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, 1998
                                                 -------------

                                       OR

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

               For the transition period from      to     
                                              ----    ----

                          Commission file number 1-3382

                         CAROLINA POWER & LIGHT COMPANY
                         ------------------------------
             (Exact name of registrant as specified in its charter)

                                 North Carolina
                                 --------------
         (State or other jurisdiction of incorporation or organization)
                   
                                   56-0165465
                                   ----------
                      (I.R.S. Employer Identification No.)

         411 Fayetteville Street, Raleigh, North Carolina   27601-1748
         ------------------------------------------------   ----------
             (Address of principal executive offices)       (Zip Code)


                                  919-546-6111
                                  ------------
              (Registrant's telephone number, including area code)

                                      NONE
                                      ----
(Former  name,  former  address and former  fiscal year,  if changed  since last
                                     report)

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   .
                                      ---    ---  
                      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.  Common Stock  (Without Par
Value) shares outstanding at July 31, 1998: 151,330,894.

<PAGE>



         SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
         ------------------------------------------

         The matters discussed throughout this Form 10-Q that are not historical
         facts  are  forward-looking   and,   accordingly,   involve  estimates,
         projections, goals, forecasts, assumptions and uncertainties that could
         cause  actual  results  or  outcomes  to differ  materially  from those
         expressed in the forward-looking statements.

         Examples of  forward-looking  statements  discussed  in this Form 10-Q,
         PART 1, ITEM 2,  "MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS",  include, but are not limited to,
         statements under the heading "Other Matters"  concerning the effects of
         deregulation and the outcome of the Company's Year 2000 Project.

         Any forward-looking  statement speaks only as of the date on which such
         statement is made,  and the Company  undertakes no 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  should be  considered  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 North Carolina  Utilities  Commission and
         the South Carolina Public Service Commission); general industry trends;
         operation of nuclear  power  facilities;  nuclear  storage  facilities;
         nuclear   decommissioning   costs;  general  economic  growth;  weather
         conditions  and  catastrophic   weather-related  damage;  deregulation;
         market  demand  for  energy;  inflation;   capital  market  conditions;
         unanticipated  changes in operating  expenses and capital  expenditures
         and  legal  and  administrative  proceedings.   All  such  factors  are
         difficult to predict,  contain uncertainties that may materially affect
         actual  results,  and may be beyond  the  control of the  Company.  New
         factors  emerge from time to time and it is not possible for management
         to predict  all of such  factors,  nor can it assess the effect of each
         such factor on the Company.

<PAGE>
<TABLE>
                          PART I. FINANCIAL INFORMATION


Item 1.          Financial Statements
-------          --------------------

       ---------------------------------------------------------------------------------------------------------------------------


                         Carolina Power & Light Company
                  (ORGANIZED UNDER THE LAWS OF NORTH CAROLINA)


                    CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                   (UNAUDITED)

                                  JUNE 30, 1998

       ---------------------------------------------------------------------------------------------------------------------------

         STATEMENTS OF INCOME
<CAPTION>
                                                         Three Months Ended       Six Months Ended           Twelve Months Ended
                                                               June 30                  June 30                    June 30
<S>                                          <C>           <C>           <C>           <C>           <C>           <C> 
(In thousands except per share amounts)             1998          1997          1998          1997          1998          1997
-------------------------------------------    ---------     ---------   -----------   -----------   -----------   -----------
Operating Revenues ........................  $   736,151   $   666,023   $ 1,488,447   $ 1,382,107   $ 3,130,429   $ 2,908,270
-------------------------------------------    ---------     ---------   -----------   -----------   -----------   -----------
Operating Expenses
  Fuel ....................................      135,903       118,982       279,705       252,250       561,724       516,779
  Purchased power .........................      102,711        92,545       188,052       174,164       401,184       375,041
  Other operation and maintenance .........      165,607       185,846       322,400       341,809       642,058       729,186
  Depreciation and amortization ...........      123,597       120,128       245,610       239,000       488,259       440,041
  Taxes other than on income ..............       34,571        33,519        69,451        68,525       140,404       136,348
  Income tax expense ......................       58,231        21,836       127,832        82,865       298,015       208,361
  Harris Plant deferred costs, net ........        2,028         6,179         3,807        13,744        14,358        28,070
-------------------------------------------    ---------     ---------   -----------   -----------   -----------   -----------
      Total Operating Expenses ............      622,648       579,035     1,236,857     1,172,357     2,546,002     2,433,826
-------------------------------------------    ---------     ---------   -----------   -----------   -----------   -----------
Operating Income ..........................      113,503        86,988       251,590       209,750       584,427       474,444
-------------------------------------------    ---------     ---------   -----------   -----------   -----------   -----------
Other Income (Expense)
  Allowance for equity funds used during   
                               construction            3            55             6           116          (110)       (2,096)
  Income tax benefit ......................       11,695         2,039        22,213         5,125        36,420        10,141
  Harris Plant carrying costs .............          954         1,195         1,920         2,503         4,043         5,444
  Interest income .........................        1,037        10,516         4,474        12,185        10,624        14,073
  Other income, net .......................      (16,493)       (2,486)      (38,912)       (4,478)      (53,709)       20,863
-------------------------------------------    ---------     ---------   -----------   -----------   -----------   -----------
      Total Other Income (Expense) ........       (2,804)       11,319       (10,299)       15,451        (2,732)       48,425
-------------------------------------------    ---------     ---------   -----------   -----------   -----------   -----------
Income Before Interest Charges ............      110,699        98,307       241,291       225,201       581,695       522,869
-------------------------------------------    ---------     ---------   -----------   -----------   -----------   -----------
Interest Charges
  Long-term debt ..........................       43,998        40,438        86,820        81,148       169,140       165,740
  Other interest charges ..................        2,719         4,905         5,330        10,317        13,755        17,567
  Allowance for borrowed funds used during
                              construction        (1,487)       (1,325)       (2,898)       (2,815)       (5,005)       (7,264)
-------------------------------------------    ---------     ---------   -----------   -----------   -----------   -----------
      Net Interest Charges ................       45,230        44,018        89,252        88,650       177,890       176,043
-------------------------------------------    ---------     ---------   -----------   -----------   -----------   -----------
Net Income ................................       65,469        54,289       152,039       136,551       403,805       346,826
Preferred Stock Dividend Requirements .....         (741)         (741)       (1,483)       (3,143)       (4,391)       (7,948)
-------------------------------------------    ---------     ---------   -----------   -----------   -----------   -----------
Earnings for Common Stock .................  $    64,728   $    53,548   $   150,556   $   133,408   $   399,414   $   338,878
-------------------------------------------    ---------     ---------   -----------   -----------   -----------   -----------
Average Common Shares Outstanding .........      143,892       143,475       143,829       143,485       143,816       143,506
Basic and Diluted Earnings per Common Share  $      0.45   $      0.37   $      1.05   $      0.93   $      2.78   $      2.36
Dividends Declared per Common Share .......  $     0.485   $     0.470   $     0.970   $     0.940   $     1.925   $     1.865

-------------------------------------------------------------------------------------------------------------------------
See Supplemental Data and Notes to Consolidated Interim Financial Statements.
</TABLE>
<PAGE>
<TABLE>

     Carolina Power & Light Company
     BALANCE SHEETS  
<CAPTION>
                                                                 June 30             December 31
(In thousands) ......................................      1998           1997           1997
-----------------------------------------------------  ------------   ------------   ------------
<S>                                                    <C>            <C>            <C> 
                                  ASSETS
Electric Utility Plant
  Electric utility plant in service .................  $ 10,199,995   $  9,968,079   $ 10,113,334
  Accumulated depreciation ..........................    (4,358,703)    (3,966,186)    (4,181,417)
-----------------------------------------------------  ------------   ------------   ------------
         Electric utility plant in service, net .....     5,841,292      6,001,893      5,931,917
  Held for future use ...............................        11,886         14,176         12,255
  Construction work in progress .....................       196,555        127,692        158,347
  Nuclear fuel, net of amortization .................       218,506        200,359        190,991
-----------------------------------------------------  ------------   ------------   ------------
         Total Electric Utility Plant, Net ..........     6,268,239      6,344,120      6,293,510
-----------------------------------------------------  ------------   ------------   ------------
Current Assets
  Cash and cash equivalents .........................        40,336         20,386         14,426
  Accounts receivable ...............................       484,812        343,669        406,872
  Fuel ..............................................        88,595         62,120         47,551
  Materials and supplies ............................       143,707        127,039        136,253
  Deferred fuel cost (credit) .......................        25,914         (5,102)        20,630
  Prepayments .......................................        52,182         54,197         62,040
  Other current assets ..............................        18,881         40,271         47,034
-----------------------------------------------------  ------------   ------------   ------------
         Total Current Assets .......................       854,427        642,580        734,806
-----------------------------------------------------  ------------   ------------   ------------
Deferred Debits and Other Assets
  Income taxes recoverable through future rates .....       302,904        356,700        328,818
  Abandonment costs .................................        24,397         52,345         38,557
  Harris Plant deferred costs .......................        61,839         72,156         63,727
  Unamortized debt expense ..........................        37,712         59,205         48,407
  Nuclear decommissioning trust funds ...............       286,301        168,731        245,523
  Miscellaneous other property and investments ......       253,380        212,417        256,291
  Other assets and deferred debits ..................       293,946        222,331        211,089
-----------------------------------------------------  ------------   ------------   ------------
         Total Deferred Debits and Other Assets .....     1,260,479      1,143,885      1,192,412
-----------------------------------------------------  ------------   ------------   ------------
            Total Assets ............................  $  8,383,145   $  8,130,585   $  8,220,728
-----------------------------------------------------  ------------   ------------   ------------
                      CAPITALIZATION AND LIABILITIES
Capitalization
  Common stock equity ...............................  $  2,836,285   $  2,705,823   $  2,818,807
  Preferred stock - redemption not required .........        59,376         59,376         59,376
  Long-term debt, net ...............................     2,581,325      2,525,808      2,415,656
-----------------------------------------------------  ------------   ------------   ------------
         Total Capitalization .......................     5,476,986      5,291,007      5,293,839
-----------------------------------------------------  ------------   ------------   ------------
Current Liabilities
  Current portion of long-term debt .................       168,075         43,436        207,979
  Current portion of preferred stock ................             -         84,425              -
  Short-term debt ...................................             -         93,900              -
  Accounts payable ..................................       277,812        159,563        290,352
  Taxes accrued .....................................        46,431         28,108         13,666
  Interest accrued ..................................        43,034         38,873         43,620
  Dividends declared ................................        72,101         71,727         72,266
  Other current liabilities .........................        99,451         78,494        102,943
-----------------------------------------------------  ------------   ------------   ------------
         Total Current Liabilities ..................       706,904        598,526        730,826
-----------------------------------------------------  ------------   ------------   ------------
Deferred Credits and Other Liabilities
  Accumulated deferred income taxes .................     1,689,799      1,784,344      1,722,908
  Accumulated deferred investment tax credits .......       216,925        227,145        222,028
  Other liabilities and deferred credits ............       292,531        229,563        251,127
-----------------------------------------------------  ------------   ------------   ------------
         Total Deferred Credits and Other Liabilities     2,199,255      2,241,052      2,196,063
-----------------------------------------------------  ------------   ------------   ------------
Commitments and Contingencies (Notes 2, 3 and 4)
            Total Capitalization and Liabilities ....  $  8,383,145   $  8,130,585   $  8,220,728
-----------------------------------------------------  ------------   ------------   ------------
SCHEDULES OF COMMON STOCK EQUITY
(In thousands)
  Common stock ......................................  $  1,369,636   $  1,370,858   $  1,371,520
  Unearned ESOP common stock ........................      (157,306)      (166,866)      (165,804)
  Capital stock issuance expense ....................          (790)          (790)          (790)
  Retained earnings .................................     1,624,745      1,502,621      1,613,881
-----------------------------------------------------  ------------   ------------   ------------
         Total Common Stock Equity ..................  $  2,836,285   $  2,705,823   $  2,818,807
-----------------------------------------------------  ------------   ------------   ------------
See Supplemental Data and Notes to Consolidated Interim Financial Statements.
</TABLE>
<PAGE>
<TABLE>

Carolina Power & Light Company
STATEMENTS OF CASH FLOWS                                   Three Months Ended       Six Months Ended      Twelve Months Ended
                                                                June 30                 June 30                 June 30
(In thousands)                                              1998        1997       1998         1997       1998        1997
-------------------------------------------------------  ---------   ---------   ---------   ---------   ---------   --------- 
<S>                                                      <C>         <C>         <C>         <C>         <C>         <C>      
Operating Activities
  Net income                                             $  65,469   $  54,289   $ 152,039   $ 136,551   $ 403,805   $ 346,826
  Adjustments to reconcile net income to net cash
  provided by operating activities
      Depreciation and amortization                        144,886     138,595     290,047     278,953     576,306     497,178
      Harris Plant deferred costs                            1,074       4,984       1,887      11,241      10,315      22,626
      Deferred income taxes                                (13,145)    (15,463)    (36,602)    (41,282)    (61,866)     62,271
      Investment tax credit                                 (2,551)     (2,558)     (5,103)     (5,117)    (10,219)    (10,339)
      Deferred fuel cost (credit)                          (11,862)     (8,851)     (5,284)        763     (31,016)    (12,457)
      Net (increase) decrease in receivables,
           inventories and prepaid expenses               (117,960)    (18,703)   (140,392)    (35,517)   (216,091)    (65,025)
      Net increase  (decrease) in payables and accrued
           expenses                                         50,781     (43,719)     94,011     (67,064)    154,661     (73,080)
      Miscellaneous                                         10,085      (3,998)     (3,046)     19,786      36,361       6,188
-------------------------------------------------------  ---------   ---------   ---------   ---------   ---------   --------- 
         Net Cash Provided by Operating Activities         126,777     104,576     347,557     298,314     862,256     774,188
-------------------------------------------------------  ---------   ---------   ---------   ---------   ---------   --------- 
Investing Activities
  Gross property additions                                 (94,464)    (64,578)   (171,798)   (140,125)   (353,878)   (339,933)
  Nuclear fuel additions                                   (15,179)    (12,189)    (71,283)    (33,805)    (98,987)    (85,172)
  Contributions to external decommissioning trust           (7,688)     (7,723)    (17,939)    (18,021)    (30,644)    (30,684)
  Contributions to retiree benefit trusts                        -           -           -     (21,096)          -     (21,096)
  Net cash flow of company-owned life insurance
      program                                               (2,797)    136,692      (2,524)    137,529      (1,545)    191,956
  Miscellaneous                                            (20,084)    (12,568)    (40,055)    (20,851)    (73,937)    (32,542)
-------------------------------------------------------  ---------   ---------   ---------   ---------   ---------   --------- 
        Net Cash Provided by (Used in) Investing
              Activities                                  (140,212)     39,634    (303,599)    (96,369)   (558,991)   (317,471)
-------------------------------------------------------  ---------   ---------   ---------   ---------   ---------   --------- 
Financing Activities
  Proceeds from issuance of long-term debt                   1,001           -       1,001           -     200,076           -
  Net increase (decrease) in short-term debt
    (maturity less than 90 days)                                 -     (55,300)          -      31,676     (93,900)    (57,931)
  Net  increase (decrease) in commercial paper             
     classified as long-term debt                          130,270           -     164,400           -      60,300      73,743
  Retirement of long-term debt                             (40,000)          -     (41,476)    (61,427)    (83,459)   (137,762)
  Redemption of preferred stock                                  -           -           -           -     (85,850)          -
  Purchase of Company common stock                               -     (23,418)          -     (23,418)          -     (42,030)
  Dividends paid on common and preferred stock             (70,712)    (70,007)   (141,340)   (139,331)   (279,849)   (274,799)
  Miscellaneous                                               (633)          -        (633)          -        (633)          -
-------------------------------------------------------  ---------   ---------   ---------   ---------   ---------   --------- 
        Net Cash  Provided  by  (Used  in)  Financing
            Activities                                      19,926    (148,725)    (18,048)   (192,500)   (283,315)   (438,779)
-------------------------------------------------------  ---------   ---------   ---------   ---------   ---------   --------- 
Net Increase (Decrease) in Cash and Cash Equivalents         6,491      (4,515)     25,910       9,445      19,950      17,938

Cash and Cash Equivalents at Beginning of the Period        33,845      24,901      14,426      10,941      20,386       2,448
-------------------------------------------------------  ---------   ---------   ---------   ---------   ---------   --------- 
Cash and Cash Equivalents at End of the Period           $  40,336   $  20,386   $  40,336   $  20,386   $  40,336   $  20,386
-------------------------------------------------------  ---------   ---------   ---------   ---------   ---------   --------- 
Supplemental Disclosures of Cash Flow Information
Cash paid during the period - interest                   $  35,170   $  36,935   $  91,127   $  90,037   $ 172,601   $ 181,038
                              income taxes               $ 120,724   $  96,490   $ 126,794   $  97,294   $ 319,193   $ 198,254


Noncash Activities
In June 1997,  Strategic  Resource  Solutions Corp., a wholly-owned  subsidiary,
purchased all remaining shares of Knowledge Builders,  Inc. (KBI). In connection
with the purchase of KBI, the Company  issued $20.5  million in common stock and
paid $1.9 million in cash.

-----------------------------------------------------------------------------------------------------------------------------------
See Supplemental Data and Notes to Consolidated Interim Financial Statements.
</TABLE>
<PAGE>
<TABLE>

Carolina Power & Light Company
SUPPLEMENTAL  DATA                                       Three Months Ended            Six Months Ended         Twelve Months Ended
                                                              June 30                      June 30                     June 30
                                                             1998         1997         1998         1997         1998         1997
                                                       -----------  -----------  -----------  -----------  -----------  -----------
<S>                                                    <C>          <C>          <C>          <C>          <C>          <C>        
Operating Revenues (in thousands)
  Residential                                          $   220,677  $   191,479  $   479,813  $   439,862  $ 1,026,786  $   943,351
                                                       -----------  -----------  -----------  -----------  -----------  -----------
  Commercial                                               167,689      150,331      321,229      299,971      669,698      625,934
  Industrial                                               185,951      184,613      352,417      355,505      734,997      734,864
  Government and municipal                                  19,253       17,463       37,873       36,900       78,122       73,267
  Power Agency contract requirements                        24,156       19,627       42,814       28,746       85,387       76,666
  NCEMC                                                     48,435       46,480      104,964      100,700      230,215      210,923
  Other wholesale                                           21,483       18,938       44,975       44,259       92,800       89,828
  Other utilities                                           37,100       23,265       76,789       48,844      157,030       97,812
  Miscellaneous revenue                                     11,407       13,827       27,573       27,320       55,394       55,625
                                                       -----------  -----------  -----------  -----------  -----------  -----------
            Total Operating Revenues                   $   736,151  $   666,023  $ 1,488,447  $ 1,382,107  $ 3,130,429  $ 2,908,270
                                                       -----------  -----------  -----------  -----------  -----------  -----------
Energy Sales (millions of kWh)
  Residential                                                2,868        2,451        6,306        5,719       13,075       11,881
  Commercial                                                 2,640        2,342        4,999        4,629       10,380        9,587
  Industrial                                                 3,904        3,877        7,383        7,392       15,065       14,823
  Government and municipal                                     318          284          632          610        1,316        1,219
  Power Agency contract requirements                           603          460        1,001          840        2,233        1,977
  NCEMC                                                        995          825        1,984        1,772        4,386        3,766
  Other wholesale                                              528          480        1,057        1,047        2,130        2,078
  Other utilities                                            1,321        1,026        3,274        2,185        6,623        4,433
                                                       -----------  -----------  -----------  -----------  -----------  -----------
            Total Energy Sales                              13,177       11,745       26,636       24,194       55,208       49,764
                                                       -----------  -----------  -----------  -----------  -----------  -----------
Energy Supply (millions of kWh)
  Generated -         coal                                   6,779        5,850       13,565       11,260       27,851       24,092
                      nuclear                                5,069        4,743       10,658       10,615       21,733       20,416
                      hydro                                    266          253          641          571          868          931
                      combustion turbines                      140           48          159           50          299           88
  Purchased                                                  1,415        1,367        2,571        2,582        6,307        6,152
                                                       -----------  -----------  -----------  -----------  -----------  -----------
            Total Energy Supply (Company Share)             13,669       12,261       27,594       25,078       57,058       51,679
                                                       -----------  -----------  -----------  -----------  -----------  -----------
Detail of Income Taxes (in thousands)
  Included in Operating Expenses
    Income tax expense (credit) - current              $    73,889  $    41,115  $   168,913  $   129,823  $   370,969  $   166,753
                                  deferred                 (13,107)     (16,721)     (35,978)     (41,841)     (62,735)      51,947
                                  investment tax
                                    credit adjustments      (2,551)      (2,558)      (5,103)      (5,117)     (10,219)     (10,339)
                                                       -----------  -----------  -----------  -----------  -----------  -----------
        Subtotal                                            58,231       21,836      127,832       82,865      298,015      208,361
                                                       -----------  -----------  -----------  -----------  -----------  -----------
    Harris Plant deferred costs - investment tax
                                    credit adjustments           -          (40)           -         (100)         (51)        (237)
            Total Included in Operating Expenses            58,231       21,796      127,832       82,765      297,964      208,124
                                                       -----------  -----------  -----------  -----------  -----------  -----------
  Included in Other Income
    Income tax expense (credit) - current                  (11,657)      (3,297)     (21,589)      (5,684)     (37,289)     (20,465)
                                  deferred                     (38)       1,258         (624)         559          869       10,324
                                                       -----------  -----------  -----------  -----------  -----------  -----------
            Total Included in Other Income                 (11,695)      (2,039)     (22,213)      (5,125)     (36,420)     (10,141)
                                                       -----------  -----------  -----------  -----------  -----------  -----------
               Total Income Tax Expense                $    46,536  $    19,757  $   105,619  $    77,640  $   261,544  $   197,983
                                                       -----------  -----------  -----------  -----------  -----------  -----------

FINANCIAL STATISTICS

Ratio of earnings to fixed charges                                                                              4.39         3.74
Return on average common stock equity                                                                          14.50 %      12.72 %
Book value per common share                                                                                  $ 19.72      $ 18.82
Capitalization ratios
    Common stock equity                                                                                        51.79 %      51.14 %
    Preferred stock - redemption not required                                                                   1.08         1.12
    Long-term debt, net                                                                                        47.13        47.74
                                                                                                           -----------  -----------
            Total                                                                                             100.00 %     100.00 %
                                                                                                           -----------  -----------
-----------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Interim Financial Statements.

</TABLE>
<PAGE>

Carolina Power & Light Company
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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

         B.       Basis of Presentation.  These  consolidated  interim financial
                  ----------------------
                  statements  should be read in  conjunction  with the Company's
                  consolidated  financial  statements  included in the Company's
                  1997 Annual  Report on Form 10-K.  The  amounts are  unaudited
                  but, in the  opinion of  management,  reflect all  adjustments
                  necessary to fairly present the Company's  financial  position
                  and  results of  operations  for the interim  periods.  Due to
                  temperature  variations  between  seasons  of the year 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  1997  have  been
                  reclassified  to  conform  to the 1998  presentation,  with no
                  effect on  previously  reported  net  income  or common  stock
                  equity.

                  In preparing financial  statements that conform with generally
                  accepted accounting principles, management must make estimates
                  and assumptions that affect the reported amounts of assets and
                  liabilities,  disclosure of contingent  assets and liabilities
                  at the  date  of  the  financial  statements  and  amounts  of
                  revenues and expenses  reflected during the reporting  period.
                  Actual results could differ from those estimates.

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

         The Company's most recent  site-specific  estimates of  decommissioning
         costs were developed in 1993, using 1993 cost factors, and are based on
         prompt  dismantlement  decommissioning,  which  reflects  the  cost  of
         removal of all radioactive and other structures  currently at the site,
         with such removal occurring shortly after operating license expiration.
         These  estimates,  in 1993 dollars,  are $258 million for Robinson Unit
         No.  2, $235  million  for  Brunswick  Unit No.  1,  $221  million  for
         Brunswick  Unit  No. 2 and  $284  million  for the  Harris  Plant.  The
         estimates  are  subject  to  change  based  on  a  variety  of  factors
         including,  but not limited to, cost escalation,  changes in technology
         applicable to nuclear  decommissioning and changes in federal, state or
         local regulations.  The cost estimates exclude the portion attributable
         to North  Carolina  Eastern  Municipal  Power  Agency,  which  holds an
         undivided  ownership  interest  in the  Brunswick  and  Harris  nuclear
         generating  facilities.  Operating  licenses for the Company's  nuclear
         units  expire  in the year  2010 for  Robinson  Unit  No.  2,  2016 for
         Brunswick  Unit No. 1, 2014 for  Brunswick  Unit No. 2 and 2026 for the
         Harris Plant.

         The Financial  Accounting Standards Board has reached several tentative
         conclusions with respect to its project regarding  accounting practices
         related to  obligations  associated  with the  retirement of long-lived
         assets (formerly  referred to as liabilities for closure and removal of
         long-lived  assets).  It is uncertain when the final  statement will be
         issued  and  what  affects  it may  ultimately  have  on the  Company's
         accounting for nuclear decommissioning and other retirement costs.

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

4.       COMMITMENTS AND CONTINGENCIES
         -----------------------------
         Contingencies existing as of the date of these statements are described
         below.  No  significant  changes have occurred since December 31, 1997,
         with respect to the  commitments  discussed in Note 11 of the financial
         statements included in the Company's 1997 Annual Report on Form 10-K.

         A.       Applicability of SFAS-71.  As a regulated entity,  the Company
                  -------------------------                  
                  is  subject  to  the  provisions  of  Statement  of  Financial
                  Accounting  Standards No. 71,  "Accounting  for the Effects of
                  Certain  Types  of  Regulation"  (SFAS-71).  Accordingly,  the
                  Company records certain assets and liabilities  resulting from
                  the  effects of the  ratemaking  process,  which  would not be
                  recorded under generally  accepted  accounting  principles for
                  unregulated  entities.  The  Company's  ability to continue to
                  meet the criteria for  application  of SFAS-71 may be affected
                  in  the  future  by  competitive   forces,   deregulation  and
                  restructuring in the electric utility  industry.  In the event
                  that SFAS-71 no longer  applied to a separable  portion of the
                  Company's   operations,    related   regulatory   assets   and
                  liabilities   would  be  eliminated   unless  an   appropriate
                  regulatory recovery mechanism is provided. Additionally, these
                  factors  could  result in an  impairment  of electric  utility
                  plant assets as determined  pursuant to Statement of Financial
                  Accounting  Standards No. 121,  "Accounting for the Impairment
                  of Long-Lived  Assets and for Long-Lived Assets to Be Disposed
                  Of." At June 30, 1998, the Company's regulatory assets totaled
                  $493 million.

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

                  Various  organic  materials  associated with the production of
                  manufactured  gas,  generally  referred  to as coal  tar,  are
                  regulated  under  various  federal and state  laws.  There are
                  several  manufactured  gas  plant  (MGP)  sites to  which  the
                  Company and certain  entities  that were later merged into the
                  Company had some  connection.  In this  regard,  the  Company,
                  along with others,  is participating  in a cooperative  effort
                  with the North Carolina  Department of Environment and Natural
                  Resources,  Division  of Waste  Management  (DWM),  which  has
                  established  a uniform  framework  to address  MGP sites.  The
                  investigation  and  remediation  of specific MGP sites will be
                  addressed  pursuant  to one or more  Administrative  Orders on
                  Consent (AOC) between the DWM and the potentially  responsible
                  party or parties.  The Company has signed AOC's to investigate
                  certain  sites.  The  Company  continues  to  investigate  the
                  identities of parties  connected to individual MGP sites,  the
                  relative  relationships  of the Company  and other  parties to
                  those sites and the degree to which the Company will undertake
                  efforts with others at individual  sites. The Company does not
                  expect  these costs to be material to the  financial  position
                  and results of operations of the Company.

                  The Company has been notified by regulators of its involvement
                  or  potential  involvement  in several  sites,  other than MGP
                  sites,  that may require remedial  action.  The Company cannot
                  predict the outcome of these matters.

                  The Company carries a liability,  in accordance with Statement
                  of  Financial  Accounting  Standards  No. 5,  "Accounting  for
                  Contingencies",   for  the  estimated  costs  associated  with
                  certain remedial activities. This liability is not material to
                  the financial position of the Company.

                  2) As required under the Nuclear Waste Policy Act of 1982, the
                  Company  entered into a contract  with the U.S.  Department of
                  Energy  (DOE)  under  which the DOE  agreed to  dispose of the
                  Company's  spent  nuclear  fuel by January 31,  1998.  The DOE
                  defaulted on its January 31, 1998,  obligation to begin taking
                  spent  nuclear fuel,  and a group of utilities,  including the
                  Company,  has  undertaken  measures  to force  the DOE to take
                  spent nuclear fuel and/or to pay damages.  To date, the courts
                  have  rejected  attempts  to force DOE to take  spent  nuclear
                  fuel. The Company cannot predict the outcome of this matter.

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

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


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

                              RESULTS OF OPERATIONS
            For the Three, Six and Twelve Months Ended June 30, 1998,
           As Compared With the Corresponding Periods One Year Earlier
           -----------------------------------------------------------

         Operating Revenues
         ------------------
         For the three,  six and twelve  months ended June 30,  1998,  operating
         revenues were affected by the following factors (in millions):

<TABLE>


                                                      Three Months  Six Months  Twelve Months
<S>                                                   <C>           <C>         <C>        
           Weather                                    $       41    $       51  $        86

           Customer growth/changes in usage patterns          24            32          115

           Sales to other utilities                           14            28           59

           Price                                             (11)          (19)         (47)

           Sales to Power Agency                               4            14            9

           Other                                              (2)            -            -
                                                              ---          ---          ---

              Total                                   $       70    $      106  $       222
                                                              ==           ===          ===
</TABLE>

         The increase in the weather component of revenue for all periods is the
         result  of  more  favorable  temperatures  in the  current  periods  as
         compared to prior periods. The increase in the customer  growth/changes
         in usage  patterns  component  of revenue  for all  comparison  periods
         reflects  continued  growth in the  number of  customers  served by the
         Company.  For the twelve  months ended June 30, 1997,  both the weather
         and customer  growth/changes  in usage  patterns  components of revenue
         were  affected by lost revenues  caused by Hurricanes  Fran and Bertha.
         Sales to other  utilities  increased  in all  comparison  periods  as a
         result of the Company's  continued  active pursuit of  opportunities in
         the wholesale power market.  The  price-related  decrease for the three
         months and six months ended June 30, 1998, is primarily attributable to
         a decrease in the fuel cost  component  of revenue.  The  price-related
         decrease  for the  twelve  months  ended  June  30,  1998,  is due to a
         combination  of a decrease  in the fuel cost  component  of revenue and
         changes  to the Power  Coordination  Agreement,  which  were  effective
         January  1, 1997,  between  the  Company  and North  Carolina  Electric
         Membership Corporation.


         Operating Expenses
         ------------------
         Fuel expense  increased for all periods primarily due to an increase in
         generation of approximately  12.5%,  11.2% and 11.5% for the three, six
         and twelve  months ended June 30, 1998,  respectively.  The increase in
         fuel  expense  for all  periods  is also  related  to a  change  in the
         generation mix, with an increase in fossil generation and a decrease in
         nuclear generation. These increases were partially offset by a decrease
         in fuel prices during all comparison periods.

         The increase in purchased power for the three- and twelve-month periods
         is primarily due to an increase in purchases from other utilities.  The
         increase for the six-month  period is due to a combination of increased
         purchases from other utilities and an increase in cogeneration.

         Other  operation and maintenance  expense  decreased for all comparison
         periods reflecting the Company's continued cost reduction efforts. Also
         contributing  to the decrease were lower expenses  resulting from fewer
         fossil outages during the current periods.

         Depreciation and amortization  increased  approximately $48 million for
         the twelve  months  ended June 30,  1998,  of which  approximately  $34
         million  was a  result  of  the  accelerated  amortization  of  certain
         regulatory  assets,  and  approximately  $2 million  resulted  from the
         amortization of deferred operation and maintenance  expenses associated
         with Hurricane  Fran, in accordance with orders from the commissions in
         the Company's retail jurisdictions.

         Income tax expense  increased for all comparison  periods primarily due
         to an increase in pretax operating  income.  In addition,  the increase
         for all comparison periods is due to tax provision adjustments recorded
         for potential audit issues in open tax years which decreased income tax
         expense in the prior periods.

         Harris Plant deferred costs,  net decreased for all comparison  periods
         primarily due to the completion,  in late 1997, of the  amortization of
         the Harris Plant phase-in  costs related to the North  Carolina  retail
         jurisdiction.

         Other Income
         ------------
         The  income  tax  benefit  related to other  income  increased  for all
         comparison periods primarily as a result of a decrease in other income.

         Interest  income  decreased for all comparison  periods  primarily as a
         result of a decrease in tax  refund-related  interest income recognized
         in the current periods.

         Other income, net decreased for the three, six and twelve-month periods
         primarily  due to an increase in pre-tax  start-up  losses  incurred by
         certain  non-regulated  subsidiaries of approximately $12 million,  $25
         million, and $36 million, respectively. Management has projected losses
         for these  non-regulated  subsidiaries as they evolve through  start-up
         phases;  however,  the 1998 losses  have been higher than  management's
         expectations.  Accordingly,  the Company has initiated cost-cutting and
         revenue  enhancing  efforts at the subsidiaries to mitigate the effects
         of these losses.  The decrease in the twelve-month  period was also due
         to  an  adjustment  of  $23  million  to  the  unamortized  balance  of
         abandonment  costs related to the Harris Plant,  which  increased other
         income in the prior period.

         Interest Charges
         ----------------
         Interest Charges related to long-term debt increased for all comparison
         periods  primarily due to the issuance of $200 million principal amount
         of  first  mortgage  bonds  in  August  1997.  Other  interest  charges
         decreased for all reported periods  primarily as a result of a decrease
         in commercial paper borrowings classified as short-term debt.

         Preferred Stock Dividend Requirements
         -------------------------------------
         The decrease in the preferred stock dividend  requirements for the six-
         and  twelve-month  periods  is  the  result  of the  redemption  of two
         preferred stock series in July 1997.


               MATERIAL CHANGES IN LIQUIDITY AND CAPITAL RESOURCES
                     From December 31, 1997 to June 30, 1998
                     and From June 30, 1997 to June 30, 1998
                     ---------------------------------------

         Cash Flow and Financing
         -----------------------
         The  proceeds  from  commercial  paper  borrowings   and/or  internally
         generated funds financed the redemption or retirement of long-term debt
         totaling $40 million and $80 million  during the six and twelve  months
         ended June 30, 1998, respectively.

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

         In August 1997,  the Company  issued $200 million  principal  amount of
         first mortgage  bonds.  The net proceeds from the issuance were used to
         reduce the outstanding balance of commercial paper and other short-term
         debt and for other general corporate purposes.


<PAGE>

         As  of  June  30,  1998,  the  Company's   long-term  revolving  credit
         facilities, which support its commercial paper borrowings, totaled $750
         million.  The Company is required to pay minimal annual commitment fees
         to maintain its credit facilities.  Consistent with management's intent
         to  maintain  all or a portion of its  commercial  paper on a long-term
         basis, and as supported by its long-term  revolving credit  facilities,
         the Company included in long-term debt $410 million and $350 million of
         commercial   paper   outstanding   as  of  June  30,   1998  and  1997,
         respectively.

         The Company's capital structure as of June 30 was as follows:

                                             1998                   1997
                                             ----                   ----
            Common Stock Equity              51.79%                 51.14%
            Long-term Debt, net              47.13%                 47.74%
            Preferred Stock                   1.08%                  1.12%

         The Company's  First Mortgage Bonds are currently rated "A2" by Moody's
         Investors  Service,  "A" by  Standard  and  Poor's and "A+" by Duff and
         Phelps.  Moody's  Investors  Service,  Standard and Poor's and Duff and
         Phelps  have rated the  Company's  commercial  paper  "P-1",  "A-1" and
         "D-1", respectively.


                                  OTHER MATTERS
                                  -------------
         Competition
         -----------

         Wholesale Competition
         ---------------------
         During  the  last  week of June  1998,  some  wholesale  power  markets
         experienced sharp increases in prices.  That upsurge in power costs was
         due,  in  part,  to  the  unavailability  of  generating  capacity  and
         unusually  hot weather in the  midwestern  portion of the country.  The
         relatively  sudden movement in wholesale power prices disrupted certain
         power  transactions,  including  some to which the Company was a party.
         The Company  anticipates  volatility in the  wholesale  power market to
         increase  during peak demand  periods;  however,  the Company  does not
         expect  this  volatility  to  have a  material  adverse  affect  on the
         Company's financial position and results of operations.

         North Carolina Activities
         -------------------------
         The 23-member  study  commission  established to evaluate the future of
         electric service in North Carolina issued an interim report to the 1998
         North Carolina  General Assembly  (General  Assembly) in June 1998. The
         report summarized the numerous fact-finding and educational  activities
         and analytical projects the commission has initiated or completed since
         it began  meeting  in  November  1997,  but  offered  no  judgments  or
         recommendations.  The  commission  will  reconvene  after  the  General
         Assembly  ends its session this summer,  and will make its final report
         during the General Assembly's 1999 session.  The Company cannot predict
         the outcome of this matter.

         South Carolina Activities
         -------------------------
         The South  Carolina  General  Assembly  ended its 1998 session  without
         enacting any legislation regarding electric restructuring; however, the
         issue of electric  restructuring  is expected  to be  considered  again
         during the 1999 legislative session, which will begin in January.
         The Company cannot predict the outcome of this matter.

         Federal Activities
         ------------------
         At the federal level,  deregulation  legislation has not progressed out
         of committee.  The Congress has not found common ground on the issue of
         electric  industry  restructuring.  Some lawmakers  advocate  setting a
         federal  deadline by which  states must open their  retail  electricity
         markets to competition.  Others argue that each state should be allowed
         to decide the issue. The Clinton Administration proposed a bill in June
         1998 that  encourages  states to begin retail  competition by 2003, but
         also provides  states the option to maintain the status quo or pursue a
         different plan. The Company cannot predict the outcome of this matter.


         Year 2000
         ---------

         Year 2000 Background
         --------------------
         The Company's overall goal is to be Year 2000 ready.  "Year 2000 ready"
         means  that  critical  systems,   devices,   applications  or  business
         relationships  have been  evaluated and are expected to be suitable for
         continued use into and beyond the Year 2000, or  contingency  plans are
         in place.

         The Company began  addressing  the Year 2000 issue in 1994 by beginning
         to assess  its  business  computer  systems,  such as  general  ledger,
         payroll,  customer billing and inventory control. The majority of these
         systems have been  corrected  and running in the  Company's  day-to-day
         computing  environment  since 1996.  Also, by the mid-1990s,  two major
         accounting  systems were replaced with systems that were designed to be
         Year 2000 ready.  The  Company  plans to  complete  corrections  to the
         remaining business systems by the end of 1998.

         During  mid-1997 a  Corporate  Year 2000  Project  was  established  to
         provide  leadership  and direction to the Year 2000 efforts  throughout
         the Company and its subsidiaries.  Also, the project scope was expanded
         to include "embedded' systems (such as process control computers, chart
         recorders,  data loggers,  calibration  equipment and chemical analysis
         equipment),   end-user  computing  hardware  and  software   (including
         personal  computers,  spreadsheets,  word processing and other personal
         and workgroup  applications),  plant and corporate  facilities (such as
         security  systems,  elevators  and  heating and  cooling  systems)  and
         business relationships with key suppliers and customers.

         The Company is using a multi-step  approach in conducting its Year 2000
         Project.  These  steps  are:  inventory,  assessment,  remediation  and
         testing, and contingency planning.  The first step, an inventory of all
         systems and devices with potential Year 2000 problems, was completed in
         January 1998. The next step, completed in March 1998, was to conduct an
         initial  assessment of the inventory to determine the state of its Year
         2000 readiness. As part of the assessment phase, remediation strategies
         were  identified and  remediation  cost estimates were  developed.  The
         Company will utilize both internal and external  resources to remediate
         and test for Year 2000  readiness.  The Company has recently  initiated
         formal  communications  with the  suppliers  with  which it has  active
         contracts to determine the extent to which the Company is vulnerable to
         those third  parties'  failure to remediate  their own Year 2000 issue.
         The Company cannot predict the outcome of other companies'  remediation
         efforts.

         Year 2000 Costs
         ---------------
         The Company currently plans to complete the Year 2000 Project by August
         1999. The total remaining cost of the Year 2000 Project is estimated at
         $15  million.   (This   estimate   excludes  Year  2000  Project  costs
         attributable to recent subsidiary acquisitions,  which the Company does
         not expect to be  material  to the  financial  position  and results of
         operations.)  Approximately $6 million is for new software and hardware
         purchases  and will be  capitalized.  The  remaining $9 million will be
         expensed as incurred over the next two years.  To date, the Company has
         incurred  and  expensed   approximately   $3  million  related  to  the
         inventory,   assessment   and   development  of  a  Year  2000  Project
         remediation  plan.  The costs of the  project and the date on which the
         Company  plans to  complete  the Year 2000  modifications  are based on
         management's  best  estimates,  which were derived  utilizing  numerous
         assumptions of future events  including the continued  availability  of
         certain  resources,  third  parties'  Year  2000  readiness  and  other
         factors.

         Risk Assessment
         ---------------
         At this time,  the Company  believes its most  reasonably  likely worst
         case  scenario  is that  key  customers  could  experience  significant
         reductions  in their  power  needs due to their  own Year 2000  issues.
         Although  the  Company does not believe that this  scenario will occur,
         it has  assessed  the  effect  of  such a  scenario  by  using  current
         financial data. In the event that this scenario does occur, the Company
         does not expect  that it would have a  material  adverse  affect on the
         Company's financial position and results of operations.

         The Company  believes a more likely scenario is a temporary  disruption
         of service to its electric customers, including the effect of cascading
         disruptions  caused by other  entities  whose  electrical  systems  are
         connected to the  Company's.  The Company has assessed the risk of this
         scenario,  and believes that its  contingency  plans would mitigate the
         long-term  effect of such a  scenario.  In the event  that a  temporary
         disruption does occur, the Company does not expect that it would have a
         material  adverse  affect on its  financial  position  and  results  of
         operations.

         Contingency Plans
         -----------------
         Contingency  plans  will be  prepared  so that the  Company's  critical
         business  processes  can be expected to continue to function on January
         1, 2000 and beyond. The Company's  contingency plans will be structured
         to address both remediation of systems and their components and overall
         business  operating  risk.  These plans are  intended to mitigate  both
         internal  risks as well as  potential  risks in the supply chain of the
         Company's suppliers and customers.

         One of the Company's emergency contingency plans specifically addresses
         emergency  scenarios  that  may  arise  due to the fact  that  electric
         utility  systems  throughout the southeast  region of the United States
         are  interconnected.  The Company has been  working  actively  with the
         North  American  Electric  Reliability  Council  and  the  Southeastern
         Electric  Reliability  Council  to address  the issue of  overall  grid
         reliability and protection.  The Company has the ability to isolate its
         transmission  system either  automatically  or manually to mitigate the
         risk of cascading regional failures.  The Company's emergency readiness
         contingency plan includes the performance of regular training exercises
         that include simulated disaster recovery scenarios. As part of its Year
         2000  contingency  planning,  the  Company  will  review  its  disaster
         recovery  scenarios to identify those that can be used specifically for
         Year 2000 readiness training.

         New Accounting Standards
         ------------------------
         In June 1998, the Financial Accounting Standards Board issued Statement
         of  Financial  Accounting  Standards  (SFAS) No. 133,  "Accounting  for
         Derivative  Instruments  and  Hedging  Activities",  effective  for all
         fiscal quarters of fiscal years beginning after June 15, 1999. SFAS No.
         133  establishes  accounting  and reporting  standards  for  derivative
         instruments, including certain derivative instruments embedded in other
         contracts,  and for hedging activities.  It requires the recognition of
         all derivative instruments as assets or liabilities in the statement of
         financial  position and measurement of those instruments at fair value.
         The  accounting  treatment of changes in fair value is  dependent  upon
         whether or not an  instrument  is designated as a hedge and, if so, the
         type of hedge.  The Company has not fully  analyzed the  provisions  of
         SFAS No. 133. Currently,  the Company does not have a material position
         in derivative instruments.

         Item 3.  Quantitative and Qualitative Disclosures About Market Risk
         -------  ----------------------------------------------------------
         The Company's market risk exposure has not changed  materially from the
         exposure as disclosed in the Company's 1997 Annual Report on Form 10-K.

<PAGE>

                           PART II. OTHER INFORMATION

         Item 1.  Legal Proceedings
         -------  -----------------
         Legal aspects of certain matters are set forth in Part I, Item 1, Notes
         3 and 4 of the Company's financial statements.

         Item 2.  Changes in Securities and Use of Proceeds
         -------  -----------------------------------------
         ACQUISITION OF INTELLIGENT SOLUTIONS, INC.:

         (a)  Securities  Delivered.  Pursuant  to an asset  purchase  agreement
              ----------------------
              dated  June 18,  1998,  on June 29,  1998,  12,351  shares  of the
              Company's  common stock  (Common  Shares)  that had been  recently
              purchased  in  the  open  market  by  the  Company's  wholly-owned
              subsidiary,  Strategic  Resource Solutions Corp., a North Carolina
              Enterprise Corporation (SRS), were delivered by SRS as part of the
              consideration  for the purchase of certain  assets of  Intelligent
              Solutions,  Inc., a Nevada  corporation,  (ISI). All Common Shares
              delivered by SRS pursuant to the ISI asset purchase agreement were
              acquired in market transactions, and do not represent newly-issued
              shares of the Company.

         (b)  Underwriters and Other  Purchasers.  No underwriters  were used in
              -----------------------------------
              connection with the  transactions  identified  above.  ISI was the
              only recipient of the Common Shares.

         (c)  Consideration.  The  consideration  for the Common  Shares was the
              --------------
              delivery of certain  assets of ISI pursuant to the asset  purchase
              agreement.

         (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. The
              Common Shares were received by one  corporation and are subject to
              restrictions on resale typical for private placements. Appropriate
              disclosure was made to the recipient of the Common Shares.

         RESTRICTED STOCK AWARDS:

         (a)  Securities  Delivered.  On June 1, 1998 and August 3, 1998, 18,300
              ----------------------
              shares and 19,900 shares,  respectively,  of the Company's  Common
              Shares were  delivered  to certain key  employees  pursuant to the
              terms of the Company's 1997 Equity  Incentive  Plan (Plan),  which
              was approved by the Company's shareholders on May 7, 1997. Section
              9 of the Plan provides for the granting of Restricted Stock by the
              Personnel,  Executive Development and Compensation  Committee (now
              known as the  Committee on  Organization  and  Compensation,  (the
              Committee)  to key  employees  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, in the opinion of the Committee,  can
              contribute  significantly to the growth and  profitability  of, or
              perform services of major importance to, the Company.

         (c)  Consideration.  The Common  Shares  were  delivered  to provide an
              --------------
              incentive to each employee  recipient to exert his 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 was held on May 13, 1998.

         (b)  The  meeting  involved  the  election  of one Class II director to
              serve a two-year  term and three Class III  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 II                           Votes For            Votes Withheld
          --------                           ---------            --------------
          (Term Expiring in 2000)
          Walter Y. Elisha                   127,501,932               2,500,560

          Class III                          Votes For            Votes Withheld
          --------                           ---------            --------------
          (Terms Expiring in 2001)
          William Cavanaugh III              126,403,489               3,599,003
          Charles W. Coker                   127,699,024               2,303,467
          Estell C. Lee                      127,654,798               2,347,694

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

      (a)       See EXHIBIT INDEX

      (b)       Reports on Form 8-K filed during or with respect to the quarter:

                NONE


<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.


                                        CAROLINA POWER & LIGHT COMPANY
                                        ------------------------------
                                                 (Registrant)


                                        By    /s/     Glenn E. Harder
                                            --------------------------------- 
                                                      Glenn E. Harder
                                                Executive Vice President and
                                                   Chief Financial Officer
                                                (Principal Financial Officer)


                                        By    /s/     Bonnie V. Hancock
                                            ---------------------------------
                                                      Bonnie V. Hancock
                                                Vice President and Controller
                                                  (Chief Accounting Officer)





Date:     August 12, 1998





<PAGE>


                                  EXHIBIT INDEX


         Exhibit Number                            Description

                  10(a)            Resolutions of Board of Directors  dated July
                                   17, 1998, amending the Supplemental Executive
                                   Retirement  Plan  of  Carolina  Power & Light
                                   Company, effective January 1, 1999.

                  10(b)            Amended  Management  Incentive   Compensation
                                   Program of  Carolina  Power & Light  Company,
                                   effective  January 1, 1999, as amended by the
                                   Organization  and  Compensation  Committee of
                                   the Board of Directors on July 17, 1998.

                    27             Financial Data Schedule