Carolina Power & Light Company
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
 

1.        ORGANIZATION AND BASIS OF PRESENTATION
          --------------------------------------

      A.  Organization. Carolina Power & Light Company (the Company) is a public
          ------------
          service corporation primarily engaged in the generation, transmission,
          distribution  and sale of  electricity  in portions of North and South
          Carolina. The Company has no other material segments of business.

      B.  Basis of Presentation. These consolidated interim financial statements
          ---------------------
          are prepared in conformity with the accounting principles reflected in
          the financial  statements included in the Company's 1996 Annual Report
          on Form 10-K. Due to  temperature  variations  between  seasons of the
          year  and  the  timing  of  outages  of  electric   generating  units,
          especially   nuclear-fueled   units,   the  amounts  reported  in  the
          Statements  of Income for periods of less than  twelve  months are not
          necessarily  indicative of amounts  expected for the year. The amounts
          are  unaudited  but,  in  the  opinion  of  management,   reflect  all
          adjustments  necessary  to  fairly  present  the  Company's  financial
          position and results of operations  for the interim  periods.  Certain
          amounts  for  1996  have  been  reclassified  to  conform  to the 1997
          presentation,  with no effect on  previously  reported  net  income or
          common stock equity.

          In preparing financial statements that conform with generally accepted
          accounting principles,  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.

2.        NUCLEAR   DECOMMISSIONING
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          In  the  Company's  retail   jurisdictions,   provisions  for  nuclear
          decommissioning  costs are  approved by the North  Carolina  Utilities
          Commission  (NCUC) and the South Carolina  Public  Service  Commission
          (SCPSC)  and are based on  site-specific  estimates  that  include the
          costs for removal of all radioactive and other structures at the site.
          In  the   wholesale   jurisdiction,   the   provisions   for   nuclear
          decommissioning  costs are based on amounts  agreed upon in applicable
          rate agreements. Based on the site-specific estimates discussed below,
          and using an assumed  after-tax  earnings  rate of 8.5% and an assumed
          cost  escalation  rate of 4%,  current  levels  of rate  recovery  for
          nuclear   decommissioning   costs  are   adequate   to   provide   for
          decommissioning of the Company's nuclear facilities.

          The Company's most recent  site-specific  estimates of decommissioning
          costs were developed in 1993,  using 1993 cost factors,  and are based
          on prompt  dismantlement  decommissioning,  which reflects the cost of
          removal of all radioactive and other structures currently at the site,
          with  such  removal   occurring   shortly  after   operating   license
          expiration.  These estimates,  in 1993 dollars, are $257.7 million for
          Robinson Unit No. 2, $235.4  million for Brunswick  Unit No. 1, $221.4
          million  for  Brunswick  Unit No. 2 and $284.3  million for the Harris
          Plant.  The  estimates  are  subject  to change  based on a variety of
          factors  including,  but not limited to, cost  escalation,  changes in
          technology  applicable  to  nuclear  decommissioning,  and  changes in
          federal,  state or local  regulations.  The cost estimates exclude the
          portion attributable to North Carolina Eastern Municipal Power Agency,
          which  holds an  undivided  ownership  interest in the  Brunswick  and
          Harris  nuclear  generating  facilities.  Operating  licenses  for the
          Company's  nuclear units expire in the year 2010 for Robinson Unit No.
          2, 2016 for Brunswick  Unit No. 1, 2014 for  Brunswick  Unit No. 2 and
          2026 for the Harris Plant.
<PAGE>


Carolina Power & Light Company
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

          The  Financial  Accounting  Standards  Board (the  Board) has  reached
          several  tentative  conclusions with respect to its project  regarding
          accounting  practices  related to closure  and  removal of  long-lived
          assets.   The   primary   conclusions   as  they   relate  to  nuclear
          decommissioning  are:  1)  the  cost  of  decommissioning   should  be
          accounted  for  as a  liability  and  accrued  as  the  obligation  is
          incurred; 2) recognition of a liability for decommissioning results in
          recognition  of  an  increase  to  the  cost  of  the  plant;  3)  the
          decommissioning  liability should be measured based on discounted cash
          flows  using a  risk-free  rate;  and 4)  decommissioning  trust funds
          should not be offset  against  the  decommissioning  liability.  It is
          uncertain what impacts the final  statement may ultimately have on the
          Company's accounting for nuclear decommissioning and other closure and
          removal  costs.  The Board has announced that the effective date would
          be no earlier than 1998.

3.        CAPITALIZATION
          --------------

      A.  Preferred Stock Redemption.  On July 1, 1997, the Company redeemed all
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          500,000 shares of $7.72 Serial  Preferred Stock and all 350,000 shares
          of $7.95 Serial  Preferred  Stock,  both at a redemption price of $101
          per share.  The  redemptions  were funded with  additional  commercial
          paper borrowings and/or internally generated funds.

      B.  Long-Term  Debt. On August 26, 1997,  the Company  issued $200 million
          ---------------
          principal amount of First Mortgage Bonds,  6.80% Series due August 15,
          2007.

          See Common Stock issuance information in "Note 5" below.

4.        RETAIL RATE  MATTERS 
          --------------------
          A petition was filed in July 1996 by the Carolina Industrial Group for
          Fair Utility  Rates  (CIGFUR) with the NCUC  requesting  that the NCUC
          conduct  an  investigation  of the  Company's  base rates or treat its
          petition as a complaint against the Company. The petition alleged that
          the Company's  return on equity  (which was  authorized by the NCUC in
          the Company's  last general rate  proceeding in 1988) and earnings are
          too high. In December 1996, the NCUC issued an order denying  CIGFUR's
          petition and stating that it tentatively  found no reasonable  grounds
          to proceed with  CIGFUR's  petition as a complaint.  In January  1997,
          CIGFUR filed its Comments and Motion for  Reconsideration to which the
          Company  responded.  On  February  6, 1997,  the NCUC  issued an order
          denying  CIGFUR's  Motion for  Reconsideration.  On February 25, 1997,
          CIGFUR filed a Notice of Appeal of the NCUC's  decision with the North
          Carolina Court of Appeals.  The Company filed its brief in this matter
          on July 18, 1997.  Oral argument  before the North  Carolina  Court of
          Appeals is scheduled for November 19, 1997. The Company cannot predict
          the outcome of this matter.

          In  December  1996,  the  Company  filed a proposal  with the SCPSC to
          accelerate amortization of certain regulatory assets,  including plant
          abandonment  costs  related to the  Harris  Plant,  over a  three-year
          period beginning  January 1, 1997. This accelerated  amortization will
          reduce income by approximately $13 million,  after tax, in each of the
          three years.  In anticipation of approval of the proposal in 1997, the
          unamortized  balance of plant  abandonment costs related to the Harris
          Plant was adjusted in 1996 to reflect the present  value impact of the
          shorter  recovery period.  This adjustment  resulted in an increase in
          income of approximately $14 million,  after tax, in the fourth quarter
          of  1996.  On  March  20,  1997,  the  SCPSC  approved  the  Company's
          accelerated amortization proposal.


<PAGE>



Carolina Power & Light Company
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

5.        PURCHASE  OF  KNOWLEDGE   BUILDERS,   INC.   (KBI)
          --------------------------------------------------  
          On May 6,  1997,  CaroCapital,  Inc.  (CaroCapital),  a  wholly  owned
          subsidiary of the Company, entered into a merger agreement pursuant to
          which KBI was merged  into  CaroCapital.  KBI is an  energy-management
          software and control systems company in which CaroCapital  purchased a
          40% equity  interest  in 1996.  In  connection  with the  merger,  the
          remaining  KBI stock was  exchanged  for common  stock of the  Company
          according  to a market  value  formula.  The  merger  resulted  in the
          issuance of approximately 604,000 shares of the Company's common stock
          (valued at $20.5  million)  and a cash  payment of $1.9  million.  The
          merger  agreement  also  provided  for  incentive  payments  based  on
          CaroCapital's   future  results  of  operations.   If  earned,   these
          additional  payments will be made primarily in shares of the Company's
          common stock. The merger was completed on June 5, 1997.  Following the
          completion of the merger,  CaroCapital was renamed Strategic  Resource
          Solutions Corp., a North Carolina Enterprise Corporation.

6.        COMMITMENTS AND CONTINGENCIES 
          -----------------------------
          Contingencies  existing  as  of  the  date  of  these  statements  are
          described  below. No significant  changes have occurred since December
          31, 1996, with respect to the commitments  discussed in Note 11 of the
          financial  statements  included in the Company's 1996 Annual Report to
          Shareholders.

      A.  Applicability  of  SFAS-71.  As a  regulated  entity,  the  Company is
          --------------------------
          subject  to  the  provisions  of  Statement  of  Financial  Accounting
          Standards  No. 71,  "Accounting  for the  Effects of Certain  Types of
          Regulation,"  (SFAS-71).  Accordingly,  the  Company  records  certain
          assets and  liabilities  resulting  from the effects of the ratemaking
          process,   which  would  not  be  recorded  under  generally  accepted
          accounting  principles  for  non-regulated   entities.  The  continued
          applicability   of  SFAS-71  will  require   further   evaluation   as
          competitive forces,  deregulation and restructuring take effect in the
          electric utility industry. In the event that SFAS-71 no longer applied
          to  certain  regulatory  assets  and  liabilities,  those  assets  and
          liabilities would be eliminated.  At September 30, 1997, the Company's
          regulatory  assets totaled $590.9 million.  Additionally,  the factors
          discussed  above could  result in an  impairment  of electric  utility
          plant  assets  as  determined   pursuant  to  Statement  of  Financial
          Accounting  Standards  No.  121,  "Accounting  for the  Impairment  of
          Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."

      B.  Claims and Uncertainties.  1) The Company is subject to federal, state
          ------------------------
          and local regulations addressing air and water quality,  hazardous and
          solid waste management and other environmental matters.

          Various   organic   materials   associated   with  the  production  of
          manufactured  gas,  generally  referred to as coal tar, are  regulated
          under various federal and state laws.  There are several  manufactured
          gas plant (MGP) sites to which the Company and certain  entities  that
          were  later  merged  into the  Company  had some  connection.  In this
          regard,  the  Company,  along  with  others,  is  participating  in  a
          cooperative  effort with the North Carolina  Department of Environment
          and Natural Resources, Division of Waste Management (DWM) to establish
          a uniform  framework for addressing these MGP sites. The investigation
          and  remediation  of specific MGP sites will be addressed  pursuant to
          one or more  Administrative  Orders on Consent between the DWM and the
          potentially  responsible  party or parties.  The Company  continues to
          investigate  the  identities of parties  connected to  individual  MGP
          sites, the relative  relationships of the Company and other parties to
          those sites and the degree to which the Company will undertake  shared
          voluntary efforts with others at individual sites.
<PAGE>


Carolina Power & Light Company
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

          The Company has been  notified by  regulators  of its  involvement  or
          potential  involvement  in several sites,  other than MGP sites,  that
          require  remedial  action.  Although  the Company  cannot  predict the
          outcome of these  matters,  it does not expect costs  associated  with
          these  sites  to be  material  to the  results  of  operations  of the
          Company.

          The Company  carries a liability  for the estimated  costs  associated
          with certain remedial  activities at certain MGP and other sites. This
          liability  is not material to the  financial  position of the Company.
          Due to uncertainty  regarding the extent of remedial  action that will
          be  required  and  questions  of  liability,   the  cost  of  remedial
          activities  at certain MGP sites is not  currently  determinable.  The
          Company cannot predict the outcome of these matters.

          2) As required under the Nuclear Waste Policy Act of 1982, the Company
          entered  into a contract  with the U. S.  Department  of Energy  (DOE)
          under which the DOE agreed to dispose of the  Company's  spent nuclear
          fuel.  The  Company  cannot  predict  whether  the DOE will be able to
          perform its  contractual  obligations  and provide  interim storage or
          permanent   disposal   repositories  for  spent  nuclear  fuel  and/or
          high-level radioactive waste materials on a timely basis.

          With  certain   modifications,   the  Company's   spent  fuel  storage
          facilities  are  sufficient  to provide  storage  space for spent fuel
          generated  on the  Company's  system  through  the  expiration  of the
          current operating licenses for all of the Company's nuclear generating
          units. Subsequent to the expiration of these licenses, dry storage may
          be necessary.

          3) In the opinion of management,  liabilities,  if any,  arising under
          other pending claims would not have a material effect on the financial
          position, results of operations or cash flows of the Company.

7.        IMPACT OF NEW  ACCOUNTING  STANDARD 
          -----------------------------------
          In February  1997,  the Financial  Accounting  Standards  Board issued
          Statement of Financial  Accounting  Standards  No. 128,  "Earnings Per
          Share," (SFAS-128),  which changed the previous standards on computing
          and  presenting  earnings per share.  SFAS-128 is effective for fiscal
          years ending  after  December 15,  1997;  earlier  application  is not
          permitted.  The  Company  does not expect the  adoption of SFAS-128 to
          have a material impact on its financial statements.