Capital sold its limited partner interest in TEPPCO for approximately $100 million to Enterprise GP Holdings L.P., an unrelated third party. These transactions closed in the first quarter of 2005 and are estimated to result in a pretax gain to Field Services of approximately $900 million (net of approximately $330 million of minority interest).

As a result, Duke Capital expects to deconsolidate its investment in DEFS subsequent to the closing of the transfer of its 19.7% interest to ConocoPhillips. During the first quarter of 2005 Duke Capital has discontinued hedge accounting for certain 2005 and 2006 contracts held by Duke Capital related to Field Services’ commodity risk, which were previously accounted for as cash flow hedges. As a result of the discontinuation of hedge accounting treatment, approximately $140 million of pretax deferred losses in Accumulated Other Comprehensive Income (AOCI) related to these contracts have been charged against earnings by Duke Capital in the first quarter of 2005, which will impact Field Services’ segment EBIT. On a prospective basis, these contracts will be accounted for under the MTM Model, which will impact Other EBIT.

Future revenues, gas purchases and EBIT will continue to be sensitive to commodity prices that have historically been cyclical and volatile. Field Services equity NGL position for 2005 was approximately 64% hedged as of December 31, 2004 at an average crude price equivalent of $38 per barrel. After considering the impacts of hedging, Field Services exposure to a one cent per gallon change in the average price of NGLs is $5 million for 2005. This figure does not include the effects of discontinued hedge accounting for certain 2005 and 2006 contracts, previously accounted for as cash flow hedges. During the first quarter of 2005, these contracts began to be accounted for under the MTM Model and, as a result, Duke Capital’s earnings for 2005 and 2006 will be subject to more volatility.

Field services operating, and general and administrative costs are expected to increase in 2005, primarily due to asset integrity work and financial process improvements planned during the year. This increase is not expected to have a material effect on Field Services’ facility operating costs in 2005.

There are many important factors that could cause actual results to differ materially from the expectations expressed. Management can provide no assurances regarding the impact of future commodity prices or drilling activity.

Year Ended December 31, 2003 as Compared to December 31, 2002

Operating Revenues.    The increase was driven primarily by:

Operating Expenses.    The increase was primarily driven by:

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Minority Interest Expense.    Minority interest expense at Field Services increased in 2003 compared to 2002 due to increased earnings from DEFS. The increase in minority interest expense was not proportionate to the increase in Field Services’ earnings as the Field Services segment includes the results of incremental hedging activities contracted at the Duke Capital corporate level that are not included in DEFS results.

EBIT.    EBIT for 2003 increased compared to 2002 as a result of better pricing and other factors discussed above.

DENA