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 June 30, 2002
                                                 -------------

                                       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>


Commission           Exact name of registrants as specified in their charters, state of           I.R.S. Employer
File Number      incorporation, address of principal executive offices, and telephone 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
                                         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 registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes  X . No    .
                                       ---     ---

This combined Form 10-Q is filed separately by two registrants: Progress Energy,
Inc.  (Progress  Energy) and Carolina Power & Light Company (CP&L).  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.


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common  stock,  as of the latest  practicable  date.  As of July 31, 2002,  each
registrant had the following shares of common stock outstanding
<TABLE>
<S>     <C>


          Registrant                        Description                            Shares
          ----------                        -----------                            ------
Progress Energy, Inc.             Common Stock (Without Par Value)               221,235,262
Carolina Power & Light Company    Common Stock (Without Par Value)      159,608,055 (all of which were
                                                                        held by Progress Energy, Inc.)
</TABLE>

                                       1
<PAGE>



            PROGRESS ENERGY, INC. AND CAROLINA POWER & LIGHT COMPANY
                 FORM 10-Q - For the Quarter Ended June 30, 2002



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
               Supplemental Data Schedule
               Notes to Consolidated Interim Financial Statements

               Carolina Power & Light Company
               --------------------------------
               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

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

Item 2.  Changes in Securities and Use of Proceeds

Item 4.  Submission of Matters to a Vote of Security Holders

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>

     TERM                             DEFINITION

Code                             Internal Revenue Service Code
CP&L                             Carolina Power & Light Company
CR3                              Florida Power's nuclear generating plant, Crystal River Unit No. 3
CVO                              Contingent value obligation
DEP                              Florida Department of Environment and Protection
DOE                              Department of Energy
Dt                               Dekatherm
DWM                              North Carolina Department of Environment and Natural Resources, Division of Waste
                                 Management
EasternNC                        Eastern North Carolina Natural Gas Company, formerly referred to as ENCNG
EPA                              United States Environmental Protection Agency
FASB                             Financial Accounting Standards Board
FERC                             Federal Energy Regulatory Commission
Florida Power                    Florida Power Corporation
FPC                              Florida Progress Corporation
FPSC                             Florida Public Service Commission
Generally accepted accounting    Accounting principles generally accepted in the United States of America
principles
IRS                              Internal Revenue Service
kWh                              Kilowatt-hour
MGP                              Manufactured Gas Plant
MW                               Megawatt
NCNG                             North Carolina Natural Gas Corporation
NCUC                             North Carolina Utilities Commission
NOx SIP Call                     EPA rule which requires 22 states including North and South Carolina to further reduce
                                 nitrogen oxide emissions.
NRC                              United States Nuclear Regulatory Commission
PCH                              Progress Capital Holdings, Inc.
PLRs                             Private Letter Rulings
Progress Energy                  Progress Energy, Inc.
Progress Fuels                   Progress Fuels Corporation, formerly referred to as Electric Fuels Corporation
Progress Rail                    Progress Rail Services Corporation
Progress Telecom                 Progress Telecommunications Corporation
Progress Ventures                Business segment of Progress Energy primarily made up of merchant energy generation, coal
                                 and synthetic fuel operations and energy marketing and trading, formerly referred to as
                                 Energy Ventures
Progress Ventures, Inc.          Legal entity holding certain non-regulated operations and part of Progress Ventures
                                 business segment (formerly referred to as CPL Energy Ventures, Inc.)
PUHCA                            Public Utility Holding Company Act of 1935, as amended
RTO                              Regional Transmission Organization
SCPSC                            Public Service Commission of South Carolina
SEC                              United States Securities and Exchange Commission
Service Company                  Progress Energy Service Co., LLC
SFAS No. 133                     Statements of Financial Accounting Standards No. 133, Accounting for Derivative and
                                 Hedging Activities
SFAS No. 142                     Statements of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
SFAS No. 143                     Statements of Financial Accounting Standards No. 143, Accounting for Asset Retirement
                                 Obligations
SRS                              Strategic Resource Solutions Corp.
the Company                      Progress Energy, Inc. and subsidiaries

</TABLE>
                                       3
<PAGE>




    SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

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"
concerning synthetic fuel tax credits and regulatory developments.

Any forward-looking statement speaks only as of the date on which such statement
is made,  and neither  Progress  Energy nor CP&L  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:  governmental policies and regulatory actions (including those of the
Federal Energy Regulatory Commission,  the Environmental  Protection Agency, the
Nuclear  Regulatory  Commission,  the  Department of Energy,  the Securities and
Exchange  Commission  under the Public Utility  Holding  Company Act of 1935, as
amended, the North Carolina Utilities Commission,  the Public Service Commission
of South  Carolina  and the Florida  Public  Service  Commission),  particularly
legislative  and  regulatory  initiatives  regarding  the  restructuring  of the
electricity industry or potential national deregulation legislation; the outcome
of legal  and  administrative  proceedings,  including  proceedings  before  our
principal  regulators,  and the impact of the settlement of Florida Power's rate
case; risks associated with operating nuclear power facilities,  availability of
nuclear waste storage facilities,  and nuclear  decommissioning costs; terrorist
threats and activities,  economic  uncertainty  caused by such activities on the
United States,  and potential adverse reactions to United States  anti-terrorism
activities;  changes in the economy of areas  served by CP&L,  Florida  Power or
NCNG;  the  extent  to which we are able to  obtain  adequate  and  timely  rate
recovery  of  costs,   including  potential  stranded  costs  arising  from  the
restructuring of the electricity  industry;  weather conditions and catastrophic
weather-related   damage;   general  industry  trends,  changes  in  technology,
increased  competition  from  energy and gas  suppliers,  and market  demand for
energy; inflation and capital market conditions; the extent to which we are able
to realize  the  potential  benefits of our recent and future  acquisitions  and
successfully  integrate  them with the remainder of our business;  the extent to
which we are able to realize  the  potential  benefits  of our  conversion  to a
non-regulated  holding  company  structure  and the  success  of our  direct and
indirect  subsidiaries;  the extent to which we are able to  continue to use tax
credits  associated  with the operations of the synthetic fuel  facilities;  the
extent to which we are able to  reduce  our  capital  expenditures  through  the
utilization of the natural gas expansion fund  established by the North Carolina
Utilities  Commission;  and  unanticipated  changes in  operating  expenses  and
capital expenditures.

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 CP&L.  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 CP&L.

                                       4
<PAGE>




                          PART I. FINANCIAL INFORMATION

<TABLE>
<S>     <C>

Item 1.   Financial Statements

                              Progress Energy, Inc.
                    CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                  June 30, 2002

STATEMENTS OF INCOME
                                                              Three Months Ended         Six Months Ended
(Unaudited)                                                        June 30,                  June 30,
(In thousands except per share amounts)                       2002         2001        2002          2001
-------------------------------------------------------------------------------------------------------------
Operating Revenues
  Electric                                                $ 1,600,581  $ 1,565,947 $ 3,098,503   $ 3,197,994
  Natural gas                                                  64,498       68,575     150,603       207,149
  Diversified businesses                                      373,185      681,121     677,472       818,591
-------------------------------------------------------------------------------------------------------------
       Total Operating Revenues                             2,038,264    2,315,643   3,926,578     4,223,734
-------------------------------------------------------------------------------------------------------------
Operating Expenses
  Fuel used in electric generation                            372,244      378,288     746,438       748,144
  Purchased power                                             224,685      211,876     405,958       429,424
  Gas purchased for resale                                     49,849       57,184     102,772       166,778
  Other operation and maintenance                             351,526      304,400     686,216       599,497
  Depreciation and amortization                               215,279      264,131     431,891       580,920
  Taxes other than on income                                   94,436       93,945     191,631       193,592
  Diversified businesses                                      426,875      721,744     798,986       911,447
-------------------------------------------------------------------------------------------------------------
      Total Operating Expenses                              1,734,894    2,031,568   3,363,892     3,629,802
-------------------------------------------------------------------------------------------------------------
Operating Income                                              303,370      284,075     562,686       593,932
-------------------------------------------------------------------------------------------------------------
Other Income (Expense)
  Interest income                                               6,239        9,445       8,315        19,448
  Other, net                                                   (1,780)     (12,119)      4,890        (9,457)
-------------------------------------------------------------------------------------------------------------
      Total Other Income (Expense)                              4,459       (2,674)     13,205         9,991
-------------------------------------------------------------------------------------------------------------
Interest Charges
  Gross interest charges                                      176,355      197,269     350,782       360,215
  Allowance for borrowed funds used during construction
  and capitalized interest                                     (5,305)      (1,873)     (9,081)       (5,353)
-------------------------------------------------------------------------------------------------------------
      Total Interest Charges, Net                             171,050      195,396     341,701       354,862
-------------------------------------------------------------------------------------------------------------
Income before Income Taxes                                    136,779       86,005     234,190       249,061
Income Tax Expense (Benefit)                                   16,159      (25,697)    (18,957)     (16,644)
-------------------------------------------------------------------------------------------------------------
Net Income                                                $   120,620  $   111,702 $   253,147   $   265,705
-------------------------------------------------------------------------------------------------------------

Average Common Shares Outstanding                             215,007      200,043     213,999       199,922
Basic and Diluted Earnings per Common Share               $      0.56  $      0.56 $      1.18   $      1.33
Diluted Earnings per Common Share                                0.56         0.56        1.18          1.32
Dividends Declared per Common Share                       $     0.545  $     0.530 $     1.090   $     1.060

-------------------------------------------------------------------------------------------------------------
See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.
</TABLE>

                                       5
<PAGE>
<TABLE>
<S>     <C>

Progress Energy, Inc
BALANCE SHEETS
(Unaudited)
(In thousands except share data)                                                 June 30,       December 31,
Assets                                                                             2002              2001
---------------------------------------------------------------------------------------------------------------
Utility Plant
  Electric utility plant in service                                         $  19,260,446     $    19,176,021
  Gas utility plant in service                                                    521,001             491,903
  Accumulated depreciation                                                    (10,435,492)        (10,096,412)
---------------------------------------------------------------------------------------------------------------
        Utility plant in service, net                                           9,345,955           9,571,512
  Held for future use                                                              15,027              15,380
  Construction work in progress                                                 1,143,029           1,065,154
  Nuclear fuel, net of amortization                                               224,279             262,869
---------------------------------------------------------------------------------------------------------------
        Total Utility Plant, Net                                               10,728,290          10,914,915
---------------------------------------------------------------------------------------------------------------
Current Assets
  Cash and cash equivalents                                                       304,442              54,419
  Accounts receivable                                                             758,985             738,740
  Unbilled accounts receivable                                                    229,463             199,593
  Taxes receivable                                                                      -              32,325
  Inventory                                                                       925,676             886,747
  Deferred fuel cost                                                              123,933             146,652
  Prepayments                                                                      68,513              49,056
  Other current assets                                                            135,413             224,409
---------------------------------------------------------------------------------------------------------------
        Total Current Assets                                                    2,546,425           2,331,941
---------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
  Regulatory Assets                                                               414,625             448,631
  Nuclear decommissioning trust funds                                             839,529             822,821
  Diversified business property, net                                            1,996,130           1,073,046
  Miscellaneous other property and investments                                    507,177             456,880
  Goodwill, net                                                                 3,722,237           3,690,210
  Prepaid pension costs                                                           497,542             489,600
  Other assets and deferred debits                                                516,757             513,099
---------------------------------------------------------------------------------------------------------------
        Total Deferred Debits and Other Assets                                  8,493,997           7,494,287
---------------------------------------------------------------------------------------------------------------
           Total Assets                                                     $  21,768,712     $    20,741,143
---------------------------------------------------------------------------------------------------------------

Capitalization and Liabilities
---------------------------------------------------------------------------------------------------------------
Capitalization
  Common stock (without par value, 500,000,000 shares authorized,
  221,235,262 and 218,725,352 shares issued and outstanding, respectively)  $   4,243,547     $     4,107,493
  Unearned ESOP common stock                                                     (104,703)           (114,385)
  Accumulated other comprehensive loss                                            (28,923)            (32,180)
  Retained earnings                                                             2,061,224           2,042,605
---------------------------------------------------------------------------------------------------------------
        Total common stock equity                                               6,171,145           6,003,533
  Preferred stock of subsidiaries-not subject to mandatory redemption              92,831              92,831
  Long-term debt, net                                                          10,512,723           9,483,745
---------------------------------------------------------------------------------------------------------------
           Total Capitalization                                                16,776,699          15,580,109
---------------------------------------------------------------------------------------------------------------
Current Liabilities
  Current portion of long-term debt                                               352,860             688,052
  Accounts payable                                                                591,660             725,977
  Taxes accrued                                                                    66,835                   -
  Interest accrued                                                                225,950             212,387
  Dividends declared                                                              119,469             117,857
  Short-term obligations                                                          346,983              77,529
  Customer deposits                                                               159,900             154,343
  Other current liabilities                                                       396,609             419,398
---------------------------------------------------------------------------------------------------------------
        Total Current Liabilities                                               2,260,266           2,395,543
---------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
  Accumulated deferred income taxes                                             1,407,249           1,434,506
  Accumulated deferred investment tax credits                                     216,159             226,382
  Regulatory liabilities                                                          285,014             287,239
  Other liabilities and deferred credits                                          823,325             817,364
---------------------------------------------------------------------------------------------------------------
        Total Deferred Credits and Other Liabilities                            2,731,747           2,765,491
---------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 12)
---------------------------------------------------------------------------------------------------------------
           Total Capitalization and Liabilities                             $  21,768,712     $    20,741,143
---------------------------------------------------------------------------------------------------------------
See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.


                                       6
<PAGE>


Progress Energy, Inc.
STATEMENTS OF CASH FLOWS                                                         Six Months Ended
(Unaudited)                                                                          June 30,
(In thousands)                                                                  2002             2001
----------------------------------------------------------------------------------------------------------

Operating Activities
  Net income                                                            $     253,147     $      265,705
  Adjustments to reconcile net income to net cash provided by
  operating activities
      Depreciation and amortization                                           519,390            676,640
      Deferred income taxes                                                   (42,933)           (31,904)
      Investment tax credit                                                   (10,223)           (13,216)
      Deferred fuel cost                                                       22,718              3,973
      Net (increase) decrease in accounts receivable                          (43,627)            79,287
      Net increase in inventories                                             (40,729)          (177,027)
      Net decrease in prepaids and other current assets                         3,657             23,818
      Net decrease in accounts payable                                        (48,951)          (181,134)
      Net increase in other current liabilities                               102,503            130,349
      Other                                                                     5,518            (34,031)
----------------------------------------------------------------------------------------------------------
        Net Cash Provided by Operating Activities                             720,470            742,460
----------------------------------------------------------------------------------------------------------

Investing Activities
  Gross property additions                                                   (495,658)          (542,798)
  Proceeds from sale of assets                                                      -              5,532
  Nuclear fuel additions                                                      (25,593)           (78,871)
  Contributions to nuclear decommissioning trust                              (19,916)           (27,883)
  Fuel acquisition, net of cash acquired                                      (17,355)                 -
  Diversified business property additions and acquisitions                   (569,574)          (120,393)
  Investments in non-utility activities                                        (2,403)             5,500
----------------------------------------------------------------------------------------------------------
        Net Cash Used in Investing Activities                              (1,130,499)          (758,913)
----------------------------------------------------------------------------------------------------------

Financing Activities
  Proceeds from issuance of long-term debt                                  1,028,843          3,473,300
  Net increase (decrease) in commercial paper reclassified to                (254,955)           103,558
    long-term debt
  Net increase (decrease) in short-term indebtedness                          269,454         (3,229,253)
  Net decrease in cash provided by checks drawn in excess of bank             (33,525)           (64,774)
    balances
  Retirement of long-term debt                                              (116,117)            (33,914)
  Dividends paid on common stock                                            (232,916)           (212,506)
  Other                                                                         (732)            (47,587)
----------------------------------------------------------------------------------------------------------
        Net Cash Provided by (Used in) Financing Activities                   660,052            (11,176)
----------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                          250,023            (27,629)
Cash and Cash Equivalents at Beginning of the Period                           54,419            101,296
----------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period                          $     304,442     $       73,667
----------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period - interest                                  $     324,234     $      265,462
                              income taxes                              $      11,320     $       40,878
See Note 2 for non-cash investing and financing activity.
----------------------------------------------------------------------------------------------------------
See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.


                                       7
<PAGE>




Progress Energy, Inc.
SUPPLEMENTAL  DATA SCHEDULE                                     Three Months Ended                  Six Months Ended
                                                                     June 30,                           June 30,
(Unaudited)                                                    2002             2001             2002              2001
-----------------------------------------------------------------------------------------------------------------------------

Operating Revenues (in thousands)
Electric
    Retail                                                $ 1,313,045      $ 1,295,650    $    2,573,854    $     2,622,453
    Wholesale                                                 212,572          214,908           407,519            475,555
    Unbilled                                                   29,486           15,099            26,226            (46,780)
    Miscellaneous revenue                                      45,478           40,290            90,904            146,766
-----------------------------------------------------------------------------------------------------------------------------
         Total Electric                                     1,600,581        1,565,947         3,098,503          3,197,994
Natural gas                                                    64,498           68,575           150,603            207,149
Diversified businesses                                        373,185          681,121           677,472            818,591
-----------------------------------------------------------------------------------------------------------------------------
            Total Operating Revenues                      $ 2,038,264      $ 2,315,643    $    3,926,578    $     4,223,734
-----------------------------------------------------------------------------------------------------------------------------

Energy Sales - Utility
 Electric (millions of kWh)
  Retail
     Residential                                                7,777            7,204            15,822             15,926
     Commercial                                                 5,884            5,682            11,130             10,956
     Industrial                                                 4,354            4,401             8,223              8,594
     Other retail                                               1,053            1,007             1,999              1,970
-----------------------------------------------------------------------------------------------------------------------------
          Total retail                                         19,068           18,294            37,174             37,446
  Unbilled                                                        875              624               720               (543)
  Wholesale                                                     4,471            4,080             8,781              8,859
-----------------------------------------------------------------------------------------------------------------------------
     Total Electric                                            24,414           22,998            46,675             45,762
-----------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------
Natural Gas Delivered (thousands of dt)                        15,390           11,096            32,498             25,942
-----------------------------------------------------------------------------------------------------------------------------

Energy Supply - Utility (millions of kWh)
  Generated - Steam                                            11,683           11,877            23,098             23,791
              Nuclear                                           7,693            6,813            14,920             13,950
              Hydro                                               107               64               246                117
              Combustion turbines                               2,162            1,672             3,747              2,809
  Purchased                                                     3,857            3,711             6,850              7,385
-----------------------------------------------------------------------------------------------------------------------------
            Total Energy Supply - (Company Share) (a)          25,502           24,137            48,861             48,052
-----------------------------------------------------------------------------------------------------------------------------

Detail of Income Taxes (in thousands)
    Income tax expense (credit) - current                 $    76,178      $    (6,730)   $       34,199    $        28,475
                                  deferred                    (55,289)         (12,723)          (42,933)           (31,904)
                                  investment tax credit        (4,730)          (6,244)          (10,223)           (13,215)
-----------------------------------------------------------------------------------------------------------------------------
               Total Income Tax Expense (Benefit)         $    16,159      $   (25,697)   $      (18,957)   $       (16,644)
-----------------------------------------------------------------------------------------------------------------------------

(a) Excludes co-owner's share of the energy supplied from the five generating
facilities that are jointly owned.


                                       8
<PAGE>
</TABLE>

Progress Energy, Inc.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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

          Organization.  Progress  Energy,  Inc.  (the  Company) is a registered
          -------------
          holding  company under the Public Utility  Holding Company Act (PUHCA)
          of 1935, as amended. Both the Company and its subsidiaries are subject
          to the  regulatory  provisions  of PUHCA.  Through  its  wholly  owned
          subsidiaries,  CP&L,  Florida Power  Corporation  (Florida  Power) and
          North  Carolina  Natural  Gas  Corporation   (NCNG),  the  Company  is
          primarily  engaged in the generation,  transmission,  distribution and
          sale of electricity in portions of North Carolina,  South Carolina and
          Florida  and the  transport,  distribution  and sale of natural gas in
          portions of North  Carolina.  Through the Progress  Ventures  business
          unit, the Company is involved in merchant energy generation, coal, gas
          and  synthetic  fuel  operations  and energy  marketing  and  trading.
          Through  other   business   units,   the  Company   engages  in  other
          non-regulated  business areas, including energy management and related
          services,  rail  services and  telecommunications.  Progress  Energy's
          legal   structure  is  not  currently   aligned  with  the  functional
          management and financial  reporting of the Progress  Ventures business
          segment.  Whether, and when, the legal and functional  structures will
          converge depends upon legislative and regulatory action,  which cannot
          currently be anticipated.

          Basis of Presentation.  These financial  statements have been prepared
          ----------------------
          in accordance with  accounting  principles  generally  accepted in the
          United States of America (generally  accepted  accounting  principles)
          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 generally  accepted  accounting
          principles for complete financial statements. Because the accompanying
          consolidated  interim  financial  statements do not include all of the
          information and footnotes  required by generally  accepted  accounting
          principles,  they  should  be read in  conjunction  with  the  audited
          financial  statements for the period ended December 31, 2001 and notes
          thereto  included  in Progress  Energy's  Form 10-K for the year ended
          December 31, 2001.

          The amounts included in the consolidated  interim financial statements
          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.  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.  Certain  amounts for 2001 have
          been reclassified to conform to the 2002 presentation.

          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.        ACQUISITIONS
          ------------

          Generation Acquisition.  On February 15, 2002, Progress Ventures, Inc.
          -----------------------
          acquired 100% of two electric  generating  projects located in Georgia
          from LG&E Energy Corp., a subsidiary of Powergen plc. The two projects
          consist  of 1) Walton  County  Power,  LLC in Monroe,  Georgia,  a 460
          megawatt natural gas-fired plant placed in service in June 2001 and 2)
          Washington County Power, LLC in Washington County,  Georgia, a planned
          600 megawatt  natural  gas-fired  plant  expected to be operational by
          June 2003.  The Walton and  Washington  projects have been included in
          the consolidated  financial statements since the acquisition date. The
          acquisition furthers Progress Ventures' expansion into merchant energy
          operations and positions it as a growing  provider of wholesale energy
          in the Southeast.

          The  aggregate  cash  purchase  price of  approximately  $348  million
          includes  approximately  $1.7 million of direct transaction costs. The
          purchase  price was  allocated  primarily to fixed assets based on the
          preliminary fair values of the assets  acquired.  The transaction also
          included tolling and power sale agreements with LG&E Energy Marketing,
          Inc.  for each project  through  December  31,  2004.  No  preliminary
          goodwill has been recorded.

                                       9

<PAGE>
          In addition,  Progress Ventures entered into a project  management and
          completion  agreement whereby LG&E has agreed to manage the completion
          of  the  Washington  site  construction  for  Progress  Ventures.  The
          estimated  costs to complete  the  Washington  project at the time the
          acquisition was completed were approximately $167.6 million.

          The preliminary purchase price allocation is subject to adjustment for
          changes in the Company's preliminary assumptions and analyses, pending
          additional information including asset valuations.

          The pro forma results of operations would not be materially  different
          than the reported  results of operations  for the three and six months
          ended June 30, 2002, or for the comparable periods in the prior year.

          Fuel Acquisition.  On April 26, 2002,  Progress Fuels  Corporation,  a
          -----------------
          subsidiary  of  Progress  Energy,  acquired  100% of  Westchester  Gas
          Company. The acquisition included  approximately 215 producing natural
          gas  wells,  52 miles of  intrastate  gas  pipeline  and 170  miles of
          gas-gathering  systems located within a 25-miles radius of Jonesville,
          Texas, on the Texas-Louisiana border.

          The aggregate  purchase price of approximately  $153 million consisted
          of cash consideration of approximately $22 million and the issuance of
          2.5  million  shares  of  Progress   Energy  common  stock  valued  at
          approximately $129 million. The purchase price includes  approximately
          $1.7  million of direct  transaction  costs.  The  purchase  price was
          allocated  primarily  to fixed assets  based on the  preliminary  fair
          values of the assets  acquired.  The excess of the purchase price over
          the  preliminary  fair  value  of  the  net  identifiable  assets  and
          liabilities  acquired  has been  recorded as  goodwill.  Based on this
          preliminary allocation, goodwill of approximately $34 million has been
          recorded.  The  preliminary  purchase  price  allocation is subject to
          adjustment  for changes in the  preliminary  assumptions  and analyses
          used, pending additional  information including final asset valuations
          and allocations to gas properties.

          The  acquisition  has been accounted for using the purchase  method of
          accounting and, accordingly, the results of operations for Westchester
          have  been  included  in  Progress  Energy's  consolidated   financial
          statements  since the date of  acquisition.  The pro forma  results of
          operations would not be materially different than the reported results
          of operations for the three and six months ended June 30, 2002, or for
          the comparable periods in the prior year.

3.        FLORIDA POWER RATE CASE SETTLEMENT
          ----------------------------------

          On March 27,  2002,  the parties in Florida  Power's rate case entered
          into a Stipulation and Settlement Agreement (the Agreement) related to
          retail rate matters.  The Agreement was approved by the Florida Public
          Service  Commission  (FPSC)  on  April  23,  2002.  The  Agreement  is
          generally  effective  from May 1,  2002  through  December  31,  2005;
          provided,  however,  that if Florida  Power's base rate  earnings fall
          below a 10% return on equity,  Florida  Power may petition the FPSC to
          amend its base rates.

          The  Agreement  provides  that  Florida  Power will  reduce its retail
          revenues  from the sale of  electricity  by an  annual  amount of $125
          million.  The Agreement  also provides that Florida Power will operate
          under a Revenue  Sharing  Incentive  Plan (the Plan) through 2005, and
          thereafter  until  terminated  by the FPSC,  that  establishes  annual
          revenue caps and sharing  thresholds.  The Plan  provides  that retail
          base rate revenues between the sharing  thresholds and the retail base
          rate  revenue caps will be divided into two shares - a 1/3 share to be
          received  by  Florida  Power's  shareholders,  and a 2/3  share  to be
          refunded to Florida Power's retail customers;  provided, however, that
          for the year 2002  only,  the refund to  customers  will be limited to
          67.1% of the 2/3 customer share.  The retail base rate revenue sharing
          threshold  amounts for 2002 will be $1,296  million and will  increase
          $37 million  each year  thereafter.  The Plan also  provides  that all
          retail  base rate  revenues  above the retail base rate  revenue  caps
          established  for each year will be refunded to retail  customers on an
          annual  basis.  For 2002,  the refund to customers  will be limited to
          67.1% of the retail base rate  revenues  that exceed the 2002 cap. The
          retail  base  revenue  caps for 2002 will be $1,356  million  and will
          increase $37 million each year thereafter.

          The Agreement also provides that beginning with the in-service date of
          Florida Power's Hines Unit 2 and continuing through December 31, 2005,
          Florida  Power  will be  allowed  to  recover  through  the fuel  cost
          recovery  clause a  return  on  average  investment  and  depreciation
          expense  for Hines Unit 2, to the extent  such costs do not exceed the
          Unit's cumulative fuel savings over the recovery period.  Hines Unit 2
          is a 516 MW  combined-cycle  unit  under  construction  and  currently
          scheduled for completion in late 2003.


                                       10
<PAGE>
          Additionally,  the Agreement provides that Florida Power will effect a
          mid-course  correction of its fuel cost recovery  clause to reduce the
          fuel factor by $50 million for the  remainder  of 2002.  The fuel cost
          recovery clause will operate as it normally does,  including,  but not
          limited  to any  additional  mid-course  adjustments  that may  become
          necessary,  and the  calculation  of  true-ups  to actual  fuel clause
          expenses.

          Florida  Power will  suspend  accruals  on its  reserves  for  nuclear
          decommissioning  and fossil  dismantlement  through December 31, 2005.
          Additionally, for each calendar year during the term of the Agreement,
          Florida  Power  will  record  a  $62.5  million  depreciation  expense
          reduction, and may, at its option, record up to an equal annual amount
          as  an  offsetting  accelerated  depreciation  expense.  In  addition,
          Florida Power is  authorized,  at its  discretion,  to accelerate  the
          amortization  of  certain  regulatory  assets  over  the  term  of the
          Agreement.  There was no accelerated depreciation expense recorded for
          the three and six months ended June 30, 2002.

          Under the terms of the Agreement, Florida Power agreed to continue the
          implementation of its four-year  Commitment to Excellence  Reliability
          Plan and  expects to achieve a 20%  improvement  in its annual  System
          Average  Interruption  Duration  Index by no later than 2004.  If this
          improvement  level is not achieved  for  calendar  years 2004 or 2005,
          Florida  Power will  provide a refund of $3 million  for each year the
          level is not achieved to 10% of its total retail  customers  served by
          its worst performing distribution feeder lines.

          The  Agreement  also  provides  that  Florida  Power  will  refund  to
          customers $35 million of revenues  Florida Power collected  during the
          interim period since March 13, 2001. This one-time retroactive revenue
          refund was recorded in the first  quarter of 2002 and will be returned
          to retail  customers  over an eight-month  period ending  December 31,
          2002.

4.        FINANCIAL INFORMATION BY BUSINESS SEGMENT
          -----------------------------------------

          The Company currently provides services through the following business
          segments:  CP&L Electric,  Florida Power Electric,  Progress Ventures,
          Rail Services and Other. The prior period has been restated to reflect
          the current reportable segments.

          The CP&L Electric and Florida Power  Electric  segments are engaged in
          the  generation,  transmission,  distribution,  and  sale of  electric
          energy in portions of North  Carolina,  South  Carolina  and  Florida.
          Electric  operations are subject to the rules and regulations of FERC,
          the NCUC, the SCPSC and the FPSC.

          The Progress  Ventures segment is primarily engaged in merchant energy
          generation  and coal, gas and synthetic  fuel  operations.  Management
          reviews the  operations  of the Progress  Ventures  segment  after the
          allocation of energy  marketing and trading  activities which Progress
          Ventures  performs  on behalf  of the  regulated  utilities,  CP&L and
          Florida  Power.  The  marketing  activity  refers  to  soliciting  and
          managing  wholesale  power  supply  contracts  and to  selling  excess
          generation as available, all within the regulated framework. Contracts
          within this  activity  are subject to review  under SFAS No. 133.  The
          trading  activity  refers to trading as  defined in EITF  98-10.  This
          trading activity has primarily consisted of entering into standardized
          electric forward contracts. In addition, the trading activity has also
          included  purchasing power for immediate resale. This trading has been
          conducted  on behalf of CP&L and  Florida  Power,  but is outside  the
          regulated  framework  (i.e.,  is a non-regulated  activity).  Progress
          Ventures also enters into non-regulated  trading  transactions for its
          non-regulated merchant plant and fuel businesses.

          The Rail Services  segment  operations  include railcar  repair,  rail
          parts  reconditioning and sales,  railcar leasing and sales, and scrap
          metal   recycling.    These   activities   include   maintenance   and
          reconditioning of salvageable scrap components of railcars, locomotive
          repair,   right-of-way   maintenance   and   operating   manufacturing
          facilities for new rail cars.

          The Other segment is primarily made up of regulated natural gas, other
          diversified businesses and holding company operations,  which includes
          the  transportation,  distribution and sale of natural gas in portions
          of   North   Carolina,   telecommunication   services,   miscellaneous
          non-regulated activities and elimination entries.

                                       11
<PAGE>

          For reportable segments presented in the accompanying  table,  segment
          income  includes   intersegment   revenues  accounted  for  at  prices
          representative  of  unaffiliated  party   transactions.   Intersegment
          revenues that are not  eliminated  represent  natural gas sales to the
          CP&L Electric and the Florida Power Electric segments.
<TABLE>
<S>     <C>

                                                       Florida Power      Progress      Rail Services                 Segment
(in thousands)                         CP&L Electric     Electric       Ventures (b)         (c)          Other        Totals
-------------------------------------------------------------------------------------------------------------------------------
Three Months Ended 6/30/02
Revenues
     Unaffiliated                           $834,658        $765,923       $137,520       $210,534       $85,082     $2,033,717
     Intersegment                                  -               -        127,889            855      (124,197)         4,547
                                       ----------------------------------------------------------------------------------------
          Total Revenues                    $834,658        $765,923       $265,409       $211,389      $(39,115)    $2,038,264
Net Income (Loss)                           $131,690         $76,753        $53,467         $2,947     $(144,237)      $120,620
Segment Income (Loss)After                  $109,346         $73,069        $79,495         $2,947     $(144,237)      $120,620
  Allocation (a)
Total Segment Assets                      $8,669,993      $4,967,998     $2,240,932       $607,617    $5,282,172    $21,768,712
===============================================================================================================================

                                                       Florida Power      Progress                                    Segment
                                       CP&L Electric      Electric        Ventures      Rail Services     Other        Totals
-------------------------------------------------------------------------------------------------------------------------------
Three Months Ended 6/30/01
Revenues
     Unaffiliated                           $782,287        $783,660       $105,805       $520,308      $118,912     $2,310,972
     Intersegment                                  -               -        111,890            625     (107,844)          4,671
                                       ----------------------------------------------------------------------------------------
          Total Revenues                    $782,287        $783,660       $217,695       $520,933       $11,068     $2,315,643
Net Income (Loss)                            $84,022         $84,311        $55,671        $(7,533)    $(104,769)      $111,702
Segment Income (Loss) After                  $68,987         $80,950        $74,067        $(7,533)    $(104,769)      $111,702
  Allocation (a)
Total Segment Assets                      $8,942,454      $4,925,985       $795,017       $802,536    $4,769,697    $20,235,689
===============================================================================================================================

                                                       Florida Power      Progress      Rail Services     Other       Segment
                                       CP&L Electric      Electric      Ventures (b)         (c)                       Totals
-------------------------------------------------------------------------------------------------------------------------------
Six Months Ended 6/30/02
Revenues
     Unaffiliated                         $1,646,139      $1,452,364       $250,925       $379,903      $187,511     $3,916,842
     Intersegment                                 -               -         259,819          1,350      (251,433)         9,736
                                      -----------------------------------------------------------------------------------------
          Total Revenues                  $1,646,139      $1,452,364       $510,744       $381,253      $(63,922)    $3,926,578
Net Income (Loss)                           $217,222        $134,496        $92,951         $2,246     $(193,768)      $253,147
Segment Income (Loss) After                 $187,276        $128,226       $129,167         $2,246     $(193,768)      $253,147
  Allocation (a)
Total Segment Assets                      $8,669,993      $4,967,998     $2,240,932       $607,617    $5,282,172    $21,768,712
===============================================================================================================================

                                                       Florida Power      Progress                                    Segment
                                       CP&L Electric      Electric        Ventures      Rail Services     Other        Totals
-------------------------------------------------------------------------------------------------------------------------------
Six Months Ended 6/30/01
Revenues
     Unaffiliated                         $1,603,861      $1,594,133       $251,256       $520,308      $249,287     $4,218,845
     Intersegment                                  -               -        192,396            625      (188,132)         4,889
                                       ----------------------------------------------------------------------------------------
          Total Revenues                  $1,603,861      $1,594,133       $443,652       $520,933       $61,155     $4,223,734
Net Income (Loss)                           $205,491        $155,917        $97,750        $(7,533)    $(185,920)      $265,705
Segment Income (Loss) After                 $176,885        $144,202       $138,071        $(7,533)    $(185,920)      $265,705
  Allocation (a)
Total Segment Assets                      $8,942,454      $4,925,985       $795,017       $802,536    $4,769,697    $20,235,689
===============================================================================================================================
   (a)  After  allocation of energy  trading and marketing net income managed by
        Progress Ventures on behalf of the electric utilities.
   (b)  Progress Ventures total segment assets at June 30, 2002,  increased from
        the prior year due to the addition of  non-regulated  generating  assets
        including  Effingham,  DeSoto,  Walton  and  Washington,  as well as the
        transfer of the Rowan plant from CP&L in the first quarter of 2002.
   (c)  Rail Services total segment assets at June 30, 2002,  decreased from the
        prior year due to the final purchase price  allocation being recorded in
        the fourth quarter of 2001.
</TABLE>

                                       12
<PAGE>

5.        IMPACT OF NEW ACCOUNTING STANDARD
          ---------------------------------

          During the second quarter of 2001, the Financial  Accounting Standards
          Board  (FASB)  issued   interpretations  of  Statements  of  Financial
          Accounting  Standards No. 133,  "Accounting for Derivative and Hedging
          Activities,"  (SFAS No. 133) indicating that options in general cannot
          qualify for the normal purchases and sales exception,  but provided an
          exception that allows certain electricity contracts, including certain
          capacity-energy  contracts,  to be  excluded  from the  mark-to-market
          requirements of SFAS No. 133. The interpretations  were effective July
          1,  2001.  Those  interpretations  did  not  require  the  Company  to
          mark-to-market  any  of  its  electricity   capacity-energy  contracts
          currently outstanding. In December 2001, the FASB revised the criteria
          related to the exception for certain electricity  contracts,  with the
          revision to be effective April 1, 2002. The revised interpretation did
          not result in any significant  changes to the Company's  assessment of
          mark-to-market   requirements  for  its  current   contracts.   If  an
          electricity  or fuel supply  contract in its  regulated  businesses is
          subject to  mark-to-market  accounting,  there  generally  would be no
          income statement effect of the  mark-to-market  because such contracts
          are  generally  reflected  in fuel  adjustment  clauses  so  that  the
          contract's  mark-to-market  gain  or  loss  would  be  recorded  as  a
          regulatory asset or liability.  Any mark-to-market  gains or losses in
          its   non-regulated   businesses  would  affect  income  unless  those
          contracts qualify for hedge accounting treatment.

          The  application  of the new  rules is  still  evolving,  and  further
          guidance from the FASB is expected,  which could  additionally  impact
          the Company's financial statements.

          See Note 6 for more  information on SFAS No. 142,  "Goodwill and Other
          Intangible Assets."

          The FASB  issued  SFAS  No.  143,  "Accounting  for  Asset  Retirement
          Obligations,"  in  July  2001.  This  statement  provides   accounting
          requirements  for retirement  obligations  associated  with long-lived
          assets and is effective January 1, 2003. This statement  requires that
          the  present  value of  retirement  costs for which the  Company has a
          legal obligation be recorded as liabilities with an equivalent  amount
          added to the asset cost and  depreciated  over an appropriate  period.
          The  liability  is then  accreted  over time by  applying  an interest
          method of allocation to the beginning liability. The Company is in the
          process of identifying  retirement  obligations.  Areas that are being
          reviewed  include  electric   transmission   and   distribution,   gas
          production and distribution,  nuclear decommissioning,  all generating
          facilities,   coal  mines,   synthetic  fuel  facilities,   terminals,
          telecommunication  assets,  and assets that require  special  handling
          under environmental regulations. The Company is also in the process of
          quantifying  the  obligations  that  have  been  identified  under the
          measurement rules described in the standard.  For regulated companies,
          there is not expected to be any impact on earnings.  For non-regulated
          companies, the Company currently cannot predict the earnings impact.

6.        GOODWILL AND OTHER INTANGIBLE ASSETS
          ------------------------------------

          Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill
          and Other  Intangible  Assets." This statement  clarifies the criteria
          for recording of other  intangible  assets  separately  from goodwill.
          Effective   January  1,  2002,   goodwill  is  no  longer  subject  to
          amortization  over its  estimated  useful life.  Instead,  goodwill is
          subject to at least an annual  assessment for impairment by applying a
          two-step  fair-value  based  test.  This  assessment  could  result in
          periodic impairment charges.

          The Company has completed  the first step of the initial  transitional
          goodwill  impairment test, which indicated that the Company's goodwill
          was not impaired as of January 1, 2002.

          The  changes in the  carrying  amount of  goodwill  for the six months
          ended June 30, 2002, by reportable segment, are as follows:
<TABLE>
<S>     <C>

                                                                 Florida
                                                                  Power          Progress
          (in thousands)                       CP&L Electric     Electric        Ventures          Other          Total
                                               -------------     --------        --------          -----          -----
          Balance as of January 1, 2002          $1,921,802     $1,733,448         $ -           $34,960       $3,690,210
          Acquisitions                               -               -            33,747             -             33,747
          Divestitures                               -               -               -            (1,720)          (1,720)
                                              --------------- --------------- --------------- --------------- --------------
          Balance as of June 30, 2002            $1,921,802     $1,733,448       $33,747         $33,240       $3,722,237
</TABLE>

          The acquired  goodwill  relates to the  acquisition of Westchester Gas
          Company in April 2002 (see Note 2).


                                       13
<PAGE>

          As required by SFAS No.  142,  the results for the prior year  periods
          have not been restated.  A reconciliation of net income as if SFAS No.
          142 had been adopted is  presented  below for the three and six months
          ended June 30, 2001, and the years ending  December 31, 2001, 2000 and
          1999.
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                       Three Months Ended     Six Months Ended        Year Ended      Year Ended       Year Ended
(in thousands, except per share data)    June 30, 2001          June 30, 2001            2001            2000             1999
                                         -------------          -------------            ----            ----             ----
Reported net income                        $ 111,702              $ 265,705          $ 541,610        $ 478,361         $ 379,288
Add back: Goodwill amortization               24,762                 47,649             96,828           14,100             3,968
                                           ---------              ---------          ---------        ---------         ---------
Adjusted net income                        $ 136,464              $ 313,354          $ 638,438        $ 492,461         $ 383,256

Basic earnings per common share:
Reported net income                           $ 0.56                 $ 1.33             $ 2.65           $ 3.04          $   2.56
Adjusted net income                           $ 0.68                 $ 1.57             $ 3.12           $ 3.13          $   2.58

Diluted earnings per common share:
Reported net income                           $ 0.56                 $ 1.32             $ 2.64           $ 3.03          $   2.55
Adjusted net income                           $ 0.68                 $ 1.56             $ 3.11           $ 3.12          $   2.58
</TABLE>

          The  gross  carrying  amount  and  accumulated   amortization  of  the
          Company's  intangible assets as of June 30, 2002 and December 31, 2001
          are as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                     June 30, 2002                                 December 31, 2001
                                         ---------------------------------------    ------------------------------------------
          (in thousands)                   Gross Carrying         Accumulated             Gross Carrying         Accumulated
                                               Amount             Amortization                Amount            Amortization
                                        ------------------ ---------------------    --------------------- --------------------
          Synthetic fuel intangibles (a)     $ 140,469             $ (33,713)               $ 140,469            $ (22,237)
          Power sale agreements (b)             31,601                (2,297)                  -                     -
          Customer contracts                    17,300                (7,850)                  17,300               (5,600)
          Other                                 21,136                  (471)                  18,771                 (338)
                                        ------------------ ---------------------    --------------------- --------------------
                    Total                    $ 210,506             $ (44,331)               $ 176,540            $ (28,175)
</TABLE>

          (a)  Represents  intangibles  for  synthetic  fuel  technology.  These
          intangibles  are being  amortized  on a  straight-line  basis over the
          period  ending with the  expiration of tax credits under Section 29 of
          the Internal  Revenue  Code on December  31, 2007.
          (b)  Relates  to the power  sale  agreements  recorded  as part of the
          acquisition of generating  assets from LG&E Energy Corp. (See Note 2),
          which  are  amortized  on a  straight-line  basis  beginning  with the
          in-service date of these plants through December 31, 2004.

          Total net  intangible  assets of $166.2  million and $148.4 million at
          June 30, 2002,  and December 31, 2001,  respectively,  are included in
          other assets and deferred debits in the  accompanying  balance sheets.
          Amortization  expense recorded on intangible  assets for the three and
          six months  ended June 30, 2002 was $8.1  million  and $16.2  million,
          respectively.  The estimated amortization expense on intangible assets
          for the next five years is as follows:

                        (in thousands)
                             2002                 $ 33,663
                             2003                   34,536
                             2004                   36,311
                             2005                   21,087
                             2006                   20,419

7.        COMPREHENSIVE INCOME
          --------------------

          Comprehensive income for the three and six months ended June 30, 2002,
          was $119.6  million and $256.4  million,  respectively.  Comprehensive
          income for the three and six months  ended June 30,  2001,  was $112.5
          million and $231.5 million, respectively. Items of other comprehensive
          income for the three-month and six-month periods  consisted  primarily
          of changes in the fair value of  derivatives  used to hedge cash flows
          related to interest on  long-term  debt and the  cumulative  effect of
          implementing SFAS No. 133 as of January 1, 2001.

                                       14
<PAGE>

8.        FINANCING ACTIVITIES
          --------------------

          On February 6, 2002,  CP&L issued $48.5  million  principal  amount of
          First  Mortgage  Bonds,   Pollution  Control  Series  W,  Wake  County
          Pollution  Control  Revenue  Refunding  Bonds,  5.375% Series 2002 Due
          February  1,  2017.  On March 1, 2002,  CP&L  redeemed  $48.5  million
          principal  amount of  Pollution  Control  Revenue  Bonds,  Wake County
          (Carolina Power & Light Company  Project)  Adjustable Rate Option Bond
          1983 Series Due April 1, 2019,  at 101.5% of the  principal  amount of
          such bonds.

          In February 2002, $50 million of Progress Capital Holdings, Inc. (PCH)
          medium-term notes, 5.78% Series, matured.  Progress Energy funded this
          maturity through the issuance of commercial paper.

          In March 2002,  Progress  Ventures,  Inc. obtained a $440 million bank
          facility  that  will  be  used   exclusively   for  expansion  of  its
          non-regulated generation portfolio. Borrowings under this facility are
          secured by the assets in the generation  portfolio.  In March 2002 and
          June 2002,  Progress Ventures,  Inc. made draws under this facility of
          $120 million and $67 million, respectively.

          On April 17,  2002,  Progress  Energy  issued  $350  million of senior
          unsecured  notes due 2007 with a coupon of 6.05% and $450  million  of
          senior  secured  notes due 2012 with a coupon of 6.85%.  Proceeds from
          this issuance were used to pay down commercial paper.

          On June 27, 2002,  CP&L  announced  the  redemption of $500 million of
          CP&L  Extendible  Notes due October 28, 2009, at 100% of the principal
          amount of such notes.  These notes were  redeemed on July 29, 2002 and
          CP&L funded the redemptions  through the issuance of commercial paper.
          On July 30, 2002,  CP&L issued $500 million of senior  unsecured notes
          due 2012 with a coupon of 6.5%.  Proceeds from this issuance were used
          to pay down commercial paper.

          On July 1, 2002, $30 million of Florida Power medium-term notes, 6.54%
          Series,  matured.  Florida  Power  funded  this  maturity  through the
          issuance of commercial paper.

          On July 11, 2002,  Florida Power  announced the  redemption of $108.55
          million  principal amount of Citrus County Pollution Control Refunding
          Revenue  Bonds,  Series  1992  A Due  January  1,  2027,  $90  million
          principal amount of Citrus County Pollution  Control Refunding Revenue
          Bonds,  Series  1992  B Due  February  1,  2022  and  $10.115  million
          principal amount of Pasco County Pollution  Control  Refunding Revenue
          Bonds,  Series  1992A Due February 1, 2022,  at 102% of the  principal
          amount of such bonds and $32.2  million  principal  amount of Pinellas
          County  Pollution  Control  Refunding  Revenue Bonds,  Series 1991 Due
          December 1, 2014 at 101% of the principal amount of such bonds.  These
          redemptions were finalized on August 12, 2002.

          On July 16, 2002,  Florida  Power  issued  $108.55  million  principal
          amount of Citrus County  Pollution  Control Revenue  Refunding  Bonds,
          Series 2002A Due January 1, 2027, $100.115 million principal amount of
          Citrus County Pollution Control Revenue Refunding Bonds,  Series 2002B
          Due  January  1, 2022 and  $32.2  million  principal  amount of Citrus
          County Pollution  Control Revenue  Refunding  Bonds,  Series 2002C Due
          January  1,  2018.  Proceeds  from this  issuance  were used to redeem
          Florida Power's pollution control revenue refunding bonds above.

          On August 5, 2002,  CP&L  announced the  redemption of $150 million of
          First Mortgage bonds, 8.20% Series, due July 1, 2022 at 103.55% of the
          principal amount of such bonds.  CP&L intends to redeem these notes on
          September 4, 2002.

9.        RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS
          ------------------------------------------------------

          Progress  Energy uses interest rate  derivative  instruments to adjust
          the fixed and variable  rate debt  components  of its debt  portfolio.
          During  March,  April and May 2002,  Progress  Energy  converted  $1.0
          billion  of fixed  rate debt  into  variable  rate  debt by  executing
          interest rate  derivative  agreements  with a total notional amount of
          $1.0  billion  with a group  of five  banks.  Under  the  terms of the
          agreements,  which  were  scheduled  to  mature  in 2006  and 2007 and
          coincide  with the  maturity  dates  of the  related  debt  issuances,
          Progress  Energy  received a fixed rate and paid a floating rate based
          on three-month  LIBOR. These instruments were designated as fair value
          hedges  for  accounting  purposes.   In  June  2002,  Progress  Energy
          terminated these  agreements.  As a result of the agreements,  at June
          30, 2002,  Progress Energy had a debt premium of $21.2 million,  which
          will be amortized and recorded as a reduction to interest expense over
          the life of the related debt issuances.
                                       15
<PAGE>

          Progress Ventures, Inc. is required to hedge 75 percent of the amounts
          outstanding  under  its bank  facility  pursuant  to the  terms of the
          agreement for expansion of its non-regulated  generation portfolio. In
          May 2002, Progress Ventures,  Inc. entered into hedges that included a
          series of zero cost  collars  that have been  designated  as cash flow
          hedges for accounting  purposes.  The fair value of these  instruments
          was a $2.1 million liability position at June 30, 2002.

          In April,  May and June 2002,  CP&L  entered into a series of Treasury
          Rate Locks to hedge its  exposure to  interest  rates with regard to a
          future  issuance  of  fixed-rate   debt.   These   agreements  have  a
          computational  period of ten years.  The fair value of the swaps was a
          $8.5 million  liability  position at June 30, 2002. These  instruments
          were  designated  as cash flow  hedges for  accounting  purposes.  The
          agreements,  with a  total  notional  amount  of  $350  million,  were
          terminated  simultaneously  with the pricing of the $500  million CP&L
          senior  unsecured  notes in July 2002.  CP&L  realized a $22.5 million
          hedging loss, which will be amortized and recorded as an adjustment to
          interest expense over the life of the notes.

          In August 2002,  Progress Energy  converted $400 million of fixed rate
          debt into  variable rate debt by executing  interest  rate  derivative
          agreements  with two  counterparties  with a total notional  amount of
          $400 million. Under the terms of the agreements,  which expire in 2006
          and  coincide  with the maturity  date of the related  debt  issuance,
          Progress  Energy  will  receive  a fixed  rate of 3.26% and will pay a
          floating  rate based on  three-month  LIBOR.  These  instruments  were
          designated as fair value hedges for accounting purposes.

          The notional  amount of the above  contracts is not exchanged and does
          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
          swap agreements with strong creditworthy counterparties.

10.       EARNINGS PER COMMON SHARE
          -------------------------

          Restricted  stock  awards  and  contingently  issuable  shares  had  a
          dilutive  effect on earnings  per share for the six months  ended June
          30,  2001.  As of June 30, 2002,  options  granted in 2001 and 2002 to
          purchase 2.4 million  shares of common  stock with a  weighted-average
          exercise price of $43.73 were outstanding.

          A  reconciliation  of the  weighted  average  number of common  shares
          outstanding  for  basic  and  dilutive  purposes  is  as  follows  (in
          thousands):
<TABLE>
<S>     <C>

                                                              Three Months Ended,                  Six Months Ended,
                                                        June 30, 2002     June 30, 2001     June 30, 2002    June 30, 2001
                                                        -------------     -------------     -------------    -------------
         Weighted Average Common Shares - Basic            215,007           200,043           213,999          199,922
         Restricted Stock Awards                               734               677               690              651
         Stock Options                                         333                 -               224                -
                                                        ----------        ----------        ----------       ----------
         Weighted Average Shares - Fully Dilutive          216,074           200,720           214,913          200,573
</TABLE>

          Employee  Stock  Ownership Plan shares that have not been committed to
          be released to participants'  accounts are not considered  outstanding
          for the  determination  of earnings  per common  share.  Those  shares
          totaled  4,759,277  and  5,330,408 at June 30, 2002 and June 30, 2001,
          respectively.

11.       FPC-OBLIGATED   MANDATORILY   REDEEMABLE  PREFERRED  SECURITIES  OF  A
          ----------------------------------------------------------------------
          SUBSIDIARY HOLDING SOLELY FPC GUARANTEED NOTES
          ----------------------------------------------

          In April 1999,  FPC Capital I (the  Trust),  an indirect  wholly-owned
          subsidiary  of FPC,  issued 12  million  shares of $25 par  cumulative
          FPC-obligated  mandatorily  redeemable preferred securities (Preferred
          Securities)  due 2039,  with an  aggregate  liquidation  value of $300
          million and an annual  distribution rate of 7.10%.  Currently,  all 12
          million  shares  of the  Preferred  Securities  that were  issued  are
          outstanding. Concurrent with the issuance of the Preferred Securities,
          the Trust  issued to Florida  Progress  Funding  Corporation  (Funding
          Corp.) all of the common  securities of the Trust (371,135 shares) for
          $9.3 million.  Funding  Corp.  is a direct wholly owned  subsidiary of
          FPC.
                                       16
<PAGE>
          The  existence  of the Trust is for the sole  purpose of  issuing  the
          Preferred  Securities and the common securities and using the proceeds
          thereof to purchase from Funding Corp.  its 7.10% Junior  Subordinated
          Deferrable  Interest  Notes  (subordinated  notes)  due  2039,  for  a
          principal  amount of $309.3 million.  The  subordinated  notes and the
          Notes Guarantee (as discussed below) are the sole assets of the Trust.
          Funding Corp.'s proceeds from the sale of the subordinated  notes were
          advanced to Progress Capital and used for general  corporate  purposes
          including the repayment of a portion of certain outstanding short-term
          bank loans and commercial paper.

          FPC has  fully  and  unconditionally  guaranteed  the  obligations  of
          Funding Corp. under the subordinated  notes (the Notes Guarantee).  In
          addition, FPC has guaranteed the payment of all distributions required
          to be made by the  Trust,  but only to the  extent  that the Trust has
          funds   available  for  such   distributions   (Preferred   Securities
          Guarantee).  The Preferred Securities  Guarantee,  considered together
          with  the  Notes  Guarantee,  constitutes  a  full  and  unconditional
          guarantee  by FPC of  the  Trust's  obligations  under  the  Preferred
          Securities.

          The subordinated  notes may be redeemed at the option of Funding Corp.
          beginning  in 2004 at par value  plus  accrued  interest  through  the
          redemption  date. The proceeds of any  redemption of the  subordinated
          notes will be used by the Trust to redeem proportional  amounts of the
          Preferred  Securities and common  securities in accordance  with their
          terms.  Upon  liquidation or dissolution of Funding Corp.,  holders of
          the  Preferred   Securities  would  be  entitled  to  the  liquidation
          preference  of $25 per share plus all  accrued  and  unpaid  dividends
          thereon to the date of payment.

          These  Preferred  Securities  are  classified as long-term debt on the
          Company's consolidated balance sheets.

12.       COMMITMENTS AND CONTINGENCIES
          -----------------------------

          Contingencies and significant changes to the commitments  discussed in
          Note 20 of the financial  statements  included in the  Company's  2001
          Annual Report on Form 10-K are described below.

          Commitments

          1)   Guarantees
               ----------

               During  the first  six  months of 2002,  Progress  Energy  issued
               approximately  $582 million of  guarantees  on behalf of Progress
               Ventures for obligations under power purchase agreements, tolling
               agreements,   construction  agreements  and  trading  operations.
               Approximately $441 million of these commitments relate to certain
               guarantee  agreements  issued to support  obligations  related to
               Progress  Venture's  expansion  of its  non-regulated  generation
               portfolio.  These guarantees ensure  performance under generation
               construction and operating agreements.

               The  remaining  $141  million  of  these  new   commitments   are
               guarantees  issued to support  Progress  Ventures' energy trading
               and marketing functions.  The contracts supporting the guarantees
               contain language  regarding  downgrade events,  ratings triggers,
               and netting and offset provisions.

          Contingencies

          1)   Impairment of Long-Lived Assets
               -------------------------------

               Due to the recent decline of the telecommunications industry, the
               Company  has   initiated   a   valuation   study  to  assess  the
               recoverability  of Progress  Telecom's and  Caronet's  long-lived
               assets,  which  totaled  approximately  $288  and  $111  million,
               respectively,  at June 30, 2002. The Company expects to record an
               impairment in the third  quarter.  Progress  Telecom is currently
               providing   broadband   services   to  WorldCom   Inc.   and  its
               subsidiaries.  Due to WorldCom Inc.'s  bankruptcy  filing in July
               2002, the Company is assessing what impact,  if any, the WorldCom
               Inc.  developments  will have on Progress  Telecom's  operations.
               Progress Energy does not expect the WorldCom Inc. developments to
               have a material impact on the Company's  consolidated  results of
               operations, financial position or cash flows.

                                       17
<PAGE>
          2)   IRS Audit
               ---------

               One of Progress Energy's synthetic fuel entities,  Colona Synfuel
               Limited Partnership,  L.L.L.P.,  is being audited by the IRS. The
               Company  has been  allocated  approximately  $220  million in tax
               credits to date for this synthetic  fuel entity.  As provided for
               in  contractual  arrangements  pertaining  to  Progress  Energy's
               purchase of Colona,  the Company  has begun  escrowing  quarterly
               royalty  payments  owed to an  unaffiliated  entity  until  final
               resolution of the audit. In management's opinion, Progress Energy
               is complying  with all the necessary  requirements  to be allowed
               such  credits  and  believes  it is  likely,  although  it cannot
               provide certainty,  that it will prevail if challenged by the IRS
               on any credits taken. The timing for the ultimate  disposition of
               this audit is uncertain.

          3)   Franchise Taxes
               ---------------

               CP&L, like other electric power companies in North Carolina, pays
               a franchise  tax levied by the State  pursuant to North  Carolina
               General Statutes Section 105-116,  a state-level annual franchise
               tax (State  Franchise Tax). Part of the revenue  generated by the
               State  Franchise  Tax  is  required  by  North  Carolina  General
               Statutes Section 105-116.1(b) to be distributed to North Carolina
               cities  in which  CP&L  maintains  facilities.  CP&L has paid and
               continues to pay the State  Franchise  Tax to the state when such
               taxes are due. However,  pursuant to an Executive Order issued on
               February  5,  2002,  by  the  Governor  of  North  Carolina,  the
               Secretary of Revenue  withheld  distributions  of State Franchise
               Tax revenues to cities for two quarters of fiscal year  2001-2002
               in an effort to balance the state's budget.

               In  response  to the  state's  failure  to  distribute  the State
               Franchise Tax proceeds,  certain  cities in which CP&L  maintains
               facilities adopted municipal franchise tax ordinances  purporting
               to  impose on CP&L a local  franchise  tax.  The local  taxes are
               intended  to be  collected  for as  long as the  state  withholds
               distribution of the State Franchise Tax proceeds from the cities.
               The first local tax  payments  would be due August 15,  2002.  On
               August 2, 2002,  CP&L filed a lawsuit  against the cities seeking
               to enjoin  the  enforcement  of the  local  taxes and to have the
               local  ordinances  struck down because the  ordinances are beyond
               the cities'  statutory  authority  and violate  provisions of the
               North Carolina and United States  Constitutions.  Progress Energy
               cannot predict the outcome of this matter.

          4)   Claims and Uncertainties.
               -------------------------

               a) 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  federal  and  state  laws.  The  lead  or  sole
               regulatory  agency that is  responsible  for a particular  former
               coal tar site depends largely upon the state in which the site is
               located.  There are several manufactured gas plant (MGP) sites to
               which  both  electric  utilities  and the gas  utility  have some
               connection.  In this regard,  both electric utilities and the gas
               utility,   with  other  potentially   responsible   parties,  are
               participating  in  investigating  and, if necessary,  remediating
               former  coal  tar  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,  both electric utilities,  the gas utility and Progress
               Ventures 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.

                                       18
<PAGE>
               CP&L.  There are 12 former  MGP sites and 14 other  active  waste
               -----
               sites  associated with CP&L that have required or are anticipated
               to require investigation and/or remediation costs. As of June 30,
               2002, CP&L has not recorded any accruals for investigation and/or
               remediation  costs  for  these  sites.  CP&L  received  insurance
               proceeds to address costs  associated with CP&L waste sites.  All
               eligible  expenses  related  to these  waste  costs  are  charged
               against a centralized fund containing these proceeds.  As of June
               30, 2002,  approximately $8.7 million remains in this centralized
               fund. As costs associated with CP&L's share of investigation  and
               remediation of these sites become known,  the fund is assessed to
               determine if additional accruals will be required.  CP&L does not
               believe  that  it can  provide  an  estimate  of  the  reasonably
               possible  total  remediation  costs  beyond  what  remains in the
               centralized  fund.  This is due to the fact that the sites are at
               different  stages:  investigation  has  not  begun  at 15  sites,
               investigation has begun but remediation  cannot be estimated at 7
               sites and 4 sites  have  begun  remediation.  CP&L  measures  its
               liability for these sites based on available  evidence  including
               its experience in  investigation  and remediation of contaminated
               sites, which also involves assessing and developing  cost-sharing
               arrangements with other potentially responsible parties. Once the
               centralized  fund is  depleted,  CP&L will  accrue  costs for the
               sites to the extent its  liability  is probable and the costs can
               be  reasonably  estimated.   Therefore,   CP&L  cannot  currently
               determine the total costs that may be incurred in connection with
               the remediation of all sites.  According to current  information,
               these  future  costs at the CP&L  sites are not  material  to the
               Company's  financial  condition  or  results  of  operations.   A
               rollforward  of the balance in this fund is not  provided  due to
               the immateriality of this activity in the periods presented.

               Florida Power.  There are two former MGP sites and 8 other active
               --------------
               waste sites or categories of sites  associated with Florida Power
               that have required or are  anticipated  to require  investigation
               and/or  remediation costs. As of June 30, 2002, Florida Power has
               accrued  approximately  $8.4 million for probable and  reasonably
               estimable  costs at these sites.  Florida Power believes that the
               maximum  liability  it can  currently  estimate on these sites is
               $12.9 million.  As more activity  occurs at these sites,  Florida
               Power will assess the need to adjust the accruals. These accruals
               have  been  recorded  on an  undiscounted  basis.  Florida  Power
               measures  its  liability  for  these  sites  based  on  available
               evidence   including  its  experience  in  investigation   and/or
               remediation of contaminated  sites,  which includes assessing and
               developing  cost-sharing   arrangements  with  other  potentially
               responsible parties. A rollforward of the balance in this accrual
               is not provided due to the  immateriality of this activity in the
               periods presented.

               NCNG. There are 5 former MGP sites associated with NCNG that have
               -----
               or are  estimated  to have  investigation  or  remediation  costs
               associated  with  them.  As of June 30,  2002,  NCNG has  accrued
               approximately $2.7 million for probable and reasonably  estimable
               remediation  costs at  these  sites.  These  accruals  have  been
               recorded on an  undiscounted  basis.  NCNG measures its liability
               for  these  sites  based  on  available  evidence  including  its
               experience  in  investigation  and  remediation  of  contaminated
               sites, which also involves assessing and developing  cost-sharing
               arrangements with other  potentially  responsible  parties.  NCNG
               will accrue  costs for the sites to the extent its  liability  is
               probable and the costs can be reasonably estimated. NCNG does not
               believe it can  provide an estimate  of the  reasonably  possible
               total  remediation  costs beyond the accrual because three of the
               five  sites  associated  with NCNG  have not begun  investigation
               activities.  Therefore, NCNG cannot currently determine the total
               costs that may be incurred in connection  with the  investigation
               and/or   remediation   of  all   sites.   According   to  current
               information,  these  future  costs  at the  NCNG  sites  are  not
               material  to the  Company's  financial  condition  or  results of
               operations.  A rollforward  of the balance in this accrual is not
               provided  due to the  immateriality  of  this  activity  for  the
               periods   presented.   NCNG  has  received   insurance   proceeds
               associated  with pollution  liability  settlements.  In addition,
               NCNG is receiving  approximately $5,000 per month in its rates to
               fund expenses  associated with its share of costs to investigate,
               and if necessary, remediate these sites.

                                       19
<PAGE>
               As part of the sale of the Inland Marine  Transportation  segment
               to AEP Resources in 2001, Florida Progress established an accrual
               to address  liabilities  which may result  from known and unknown
               environmental  liabilities but primarily to address contamination
               in soil and  potentially  groundwater at one site. The balance in
               this accrual is $9.9 million at June 30, 2002.  Florida  Progress
               estimates that its maximum contractual liability to AEP Resources
               associated  with  Inland  Marine  Transportation  segment  is $60
               million.  These accruals have been  determined on an undiscounted
               basis.  Florida  Progress  measures its  liability  for this site
               based  on  estimable  and  probable  remediation   scenarios.   A
               rollforward of the balance in this accrual is not provided due to
               the immateriality of this activity for the periods presented. The
               Company  believes that it is reasonably  possible that additional
               costs,  which  cannot be  currently  estimated,  may be  incurred
               related to the environmental indemnification provision beyond the
               amounts  accrued.  The Company cannot predict the outcome of this
               matter.

               The  Company  is  also  currently  in the  process  of  assessing
               potential costs and exposures at other sites it has been notified
               of. 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.

               There has been and may be further  proposed  federal  legislation
               requiring reductions in air emissions for nitrogen oxides, sulfur
               dioxide,  carbon dioxide and mercury  setting forth national caps
               and  emission  levels  over an  extended  period  of  time.  This
               national  multi-pollutant  approach would have significant  costs
               which could be material to the Company's  consolidated  financial
               position  or  results  of  operations.  Some  companies  may seek
               recovery of the related cost through rate  adjustments or similar
               mechanisms.  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.  The Company cannot predict the outcome of
               this matter.

               The EPA has been 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 CP&L and Florida  Power
               were  asked  to  provide  information  to the EPA as part of this
               initiative and cooperated in providing the requested information.
               The EPA has initiated  civil  enforcement  actions  against other
               unaffiliated utilities as part of this initiative,  some of which
               have resulted in settlement  agreements calling for expenditures,
               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 1998,  the EPA published a final rule  addressing the issue of
               regional  transport of ozone.  This rule is commonly known as the
               NOx SIP Call. The EPA's rule requires 23 jurisdictions, including
               North Carolina,  South Carolina and Georgia,  but not Florida, to
               further  reduce  nitrogen  oxide  emissions  in order to attain a
               pre-set  state  NOx  emission  level  by May  31,  2004.  CP&L is
               evaluating  necessary  measures  to  comply  with  the  rule  and
               estimates its related capital expenditures to meet these measures
               in North and South Carolina could be approximately  $370 million,
               which has not been adjusted for  inflation.  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.
               The Company cannot predict the outcome of this matter.

                                       20
<PAGE>
               In July 1997, the EPA issued final regulations establishing a new
               eight-hour  ozone  standard.  In October  1999,  the  District of
               Columbia  Circuit  Court of Appeals  ruled  against  the EPA with
               regard to the federal eight-hour ozone standard. The U.S. Supreme
               Court has upheld, in part, the District of Columbia Circuit Court
               of  Appeals  decision.  Further  litigation  and  rulemaking  are
               anticipated.  North Carolina adopted the federal eight-hour ozone
               standard and is proceeding with the implementation process. North
               Carolina has promulgated  final  regulations,  which will require
               CP&L  to  install  nitrogen  oxide  controls  under  the  State's
               eight-hour  standard.  The cost of those controls are included in
               the cost estimate of $370 million set forth above.

               The EPA published a final rule approving  petitions under Section
               126 of the Clean Air Act, which requires  certain sources to make
               reductions in nitrogen oxide  emissions by May 1, 2003. The final
               rule also  includes a set of  regulations  that  affect  nitrogen
               oxide emissions from sources included in the petitions. The North
               Carolina fossil-fueled 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.   CP&L,  other  utilities,   trade
               organizations   and  other  states   participated  in  litigation
               challenging  the EPA's action.  On May 15, 2001,  the District of
               Columbia Circuit Court of Appeals ruled in favor of the EPA which
               will require North Carolina to make  reductions in nitrogen oxide
               emissions  by May 1,  2003.  However,  the  Court in its May 15th
               decision rejected the EPA's methodology for estimating the future
               growth factors the EPA used in calculating  the emissions  limits
               for  utilities.  In August 2001,  the Court  granted a request by
               CP&L and other utilities to delay the  implementation  of the 126
               Rule for electric  generating units pending resolution by the EPA
               of  the  growth  factor  issue.   The  Court's  order  tolls  the
               three-year  compliance  period  (originally  set to end on May 1,
               2003) for electric  generating units as of May 15, 2001. On April
               30, 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 Company cannot predict the outcome of this matter.

               On June 20,  2002,  legislation  was  enacted  in North  Carolina
               requiring the state's  electric  utilities to further  reduce the
               emissions of nitrogen  oxide and sulfur  dioxide from  coal-fired
               power plants.  These levels exceed  requirements  discussed above
               with regard to the NOx SIP Call,  Section 126  petitions or Title
               IV of the Clean Air Act.  Progress  Energy  expects  its  capital
               costs to meet these emission targets will be  approximately  $813
               million.  CP&L 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  utilities'
               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  utility or unless the  utility  persistently
               earns a return  substantially  in  excess  of the rate of  return
               established  and found  reasonable  by the NCUC in the  utility's
               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.  Pursuant to the new law, CP&L
               entered  into an  agreement  with the state of North  Carolina to
               transfer  to  the  state  all  future  emissions   allowances  it
               generates from  over-complying  with the new emission limits when
               these units are completed. The new law also requires the state to
               undertake  a study of mercury  and carbon  dioxide  emissions  in
               North  Carolina.   Progress  Energy  cannot  predict  the  future
               regulatory  interpretation,  implementation or impact of this new
               law.

               CP&L, Florida Power, Progress Ventures and NCNG 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  management  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.

                                       21
<PAGE>

               b) 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.



                                       22

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




                         CAROLINA POWER & LIGHT COMPANY
                    CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                  June 30, 2002

STATEMENTS OF INCOME
                                                           Three Months Ended            Six Months Ended
(Unaudited)                                                     June 30,                     June 30,
(In thousands)                                           2002              2001        2002            2001
--------------------------------------------------------------------------------------------------------------
Operating Revenues
  Electric                                          $   834,658      $   782,287     $1,646,139     $1,603,861
  Diversified businesses                                  3,434            1,092          6,823          6,121
--------------------------------------------------------------------------------------------------------------
       Total Operating Revenues                         838,092          783,379      1,652,962      1,609,982
--------------------------------------------------------------------------------------------------------------
Operating Expenses
  Fuel used in electric generation                      173,120          157,672        347,023        311,141
  Purchased power                                        90,918           85,273        164,228        177,202
  Other operation and maintenance                       191,744          179,434        383,004        348,088
  Depreciation and amortization                         133,459          139,831        274,844        277,792
  Taxes other than on income                             36,075           35,822         74,843         74,259
  Diversified businesses                                  2,754              957          5,815          5,470
--------------------------------------------------------------------------------------------------------------
      Total Operating Expenses                          628,070          598,989      1,249,757      1,193,952
--------------------------------------------------------------------------------------------------------------
Operating Income                                        210,022          184,390        403,205        416,030
--------------------------------------------------------------------------------------------------------------
Other Income (Expense)
  Interest income                                         3,202            6,340          4,868         11,025
  Other, net                                              4,652            2,536          1,680         11,921
--------------------------------------------------------------------------------------------------------------
      Total Other Income (Expense)                        7,854            8,876          6,548         22,946
--------------------------------------------------------------------------------------------------------------
Interest Charges
  Gross interest charges                                 56,255           65,326        117,899        130,180
  Allowance for borrowed funds used during
  construction                                           (2,779)          (1,576)        (5,873)       (4,349)
--------------------------------------------------------------------------------------------------------------
      Total Interest Charges, Net                        53,476           63,750        112,026        125,831
--------------------------------------------------------------------------------------------------------------
Income before Income Taxes                              164,400          129,516        297,727        313,145
Income Taxes                                             33,248           44,637         81,456        107,393
--------------------------------------------------------------------------------------------------------------
Net Income                                              131,152           84,879        216,271        205,752
Preferred Stock Dividend Requirements                      (741)            (741)        (1,482)        (1,482)
--------------------------------------------------------------------------------------------------------------
Earnings for Common Stock                               130,411           84,138        214,789        204,270
--------------------------------------------------------------------------------------------------------------
See notes to Carolina Power & Light Company Interim Financial Statements.

                                       23
<PAGE>


Carolina Power & Light Company
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)                                                  June 30,           December 31,
Assets                                                            2002               2001
-----------------------------------------------------------------------------------------------
Utility Plant
  Electric utility plant in service                            $ 12,054,025      $  12,024,291
  Accumulated depreciation                                       (6,182,956)        (5,952,206)
-----------------------------------------------------------------------------------------------
        Utility plant in service, net                             5,871,069          6,072,085
  Held for future use                                                 7,105              7,105
  Construction work in progress                                     698,156            711,129
  Nuclear fuel, net of amortization                                 172,890            200,332
-----------------------------------------------------------------------------------------------
        Total Utility Plant, Net                                  6,749,220          6,990,651
-----------------------------------------------------------------------------------------------
Current Assets
  Cash and cash equivalents                                          11,030             21,250
  Accounts receivable                                               324,860            317,714
  Unbilled accounts receivable                                      150,901            136,514
  Receivables from affiliated companies                              67,503             27,180
  Taxes receivable                                                        -             17,543
  Inventory                                                         358,763            365,501
  Deferred fuel cost                                                118,748            131,505
  Prepayments                                                        28,011             11,863
  Other current assets                                               64,960             66,193
-----------------------------------------------------------------------------------------------
        Total Current Assets                                      1,124,776          1,095,263
-----------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
  Regulatory assets                                                 263,493            277,550
  Nuclear decommissioning trust funds                               429,676            416,721
  Diversified business property, net                                118,630            111,802
  Miscellaneous other property and investments                      242,807            231,325
  Other assets and deferred debits                                  117,035            135,373
-----------------------------------------------------------------------------------------------
        Total Deferred Debits and Other Assets                    1,171,641          1,172,771
-----------------------------------------------------------------------------------------------
           Total Assets                                        $  9,045,637      $   9,258,685
-----------------------------------------------------------------------------------------------

Capitalization and Liabilities
-----------------------------------------------------------------------------------------------
Capitalization
  Common stock                                                 $  1,921,068      $   1,904,246
  Unearned ESOP common stock                                       (104,703)          (114,385)
  Retained earnings                                               1,336,831          1,312,641
  Accumulated other comprehensive loss                              (5,156)             (7,046)
-----------------------------------------------------------------------------------------------
        Total common stock equity                                 3,148,040          3,095,456
  Preferred stock - not subject to mandatory redemption              59,334             59,334
  Long-term debt, net                                             3,102,181          2,958,853
-----------------------------------------------------------------------------------------------
           Total Capitalization                                   6,309,555          6,113,643
-----------------------------------------------------------------------------------------------
Current Liabilities
  Current portion of long-term debt                                 250,000            600,000
  Accounts payable                                                  194,039            300,829
  Payables to affiliated companies                                  151,176            106,114
  Notes payable affiliated companies                                 11,539             47,913
  Taxes accrued                                                      82,013                  -
  Interest accrued                                                   65,314             61,124
  Other current liabilities                                         156,702            208,645
-----------------------------------------------------------------------------------------------
        Total Current Liabilities                                   910,783          1,324,625
-----------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
  Accumulated deferred income taxes                               1,304,892          1,316,823
  Accumulated deferred investment tax credits                       164,062            170,302
  Regulatory liabilities                                              7,774              7,494
  Other liabilities and deferred credits                            348,571            325,798
-----------------------------------------------------------------------------------------------
        Total Deferred Credits and Other Liabilities              1,825,299          1,820,417
-----------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 7)
-----------------------------------------------------------------------------------------------
         Total Capitalization and Liabilities                  $  9,045,637      $   9,258,685
-----------------------------------------------------------------------------------------------
See Notes to Carolina Power & Light Company Consolidated Interim Financial Statements.

                                       24
<PAGE>


Carolina Power & Light Company
STATEMENTS OF CASH FLOWS                                                                       Six Months Ended
(Unaudited)                                                                                        June 30,
(In thousands)                                                                             2002               2001
-----------------------------------------------------------------------------------------------------------------------

Operating Activities
  Net income                                                                       $      216,271     $     205,752
  Adjustments to reconcile net income to net cash provided by
  operating activities
      Depreciation and amortization                                                       313,476           324,996
      Deferred income taxes                                                               (25,358)          (63,765)
      Investment tax credit                                                                (6,240)           (9,241)
      Deferred fuel cost (credit)                                                          12,757            (5,059)
      Net (increase) decrease in accounts receivable                                      183,507            (1,266)
      Net increase in inventories                                                          (2,574)          (53,729)
      Net (increase) decrease in prepaids and other current assets                        (14,916)           12,776
      Net decrease in accounts payable                                                     (1,012)         (295,481)
      Net increase in other current liabilities                                            93,501            47,832
      Other                                                                                15,886            31,124
----------------------------------------------------------------------------------------------------------------------
        Net Cash Provided by Operating Activities                                         785,298           193,939
----------------------------------------------------------------------------------------------------------------------

Investing Activities
  Gross property additions                                                               (297,761)         (387,253)
  Nuclear fuel additions                                                                  (25,485)          (45,813)
  Contributions to nuclear decommissioning trust                                          (17,915)          (17,899)
  Net cash flow of company-owned life insurance program                                    (5,178)           (6,098)
  Diversified business property additions                                                 (10,439)           (1,714)
  Investments in non-utility activities                                                    (1,478)           (5,179)
----------------------------------------------------------------------------------------------------------------------
        Net Cash Used in Investing Activities                                            (358,256)         (463,956)
----------------------------------------------------------------------------------------------------------------------

Financing Activities
  Proceeds from issuance of long-term debt                                                 47,417           296,747
  Net increase (decrease) in commercial paper reclassified to long-term debt             (207,535)          103,558
  Net increase (decrease) in intercompany notes                                           (36,374)              775
  Retirement of long-term debt                                                            (48,689)             (163)
  Dividends paid to parent                                                               (190,599)         (124,466)
  Dividends paid on preferred stock                                                        (1,482)           (1,482)
----------------------------------------------------------------------------------------------------------------------
        Net Cash Provided by Financing Activities                                        (437,262)          274,969
----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                                      (10,220)            4,952
Cash and Cash Equivalents at Beginning of the Period                                       21,250            30,070
----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period                                     $       11,030     $      35,022
----------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period - interest                                             $      103,911     $     117,330
                              income taxes                                         $       61,163     $     127,296
See Note 2 for non-cash investing activity.
----------------------------------------------------------------------------------------------------------------------
See Notes to Carolina Power & Light Company Consolidated Interim Financial Statements.
</TABLE>

                                       25

<PAGE>

Carolina Power & Light Company
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS


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

          Organization.  Carolina  Power  & Light  Company  (CP&L)  is a  public
          -------------
          service corporation primarily engaged in the generation, transmission,
          distribution and sale of electricity in portions of North Carolina and
          South Carolina.  CP&L 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 (PUCHA)
          of 1935, as amended. Both the Company and its subsidiaries are subject
          to the regulatory provisions of PUCHA.

          Basis of Presentation.  These financial  statements have been prepared
          ----------------------
          in accordance with  accounting  principles  generally  accepted in the
          United States of America (generally  accepted  accounting  principles)
          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 generally  accepted  accounting
          principles for complete financial statements. Because the accompanying
          consolidated  interim  financial  statements do not include all of the
          information and footnotes  required by generally  accepted  accounting
          principles,  they  should  be read in  conjunction  with  the  audited
          financial  statements for the period ended December 31, 2001 and notes
          thereto  included in CP&L's Form 10-K for the year ended  December 31,
          2001.

          The amounts included in the consolidated  interim financial statements
          are  unaudited  but,  in  the  opinion  of  management,   reflect  all
          adjustments  necessary to fairly present CP&L'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.  Certain  amounts  for 2001  have been  reclassified  to
          conform  to the  2002  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.        FINANCIAL INFORMATION BY BUSINESS SEGMENT
          -----------------------------------------

          CP&L's operations  consist primarily of the CP&L Electric segment with
          no other material segments.

          The financial  information  by business  segment for CP&L Electric for
          the three and six months ended June 30, 2002 and 2001 is as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


             (In thousands)                       Three Months Ended               Six Months Ended
                                            June 30, 2002  June 30, 2001     June 30, 2002   June 30, 2001
             -------------------------------------------------------------------------------------------
             Revenues                           $834,658       $782,287       $1,646,139     $1,603,861
             Segment Income                     $131,690        $84,022         $217,222       $205,491
             Total Segment Assets (a)         $8,669,993     $8,942,454       $8,669,993     $8,942,454
             ===========================================================================================
                  (a) CP&L Electric's total segment assets at June 30, 2002,
                  decreased from the prior year due to the transfer of the Rowan
                  plant to Progress Ventures in February 2002 in the amount of
                  approximately $245 million.

          The  primary   differences   between  the  CP&L   Electric   and  CP&L
          consolidated   financial  information  relate  to  other  non-electric
          operations and elimination entries.
</TABLE>
                                       26
<PAGE>

3.        IMPACT OF NEW ACCOUNTING STANDARD
          ---------------------------------

          During the second quarter of 2001, the Financial  Accounting Standards
          Board  (FASB)  issued   interpretations   of  Statement  of  Financial
          Accounting  Standards No. 133,  "Accounting for Derivative and Hedging
          Activities,"  (SFAS No. 133) indicating that options in general cannot
          qualify for the normal purchases and sales exception,  but provided an
          exception that allows certain electricity contracts, including certain
          capacity-energy  contracts,  to be  excluded  from the  mark-to-market
          requirements of SFAS No. 133. The interpretations  were effective July
          1, 2001. Those  interpretations did not require CP&L to mark-to-market
          any   of   its   electricity   capacity-energy   contracts   currently
          outstanding.  In December 2001, the FASB revised the criteria  related
          to the exception for certain electricity contracts,  with the revision
          to be  effective  April 1, 2002.  The revised  interpretation  did not
          result  in  any   significant   changes   to  CP&L's   assessment   of
          mark-to-market   requirements  for  its  current   contracts.   If  an
          electricity  or fuel supply  contract in its  regulated  businesses is
          subject to  mark-to-market  accounting,  there  generally  would be no
          income statement effect of the  mark-to-market  because such contracts
          are  generally  reflected  in fuel  adjustment  clauses  so  that  the
          contract's  mark-to-market  gain  or  loss  would  be  recorded  as  a
          regulatory asset or liability.  Any mark-to-market  gains or losses in
          its   non-regulated   businesses  would  affect  income  unless  those
          contracts qualify for hedge accounting treatment.

          The  application  of the new  rules is  still  evolving,  and  further
          guidance from the FASB is expected,  which could  additionally  impact
          CP&L's financial statements.

          The FASB  issued  SFAS  No.  143,  "Accounting  for  Asset  Retirement
          Obligations,"  in  July  2001.  This  statement  provides   accounting
          requirements  for retirement  obligations  associated  with long-lived
          assets and is effective January 1, 2003. This statement  requires that
          the  present  value of  retirement  costs for  which  CP&L has a legal
          obligation be recorded as liabilities with an equivalent  amount added
          to the asset cost and  depreciated  over an  appropriate  period.  The
          liability is then accreted over time by applying an interest method of
          allocation  to the  beginning  liability.  CP&L is in the  process  of
          identifying  retirement  obligations.  Areas  that are being  reviewed
          include    electric    transmission    and    distribution,    nuclear
          decommissioning, all generating facilities,  telecommunication assets,
          and  assets  that  require   special   handling  under   environmental
          regulations.   CP&L  is  also  in  the  process  of  quantifying   the
          obligations  that have been  identified  under the  measurement  rules
          described in the standard.  For CP&L's regulated operations,  there is
          not  expected  to be any impact on  earnings.  CP&L  currently  cannot
          predict the earnings impact on its non-regulated companies.

4.        COMPREHENSIVE INCOME
          --------------------

          Comprehensive  income for the three and six months ended June 30, 2002
          was $129.6  million and $218.2  million,  respectively.  Comprehensive
          income  for the three and six  months  ended  June 30,  2001 was $84.8
          million and $201.1 million, respectively. Items of other comprehensive
          income for the three-month and six-month periods  consisted  primarily
          of  changes  in fair  value of  derivatives  used to hedge  cash flows
          related to interest on long-term  debt, and the  cumulative  effect of
          adopting SFAS No. 133 as of January 1, 2001.

5.        FINANCING ACTIVITIES
          --------------------

          On February 6, 2002,  CP&L issued $48.5  million  principal  amount of
          First  Mortgage  Bonds,   Pollution  Control  Series  W,  Wake  County
          Pollution  Control  Revenue  Refunding  Bonds,  5.375% Series 2002 Due
          February  1,  2017.  On March 1, 2002,  CP&L  redeemed  $48.5  million
          principal  amount of  Pollution  Control  Revenue  Bonds,  Wake County
          (Carolina Power & Light Company  Project)  Adjustable Rate Option Bond
          1983 Series Due April 1, 2019,  at 101.5% of the  principal  amount of
          such bonds.

          On June 27, 2002,  CP&L  announced  the  redemption of $500 million of
          CP&L  Extendible  Notes due October 28, 2009, at 100% of the principal
          amount of such notes.  These notes were  redeemed on July 29, 2002 and
          CP&L funded the redemptions  through the issuance of commercial paper.
          On July 30, 2002,  CP&L issued $500 million of senior  unsecured notes
          due 2012 with a coupon of 6.5%.  Proceeds from this issuance were used
          to pay down commercial paper.

          On August 5, 2002,  CP&L  announced the  redemption of $150 million of
          First Mortgage bonds, 8.20% Series, due July 1, 2022 at 103.55% of the
          principal amount of such bonds.  CP&L intends to redeem these notes on
          September 4, 2002.

                                       27
<PAGE>

6.        RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS
          ------------------------------------------------------

          In April,  May and June 2002,  CP&L  entered into a series of Treasury
          Rate Locks to hedge its  exposure to  interest  rates with regard to a
          future  issuance  of  fixed-rate   debt.   These   agreements  have  a
          computational  period of ten years.  The fair value of the swaps was a
          $8.5 million  liability  position at June 30, 2002. These  instruments
          were  designated  as cash flow  hedges for  accounting  purposes.  The
          agreements,  with a  total  notional  amount  of  $350  million,  were
          terminated  simultaneously  with the pricing of the $500  million CP&L
          senior  unsecured  notes in July 2002.  CP&L  realized a $22.5 million
          hedging loss, which will be amortized and recorded as an adjustment to
          interest expense over the life of the notes.

          The notional  amount of the above  contracts is not exchanged and does
          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.  CP&L  only  enters  into swap
          agreements with strong creditworthy counterparties.

7.        COMMITMENTS AND CONTINGENCIES
          -----------------------------

          Contingencies  existing  as  of  the  date  of  these  statements  are
          described  below. No significant  changes have occurred since December
          31, 2001, with respect to the commitments  discussed in Note 15 of the
          financial  statements  included in CP&L's  2001 Annual  Report on Form
          10-K.

          Contingencies

          1)   Impairment of Long-Lived Assets
               -------------------------------

               Due to the  recent  decline of the  telecommunications  industry,
               CP&L has initiated a valuation study to assess the recoverability
               of Caronet's long-lived assets, which totaled  approximately $111
               million at June 30, 2002. CP&L expects to record an impairment in
               the third quarter.

          2)   Franchise Taxes
               ---------------

               CP&L, like other electric power companies in North Carolina, pays
               a franchise  tax levied by the State  pursuant to North  Carolina
               General Statutes Section 105-116,  a state-level annual franchise
               tax (State  Franchise Tax). Part of the revenue  generated by the
               State  Franchise  Tax  is  required  by  North  Carolina  General
               Statutes Section 105-116.1(b) to be distributed to North Carolina
               cities  in which  CP&L  maintains  facilities.  CP&L has paid and
               continues to pay the State  Franchise  Tax to the state when such
               taxes are due. However,  pursuant to an Executive Order issued on
               February  5,  2002,  by  the  Governor  of  North  Carolina,  the
               Secretary of Revenue  withheld  distributions  of State Franchise
               Tax revenues to cities for two quarters of fiscal year  2001-2002
               in an effort to balance the state's budget.

               In  response  to the  state's  failure  to  distribute  the State
               Franchise Tax proceeds,  certain  cities in which CP&L  maintains
               facilities adopted municipal franchise tax ordinances  purporting
               to  impose on CP&L a local  franchise  tax.  The local  taxes are
               intended  to be  collected  for as  long as the  state  withholds
               distribution of the State Franchise Tax proceeds from the cities.
               The first local tax  payments  would be due August 15,  2002.  On
               August 2, 2002,  CP&L filed a lawsuit  against the cities seeking
               to enjoin  the  enforcement  of the  local  taxes and to have the
               local  ordinances  struck down because the  ordinances are beyond
               the cities'  statutory  authority  and violate  provisions of the
               North  Carolina  and United  States  Constitutions.  CP&L  cannot
               predict the outcome of this matter.

                                       28
<PAGE>

          3)   Claims and Uncertainties.
               -------------------------

               a) CP&L 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  federal  and  state  laws.  The  lead  or  sole
               regulatory  agency that is  responsible  for a particular  former
               coal tar site depends largely upon the state in which the site is
               located.  There are several manufactured gas plant (MGP) sites to
               which CP&L has some connection.  In this regard, CP&L, with other
               potentially    responsible    parties,   are   participating   in
               investigating  and,  if  necessary,  remediating  former coal tar
               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, CP&L
               is  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.

               There are 12 former  MGP sites and 14 other  active  waste  sites
               associated  with CP&L that have  required or are  anticipated  to
               require  investigation  and/or  remediation costs. As of June 30,
               2002, CP&L has not recorded any accruals for investigation and/or
               remediation  costs  for  these  sites.  CP&L  received  insurance
               proceeds to address costs  associated with CP&L waste sites.  All
               eligible  expenses  related  to these  waste  costs  are  charged
               against a centralized fund containing these proceeds.  As of June
               30, 2002,  approximately $8.7 million remains in this centralized
               fund. As costs associated with CP&L's share of investigation  and
               remediation of these sites become known,  the fund is assessed to
               determine if additional accruals will be required.  CP&L does not
               believe  that  it can  provide  an  estimate  of  the  reasonably
               possible  total  remediation  costs  beyond  what  remains in the
               centralized  fund.  This is due to the fact that the sites are at
               different  stages:  investigation  has  not  begun  at 15  sites,
               investigation has begun but remediation  cannot be estimated at 7
               sites and 4 sites  have  begun  remediation.  CP&L  measures  its
               liability for these sites based on available  evidence  including
               its experience in  investigation  and remediation of contaminated
               sites, which also involves assessing and developing  cost-sharing
               arrangements with other potentially responsible parties. Once the
               centralized  fund is  depleted,  CP&L will  accrue  costs for the
               sites to the extent its  liability  is probable and the costs can
               be  reasonably  estimated.   Therefore,   CP&L  cannot  currently
               determine the total costs that may be incurred in connection with
               the remediation of all sites.  According to current  information,
               these  future  costs at the CP&L  sites are not  material  to its
               financial  condition or results of  operations.  A rollforward of
               the balance in this fund is not provided due to the immateriality
               of this activity in the periods presented.

               CP&L is also  currently  in the  process of  assessing  potential
               costs and  exposures  at other sites it has been  notified of. As
               the  assessments  are developed  and  analyzed,  CP&L will accrue
               costs for the sites to the extent the costs are  probable and can
               be reasonably estimated.

               There has been and may be further  proposed  federal  legislation
               requiring reductions in air emissions for nitrogen oxides, sulfur
               dioxide,  carbon dioxide and mercury  setting forth national caps
               and  emission  levels  over an  extended  period  of  time.  This
               national  multi-pollutant  approach would have significant  costs
               which could be material to CP&L's consolidated financial position
               or results of operations. Some companies may seek recovery of the
               related  cost  through rate  adjustments  or similar  mechanisms.
               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.
               CP&L cannot predict the outcome of this matter.

                                       29
<PAGE>

               The EPA has been 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. CP&L has been asked to provide
               information to the EPA as part of this  initiative and cooperated
               in providing  the  requested  information.  The EPA has initiated
               enforcement actions against other unaffiliated  utilities as part
               of this  initiative,  some of which have  resulted in  settlement
               agreements calling for expenditures  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  utilities  may seek recovery of the related cost
               through rate adjustments. CP&L cannot predict the outcome of this
               matter.

               In 1998,  the EPA published a final rule  addressing the issue of
               regional  transport of ozone.  This rule is commonly known as the
               NOx SIP Call. The EPA's rule requires 23 jurisdictions, including
               North Carolina and South  Carolina,  to further  reduce  nitrogen
               oxide  emissions in order to attain a pre-set  state NOx emission
               level by May 31, 2004. CP&L is evaluating  necessary  measures to
               comply  with  the  rule  and   estimates   its  related   capital
               expenditures could be approximately  $370 million,  which has not
               been adjusted for inflation.  Increased operation and maintenance
               costs  relating  to the  NOx SIP  Call  are  not  expected  to be
               material to CP&L's  results of operations.  Further  controls are
               anticipated as electricity demand increases.  CP&L cannot predict
               the outcome of this matter.

               In July 1997, the EPA issued final regulations establishing a new
               eight-hour  ozone  standard.  In October  1999,  the  District of
               Columbia  Circuit  Court of Appeals  ruled  against  the EPA with
               regard to the federal eight-hour ozone standard. The U.S. Supreme
               Court has upheld, in part, the District of Columbia Circuit Court
               of  Appeals  decision.  Further  litigation  and  rulemaking  are
               anticipated.  North Carolina adopted the federal eight-hour ozone
               standard and is proceeding with the implementation process. North
               Carolina has promulgated  final  regulations,  which will require
               CP&L  to  install  nitrogen  oxide  controls  under  the  State's
               eight-hour  standard.  The cost of those controls are included in
               the cost estimate of $370 million set forth above.

               The EPA published a final rule approving  petitions under Section
               126 of the Clean Air Act, which requires  certain sources to make
               reductions in nitrogen  oxide  emissions by 2003.  The final rule
               also includes a set of  regulations  that affect  nitrogen  oxide
               emissions  from  sources  included  in the  petitions.  The North
               Carolina fossil-fueled 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.   CP&L,  other  utilities,   trade
               organizations  and other states are  participating  in litigation
               challenging  the EPA's action.  On May 15, 2001,  the District of
               Columbia Circuit Court of Appeals ruled in favor of the EPA which
               will require North Carolina to make  reductions in nitrogen oxide
               emissions  by May 1,  2003.  However,  the  Court in its May 15th
               decision rejected the EPA's methodology for estimating the future
               growth factors the EPA used in calculating  the emissions  limits
               for  utilities.  In August 2001,  the court  granted a request by
               CP&L and other utilities to delay the  implementation  of the 126
               Rule for electric  generating units pending resolution by the EPA
               of  the  growth  factor  issue.   The  court's  order  tolls  the
               three-year  compliance  period  (originally  set to end on May 1,
               2003) for electric  generating units as of May 15, 2001. On April
               30, 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. CP&L cannot predict the outcome of this matter.

                                       30
<PAGE>

               On June 20,  2002,  legislation  was  enacted  in North  Carolina
               requiring the state's  electric  utilities to further  reduce the
               emissions of nitrogen  oxide and sulfur  dioxide from  coal-fired
               power plants.  These levels exceed  requirements  discussed above
               with regard to the NOx SIP Call,  Section 126  petitions or Title
               IV of the Clean Air Act.  CP&L expects its capital  costs to meet
               these emission targets will be approximately  $813 million.  CP&L
               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  utilities'  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
               utility  or  unless  the  utility  persistently  earns  a  return
               substantially  in excess of the rate of  return  established  and
               found  reasonable by the NCUC in the utility's  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.  Pursuant to the new law,  CP&L entered into an agreement
               with the state of North  Carolina  to  transfer  to the state all
               future emissions allowances it generates from over-complying with
               the new emission  limits when these units are completed.  The new
               law also  requires  the state to undertake a study of mercury and
               carbon dioxide  emissions in North Carolina.  CP&L cannot predict
               the future regulatory interpretation, implementation or impact of
               this new law.

               CP&L has  filed  claims  with  its  general  liability  insurance
               carriers  to recover  costs  arising  out of actual or  potential
               environmental  liabilities.  Some claims have  settled and others
               are still pending. While management 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.

               b) CP&L 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
               CP&L's consolidated results of operations or financial position.

                                       31
<PAGE>



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

          RESULTS OF OPERATIONS
          ---------------------
          For the three and six months ended June 30,  2002,  as compared to the
          corresponding period in the prior year

          Progress Energy, Inc.

          Operating Results
          -----------------

          Progress Energy's  consolidated  earnings for the three and six months
          ended June 30, 2002,  were $120.6  million  ($0.56 basic  earnings per
          common  share) and $253.1  million  ($1.18 per  share),  respectively,
          compared to earnings  of $111.7  ($0.56 per share) and $265.7  million
          ($1.33 per share) for the same periods  ended June 30,  2001.  Current
          year  earnings  for the three and six months  ended June 30, 2002 were
          favorably  impacted  by customer  growth and  improved  weather  which
          increased  retail  and  wholesale  sales,  decreases  in  depreciation
          expense for the CP&L  Electric and Florida  Power  Electric  segments,
          decreases in interest  charges  resulting from lower average  interest
          rates  and  the  elimination  of  goodwill   amortization.   Partially
          offsetting  these positive  factors were decreases in revenues as part
          of Florida  Power's retail rate settlement and increases in operations
          and  maintenance  expenses  related  to  increased  benefit  costs and
          additional expenses at Florida Power to improve system reliability and
          customer  service.  In addition,  the common stock  issuance in August
          2001 (12.5 million  shares) and purchase of Westchester Gas Company in
          April 2002 (2.5 million shares) resulted in dilution.

          Management tracks,  monitors, and evaluates financial results based on
          reported  earnings and on an ongoing  earnings  basis.  The  following
          reconciles reported earnings to ongoing earnings.
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                      Three Months Ended            Six Months
                                                                           June 30,               Ended June 30,
                                                                     ---------------------  ----------------------------
          ($ millions, except per share figures)                         2002      2001          2002          2001
                                                                         ----      ----          ----          ----
          Reported Earnings                                             $120.6    $111.7        $253.1        $265.7
          Intra-period tax allocation adjustment                          58.4      25.3          79.6          45.3
          Contingent Value Obligations (CVO) mark to market               (1.5)      5.9         (12.8)          8.9
          Florida Retroactive Retail Rate Refund                           -         -            21.0           -
          Reclassification of Rail Services from Assets Held for Sale      -        10.1           -            10.1
          ---------------------------------------------------------------------------------  ----------------------------
          Ongoing Earnings                                              $177.5    $153.0        $340.9        $330.0
                                                                        ======    ======        ======        ======
          Ongoing Earnings Per Share                                     $0.83     $0.77         $1.59         $1.65
                                                                         =====     =====         =====         =====
</TABLE>

          Each of the  adjustments  to reported  earnings  and the key  business
          drivers are discussed in more detail in the business  segment  reviews
          that follow.

          CP&L Electric
          -------------

          CP&L  Electric  contributed  net  income  for the three and six months
          ended  June  30,   2002  of  $131.7   million   and  $217.2   million,
          respectively,  compared  to net  income of $84.0  million  and  $205.5
          million,  respectively,  for  the  same  periods  in the  prior  year.
          Included in these amounts are energy marketing and trading activities,
          which are managed by Progress Ventures on behalf of CP&L, that had net
          income  for the  three and six  months  ended  June 30,  2002 of $22.3
          million  and $29.9  million,  respectively,  compared to net income of
          $15.0 million and $28.6 million, respectively, for the same periods in
          the prior year.

                                       32
<PAGE>

          Factors  contributing  to CP&L Electric's  results  include  favorable
          electric revenue and margins driven by hotter weather compared to 2001
          ($6.6  million  and $3.5  million  margin  gain for the  three and six
          months ended June 30, 2002,  respectively);  a decrease in accelerated
          depreciation  expense related to the nuclear plants ($13.3 million and
          $18.3  million  decrease  for the three and six months  ended June 30,
          2002, respectively); and a decrease in interest expense resulting from
          lower debt and an average interest rate reduction  (interest decreased
          by $9.1  million and $12.3  million for the three and six months ended
          June 30, 2002,  respectively).  Additionally,  CP&L Electric's results
          for the three  and six  months  ended  June 30,  2002  were  favorably
          impacted by a $28.3 million preliminary tax benefit  reallocation from
          the holding  company to CP&L. See Other  Businesses  section below for
          additional   information  on  the  tax  benefit   reallocation.   CP&L
          Electric's results were negatively affected by a decline in industrial
          sales driven by a weaker economic  environment ($3.8 million and $10.0
          million  margin  decline  for the three and six months  ended June 30,
          2002, respectively).

          CP&L's  electric  revenues for the three and six months ended June 30,
          2002 and 2001 and the  percentage  change  by  customer  class  are as
          follows (in millions):
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

          --------------------------------- ---------------------------------------- ---------------------------------------
                                                  Three Months Ended June 30,              Six Months Ended June 30,
                   Customer Class
                                            ---------------------------------------- ---------------------------------------
                                               2002       % Change        2001          2002       % Change        2001
          --------------------------------- ----------- ------------- -------------- ------------ ------------ -------------
          Residential                         $258.5        5.3%         $245.5        $567.7        (0.4)%       $569.9
          Commercial                           198.9        5.8           188.0         386.1         3.8          372.0
          Industrial                           160.2       (1.8)          163.2         305.9        (3.0)         315.5
          Governmental                          17.9        4.7            17.1          35.5         4.1           34.1
          --------------------------------- -----------               -------------- ------------              -------------
              Total Retail Revenues            635.5        3.5           613.8       1,295.2         0.3        1,291.5
          Wholesale                            156.7        2.6           152.7         299.3        (5.2)         315.7
          Unbilled                              24.1         -             (2.4)         14.4          -           (42.0)
          Miscellaneous                         18.4        1.1            18.2          37.2        (3.9)          38.7
          --------------------------------- -----------               -------------- ------------              -------------
              Total Electric Revenues         $834.7        6.7%         $782.3      $1,646.1         2.6%      $1,603.9
          --------------------------------- ----------- ------------- -------------- ------------ ------------ -------------

          CP&L electric energy sales for the three and six months ended June 30,
          2002 and 2001 and the  percentage  change  by  customer  class  are as
          follows (in thousands of mWh):

          --------------------------------- --------------------------------------- ----------------------------------------
                                                 Three Months Ended June 30,               Six Months Ended June 30,
                   Customer Class
                                            --------------------------------------- ----------------------------------------
                                               2002       % Change        2001         2002        % Change        2001
          --------------------------------- ----------- ------------- ------------- ------------ ------------- -------------
          Residential                         3,262         3.9%         3,141        7,247         (2.8)%        7,454
          Commercial                          3,027         4.3          2,902        5,818          1.1          5,753
          Industrial                          3,361        (0.9)         3,391        6,347         (3.9)         6,605
          Governmental                          338         1.8            332          663         (2.4)           679
          --------------------------------- -----------               ------------- ------------               -------------
              Total Retail Energy Sales       9,988         2.3          9,766       20,075         (2.0)        20,491
          Wholesale                           3,495        15.7          3,020        6,826          4.8          6,513
          Unbilled                              431          -              69          245           -            (602)
          --------------------------------- -----------               ------------- ------------               -------------
              Total mWh sales                13,914         8.2%        12,855       27,146          2.8%        26,402
          --------------------------------- ----------- ------------- ------------- ------------ ------------- -------------
</TABLE>

          Sales of energy to retail and  wholesale  customers  increased for the
          three months ended June 30, 2002,  when compared to the same period in
          the prior year 2001 primarily due to the impacts of favorable  weather
          in the current year and customer growth.  This was partially offset by
          a decrease in sales in the industrial customer class, primarily due to
          a decline in the  industrial  customer base and the continued  overall
          softness  in  the  industrial  markets  driven  by the  weak  economic
          environment.  For the year to date comparison period, weather was less
          of a driver as a milder  first  quarter 2002 offset much of the second
          quarter weather gains.

                                       33
<PAGE>

          CP&L  Electric's  fuel expense  increased  $15.4 million for the three
          months ended June 30, 2002,  when compared to $157.7  million in 2001,
          primarily due to an increase in volume and a change in generation mix,
          which was  partially  offset by a decrease in price.  Purchased  power
          expense  increased  $5.6  million for the three  months ended June 30,
          2002,  when  compared to $85.3  million in 2001,  due to  increases in
          volume and price. CP&L Electric's fuel expense increased $35.9 million
          for the six  months  ended  June 30,  2002,  when  compared  to $311.1
          million in 2001,  primarily  due to an increase in volume and a change
          in generation mix, which was partially  offset by a decrease in price.
          The  increase  was also  caused by  increased  deferred  fuel  expense
          resulting from fuel cost collections that reduce  previously  deferred
          fuel costs.  Purchased  power expense  decreased $13.0 million for the
          six months ended June 30,  2002,  when  compared to $177.2  million in
          2001,  primarily due to decreases in volume  attributable to favorable
          market  conditions  and prices  that  existed in the first  quarter of
          2001.  Fuel and  purchased  power  expenses  are  recovered  primarily
          through cost recovery clauses and, as such, have no material impact on
          operating results.

          CP&L Electric's  operations and maintenance expense increased by $12.3
          million and $34.9  million for the three and six months ended June 30,
          2002,  respectively,  when  compared  to  operations  and  maintenance
          expense of $179.4 million and $348.1  million,  respectively,  for the
          same  periods in the prior year.  The  increase  for the three and six
          months ended June 30, 2002 was primarily  due to increased  salary and
          benefit  costs ($5.1  million  and $9.0  million for the three and six
          months ended June 30, 2002); increased insurance costs combined with a
          lower NEIL  refund  ($2.2  million  for the six months  ended June 30,
          2002);  and  increased  Service  Company  costs ($4.5 million and $9.5
          million for the three and six months  ended June 30, 2002) as a result
          of  lower  vacancy  rates  in the  prior  year  subsequent  to the FPC
          acquisition.

          Depreciation  expense  decreased $6.4 million and $2.9 million for the
          three  and  six  months  ended  June  30,  2002,   when   compared  to
          depreciation   expense   of  $139.8   million   and  $277.8   million,
          respectively,   for  the  same  periods  in  the  prior  year.  CP&L's
          accelerated cost recovery program for nuclear generating assets allows
          flexibility  in  recording   accelerated   depreciation  expense.  The
          decrease  for these  periods  relates to CP&L  Electric's  election to
          depreciate the nuclear assets at the lower end of the allowable  range
          as set by the state utility  commissions.  See OTHER MATTERS below for
          additional  information on CP&L's  accelerated cost recovery  program.
          For the  three and six  months  ended  June 30,  2002,  CP&L  recorded
          accelerated  depreciation  expense of $16.7 million and $41.7 million,
          respectively.  For the three and six months ended June 30, 2001,  CP&L
          recorded  accelerated  depreciation  expense  of $30  million  and $60
          million,  respectively.  As  of  June  30,  2002,  CP&L  has  recorded
          cumulative  accelerated  depreciation  expense of  approximately  $392
          million.   These   reductions   are  partially   offset  by  increased
          depreciation costs resulting from the Richmond units being placed into
          service in May 2001.

                                       34
<PAGE>

          Florida Power Electric
          ----------------------

          Florida Power  Electric  contributed  net income for the three and six
          months  ended  June 30,  2002 of $76.8  million  and  $134.5  million,
          respectively,  compared  to net  income of $84.3  million  and  $155.9
          million, respectively for the same periods in the prior year. Included
          in these amounts are energy  marketing and trading  activities,  which
          are managed by Progress  Ventures on behalf of Florida Power, that had
          net income for the three and six  months  ended June 30,  2002 of $3.7
          million and $6.3 million, respectively, compared to net income of $3.4
          million and $11.7 million,  respectively,  for the same periods in the
          prior year.

          Florida Power  Electric's  earnings for the three and six months ended
          June 30, 2002, were negatively  affected by the outcome of the Florida
          Power rate case  settlement,  which  included  a one-time  retroactive
          revenue refund of $35 million,  $21 million after tax, recorded in the
          first  quarter  of 2002 and a  decrease  in  retail  rates,  which was
          partially  offset by reductions in depreciation in accordance with the
          settlement.  See Note 3 to the Progress  Energy  Consolidated  Interim
          Financial Statements for additional information on the settlement.  In
          addition,  Florida Power Electric results for the three months and six
          months ended were  negatively  affected by increase in operations  and
          maintenance expense as described more fully below.

          Florida Power's  electric  revenues for the three and six months ended
          June 30, 2002 and 2001 and the percentage change by customer class are
          as follows (in millions):
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

          -------------------------------------- ---------------------------------------- ----------------------------------------
                                                       Three Months Ended June 30,               Six Months Ended June 30,
                                                 ---------------------------------------- ----------------------------------------
                       Customer Class                2002        % Change       2001          2002        % Change       2001
          -------------------------------------- -------------- ------------ ------------ ------------- ------------- ------------
          Residential                               $395.6         2.5%        $386.0        $774.8         (1.3)%      $784.9
          Commercial                                 183.4        (4.7)         192.5         350.2         (0.3)        351.4
          Industrial                                  55.1        (6.9)          59.2         105.1         (6.7)        112.6
          Governmental                                43.5        (1.6)          44.2          83.5          1.8          82.0
          Retroactive Retail Revenue Refund            -            -             -           (35.0)          -             -
          -------------------------------------- --------------              ------------ -------------               ------------
           Total Retail Revenues                     677.6        (0.6)         681.9       1,278.6         (3.9)      1,330.9
          Wholesale                                   55.8       (10.3)          62.2         108.3        (32.3)        159.9
          Unbilled                                     5.4          -            17.5          11.8           -           (4.8)
          Miscellaneous                               27.1        22.6           22.1          53.7        (50.3)        108.1
          -------------------------------------- --------------              ------------ -------------               ------------
            Total Electric Revenues                  $765.9       (2.3)%       $783.7      $1,452.4         (8.9)%    $1,594.1
          -------------------------------------- -------------- ------------ ------------ ------------- ------------- ------------
</TABLE>

                                       35

<PAGE>



          Florida  Power's  electric  energy  sales for the three and six months
          ended June 30, 2002 and 2001,  and the  percentage  change by customer
          class are as follows (in thousands of mWh):
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

          -------------------------------------- ---------------------------------------- ----------------------------------------
                                                       Three Months Ended June 30,               Six Months Ended June 30,
                                                 ---------------------------------------- ----------------------------------------

                    Customer Class                    2002        % Change       2001          2002        % Change       2001
          -------------------------------------- -------------- ------------ ------------ ------------- ------------- ------------
          Residential                                4,515          11.1%       4,063         8,575          1.2%        8,472
          Commercial                                 2,857           2.8        2,780         5,313          2.1         5,203
          Industrial                                   994          (1.6)       1,010         1,876         (5.7)        1,989
          Governmental                                 715           5.9          675         1,335          3.4         1,291
          -------------------------------------- --------------              ------------ -------------               ------------
             Total Retail Energy Sales               9,081           6.5        8,528        17,099          0.8        16,955
          Wholesale                                    976          (7.9)       1,060         1,956        (16.6)        2,346
          Unbilled                                     443            -           555           474           -             59
          -------------------------------------- --------------              ------------ -------------               ------------
             Total mWh sales                        10,500           3.5%      10,143        19,529          0.9%       19,360
          -------------------------------------- -------------- ------------ ------------ ------------- ------------- ------------
</TABLE>

          As a  result  of  the  settlement  of the  Florida  Power  rate  case,
          effective May 1, 2002,  Florida Power reduced its rates by 9.25%.  The
          effect of this  reduction  was to reduce  revenue by $20.6 million for
          the second quarter of 2002. Partially offsetting the decrease in rates
          and  one-time  refund  from the  settlement  detailed  above  were the
          impacts  of  favorable  weather  and  customer  growth.  In  addition,
          revenues for the first six months of 2002  decreased  when compared to
          the  same  period  in the  prior  year due to the  recognition  of $63
          million of  deferred  revenue in the first  quarter of 2001,  which is
          included in  miscellaneous  revenues in the table above.  In 2001, the
          deferred revenues were offset by accelerated amortization of the Tiger
          Bay regulatory asset, discussed below, and therefore,  had no earnings
          impact.

          Fuel used in generation and purchased  power  decreased  $14.3 million
          and $48.1  million for the three and six months  ended June 30,  2002,
          when compared to $347.2 million and $689.2 million,  respectively, for
          the same period in the prior year,  primarily due to lower oil and gas
          prices,  partially offset by an increase in coal prices.  In addition,
          the decrease for the three months ended June 30, 2002,  was due to the
          lowered recovery of fuel expense as part of the mid-course  correction
          of  Florida   Power's  fuel  cost  recovery  clause  as  part  of  the
          settlement.  Fuel and purchased power expenses are recovered primarily
          through cost recovery clauses and, as such, have no material impact on
          operating results.

          Operations  and  maintenance  expense  increased by $30.2  million and
          $50.6  million  for the  three and six  months  ended  June 30,  2002,
          respectively,  when compared to operations and maintenance  expense of
          $119.8 million and $230.7 million,  respectively, for the same periods
          in the prior year.  These  amounts have  increased  due to a decreased
          pension  credit in the current year ($12.2  million and $16.6  million
          lower for the three and six  months  ended June 30,  2002);  increased
          other  employee  benefit  costs,  primarily  driven by  medical  costs
          (approximately  $3 million and $6 million for the three and six months
          ended  June  30,   2002);   increased   spending   related  to  system
          reliability,  including the Commitment to Excellence  program aimed at
          increasing  Florida Power's  customer  satisfaction  ($7.8 million and
          $13.0 million for the three and six months ended June 30,  2002);  and
          increased  support  charges  from the  Service  Company as a result of
          lower  vacancy  rates  in  the  prior  year   subsequent  to  the  FPC
          acquisition.

                                       36
<PAGE>

          Depreciation and amortization  expense  decreased by $19.4 million and
          $102.1 million for the three and six months ended June 30, 2002,  when
          compared to expense of $94.6 million and $246.7 million, respectively,
          for the same  periods in the prior year.  The Florida  Power rate case
          settlement  provides for ongoing  reductions in depreciation,  nuclear
          decommissioning and fossil dismantlement costs that reduced the amount
          of  depreciation  recorded by $19.6  million and $39.2 million for the
          three and six months ended June 30, 2002. In addition,  the first half
          of 2001 depreciation includes $63 million of accelerated  amortization
          on the Tiger Bay regulatory  asset  associated  with deferred  revenue
          from 2000.

          Progress Ventures
          -----------------

          The Progress Ventures segment  operations include gas fuel extraction,
          manufacturing  and delivery;  coal fuel extraction,  manufacturing and
          delivery,   which  includes   synthetic  fuels  production;   merchant
          generation;  and energy marketing and trading  activities on behalf of
          the  utility  operating  companies  as well  as for its  non-regulated
          plants.  Progress  Ventures  contributed  segment  income,   including
          allocation of energy marketing and trading on behalf of the utilities,
          of $79.5 million and $129.2 million for the three and six months ended
          June 30, 2002,  respectively,  compared to net income of $74.1 million
          and $138.1  million,  respectively,  for the same periods in the prior
          year.  For the three months  ended June 30, 2002,  the majority of the
          increase  relates to the  addition of  merchant  plants in the current
          year.  For the six months  ended June 30,  2002,  the  majority of the
          decrease  relates to minor  reductions  in the net  income  related to
          energy  marketing  and  trading,  and in both  the  coal  and gas fuel
          extraction, manufacturing and delivery operations, partially offset by
          the additions of merchant plants during the year.

          Progress Ventures' energy marketing and trading  activities  generated
          net income of $25.8  million  and $36.0  million for the three and six
          months  ended June 30, 2002,  respectively,  compared to net income of
          $18.4 million and $40.3 million, respectively, for the same periods in
          the prior year. See Note 4 to the Progress Energy Consolidated Interim
          Financial  Statements  for  additional   information  on  trading  and
          marketing  activities.  Earnings  for the  current  quarter  increased
          primarily  due to an  increase  in  trading  gains and a  decrease  in
          capacity charges on certain  wholesale  contracts over the prior year.
          Earnings  for the six  months  ended  June 30,  2002,  have  decreased
          primarily due to the completion of certain contracts and the impact of
          lower natural gas prices on the pricing of certain contracts.

          Progress Ventures' merchant generation operations generated net income
          of $7.0  million and $6.8  million for the three and six months  ended
          June 30,  2002,  respectively,  when  compared  to net  income of $1.4
          million and $1.1  million,  respectively,  for the same periods in the
          prior year. This increase is due to the completion of construction for
          certain merchant plants,  transfer of generation  assets from CP&L and
          the acquisitions of merchant plants in the current year. See Note 2 to
          the Progress  Energy  Consolidated  Interim  Financial  Statements for
          additional information on this acquisition.

          Progress Ventures  currently has a tolling agreement for output on one
          of its merchant  plants with  Dynegy,  Inc.  through  June 2008.  This
          contract  is not subject to mark to market  accounting  under SFAS No.
          133. If Dynegy,  Inc,  was to default on this  contract  and  Progress
          Ventures was required to replace the contract on this merchant  plant,
          this could negatively impact Progress  Ventures' cash flows.  Progress
          Energy does not expect these developments to have a material impact on
          the Company's  consolidated results of operations,  financial position
          or cash flows.

          Progress  Ventures' gas fuel  extraction,  manufacturing  and delivery
          operations include the operations of Mesa  Hydrocarbons,  Inc. (Mesa),
          which owns natural gas  reserves  and  operates  wells in Colorado and
          sells natural gas. These operations also include the activities of the
          recently acquired  Westchester Gas Company. See Note 2 to the Progress
          Energy  Consolidated   Interim  Financial  Statements  for  additional
          information on this acquisition. These operations generated net income
          of $0.9  million and $1.2  million for the three and six months  ended
          June 30,  2002,  respectively,  when  compared  to net  income of $2.0
          million and $4.4  million,  respectively,  for the same periods in the
          prior year. Due to the acquisition of Westchester Gas Company in April
          2002, the results of these  operations are not  comparative.  However,
          the  current  year  results  have  been  negatively  affected  by  the
          decreases in sales price of gas over the prior year.

                                       37
<PAGE>

          Progress  Ventures' coal fuel extraction,  manufacturing  and delivery
          operations generated net income of $45.1 million and $84.7 million for
          the three and six months  ended June 30,  2002,  when  compared to net
          income of $51.4 million and $90.5 million,  respectively, for the same
          periods in the prior year.  The  Progress  Ventures  segment  sold 3.4
          million and 6.4 million tons of  synthetic  fuel for the three and six
          months ended June 30, 2002, respectively,  compared to 3.4 million and
          6.3  million  tons,  respectively,  for the same  periods in the prior
          year.  The sales  resulted in tax credits of $91.2  million and $175.1
          million  being  recorded  for the three and six months  ended June 30,
          2002,  respectively,  compared  to tax  credits of $92.3  million  and
          $168.9 million,  respectively, for the same periods in the prior year.
          The production  and sale of the synthetic  fuel from these  facilities
          qualifies for tax credits under Section 29 of the Code. See "Synthetic
          Fuels" under OTHER  MATTERS below for  additional  discussion of these
          tax credits.

          Rail Services
          -------------

          Rail  Services'  operations  represent the activities of Progress Rail
          Services Corporation  (Progress Rail) and include railcar repair, rail
          parts  reconditioning  and sales, scrap metal recycling and other rail
          related  services.  In the second  quarter of 2001,  Rail Services was
          reclassified  from net assets  held for sale and the  cumulative  Rail
          Services'  operations since the acquisition date of November 30, 2000,
          were included in Progress Energy's consolidated results of operations.
          Progress Energy  recorded an after-tax  charge of $10.1 million in the
          second  quarter of 2001  reflecting the  reallocation  of the purchase
          price  and the  reversal  of the  effect of net  assets  held for sale
          accounting.  Therefore  the results of Rail Services for the three and
          six months ended June 30,  2001,  are not  comparative  to the current
          year operations.

          Rail Services  contributed earnings for the three and six months ended
          June 30, 2002 of $2.9  million and $2.2  million,  respectively.  Rail
          Service's  year to  year  results  were  impacted  by a weak  business
          environment,  which resulted in $15.0 million  decreased  revenues for
          the quarter and a decrease of $69.4  million for the six months  ended
          June 30, 2002. In addition, Rail Services' transition from acting as a
          scrap  reseller in 2001 to acting as a scrap  resale agent in 2002 and
          asset sales in 2001  decreased  revenues.  Corresponding  decreases in
          operating  costs and the  impact of  targeted  cost  cutting  measures
          offset the revenue reductions.

          Other Businesses
          ----------------

          The Other segment primarily  includes the operations of North Carolina
          Natural Gas Corporation  (NCNG),  Strategic  Resource  Solutions Corp.
          (SRS), Progress Telecommunications  Corporation (Progress Telecom) and
          Caronet,   Inc.   (Caronet).   This   segment  also   includes   other
          non-regulated  operations  of CP&L and FPC as well as holding  company
          results.  The Other segment generated a net loss of $144.2 million and
          $193.8  million  for the three and six  months  ended  June 30,  2002,
          respectively,  compared  to a net loss of $104.8  million  and  $185.9
          million,  respectively,  for the same  periods in the prior year.  The
          decrease in earnings for the current quarter of 2002, when compared to
          the  same  period  in  the  prior  year,  was  primarily  due  to  the
          preliminary tax benefit  reallocation  recorded in the second quarter,
          partially offset by the elimination of goodwill amortization in 2002.

          In accordance with SFAS No. 142,  effective January 1, 2002,  Progress
          Energy  no longer  amortizes  goodwill.  For the three and six  months
          ended June 30, 2001, the Company  amortized  goodwill of $24.8 million
          and $47.6  million,  respectively.  At June 30, 2002,  the Company had
          $3.7  billion  of  unamortized  goodwill.  See Note 6 to the  Progress
          Energy  Consolidated   Interim  Financial  Statements  for  additional
          information on SFAS No. 142.

          NCNG  recorded  a net  loss of $1.4  million  and net  income  of $7.0
          million   for  the  three  and  six  months   ended  June  30,   2002,
          respectively, compared to a net loss of $5.3 million and net income of
          $2.2  million,  respectively,  for the same periods in the prior year.
          NCNG's year to year results were  impacted most  significantly  by the
          decline in gas prices and increased  industrial volumes related to the
          decline in gas  prices,  which  caused  NCNG's  margin on gas sales to
          increase by $3.3 million and $7.5 million for the three and six months
          ended June 30, 2002, respectively, when compared to margin on sales of
          $11.4  million  and $40.4  million  for the same  periods in the prior
          year.

                                       38
<PAGE>

          NCNG's  operations and maintenance  expense increased $1.9 million and
          $3.9  million  for the  three  and six  months  ended  June 30,  2002,
          primarily  due to increased  staffing  and  increased  operations  and
          maintenance  expense  associated  with a  significant  increase in its
          fleet. Additionally, NCNG's results for the three and six months ended
          June 30, 2002 were  favorably  impacted by a $1.5 million  preliminary
          tax  benefit  reallocation  from the  holding  company.  See below for
          additional information on the preliminary tax benefit reallocation.

          In  February  2002,  NCNG  filed a  general  rate  case with the North
          Carolina  Utilities   Commission  (NCUC)  requesting  an  annual  rate
          increase  of  $47.6  million.  On  May  3,  2002,  NCNG  withdrew  the
          application,  based upon the NCUC Public  Staff's  and other  parties'
          interpretation of the order approving the merger of CP&L and NCNG that
          such a case was not permitted  until 2003. On May 16, 2002, NCNG filed
          a request to increase  its margin rates and  rebalance  its rates with
          the NCUC,  requesting  an annual  rate  increase  of $4.1  million  to
          recover costs  associated  with specific system  improvements.  Public
          hearings on this matter are scheduled  for August and September  2002.
          Progress Energy cannot predict the outcome of this matter.

          Generally accepted accounting  principles require companies to apply a
          levelized  effective  tax rate to interim  periods that is  consistent
          with the  estimated  annual rate.  Income tax expense was increased by
          $58.4  million and $79.6  million  for the three and six months  ended
          June 30, 2002,  respectively,  in order to maintain an  effective  tax
          rate consistent with the estimated annual rate. Income tax expense was
          increased  by $25.3  million  and $45.4  million for the three and six
          months ended June 30, 2001,  respectively.  The tax credits associated
          with Progress  Energy's  synthetic fuel  operations  lower the overall
          effective tax rate. Fluctuations in estimated 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.

          Progress  Energy is subject  to  regulation  under the Public  Utility
          Holding Company Act (PUHCA) of 1935, as amended, of the SEC. According
          to a recent SEC order,  Progress  Energy's  tax benefit not related to
          acquisition   interest  expense  is  to  be  allocated  to  profitable
          subsidiaries.  Therefore,  the tax benefit that was previously held in
          the holding company, included in the Other segment, has been allocated
          on a preliminary basis to the profitable  subsidiaries  effective with
          the  second   quarter  of  2002.  The  allocation  has  no  impact  on
          consolidated  tax  expense  or  earnings.   However,  the  preliminary
          allocation  decreases CP&L Electric's ($28.3 million) and NCNG's ($1.5
          million) tax expense in the second quarter of 2002, with an offsetting
          increase in the holding company tax expense.

          Progress  Energy  issued  98.6  million  CVOs in  connection  with the
          Florida Progress 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.  These CVOs
          are  recorded at fair value based on published  prices and  unrealized
          gains  and  losses  from  changes  in fair  value  are  recognized  in
          earnings.  At June  30,  2002,  the CVOs  had a fair  market  value of
          approximately  $29.1 million.  Progress  Energy  recorded gain of $1.5
          million and $12.8  million for the three and six months ended June 30,
          2002,  respectively,  compared  to  charges of $5.9  million  and $8.9
          million,  respectively,  for the same  periods  in the  prior  year to
          record the changes in fair value of CVOs.

                                       39
<PAGE>

          Progress Telecom, including Caronet's operations, recorded revenues of
          $16.0 million and a net loss of $5.3 million for the quarter  compared
          with  revenues of $15.9 million and a net loss of $0.3 million for the
          same  period  last  year.  For the six  months  ended  June 30,  2002,
          Progress Telecom recorded  revenues of $31.6 million and a net loss of
          $9.3  compared  with  revenues of $30.6 million and a net loss of $2.2
          million for the same period  last year.  Due to the recent  decline of
          the telecommunications industry, the Company has initiated a valuation
          study to assess the recoverability of Progress Telecom's and Caronet's
          long-lived assets, which totaled  approximately $288 and $111 million,
          respectively,  at June 30,  2002.  The  Company  expects  to record an
          impairment  in  the  third  quarter.  Progress  Telecom  is  currently
          providing  broadband  services to WorldCom Inc. Due to WorldCom Inc.'s
          bankruptcy  filing in July 2002, the Company is assessing what impact,
          if any, the WorldCom Inc. developments will have on Progress Telecom's
          operations.   Progress  Energy  does  not  expect  the  WorldCom  Inc.
          developments to have a material  impact on the Company's  consolidated
          results of operations, financial position or cash flows.

          Effective June 28, 2000,  Caronet  entered into an agreement with Bain
          Capital where it  contributed  the net assets used in its  application
          service  provider  business  to a  newly  formed  company  for  a  35%
          ownership    interest   (15%   voting    interest)   named   Interpath
          Communications,  Inc. (Interpath).  In May 2002, Interpath merged with
          USinternetworking.  Pursuant to the terms of the merger  agreement and
          additional  funds being  contributed  by Bain  Capital,  CP&L now owns
          approximately 24% of the company (14% voting interest).

          LIQUIDITY AND CAPITAL RESOURCES
          -------------------------------

          Progress Energy, Inc.

          Statement of Cash Flows and Financing Activities
          ------------------------------------------------

          Cash provided by operating  activities decreased $22.0 million for the
          six months ended June 30,  2002,  when  compared to the  corresponding
          period  in the  prior  year.  The  decrease  in  cash  from  operating
          activities  for the 2002  period  is due to a  decrease  in  operating
          income from the impact of the Florida Power rate case  settlement.  In
          addition,  changes  in the  balances  of  certain  current  assets and
          liabilities due to operational fluctuations decreased cash provided by
          operating activities.

          Net cash used in investing activities increased $371.6 million for the
          six months ended June 30,  2002,  when  compared to the  corresponding
          period in the  prior  year.  The  increase  in cash used in  investing
          activities  is primarily  due to an  expansion  of Progress  Ventures'
          generation  and fuel  portfolio  (See  Note 2 to the  Progress  Energy
          Consolidated  Interim  Financial  Statements).  During  the  first six
          months of 2002, $495.7 million was spent on its utility  subsidiaries'
          construction  program  and  $569.6  million  was spent in  diversified
          business  property  additions.  The  acquisition  of  Westchester  Gas
          Company resulted in a net cash outflow of $17.4 million.

          Net cash provided by financing activities increased $671.2 million for
          the six months ended June 30, 2002, when compared to the corresponding
          period in the prior year.  The increase in cash  provided by financing
          activities is primarily  due to an increase in short-term  obligations
          as well as an increase  in  long-term  debt,  the details of which are
          described below.

          On February 6, 2002,  CP&L issued $48.5  million  principal  amount of
          First  Mortgage  Bonds,   Pollution  Control  Series  W,  Wake  County
          Pollution  Control  Revenue  Refunding  Bonds,  5.375% Series 2002 Due
          February  1,  2017.  On March 1, 2002,  CP&L  redeemed  $48.5  million
          principal  amount of  Pollution  Control  Revenue  Bonds,  Wake County
          (Carolina Power & Light Company  Project)  Adjustable Rate Option Bond
          1983 Series Due April 1, 2019,  at 101.5% of the  principal  amount of
          such bonds.

          In February 2002, $50 million of Progress Capital Holdings, Inc. (PCH)
          medium-term notes, 5.78% Series, matured.  Progress Energy funded this
          maturity through the issuance of commercial paper.

                                       40
<PAGE>

          In March 2002,  Progress  Ventures,  Inc. obtained a $440 million bank
          facility  that  will  be  used   exclusively   for  expansion  of  its
          non-regulated generation portfolio. Borrowings under this facility are
          secured by the assets in the generation  portfolio.  In March and June
          2002,  Progress Ventures,  Inc. made draws under this facility of $120
          and $67 million, respectively.

          Progress Ventures, Inc. is required to hedge 75 percent of the amounts
          outstanding  under  its bank  facility  pursuant  to the  terms of the
          agreement for expansion of its non-regulated  generation portfolio. In
          May 2002, Progress Ventures,  Inc. entered into hedges that included a
          series of zero cost  collars  that have been  designated  as cash flow
          hedges for accounting  purposes.  The fair value of these  instruments
          was a $2.1 million liability position at June 30, 2002.

          During  March,  April and May 2002,  Progress  Energy  converted  $1.0
          billion  of fixed  rate debt  into  variable  rate  debt by  executing
          interest rate  derivative  agreements  with a total notional amount of
          $1.0  billion  with a group  of five  banks.  Under  the  terms of the
          agreements,  which  were  scheduled  to  mature  in 2006  and 2007 and
          coincide  with the  maturity  dates  of the  related  debt  issuances,
          Progress  Energy  received a fixed rate and paid a floating rate based
          on three-month  LIBOR. These instruments were designated as fair value
          hedges  for  accounting  purposes.   In  June  2002,  Progress  Energy
          terminated these  agreements.  As a result of the agreements,  at June
          30, 2002,  Progress Energy had a debt premium of $21.2 million,  which
          will be amortized and recorded as a reduction to interest expense over
          the life of the related debt issuances.

          On March  28,  2002,  Standard  & Poor's  affirmed  Progress  Energy's
          corporate  credit  rating of BBB+ and the ratings of Florida Power and
          CP&L but revised the outlook for all three  entities to negative  from
          stable.  S&P stated that its change in outlook  reflects the increased
          business  risk at Progress  Ventures and  lower-than-projected  credit
          protection measures.  S&P stated that Progress Energy's plan to divest
          of   non-core    assets   and   use   the   proceeds   to   pay   down
          acquisition-related debt is moving slower than S&P had expected.

          On April 10, 2002, Moody's revised its outlook to negative from stable
          on Progress  Energy's  senior  unsecured debt rating of Baa1.  Moody's
          maintained a stable  outlook for both Florida Power and CP&L.  Moody's
          stated that its change in outlook to  negative  was in response to the
          increased level of debt incurred by the company,  primarily to finance
          the  expansion  of  its  Progress  Ventures   unregulated   generation
          portfolio.

          The change in outlook by the rating agencies has not affected Progress
          Energy's   access  to  liquidity  nor  the  cost  of  its   short-term
          borrowings.  Progress  Energy is committed to maintaining  its current
          ratings and is  currently  assessing  the  situation  with both rating
          agencies to determine an appropriate  course of action,  if necessary,
          to address their concerns.

          On April 17,  2002,  Progress  Energy  issued  $350  million of senior
          unsecured  notes due 2007 with a coupon of 6.05% and $450  million  of
          senior  secured  notes due 2012 with a coupon of 6.85%.  Proceeds from
          this issuance were used to pay down commercial paper.

          In April,  May and June 2002,  CP&L  entered into a series of Treasury
          Rate Locks to hedge its  exposure to  interest  rates with regard to a
          future  issuance  of  fixed-rate   debt.   These   agreements  have  a
          computational  period of ten years.  The fair value of the swaps was a
          $8.5 million  liability  position at June 30, 2002. These  instruments
          were  designated  as cash flow  hedges for  accounting  purposes.  The
          agreements,  with a  total  notional  amount  of  $350  million,  were
          terminated  simultaneously  with the pricing of the $500  million CP&L
          senior unsecured notes in July 2002 described  below.  CP&L realized a
          $22.5 million hedging loss, which will be amortized and recorded as an
          adjustment to interest expense over the life of the notes.

                                       41
<PAGE>

          On June 20, 2002,  legislation was enacted in North Carolina requiring
          the state's  electric  utilities  to reduce the  emissions of nitrogen
          oxide and sulfur dioxide from  coal-fired  power plants.  CP&L expects
          its capital costs to meet these emission targets will be approximately
          $813 million.  See Note 12 to the Progress Energy Consolidated Interim
          Financial  Statements and OTHER MATTERS below for more  information on
          this legislation.

          On June 27, 2002,  CP&L  announced  the  redemption of $500 million of
          CP&L  Extendible  Notes due October 28, 2009, at 100% of the principal
          amount of such notes.  These notes were  redeemed on July 29, 2002 and
          CP&L funded the redemptions  through the issuance of commercial paper.
          On July 30, 2002,  CP&L issued $500 million of senior  unsecured notes
          due 2012 with a coupon of 6.5%.  Proceeds from this issuance were used
          to pay down commercial paper.

          On July 1, 2002, $30 million of Florida Power medium-term notes, 6.54%
          Series,  matured.  Florida  Power  funded  this  maturity  through the
          issuance of commercial paper.

          On July 11, 2002,  Florida Power  announced the  redemption of $108.55
          million  principal amount of Citrus County Pollution Control Refunding
          Revenue  Bonds,  Series  1992  A Due  January  1,  2027,  $90  million
          principal amount of Citrus County Pollution  Control Refunding Revenue
          Bonds,  Series  1992  B Due  February  1,  2022  and  $10.115  million
          principal amount of Pasco County Pollution  Control  Refunding Revenue
          Bonds,  Series  1992A Due February 1, 2022,  at 102% of the  principal
          amount of such bonds and $32.2  million  principal  amount of Pinellas
          County  Pollution  Control  Refunding  Revenue Bonds,  Series 1991 Due
          December 1, 2014 at 101% of the principal amount of such bonds.  These
          redemptions were finalized on August 12, 2002.

          On July 16, 2002,  Florida  Power  issued  $108.55  million  principal
          amount of Citrus County  Pollution  Control Revenue  Refunding  Bonds,
          Series 2002A Due January 1, 2027, $100.115 million principal amount of
          Citrus County Pollution Control Revenue Refunding Bonds,  Series 2002B
          Due  January  1, 2022 and  $32.2  million  principal  amount of Citrus
          County Pollution  Control Revenue  Refunding  Bonds,  Series 2002C Due
          January  1,  2018.  Proceeds  from this  issuance  were used to redeem
          Florida Power's pollution control revenue refunding bonds above.

          On August 5, 2002,  CP&L  announced the  redemption of $150 million of
          First Mortgage bonds, 8.20% Series, due July 1, 2022 at 103.55% of the
          principal amount of such bonds.  CP&L intends to redeem these notes on
          September 4, 2002.

          In August 2002,  Progress Energy  converted $400 million of fixed rate
          debt into  variable rate debt by executing  interest  rate  derivative
          agreements  with two  counterparties  with a total notional  amount of
          $400 million. Under the terms of the agreements,  which expire in 2006
          and  coincide  with the maturity  date of the related  debt  issuance,
          Progress  Energy  will  receive  a fixed  rate of 3.26% and will pay a
          floating  rate based on  three-month  LIBOR.  These  instruments  were
          designated as fair value hedges for accounting purposes.

          Future Commitments
          ------------------

          As of June 30, 2002,  Progress  Energy's  contractual cash obligations
          have not changed  materially from what was reported in the 2001 Annual
          Report on Form 10-K. The only changes in Progress Energy's contractual
          cash obligations involve the additional  long-term debt issuances made
          through the second  quarter of 2002 that are detailed  above,  and the
          finalization of Progress  Ventures'  purchase  obligations  related to
          generation  and  fuel  acquisitions,  as  detailed  in  Note  2 to the
          Progress Energy Consolidated Interim Financial Statements.

          As of June 30, 2002,  Progress  Energy's other commercial  commitments
          have changed from what was reported in the 2001 Annual  Report on Form
          10-K.  During the first six  months of 2002,  Progress  Energy  issued
          approximately  $582  million  of  guarantees  on  behalf  of  Progress
          Ventures for  obligations  under power  purchase  agreements,  tolling
          agreements,    construction   agreements   and   trading   operations.
          Approximately  $441  million  of these  commitments  relate to certain
          guarantee agreements issued to support obligations related to Progress
          Venture's expansion of its non-regulated  generation portfolio.  These
          guarantees  ensure  performance  under  generation   construction  and
          operating agreements.

          The remaining  $141 million of these new  commitments  are  guarantees
          issued to support  Progress  Ventures'  energy  trading and  marketing
          functions.  The contracts  supporting the guarantees  contain language
          regarding downgrade events,  ratings triggers,  and netting and offset
          provisions.

                                       42
<PAGE>

          OTHER MATTERS
          -------------

          Florida Power Rate Case Settlement
          ----------------------------------

          On March 27,  2002,  the parties in Florida  Power's rate case entered
          into a Stipulation and Settlement Agreement (the Agreement) related to
          retail rate  matters.  The Agreement was approved by the FPSC on April
          23,  2002.  The  Agreement  is  generally  effective  from May 1, 2002
          through December 31, 2005; provided,  however, that if Florida Power's
          base rate  earnings  fall below a 10% return on equity,  Florida Power
          may petition the FPSC to amend its base rates.

          See  Note 3 to the  Progress  Energy  Consolidated  Interim  Financial
          Statements for additional information on the Agreement.

          North Carolina Clean Air Legislation
          ------------------------------------

          On June 20, 2002,  legislation was enacted in North Carolina requiring
          the state's  electric  utilities  to reduce the  emissions of nitrogen
          oxide and sulfur dioxide from coal-fired power plants. Progress Energy
          expects  its  capital  costs to meet these  emission  targets  will be
          approximately $813 million.  CP&L 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  utilities'  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
          utility   or  unless   the   utility   persistently   earns  a  return
          substantially  in excess of the rate of return  established  and found
          reasonable  by the  NCUC in the  utility's  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.  Pursuant to the new
          law, CP&L entered into an agreement  with the state of North  Carolina
          to transfer to the state all future emissions  allowances it generates
          from  over-complying with the new emission limits when these units are
          completed. The new law also requires the state to undertake a study of
          mercury  and carbon  dioxide  emissions  in North  Carolina.  Progress
          Energy   cannot   predict   the  future   regulatory   interpretation,
          implementation or impact of this new law.

          On June 14, 2002,  the NCUC approved  modification  of CP&L's  ongoing
          accelerated cost recovery of its nuclear generating assets.  Effective
          January  1,  2003,  the NCUC will no longer  require a minimum  annual
          depreciation. The aggregate minimum and maximum amounts of accelerated
          depreciation,   $415  million  and  $585  million  respectively,   are
          unchanged from the original NCUC order.  The date by which the minimum
          amount must be  depreciated  was  extended  from  December 31, 2004 to
          December 31, 2009.  The aggregate  minimum and maximum of $115 million
          and $165 million  established  for  accelerated  cost  recovery by the
          SCPSC  is  unaffected  by the NCUC  order  and  will be  completed  by
          December 31, 2004.

          Franchise Taxes
          ---------------

          CP&L, like other electric power  companies in North  Carolina,  pays a
          franchise tax levied by the State pursuant to North  Carolina  General
          Statutes  Section 105-116,  a state-level  annual franchise tax (State
          Franchise Tax).  Part of the revenue  generated by the State Franchise
          Tax  is  required  by  North   Carolina   General   Statutes   Section
          105-116.1(b)  to be distributed to North Carolina cities in which CP&L
          maintains  facilities.  CP&L has paid and  continues  to pay the State
          Franchise Tax to the state when such taxes are due. However,  pursuant
          to an Executive  Order issued on February 5, 2002,  by the Governor of
          North Carolina,  the Secretary of Revenue  withheld  distributions  of
          State Franchise Tax revenues to cities for two quarters of fiscal year
          2001-2002 in an effort to balance the state's budget.

          In response to the state's  failure to distribute the State  Franchise
          Tax  proceeds,  certain  cities  in which  CP&L  maintains  facilities
          adopted  municipal  franchise tax  ordinances  purporting to impose on
          CP&L a local  franchise  tax.  The  local  taxes  are  intended  to be
          collected for as long as the state withholds distribution of the State
          Franchise Tax proceeds  from the cities.  The first local tax payments
          would be due August 15, 2002. On August 2, 2002,  CP&L filed a lawsuit
          against  the cities  seeking to enjoin  the  enforcement  of the local
          taxes  and to have  the  local  ordinances  struck  down  because  the
          ordinances  are beyond the  cities'  statutory  authority  and violate
          provisions of the North Carolina and United States Constitutions.  The
          Company cannot predict the outcome of this matter.

                                       43
<PAGE>

          Generation Acquisition
          ----------------------

          During  February  2002,   Progress   Ventures,   Inc.   completed  the
          acquisition  of two electric  generating  projects  located in Georgia
          from LG&E Energy Corp., a subsidiary of Powergen plc. The two projects
          consist of 1) the Walton  project in Monroe,  Georgia,  a 460 megawatt
          natural  gas-fired  plant  placed in  service  in June 2001 and 2) the
          Washington  project  in  Washington  County,  Georgia,  a planned  600
          megawatt  natural  gas-fired  plant expected to be operational by June
          2003. The transaction  included tolling and power sale agreements with
          LG&E Energy  Marketing,  Inc. for both projects  through  December 31,
          2004. The aggregate cash purchase price of approximately  $348 million
          includes  approximately  $1.7 million of direct transaction costs. See
          Note  2  to  the  Progress  Energy   Consolidated   Interim  Financial
          Statements for additional information on this acquisition.

          Fuel Acquisition
          ----------------

          On April 26,  2002,  Progress  Energy  finalized  the  acquisition  of
          Westchester Gas Company,  which includes  approximately  215 producing
          natural gas wells,  52 miles of intrastate  gas pipeline and 170 miles
          of   gas-gathering   systems.   The   aggregate   purchase   price  of
          approximately   $153  million  consisted  of  cash   consideration  of
          approximately  $22 million and the  issuance of 2.5 million  shares of
          Progress Energy common stock valued at approximately $129 million. The
          purchase   price  includes   approximately   $1.7  million  of  direct
          transaction  costs. The properties are located within a 25-mile radius
          of Jonesville,  Texas, on the Texas-Louisiana border. This transaction
          added  140  billion  cubic  feet  (Bcf) of gas  reserves  to  Progress
          Ventures' growing energy portfolio.  See Note 2 to the Progress Energy
          Consolidated Interim Financial  Statements for additional  information
          on this acquisition.

          Synthetic Fuels Tax Credits
          ---------------------------

          Progress Energy, through the Progress Ventures business unit, produces
          synthetic  fuel from coal.  The  production  and sale of the synthetic
          fuel  qualifies  for tax  credits  under  Section  29 of the  Internal
          Revenue  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. All of Progress Energy's synthetic fuel facilities have received
          favorable  private  letter rulings from the Internal  Revenue  Service
          (IRS) with respect to their operations.  These tax credits are subject
          to review by the IRS, and if Progress Energy failed 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.  Tax credits for the
          year ended  December  31, 2001 and the six months ended June 30, 2002,
          were  $349.3  million  and  $175.1  million,  respectively,  offset by
          operating  losses,  net of tax, of $163.8  million and $91.9  million,
          respectively,  for the same periods. One synthetic fuel entity, Colona
          Synfuel  Limited  Partnership,  L.L.L.P.,  from which the Company (and
          Florida  Progress  prior to its  acquisition  by the Company) has been
          allocated  approximately $220 million in tax credits to date, is being
          audited by the IRS.  Total  Section 29 credits  generated  to date are
          approximately $781 million. In management's  opinion,  Progress Energy
          is complying  with the private  letter  rulings and all the  necessary
          requirements  to be allowed such credits under Section 29 and believes
          it is  likely,  although  it cannot  provide  certainty,  that it will
          prevail if  challenged  by the IRS on any credits  taken.  The current
          Section 29 tax credit program will expire in 2007.

          Nuclear Matters
          ---------------

          On May 31,  2002,  the NRC  approved  CP&L's  request to increase  the
          generating  capacity at each of the two units at its Brunswick nuclear
          power  facility.  These power uprate  projects will be  implemented in
          phases over the next several  years.  Upon  successful  completion  of
          these power uprates in 2005, the Brunswick units will have an increase
          in output totaling approximately 208 MWs.

          In June 2002, CP&L filed a request with the NRC to extend the Robinson
          Unit  No. 2  operating  license.  The  Robinson  Unit  No.  2  current
          operating  license  is  scheduled  to  expire in July  2010.  CP&L has
          requested a 20-year  extension of the operating  license  through July
          2030. The Company cannot predict the outcome of this matter.

                                       44
<PAGE>

          Standard Market Design
          ----------------------

          On July 31, 2002,  the Federal  Energy  Regulatory  Commission  (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).  The
          proposed  rules set forth in the SMD NOPR would  require,  among other
          things,  that 1) all transmission owning utilities transfer control of
          their  transmission  facilities  to an  independent  third  party;  2)
          transmission service to bundled retail customers be provided under the
          FERC-regulated  transmission tariff,  rather than state-mandated terms
          and condition; 3) new terms and conditions for transmission service be
          adopted nationwide,  including new provisions for pricing transmission
          in the event of  transmission  congestion;  4) new  energy  markets be
          established for the buying and selling of electric energy; and 5) load
          serving  entities be required to meet minimum  criteria for generating
          reserves. 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.  Progress  Energy is reviewing the
          SMD NOPR and expects to file comments.  Currently, comments are due to
          be filed on October 14, 2002.  FERC also has indicated that it expects
          to issue final  rules  during the first  quarter of 2003.  The Company
          cannot predict the outcome of this rulemaking or the possible  outcome
          of any further proceedings, including appeals, related to this matter.

          Regional Transmission Organizations
          -----------------------------------

          On June 18, 2002,  the GridSouth RTO sponsors  (CP&L,  Duke Energy and
          South Carolina Electric and Gas) announced that they will delay filing
          applications  with  their  state  commissions  and  will  suspend  the
          GridSouth  implementation  project.  Postponing the filings will allow
          GridSouth  time to review the effects of state and federal  regulatory
          initiatives  that are ongoing and continuing  through the end of 2002.
          GridSouth will determine the appropriate time to file new applications
          with the state  commissions  based on the results of these  regulatory
          developments. The Company cannot predict the outcome or impact of this
          matter.

          Franchise Litigation
          --------------------

          Seven cities,  with a total of approximately  59,000  customers,  have
          sued Florida Power in various circuit courts in Florida.  The lawsuits
          principally  seek 1) a  declaratory  judgment that the cities have the
          right to purchase Florida Power'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 Florida Power
          to continue to collect from Florida Power's customers and remit to the
          cities,  franchise fees during the pending litigation,  and as long as
          Florida Power continues to occupy the cities' rights-of-way to provide
          electric  service,  notwithstanding  the  expiration  of the franchise
          ordinances  under which Florida Power had agreed to collect such fees.
          Three circuit  courts have entered  orders  requiring  arbitration  to
          establish the purchase price of Florida Power's electric  distribution
          facilities within three cities.  One appellate court has held that one
          city  has  the  right  to  determine  the  value  of  Florida  Power's
          facilities within the city through  arbitration.  To date, no city has
          attempted  to actually  exercise  the right to purchase any portion of
          Florida Power's electric  distribution  system, nor has there been any
          proceeding  to determine  the value at which such a purchase  could be
          made.  Arbitration  in one of the cases is  scheduled  to occur in the
          third  quarter  of  2002.  In  July  2002,  Florida  Power  reached  a
          settlement with one of the cities and signed a new franchise agreement
          that includes a purchase  option at the end of the 30-year  agreement.
          Progress Energy cannot predict the outcome of these matters.

          Carolina Power & Light Company

          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 CP&L:  RESULTS OF  OPERATIONS;
          LIQUIDITY AND CAPITAL RESOURCES and OTHER MATTERS.

          RESULTS OF OPERATIONS
          ---------------------

          The results of operations for the CP&L Electric  segment are identical
          between CP&L and Progress Energy. The results of operations for CP&L's
          non-utility  subsidiaries  are not  material  to  CP&L's  consolidated
          financial statements.

                                       45
<PAGE>

          LIQUIDITY AND CAPITAL RESOURCES
          -------------------------------

          During  the first  six  months of 2002,  $297.8  million  was spent on
          CP&L's construction program and $10.4 million was spent on diversified
          business property additions.

          As of June 30, 2002,  CP&L's  contractual  cash  obligations and other
          commercial  commitments  have not  changed  materially  from  what was
          reported in the 2001 Annual Report on Form 10-K.

          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, 2001. The Company's  exposure to market value risk with respect to
          the CVOs has also not changed materially since December 31, 2001.

          In March 2002,  Progress  Ventures,  Inc. obtained a $440 million bank
          facility  that  will  be  used   exclusively   for  expansion  of  its
          non-regulated  generation portfolio.  In March and June 2002, Progress
          Ventures,  Inc. made draws under this facility of $120 million and $67
          million, respectively.

          Progress Ventures, Inc. is required to hedge 75 percent of the amounts
          outstanding  under  its bank  facility  pursuant  to the  terms of the
          agreement for expansion of its non-regulated  generation portfolio. In
          May 2002, Progress Ventures,  Inc. entered into hedges that included a
          series of zero cost  collars  that have been  designated  as cash flow
          hedges for accounting  purposes.  The fair value of these  instruments
          was a $2.1 million liability position at June 30, 2002.

          During  March,  April and May 2002,  Progress  Energy  converted  $1.0
          billion  of fixed  rate debt  into  variable  rate  debt by  executing
          interest rate  derivative  agreements  with a total notional amount of
          $1.0  billion  with a group  of five  banks.  Under  the  terms of the
          agreements,  which  were  scheduled  to  mature  in 2006  and 2007 and
          coincide  with the  maturity  dates  of the  related  debt  issuances,
          Progress  Energy  received a fixed rate and paid a floating rate based
          on three-month  LIBOR. These instruments were designated as fair value
          hedges  for  accounting  purposes.   In  June  2002,  Progress  Energy
          terminated these  agreements.  As a result of the agreements,  at June
          30, 2002,  Progress Energy had a debt premium of $21.2 million,  which
          will be amortized and recorded as a reduction to interest expense over
          the life of the related debt issuances.

          On April 17,  2002,  Progress  Energy  issued  $350  million of senior
          unsecured  notes due 2007 with a coupon of 6.05% and $450  million  of
          senior  secured  notes due 2012 with a coupon of 6.85%.  Proceeds from
          this issuance were used to pay down commercial paper.

          In April,  May and June 2002,  CP&L  entered into a series of Treasury
          Rate Locks to hedge its  exposure to  interest  rates with regard to a
          future  issuance  of  fixed-rate   debt.   These   agreements  have  a
          computational  period of ten years.  The fair value of the swaps was a
          $8.5 million  liability  position at June 30, 2002. These  instruments
          were  designated  as cash flow  hedges for  accounting  purposes.  The
          agreements,  with a  total  notional  amount  of  $350  million,  were
          terminated  simultaneously  with the pricing of the $500  million CP&L
          senior unsecured notes in July 2002 described  above.  CP&L realized a
          $22.5 million hedging loss, which will be amortized and recorded as an
          adjustment to interest expense over the life of the notes.

                                       46
<PAGE>

          As a result of these  issuances,  the  exposure to changes in interest
          rates from the Company's  fixed rate and variable rate  long-term debt
          at June 30, 2002,  has changed from December 31, 2001. The total fixed
          rate  long-term  debt at June  30,  2002,  was $8.7  billion,  with an
          average  interest rate of 6.86% and fair market value of $9.3 billion.
          The total  variable  rate  long-term  debt at June 30, 2002,  was $770
          million,  with an average interest rate of 1.78% and fair market value
          of $772 million.

          The  exposure  to  changes  in  interest   rates  from  the  Company's
          commercial paper reclassified as long-term debt,  extendible notes and
          FPC mandatorily  redeemable  securities of trust at June 30, 2001, was
          not materially  different than at December 31, 2001. In addition,  the
          Company's  exposure on the $500  million  notional  amount of interest
          rate swap  agreements used to hedge its exposure on variable rate debt
          positions  at June 30,  2002,  was not  materially  different  than at
          December 31, 2001. This instrument expired on July 31, 2002.

          Carolina Power & Light Company

          CP&L has certain market risks  inherent in its financial  instruments,
          which arise from  transactions  entered  into in the normal  course of
          business.  CP&L's primary exposures are changes in interest rates with
          respect  to  long-term  debt  and  commercial  paper  reclassified  as
          long-term   debt,  and   fluctuations  in  the  return  on  marketable
          securities  with respect to its nuclear  decommissioning  trust funds.
          CP&L's   exposure  to  return  on   marketable   securities   for  the
          decommission trust funds has not changed materially since December 31,
          2001.  The  exposure to changes in interest  rates from the  Company's
          fixed rate long-term debt,  variable rate long-term  debt,  commercial
          paper  reclassified as long-term debt and extendible notes at June 30,
          2002,  was not  materially  different  than at December 31,  2001.  In
          addition,  CP&L's  exposure  on the $500  million  notional  amount of
          interest rate swap  agreements  used to hedge its exposure on variable
          rate debt  positions at June 30, 2002,  was not  materially  different
          than at December 31, 2001. This instrument expired on July 31, 2002.

          In April,  May and June 2002,  CP&L  entered into a series of Treasury
          Rate Locks to hedge its  exposure to  interest  rates with regard to a
          future  issuance  of  fixed-rate   debt.   These   agreements  have  a
          computational  period of ten years.  The fair value of the swaps was a
          $8.5 million  liability  position at June 30, 2002. These  instruments
          were  designated  as cash flow  hedges for  accounting  purposes.  The
          agreements,  with a  total  notional  amount  of  $350  million,  were
          terminated  simultaneously  with the pricing of the $500  million CP&L
          senior unsecured notes in July 2002 described  above.  CP&L realized a
          $22.5 million hedging loss, which will be amortized and recorded as an
          adjustment to interest expense over the life of the notes.


                           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 7 to the  CP&L  Consolidated  Interim  Financial
          Statements.


          Item 2.  Changes in Securities and Use of Proceeds
          ------   -----------------------------------------

          RESTRICTED STOCK AWARDS:

          (a) Securities Delivered. On May 8, 2002 and July 10, 2002, 33,500 and
              ---------------------
          5,200 restricted shares, respectively,  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.

                                       47
<PAGE>

          (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.

          Item 4.  Submission of Matters to a Vote of Security Holders
          ------   ---------------------------------------------------

          (a) The Annual Meeting of the  Shareholders of Progress  Energy,  Inc.
          was held on May 8, 2002.

          (b) The meeting  involved  the  election of five Class I directors  to
          serve for  three-year  terms.  Proxies for the meeting were  solicited
          pursuant to Regulation 14, there was no  solicitation in opposition to
          management's nominees as listed below, and all nominees were elected.

          (c) The total votes for the election of directors were as follows:

          Class I                            Votes For           Votes Withheld
          ----------------------------------------------------------------------
          (Term Expiring in 2005)

          W. D. Frederick, Jr.               182,706,339             5,161,543
          William O. McCoy                   183,839,158             4,028,724
          John H. Mullin, III                182,923,898             4,943,984
          Carlos A. Saladrigas               182,674,474             5,193,408
          J. Tylee Wilson                    183,747,540             4,120,342

          The Board of Directors'  proposal to approve the 2002 Equity Incentive
          Plan was approved by the shareholders.  The number of shares voted for
          the proposal was  136,616,357,  the number of shares voted against the
          proposal  was  16,007,003,  and the  number  of  abstaining  votes was
          3,770,077. The delivered not voted total was 31,474,444 shares.

          Item 6.  Exhibits and Reports on Form 8-K
          ------   --------------------------------

          (a) Exhibits

                None

          (b) Reports on Form 8-K filed during or with respect to the quarter:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                Progress Energy, Inc.

                                  Financial
                    Item          Statements
                  Reported         Included             Date of Event                Date Filed

                     5                No                April 17, 2002             April 22, 2002
                     5                No                April 24, 2002             April 25, 2002
                     9                No                 May 3, 2002                 May 3, 2002
                     9                No                 May 30, 2002               May 30, 2002
                     5                No                August 9, 2002             August 9, 2002


                Carolina Power & Light Company

                                  Financial
                    Item          Statements
                  Reported         Included             Date of Event                Date Filed

                     5               Yes                July 24, 2002               July 24, 2002
                     5                No                July 25, 2002              August 5, 2002

</TABLE>
                                       48
<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:  August 13, 2002           (Registrants)


                                           By:  /s/ Peter M. Scott III
                                                --------------------------------
                                           Executive Vice President and
                                           Chief Financial Officer


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


                                       49