UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

        [ X ]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended March 31, 2004

                                       OR

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

                      For the transition period from to .
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                  Exact name of registrants as specified in their charters, state of
Commission        incorporation, address of principal executive offices, and telephone      I.R.S. Employer
File Number                                      number                                  Identification Number

  1-15929                                Progress Energy, Inc.                                56-2155481
                                     410 South Wilmington Street
                                  Raleigh, North Carolina 27601-1748
                                     Telephone: (919) 546-6111
                                State of Incorporation: North Carolina



  1-3382                             Carolina Power & Light Company                           56-0165465
                                 d/b/a Progress Energy Carolinas, Inc.
                                     410 South Wilmington Street
                                  Raleigh, North Carolina 27601-1748
                                     Telephone: (919) 546-6111
                                State of Incorporation: North Carolina

                                                   NONE
           (Former name, former address and former fiscal year, if changed since last report)
</TABLE>

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

Indicate by check mark whether Progress  Energy,  Inc.  (Progress  Energy) is an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No __

Indicate by check mark whether  Carolina Power & Light Company is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act). Yes __ No X

This combined Form 10-Q is filed separately by two registrants:  Progress Energy
and Carolina Power & Light Company d/b/a Progress Energy Carolinas,  Inc. (PEC).
Information  contained herein relating to either individual  registrant is filed
by  such  registrant  solely  on  its  own  behalf.  Each  registrant  makes  no
representation as to information relating exclusively to the other registrant.

Indicate the number of shares  outstanding  of each of the  issuers'  classes of
common stock,  as of the latest  practicable  date.  As of April 30, 2004,  each
registrant had the following shares of common stock outstanding:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

           Registrant                    Description                                Shares
           ----------                    -----------                                ------
Progress Energy           Common Stock (Without Par Value)                        246,577,745
PEC                       Common Stock (Without Par Value)                 159,608,055 (all of which
                                                                      were held by Progress Energy, Inc.)
</TABLE>

                                       1
<PAGE>

            PROGRESS ENERGY, INC. AND PROGRESS ENERGY CAROLINAS, INC.
                FORM 10-Q - For the Quarter Ended March 31, 2004



 Glossary of Terms

 Safe Harbor For Forward-Looking Statements

 PART I. FINANCIAL INFORMATION

 Item 1.  Financial Statements

       Consolidated Interim Financial Statements:

       Progress Energy, Inc.
       --------------------------------------------------------------
       Consolidated Statements of Income
       Consolidated Balance Sheets
       Consolidated Statements of Cash Flows
       Notes to Consolidated Interim Financial Statements

       Carolina Power & Light Company
       d/b/a Progress Energy Carolinas, Inc.
       ---------------------------------------------------------------
       Consolidated Statements of Income
       Consolidated Balance Sheets
       Consolidated Statements of Cash Flows
       Notes to Consolidated Interim Financial Statements

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

 Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 Item 4.  Controls and Procedures

 PART II. OTHER INFORMATION

 Item 1.  Legal Proceedings

 Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
          Securities

 Item 6.  Exhibits and Reports on Form 8-K

 Signatures



                                       2
<PAGE>

                                GLOSSARY OF TERMS


The following  abbreviations  or acronyms used in the text of this combined Form
10-Q are defined below:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     TERM                             DEFINITION

the Act                          Medicare Prescription Drug, Improvement and Modernization Act of 2003
AFUDC                            Allowance for funds used during construction
the Agreement                    Stipulation and Settlement Agreement
Bcf                              Billion cubic feet
CCO                              Competitive Commercial Operations business segment
Colona                           Colona Synfuel Limited Partnership, L.L.L.P.
the Company or Progress          Progress Energy, Inc. and subsidiaries
  Energy
CR3                              Progress Energy Florida Inc.'s nuclear generating plant, Crystal River Unit No. 3
CVO                              Contingent value obligation
DIG                              Derivatives Implementation Group
DOE                              United States Department of Energy
DWM                              North Carolina Department of Environment and Natural Resources, Division of Waste
                                 Management
EITF                             Emerging Issues Task Force
ENCNG                            Eastern North Carolina Natural Gas Company, formerly referred to as Eastern NC
EPA                              United States Environmental Protection Agency
FDEP                             Florida Department of Environment and Protection
Federal Circuit                  United States Circuit Court of Appeals
FERC                             Federal Energy Regulatory Commission
FIN No. 46                       FASB Interpretation No. 46, "Consolidation of Variable Interest Entities - An
                                 Interpretation of ARB No. 51"
Florida Progress or FPC          Florida Progress Corporation
FPSC                             Florida Public Service Commission
Fuels                            Fuels business segment
Genco                            Progress Genco Ventures, LLC
Jackson                          Jackson County EMC
MACT                             Maximum Available Control Technology
Mesa                             Mesa Hydrocarbons, LLC
MGP                              Manufactured gas plant
NCNG                             North Carolina Natural Gas Corporation
NCUC                             North Carolina Utilities Commission
NOx                              Nitrogen oxide
NOx SIP Call                     EPA rule which requires 23 jurisdictions including North and South
                                 Carolina and Georgia to further reduce nitrogen oxide emissions
NRC                              United States Nuclear Regulatory Commission
NSP                              Northern States Power
PCH                              Progress Capital Holdings, Inc.
PEC                              Progress Energy Carolinas, Inc., formerly referred to as Carolina Power & Light
                                 Company
PEF                              Progress Energy Florida, Inc., formerly referred to as Florida Power Corporation
PFA                              IRS Prefiling Agreement
the Plan                         Revenue Sharing Incentive Plan
PLRs                             Private Letter Rulings
Progress Rail                    Progress Rail Services Corporation
PTC LLC                          Progress Telecom LLC
Progress                         Ventures Business unit of Progress
                                 Energy primarily made up of nonregulated
                                 energy generation, gas, coal and
                                 synthetic fuel operations and energy
                                 marketing
PUHCA                            Public Utility Holding Company Act of 1935, as amended
PVI                              Legal entity of Progress Ventures, Inc.
PWR                              Pressurized water reactor
Rail Services or Rail            Rail Services business segment
RTO                              Regional Transmission Organization


                                       3
<PAGE>


SCPSC                            Public Service Commission of South Carolina
Section 29                       Section 29 of the Internal Revenue Code
Service Company                  Progress Energy Service Company, LLC
SFAS No. 71                      Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of
                                 Certain Types of Regulation"
SFAS No. 131                     Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
                                 of an Enterprise and Related Information"
SFAS No. 133                     Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
                                 and Hedging Activities"
SFAS No. 142                     Statement of Financial Accounting Standards No. 142, "Goodwill and Other
                                 Intangible Assets"
SFAS No. 143                     Statement of Financial Accounting Standards No. 143, "Accounting for Asset
                                 Retirement Obligations"
SFAS No. 148                     Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
                                 Compensation - Transition and Disclosure - An Amendment of FASB Statement No.
                                 123"
SFAS No. 149                     Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133
                                 on Derivative Instruments and Hedging Activities"
SMD NOPR                         Notice of Proposed Rulemaking in Docket No. RM01-12-000, Remedying Undue
                                 Discrimination through Open Access Transmission and Standard Market Design
SO2                              Sulfur dioxide
SRS                              Strategic Resource Solutions Corp.
the Trust                        FPC Capital I trust
Westchester                      Westchester Gas Company
</TABLE>


                                       4
<PAGE>

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

This combined report contains  forward-looking  statements within the meaning of
the safe harbor  provisions of the Private  Securities  Litigation Reform Act of
1995.  The matters  discussed  throughout  this  combined Form 10-Q that are not
historical  facts  are  forward-looking  and,  accordingly,  involve  estimates,
projections,  goals, forecasts,  assumptions, risks and uncertainties that could
cause actual results or outcomes to differ  materially  from those  expressed in
the forward-looking statements.

In  addition,   forward-looking   statements  are  discussed  in   "Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations"
including,  but not limited to, statements under the sub-heading "Other Matters"
about the  effects of new  environmental  regulations,  nuclear  decommissioning
costs and the effect of electric utility industry restructuring.

Any forward-looking statement speaks only as of the date on which such statement
is made, and neither Progress Energy,  Inc. (Progress Energy or the Company) nor
Progress Energy  Carolinas,  Inc. (PEC)  undertakes any obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made.

Examples of factors that you should consider with respect to any forward-looking
statements made throughout  this document  include,  but are not limited to, the
following:  the impact of fluid and  complex  government  laws and  regulations,
including those relating to the environment;  the impact of recent events in the
energy markets that have  increased the level of public and regulatory  scrutiny
in the energy industry and in the capital markets; deregulation or restructuring
in  the  electric  industry  that  may  result  in  increased   competition  and
unrecovered (stranded) costs; the uncertainty regarding the timing, creation and
structure  of  regional  transmission  organizations;  weather  conditions  that
directly influence the demand for electricity;  recurring seasonal  fluctuations
in demand for electricity;  fluctuations in the price of energy  commodities and
purchased power;  economic fluctuations and the corresponding impact on Progress
Energy,   Inc.  and  subsidiaries'  (the  Company)   commercial  and  industrial
customers;  the ability of the Company's  subsidiaries to pay upstream dividends
or  distributions  to it; the impact on the facilities and the businesses of the
Company  from a  terrorist  attack;  the  inherent  risks  associated  with  the
operation of nuclear facilities, including environmental, health, regulatory and
financial risks; the ability to successfully access capital markets on favorable
terms;  the impact that  increases  in  leverage  may have on the  Company;  the
ability of the Company to maintain  its current  credit  ratings;  the impact of
derivative  contracts  used in the normal  course of  business  by the  Company;
investment  performance  of pension and benefit plans and the ability to control
costs; the availability and use of Internal Revenue Code Section 29 (Section 29)
tax credits by synthetic fuel producers and the Company's  continued  ability to
use Section 29 tax credits related to its coal and synthetic  fuels  businesses;
the  Company's   ability  to  successfully   integrate  newly  acquired  assets,
properties  or  businesses  into its  operations  as quickly or as profitably as
expected;  the Company's ability to manage the risks involved with the operation
of its nonregulated  plants,  including  dependence on third parties and related
counter-party  risks, and a lack of operating history;  the Company's ability to
manage  the  risks  associated  with  its  energy  marketing   operations;   and
unanticipated  changes in operating expenses and capital  expenditures.  Many of
these risks similarly impact the Company's subsidiaries.

These and other risk  factors  are  detailed  from time to time in the  Progress
Energy and PEC United States  Securities and Exchange  Commission (SEC) reports.
Many, but not all of the factors that may impact actual results are discussed in
the Risk Factors  sections of Progress  Energy's and PEC's annual report on Form
10-K for the year  ended  December  31,  2003,  which were filed with the SEC on
March 12, 2004. All such factors are difficult to predict, contain uncertainties
that may  materially  affect  actual  results  and may be beyond the  control of
Progress  Energy and PEC.  New factors  emerge from time to time,  and it is not
possible  for  management  to predict  all such  factors,  nor can it assess the
effect of each such factor on Progress Energy and PEC.



                                       5
<PAGE>

                          PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

                              Progress Energy, Inc.
                    CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                 March 31, 2004

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
UNAUDITED CONSOLIDATED STATEMENTS of INCOME
                                                                      Three Months Ended March 31,
(in millions except per share data)                                        2004         2003
---------------------------------------------------------------------------------------------
Operating Revenues
   Utility                                                              $ 1,685      $ 1,654
   Diversified business                                                     549          533
---------------------------------------------------------------------------------------------
      Total Operating Revenues                                            2,234        2,187
---------------------------------------------------------------------------------------------
Operating Expenses
Utility
   Fuel used in electric generation                                         493          411
   Purchased power                                                          183          203
   Operation and maintenance                                                363          335
   Depreciation and amortization                                            202          220
   Taxes other than on income                                               105          103
Diversified business
   Cost of sales                                                            504          475
   Depreciation and amortization                                             45           33
   Other                                                                     43           50
---------------------------------------------------------------------------------------------
        Total Operating Expenses                                          1,938        1,830
---------------------------------------------------------------------------------------------
Operating Income                                                            296          357
---------------------------------------------------------------------------------------------
Other Income (Expense)
   Interest income                                                            3            3
   Other, net                                                               (25)          (6)
---------------------------------------------------------------------------------------------
        Total Other Expense                                                 (22)          (3)
---------------------------------------------------------------------------------------------
Interest Charges
   Net interest charges                                                     166          156
   Allowance for borrowed funds used during construction                     (1)          (3)
---------------------------------------------------------------------------------------------
        Total Interest Charges, Net                                         165          153
---------------------------------------------------------------------------------------------
Income from Continuing Operations before Income Tax and
   Cumulative Effect of Change in Accounting Principle                      109          201
Income Tax Expense (Benefit)                                                  1           (6)
---------------------------------------------------------------------------------------------
Income from Continuing Operations before Cumulative Effect of
   Change in Accounting Principle                                           108          207
Discontinued Operations, Net of Tax                                           -           11
---------------------------------------------------------------------------------------------
Income before Cumulative Effect of Change in Accounting Principle           108          218
Cumulative Effect of Change in Accounting Principle, Net of Tax               -            1
---------------------------------------------------------------------------------------------
Net Income                                                              $   108      $   219
---------------------------------------------------------------------------------------------
Average Common Shares Outstanding                                           241          233
---------------------------------------------------------------------------------------------
Basic Earnings per Common Share
    Income from Continuing Operations before Cumulative Effect of
       Change in Accounting Principle                                   $  0.45      $  0.89
    Discontinued Operations, Net of Tax                                       -         0.05
    Cumulative Effect of Change in Accounting Principle, Net of Tax           -            -
    Net Income                                                          $  0.45      $  0.94
---------------------------------------------------------------------------------------------
Diluted Earnings per Common Share

    Income from Continuing Operations before Cumulative Effect of       $  0.45      $  0.89
       Change in Accounting Principle
    Discontinued Operations, Net of Tax                                       -         0.05
    Cumulative Effect of Change in Accounting Principle, Net of Tax           -            -
    Net Income                                                          $  0.45      $  0.94
---------------------------------------------------------------------------------------------
Dividends Declared per Common Share                                     $ 0.575      $ 0.560
---------------------------------------------------------------------------------------------
</TABLE>

 See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.

                                       6
<PAGE>

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

PROGRESS ENERGY, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in millions)                                                           March 31,       December 31,
ASSETS                                                                       2004               2003
-----------------------------------------------------------------------------------------------------
Utility Plant
  Utility plant in service                                               $ 21,761           $ 21,675
  Accumulated depreciation                                                 (8,204)            (8,116)
-----------------------------------------------------------------------------------------------------
        Utility plant in service, net                                      13,557             13,559
  Held for future use                                                          13                 13
  Construction work in progress                                               722                634
  Nuclear fuel, net of amortization                                           233                228
-----------------------------------------------------------------------------------------------------
     Total Utility Plant, Net                                              14,525             14,434
-----------------------------------------------------------------------------------------------------
Current Assets
  Cash and cash equivalents                                                    41                273
  Accounts receivable                                                         794                841
  Unbilled accounts receivable                                                193                217
  Inventory                                                                   782                808
  Deferred fuel cost                                                          254                317
  Prepayments and other current assets                                        297                375
-----------------------------------------------------------------------------------------------------
     Total Current Assets                                                   2,361              2,831
-----------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
  Regulatory assets                                                           626                612
  Nuclear decommissioning trust funds                                         988                938
  Diversified business property, net                                        2,181              2,158
  Miscellaneous other property and investments                                464                464
  Goodwill                                                                  3,729              3,726
  Prepaid pension costs                                                       453                462
  Intangibles, net                                                            319                327
  Other assets and deferred debits                                            237                253
-----------------------------------------------------------------------------------------------------
     Total Deferred Debits and Other Assets                                 8,997              8,940
-----------------------------------------------------------------------------------------------------
           Total Assets                                                  $ 25,883           $ 26,205
-----------------------------------------------------------------------------------------------------
Capitalization and Liabilities
-----------------------------------------------------------------------------------------------------
Common Stock Equity
  Common stock without par value, 500 million shares authorized,
      246 million shares issued and outstanding                          $  5,310           $  5,270
  Unearned restricted shares                                                  (20)               (17)
  Unearned ESOP shares                                                        (79)               (89)
  Accumulated other comprehensive loss                                        (61)               (50)
  Retained earnings                                                         2,299              2,330
-----------------------------------------------------------------------------------------------------
        Total Common Stock Equity                                           7,449              7,444
-----------------------------------------------------------------------------------------------------
Preferred Stock of Subsidiaries-Not Subject to Mandatory Redemption            93                 93
Long-Term Debt, Affiliate                                                     309                309
Long-Term Debt , Net                                                        9,603              9,625
-----------------------------------------------------------------------------------------------------
        Total Capitalization                                               17,454             17,471
-----------------------------------------------------------------------------------------------------
Current Liabilities
  Current portion of long-term debt                                           232                868
  Accounts payable                                                            618                699
  Interest accrued                                                            140                209
  Dividends declared                                                          141                140
  Short-term obligations                                                      507                  4
  Customer deposits                                                           169                167
  Other current liabilities                                                   524                580
-----------------------------------------------------------------------------------------------------
        Total Current Liabilities                                           2,331              2,667
-----------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
  Accumulated deferred income taxes                                           682                737
  Accumulated deferred investment tax credits                                 186                190
  Regulatory liabilities                                                    2,995              2,938
  Asset retirement obligations                                              1,289              1,271
  Other liabilities and deferred credits                                      946                931
-----------------------------------------------------------------------------------------------------
        Total Deferred Credits and Other Liabilities                        6,098              6,067
-----------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 12)
-----------------------------------------------------------------------------------------------------
           Total Capitalization and Liabilities                          $ 25,883           $ 26,205
-----------------------------------------------------------------------------------------------------
</TABLE>

 See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.

                                       7
<PAGE>
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

PROGRESS ENERGY, INC.
UNAUDITED CONSOLIDATED STATEMENTS of CASH FLOWS


                                                                           Three Months Ended March 31,
(in millions)                                                                       2004           2003
--------------------------------------------------------------------------------------------------------
Operating Activities
Net income                                                                       $   108         $  219
Adjustments to reconcile net income to net cash provided by operating
activities:
      Income from discontinued operations                                              -            (11)
      Cumulative effect of change in accounting principle                              -             (1)
      Depreciation and amortization                                                  275            280
      Deferred income taxes                                                          (22)            (3)
      Investment tax credit                                                           (4)            (4)
      Deferred fuel cost (credit)                                                     63            (46)
      Cash provided (used) by changes in operating assets and
liabilities:
         Accounts receivable                                                          65             16
         Inventories                                                                  26             32
         Prepayments and other current assets                                        (37)            (3)
         Accounts payable                                                            (64)            49
         Other current liabilities                                                   (85)           (91)
         Other                                                                        57              2
--------------------------------------------------------------------------------------------------------
         Net Cash Provided by Operating Activities                                   382            439
--------------------------------------------------------------------------------------------------------
Investing Activities
Gross utility property additions                                                    (248)          (291)
Diversified business property additions                                              (58)          (229)
Nuclear fuel additions                                                               (39)           (68)
Proceeds from sales of investments and assets                                         85              -
Other                                                                                 (8)           (12)
--------------------------------------------------------------------------------------------------------
          Net Cash Used in Investing Activities                                     (268)          (600)
--------------------------------------------------------------------------------------------------------
Financing Activities
Issuance of common stock                                                              29             74
Issuance of long-term debt                                                             -            655
Net increase (decrease) in short-term indebtedness                                   503           (205)
Retirement of long-term debt                                                        (675)          (226)
Dividends paid on common stock                                                      (141)          (133)
Other                                                                                (62)           (30)
--------------------------------------------------------------------------------------------------------
           Net Cash (Used in) Provided by Financing Activities                      (346)           135
--------------------------------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents                                           (232)           (26)
Cash and Cash Equivalents at Beginning of Period                                     273             61
--------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period                                       $    41         $   35
--------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the year - interest (net of amount capitalized)                 $   232         $  209
                            income taxes (net of refunds)                        $    32         $    3
--------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.


                                       8
<PAGE>



Progress Energy, Inc.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1.   ORGANIZATION AND BASIS OF PRESENTATION

     A. Organization

     Progress Energy, Inc. (Progress Energy or the Company) is a holding company
     headquartered in Raleigh,  North Carolina.  The Company is registered under
     the Public Utility Holding  Company Act of 1935 (PUHCA),  as amended and as
     such,  the  Company  and its  subsidiaries  are  subject to the  regulatory
     provisions of PUHCA.

     Through its wholly-owned subsidiaries, Carolina Power & Light Company d/b/a
     Progress Energy  Carolinas,  Inc. (PEC) and Florida Power Corporation d/b/a
     Progress  Energy Florida,  Inc.  (PEF),  the Company's PEC Electric and PEF
     segments   are   primarily   engaged  in  the   generation,   transmission,
     distribution  and sale of electricity in portions of North Carolina,  South
     Carolina and Florida.  The Progress  Ventures business unit consists of the
     Fuels (Fuels) and the  Competitive  Commercial  Operations  (CCO)  business
     segments.  The Fuels  segment is  involved  in  natural  gas  drilling  and
     production, coal terminal services, coal mining, synthetic fuel production,
     fuel  transportation  and delivery.  The CCO segment includes  nonregulated
     electric  generation  and energy  marketing  activities.  Through  the Rail
     Services  (Rail) segment,  the Company is involved in nonregulated  railcar
     repair,  rail parts  reconditioning  and sales,  and scrap metal recycling.
     Through its other business units, the Company engages in other nonregulated
     business  areas,  including  telecommunications  and energy  management and
     related  services.  Progress  Energy's  legal  structure  is not  currently
     aligned  with the  functional  management  and  financial  reporting of the
     Progress  Ventures  business  unit.  Whether,   and  when,  the  legal  and
     functional  structures will converge depends upon regulatory action,  which
     cannot currently be anticipated.

     B. Basis of Presentation

     These financial statements have been prepared in accordance with accounting
     principles  generally  accepted in the United States of America  (GAAP) for
     interim  financial  information and with the  instructions to Form 10-Q and
     Regulation S-X. Accordingly, they do not include all of the information and
     footnotes required by GAAP for annual statements.  Because the accompanying
     consolidated  interim  financial  statements  do  not  include  all  of the
     information  and  footnotes  required  by  GAAP,  they  should  be  read in
     conjunction  with the audited  financial  statements  for the period  ended
     December 31, 2003,  and notes  thereto  included in Progress  Energy's Form
     10-K for the year ended December 31, 2003.

     In accordance  with the provisions of Accounting  Principles  Board Opinion
     (APB) No. 28, "Interim  Financial  Reporting,"  GAAP requires  companies to
     apply a levelized  effective tax rate to interim periods that is consistent
     with the  estimated  annual  effective  tax rate.  Income tax  expense  was
     increased by $39 million and  decreased by $10 million for the three months
     ended  March  31,  2004 and 2003,  respectively,  in order to  maintain  an
     effective tax rate  consistent  with the estimated  annual rate. The income
     tax provisions for the Company differ from amounts computed by applying the
     Federal statutory tax rate to income before income taxes,  primarily due to
     the recognition of synthetic fuel tax credits.

     The amounts included in the consolidated  interim financial  statements are
     unaudited but, in the opinion of management,  reflect all normal  recurring
     adjustments  necessary to fairly present the Company's  financial  position
     and results of operations for the interim periods.  Due to seasonal weather
     variations  and  the  timing  of  outages  of  electric  generating  units,
     especially  nuclear-fueled  units,  the results of  operations  for interim
     periods are not necessarily  indicative of amounts  expected for the entire
     year or future periods.

     In preparing financial  statements that conform with GAAP,  management must
     make estimates and assumptions  that affect the reported  amounts of assets
     and  liabilities,  disclosure of contingent  assets and  liabilities at the
     date of the  financial  statements  and  amounts of revenues  and  expenses
     reflected  during the reporting  period.  Actual  results could differ from
     those estimates. Certain amounts for 2003 have been reclassified to conform
     to the 2004 presentation.

                                       9
<PAGE>

     C. Subsidiary Reporting Period Change

     In the fourth  quarter of 2003, the Company  ceased  recording  portions of
     Fuels' segment operations,  primarily synthetic fuel operations,  one month
     in arrears.  As a result,  earnings for the year ended December 31, 2003 as
     reported  in the  Company's  Form 10-K,  included  13 months of results for
     these  operations.  The 2003 quarterly  results for periods ended March 31,
     June  30 and  September  30 have  been  restated  for  the  above-mentioned
     reporting  period  change.  This resulted in four months of earnings in the
     first  quarter.  The impact of the  reclassification  of  earnings  between
     quarters is outlined for the first quarter of 2003 in the table below:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     (in millions, except per share data)                          As Previously       Quarter           As
                                                                     Reported      Reclassification   Restated
     ---------------------------------------------------------------------------------------------------------
     Income from Continuing Operations before Cumulative Effect       $  196            $   11         $  207
       of Change in Accounting Principle
     Net Income                                                       $  208            $   11         $  219
     Basic and Diluted earnings per common share
       Income from Continuing Operations before Cumulative
          Effect of Change in Accounting Principle                    $ 0.84            $ 0.05         $ 0.89
       Net Income                                                     $ 0.89            $ 0.05         $ 0.94
</TABLE>

     D. Stock-Based Compensation

     The  Company  measures  compensation  expense  for  stock  options  as  the
     difference  between the market  price of its common  stock and the exercise
     price of the option at the grant date.  The exercise price at which options
     are granted by the Company  equals the market price at the grant date,  and
     accordingly,  no compensation  expense has been recognized for stock option
     grants. For purposes of the pro forma disclosures required by SFAS No. 148,
     "Accounting for  Stock-Based  Compensation - Transition and Disclosure - an
     Amendment of FASB  Statement No. 123" (SFAS No. 148),  the  estimated  fair
     value of the  Company's  stock  options is  amortized  to expense  over the
     options' vesting period.  The following table illustrates the effect on net
     income and  earnings per share if the fair value method had been applied to
     all outstanding and unvested awards in each period:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                               Three Months Ended March 31,
                                                              ------------------------------
     (in millions except per share data)                           2004            2003
                                                              --------------  --------------
     Net Income, as reported                                           $ 108           $ 219
     Deduct:  Total stock option expense determined under fair
       value method for all awards, net of related tax effects             3               3
                                                              --------------  --------------
     Pro forma net income                                              $ 105           $ 216
                                                              ==============  ==============

     Basic earnings per share
       As reported                                                     $0.45           $0.94
       Pro forma                                                       $0.44           $0.93

     Fully diluted earnings per share
       As reported                                                     $0.45           $0.94
       Pro forma                                                       $0.43           $0.92
</TABLE>

2.   IMPACT OF NEW ACCOUNTING STANDARDS

     FIN No. 46,  "Consolidation of Variable Interest Entities"
     In January 2003, the FASB issued  Interpretation No. 46,  "Consolidation of
     Variable Interest Entities - an Interpretation of ARB No. 51" (FIN No. 46).
     This  interpretation  provides  guidance  related to  identifying  variable
     interest   entities  and  determining   whether  such  entities  should  be
     consolidated  or  deconsolidated.  FIN No. 46  requires  an  enterprise  to
     consolidate a variable  interest  entity when the  enterprise (a) absorbs a
     majority of the variable interest entity's expected losses,  (b) receives a
     majority of the entity's expected residual returns, or both, as a result of
     ownership, contractual or other financial interests in the entity. Prior to
     the effective date of FIN No. 46,  entities were generally  consolidated by
     an  enterprise  that had control  through  ownership  of a majority  voting
     interest  in the  entity.  FIN No. 46  originally  applied  immediately  to
     variable  interest  entities  created or obtained  after  January 31, 2003.

                                       10
<PAGE>

     During 2003 and the first quarter of 2004, the Company did not  participate
     in the creation of, or obtain a significant  new variable  interest in, any
     variable  interest entity.  In December 2003, the FASB issued a revision to
     FIN No. 46 (FIN No. 46R), which modified certain requirements of FIN No. 46
     and was effective for all variable interest entities as of March 31, 2004.

     The Company adopted FIN No. 46 for special-purpose  entities as of December
     31, 2003, and deconsolidated the FPC Capital I trust (the Trust) as of that
     date.  Upon the  adoption  of FIN No.  46R as of March 31,  2004,  no other
     variable interest entities were required to be deconsolidated.

     Upon adoption of FIN No. 46R as of March 31, 2004,  the Company  determined
     that it is the primary  beneficiary of a limited  partnership which invests
     in 17 low-income  housing  partnerships  that qualify for federal and state
     tax credits.  The Company  consolidated the limited partnership as of March
     31, 2004, the effect of which was insignificant.  The Company has requested
     but has not received all the necessary information to determine the primary
     beneficiary  of  the  limited   partnership's   underlying  17  partnership
     investments,  and has applied the  information  scope  exception in FIN No.
     46R,  paragraph  4(g) to the 17  partnerships.  The  Company  has no direct
     exposure to loss from the 17  partnerships;  the Company's only exposure to
     loss is from its  investment  of  approximately  $1  million  in the newly-
     consolidated limited partnership.  The Company will continue its efforts to
     obtain  the  necessary  information  to fully  apply FIN No.  46R to the 17
     partnerships.  The Company believes that if the newly-consolidated  limited
     partnership  is  determined  to  be  the  primary  beneficiary  of  the  17
     partnerships,  the effect of consolidating the 17 partnerships would not be
     significant to the Company's Consolidated Balance Sheets.

     The Company has  variable  interests  in two power  plants  resulting  from
     long-term power purchase  contracts.  The Company has requested but has not
     received all the necessary  information to determine if the  counterparties
     are variable  interest  entities or to identify the primary  beneficiaries,
     and has applied the information  scope exception in FIN No. 46R,  paragraph
     4(g).  Certain  payments for fuel costs under these contracts are linked to
     inflation  indices.  The Company's only  significant  exposure to loss from
     these contracts  results from fluctuations in the market price of fuel used
     by the two plants to produce  the power  purchased  by the  Company.  Total
     purchases from these  counterparties  were approximately $9 million in each
     of the first  quarters of 2003 and 2004.  The  Company  will  continue  its
     efforts to obtain the necessary  information  to fully apply FIN No. 46R to
     these  contracts.  Although  the Company  has not  received  any  financial
     information from these two counterparties,  the Company believes that if it
     is  determined  to be the primary  beneficiary  of these two  entities  the
     effect  of   consolidating   the  entities  could  be  significant  to  its
     Consolidated  Balance Sheets.  However,  the  approximate  impact cannot be
     determined at this time.

     The Company also has interests in several other variable  interest entities
     created  before  January 31, 2003, for which the Company is not the primary
     beneficiary.  These  arrangements  include  investments in approximately 33
     limited  partnerships,  limited liability  corporations and venture capital
     funds and two building leases with special-purpose  entities. The aggregate
     maximum loss exposure at March 31, 2004, that the Company could be required
     to record in its income statement as a result of these arrangements  totals
     approximately  $39  million.  The  creditors  of  these  variable  interest
     entities  do not have  recourse  to the  general  credit of the  Company in
     excess of the aggregate maximum loss exposure.

3.   DIVESTITURES

     A. Railcar Ltd. Divestiture

     In  December  2002,  the  Progress  Energy  Board of  Directors  adopted  a
     resolution approving the sale of Railcar Ltd., a subsidiary included in the
     Rail Services segment. In March 2003, the Company signed a letter of intent
     to sell the majority of Railcar Ltd. assets to The Andersons,  Inc. and the
     transaction   closed  in  February  2004.   Proceeds  from  the  sale  were
     approximately   $82  million   before   transaction   costs  and  taxes  of
     approximately  $13  million.  The assets of Railcar  Ltd.  were  grouped as
     assets  held for sale and are  included  in  other  current  assets  on the
     Consolidated  Balance  Sheets at December 31, 2003 and March 31, 2004.  The
     assets were recorded at  approximately  $6 million and $75 million at March
     31, 2004 and December 31, 2003, respectively,  which reflects the Company's
     estimates of the fair value  expected to be realized from the sale of these
     assets less costs to sell. The primary component of assets held for sale at
     December 31, 2003 was property and equipment of $74 million.

                                       11
<PAGE>

     B. NCNG Divestiture

     In October 2002, the Company announced the Board of Directors'  approval to
     sell North Carolina Natural Gas Corporation (NCNG) and the Company's equity
     investment  in  Eastern  North  Carolina  Natural  Gas  Company  (ENCNG) to
     Piedmont  Natural Gas  Company,  Inc. On September  30,  2003,  the Company
     completed the sale. The 2003 net income of these  operations is reported as
     discontinued  operations in the Consolidated Statements of Income. Interest
     expense of $4 million  for the three  months  ended March 31, 2003 has been
     allocated  to  discontinued  operations  based on the net  assets  of NCNG,
     assuming a uniform  debt-to-equity  ratio across the Company's  operations.
     Results of discontinued operations were as follows:

     (in millions)                                       First Quarter
                                                             2003
                                                        ----------------
     Revenues                                                   $ 154
                                                        ================

     Earnings before income taxes                               $  18
     Income tax expense                                             7
                                                        ----------------
     Net earnings from discontinued operations                  $  11
                                                        ================

4.   REGULATORY MATTERS

     A. Retail Rate Matters

     PEC has  exclusively  utilized  external  funding  for its  decommissioning
     liability since 1994.  Prior to 1994, PEC retained its funds  internally to
     meet its decommissioning liability. The North Carolina Utilities Commission
     (NCUC) order issued in February 2004 found that by January 1, 2008 PEC must
     begin transitioning these amounts to external funds. The transition of $131
     million must be  completed  by December 31, 2017,  and at least 10% must be
     transitioned each year.

     PEC filed with the Public  Service  Commission  of South  Carolina  (SCPSC)
     seeking  permission to defer expenses  incurred from the first quarter 2004
     winter  storm.  The SCPSC  approved  PEC's  request  to defer the costs and
     amortize them over five years beginning in January 2005.  Approximately $10
     million related to storm costs incurred during the quarter was deferred.

     During  the first  quarter of 2004,  PEC filed  with the NCUC and  obtained
     approval from the SCPSC for a depreciation  study which allowed the utility
     to reduce the rates used to calculate  depreciation  expense.  As a result,
     depreciation  expense  decreased  $7  million  compared  to the prior  year
     quarter.

     On April 29,  2004,  PEF,  the  Office of Public  Counsel  and the  Florida
     Industrial  Power Users Group executed a Stipulation  and Settlement  that,
     upon approval by the Florida Public Service Commission (FPSC), will resolve
     the issue currently pending before the FPSC regarding the costs PEF will be
     allowed to  recover  through  its Fuel and  Purchased  Power Cost  Recovery
     clause in 2004 and beyond for waterborne  coal  deliveries by the Company's
     affiliated coal supplier,  Progress Fuels Corporation.  The settlement sets
     fixed per ton  prices  based on point of  origin  for all  waterborne  coal
     deliveries in 2004, and establishes a market-based  pricing methodology for
     determining  recoverable  waterborne  coal  transportation  costs through a
     competitive  solicitation process or market price proxies beginning in 2005
     and thereafter.  The settlement will reduce the amount that PEF will charge
     to the Fuel  and  Purchased  Power  Cost  Recovery  clause  for  waterborne
     transportation  by  approximately  $13 million  beginning in 2004.  Also on
     April  29,  2004,  the  parties  filed a joint  request  with  the FPSC for
     approval of the Stipulation  and Settlement,  which the FPSC is expected to
     act  upon  prior  to  the  commencement  of a  hearing  on  the  waterborne
     transportation issues scheduled for June 10, 2004.

     B. Regional Transmission Organizations

     In 2000, the Federal Energy Regulatory  Commission (FERC) issued Order 2000
     regarding  regional  transmission  organizations  (RTOs).  This  Order  set
     minimum  characteristics  and  functions  that  RTOs must  meet,  including
     independent  transmission service. In July 2002, the FERC issued its Notice
     of  Proposed  Rulemaking  in  Docket  No.   RM01-12-000,   Remedying  Undue
     Discrimination  through  Open  Access  Transmission  Service  and  Standard
     Electricity Market Design (SMD NOPR). If adopted as proposed, the rules set

                                       12

<PAGE>

     forth  in  the  SMD  NOPR  would  materially  alter  the  manner  in  which
     transmission  and  generation  services are provided and paid for. In April
     2003, the FERC released a White Paper on the Wholesale Market Platform. The
     White Paper  provides an  overview  of what the FERC  currently  intends to
     include in a final rule in the SMD NOPR docket. The White Paper retains the
     fundamental  and most protested  aspects of SMD NOPR,  including  mandatory
     RTOs and the FERC's  assertion  of  jurisdiction  over  certain  aspects of
     retail  service.  The FERC has not yet issued a final rule on SMD NOPR. The
     Company cannot predict the outcome of these matters or the effect that they
     may have on the GridSouth and  GridFlorida  proceedings  currently  ongoing
     before the FERC. It is unknown what impact the future proceedings will have
     on the Company's earnings, revenues or prices.

     The Company  has  recorded  $33  million and $4 million  related to startup
     costs for GridSouth and GridFlorida,  respectively,  at March 31, 2004. The
     Company  expects to recover  these startup  costs in  conjunction  with the
     GridSouth and GridFlorida  original  structures or in conjunction  with any
     alternate combined transmission structures that emerge.

5.   GOODWILL AND OTHER INTANGIBLE ASSETS

     The Company  performed the annual  goodwill  impairment  test in accordance
     with SFAS No. 142,  "Goodwill  and Other  Intangible  Assets,"  for the CCO
     segment in the first quarter of 2004,  and the annual  goodwill  impairment
     test for the PEC Electric  and PEF segments in the second  quarter of 2003,
     which  indicated no impairment.  The first annual  impairment  test for the
     Other segment will be performed in the fourth quarter 2004.

     The changes in the carrying  amount of goodwill for the periods ended March
     31, 2004 and December 31, 2003, by reportable segment, are as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     (in millions)                               PEC Electric       PEF        CCO         Other      Total
                                               ---------------------------------------------------------------
     Balance as of January 1, 2003                    $ 1,922    $ 1,733        $ 64          $ -   $ 3,719
     Acquisitions                                           -          -           -            7         7
                                               ---------------------------------------------------------------
     Balance as of December 31, 2003                  $ 1,922    $ 1,733        $ 64          $ 7   $ 3,726
     Purchase price adjustment                              -          -           -            3         3
                                               ---------------------------------------------------------------
     Balance as of March 31, 2004                     $ 1,922    $ 1,733        $ 64          $10   $ 3,729
                                               ===============================================================
</TABLE>

     The gross carrying  amount and  accumulated  amortization  of the Company's
     intangible assets at March 31, 2004 and December 31, 2003, are as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                              March 31, 2004                       December 31, 2003
                                    ------------------------------------   ---------------------------------
     (in millions)                         Gross                                Gross
                                         Carrying       Accumulated            Carrying       Accumulated
                                          Amount        Amortization            Amount       Amortization
                                      ---------------------------------    ---------------------------------
     Synthetic fuel intangibles          $ 140             $ (69)                $ 140          $ (64)
     Power agreements acquired             221               (24)                  221            (20)
     Other                                  63               (12)                   62            (12)
                                      ---------------------------------    ---------------------------------
     Total                               $ 424             $(105)                $ 423          $ (96)
                                      =================================    =================================
</TABLE>


                                       13
<PAGE>

     All of the Company's  intangibles  are subject to  amortization.  Synthetic
     fuel intangibles represent intangibles for synthetic fuel technology. These
     intangibles  are  being  amortized  on  a  straight-line  basis  until  the
     expiration  of tax credits  under  Section 29 of the Internal  Revenue Code
     (Section 29) in December 2007. The intangibles  related to power agreements
     acquired  are  being  amortized  based  on  the  economic  benefits  of the
     contracts.  Other intangibles are primarily acquired customer contracts and
     permits that are amortized over their respective lives.

     Amortization  expense  recorded on  intangible  assets for the three months
     ended March 31, 2004 and 2003, was $9 million and $7 million, respectively.
     The estimated annual  amortization  expense for intangible  assets for 2004
     through 2008,  in millions,  is  approximately  $42, $35, $36, $36 and $17,
     respectively.

6.   EQUITY

     A. Earnings Per Common Share

     A  reconciliation   of  the   weighted-average   number  of  common  shares
     outstanding  for basic and  dilutive  earnings  per  share  purposes  is as
     follows:

     (in millions)                                Three Months Ended March 31,
                                                  ----------------------------
                                                      2004             2003
                                                  -----------        ---------
     Weighted-average common shares - basic               241             233
     Restricted stock awards                                1               1
                                                  -----------        ---------
     Weighted-average shares - fully dilutive             242             234
                                                  -----------        ---------

     B. Comprehensive Income

     Comprehensive income for the three months ended March 31, 2004 and 2003 was
     $97 million and $219 million, respectively.  Changes in other comprehensive
     income for the periods consisted  primarily of changes in the fair value of
     derivatives  used to hedge cash flows related to interest on long-term debt
     and gas sales.

7.   FINANCING ACTIVITIES

     On March 1, 2004, Progress Energy used available cash and proceeds from the
     issuance of commercial  paper to retire $500 million 6.55% senior unsecured
     notes.  Cash and commercial  paper capacity was created  primarily from the
     sale of assets in 2003.

     On January  15,  2004,  PEC paid at  maturity  $150  million  5.875%  First
     Mortgage Bonds with commercial paper proceeds.  On April 15, 2004, PEC also
     paid at maturity $150 million 7.875% First  Mortgage Bonds with  commercial
     paper proceeds and internally-generated funds.

     On  March  31,  2004,  PEC  announced  the  redemption  of $35  million  of
     Darlington  County 6.6% Series Pollution Control Bonds at 102.5% of par, $2
     million of New Hanover  County  6.30%  Series  Pollution  Control  Bonds at
     101.5% of par,  and $3 million of Chatham  County  6.30%  Series  Pollution
     Control  Bonds at 101.5% of par.  All three  series were fully  redeemed on
     April 30, 2004.

     On February 9, 2004,  Progress Capital Holdings,  Inc. paid at maturity $25
     million 6.48% medium term notes with excess cash.

     For the three months ended March 31, 2004, the Company issued approximately
     0.7 million  shares of its common  stock for  approximately  $29 million in
     proceeds  from its  Investor  Plus  Stock  Purchase  Plan and its  employee
     benefit plans.

8.   BENEFIT PLANS

     The Company and some of its subsidiaries  have a  non-contributory  defined
     benefit   retirement   (pension)  plan  for   substantially  all  full-time
     employees. The Company also has supplementary defined benefit pension plans
     that provide  benefits to  higher-level  employees.  In addition to pension

                                       14
<PAGE>

     benefits,  the Company and some of its  subsidiaries  provide  contributory
     other  postretirement  benefits (OPEB),  including  certain health care and
     life insurance benefits, for retired employees who meet specified criteria.
     The components of the net periodic  benefit cost for the three months ended
     March 31 are:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                            Other Postretirement
                                                      Pension Benefits            Benefits
                                                   --------------------    ---------------------
     (in millions)                                    2004        2003         2004      2003
                                                   --------------------    ---------------------
     Service cost                                  $      13 $      13      $      4  $       3
     Interest cost                                        28        27             8          8
     Expected return on plan assets                      (37)      (36)           (1)        (1)
     Amortization of actuarial (gain) loss                 5         5             1          1
     Other amortization, net                               -         -             1          1
                                                   --------------------    ---------------------
     Net periodic cost                             $       9 $       9      $     13  $      12
     Additional cost / (benefit) recognition (a)          (4)       (4)            1          1
                                                   --------------------    ---------------------
     Net periodic cost / (benefit) recognized      $       5 $       5      $     14  $      13
                                                   ====================    =====================
     (a) Relates to the  acquisition  of FPC. See Note 16B of Progress  Energy's
         Form 10-K for year ended December 31, 2003.
</TABLE>

     In  December  2003,  the  Medicare   Prescription  Drug,   Improvement  and
     Modernization Act of 2003 (the Act) was signed into law. In accordance with
     guidance  issued by the FASB in FASB Staff Position FAS 106-1,  the Company
     has  elected  to  defer  accounting  for  the  effects  of the  Act  due to
     uncertainties  regarding the effects of the  implementation  of the Act and
     the  accounting  for  certain  provisions  of  the  Act.  Therefore,   OPEB
     information  presented  in the  financial  statements  does not reflect the
     effects of the Act.  When  specific  authoritative  accounting  guidance is
     issued,  it could  require  plan  sponsors  to change  previously  reported
     information.  The Company is in the early stages of  reviewing  the Act and
     determining its potential effects on the Company.

9.   RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS

     Progress Energy and its  subsidiaries  are exposed to various risks related
     to  changes  in  market  conditions.  The  Company  has a  risk  management
     committee that includes senior executives from various business groups. The
     risk management  committee is responsible for administering risk management
     policies and monitoring compliance with those policies by all subsidiaries.

     Under  its  risk  management  policy,  the  Company  may use a  variety  of
     instruments,  including  swaps,  options and forward  contracts,  to manage
     exposure to  fluctuations  in  commodity  prices and interest  rates.  Such
     instruments  contain credit risk if the counterparty fails to perform under
     the contract.  The Company minimizes such risk by performing credit reviews
     using,  among  other  things,  publicly  available  credit  ratings of such
     counterparties.  Potential nonperformance by counterparties is not expected
     to  have a  material  effect  on the  consolidated  financial  position  or
     consolidated results of operations of the Company.

     Progress  Energy uses interest rate  derivative  instruments  to adjust the
     fixed and variable rate debt  components of its debt portfolio and to hedge
     interest  rates with regard to future fixed rate debt  issuances.  In March
     2004,  two  interest  rate  swap  agreements  totaling  $200  million  were
     terminated.  These swaps were  associated  with Progress Energy 5.85% Notes
     due in 2008. The loss on the agreements was deferred and is being amortized
     over the life of the bonds as these  agreements had been designated as fair
     value hedges for accounting purposes.

     As of March 31, 2004,  Progress  Energy had $650 million of fixed rate debt
     swapped  to  floating  rate  debt by  executing  interest  rate  derivative
     agreements. Under terms of these swap rate agreements, Progress Energy will
     receive a fixed rate and pay a floating rate based on 3-month LIBOR.  These
     agreements expire in March 2006 and April 2007.

     In March 2004,  PEC entered  into a forward  swap to hedge its  exposure to
     interest  rates with  regard to a future  issuance  of  approximately  $300
     million of debt. This agreement has a computational period of ten years.

     In April  2004,  PEC  entered  into a cash flow hedge to hedge the  payment
     stream associated with an upcoming lease.

                                       15
<PAGE>

     The Company holds interest rate collars with a varying  notional amount and
     maximum of $195 million to hedge  floating  rate exposure  associated  with
     variable rate  long-term  debt. The Company is required to hedge 50% of the
     amount outstanding under its bank facility through March 2007.

     The  Company  also  holds  interest  rate  cash flow  hedges,  with a total
     notional amount of $400 million,  related to projected outstanding balances
     of commercial paper.

     The notional  amounts of interest rate derivatives are not exchanged and do
     not  represent  exposure  to  credit  loss.  In the event of  default  by a
     counterparty,  the risk in the  transaction  is the cost of  replacing  the
     agreements  at current  market  rates.  Progress  Energy  only  enters into
     interest  rate  derivative  agreements  with banks with  credit  ratings of
     single A or better.

     Progress  Fuels  Corporation,   through  Progress  Ventures,   Inc.  (PVI),
     periodically  enters into  derivative  instruments to hedge its exposure to
     price  fluctuations  on natural gas sales.  As of March 31, 2004,  Progress
     Fuels  Corporation  is hedging  exposures to the price  variability  of its
     natural gas production  through  December 2005.  These  instruments did not
     have a material impact on the Company's  consolidated financial position or
     results of operations.

     Nonhedging  derivatives,  primarily  electricity and natural gas contracts,
     are entered into for trading  purposes and for economic  hedging  purposes.
     While  management  believes  the  economic  hedges  mitigate  exposures  to
     fluctuations in commodity  prices,  these instruments are not designated as
     hedges for accounting  purposes and are monitored  consistent  with trading
     positions.

     The  Company  recorded  mark-to-market  losses of $9  million  in the first
     quarter of 2004 related to an agreement to provide energy needed to fulfill
     a contract obligation.

10.  FINANCIAL INFORMATION BY BUSINESS SEGMENT

     The Company  currently  provides  services  through the following  business
     segments: PEC Electric, PEF, Fuels, CCO, Rail Services and Other.

     PEC Electric and PEF are primarily engaged in the generation, transmission,
     distribution  and sale of electric  energy in  portions of North  Carolina,
     South Carolina and Florida.  These  electric  operations are subject to the
     rules and  regulations of the FERC,  the NCUC, the SCPSC,  the FPSC and the
     United  States  Nuclear   Regulatory   Commission  (NRC).   These  electric
     operations  also  distribute  and  sell  electricity  to  other  utilities,
     primarily on the east coast of the United States.

     Fuels'  operations,  which are located  throughout the United  States,  are
     involved in natural gas drilling and  production,  coal terminal  services,
     coal mining, synthetic fuel production, fuel transportation and delivery.

     CCO's  operations,  which are located in the  southeastern  United  States,
     include   nonregulated   electric   generation   operations  and  marketing
     activities.

     Rail Services' operations include railcar repair, rail parts reconditioning
     and sales, and scrap metal recycling.  These activities include maintenance
     and reconditioning of salvageable scrap components of railcars,  locomotive
     repair and right-of-way maintenance.  Rail Services' operations are located
     in the United States, Canada and Mexico.

     The Other segment,  whose operations are in the United States,  is composed
     of other  nonregulated  business  areas  including  telecommunications  and
     energy service operations and other  nonregulated  subsidiaries that do not
     separately meet the disclosure  requirements of SFAS No. 131,  "Disclosures
     about Segments of an Enterprise and Related Information."

     In addition to these reportable  operating segments,  the Company has other
     corporate  activities  that include  holding  company  operations,  service
     company  operations and eliminations.  The profit or loss of the identified
     segments plus the loss of Corporate  represents the Company's  total income
     from continuing operations before cumulative effect of change in accounting
     principle.

                                       16
<PAGE>
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                   Revenues
                                -----------------------------------------------
                                                                                     Income from
                                                                                      Continuing
     (in millions)              Unaffiliated      Intersegment        Total           Operations           Assets
                                -------------     -------------    ------------     ---------------     -------------
     FOR THE THREE MONTHS
     ENDED MARCH 31, 2004
     PEC Electric                   $   901            $    -         $   901               $ 116          $ 10,669
     PEF                                784                 -             784                  49             7,284
     Fuels                              255                82             337                  48             1,164
     CCO                                 33                 -              33                  (8)            1,764
     Rail Services                      240                 -             240                   6               543
     Other                               21                 1              22                  (2)              320
     Corporate                            -               (83)            (83)               (101)            4,139
                                -------------     -------------    ------------     ---------------     -------------
     Consolidated totals            $ 2,234            $    -         $ 2,234               $ 108          $ 25,883
                                -------------     -------------    ------------     ---------------     -------------

     FOR THE THREE MONTHS
     ENDED MARCH 31, 2003
     PEC Electric                   $   926            $    -         $   926               $ 135
     PEF                                728                 -             728                  71
     Fuels                              304                82             386                  38
     CCO                                 37                 -              37                   9
     Rail Services                      178                 -             178                  (3)
     Other                               14                 4              18                   -
     Corporate                            -               (86)            (86)                (43)
                                -------------     -------------    ------------     ---------------
     Consolidated totals            $ 2,187            $    -         $ 2,187               $ 207
                                -------------     -------------    ------------     ---------------
</TABLE>

11.  OTHER INCOME AND OTHER EXPENSE

     Other  income and expense  includes  interest  income and other  income and
     expense items as discussed  below. The components of other, net as shown on
     the accompanying Consolidated Statements of Income are as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                  Three Months Ended
                                                                       March 31,
                                                             -----------------------------
     (in millions)                                                2004            2003
                                                             --------------    -----------
     Other income
     Net financial trading gain                                       $   1         $    -
     Net energy brokered for resale                                       -             (2)
     Nonregulated energy and delivery services income                     6              5
     Contingent value obligation unrealized gain                          -              2
     Income from equity investments                                       2              -
     AFUDC equity                                                         2              2
     Other                                                                2              3
                                                             --------------    -----------
         Total other income                                          $   13         $   10
                                                             --------------    -----------

     Other expense
     Nonregulated energy and delivery services expenses              $    4         $    4
     Donations                                                            8              3
     Investment losses                                                    4              4
     Contingent value obligations unrealized loss                         7              -
     Write-off of non-trade receivable                                    7              -
     Other                                                                8              5
                                                             --------------    -----------
        Total other expense                                          $   38         $   16
                                                             --------------    -----------

     Other, net                                                      $  (25)        $   (6)
                                                             ==============    ===========
</TABLE>

     Net financial trading gains and losses represent non-asset-backed trades of
     electricity and gas. Net energy brokered for resale represents  electricity
     purchased for simultaneous sale to a third party.  Nonregulated  energy and
     delivery  services  include  power  protection   services  and  mass-market
     programs such as surge protection, appliance services and area light sales,
     and delivery, transmission and substation work for other utilities.

                                       17
<PAGE>

12.  COMMITMENTS AND CONTINGENCIES

     Contingencies and significant changes to the commitments  discussed in Note
     21 of the Company's 2003 Annual Report on Form 10-K are described below.

     A. Guarantees

     As a part of normal  business,  Progress  Energy and  certain  subsidiaries
     enter into various agreements providing financial or performance assurances
     to third parties.  Such agreements include  guarantees,  standby letters of
     credit and surety bonds.  These  agreements  are entered into  primarily to
     support  or  enhance   the   creditworthiness   otherwise   attributed   to
     subsidiaries on a stand-alone basis,  thereby facilitating the extension of
     sufficient  credit to  accomplish  the  subsidiaries'  intended  commercial
     purposes.  At March 31, 2004,  management  does not believe  conditions are
     likely for  significant  performance  under the  guarantees of  performance
     issued by or on behalf of affiliates discussed herein.

     Guarantees  at March  31,  2004,  are  summarized  in the  table  below and
     discussed more fully in the subsequent paragraphs.
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

      (in millions)
     Guarantees issued on behalf of affiliates
          Guarantees supporting nonregulated portfolio and energy marketing
               activities issued by Progress Energy                              $      383
          Guarantees supporting nuclear decommissioning                                 276
          Guarantee supporting power supply agreements                                  307
          Standby letters of credit                                                      11
          Surety bonds                                                                  115
          Other guarantees                                                                1
     Guarantees issued on behalf of third parties
          Other guarantees                                                               10
                                                                                -----------
        Total                                                                    $    1,103
                                                                                ===========
</TABLE>

     Guarantees   Supporting   Nonregulated   Portfolio  and  Energy   Marketing
     Activities

     Progress  Energy has issued  approximately  $383 million of  guarantees  on
     behalf of Progress  Ventures (the business unit) and its  subsidiaries  for
     obligations  under  tolling  agreements,   transmission   agreements,   gas
     agreements,   construction  agreements,  fuel  procurement  agreements  and
     trading  operations.  Approximately  $38 million of these  guarantees  were
     issued   during  the  first   quarter   of  2004  to   support   Fuels  and
     energy-marketing  activities.  The  majority  of  the  marketing  contracts
     supported by the guarantees  contain language  regarding  downgrade events,
     ratings  triggers,  monthly  netting of exposure and/or payments and offset
     provisions in the event of a default. Based upon current business levels at
     March 31, 2004, if the Company's  ratings were to decline below  investment
     grade,  the Company  estimates  that it may have to deposit cash or provide
     letters of credit or other cash  collateral of  approximately  $115 million
     for  the  benefit  of  the  Company's  counterparties  to  support  ongoing
     operations within a 90-day period.

     Guarantees Supporting Nuclear Decommissioning

     In 2003, PEC determined that its external funding levels did not fully meet
     the nuclear decommissioning financial assurance levels required by the NRC.
     Therefore,  PEC met  the  financial  assurance  requirements  by  obtaining
     guarantees from Progress Energy in the amount of $276 million.

     Guarantees Supporting Power Supply Agreements

     In March 2003, PVI entered into a definitive agreement with Williams Energy
     Marketing  and Trading,  a subsidiary of The Williams  Companies,  Inc., to
     acquire a  long-term  full-requirements  power  supply  agreement  at fixed
     prices  with  Jackson  County EMC  (Jackson).  The power  supply  agreement
     included a performance guarantee by Progress Energy. The transaction closed
     during  the  second  quarter  of 2003.  The  Company  issued a payment  and
     performance  guarantee to Jackson related to the power supply  agreement of

                                       18
<PAGE>

     $280 million. In the event that Progress Energy's credit ratings fall below
     investment  grade,  Progress  Energy may be required to provide  additional
     security for this guarantee in form and amount (not to exceed $280 million)
     acceptable to Jackson.  During the third quarter of 2003,  PVI entered into
     an agreement with Morgan  Stanley  Capital Group Inc.  (Morgan  Stanley) to
     fulfill  Morgan  Stanley's  obligations  to schedule  resources  and supply
     energy to Oglethorpe  Power  Corporation of Georgia through March 31, 2005.
     The Company  issued a payment and  performance  guarantee to Morgan Stanley
     related to the power supply agreement.  In the event that Progress Energy's
     credit ratings fall below investment grade,  Progress Energy estimates that
     it may have to  deposit  cash or  provide  letters  of credit or other cash
     collateral of  approximately  $27 million for the benefit of Morgan Stanley
     at March 31, 2004.

     Standby Letters of Credit

     The  Company  has  issued  $11  million  of  standby  letters  of credit to
     financial  institutions for the benefit of third parties that have extended
     credit to the  Company and certain  subsidiaries.  These  letters of credit
     have been issued primarily for the purpose of supporting  payments of trade
     payables,  securing  performance  under contracts and lease obligations and
     self-insurance  for workers'  compensation.  If a  subsidiary  does not pay
     amounts when due under a covered contract, the counterparty may present its
     claim for payment to the financial institution,  which will in turn request
     payment from the Company.  Any amounts owed by the  Company's  subsidiaries
     are reflected in the accompanying Consolidated Balance Sheets.

     Surety Bonds

     At March 31, 2004,  the Company had $115 million in surety bonds  purchased
     primarily for purposes such as providing  workers'  compensation  coverage,
     obtaining licenses, permits,  rights-of-way and project performance. To the
     extent  liabilities  are incurred as a result of the activities  covered by
     the  surety  bonds,  such  liabilities  are  included  in the  accompanying
     Consolidated Balance Sheets.

     Other Guarantees

     The Company has other guarantees  outstanding of approximately $11 million.
     Included in the $11 million are $10 million of guarantees  issued on behalf
     of third  parties  which is in support of synthetic  fuel  operations  at a
     third-party  plant.  The  remaining $1 million in affiliate  guarantees  is
     related primarily to prompt performance payments and other payments subject
     to contingencies.

     B. Insurance

     Both  PEC  and PEF are  insured  against  public  liability  for a  nuclear
     incident up to $10,760 million per occurrence. Under the current provisions
     of the Price Anderson Act, which limits  liability for accidents at nuclear
     power plants, each company, as an owner of nuclear units, can be assessed a
     portion of any third-party liability claims arising from an accident at any
     commercial  nuclear  power  plant in the United  States.  In the event that
     public  liability  claims  from an insured  nuclear  incident  exceed  $300
     million  (currently  available through commercial  insurers),  each company
     would be subject to  assessments  of up to $101  million  for each  reactor
     owned per occurrence.  Payment of such assessments  would be made over time
     as  necessary  to limit  the  payment  in any one year to no more  than $10
     million per reactor owned. Congress is expected to approve revisions to the
     Price  Anderson  Act during 2004 that could  include  increased  limits and
     assessments  per reactor owned.  The final outcome of this matter cannot be
     predicted at this time.

     C. Claims and Uncertainties

     The Company is subject to federal,  state and local regulations  addressing
     hazardous  and solid  waste  management,  air and water  quality  and other
     environmental matters.

                                       19
<PAGE>

Hazardous and Solid Waste Management

     Various  organic  materials  associated with the production of manufactured
     gas,  generally  referred to as coal tar, are  regulated  under federal and
     state laws.  The  principal  regulatory  agency that is  responsible  for a
     specific former  manufactured gas plant (MGP) site depends largely upon the
     state in which  the site is  located.  Both  electric  utilities  and other
     potentially  responsible parties (PRPs) are participating in, investigating
     and, if  necessary,  remediating  former MGP sites with several  regulatory
     agencies,  including, but not limited to, the U.S. Environmental Protection
     Agency (EPA), the Florida Department of Environmental Protection (FDEP) and
     the  North  Carolina  Department  of  Environment  and  Natural  Resources,
     Division  of Waste  Management  (DWM).  In  addition,  the  Company and its
     subsidiaries  are  periodically  notified by regulators such as the EPA and
     various state  agencies of their  involvement  or potential  involvement in
     sites,  other  than  MGP  sites,  that  may  require  investigation  and/or
     remediation. A discussion of these sites by legal entity follows.

     PEC,  PEF and  Progress  Fuels  Corporation  have  filed  claims  with  the
     Company's general liability insurance carriers to recover costs arising out
     of actual or  potential  environmental  liabilities.  Some claims have been
     settled and others are still pending.  While the Company cannot predict the
     outcome of these  matters,  the outcome is not  expected to have a material
     effect on the consolidated financial position or results of operations.

     The Company is also currently in the process of assessing  potential  costs
     and exposures at other  environmentally  impaired sites. As the assessments
     are developed and analyzed,  the Company will accrue costs for the sites to
     the extent the costs are probable and can be reasonably estimated.

     PEC There are nine  former MGP sites and other  sites  associated  with PEC
     that have  required  or are  anticipated  to require  investigation  and/or
     remediation  costs.  PEC  received  insurance  proceeds  to  address  costs
     associated with environmental  liabilities  related to its involvement with
     some sites.  All eligible  expenses  related to these are charged against a
     specific fund containing these proceeds.  At March 31, 2004,  approximately
     $8 million  remains in this  centralized  fund with a related accrual of $8
     million recorded for the associated  expenses of environmental  issues. PEC
     does not believe that it can provide an estimate of the reasonably possible
     total  remediation  costs beyond what is currently  accrued due to the fact
     that  investigations have not been completed at all sites. This accrual has
     been  recorded on an  undiscounted  basis.  PEC measures its  liability for
     these  sites  based on  available  evidence  including  its  experience  in
     investigating and remediating  environmentally  impaired sites. The process
     often involves  assessing and  developing  cost-sharing  arrangements  with
     other PRPs. PEC will accrue costs for the sites to the extent its liability
     is  probable  and the costs can be  reasonably  estimated.  Presently,  PEC
     cannot  determine the total costs that may be incurred in  connection  with
     the remediation of all sites.

     In September  2003, the Company sold NCNG to Piedmont  Natural Gas Company,
     Inc. As part of the sales agreement, the Company retained responsibility to
     remediate five former NCNG MGP sites, all of which also are associated with
     PEC, to state  standards  pursuant to an  Administrative  Order on Consent.
     These sites are  anticipated to have  investigation  or  remediation  costs
     associated with them. NCNG had previously accrued  approximately $2 million
     for probable and  reasonably  estimable  remediation  costs at these sites.
     These accruals have been recorded on an undiscounted  basis. At the time of
     the sale,  the  liability  for  these  costs and the  related  accrual  was
     transferred  to PEC. PEC does not believe it can provide an estimate of the
     reasonably  possible  total  remediation  costs beyond the accrual  because
     investigations have not been completed at all sites. Therefore,  PEC cannot
     currently determine the total costs that may be incurred in connection with
     the investigation and/or remediation of all sites.

     PEF At March 31,  2004,  PEF has  accrued  $20  million  for  probable  and
     estimable  costs related to various  environmental  sites. Of this accrual,
     $10 million is for costs  associated  with the  remediation of distribution
     transformers  which are more  fully  discussed  below.  The  remaining  $10
     million is related to two former MGP sites and other sites  associated with
     PEF that have required or are anticipated to require  investigation  and/or
     remediation  costs. PEF does not believe that it can provide an estimate of
     the reasonably  possible total  remediation  costs beyond what is currently
     accrued.

     In 2002,  PEF  accrued  approximately  $3  million  for  investigation  and
     remediation associated with distribution transformers and received approval
     from the FPSC for annual recovery of these  environmental costs through the
     Environmental Cost Recovery Clause (ECRC). By December 2003, PEF accrued an
     additional  $9  million  for  similar  environmental  costs as a result  of
     increased  sites and estimated  costs per site.  PEF has received  approval
     from the FPSC to recover  these costs  through the ECRC.  As more  activity
     occurs at these sites, PEF will assess the need to adjust the accruals.

                                       20
<PAGE>

     In addition, PEF received insurance proceeds of approximately $3 million to
     address costs  associated  with  environmental  liabilities  related to its
     involvement with some MGP and other sites. All eligible expenses related to
     these sites are included in the amount accrued above and charged  against a
     fund containing these proceeds.

     These accruals have been recorded on an  undiscounted  basis.  PEF measures
     its  liability  for these sites based on available  evidence  including its
     experience in investigating and remediating environmentally impaired sites.
     This  process  often  includes   assessing  and   developing   cost-sharing
     arrangements  with other PRPs.  Presently,  PEF cannot  determine the total
     costs that may be incurred in connection with the remediation of all sites.

     Florida   Progress   Corporation  In  2001,  FPC  sold  its  Inland  Marine
     Transportation   business  operated  by  MEMCO  Barge  Line,  Inc.  to  AEP
     Resources,  Inc.  FPC  established  an accrual to address  indemnities  and
     retained an environmental  liability  associated with the transaction.  FPC
     estimates that its contractual liability to AEP Resources, Inc., associated
     with Inland Marine Transportation,  is $4 million at March 31, 2004 and has
     accrued  such amount.  The  previous  accrual of $10 million was reduced in
     2003 based on a change in estimate.  This accrual has been determined on an
     undiscounted  basis.  FPC  measures  its  liability  for this site based on
     estimable and probable remediation scenarios.  The Company believes that it
     is not reasonably probable that additional costs, which cannot be currently
     estimated,  will be incurred related to the  environmental  indemnification
     provision beyond the amount accrued. The Company cannot predict the outcome
     of this matter.

     Certain historical sites exist that are being addressed voluntarily by FPC.
     An  immaterial  accrual  has  been  established  to  address  investigation
     expenses  related to these sites.  The Company  cannot  determine the total
     costs that may be incurred in connection with these sites.

     Rail Services is voluntarily addressing certain historical waste sites. The
     Company cannot determine the total costs that may be incurred in connection
     with these sites.

     Air Quality

     There has been and may be further proposed legislation requiring reductions
     in air emissions for NOx, SO2,  carbon  dioxide and mercury.  Some of these
     proposals  establish  nationwide  caps and emission  rates over an extended
     period of time.  This  national  multi-pollutant  approach to air pollution
     control could involve  significant capital costs which could be material to
     the Company's  consolidated  financial  position or results of  operations.
     Control   equipment  that  will  be  installed  on  North  Carolina  fossil
     generating  facilities as part of the North Carolina legislation  discussed
     below may address some of the issues outlined above.  However,  the Company
     cannot predict the outcome of this matter.

     The EPA is  conducting  an  enforcement  initiative  related to a number of
     coal-fired   utility  power  plants  in  an  effort  to  determine  whether
     modifications  at  those  facilities  were  subject  to New  Source  Review
     requirements or New Source  Performance  Standards under the Clean Air Act.
     Both PEC and PEF were  asked to provide  information  to the EPA as part of
     this initiative and cooperated in providing the requested information.  The
     EPA  initiated  civil  enforcement   actions  against  other   unaffiliated
     utilities as part of this  initiative.  Some of these  actions  resulted in
     settlement  agreements  calling  for  expenditures  by  these  unaffiliated
     utilities,  ranging from $1.0 billion to $1.4  billion.  A utility that was
     not subject to a civil  enforcement  action  settled its New Source  Review
     issues with the EPA for $300  million.  These  settlement  agreements  have
     generally  called for  expenditures  to be made over extended time periods,
     and some of the  companies  may seek  recovery of the related  cost through
     rate  adjustments  or similar  mechanisms.  The Company  cannot predict the
     outcome of this matter.

     In 2003,  the EPA  published  a final  rule  addressing  routine  equipment
     replacement  under the New Source Review program.  The rule defines routine
     equipment  replacement  and the types of activities that are not subject to
     New Source Review  requirements or New Source  Performance  Standards under
     the Clean Air Act. The rule was challenged in the Federal Appeals Court and
     its  implementation  stayed. The Company cannot predict the outcome of this
     matter.

     In 1998, the EPA published a final rule at Section 110 of the Clean Air Act
     addressing the regional  transport of ozone (NOx SIP Call).  The EPA's rule
     requires 23  jurisdictions,  including North  Carolina,  South Carolina and
     Georgia,  but not  Florida,  to further  reduce NOx  emissions  in order to
     attain a preset emission level during each year's "ozone season," beginning
     May 31, 2004. PEC is currently installing controls necessary to comply with
     the rule and  expects to be in  compliance  as  required by the final rule.
     Total  capital  expenditures  to meet  these  measures  in North  and South

                                       21
<PAGE>

     Carolina  could  reach  approximately  $370  million,  which  has not  been
     adjusted for inflation. The Company has spent approximately $265 million to
     date related to these  expenditures.  Increased  operation and  maintenance
     costs  relating to the NOx SIP Call are not  expected to be material to the
     Company's  results of  operations.  Further  controls  are  anticipated  as
     electricity demand increases.

     In 1997, the EPA issued final  regulations  establishing a new 8-hour ozone
     standard.  In 1999, the District of Columbia Circuit Court of Appeals ruled
     against the EPA with regard to the federal 8-hour ozone standard.  The U.S.
     Supreme Court has upheld,  in part, the District of Columbia  Circuit Court
     of Appeals'  decision.  In April 2004, the EPA identified areas that do not
     meet the standard.  The states with identified  areas,  including North and
     South Carolina are proceeding with the implementation of the federal 8-hour
     ozone  standard.  Both states  promulgated  final  regulations,  which will
     require PEC to install NOx controls under the states' 8-hour standard.  The
     costs of those  controls are  included in the $370  million  cost  estimate
     above.  However,  further technical analysis and rulemaking may result in a
     requirement  for  additional  controls  at some units.  The Company  cannot
     predict the outcome of this matter.

     The EPA published a final rule approving petitions under Section 126 of the
     Clean Air Act.  This rule,  as  originally  promulgated,  required  certain
     sources to make  reductions in NOx emissions by May 1, 2003. The final rule
     also includes a set of  regulations  that affect NOx emissions from sources
     included  in  the  petitions.   The  North  Carolina   coal-fired  electric
     generating  plants are included in these petitions.  Acceptable state plans
     under the NOx SIP Call can be  approved  in lieu of the final rules the EPA
     approved  as part of the  Section 126  petitions.  In April  2002,  the EPA
     published a final rule  harmonizing  the dates for the Section 126 rule and
     the NOx SIP Call. The new compliance  date for all affected  sources is now
     May  31,  2004,  rather  than  May 1,  2003.  The EPA  has  approved  North
     Carolina's  NOx SIP Call rule and has indicated it will rescind the Section
     126 rule in a future rulemaking. The Company expects a favorable outcome of
     this matter.

     In June 2002,  legislation  was  enacted in North  Carolina  requiring  the
     state's  electric  utilities  to reduce the  emissions  of NOx and SO2 from
     coal-fired power plants.  Progress Energy expects its capital costs to meet
     these emission targets will be approximately  $813 million by 2013. PEC has
     expended approximately $32 million of these capital costs through March 31,
     2004.  PEC currently has  approximately  5,100 MW of coal-fired  generation
     capacity  in North  Carolina  that is  affected  by this  legislation.  The
     legislation  requires the emissions reductions to be completed in phases by
     2013,  and applies to each  utility's  total  system  rather  than  setting
     requirements for individual power plants.  The legislation also freezes the
     utilities' base rates for five years unless there are extraordinary  events
     beyond the control of the  utilities or unless the  utilities  persistently
     earn a return substantially in excess of the rate of return established and
     found  reasonable  by the NCUC in the  utilities'  last  general rate case.
     Further,  the legislation allows the utilities to recover from their retail
     customers the  projected  capital costs during the first seven years of the
     ten-year compliance period beginning on January 1, 2003. The utilities must
     recover at least 70% of their projected  capital costs during the five-year
     rate freeze  period.  PEC  recognized  amortization  of $15 million and $20
     million  in the  quarters  ended  March 31,  2004 and  2003,  respectively.
     Pursuant to the law, PEC entered into an agreement  with the state of North
     Carolina to transfer to the state certain NOx and SO2 emissions  allowances
     that result  from  compliance  with the  collective  NOx and SO2  emissions
     limitations  set out in the  law.  The  law  also  requires  the  state  to
     undertake  a study  of  mercury  and  carbon  dioxide  emissions  in  North
     Carolina.  Operation  and  maintenance  costs  will  increase  due  to  the
     additional personnel, materials and general maintenance associated with the
     equipment.  Operation and maintenance expenses are recoverable through base
     rates, rather than as part of this program.  Progress Energy cannot predict
     the future regulatory interpretation, implementation or impact of this law.

     In 2004,  a bill was  introduced  in the  Florida  legislature  that  would
     require significant  reductions in NOx, SO2 and particulate  emissions from
     certain coal, natural gas and oil-fired  generating units owned or operated
     by  investor-owned  electric  utilities,  including  PEF.  The  NOx and SO2
     reductions  would be effective  beginning  with  calendar year 2010 and the
     particulate  reductions  would be effective  beginning  with  calendar year
     2012. Under the proposed legislation, the FPSC would be authorized to allow
     the  utilities  to  recover  the  costs of  compliance  with  the  emission
     reductions  over a period not greater  than seven years  beginning in 2005,
     but the  utilities'  rates would be frozen at 2004 levels for at least five
     years of the maximum recovery  period.  The 2004 legislature took no action
     on this matter.

                                       22
<PAGE>

     In 1997,  the EPA's  Mercury  Study  Report and Utility  Report to Congress
     conveyed  that mercury is not a risk to the average  American and expressed
     uncertainty  about whether  reductions in mercury emissions from coal-fired
     power plants would reduce human exposure.  Nevertheless, the EPA determined
     in 2000 that regulation of mercury  emissions from coal-fired  power plants
     was appropriate.  In 2003, the EPA proposed  alternative control plans that
     would limit mercury  emissions from coal-fired  power plants.  The first, a
     Maximum Achievable  Control Technology (MACT) standard  applicable to every
     coal-fired plant,  would require  compliance in 2008. The second, a mercury
     cap and trade program,  would require limits to be met in two phases,  2010
     and 2018.  The  mercury  rule is  expected  to become  final in March 2005.
     Achieving  compliance with the proposal could involve  significant  capital
     costs  which  could be material  to the  Company's  consolidated  financial
     position or results of  operations.  The Company cannot predict the outcome
     of this matter.

     In  conjunction  with the proposed  mercury  rule,  the EPA proposed a MACT
     standard to regulate nickel  emissions from residual  oil-fired  units. The
     agency  estimates the proposal  will reduce  national  nickel  emissions to
     approximately 103 tons. The rule is expected to become final in March 2005.
     The Company cannot predict the outcome of this matter.

     In December 2003, the EPA released its proposed Interstate Air Quality Rule
     (commonly known as the Fine Particulate  Transport Rule and/or the Regional
     Transport Rule). The EPA's proposal  requires 28  jurisdictions,  including
     North Carolina, South Carolina,  Georgia and Florida, to further reduce NOx
     and SO2  emissions in order to attain  preset  state NOx and SO2  emissions
     levels (which have not yet been determined). The rule is expected to become
     final in 2004. The air quality  controls  already  installed for compliance
     with the NOx SIP Call and currently  planned by the Company for  compliance
     with the North Carolina  legislation will reduce the costs required to meet
     the requirements of the Interstate Air Quality Rule for the Company's North
     Carolina units.  Additional  compliance costs will be determined later this
     year once the rule is better defined.

     In March 2004,  the North Carolina  Attorney  General filed a petition with
     the EPA  under  Section  126 of the  Clean  Air  Act,  asking  the  federal
     government  to force  coal-fired  power  plants in thirteen  other  states,
     including  South Carolina to reduce their NOx and SO2 emissions.  The state
     of North Carolina  contends these  out-of-state  polluters are  interfering
     with North  Carolina's  ability to meet national air quality  standards for
     ozone and particulate  matter.  The EPA has not made a determination on the
     Section 126 petition,  and the Company  cannot  predict the outcome of this
     matter.

     Water Quality

     As a result of the operation of certain control equipment needed to address
     the air  quality  issues  outlined  above,  new  wastewater  streams may be
     generated at the applicable facilities. Integration of these new wastewater
     streams  into the existing  wastewater  treatment  processes  may result in
     permitting,  construction and treatment  challenges to PEC in the immediate
     and extended future.

     After  many  years  of  litigation  and  settlement  negotiations  the  EPA
     published  regulations in February 2004 for the  implementation  of Section
     316(b) of the Clean  Water  Act.  The  purpose of these  regulations  is to
     minimize  adverse  environmental  impacts  caused by cooling  water  intake
     structures  and  intake   systems.   Over  the  next  several  years  these
     regulations will impact the larger base load generation  facilities and may
     require the  facilities  to mitigate  the effects to aquatic  organisms  by
     constructing   intake   modifications  or  undertaking   other  restorative
     activities.  Substantial costs could be incurred by the facilities in order
     to comply with the new  regulation.  The Company cannot predict the outcome
     and impacts to the facilities at this time.

     The EPA has published for comment a draft  Environmental  Impact  Statement
     (EIS) for  surface  coal  mining  (sometimes  referred  to as  "mountaintop
     mining") and valley fills in the  Appalachian  coal region,  where Progress
     Fuels  currently  operates  a surface  mine and may  operate  others in the
     future.  The final EIS,  when  published,  may affect  regulations  for the
     permitting  of  mines  and  the  cost  of  compliance  with   environmental
     regulations. Regulatory changes for mining may also affect the cost of fuel
     for the coal-fueled  electric generating plants. The Company cannot predict
     the outcome of this matter.

                                       23
<PAGE>

     Other Environmental Matters

     The Kyoto  Protocol  was  adopted in 1997 by the United  Nations to address
     global  climate  change by reducing  emissions of carbon  dioxide and other
     greenhouse  gases.  The United  States has not adopted the Kyoto  Protocol;
     however,  a number of carbon dioxide  emissions control proposals have been
     advanced   in   Congress   and  by  the  Bush   administration.   The  Bush
     administration  favors  voluntary  programs.  Reductions in carbon  dioxide
     emissions  to  the  levels   specified  by  the  Kyoto  Protocol  and  some
     legislative   proposals  could  be  materially  adverse  to  the  Company's
     consolidated  financial  position or results of  operations  if  associated
     costs cannot be recovered from customers.  The Company favors the voluntary
     program  approach  recommended  by the  administration  and  is  evaluating
     options for the reduction, avoidance and sequestration of greenhouse gases.
     However, the Company cannot predict the outcome of this matter.

     Other Contingencies

     1. As required under the Nuclear Waste Policy Act of 1982, PEC and PEF each
     entered into a contract with the United  States  Department of Energy (DOE)
     under which the DOE agreed to begin taking  spent  nuclear fuel by no later
     than January 31, 1998.  All similarly  situated  utilities were required to
     sign the same standard contract.

     In  1995,  the DOE  issued a final  interpretation  that it did not have an
     unconditional obligation to take spent nuclear fuel by January 31, 1998. In
     Indiana Michigan Power v. DOE, the Court of Appeals vacated the DOE's final
     interpretation  and ruled that the DOE had an  unconditional  obligation to
     begin taking spent nuclear fuel. The Court did not specify a remedy because
     the DOE was not yet in default.

     After the DOE failed to comply with the decision in Indiana  Michigan Power
     v. DOE, a group of  utilities  petitioned  the Court of Appeals in Northern
     States  Power  (NSP) v. DOE,  seeking an order  requiring  the DOE to begin
     taking spent  nuclear  fuel by January 31, 1998.  The DOE took the position
     that their delay was unavoidable,  and the DOE was excused from performance
     under the terms and conditions of the contract.  The Court of Appeals found
     that the  delay  was not  unavoidable,  but did not  order the DOE to begin
     taking spent  nuclear  fuel,  stating that the  utilities had a potentially
     adequate remedy by filing a claim for damages under the contract.

     After the DOE failed to begin  taking  spent  nuclear  fuel by January  31,
     1998,  a group of  utilities  filed a motion  with the Court of  Appeals to
     enforce the mandate in NSP v. DOE.  Specifically,  this group of  utilities
     asked the Court to permit the utilities to escrow their waste fee payments,
     to order the DOE not to use the waste fund to pay damages to the utilities,
     and to order the DOE to establish a schedule for disposal of spent  nuclear
     fuel.  The Court denied this motion  based  primarily on the grounds that a
     review of the matter was premature, and that some of the requested remedies
     fell outside of the mandate in NSP v. DOE.

     Subsequently, a number of utilities each filed an action for damages in the
     Federal  Court of  Claims.  The U.S.  Circuit  Court  of  Appeals  (Federal
     Circuit)  ruled that  utilities  may sue the DOE for damages in the Federal
     Court of Claims instead of having to file an administrative  claim with the
     DOE.

     In January 2004,  PEC and PEF filed a complaint  with the DOE claiming that
     the DOE breached the Standard  Contract for Disposal of Spent  Nuclear Fuel
     by  failing to accept  spent  nuclear  fuel from  various  Progress  Energy
     facilities on or before January 31, 1998.  Damages due to DOE's breach will
     likely exceed $100 million.  Similar suits have been  initiated by over two
     dozen other utilities.

     In July 2002,  Congress  passed an override  resolution to Nevada's veto of
     DOE's  proposal to locate a permanent  underground  nuclear  waste  storage
     facility  at  Yucca  Mountain,  Nevada.  DOE  plans  to  submit  a  license
     application for the Yucca Mountain facility by the end of 2004. In November
     2003, Congressional  negotiators approved $580 million for fiscal year 2004
     for the Yucca Mountain  project,  $123 million more than the previous year.
     PEC and PEF cannot predict the outcome of this matter.

                                       24
<PAGE>

     With certain modifications and additional approval by the NRC including the
     installation  of onsite  dry  storage  facilities  at  Robinson  (2005) and
     Brunswick  (2008),  PEC's spent  nuclear  fuel storage  facilities  will be
     sufficient  to  provide  storage  space for spent fuel  generated  on PEC's
     system  through the  expiration of the operating  licenses for all of PEC's
     nuclear generating units.

     PEF is  currently  storing  spent  nuclear fuel onsite in spent fuel pools.
     PEF's nuclear unit,  Crystal River Unit No. 3 (CR3), has sufficient storage
     capacity in place for fuel  consumed  through the end of the  expiration of
     the current  license in 2016.  PEF will seek  renewal of the CR3  operating
     license and if approved, additional dry storage may be necessary.

     2. In November 2001, Strategic Resource Solutions Corp. (SRS) filed a claim
     against the San Francisco  Unified School District (the District) and other
     defendants  claiming that SRS is entitled to  approximately  $10 million in
     unpaid  contract  payments  and delay and  impact  damages  related  to the
     District's $30 million contract with SRS. In March 2002, the District filed
     a  counterclaim,  seeking  compensatory  damages and liquidated  damages in
     excess of $120 million,  for various claims,  including  breach of contract
     and  demand  on a  performance  bond.  SRS  has  asserted  defenses  to the
     District's  claims.  SRS has  amended  its claims and  asserted  new claims
     against the District and other parties, including a former SRS employee and
     a former District employee.

     In March 2003,  the City Attorney and the District  filed new claims in the
     form of a  cross-complaint  against SRS,  Progress Energy,  Inc.,  Progress
     Energy  Solutions,  Inc., and certain  individuals,  alleging fraud,  false
     claims,   violations  of  California  statutes,  and  seeking  compensatory
     damages, punitive damages,  liquidated damages, treble damages,  penalties,
     attorneys' fees and injunctive  relief. The filing states that the City and
     the District  seek "more than $300 million in damages and  penalties."  PEC
     was added as a cross-defendant later in 2003.

     The Company,  SRS, Progress Energy Solutions,  Inc. and PEC all have denied
     the District's  allegations and  cross-claims.  Discovery is in progress in
     the matter.  The case has been  assigned  to a judge  under the  Sacramento
     County  superior  court's  case  management  rules,  and the  judge and the
     parties  have been  conferring  on  scheduling  and  processes to narrow or
     resolve issues, if possible,  and to get the case ready for trial. No trial
     date has  been  set.  SRS and the  Company  are  vigorously  defending  and
     litigating  all of these claims.  In November  2003,  PEC filed a motion to
     dismiss the plaintiffs' first amended complaint. The Company cannot predict
     the  outcome  of this  matter,  but  will  vigorously  defend  against  the
     allegations.

     3. In August 2003,  PEC was served as a co-defendant  in a purported  class
     action lawsuit styled as Collins v. Duke Energy Corporation et al, in South
     Carolina's  Circuit Court of Common Pleas for the Fifth  Judicial  Circuit.
     PEC is one of three electric utilities operating in South Carolina named in
     the suit. The plaintiffs are seeking  damages for the alleged  improper use
     of  electric  easements  but have not  asserted  a dollar  amount for their
     damage claims.  The complaint  alleges that the licensing of attachments on
     electric  utility poles,  towers and other  structures to nonutility  third
     parties  or  telecommunication   companies  for  other  than  the  electric
     utilities'  internal  use along the  electric  right-of-way  constitutes  a
     trespass.

     In  September  2003,  PEC  filed a motion  to  dismiss  all  counts  of the
     complaint on  substantive  and  procedural  grounds.  In October 2003,  the
     plaintiffs  filed a motion  to amend  their  complaint.  PEC  believes  the
     amended  complaint  asserts  the  same  factual  allegations  as are in the
     original  complaint and also seeks money damages and injunctive  relief. In
     March 2004, the plaintiffs in this case filed a notice of dismissal without
     prejudice of their claims against PEC and Duke Energy Corporation.

     4. In 2001,  PEC  entered  into a contract  to  purchase  coal from  Dynegy
     Marketing and Trade (DMT).  After DMT experienced  financial  difficulties,
     including credit ratings  downgrades by certain credit reporting  agencies,
     PEC requested credit  enhancements in accordance with the terms of the coal
     purchase   agreement   in  July  2002.   When  DMT  did  not  offer  credit
     enhancements,  as required by a provision in the contract,  PEC  terminated
     the contract in July 2002.

     PEC initiated a lawsuit seeking a declaratory judgment that the termination
     was lawful.  DMT  counterclaimed,  stating the  termination was a breach of
     contract.  On March 23,  2004,  the United  States  District  Court for the
     Eastern  District of North Carolina ruled that PEC was liable for breach of
     contract, but ruled against DMT on its unfair and deceptive trade practices
     claim. The Court subsequently  entered a judgment against PEC in the amount
     of approximately $10 million. PEC intends to appeal the Court's ruling, but
     cannot predict the outcome of this matter.  PEC recorded an accrual for the
     judgment and a regulatory asset for the probable  recovery through its fuel
     adjustment clause.

                                       25
<PAGE>

     5. The  Company,  through  its  subsidiaries,  is a majority  owner in five
     entities  and a minority  owner in one  entity  that owns  facilities  that
     produce  synthetic fuel as defined under the Internal  Revenue Code (Code).
     The  production  and  sale of the  synthetic  fuel  from  these  facilities
     qualifies  for tax credits  under  Section 29 if certain  requirements  are
     satisfied,   including  a  requirement  that  the  synthetic  fuel  differs
     significantly  in chemical  composition  from the coal used to produce such
     synthetic  fuel and that the fuel was  produced  from a  facility  that was
     placed in service before July 1, 1998.  All entities have received  private
     letter rulings (PLRs) from the Internal  Revenue Service (IRS) with respect
     to their synthetic fuel operations. The PLRs do not limit the production on
     which  synthetic  fuel  credits may be  claimed.  Should the tax credits be
     denied on audit,  and the Company fails to prevail through the IRS or legal
     process,  there could be a significant  tax liability  owed for  previously
     taken Section 29 credits,  with a  significant  impact on earnings and cash
     flows.

     In September 2002, all of Progress Energy's  majority-owned  synthetic fuel
     entities were accepted into the IRS's  Pre-Filing  Agreement (PFA) program.
     The PFA program  allows  taxpayers to  voluntarily  accelerate the IRS exam
     process in order to seek resolution of specific issues.  Either the Company
     or the IRS can  withdraw  from the  program  at any time,  and  issues  not
     resolved  through the program may proceed to the next level of the IRS exam
     process.

     In February 2004,  subsidiaries of the Company  finalized  execution of the
     Colona Closing  Agreement with the IRS  concerning  their Colona  synthetic
     fuel  facilities.  The Colona  Closing  Agreement  provided that the Colona
     facilities were placed in service before July 1, 1998,  which is one of the
     qualification  requirements  for tax credits  under  Section 29. The Colona
     Closing  Agreement  further  provides  that the fuel produced by the Colona
     facilities in 2001 is a "qualified fuel" for purposes of the Section 29 tax
     credits.  This action concludes the IRS PFA program with respect to Colona.
     Although the  execution of the Colona  Closing  Agreement is a  significant
     event,  the PFA process  continues  with respect to the four synthetic fuel
     facilities  owned  by other  affiliates  of  Progress  Energy  and  Florida
     Progress Corporation.  Currently, the focus of that process is to determine
     that the  facilities  were  placed  in  service  before  July 1,  1998.  In
     management's  opinion,  Progress Energy is complying with all the necessary
     requirements  to be allowed  such  credits  under  Section 29,  although it
     cannot provide certainty,  that it will prevail if challenged by the IRS on
     credits taken.  Accordingly,  the Company has no current plans to alter its
     synthetic fuel production schedule as a result of these matters.

     In October  2003,  the  United  States  Senate  Permanent  Subcommittee  on
     Investigations began a general investigation  concerning synthetic fuel tax
     credits  claimed  under  Section 29. The  investigation  is  examining  the
     utilization  of the  credits,  the  nature  of the  technologies  and fuels
     created,  the use of the synthetic fuel and other aspects of Section 29 and
     is not specific to the Company's synthetic fuel operations. Progress Energy
     is providing information in connection with this investigation. The Company
     cannot predict the outcome of this matter.

     6. The  Company and its  subsidiaries  are  involved in various  litigation
     matters  in  the  ordinary  course  of  business,  some  of  which  involve
     substantial  amounts.  Where  appropriate,   accruals  have  been  made  in
     accordance with SFAS No. 5, "Accounting for  Contingencies," to provide for
     such  matters.  In the  opinion of  management,  the final  disposition  of
     pending  litigation  would  not  have  a  material  adverse  effect  on the
     Company's consolidated results of operations or financial position.

                                       26
<PAGE>

                         CAROLINA POWER & LIGHT COMPANY
                      d/b/a PROGRESS ENERGY CAROLINAS, INC.
                    CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                 March 31, 2004

UNAUDITED CONSOLIDATED STATEMENTS of INCOME
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                Three Months Ended March 31,
(in millions)                                                        2004          2003
----------------------------------------------------------------------------------------
Operating Revenues
   Electric                                                        $  901        $  926
   Diversified business                                                 -             3
----------------------------------------------------------------------------------------
      Total Operating Revenues                                        901           929
----------------------------------------------------------------------------------------
Operating Expenses
   Fuel used in electric generation                                   224           226
   Purchased power                                                     62            73
   Operation and maintenance                                          209           190
   Depreciation and amortization                                      127           139
   Taxes other than on income                                          43            44
   Diversified business                                                 -             1
----------------------------------------------------------------------------------------
        Total Operating Expenses                                      665           673
----------------------------------------------------------------------------------------
Operating Income                                                      236           256
----------------------------------------------------------------------------------------
Other Income (Expense)
   Interest income                                                      1             1
   Other, net                                                         (12)           (2)
----------------------------------------------------------------------------------------
        Total Other Expense                                           (11)           (1)
----------------------------------------------------------------------------------------
Interest Charges
   Interest charges                                                    49            49
   Allowance for borrowed funds used during construction               (1)           (1)
----------------------------------------------------------------------------------------
        Total Interest Charges, Net                                    48            48
----------------------------------------------------------------------------------------
Income before Income Tax                                              177           207
Income Tax Expense                                                     62            72
----------------------------------------------------------------------------------------
Net Income                                                            115           135
Preferred Stock Dividend Requirement                                    1             1
----------------------------------------------------------------------------------------
Earnings for Common Stock                                          $  114        $  134
----------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Interim Financial Statements.

                                       27
<PAGE>

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Carolina Power & Light Company
d/b/a Progress Energy Carolinas, Inc.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in millions)                                                         March 31,        December 31,
ASSETS                                                                     2004                2003
----------------------------------------------------------------------------------------------------
Utility Plant
  Utility plant in service                                             $ 13,384            $ 13,331
  Accumulated depreciation                                               (5,344)             (5,280)
----------------------------------------------------------------------------------------------------
        Utility plant in service, net                                     8,040               8,051
  Held for future use                                                         5                   5
  Construction work in progress                                             342                 306
  Nuclear fuel, net of amortization                                         170                 159
----------------------------------------------------------------------------------------------------
        Total Utility Plant, Net                                          8,557               8,521
----------------------------------------------------------------------------------------------------
Current Assets
  Cash and cash equivalents                                                  13                 238
  Accounts receivable                                                       246                 265
  Unbilled accounts receivable                                              122                 145
  Receivables from affiliated companies                                      22                  27
  Advances from affiliated companies                                         84                   -
  Inventory                                                                 314                 348
  Deferred fuel cost                                                         99                 113
  Prepayments and other current assets                                       53                  82
----------------------------------------------------------------------------------------------------
        Total Current Assets                                                953               1,218
----------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
  Regulatory assets                                                         494                 477
  Nuclear decommissioning trust funds                                       544                 505
  Miscellaneous other property and investments                              168                 169
  Other assets and deferred debits                                          109                 118
----------------------------------------------------------------------------------------------------
        Total Deferred Debits and Other Assets                            1,315               1,269
----------------------------------------------------------------------------------------------------
           Total Assets                                                $ 10,825            $ 11,008
----------------------------------------------------------------------------------------------------
Capitalization and Liabilities
----------------------------------------------------------------------------------------------------
Common Stock Equity
  Common stock without par value, authorized 200 million shares,
     160 million shares issued and outstanding                         $  1,966            $  1,953
  Unearned ESOP common stock                                                (79)                (89)
  Accumulated other comprehensive loss                                       (6)                 (7)
  Retained earnings                                                       1,368               1,380
----------------------------------------------------------------------------------------------------
        Total Common Stock Equity                                         3,249               3,237
----------------------------------------------------------------------------------------------------
  Preferred Stock - Not Subject to Mandatory Redemption                      59                  59
  Long-Term Debt, Net                                                     3,048               3,086
----------------------------------------------------------------------------------------------------
        Total Capitalization                                              6,356               6,382
----------------------------------------------------------------------------------------------------
Current Liabilities
  Current portion of long-term debt                                         189                 300
  Accounts payable                                                          173                 188
  Payables to affiliated companies                                           52                 136
  Notes payable to affiliated companies                                       -                  25
  Interest accrued                                                           46                  64
  Short-term obligations                                                      -                   4
  Other current liabilities                                                 191                 166
----------------------------------------------------------------------------------------------------
        Total Current Liabilities                                           651                 883
----------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
  Accumulated deferred income taxes                                       1,138               1,125
  Accumulated deferred investment tax credits                               146                 148
  Regulatory liabilities                                                  1,222               1,175
  Asset retirement obligations                                              945                 932
  Other liabilities and deferred credits                                    367                 363
----------------------------------------------------------------------------------------------------
        Total Deferred Credits and Other Liabilities                      3,818               3,743
----------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 10)
----------------------------------------------------------------------------------------------------
            Total Capitalization and Liabilities                       $ 10,825            $ 11,008
----------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Interim Financial Statements.

                                       28
<PAGE>

CAROLINA POWER & LIGHT COMPANY
d/b/a PROGRESS ENERGY CAROLINAS, INC.
UNAUDITED CONSOLIDATED STATEMENTS of CASH FLOWS

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                                   Three Months Ended March 31,
(in millions)                                                                               2004         2003
---------------------------------------------------------------------------------------------------------------
     Operating Activities
Net income                                                                                 $ 115       $  135
Adjustments to reconcile net income to net cash provided by operating activities:
      Depreciation and amortization                                                          149          160
      Deferred income taxes                                                                   22          (10)
      Investment tax credit                                                                   (3)          (3)
      Deferred fuel cost                                                                      13            8
   Cash provided (used) by changes in operating assets and liabilities:
      Accounts receivable                                                                     40           20
      Inventories                                                                             36           19
      Prepayments and other current assets                                                     4            7
      Accounts payable                                                                       (88)          14
      Other current liabilities                                                               13           62
      Other                                                                                   32           28
---------------------------------------------------------------------------------------------------------------
         Net Cash Provided by Operating Activities                                           333          440
---------------------------------------------------------------------------------------------------------------
     Investing Activities
Gross property additions                                                                    (123)        (150)
Nuclear fuel additions                                                                       (39)         (30)
Net contributions to nuclear decommissioning trust                                           (10)         (10)
Other investing activities                                                                     3           (4)
---------------------------------------------------------------------------------------------------------------
         Net Cash Used in Investing Activities                                              (169)        (194)
---------------------------------------------------------------------------------------------------------------
     Financing Activities
Net decrease in short-term obligations                                                        (4)        (216)
Net change in intercompany notes                                                            (109)          89
Retirement of long-term debt                                                                (150)           -
Dividends paid to parent                                                                    (125)        (123)
Dividends paid on preferred stock                                                             (1)          (1)
---------------------------------------------------------------------------------------------------------------
         Net Cash Used in Financing Activities                                              (389)        (251)
---------------------------------------------------------------------------------------------------------------
     Net Decrease in Cash and Cash Equivalents                                              (225)          (5)
Cash and Cash Equivalents at Beginning of Period                                             238           18
----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period                                                 $  13       $   13
---------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the year - interest (net of amount capitalized)                           $  66       $   58
                            income taxes (net of refunds)                                  $   1       $    3
----------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Interim Financial Statements.


                                       29
<PAGE>



CAROLINA POWER & LIGHT COMPANY
d/b/a PROGRESS ENERGY CAROLINAS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1.   ORGANIZATION AND BASIS OF PRESENTATION

     A. Organization

     Carolina  Power & Light Company is a public service  corporation  primarily
     engaged  in  the  generation,   transmission,   distribution  and  sale  of
     electricity in portions of North Carolina and South  Carolina.  Through its
     wholly-owned  subsidiaries,  Carolina  Power & Light Company d/b/a Progress
     Energy Carolinas,  Inc. (PEC) is involved in several nonregulated  business
     activities.  PEC is a wholly-owned subsidiary of Progress Energy, Inc. (the
     Company or Progress  Energy).  The Company is a registered  holding company
     under the Public  Utility  Holding  Company Act of 1935  (PUHCA).  Both the
     Company and its  subsidiaries  are subject to the regulatory  provisions of
     PUHCA. PEC is regulated by the North Carolina Utilities  Commission (NCUC),
     the Public Service Commission of South Carolina (SCPSC), the Federal Energy
     Regulatory  Commission  (FERC) and the  United  States  Nuclear  Regulatory
     Commission (NRC).

     B. Basis of Presentation

     These financial statements have been prepared in accordance with accounting
     principles  generally  accepted in the United States of America  (GAAP) for
     interim  financial  information and with the  instructions to Form 10-Q and
     Regulation S-X. Accordingly, they do not include all of the information and
     footnotes required by GAAP for annual statements.  Because the accompanying
     consolidated  interim  financial  statements  do  not  include  all  of the
     information  and  footnotes  required  by  GAAP,  they  should  be  read in
     conjunction  with the audited  financial  statements  for the period  ended
     December  31,  2003 and notes  thereto  included in PEC's Form 10-K for the
     year ended December 31, 2003.

     The amounts included in the consolidated  interim financial  statements are
     unaudited but, in the opinion of management,  reflect all normal  recurring
     adjustments  necessary  to fairly  present  PEC's  financial  position  and
     results of  operations  for the interim  periods.  Due to seasonal  weather
     variations  and  the  timing  of  outages  of  electric  generating  units,
     especially  nuclear-fueled  units,  the results of  operations  for interim
     periods are not necessarily  indicative of amounts  expected for the entire
     year or future periods.

     In preparing financial  statements that conform with GAAP,  management must
     make estimates and assumptions  that affect the reported  amounts of assets
     and  liabilities,  disclosure of contingent  assets and  liabilities at the
     date of the  financial  statements  and  amounts of revenues  and  expenses
     reflected  during the reporting  period.  Actual  results could differ from
     those estimates. Certain amounts for 2003 have been reclassified to conform
     to the 2004 presentation.

     C. Stock-Based Compensation

     The  Company  measures  compensation  expense  for  stock  options  as  the
     difference  between the market  price of its common  stock and the exercise
     price of the option at the grant date.  The exercise price at which options
     are granted by the Company  equals the market price at the grant date,  and
     accordingly,  no compensation  expense has been recognized for stock option
     grants. For purposes of the pro forma disclosures required by SFAS No. 148,
     "Accounting for  Stock-Based  Compensation - Transition and Disclosure - an
     Amendment of FASB  Statement No. 123" (SFAS No. 148),  the  estimated  fair
     value of the  Company's  stock  options is  amortized  to expense  over the
     options' vesting period.  The following table illustrates the effect on net
     income and  earnings per share if the fair value method had been applied to
     all outstanding and unvested awards in each period:


                                       30
<PAGE>
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     (in millions)                                                         2004        2003
                                                                      ------------  ----------
     Net Income, as reported                                               $ 115       $ 135
     Deduct:  Total stock option expense determined under fair
       value method for all awards, net of related tax effects                 2           1
                                                                      ------------  ----------
     Pro forma net income                                                  $ 113       $ 134
                                                                      ============  ==========
</TABLE>

2.   NEW ACCOUNTING STANDARDS

     FIN No. 46, "Consolidation of Variable Interest Entities"
     In January 2003, the FASB issued  Interpretation No. 46,  "Consolidation of
     Variable Interest Entities - an Interpretation of ARB No. 51" (FIN No. 46).
     This  interpretation  provides  guidance  related to  identifying  variable
     interest   entities  and  determining   whether  such  entities  should  be
     consolidated  or  deconsolidated.  FIN No. 46  requires  an  enterprise  to
     consolidate a variable  interest  entity when the  enterprise (a) absorbs a
     majority of the variable interest entity's expected losses,  (b) receives a
     majority of the entity's expected residual returns, or both, as a result of
     ownership, contractual or other financial interests in the entity. Prior to
     the effective date of FIN No. 46,  entities were generally  consolidated by
     an  enterprise  that had control  through  ownership  of a majority  voting
     interest  in the  entity.  FIN No. 46  originally  applied  immediately  to
     variable  interest  entities  created or obtained  after  January 31, 2003.
     During 2003 and the first quarter of 2004,  PEC did not  participate in the
     creation of, or obtain a significant new variable interest in, any variable
     interest entity. In December 2003, the FASB issued a revision to FIN No. 46
     (FIN No. 46R),  which modified  certain  requirements of FIN No. 46 and was
     effective for all variable interest entities as of March 31, 2004. Upon the
     adoption of FIN No. 46R, no variable  interest entities were required to be
     deconsolidated by PEC.

     Upon adoption of FIN No. 46R as of March 31 2004, PEC determined that it is
     the  primary  beneficiary  of a limited  partnership  which  invests  in 17
     low-income  housing  partnerships  that  qualify  for federal and state tax
     credits. PEC consolidated the limited partnership as of March 31, 2004, the
     effect of which was  insignificant.  PEC has requested but has not received
     all the necessary  information to determine the primary  beneficiary of the
     limited  partnership's  underlying  17  partnership  investments,  and  has
     applied the information  scope exception in FIN No. 46R,  paragraph 4(g) to
     the 17  partnerships.  PEC  has no  direct  exposure  to loss  from  the 17
     partnerships;  PEC's  only  exposure  to  loss is from  its  investment  of
     approximately $1 million in the newly-consolidated limited partnership. PEC
     will  continue  its efforts to obtain the  necessary  information  to fully
     apply  FIN  No.  46R to the  17  partnerships.  PEC  believes  that  if the
     newly-consolidated  limited  partnership  is  determined  to be the primary
     beneficiary  of the 17  partnerships,  the effect of  consolidating  the 17
     partnerships would not be significant to its Consolidated Balance Sheets.

     PEC has variable  interests in two power plants  resulting  from  long-term
     power  purchase  contracts.  PEC has requested but has not received all the
     necessary  information  to  determine  if the  counterparties  are variable
     interest entities or to identify the primary beneficiaries, and has applied
     the  information  scope exception in FIN No. 46R,  paragraph 4(g).  Certain
     payments  for fuel costs  under  these  contracts  are linked to  inflation
     indices.  PEC's only  significant  exposure  to loss from  these  contracts
     results  from  fluctuations  in the  market  price of fuel  used by the two
     plants to produce the power  purchased by PEC.  Total  purchases from these
     counterparties  were approximately $9 million in each of the first quarters
     of 2003 and 2004.  PEC will  continue  its efforts to obtain the  necessary
     information to fully apply FIN No. 46R to these contracts. Although PEC has
     not received any financial  information from these two counterparties,  PEC
     believes that if it is determined  to be the primary  beneficiary  of these
     two entities the effect of consolidating  the entities could be significant
     to its Consolidated Balance Sheets.  However, the approximate impact cannot
     be determined at this time.

     PEC also has interests in several other variable  interest entities created
     before January 31, 2003, for which it is not the primary beneficiary. These
     arrangements include investments in approximately 27 limited  partnerships,
     limited  liability  corporations and venture capital funds and two building
     leases with special-purpose  entities.  The aggregate maximum loss exposure
     at March 31,  2004,  that PEC  could be  required  to record in its  income
     statement  as a  result  of these  arrangements  totals  approximately  $27
     million.  The  creditors of these  variable  interest  entities do not have
     recourse to the general  credit of PEC in excess of the  aggregate  maximum
     loss exposure.

                                       31
<PAGE>

3.   REGULATORY MATTERS

     A. Retail Rate Matters

     PEC has  exclusively  utilized  external  funding  for its  decommissioning
     liability since 1994.  Prior to 1994, PEC retained funds internally to meet
     its decommissioning  liability. An NCUC order issued in February 2004 found
     that by  January  1, 2008 PEC must  begin  transitioning  these  amounts to
     external  funds.  The  transition  of $131  million  must be  completed  by
     December 31, 2017, and at least 10% must be transitioned each year.

     PEC filed with the SCPSC seeking permission to defer expenses incurred from
     the first quarter 2004 winter storm.  The SCPSC  approved  PEC's request to
     defer the costs and  amortize  them over five  years  beginning  in January
     2005.  Approximately $10 million related to storm costs incurred during the
     quarter was deferred.

     During  the first  quarter of 2004,  PEC filed  with the NCUC and  obtained
     approval from the SCPSC for a depreciation  study which allowed the utility
     to reduce the rates used to calculate  depreciation  expense.  As a result,
     depreciation  expense  decreased  $7  million  compared  to the prior  year
     quarter.

     B. Regional Transmission Organizations

     In  2000,  the FERC  issued  Order  No.  2000 on RTOs,  which  set  minimum
     characteristics  and functions that RTOs must meet,  including  independent
     transmission  service. In July 2002, the FERC issued its Notice of Proposed
     Rulemaking  in  Docket  No.  RM01-12-000,  Remedying  Undue  Discrimination
     through Open Access  Transmission  Service and Standard  Electricity Market
     Design (SMD NOPR).  If adopted as proposed,  the rules set forth in the SMD
     NOPR would materially alter the manner in which transmission and generation
     services  are  provided  and paid for. In April 2003,  the FERC  released a
     White Paper on the Wholesale Market  Platform.  The White Paper provides an
     overview of what the FERC  currently  intends to include in a final rule in
     the SMD NOPR  docket.  The White  Paper  retains the  fundamental  and most
     protested  aspects  of SMD NOPR,  including  mandatory  RTOs and the FERC's
     assertion of jurisdiction over certain aspects of retail service.  The FERC
     has not yet issued a final rule on SMD NOPR. PEC cannot predict the outcome
     of  these  matters  or the  effect  that  they  may  have on the  GridSouth
     proceedings  currently  ongoing  before the FERC. It is unknown what impact
     the future proceedings will have on PEC's earnings, revenues or prices.

     PEC has  recorded  $33 million  related to startup  costs for  GridSouth at
     March 31, 2004.  PEC expects to recover these startup costs in  conjunction
     with the GridSouth  original structure or in conjunction with any alternate
     combined transmission structures that emerge.

4.   COMPREHENSIVE INCOME

     Comprehensive income for the three months ended March 31, 2004 and 2003 was
     $116 million and $135 million, respectively. Changes in other comprehensive
     income  for the  periods  consisted  primarily  of changes in fair value of
     derivatives used to hedge cash flows related to interest on long-term debt.

5.   FINANCING ACTIVITIES

     On January  15,  2004,  PEC paid at  maturity  $150  million  5.875%  First
     Mortgage Bonds with commercial paper proceeds.  On April 15, 2004, PEC also
     paid at maturity $150 million 7.875% First  Mortgage Bonds with  commercial
     paper proceeds and internally-generated funds.

     On  March  31,  2004,  PEC  announced  the  redemption  of $35  million  of
     Darlington  County 6.6% Series Pollution Control Bonds at 102.5% of par, $2
     million of New Hanover  County  6.30%  Series  Pollution  Control  Bonds at
     101.5% of par,  and $3 million of Chatham  County  6.30%  Series  Pollution
     Control  Bonds at  101.5% of par.  All three  series  were  fully  redeemed
     effective April 30, 2004.

                                       32
<PAGE>

6.   BENEFIT PLANS

     PEC has a non-contributory  defined benefit  retirement  (pension) plan for
     substantially all full-time employees.  PEC also has supplementary  defined
     benefit pension plans that provide benefits to higher-level  employees.  In
     addition   to   pension   benefits,   PEC   provides   contributory   other
     postretirement  benefits  (OPEB),  including  certain  health care and life
     insurance benefits,  for retired employees who meet specified criteria. The
     components  of the net  periodic  benefit  cost for the three  months ended
     March 31 are:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                         Other Postretirement
                                                   Pension Benefits            Benefits
                                                ---------------------    --------------------
     (in millions)                                 2004         2003        2004     2003
                                                ---------------------    --------------------
     Service cost                               $       6  $       5     $      2 $       2
     Interest cost                                     13         12            4         3
     Expected return on plan assets                   (17)       (16)          (1)       (1)
     Amortization, net                                  -          -            1         1
                                                ---------------------    --------------------
     Net periodic cost / (benefit)              $       2  $       1     $      6 $       5
                                                =====================    ===-================
</TABLE>

     In  December  2003,  the  Medicare   Prescription  Drug,   Improvement  and
     Modernization Act of 2003 (the Act) was signed into law. In accordance with
     guidance  issued by the FASB in FASB  Staff  Position  FAS  106-1,  PEC has
     elected to defer accounting for the effects of the Act due to uncertainties
     regarding the effects of the  implementation  of the Act and the accounting
     for certain provisions of the Act. Therefore, OPEB information presented in
     the  financial  statements  does not reflect  the effects of the Act.  When
     specific authoritative accounting guidance is issued, it could require plan
     sponsors to change  previously  reported  information.  PEC is in the early
     stages of reviewing the Act and determining its potential effects on PEC.

7.   RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS

     PEC uses  interest  rate  derivative  instruments  to adjust  the fixed and
     variable rate debt  components of its debt  portfolio and to hedge interest
     rates with regard to future fixed rate debt  issuances.  In March 2004, PEC
     entered into a forward  swap to hedge its  exposure to interest  rates with
     regard to a future issuance of approximately $300 million of debt.

     In April  2004,  PEC  entered  into a cash flow hedge to hedge the  payment
     stream associated with an upcoming lease.

     The notional  amounts of the above  contracts  are not exchanged and do not
     represent   exposure  to  credit  loss.  In  the  event  of  default  by  a
     counterparty,  the risk in the  transaction  is the cost of  replacing  the
     agreements  at current  market  rates.  PEC only enters into  interest rate
     derivative agreements with banks with credit ratings of single A or better.

8.   FINANCIAL INFORMATION BY BUSINESS SEGMENT

     PEC's  operations  consist  primarily of the PEC Electric  segment which is
     engaged in the generation, transmission,  distribution and sale of electric
     energy  primarily in portions of North Carolina and South  Carolina.  These
     electric  operations are subject to the rules and  regulations of the FERC,
     the NCUC,  the SCPSC and the NRC. PEC Electric also  distributes  and sells
     electricity to other  utilities,  primarily on the east coast of the United
     States.

     The Other segment,  whose operations are primarily in the United States, is
     made up of other  nonregulated  business areas that do not separately  meet
     the disclosure requirements of SFAS No. 131, "Disclosures about Segments of
     an  Enterprise  and Related  Information"  and  consolidation  entities and
     eliminations.


                                       33
<PAGE>

     The financial information for PEC segments for the three months ended March
     31, 2004 and 2003 is as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                             2004                                   2003
                               --------------------------------     -------------------------------
                                   PEC                                  PEC
     (in millions)              Electric    Other     Total          Electric    Other     Total
                               --------------------------------     -------------------------------
     Total revenues                $  901      $  -     $  901           $ 926       $ 3     $ 929
     Segment profit (loss)            116       (2)        114             135       (1)       134
                               --------------------------------     -------------------------------
</TABLE>

9.   OTHER INCOME AND OTHER EXPENSE

     Other  income and expense  includes  interest  income and other  income and
     expense items as discussed  below. The components of other, net as shown on
     the  accompanying  Consolidated  Statements  of Income for the three months
     ended March 31, 2004 and 2003, are as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     (in millions)                                               2004              2003
                                                             -------------    --------------
     Other income
     Net financial trading gain (loss)                             $    1            $   (1)
     Net energy brokered for resale                                     -                (2)
     Nonregulated energy and delivery services income                   2                 2
     AFUDC equity                                                       1                 1
     Other                                                                                2
                                                                        1
                                                             -------------    --------------
         Total other income                                        $    5            $    2
                                                             -------------    --------------

      Other expense
     Nonregulated energy and delivery services expenses            $    2            $    2
     Donations                                                          4                 1
     Write-off of non-trade receivable                                  7                 -
     Other                                                              4                 1
                                                             -------------    --------------
        Total other expense                                        $   17            $    4
                                                             -------------    --------------

     Other, net                                                    $  (12)           $   (2)
                                                             =============    ==============
</TABLE>

     Net financial trading gains and losses represent non-asset-backed trades of
     electricity and gas. Net energy brokered for resale represents  electricity
     purchased for simultaneous sale to a third party.  Nonregulated  energy and
     delivery  services  include  power  protection  services  and  mass  market
     programs such as surge protection, appliance services and area light sales,
     and delivery, transmission and substation work for other utilities.

10.  COMMITMENTS AND CONTINGENCIES

     Contingencies  existing as of the date of these  statements  are  described
     below.  No significant  changes have occurred since December 31, 2003, with
     respect to the commitments discussed in Note 16 of PEC's 2003 Annual Report
     on Form 10-K.

     A. Guarantees

     As a part of normal business,  PEC enters into various agreements providing
     financial or  performance  assessments to third  parties.  Such  agreements
     include,  for  example,  guarantees,  standby  letters of credit and surety
     bonds.  These  agreements  are entered into primarily to support or enhance
     the creditworthiness  otherwise attributed to subsidiaries on a stand-alone
     basis,   thereby   facilitating  the  extension  of  sufficient  credit  to
     accomplish the subsidiaries'  intended  commercial  purposes.  At March 31,
     2004,  management  does not believe  conditions are likely for  performance
     under these agreements.


                                       34
<PAGE>



     At March 31, 2004, outstanding guarantees consisted of the following:

     (in millions)
     Standby letters of credit                $   3
     Surety bonds                                 9
                                        ---------------
        Total                                 $  12
                                        ===============

     Standby Letters of Credit
     PEC has issued standby letters of credit to financial  institutions for the
     benefit  of third  parties  that have  extended  credit to PEC and  certain
     subsidiaries.  These  letters of credit have been issued  primarily for the
     purpose of  supporting  payments of trade  payables,  securing  performance
     under contracts and on interest  payments on outstanding debt  obligations.
     If a subsidiary does not pay amounts when due under a covered contract, the
     counterparty   may  present   its  claim  for  payment  to  the   financial
     institution,  which will in turn request payment from PEC. Any amounts owed
     by its subsidiaries are reflected in the Consolidated Balance Sheets.

     Surety Bonds
     At March 31, 2004, PEC had $9 million in surety bonds  purchased  primarily
     for purposes such as providing workers' compensation coverage and obtaining
     licenses, permits and rights-of-way. To the extent liabilities are incurred
     as a result of the activities covered by the surety bonds, such liabilities
     are included in the Consolidated Balance Sheets.

     Guarantees Issued by the Parent
     In 2003, PEC determined that its external funding levels did not fully meet
     the nuclear decommissioning financial assurance levels required by the NRC.
     Therefore,  PEC obtained parent company  guarantees of $276 million to meet
     the required levels.

     B. Insurance

     PEC is  insured  against  public  liability  for a nuclear  incident  up to
     $10,760 million per occurrence.  Under the current  provisions of the Price
     Anderson Act, which limits liability for accidents at nuclear plants,  PEC,
     as an owner of nuclear units,  can be assessed a portion of any third-party
     liability  claims arising from an accident at any commercial  nuclear power
     plant in the United States.  In the event that public liability claims from
     an insured  nuclear  incident  exceed  $300  million  (currently  available
     through commercial insurers),  PEC would be subject to assessments of up to
     $101  million  for each  reactor  owned  per  occurrence.  Payment  of such
     assessments  would be made over time as  necessary  to limit the payment in
     any one year to no more than $10  million per  reactor  owned.  Congress is
     expected to approve  revisions  to the Price  Anderson Act during 2004 that
     could include increased limits and assessments per reactor owned. The final
     outcome of this matter cannot be predicted at this time.

     C. Claims and Uncertainties

     PEC is subject to federal, state and local regulations addressing hazardous
     and solid waste management,  air and water quality and other  environmental
     matters.

     Hazardous and Solid Waste Management

     Various  organic  materials  associated with the production of manufactured
     gas,  generally  referred to as coal tar, are  regulated  under federal and
     state laws.  The  principal  regulatory  agency that is  responsible  for a
     specific former  manufactured gas plant (MGP) site depends largely upon the
     state in which the site is  located.  There are  several MGP sites to which
     PEC  has  some  connection.  In this  regard,  PEC  and  other  potentially
     responsible  parties (PRPs) are  participating  in,  investigating  and, if
     necessary,  remediating former MGP sites with several regulatory  agencies,
     including,  but not limited to, the U.S.  Environmental  Protection  Agency
     (EPA)  and  the  North  Carolina  Department  of  Environment  and  Natural
     Resources,  Division  of  Waste  Management  (DWM).  In  addition,  PEC  is
     periodically  notified  by  regulators  such as the EPA and  various  state
     agencies of its involvement or potential  involvement in sites,  other than
     MGP sites, that may require investigation and/or remediation.

                                       35
<PAGE>

     PEC has filed  claims  with its  general  liability  insurance  carriers to
     recover costs arising out of actual or potential environmental liabilities.
     All  claims  have  settled  other  than  with  insolvent  carriers.   These
     settlements  have not had a material effect on the  consolidated  financial
     position or results of operations.

     PEC is also  currently  in the  process of  assessing  potential  costs and
     exposures at other  environmentally  impaired sites. As the assessments are
     developed and  analyzed,  PEC will accrue costs for the sites to the extent
     the costs are probable and can be reasonably estimated.

     There are nine  former MGP sites and other sites  associated  with PEC that
     have  required  or  are   anticipated  to  require   investigation   and/or
     remediation  costs.  PEC  received  insurance  proceeds  to  address  costs
     associated with PEC  environmental  liabilities  related to its involvement
     with some sites. All eligible expenses related to these are charged against
     a specific fund containing these proceeds. At March 31, 2004, approximately
     $8 million  remains in this  centralized  fund with a related accrual of $8
     million recorded for the associated  expenses of environmental  issues. PEC
     does not believe that it can provide an estimate of the reasonably possible
     total  remediation  costs beyond what is currently  accrued due to the fact
     that  investigations have not been completed at all sites. This accrual has
     been  recorded on an  undiscounted  basis.  PEC measures its  liability for
     these  sites  based on  available  evidence  including  its  experience  in
     investigating and remediating  environmentally  impaired sites. The process
     often involves  assessing and  developing  cost-sharing  arrangements  with
     other PRPs. PEC will accrue costs for the sites to the extent its liability
     is  probable  and the costs can be  reasonably  estimated.  Presently,  PEC
     cannot  determine the total costs that may be incurred in  connection  with
     the remediation of all sites.

     In September  2003, the Company sold NCNG to Piedmont  Natural Gas Company,
     Inc. As part of the sales agreement, the Company retained responsibility to
     remediate five former NCNG MGP sites, all of which also are associated with
     PEC, to state  standards  pursuant to an  Administrative  Order on Consent.
     These sites are  anticipated to have  investigation  or  remediation  costs
     associated with them. NCNG had previously accrued  approximately $2 million
     for probable and  reasonably  estimable  remediation  costs at these sites.
     These accruals have been recorded on an undiscounted  basis. At the time of
     the sale,  the  liability  for  these  costs and the  related  accrual  was
     transferred  to PEC. PEC does not believe it can provide an estimate of the
     reasonably  possible  total  remediation  costs beyond the accrual  because
     investigations have not been completed at all sites. Therefore,  PEC cannot
     currently determine the total costs that may be incurred in connection with
     the investigation and/or remediation of all sites.

     Air Quality

     There has been and may be further proposed legislation requiring reductions
     in air emissions for NOx, SO2,  carbon  dioxide and mercury.  Some of these
     proposals  establish  nationwide  caps and emission  rates over an extended
     period of time.  This  national  multi-pollutant  approach to air pollution
     control could involve  significant capital costs which could be material to
     PEC's  consolidated  financial  position or results of operations.  Control
     equipment  that  will be  installed  on North  Carolina  fossil  generating
     facilities as part of the North Carolina  legislation  discussed  below may
     address some of the issues outlined above.  However, PEC cannot predict the
     outcome of this matter.

     The EPA is  conducting  an  enforcement  initiative  related to a number of
     coal-fired   utility  power  plants  in  an  effort  to  determine  whether
     modifications  at  those  facilities  were  subject  to New  Source  Review
     requirements or New Source  Performance  Standards under the Clean Air Act.
     PEC was asked to provide  information to the EPA as part of this initiative
     and  cooperated in providing the requested  information.  The EPA initiated
     civil enforcement  actions against other unaffiliated  utilities as part of
     this initiative.  Some of these actions  resulted in settlement  agreements
     calling for expenditures by these unaffiliated utilities, ranging from $1.0
     billion  to  $1.4  billion.  A  utility  that  was not  subject  to a civil
     enforcement  action  settled its New Source  Review issues with the EPA for
     $300  million.  These  settlement  agreements  have  generally  called  for
     expenditures  to be  made  over  extended  time  periods,  and  some of the
     companies may seek recovery of the related cost through rate adjustments or
     similar mechanisms. PEC cannot predict the outcome of this matter.

                                       36
<PAGE>

     In 2003,  the EPA  published  a final  rule  addressing  routine  equipment
     replacement  under the New Source Review program.  The rule defines routine
     equipment  replacement  and the types of activities that are not subject to
     New Source Review  requirements or New Source  Performance  Standards under
     the Clean Air Act. The rule was challenged in the Federal Appeals Court and
     its  implementation  stayed. The Company cannot predict the outcome of this
     matter.

     In 1998, the EPA published a final rule at Section 110 of the Clean Air Act
     addressing the regional  transport of ozone (NOx SIP Call).  The EPA's rule
     requires 23  jurisdictions,  including North  Carolina,  South Carolina and
     Georgia,  to  further  reduce  NOx  emissions  in order to  attain a preset
     emission level during each year's "ozone  season,"  beginning May 31, 2004.
     PEC is currently  installing controls necessary to comply with the rule and
     expects to be in  compliance  as required by the final rule.  Total capital
     expenditures to meet these measures in North and South Carolina could reach
     approximately $370 million, which has not been adjusted for inflation.  PEC
     has spent approximately $265 million to date related to these expenditures.
     Increased  operation and maintenance costs relating to the NOx SIP Call are
     not  expected  to be  material  to PEC's  results  of  operations.  Further
     controls are anticipated as electricity demand increases.

     In 1997, the EPA issued final  regulations  establishing a new 8-hour ozone
     standard.  In 1999, the District of Columbia Circuit Court of Appeals ruled
     against the EPA with regard to the federal 8-hour ozone standard.  The U.S.
     Supreme Court has upheld,  in part, the District of Columbia  Circuit Court
     of Appeals  decision.  In April 2004, the EPA identified  areas that do not
     meet the standard.  The states with identified  areas,  including North and
     South Carolina are proceeding with the implementation of the federal 8-hour
     ozone  standard . Both states  promulgated  final  regulations,  which will
     require PEC to install NOx controls under the states' 8-hour standard.  The
     costs of those  controls are  included in the $370  million  cost  estimate
     above.  However,  further technical analysis and rulemaking may result in a
     requirement for additional  controls at some units.  PEC cannot predict the
     outcome of this matter.

     The EPA published a final rule approving petitions under Section 126 of the
     Clean Air Act. This rule as originally promulgated required certain sources
     to make  reductions  in NOx  emissions by May 1, 2003.  The final rule also
     includes a set of  regulations  that  affect  NOx  emissions  from  sources
     included  in  the  petitions.   The  North  Carolina   coal-fired  electric
     generating  plants are included in these petitions.  Acceptable state plans
     under the NOx SIP Call can be  approved  in lieu of the final rules the EPA
     approved as part of the 126  petitions.  In April 2002, the EPA published a
     final rule  harmonizing  the dates for the Section 126 Rule and the NOx SIP
     Call. In addition,  the EPA  determined in this rule that the future growth
     factor estimation methodology was appropriate.  The new compliance date for
     all affected sources is now May 31, 2004,  rather than May 1, 2003. The EPA
     has approved  North  Carolina's NOx SIP Call rule and has indicated it will
     rescind  the  Section  126  rule in a  future  rulemaking.  PEC  expects  a
     favorable outcome of this matter.

     In June 2002,  legislation  was  enacted in North  Carolina  requiring  the
     state's  electric  utilities  to reduce the  emissions  of NOx and SO2 from
     coal-fired  power  plants.  PEC  expects  its  capital  costs to meet these
     emission  targets  will be  approximately  $813  million  by 2013.  PEC has
     expended approximately $32 million of these capital costs through March 31,
     2004. PEC currently has approximately 5,100 MW of coal-fired  generation in
     North  Carolina  that is  affected  by this  legislation.  The  legislation
     requires the emissions  reductions  to be completed in phases by 2013,  and
     applies to each utility's total system rather than setting requirements for
     individual  power plants.  The legislation also freezes the utilities' base
     rates for five  years  unless  there are  extraordinary  events  beyond the
     control of the utilities or unless the utilities persistently earn a return
     substantially  in  excess  of the  rate of  return  established  and  found
     reasonable by the NCUC in the utilities'  last general rate case.  Further,
     the legislation allows the utilities to recover from their retail customers
     the  projected  capital  costs  during the first seven years of the 10-year
     compliance  period beginning on January 1, 2003. The utilities must recover
     at least 70% of their  projected  capital costs during the  five-year  rate
     freeze period.  PEC recognized  amortization of $15 million and $20 million
     in the quarters  ended March 31, 2004 and 2003,  respectively.  Pursuant to
     the law, PEC entered into an agreement  with the state of North Carolina to
     transfer to the state certain NOx and SO2 emissions  allowances that result
     from  compliance  with the collective NOx and SO2 emission  limitations set
     out in the law.  The law also  requires  the state to  undertake a study of
     mercury and carbon  dioxide  emissions  in North  Carolina.  Operation  and
     maintenance costs will increase due to the additional personnel,  materials
     and  general  maintenance  associated  with the  equipment.  Operation  and
     maintenance  expenses are  recoverable  through base rates,  rather than as
     part  of  this   program.   PEC  cannot   predict  the  future   regulatory
     interpretation, implementation or impact of this law.

                                       37
<PAGE>

     In 1997,  the EPA's  Mercury  Study  Report and Utility  Report to Congress
     conveyed  that mercury is not a risk to the average  American and expressed
     uncertainty  about whether  reductions in mercury emissions from coal-fired
     power plants would reduce human exposure.  Nevertheless, the EPA determined
     in 2000 that regulation of mercury  emissions from coal-fired  power plants
     was appropriate.  In 2003, the EPA proposed  alternative control plans that
     would limit mercury  emissions from coal-fired  power plants.  The first, a
     Maximum  Available Control  Technology (MACT) standard  applicable to every
     coal-fired plant,  would require  compliance in 2008. The second, a mercury
     cap and trade program,  would require limits to be met in two phases,  2010
     and 2018.  The  mercury  rule is  expected  to become  final in March 2005.
     Achieving compliance with either proposal could involve significant capital
     costs which could be material to PEC's  consolidated  financial position or
     results of operations. PEC cannot predict the outcome of this matter.

     In  conjunction  with the proposed  mercury  rule,  the EPA proposed a MACT
     standard to regulate nickel  emissions from residual  oil-fired  units. The
     agency  estimates the proposal  will reduce  national  nickel  emissions to
     approximately 103 tons. The rule is expected to become final in March 2005.

     In December 2003, the EPA released its proposed Interstate Air Quality Rule
     (commonly known as the Fine Particulate  Transport Rule and/or the Regional
     Transport Rule). The EPA's proposal  requires 28  jurisdictions,  including
     North Carolina, South Carolina,  Georgia and Florida, to further reduce NOx
     and SO2 emissions in order to attain  pre-set NOx and SO2 emissions  levels
     (which have not yet been determined).  The rule is expected to become final
     in 2004. The air quality controls already installed for compliance with the
     NOx SIP Call and  currently  planned by PEC for  compliance  with the North
     Carolina   legislation   will  reduce  the  costs   required  to  meet  the
     requirements  of the  Interstate  Air Quality Rule for the Company's  North
     Carolina units.  Additional  compliance costs will be determined later this
     year once the rule is better defined.

     In March 2004,  the North Carolina  Attorney  General filed a petition with
     the EPA  under  Section  126 of the  Clean  Air  Act,  asking  the  federal
     government  to force  coal-fired  power  plants in thirteen  other  states,
     including South Carolina, to reduce their NOx and SO2 emissions.  The state
     of North Carolina  contends these  out-of-state  polluters are  interfering
     with North  Carolina's  ability to meet national air quality  standards for
     ozone and particulate  matter.  The EPA has not made a determination on the
     Section 126 petition, and PEC cannot predict the outcome of this matter.

     Water Quality

     As a result of the operation of certain control equipment needed to address
     the air  quality  issues  outlined  above,  new  wastewater  streams may be
     generated at the applicable facilities. Integration of these new wastewater
     streams  into the existing  wastewater  treatment  processes  may result in
     permitting,  construction and treatment  challenges to PEC in the immediate
     and extended future.

     After  many  years  of  litigation  and  settlement  negotiations  the  EPA
     published  regulations in February 2004 for the  implementation  of Section
     316(b) of the Clean  Water  Act.  The  purpose of these  regulations  is to
     minimize  adverse  environmental  impacts  caused by cooling  water  intake
     structures  and  intake   systems.   Over  the  next  several  years  these
     regulations will impact the larger base load generation  facilities and may
     require the  facilities  to mitigate  the effects to aquatic  organisms  by
     constructing   intake   modifications  or  undertaking   other  restorative
     activities.  Substantial costs could be incurred by the facilities in order
     to comply  with the new  regulation.  PEC cannot  predict  the  outcome and
     impacts to the facilities at this time.

     Other Environmental Matters

     The Kyoto  Protocol  was  adopted in 1997 by the United  Nations to address
     global  climate  change by reducing  emissions of carbon  dioxide and other
     greenhouse  gases.  The United  States has not adopted the Kyoto  Protocol,
     however,  a number of carbon dioxide  emissions control proposals have been
     advanced   in   Congress   and  by  the  Bush   administration.   The  Bush
     administration  favors  voluntary  programs.  Reductions in carbon  dioxide
     emissions  to  the  levels   specified  by  the  Kyoto  Protocol  and  some
     legislative  proposals  could be materially  adverse to PEC's  consolidated
     financial  position or results of operations if associated  costs cannot be
     recovered  from  customers.  PEC  favors  the  voluntary  program  approach
     recommended  by  the  administration  and is  evaluating  options  for  the
     reduction,  avoidance,  and sequestration of greenhouse gases. However, PEC
     cannot predict the outcome of this matter.

                                       38
<PAGE>

     Other Contingencies

     1. As required under the Nuclear Waste Policy Act of 1982, PEC entered into
     a contract  with the DOE under which the DOE agreed to begin  taking  spent
     nuclear  fuel by no later than  January 31, 1998.  All  similarly  situated
     utilities were required to sign the same standard contract.

     In  1995,  the DOE  issued a final  interpretation  that it did not have an
     unconditional obligation to take spent nuclear fuel by January 31, 1998. In
     Indiana Michigan Power v. DOE, the Court of Appeals vacated the DOE's final
     interpretation  and ruled that the DOE had an  unconditional  obligation to
     begin taking spent nuclear fuel. The Court did not specify a remedy because
     the DOE was not yet in default.

     After the DOE failed to comply with the decision in Indiana  Michigan Power
     v. DOE, a group of  utilities  petitioned  the Court of Appeals in Northern
     States  Power  (NSP) v. DOE,  seeking an order  requiring  the DOE to begin
     taking spent  nuclear  fuel by January 31, 1998.  The DOE took the position
     that its delay was  unavoidable,  and the DOE was excused from  performance
     under the terms and conditions of the contract.  The Court of Appeals found
     that the  delay  was not  unavoidable,  but did not  order the DOE to begin
     taking spent  nuclear  fuel,  stating that the  utilities had a potentially
     adequate remedy by filing a claim for damages under the contract.

     After the DOE failed to begin  taking  spent  nuclear  fuel by January  31,
     1998,  a group of  utilities  filed a motion  with the Court of  Appeals to
     enforce the mandate in NSP v. DOE.  Specifically,  this group of  utilities
     asked the Court to permit the utilities to escrow their waste fee payments,
     to order the DOE not to use the waste fund to pay damages to the utilities,
     and to order the DOE to establish a schedule for disposal of spent  nuclear
     fuel.  The Court denied this motion  based  primarily on the grounds that a
     review of the matter was premature, and that some of the requested remedies
     fell outside of the mandate in NSP v. DOE.

     Subsequently, a number of utilities each filed an action for damages in the
     Federal  Court of  Claims.  The U.S.  Circuit  Court  of  Appeals  (Federal
     Circuit)  ruled that  utilities  may sue the DOE for damages in the Federal
     Court of Claims instead of having to file an administrative claim with DOE.

     In January 2004,  PEC filed a complaint  with the DOE claiming that the DOE
     breached  the  Standard  Contract  for  Disposal of Spent  Nuclear  Fuel by
     failing  to  accept  spent  nuclear  fuel  from  various   Progress  Energy
     facilities on or before January 31, 1998.  Damages due to DOE's breach will
     likely exceed $100 million.  Similar suits have been  initiated by over two
     dozen other utilities.

     In July 2002,  Congress  passed an override  resolution to Nevada's veto of
     DOE's  proposal to locate a permanent  underground  nuclear  waste  storage
     facility  at  Yucca  Mountain,  Nevada.  DOE  plans  to  submit  a  license
     application for the Yucca Mountain facility by the end of 2004. In November
     2003, Congressional  negotiators approved $580 million for fiscal year 2004
     for the Yucca Mountain  project,  $123 million more than the previous year.
     PEC cannot predict the outcome of this matter.

     With certain modifications and additional approval by the NRC including the
     installation  of onsite  dry  storage  facilities  at  Robinson  (2005) and
     Brunswick  (2008),  PEC's spent  nuclear  fuel storage  facilities  will be
     sufficient to provide  storage space for spent fuel generated on its system
     through the  expiration  of the  operating  licenses for all of its nuclear
     generating units.

     2. In August 2003,  PEC was served as a co-defendant  in a purported  class
     action lawsuit styled as Collins v. Duke Energy Corporation et al, in South
     Carolina's  Circuit Court of Common Pleas for the Fifth  Judicial  Circuit.
     PEC is one of three electric utilities operating in South Carolina named in
     the suit. The plaintiffs are seeking  damages for the alleged  improper use
     of  electric  easements  but have not  asserted  a dollar  amount for their
     damage claims.  The complaint  alleges that the licensing of attachments on
     electric utility poles,  towers and other  structures to non-utility  third
     parties  or  telecommunication   companies  for  other  than  the  electric
     utilities'  internal  use along the  electric  right-of-way  constitutes  a
     trespass.

                                       39
<PAGE>

     In  September  2003,  PEC  filed a motion  to  dismiss  all  counts  of the
     complaint on  substantive  and  procedural  grounds.  In October 2003,  the
     plaintiffs  filed a motion  to amend  their  complaint.  PEC  believes  the
     amended  complaint  asserts  the  same  factual  allegations  as are in the
     original  complaint and also seeks money damages and injunctive  relief. In
     November 2003, PEC filed a motion to dismiss the plaintiffs'  first amended
     complaint.  In March 2004,  the  plaintiffs  in this case filed a notice of
     dismissal  without  prejudice of their  claims  against PEC and Duke Energy
     Corporation.

     3. In 2001,  PEC  entered  into a contract  to  purchase  coal from  Dynegy
     Marketing and Trade (DMT).  After DMT experienced  financial  difficulties,
     including credit ratings  downgrades by certain credit reporting  agencies,
     PEC requested credit  enhancements in accordance with the terms of the coal
     purchase   agreement   in  July  2002.   When  DMT  did  not  offer  credit
     enhancements,  as required by a provision in the contract,  PEC  terminated
     the contract in July 2002.

     PEC initiated a lawsuit seeking a declaratory judgment that the termination
     was lawful.  DMT  counterclaimed,  stating the  termination was a breach of
     contract.  On March 23,  2004,  the United  States  District  Court for the
     Eastern  District of North Carolina ruled that PEC was liable for breach of
     contract, but ruled against DMT on its unfair and deceptive trade practices
     claim. The Court subsequently  entered a judgment against PEC in the amount
     of approximately $10 million. PEC intends to appeal the Court's ruling, but
     cannot predict the outcome of this matter.  PEC recorded an accrual for the
     judgment and a regulatory asset for the probable  recovery through its fuel
     adjustment clause.

     4. PEC is involved in various  litigation matters in the ordinary course of
     business,  some of which involve  substantial  amounts.  Where appropriate,
     accruals  have been made in  accordance  with SFAS No. 5,  "Accounting  for
     Contingencies," to provide for such matters.  In the opinion of management,
     the final  disposition  of  pending  litigation  would not have a  material
     adverse  effect on PEC's  consolidated  results of  operations or financial
     position.

                                       40
<PAGE>

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

The following  Management's  Discussion  and Analysis  contains  forward-looking
statements that involve estimates,  projections, goals, forecasts,  assumptions,
risks and  uncertainties  that could cause actual  results or outcomes to differ
materially from those expressed in the forward-looking statements. Please review
"SAFE HARBOR FOR  FORWARD-LOOKING  STATEMENTS"  for a discussion  of the factors
that may impact any such forward-looking statements made herein.

Amounts  reported  in the  interim  Consolidated  Statements  of Income  are not
necessarily  indicative of amounts expected for the respective  annual or future
periods  due to  the  effects  of  seasonal  temperature  variations  on  energy
consumption and the timing of maintenance on electric  generating  units,  among
other factors.

This discussion  should be read in conjunction with the  accompanying  financial
statements  found elsewhere in this report and in conjunction with the 2003 Form
10-K.

RESULTS OF OPERATIONS

Progress Energy is an integrated  energy company,  with its primary focus on the
end-use and wholesale  electricity  markets.  The Company's  reportable business
segments and their primary operations include:

     o    Progress Energy Carolinas  Electric (PEC Electric) - primarily engaged
          in the generation, transmission,  distribution and sale of electricity
          in portions of North Carolina and South Carolina;
     o    Progress  Energy Florida (PEF) - primarily  engaged in the generation,
          transmission,  distribution  and sale of  electricity  in  portions of
          Florida;
     o    Competitive  Commercial  Operations  (CCO) - engaged  in  nonregulated
          electric generation  operations and marketing  activities primarily in
          the southeastern United States;
     o    Fuels -  primarily  engaged in  natural  gas  production  in Texas and
          Louisiana,  coal mining and related  services,  and the  production of
          synthetic  fuels and  related  services,  both of which are located in
          Kentucky, West Virginia, and Virginia;
     o    Rail  Services  (Rail) - engaged in various  rail and railcar  related
          services in 23 states, Mexico and Canada; and
     o    Other  Businesses  (Other) - engaged  in other  nonregulated  business
          areas,  including  telecommunications  primarily in the eastern United
          States  and  energy  services  operations,   which  do  not  meet  the
          requirements for separate segment reporting disclosure.

In this  section,  earnings  and the factors  affecting  earnings  for the three
months  ended  March  31,  2004 as  compared  to the  same  period  in 2003  are
discussed.  The  discussion  begins with a summarized  overview of the Company's
consolidated  earnings,  which is followed  by a more  detailed  discussion  and
analysis by business segment.

OVERVIEW

For the  quarter  ended  March 31 2004,  Progress  Energy's  net income was $108
million or $0.45 per share  compared to $219  million or $0.94 per share for the
same  period in 2003.  The  decrease in net income as compared to prior year was
due primarily to:

     o    Lower off-system sales, primarily by PEC Electric.
     o    Higher  O&M  costs at the  utilities  due to  increased  spending  for
          scheduled  plant outages in both the Carolinas and Florida and planned
          reliability improvements in Florida.
     o    Decreased  nonregulated  generation  earnings  due  to  receipt  of  a
          contract termination payment on a tolling agreement in 2003 and higher
          fixed costs and interest charges in 2004.
     o    Unrealized losses recorded on contingent value obligations.
     o    The impact of tax levelization.

Partially offsetting these items were:

     o    Increased natural gas revenues.
     o    Utility customer growth in the Carolinas.

                                       41
<PAGE>

Basic earnings per share  decreased in 2004 due in part to the factors  outlined
above. Dilution related to the issuances under the Company's Investor Plus Stock
Purchase Plan and employee  benefit programs in 2003 and 2004 also reduced basic
earnings per share by $0.02 in the first quarter of 2004.

Beginning in the fourth quarter of 2003, the Company ceased  recording  portions
of Fuels segment's operations, primarily synthetic fuel facilities, one month in
arrears. As a result,  earnings for the year ended December 31, 2003 included 13
months of operations,  resulting in a net income  increase of $2 million for the
year. The Company restated previously reported  consolidated  quarterly earnings
to reflect the new  reporting  periods,  resulting in four months of earnings in
the restated first quarter 2003 net income which  increased $11 million from the
amount previously reported.

The Company's segments contributed the following profits or losses for the three
months ended March 31, 2004 and 2003:

------------------------------------------------------------------------------
(in millions)                                 Three Months Ended March 31,
------------------------------------------------------------------------------

Business Segment                                       2004             2003
------------------------------------------------------------------------------
PEC Electric                                           $  116          $  135
PEF                                                        49              71
Fuels                                                      48              38
CCO                                                        (8)              9
Rail                                                        6              (3)
Other                                                      (2)              -
                                            ----------------------------------
    Total Segment Profit                                  209             250
Corporate                                                (101)            (43)
                                            ----------------------------------
Income from continuing operations                         108             207
NCNG discontinued operations                                -              11
Cumulative effect of change in accounting
      principle, net of tax                                 -               1
                                            ----------------------------------
    Net income                                         $  108          $  219
------------------------------------------------------------------------------

In March 2003, the SEC completed an audit of Progress  Energy  Service  Company,
LLC  (Service  Company)  and  recommended  that  the  Company  change  its  cost
allocation  methodology  for allocating  Service  Company costs.  As part of the
audit  process,   the  Company  was  required  to  change  the  cost  allocation
methodology for 2003 and record retroactive reallocations between its affiliates
in the first quarter of 2003 for  allocations  originally made in 2001 and 2002.
This change in allocation  methodology and the related  retroactive  adjustments
have  no  impact  on  consolidated  expense  or  earnings.  The  new  allocation
methodology,  as  compared to the  previous  allocation  methodology,  generally
decreases  expenses in the regulated  utilities  and  increases  expenses in the
nonregulated  businesses.  The  regulated  utilities'  reallocations  are within
operation and  maintenance  (O&M)  expense,  while the  diversified  businesses'
reallocations are generally within diversified business expenses.  The impact on
the individual lines of business is included in the following discussions.

PROGRESS ENERGY CAROLINAS ELECTRIC

PEC Electric  contributed  segment  profits of $116 million and $135 million for
the three  months ended March 31, 2004 and 2003,  respectively.  The decrease in
profits for the three months ended March 31, 2004 as compared to the same period
in 2003 is  primarily  due to lower  off-system  sales and higher  O&M  charges,
partially offset by the favorable impact of colder weather,  increased  revenues
from customer growth and lower depreciation and amortization charges.

Revenues

PEC Electric's  revenues for the three months ended March 31, 2004 and 2003, and
the percentage change by customer class are as follows:

                                       42
<PAGE>

------------------------------------------------------------------------
(in millions of $)                   Three Months Ended March 31,
------------------------------------------------------------------------
Customer Class                 2004      Change     % Change    2003
------------------------------------------------------------------------
Residential                      $ 371     $   14     3.9%         $ 357
Commercial                         208          7     3.5%           201
Industrial                         147          -      -             147
Governmental                        19          -      -              19
                            ----------------------            ----------
    Total retail revenues          745         21     2.9%           724
Wholesale                          156        (53)   (25.4%)         209
Unbilled                           (23)         8      -             (31)
Miscellaneous                       23         (1)   (4.2%)           24
                            ----------------------            ----------
  Total electric revenues        $ 901     $  (25)   (2.7%)        $ 926
------------------------------------------------------------------------

PEC Electric's  energy sales for the three months ended March 31, 2004 and 2003,
and the amount and percentage change by customer class are as follows:

------------------------------------------------------------------------
(in millions of kWh)                 Three Months Ended March 31,
------------------------------------------------------------------------
Customer Class                 2004      Change     % Change    2003
------------------------------------------------------------------------
Residential                      4,741        154      3.4%       4,587
Commercial                       3,058         75      2.5%       2,983
Industrial                       2,993        (12)    (0.4%)      3,005
Governmental                       345          2      0.6%         343
                            ----------------------            ----------
    Total   retail   energy     11,137        219      2.0%      10,918
sales
Wholesale                        3,791       (828)   (17.9%)      4,619
Unbilled                          (385)        95       -          (480)
                            ----------------------            ----------
    Total kWh sales             14,543       (514)    (3.4%)     15,057
------------------------------------------------------------------------

PEC Electric's revenues, excluding recoverable fuel revenues of $239 million and
$251 million for the three  months ended March 31, 2004 and 2003,  respectively,
decreased  $13  million.  The  decrease in revenues  was due  primarily to lower
wholesale  sales.  Revenues for the quarter ended March 31, 2003 included strong
sales  to the  Northeastern  United  States  as a  result  of  favorable  market
conditions.  The decline in wholesale revenues was partially offset by increased
retail revenues as a result of favorable weather,  with heating degree days 3.8%
above prior year. In addition,  favorable  customer growth  partially offset the
decrease in wholesale sales. PEC Electric has  approximately  24,000  additional
customers as of March 31, 2004 compared to March 31, 2003.

Expenses

Fuel and purchased power expenses are recovered  primarily through cost recovery
clauses and, as such,  changes in expense  have no material  impact on operating
results.

O&M costs were $209 million for the three  months  ended March 31,  2004,  which
represents  a $19 million  increase  compared  to the same  period in 2003.  O&M
expenses  increased  in the current year due  primarily  to the Service  Company
reallocation in 2003. O&M charges were favorably impacted by $16 million related
to the  retroactive  reallocation of Service Company costs in the prior year. In
addition,  O&M costs  increased  $5 million  related to a planned  outage at the
Brunswick   Nuclear  Plant  and  another  $5  million  related  to  right-of-way
maintenance costs. These increases were partially offset by lower storm costs of
$4 million compared to the prior year. PEC Electric  incurred severe storm costs
of $16 million during the quarter, of which approximately $10 million related to
costs in the South Carolina service territory was deferred.  Storm costs for the
quarter  ended  March 31,  2003 were  approximately  $10 million and while these
costs were also deferred, the deferral was not received until the fourth quarter
of 2003;  therefore,  the effects of the  reversal  were  recorded in the fourth
quarter.

Depreciation  and amortization  expense  decreased $12 million from $139 million
for the quarter ended March 31, 2003 to $127 million for the quarter ended March
31, 2004.  During the first quarter of 2004,  PEC Electric  filed with the North
Carolina  Utilities  Commission  (NCUC)  and  obtained  approval  from the South
Carolina  Public  Service  Commission  (SCPSC)  for a  depreciation  study which
allowed the utility to reduce the rates used to calculate  depreciation expense.
As a result depreciation expense decreased $7 million compared to the prior year
quarter.  The new depreciation study provides support for reducing  depreciation
expense on an annual  basis by  approximately  $45  million.  The  reduction  in
depreciation expense is primarily attributable to assumption changes for nuclear
generation,  offset by increases for distribution assets. In addition, clean air
amortization decreased $5 million compared to the prior year.

                                       43
<PAGE>

Other  expenses have  increased $10 million for the period ending March 31, 2004
as compared to the same period in the prior year. This increase is due primarily
to the write-off of $7 million of non-trade receivables.

PROGRESS ENERGY FLORIDA

PEF  contributed  segment  profits of $49  million  and $71 million in the three
months ended March 31, 2004 and 2003, respectively.  The decrease in profits for
the three months ended March 31, 2004 when  compared to 2003 is primarily due to
the impact of milder  weather  and higher  O&M  costs,  partially  offset by the
additional return on investment on the Hines 2 plant.

PEF's electric  revenues for the three months ended March 31, 2004 and 2003, and
the amount and percentage change by customer class are as follows:

------------------------------------------------------------------------
(in millions of $)                   Three Months Ended March 31,
------------------------------------------------------------------------
Customer Class                   2004      Change     % Change    2003
------------------------------------------------------------------------
Residential                      $ 402       $ 17     4.4%        $ 385
Commercial                         181         31    20.7%          150
Industrial                          63         15    31.3%           48
Governmental                        46          8    21.1%           38
Retroactive rate refund              -          -      -              -
Retail revenue sharing              (4)        (4)     -              -
                            ----------------------            ----------
    Total retail revenues          688         67    10.8%          621
Wholesale                           67         (4)   (5.6%)          71
Unbilled                            (6)        (5)     -             (1)
Miscellaneous                       35         (2)   (5.4%)          37
                            ----------------------            ----------
    Total electric revenues      $ 784       $ 56     7.7%        $ 728
------------------------------------------------------------------------

PEF's electric energy sales for the three months ended March 31, 2004
and 2003, and the amount and percentage change by customer class are as
follows:

------------------------------------------------------------------------
(in millions of kWh)                 Three Months Ended March 31,
------------------------------------------------------------------------
Customer Class                   2004      Change     % Change    2003
------------------------------------------------------------------------
Residential                      4,291       (262)   (5.8%)        4,553
Commercial                       2,491         49     2.0%         2,442
Industrial                       1,023        107    11.7%           916
Governmental                       672         16     2.4%           656
                            ----------------------            ----------
    Total   retail   energy      8,477        (90)   (1.1%)        8,567
sales
Wholesale                        1,323         46     3.6%         1,277
Unbilled                          (135)      (190)     -              55
                            ----------------------            ----------
    Total kWh sales              9,665       (234)   (2.4%)        9,899
------------------------------------------------------------------------

Revenues

PEF's revenues,  excluding  recoverable fuel and other pass-through  revenues of
$448  million  and $372  million for the three  months  ended March 31, 2004 and
2003,  respectively,  decreased $20 million.  This decrease was due primarily to
the impact of milder weather which was offset partially by the $7 million return
on Hines 2 which was placed in service in December 2003.

Expenses

Fuel and purchased power expenses are recovered  primarily through cost recovery
clauses and, as such,  changes in expense  have no material  impact on operating
results.

O&M costs  increased  $19 million,  when  compared to the $141 million  incurred
during the three months ended March 31, 2003. This increase is primarily related
to higher costs associated with scheduled plant outages and planned  reliability
improvements of approximately $6 million each.

Depreciation  and  amortization  decreased  $10 million when compared to the $79
million incurred during the three months ended March 31, 2003,  primarily due to
the amortization of the Tiger Bay regulatory asset in the prior year. During the
first quarter of 2003,  Tiger Bay  amortization  was $15 million.  The Tiger Bay
asset  was  fully  amortized  in  September  2003.  The  decrease  in Tiger  Bay
amortization was partially  offset by additional  depreciation for assets placed
in service.

                                       44
<PAGE>

DIVERSIFIED BUSINESSES

The  Company's  diversified  businesses  consist of the Fuels  segment,  the CCO
segment, the Rail segment and the Other segment.  These businesses are explained
in more detail below.

Fuels

The Fuels' segment  operations  include synthetic fuels production,  natural gas
production,  coal  extraction  and terminal  operations.  Fuels' results for the
three  months  ended  March 31,  2003 were  restated  to reflect  four months of
earnings for certain  operations,  primarily  synthetic fuel facilities.  Fuels'
segment  profits  increased  $10 million as compared to $38 million for the same
period prior year due primarily to increased earnings from gas operations with a
full  quarter of North  Texas Gas  volumes in the current  year  (acquired  late
February 2003) and higher gas prices in 2004.

The following summarizes Fuels' segment profits for the three months ended March
31, 2004 and 2003:

-----------------------------------------------------------------
(in millions)                                 2004          2003
-----------------------------------------------------------------
  Synthetic fuel operations                   $  36         $ 34
  Gas production                                 13            7
  Coal fuel and other operations                 (1)          (3)
                                   ------------------------------
     Segment Profits                          $  48         $ 38
-----------------------------------------------------------------

Synthetic Fuel Operations

The  synthetic  fuel  operations  generated  net  profits of $36 million and $34
million for the three  months ended March 31, 2004 and 2003,  respectively.  The
production and sale of synthetic fuel generate operating losses, but qualify for
tax credits under  Section 29 of the Code,  which more than offset the effect of
such  losses.  See Note 12 to the  Progress  Energy  Notes  to the  Consolidated
Interim Financial Statements.

The  operations  resulted in the  following for the three months ended March 31,
2004 and 2003:

---------------------------------------------------------------------
(in millions)                                     2004          2003
---------------------------------------------------------------------
Tons sold                                          2.9           2.5
---------------------------------------------------------------------

Operating losses, excluding tax credits          $ (42)       $  (32)
Tax credits generated                               78            66
                                          ---------------------------
    Net profits                                  $  36        $   34
---------------------------------------------------------------------

Synthetic  fuels'  tons sold and net profits  increased  as compared to the same
period in 2003 due primarily to a change in internal production schedule in 2004
compared to 2003. The Company  anticipates  total  synthetic fuel  production of
approximately  11 to 12  million  tons for  2004  which  is  comparable  to 2003
production levels.

Natural Gas Operations

Natural gas operations  generated  profits of $13 million and $7 million for the
three  months  ended  March 31,  2004 and 2003,  respectively.  The  increase in
production  resulted  from the  acquisition  of North Texas Gas in late February
2003 and higher gas prices in 2004 contributed to increased  earnings in 2004 as
compared to 2003. In October 2003, the Company completed the sale of certain gas
producing  properties owned by Mesa Hydrocarbons,  LLC. The following summarizes
the gas production,  revenues and gross margins for the three months ended March
31, 2004 and 2003 by production facility:

                                       45
<PAGE>

-----------------------------------------------------------------------------
                                               2004             2003
-----------------------------------------------------------------------------
      Production in Bcf equivalent
Mesa                                               -              1.7
Westchester                                      4.0              3.2
North Texas Gas                                  2.7              0.5
                                         ------------------------------------
    Total Production                             6.7              5.4
                                         ------------------------------------

          Revenues in millions
Mesa                                            $  -             $  5
Westchester                                       22               15
North Texas Gas                                   13                4
                                         ------------------------------------
    Total Revenues                               $35             $ 24
                                         ------------------------------------

              Gross Margin
in millions of $                                $ 27             $ 19
As a % of revenues                                77%              79%
-----------------------------------------------------------------------------

Coal Fuel and Other Operations

Coal fuel and other  operations  generated  segment losses of $1 million for the
three months ended March 31, 2004 compared to losses of $3 million for the three
months  ended  March 31,  2003.  The  decrease  in losses of $2  million  is due
primarily to the impact of the  retroactive  Service  Company  allocation in the
prior  year.  Results  in the same  period  for the prior  year were  negatively
impacted by the retroactive  reallocation of Service Company costs of $4 million
after-tax.

COMPETiTIVE COMMERCIAL OPERATIONS

CCO's  operations  generated  segment  losses of $8 million for the three months
ended  March 31, 2004  compared  to $9 million of net income for the  comparable
period in the prior year.  Segment  results for the three months ended March 31,
2003 include a contract  termination  payment  received on a tolling  agreement.
Results for the quarter ended March 31, 2004 were also  unfavorably  impacted by
mark-to-market  losses  of $9  million  and  higher  fixed  costs.  Fixed  costs
increased $9 million from  additional  depreciation  and  amortization on plants
placed  into  service in 2003 and from an  increase  in  interest  expense of $5
million  due  primarily  to  interest  no longer  being  capitalized  due to the
completion of construction in the prior year.  These items were partially offset
by favorable  margins on tolling and new marketing  contracts of $16 million and
the fact that results in the prior year quarter were negatively  impacted by the
retroactive  reallocation  of Service  Company  costs of $3 million  ($2 million
after-tax).

------------------------------------------------------------
(in millions)                               2004       2003
------------------------------------------------------------
Total revenues                             $  33      $  37
Gross margin
   In millions of $                        $  23      $  34
   As a % of revenues                         70%        92%
Segment profits                            $  (8)     $   9
------------------------------------------------------------

The Company has  contracts for 90% of planned  production  capacity for 2004 and
55% in both 2005 and 2006. The 2005 decline  results from the expiration of four
tolling  contracts.  The Company  continues  to pursue  opportunities  with both
current customers and other potential customers.

Rail

Rail's operations include railcar and locomotive repair,  trackwork,  rail parts
reconditioning and sales, scrap metal recycling and other rail related services.
The  Company  sold the  majority  of the  assets  of  Railcar  Ltd.,  a  leasing
subsidiary,  in  2004.  See  Note  3A  of  the  Progress  Energy  Notes  to  the
Consolidated Interim Financial Statements.

Rail  contributed  segment  profit of $6 million for the quarter ended March 31,
2004  compared  with a net loss of $3 million  for the same  period in the prior
year.  Rail's earnings were positively  impacted by higher prices and margins on
recycling operations. In addition, results for the same period in the prior year
were  negatively  impacted by the  retroactive  reallocation  of Service Company
costs of $3 million after-tax.

                                       46
<PAGE>

Other Businesses Segment

Progress Energy's Other segment primarily includes the operations of SRS and the
telecommunications  operations  of PTC LLC. SRS is engaged in  providing  energy
services to industrial,  commercial and  institutional  customers to help manage
energy costs and currently  focuses its  activities in the  southeastern  United
States. PTC LLC operations  provide broadband capacity services,  dark fiber and
wireless services in Florida and the eastern United States.

PTC LLC  recorded a segment net loss of $1 million net of minority  interest for
the quarter  ended March 31, 2004  compared with segment net income of less than
$1 million for the same  period last year.  PTC LLC's  results  were  negatively
impacted by  integration  costs  associated  with its  combination  with EPIK in
December 2003. In addition, results in the prior quarter were favorably impacted
by  the  retroactive  reallocation  of  Service  Company  costs  of  $1  million
after-tax.

CORPORATE SERVICES

Corporate  Services includes the operations of the Holding Company,  the Service
Company and consolidation entities, as summarized below:

-----------------------------------------------------------------
                                            Three Months Ended
                                                 March 31,
-----------------------------------------------------------------
Income (expense) in millions                  2004         2003
-----------------------------------------------------------------
  Other interest expense                     $  (76)      $ (71)
  Contingent value obligations                   (7)          2
  Tax levelization                              (39)         10
  Tax reallocation                               (9)         (9)
  Other income taxes                             30          31
  Other                                           -          (6)
                                        -------------------------
    Segment profit (loss)                    $ (101)      $ (43)
-----------------------------------------------------------------

Other interest  expense has increased $5 million compared to $71 million for the
quarter  ended March 31, 2003.  Interest  expense  increased  during the current
quarter  from  interest no longer being  capitalized  due to the  completion  of
construction in the prior year.  Approximately $5 million ($3 million after-tax)
was capitalized in the first quarter of 2003.

Progress  Energy  issued 98.6 million  contingent  value  obligations  (CVOs) in
connection  with the 2000 FPC  acquisition.  Each CVO  represents  the  right to
receive  contingent  payments  based on the  performance  of four synthetic fuel
facilities owned by Progress Energy. The payments,  if any, are based on the net
after-tax  cash flows the facilities  generate.  At March 31, 2004 and 2003, the
CVOs had fair  market  values of  approximately  $30  million  and $12  million,
respectively.  Progress  Energy  recorded an  unrealized  loss of $7 million and
unrealized  gain of $2 million  for the three  months  ended  March 31, 2004 and
2003,  respectively,  to record the changes in fair value of the CVOs, which had
average unit prices of $0.31 and $0.12 at March 31, 2004 and 2003, respectively.

GAAP  requires  companies  to apply a  levelized  effective  tax rate to interim
periods that is consistent with the estimated annual effective tax rate.  Income
tax expense was  increased  by $39 million and  decreased by $10 million for the
three months ended March 31, 2004 and 2003,  respectively,  in order to maintain
an effective tax rate consistent with the estimated annual rate. The tax credits
associated  with the Company's  synthetic fuel  operations  primarily  drive the
required levelization amount.  Fluctuations in estimated annual earnings and tax
credits  can also  cause  large  swings in the  effective  tax rate for  interim
periods.  Therefore,  this adjustment  will vary each quarter,  but will have no
effect on net income for the year.

Other expenses decreased $6 million compared to prior year. This decrease is due
primarily to the impact of retroactive  reallocation of Service Company costs in
the prior year.  Other expenses for the quarter ended March 31, 2003 included $5
million in expenses ($3 million after-tax) based on the reallocation.

                                       47
<PAGE>

DISCONTINUED OPERATIONS

In  2002,  the  Company  approved  the  sale of NCNG  and the  Company's  equity
investment  in ENCNG to Piedmont  Natural Gas  Company,  Inc. The sale closed on
September 30, 2003. Net proceeds of approximately  $450 million from the sale of
NCNG and ENCNG were used to reduce outstanding short-term debt. NCNG contributed
$11 million of net income to the Company in the first quarter of 2003.

LIQUIDITY AND CAPITAL RESOURCES

Progress Energy, Inc.

Progress Energy is a registered  holding company and, as such, has no operations
of its own. As a holding company, Progress Energy's primary cash obligations are
its common dividend and interest expense. The ability to meet its obligations is
primarily dependent on the earnings and cash flows of its two electric utilities
and  nonregulated  subsidiaries,  and the ability of those  subsidiaries  to pay
dividends or repay funds to Progress Energy.

Net cash  provided by operating  activities  decreased $57 million for the three
months ended March 31, 2004,  when compared to the  corresponding  period in the
prior year. The decrease in cash from  operating  activities for the 2004 period
is  primarily  due to lower  operating  results at the  Company's  two  electric
utilities and changes in working capital.

Net cash used in  investing  activities  decreased  $332  million  for the three
months ended March 31, 2004,  when compared to the  corresponding  period in the
prior year.  The decrease in cash used in investing  activities is primarily due
to reduced  nonregulated capital  expenditures,  primarily the purchase of North
Texas Gas  assets in the first  quarter  of 2003 and  proceeds  from the sale of
Railcar Ltd. assets during the first quarter of 2004.

Net cash used in  financing  activities  was $346  million for the three  months
ended March 31, 2004. On March 1, 2004,  Progress Energy used available cash and
proceeds  from the issuance of  commercial  paper to retire $500  million  6.55%
senior  unsecured  notes.  Cash  and  commercial  paper  capacity  were  created
primarily from the sale of assets in 2003.

For the three months ended March 31, 2004, the Company issued  approximately 0.7
million  shares  representing  approximately  $29 million in  proceeds  from its
Investor Plus Stock Purchase Plan and its employee  benefit  plans.  The Company
expects to realize  between  $50 and $75  million of cash from the sale of stock
through these plans during 2004.

The amount  and timing of future  sales of  company  securities  will  depend on
market  conditions,  operating cash flow,  asset sales and the specific needs of
the Company. The Company may from time to time sell securities beyond the amount
needed to meet capital  requirements in order to allow for the early  redemption
of  long-term  debt,  the  redemption  of  preferred  stock,  the  reduction  of
short-term debt or for other general corporate purposes.

Future Commitments

As of March 31,  2004,  the current  portion of  long-term  debt of $232 million
includes $150 million of secured debt issued by PEC which matured. This note was
paid off through the issuance of commercial paper and with  internally-generated
funds.

As of March 31, 2004,  Progress  Energy's  guarantees  issued on behalf of third
parties were approximately $10 million.

OTHER MATTERS

PEF Rate Case Settlement

In March 2002,  the parties in PEF's rate case  entered into a  Stipulation  and
Settlement  Agreement  (the  Agreement)  related  to retail  rate  matters.  The
Agreement was approved by the FPSC and is generally  effective  from May 1, 2002
through December 31, 2005; provided,  however,  that if PEF's base rate earnings
fall below a 10% return on equity,  PEF may  petition the FPSC to amend its base
rates.

                                       48
<PAGE>

Synthetic Fuels Tax Credits

Progress Energy, through its subsidiaries, produces a coal-based solid synthetic
fuel.  The  production  and sale of the  synthetic  fuel from  these  facilities
qualifies  for tax credits  under Section 29 of the Code (Section 29) if certain
requirements  are  satisfied,  including a requirement  that the synthetic  fuel
differs significantly in chemical composition from the coal used to produce such
synthetic fuel and that the fuel was produced from a facility that was placed in
service  before July 1, 1998. Any synthetic fuel tax credit amounts not utilized
are carried  forward  indefinitely.  All of  Progress  Energy's  synthetic  fuel
facilities have received private letter rulings (PLRs) from the Internal Revenue
Service (IRS) with respect to their synthetic fuel operations. These tax credits
are  subject  to review by the IRS,  and if  Progress  Energy  fails to  prevail
through the  administrative  or legal process,  there could be a significant tax
liability  owed for  previously  taken  Section 29 credits,  with a  significant
impact on earnings and cash flows. Additionally,  the ability to use tax credits
currently  being  carried  forward  could be  denied.  Total  Section 29 credits
generated to date (including  those generated by FPC prior to its acquisition by
the Company) are  approximately  $1.3  billion,  of which $585 million have been
used and $736 million are being  carried  forward as deferred  tax credits.  The
current Section 29 tax credit program expires at the end of 2007.

In September 2002, all of the Company's  majority-owned  synthetic fuel entities
were accepted into the IRS's Pre-filing Agreement (PFA) program. The PFA program
allows taxpayers to voluntarily accelerate the IRS exam process in order to seek
resolution of specific  issues.  Either the Company or the IRS can withdraw from
the program, and issues not resolved through the program may proceed to the next
level of the IRS exam process.

In February 2004,  subsidiaries of the Company finalized execution of the Colona
Closing   Agreement  with  the  IRS  concerning   their  Colona  synthetic  fuel
facilities.  The Colona Closing  Agreement  provided that the Colona  facilities
were placed in service  before July 1, 1998,  which is one of the  qualification
requirements  for tax credits  under  Section 29. The Colona  Closing  Agreement
further  provides that the fuel  produced by the Colona  facilities in 2001 is a
"qualified  fuel" for  purposes  of the  Section  29 tax  credits.  This  action
concludes the IRS PFA program with respect to Colona.  Although the execution of
the Colona Closing  Agreement is a significant  event, the PFA process continues
with respect to the four synthetic fuel facilities  owned by other affiliates of
Progress  Energy and FPC.  Currently,  the focus of that process is to determine
that the facilities  were placed in service before July 1, 1998. In management's
opinion,  Progress Energy is complying with all the necessary requirements to be
allowed such credits under  Section 29,  although it cannot  provide  certainty,
that it will prevail if challenged by the IRS on credits taken. Accordingly, the
Company has no current plans to alter its synthetic fuel production  schedule as
a result of these matters.

In  October  2003,   the  United  States  Senate   Permanent   Subcommittee   on
Investigations  began a  general  investigation  concerning  synthetic  fuel tax
credits claimed under Section 29. The investigation is examining the utilization
of the credits, the nature of the technologies and fuels created, the use of the
synthetic  fuel and other  aspects  of  Section  29 and is not  specific  to the
Company's synthetic fuel operations. Progress Energy is providing information in
connection  with this  investigation.  The Company cannot predict the outcome of
this matter.

In  addition,  the  Company  has  retained  an  advisor  to assist in selling an
interest in one or more  synthetic  fuel  entities.  The Company is pursuing the
sale  of  a  portion  of  its  synthetic  fuel   production   capacity  that  is
underutilized  due to limits on the amount of credits that can be generated  and
utilized  by the  Company.  The  Company  would  expect to  retain an  ownership
interest  and to operate  any sold  facility  for a  management  fee.  The final
outcome and timing of the Company's  efforts to sell interests in synthetic fuel
facilities is uncertain and while the Company cannot predict the outcome of this
matter,  the  outcome  is  not  expected  to  have  a  material  effect  on  the
consolidated financial position, cash flows or results of operations.

Nuclear Matters

The  United  States  Nuclear  Regulatory  Commission  (NRC) on April  19,  2004,
announced that it has renewed the operating  license for PEC's Robinson  Nuclear
Plant for an  additional  20 years  through July 2030.  The  original  operating
license of 40 years was set to expire in 2010. During the first quarter of 2004,
PEC filed with the NCUC and obtained  approval from the SCPSC for a depreciation
study  which  allowed  the  utility  to  reduce  the  rates  used  to  calculate
depreciation  expense.  The  reduction  in  depreciation  expense  is  primarily
attributable to assumption changes for nuclear generation.

                                       49
<PAGE>

In February 2004, the NRC issued a revised Order for inspection requirements for
reactor  pressure  vessel  heads at  PWRs.  The  Company  is in the  process  of
complying with the Order. No adverse impact is anticipated.

The NRC has issued various  orders since  September 2001 with regard to security
at nuclear  plants.  These orders  include  additional  restrictions  on access,
increased security measures at nuclear  facilities and closer  coordination with
the Company's partners in intelligence,  military, law enforcement and emergency
response at the federal,  state and local levels.  The Company is completing the
requirements as outlined in the orders by the established deadlines. As the NRC,
other  governmental  entities  and the  industry  continue to consider  security
issues, it is possible that more extensive security plans could be required.

Franchise Litigation

Three cities,  with a total of approximately  18,000 customers,  have litigation
pending  against PEF in various circuit courts in Florida.  As discussed  below,
three  other  cities,  with a total  of  approximately  30,000  customers,  have
subsequently  settled their lawsuits with PEF and signed new, 30-year  franchise
agreements.  The lawsuits  principally  seek 1) a declaratory  judgment that the
cities have the right to purchase  PEF's  electric  distribution  system located
within the municipal  boundaries of the cities,  2) a declaratory  judgment that
the value of the distribution system must be determined through arbitration, and
3) injunctive  relief  requiring PEF to continue to collect from PEF's customers
and remit to the cities,  franchise fees during the pending  litigation,  and as
long as PEF continues to occupy the cities'  rights-of-way  to provide  electric
service,  notwithstanding the expiration of the franchise ordinances under which
PEF had agreed to collect  such fees.  Five circuit  courts have entered  orders
requiring  arbitration  to  establish  the  purchase  price  of  PEF's  electric
distribution  system within five cities.  Two appellate courts have upheld these
circuit court  decisions and  authorized  cities to determine the value of PEF's
electric distribution system within the cities through arbitration.

Arbitration  in one of the cases  (the City of  Casselberry)  was held in August
2002. Following arbitration,  the parties entered settlement discussions, and in
July 2003 the City approved a settlement  agreement and a new, 30-year franchise
agreement with PEF. The  settlement  resolves all pending  litigation  with that
city. A second  arbitration (with the  13,000-customer  City of Winter Park) was
completed in February 2003. That  arbitration  panel issued an award in May 2003
setting the value of PEF's distribution system within the City of Winter Park at
approximately $32 million,  not including separation and reintegration costs and
construction  work in progress,  which could add several  million dollars to the
award. The panel also awarded PEF  approximately  $11 million in stranded costs,
which according to the award decreases over time. In September 2003, Winter Park
voters passed a referendum that would authorize the City to issue bonds of up to
approximately $50 million to acquire PEF's electric  distribution  system. While
the City has not yet definitively decided whether it will acquire the system, on
April 26, 2004,  the City  Commission  voted to enter into a hedge  agreement to
lock into interest rates for the acquisition of the system.  The City has sought
and received  wholesale  power supply bids and has  indicated  that it will seek
bids to operate and maintain the distribution  system. At this time, whether and
when there will be further proceedings  regarding the City of Winter Park cannot
be determined.  A third arbitration (with the  2,500-customer  Town of Belleair)
was completed in June 2003. In September 2003, the  arbitration  panel issued an
award in that case setting the value of the electric  distribution system within
the Town at approximately $6 million. The panel further required the Town to pay
to PEF its  requested  $1  million in  separation  and  reintegration  costs and
approximately $2 million in stranded costs. The Town has not yet decided whether
it will attempt to acquire the system. At this time, whether and when there will
be further  proceedings  regarding the Town of Belleair cannot be determined.  A
fourth arbitration (with the 13,000-customer  City of Apopka) had been scheduled
for January 2004. In December  2003, the Apopka City  Commission  voted on first
reading to approve a settlement  agreement and a 30-year franchise with PEF. The
settlement and franchise  became  effective upon approval by the Commission at a
second  reading of the franchise in January 2004.  The  settlement  resolves all
outstanding litigation between the parties.

Arbitration  in the remaining  city's  litigation  (the  1,500-customer  City of
Edgewood) has not yet been scheduled.

As part of the above litigation, two appellate courts have also reached opposite
conclusions  regarding  whether PEF must  continue to collect from its customers
and remit to the cities "franchise fees" under the expired franchise ordinances.
PEF has filed an appeal with the Florida  Supreme  Court to resolve the conflict
between the two appellate  courts.  The Florida Supreme Court held oral argument
in one of the appeals in August 2003. Subsequently, the Court requested briefing
from the parties in the other appeal,  which was completed in November 2003. The
Company cannot predict the outcome of these matters at this time.

                                       50
<PAGE>

Progress Energy Carolinas, Inc.

The information required by this item is incorporated herein by reference to the
following portions of Progress Energy's Management's  Discussion and Analysis of
Financial  Condition and Results of  Operations,  insofar as they relate to PEC:
RESULTS OF OPERATIONS; LIQUIDITY AND CAPITAL RESOURCES and OTHER MATTERS.

RESULTS OF OPERATIONS

The results of operations for the PEC Electric segment are identical between PEC
and  Progress   Energy.   The  results  of  operations  for  PEC's   non-utility
subsidiaries for the three months ended March 31, 2004 and 2003 are not material
to PEC's consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

Cash  provided by  operating  activities  decreased  $107  million for the three
months ended March 31, 2004,  when compared to the  corresponding  period in the
prior year.  The  decrease was caused  primarily  by a $112 million  increase in
working capital requirements.

Cash used in  investing  activities  decreased  $25 million for the three months
ended March 31, 2004,  when  compared to the  corresponding  period in the prior
year primarily due to lower construction spending.

The current  portion of  long-term  debt  includes  $150 million of 7.875% First
Mortgage  Bonds which  matured on April 15, 2004.  In addition,  $150 million of
First Mortgage Bonds matured on January 15, 2004. The remaining  current portion
of  long-term  debt will be  refinanced  or retired  through  commercial  paper,
capital market transactions and internally generated funds.

                                       51
<PAGE>

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Progress Energy, Inc.

Market risk represents the potential loss arising from adverse changes in market
rates and prices.  Certain market risks are inherent in the Company's  financial
instruments,  which arise from transactions entered into in the normal course of
business.  The Company's  primary  exposures are changes in interest  rates with
respect to its long-term  debt and commercial  paper,  and  fluctuations  in the
return on  marketable  securities  with  respect to its nuclear  decommissioning
trust  funds.  The  Company  manages  its  market  risk in  accordance  with its
established  risk management  policies,  which may include entering into various
derivative transactions.

The   Company's   exposure   to  return  on   marketable   securities   for  the
decommissioning  trust funds has not changed materially since December 31, 2003.
The  Company's  exposure to market  value risk with respect to the CVOs has also
not changed materially since December 31, 2003.

On March 1, 2004,  Progress  Energy used  available  cash and proceeds  from the
issuance of  commercial  paper to retire $500  million  6.55%  senior  unsecured
notes.

The  exposure to changes in  interest  rates from the  Company's  fixed rate and
variable  rate  long-term  debt at March 31, 2004 has changed from  December 31,
2003.  The total fixed rate  long-term  debt at March 31, 2004 was $9.1 billion,
with an average  interest rate of 6.58% and fair market value of $10.0  billion.
The total variable rate long-term debt at March 31, 2004, was $1.1 billion, with
an average interest rate of 1.35% and fair market value of $1.1 billion.

In March 2004,  two interest  rate swap  agreements  totaling  $200 million were
terminated.  These swaps were associated with Progress Energy 5.85% Notes due in
2008.  These loss on the agreements was deferred and is being amortized over the
life of the bonds as these  agreements had been  designated as fair value hedges
for accounting purposes.

The exposure to changes in interest  rates from the Company's  commercial  paper
was not materially different than at December 31, 2003.

Progress Energy Carolinas, Inc.

PEC has certain market risks inherent in its financial instruments,  which arise
from transactions  entered into in the normal course of business.  PEC's primary
exposures  are  changes in interest  rates with  respect to  long-term  debt and
commercial  paper, and fluctuations in the return on marketable  securities with
respect to its nuclear  decommissioning trust funds. PEC's exposure to return on
marketable   securities  for  the  decommission  trust  funds  has  not  changed
materially since December 31, 2003.

The  exposure to changes in interest  rates from the PEC's fixed rate  long-term
debt,  variable rate long-term  debt and commercial  paper at March 31, 2004 was
not materially different than at December 31, 2003.


                                       52
<PAGE>

Item 4: Controls and Procedures

Progress Energy, Inc.

Pursuant to Rule 13a-15(b) under the Securities  Exchange Act of 1934,  Progress
Energy carried out an evaluation,  with the  participation of Progress  Energy's
management,  including  Progress Energy's President and Chief Executive Officer,
and  Chief  Financial  Officer,   of  the  effectiveness  of  Progress  Energy's
disclosure  controls and procedures  (as defined under Rule 13a-15(e)  under the
Securities  Exchange  Act of 1934) as of the end of the  period  covered by this
report.  Based  upon that  evaluation,  Progress  Energy's  President  and Chief
Executive Officer,  and Chief Financial Officer concluded that Progress Energy's
disclosure  controls and  procedures  are  effective in timely  alerting them to
material  information  relating to Progress Energy  (including its  consolidated
subsidiaries) required to be included in Progress Energy's periodic SEC filings.
These  officers  noted that after the end of the period  covered by the  report,
Progress  Energy was late in filing a Form 8-K  pursuant to Item 11 of that Form
(Temporary Suspension of Trading Under Registrant's Employee Benefit Plans). The
filing  relates  to  notice  to  Section  16  insiders  informing  them  of  the
prohibition  of trading in the Company's  securities  during an upcoming  401(k)
blackout  period.  Notice was given to all Section 16 insiders  regarding  these
trading  restrictions well before the blackout period  commenced.  The President
and Chief Executive  Officer,  and Chief  Financial  Officer have confirmed that
procedures  were in place  identifying  this filing  requirement  and allocating
responsibility for notification to the appropriate personnel, and that this late
filing was the result of a human performance error, not a process deficiency.

There has been no change in Progress  Energy's  internal  control over financial
reporting during the quarter ended March 31, 2004 that has materially  affected,
or is reasonably likely to materially affect, Progress Energy's internal control
over financial reporting.

Progress Energy Carolinas, Inc.

Pursuant  to Rule  13a-15(b)  under the  Securities  Exchange  Act of 1934,  PEC
carried out an evaluation, with the participation of PEC's management, including
PEC's President and Chief Executive Officer, and Chief Financial Officer, of the
effectiveness of PEC's disclosure controls and procedures (as defined under Rule
13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period
covered by this report.  Based upon that  evaluation,  PEC's President and Chief
Executive  Officer,  and Chief Financial Officer concluded that PEC's disclosure
controls  and  procedures  are  effective  in timely  alerting  them to material
information relating to PEC (including its consolidated  subsidiaries)  required
to be included in PEC's periodic SEC filings.

There has been no change in PEC's  internal  control  over  financial  reporting
during the  quarter  ended March 31, 2004 that has  materially  affected,  or is
reasonably  likely to materially  affect,  PEC's internal control over financial
reporting.



                                       53
<PAGE>

                           PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Legal aspects of certain matters are set forth in Part I, Item 1. See Note 12 to
the Progress Energy, Inc.  Consolidated Interim Financial Statements and Note 10
to the PEC's Consolidated Interim Financial Statements.

1.   Strategic  Resource Solutions Corp. ("SRS") v. San Francisco Unified School
     District, et al., Sacramento Superior Court, Case No. 02AS033114

In November  2001,  SRS filed a claim against the San Francisco  Unified  School
District (the  District) and other  defendants  claiming that SRS is entitled to
approximately  $10  million  in unpaid  contract  payments  and delay and impact
damages related to the District's $30 million  contract with SRS. In March 2002,
the District filed a counterclaim,  seeking  compensatory damages and liquidated
damages in excess of $120  million,  for  various  claims,  including  breach of
contract and demand on a  performance  bond.  SRS has  asserted  defenses to the
District's  claims.  SRS has amended its claims and asserted new claims  against
the  District  and other  parties,  including a former SRS employee and a former
District employee.

On March 13, 2003, the City Attorney's office announced the filing of new claims
by the City Attorney and the District in the form of a  cross-complaint  against
SRS,  Progress  Energy,  Inc.,  Progress  Energy  Solutions,  Inc.,  and certain
individuals,  alleging fraud, false claims,  violations of California  statutes,
and seeking compensatory damages,  punitive damages,  liquidated damages, treble
damages,  penalties,  attorneys' fees and injunctive relief. The City Attorney's
announcement  states that the City and the District seek "more than $300 million
in damages and penalties." PEC was added as a cross-defendant.

The Company,  SRS, Progress Energy  Solutions,  Inc. and PEC all have denied the
District's allegations and cross-claims. Discovery is in progress in the matter.
The case has been  assigned  to a judge  under the  Sacramento  County  superior
court's  case  management  rules,  and the  judge  and  the  parties  have  been
conferring on scheduling and process to narrow or resolve  issues,  if possible,
and to  prepare  the case for  trial.  No trial  date has been set.  SRS and the
Company cannot predict the outcome of this matter,  but will  vigorously  defend
against the allegations.

2.   Collins v. Duke Energy Corporation, Civil Action No. 03CP404050

On August 21, 2003, PEC was served as a co-defendant in a purported class action
lawsuit  styled  as  Collins  v.  Duke  Energy  Corporation,  Civil  Action  No.
03CP404050,  in South  Carolina's  Circuit  Court of Common  Pleas for the Fifth
Judicial  Circuit.  PEC is one of three  electric  utilities  operating in South
Carolina named in the suit.  The plaintiffs are seeking  damages for the alleged
improper use of electric  easements  but have not  asserted a dollar  amount for
their damage claims.  The complaint alleges that the licensing of attachments on
electric utility poles, towers and other structures to non-utility third parties
or  telecommunication  companies for other than the electric utilities' internal
use along the electric right-of-way constitutes a trespass.

On September 19, 2003, PEC filed a motion to dismiss all counts of the complaint
on substantive and procedural  grounds. On October 6, 2003, the plaintiffs filed
a motion to amend their complaint.  PEC believes the amended  complaint  asserts
the same factual  allegations  as are in the original  complaint  and also seeks
money damages and injunctive relief.

On March 16,  2004,  the  plaintiffs  in this case  filed a notice of  dismissal
without prejudice of their claims against PEC and Duke Energy Corporation.

3.   U.S. Global,  LLC v. Progress Energy,  Inc. et al, Case No. 03004028-03 and
     Progress  Synfuel  Holdings,  Inc.  et al, v. U.S.  Global,  LLC,  Case No.
     03004028-03

A number of Progress Energy, Inc. subsidiaries and affiliates are parties to two
lawsuits  arising  out of an Asset  Purchase  Agreement  dated as of October 19,
1999, by and among U.S.  Global LLC  (Global),  EARTHCO,  certain  affiliates of
EARTHCO  (collectively  the  EARTHCO  Sellers),  EFC Synfuel LLC (which is owned
indirectly be Progress  Energy,  Inc.) and certain of its affiliates,  including
Solid Energy LLC,  Solid Fuel LLC,  Ceredo  Synfuel LLC,  Gulf Coast Synfuel LLC
(currently   named  Sandy  River   Synfuel  LLC)   (Collectively   the  Progress
Affiliates),  as amended by an amendment to Purchase  Agreement as of August 23,
2000 (the Asset  Purchase  Agreement).  Global has asserted that pursuant to the
Asset  Purchase  Agreement it is entitled to (1) interest in two synthetic  fuel
facilities  currently  owned by the  Progress  Affiliates,  and (2) an option to
purchase additional interests in the two synthetic fuel facilities.

                                       54
<PAGE>

The first suit, U.S. Global,  LLC v. Progress  Energy,  Inc. et al, was filed in
the Circuit Court for Broward County,  Florida in March 2003 (the Florida Global
Case).  The Florida  Global Case asserts claims for breach of the Asset Purchase
Agreement and other contract and tort claims related to the Progress Affiliates'
alleged  interference  with Global's rights under the Asset Purchase  Agreement.
The Florida Global Case requests an unspecified amount of compensatory  damages,
as well as declaratory  relief.  On December 15, 2003,  the Progress  Affiliates
filed a motion to dismiss the Third  Amended  Complaint  in the  Florida  Global
Case.  The  motion  to  dismiss  filed on behalf of the  Progress  Energy,  Inc.
subsidiaries  and  affiliates  that are parties to the case will be heard by the
Circuit Court of Broward County, Florida on June 7, 2004.

The second suit, Progress Synfuel Holdings, Inc. et al. v. U.S. Global, LLC, was
filed by the Progress  Affiliates in the Superior  Court for Wake County,  North
Carolina seeking declaratory relief consistent with the Company's interpretation
of the asset Purchase  Agreement (the North  Carolina  Global Case).  Global was
served with the North Carolina Global Case on April 17, 2003.

On May 15, 2003, Global moved to dismiss the North Carolina Global Case for lack
of personal jurisdiction over Global. In the alternative,  Global requested that
the court decline to exercise its  discretion  to hear the Progress  Affiliates'
declaratory  judgment action.  On August 7, 2003, the Wake County Superior court
denied  Global's  motion to  dismiss  and  entered  an order  staying  the North
Carolina  Global  Case,  pending  the outcome of the Florida  Global  Case.  The
Progress  Affiliates have appealed the Superior  court's order staying the case;
Global  has cross  appealed  the  denial of its  motion to  dismiss  for lack of
personal jurisdiction. The North Carolina Court of Appeals has not set a hearing
date for the Progress  Affiliates'  Appeal or Global's cross appeal. The Company
cannot predict the outcome of these matters,  but will vigorously defend against
the allegations.

4.   Gerber Asset  Management LLC v. William  Cavanaugh III and Progress Energy,
     Inc. et al, Case No. 04 CV 636

     Stanley Fried,  Raymond X.  Talamantes and Jacquelin  Talamantes v. William
     Cavanaugh III and Progress Energy, Inc. Case No. 04 CV 2494

On February  3, 2004,  Progress  Energy,  Inc.  was served  with a class  action
complaint  alleging  violations of federal  security laws in connection with the
Company's issuance of Contingent Value Obligations  (CVOs). The action was filed
by Gerber  Asset  Management  LLC in the United  States  District  Court for the
Southern  District of New York and names Progress Energy,  Inc. Chairman William
Cavanaugh III and Progress  Energy,  Inc. as defendants.  The Complaint  alleges
that  Progress  Energy failed to timely  disclose the impact of the  Alternative
Minimum Tax required under Sections 55-59 of the Internal Revenue Code (Code) on
the  value of  certain  CVOs  issued in  connection  with the  Florida  Progress
Corporation merger. The suit seeks unspecified  compensatory damages, as well as
attorneys' fees and litigation costs.

On March 31, 2004, a second class action  complaint was filed by Stanley  Fried,
Raymond X. Talamantes and Jacquelin Talamantes against William Cavanaugh III and
Progress  Energy,  Inc. in the United  States  District  Court for the  Southern
District of New York alleging violations of federal security laws arising out of
the Company's issuance of CVOs nearly identical to those alleged in the February
3, 2004 complaint. On April 29, 2004, the Honorable John E. Sprizzo ordered that
(1) the two class action cases be consolidated, (2) Peak6 Capital Management LLC
shall serve as the lead plaintiff in the consolidated  action,  (3) the law firm
of Goodkind, Labaton Rudoff & Sucharow LLP shall serve as class counsel, and (4)
the lead plaintiff shall file a consolidated amended complaint on or before June
14, 2004.

The  Company  cannot  predict the outcome of this  matter,  but will  vigorously
defend against the allegations.


<PAGE>

Item 2. Changes in  Securities,  Use of Proceeds and Issuer  Purchases of Equity
Securities

RESTRICTED STOCK AWARDS:

(a)  Securities  Delivered.  On March 16, 2004, 131,200 restricted shares of the
     Company's  Common Shares were granted to certain key employees  pursuant to
     the terms of the Company's  2002 Equity  Incentive  Plan (Plan),  which was
     approved by the  Company's  shareholders  on May 8, 2002.  Section 9 of the
     Plan provides for the granting of Restricted  Stock by the Organization and
     Compensation Committee of the Company's Board of Directors, (the Committee)
     to key employees of the Company, including its Affiliates or any successor,
     and to  outside  directors  of the  Company.  The Common  Shares  delivered
     pursuant to the Plan were acquired in market transactions  directly for the
     accounts of the recipients and do not represent  newly issued shares of the
     Company.

(b)  Underwriters and Other Purchasers.  No underwriters were used in connection
     with the delivery of Common Shares  described above. The Common Shares were
     delivered to certain key  employees  of the Company.  The Plan defines "key
     employee"  as an officer or other  employee  of the Company who is selected
     for participation in the Plan.

(c)  Consideration.  The Common Shares were delivered to provide an incentive to
     the  employee  recipients  to exert their utmost  efforts on the  Company's
     behalf and thus  enhance  the  Company's  performance  while  aligning  the
     employee's interest with those of the Company's shareholders.

(d)  Exemption from  Registration  Claimed.  The Common Shares described in this
     Item were  delivered on the basis of an exemption from  registration  under
     Section 4(2) of the  Securities  Act of 1933.  Receipt of the Common Shares
     required no investment  decision on the part of the  recipients.  All award
     decisions  were  made  by  the  Committee,   which  consists   entirely  of
     non-employee directors.


                                       56
<PAGE>

Item 6. Exhibits and Reports on Form 8-K

(a)   Exhibits
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

       Exhibit                                                              Progress          Progress Energy
       Number                          Description                        Energy, Inc.        Carolinas, Inc.
       ------                          -----------                        ------------        ---------------

      3(ii)(a)      By-Laws of Progress Energy, Inc., as amended on             X                    X
                    March 17, 2004

      3(ii)(b)      By-Laws of Carolina Power & Light Company, as                                    X
                    amended on March 17, 2004

        31(a)       Certifications  pursuant  to  Section  302 of the           X                    X
                    Sarbanes-Oxley  Act of 2002 - Chairman  and Chief
                    Executive Officer

        31(b)       Certifications  pursuant  to  Section  302 of the           X                    X
                    Sarbanes-Oxley  Act  of  2002  -  Executive  Vice
                    President and Chief Financial Officer

        32(a)       Certifications  pursuant  to  Section  906 of the           X                    X
                    Sarbanes-Oxley  Act of 2002 - Chairman  and Chief
                    Executive Officer

        32(b)       Certifications  pursuant  to  Section  906 of the           X                    X
                    Sarbanes-Oxley  Act  of  2002  -  Executive  Vice
                    President and Chief Financial Officer
</TABLE>


(b) Reports filed or furnished on Form 8-K since the beginning of the quarter:

      Progress Energy, Inc.
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                        Financial
          Item          Statements
        Reported         Included             Date of Event          Date Filed or Furnished
        --------         --------             -------------          -----------------------
          7, 9              No                April 28, 2004             April 28, 2004
         7, 11              No                April 5, 2004              April 23, 2004
         9, 12             Yes                April 21, 2004             April 21, 2004
           12              Yes              February 26, 2004           February 26, 2004
           5                No              February 24, 2004           February 24, 2004
           5                No               January 23, 2004           January 23, 2004
         9, 12             Yes               January 21, 2004           January 21, 2004

      Carolina Power & Light Company
      d/b/a Progress Energy Carolinas, Inc.

                        Financial
          Item          Statements
        Reported         Included             Date of Event          Date Filed or Furnished
        --------         --------             -------------          -----------------------
         9, 12             Yes                April 21, 2004             April 21, 2004
           12              Yes              February 26, 2004           February 26, 2004
           5                No               January 23, 2004           January 23, 2004
         9, 12             Yes               January 21, 2004           January 21, 2004
</TABLE>

                                       57
<PAGE>




                                   SIGNATURES


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

                                                PROGRESS ENERGY, INC.
                                                CAROLINA POWER & LIGHT COMPANY
Date: May 6, 2004                               (Registrants)

                                                By: /s/Geoffrey S. Chatas
                                                Geoffrey S. Chatas
                                                Executive Vice President and
                                                Chief Financial Officer

                                                By: /s/Robert H. Bazemore, Jr.
                                                Robert H. Bazemore, Jr.
                                                Vice President and Controller
                                                Chief Accounting Officer


                                       58