<PAGE>

                                 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, 2001
                                                -------------

                                       OR

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

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


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

        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
</TABLE>


                                      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     .
                                                        ---     ----

     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.

                     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, 2001,
     each registrant had the following shares of common stock outstanding

<TABLE>
<CAPTION>
                  Registrant                             Description                                      Shares
                  ----------                             -----------                                      ------
<S>                                             <C>                                         <C>
Progress Energy, Inc.                           Common Stock (Without Par Value)                        206,089,274
Carolina Power & Light Company                  Common Stock (Without Par Value)              159,608,055 (all of which were
                                                                                              held by Progress Energy, Inc.)
</TABLE>

<PAGE>

            PROGRESS ENERGY, INC. AND CAROLINA POWER & LIGHT COMPANY
                FORM 10-Q - For the Quarter Ended June 30, 2001



     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>
<CAPTION>
TERM                                   DEFINITION
<S>                          <C>

APEC                         Albemarle-Pamlico Economic Development Corporation
Code                         Internal Revenue Service Code
CP&L                         Carolina Power & Light Company
CP&L Energy                  CP&L Energy, Inc., now known as Progress Energy, Inc.
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
Electric Fuels               Electric Fuels Corporation
EasternNC                    Eastern North Carolina Natural Gas Company
Energy Ventures              Business segment of Progress Energy primarily made up of merchant energy
                             generation, coal and synthetic fuel operations and energy marketing and
                             trading
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 principles generally accepted in the United States of America
 accounting principles
IRS                          Internal Revenue Service
kWh                          kilowatt-hour
MGP                          Manufactured Gas Plant
Monroe Power                 Monroe Power Company
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
NSP                          Northern States Power
PLRs                         Private Letter Rulings
Progress Energy              Progress Energy, Inc. and subsidiaries
Progress Rail                Progress Rail Services Corporation
Progress Telecom             Progress Telecommunications Corporation
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
SFAS No. 133                 Statement of Financial Accounting Standards No. 133, Accounting for
                             Derivative and Hedging Activities
SFAS No. 138                 Statement of Financial Accounting Standards No. 138, Accounting for Certain
                             Derivative Instruments and Certain Hedging Activities - an Amendment of
                             SFAS No. 133
SRS                          Strategic Resource Solutions Corp.
</TABLE>

                                       3

<PAGE>

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

Statements made throughout this Form 10-Q that are not statements of historical
facts are forward-looking statements 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.

For example, forward-looking statements are made 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 Progress Energy 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 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 that may impact the speed and degree of
the restructuring of the electricity industry and the results of negotiations
related to the expiration of Florida Power's rate stipulation; the outcome of
legal and administrative proceedings, including proceedings before our principal
regulators; risks associated with operating nuclear power facilities,
availability of nuclear waste storage facilities, and nuclear decommissioning
costs; changes in the economy of areas served by CP&L, Florida Progress 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, 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 acquisition of Florida Progress Corporation and successfully
integrate it with the remainder of our business; the extent to which we are able
to realize the potential benefits of the conversion of Carolina Power & Light
Company to a non-regulated holding company structure and the success of our
direct and indirect subsidiaries; the extent to which we are able 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. 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.

                                       4

<PAGE>

                        PART I.  FINANCIAL INFORMATION


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

                             Progress Energy, Inc.
                   CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                  (Unaudited)
                                 June 30, 2001


STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                Three Months Ended            Six Months Ended
                                                                     June 30,                     June 30,
(In thousands except per share amounts)                          2001         2000           2001           2000
--------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>          <C>            <C>
Operating Revenues
  Electric                                                   $  1,565,947   $  773,914   $  3,197,994   $  1,555,300
  Natural gas                                                      68,575       75,350        207,149        147,448
  Diversified businesses                                          681,121       38,484        818,591         63,618
--------------------------------------------------------------------------------------------------------------------
       Total Operating Revenues                                 2,315,643      887,748      4,223,734      1,766,366
--------------------------------------------------------------------------------------------------------------------
Operating Expenses
  Fuel used in electric generation                                378,288      137,001        748,144        297,388
  Purchased power                                                 211,876       85,067        429,424        155,326
 Gas purchased for resale                                          57,184       59,836        166,778        103,734
  Other operation and maintenance                                 304,400      164,989        599,497        363,216
  Depreciation and amortization                                   264,131      136,949        580,920        274,720
  Taxes other than on income                                       93,945       35,511        193,592         72,845
  Diversified businesses                                          721,744       58,767        911,447        102,922
--------------------------------------------------------------------------------------------------------------------
      Total Operating Expenses                                  2,031,568      678,120      3,629,802      1,370,151
--------------------------------------------------------------------------------------------------------------------
Operating Income                                                  284,075      209,628        593,932        396,215
--------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
  Interest income                                                   7,172        2,048         17,114          5,311
  Other, net                                                      (13,102)        (975)       (10,180)         1,101
--------------------------------------------------------------------------------------------------------------------
      Total Other Income (Expense)                                 (5,930)       1,073          6,934          6,412
--------------------------------------------------------------------------------------------------------------------
Interest Charges
  Long-term debt                                                  156,063       54,851        282,506        104,923
  Other interest charges                                           37,950        4,279         74,652          9,280
  Allowance for borrowed funds used during construction            (1,873)      (6,323)        (5,353)       (10,929)
--------------------------------------------------------------------------------------------------------------------
      Net Interest Charges                                        192,140       52,807        351,805        103,274
--------------------------------------------------------------------------------------------------------------------
Income before Income Taxes                                         86,005      157,894        249,061        299,353
Income Taxes                                                      (25,697)      50,434        (16,644)       106,632
--------------------------------------------------------------------------------------------------------------------
Net Income                                                   $    111,702   $  107,460   $    265,705   $    192,721
--------------------------------------------------------------------------------------------------------------------

Average Common Shares Outstanding                                 200,043      153,311        199,922        153,183
Basic Earnings per Common Share                              $       0.56   $     0.70   $       1.33   $       1.26
Diluted Earnings per Common Share                            $       0.56   $     0.70   $       1.32   $       1.26
Dividends Declared per Common Share                          $      0.530   $    0.515   $      1.060   $      1.030
--------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.

                                       5

<PAGE>

<TABLE>
<CAPTION>
Progress Energy, Inc
BALANCE SHEETS
(In thousands)                                                                             June 30,       December 31,
Assets                                                                                       2001             2000
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>               <C>
Utility Plant
  Electric utility plant in service                                                    $  18,716,993     $    18,124,036
  Gas utility plant in service                                                               483,538             378,464
  Accumulated depreciation                                                                (9,761,687)         (9,350,172)
------------------------------------------------------------------------------------------------------------------------
        Utility plant in service, net                                                      9,438,844           9,152,328
  Held for future use                                                                         15,380              16,302
  Construction work in progress                                                              851,412           1,043,376
  Nuclear fuel, net of amortization                                                          243,816             224,692
------------------------------------------------------------------------------------------------------------------------
        Total Utility Plant, Net                                                          10,549,452          10,436,698
------------------------------------------------------------------------------------------------------------------------
Current Assets
  Cash and cash equivalents                                                                   73,667             101,296
  Accounts receivable                                                                        992,059             925,911
  Inventory                                                                                  771,479             420,985
  Deferred fuel cost                                                                         214,021             217,806
  Prepayments                                                                                 17,304              50,040
  Assets held for sale, net                                                                    2,504             747,745
  Other current assets                                                                       191,927             192,347
------------------------------------------------------------------------------------------------------------------------
        Total Current Assets                                                               2,262,961           2,656,130
------------------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
  Income taxes recoverable through future rates                                              238,876             228,686
  Deferred purchased power contract termination costs                                        148,757             226,656
  Harris Plant deferred costs                                                                 38,796              44,813
  Unamortized debt expense                                                                    39,597              38,771
  Nuclear decommissioning trust funds                                                        824,854             811,998
  Diversified business property, net                                                       1,074,653             720,231
  Miscellaneous other property and investments                                               608,170             636,677
  Goodwill, net                                                                            3,779,868           3,652,429
  Other assets and deferred debits                                                           669,705             657,612
------------------------------------------------------------------------------------------------------------------------
        Total Deferred Debits and Other Assets                                             7,423,276           7,017,873
------------------------------------------------------------------------------------------------------------------------
           Total Assets                                                                $  20,235,689     $    20,110,701
------------------------------------------------------------------------------------------------------------------------

Capitalization and Liabilities
------------------------------------------------------------------------------------------------------------------------
Capitalization
------------------------------------------------------------------------------------------------------------------------
  Common stock equity                                                                  $   5,459,040     $     5,424,201
  Preferred stock of subsidiaries-not subject to mandatory redemption                         92,831              92,831
  Long-term debt, net                                                                      9,413,639           5,890,099
------------------------------------------------------------------------------------------------------------------------
        Total Capitalization                                                              14,965,510          11,407,131
------------------------------------------------------------------------------------------------------------------------
Current Liabilities
  Current portion of long-term debt                                                          209,550             184,037
  Accounts payable                                                                           618,098             828,568
  Interest accrued                                                                           204,670             121,433
  Dividends declared                                                                         107,886             107,645
  Short-term obligations                                                                     744,458           3,972,674
  Other current liabilities                                                                  571,052             448,302
------------------------------------------------------------------------------------------------------------------------
        Total Current Liabilities                                                          2,455,714           5,662,659
------------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
  Accumulated deferred income taxes                                                        1,680,446           1,807,192
  Accumulated deferred investment tax credits                                                236,051             261,255
  Other liabilities and deferred credits                                                     897,968             972,464
------------------------------------------------------------------------------------------------------------------------
        Total Deferred Credits and Other Liabilities                                       2,814,465           3,040,911
------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 10)
------------------------------------------------------------------------------------------------------------------------
         Total Capitalization and Liabilities                                          $  20,235,689     $    20,110,701
------------------------------------------------------------------------------------------------------------------------
SCHEDULES OF COMMON STOCK EQUITY
(In thousands except share data)
  Common stock (without par value, authorized 500,000,000, issued and outstanding      $   3,614,279     $     3,608,902
                     206,089,274 and 206,089,047 shares, respectively)
  Unearned ESOP common stock                                                                (117,268)           (127,211)
  Accumulated other comprehensive loss                                                       (34,214)                  -
  Retained earnings                                                                        1,996,243           1,942,510
------------------------------------------------------------------------------------------------------------------------
         Total Common Stock Equity                                                     $   5,459,040     $     5,424,201
------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.

                                       6

<PAGE>

<TABLE>
<CAPTION>

Progress Energy, Inc.
STATEMENTS OF CASH FLOWS                                                            Six Months Ended
                                                                                         June 30,
(In thousands)                                                                     2001            2000
----------------------------------------------------------------------------------------------------------
<S>                                                                          <C>               <C>
Operating Activities
 Net income                                                                   $    265,705      $  192,721
 Adjustments to reconcile net income to net cash provided by
 operating activities
  Depreciation and amortization                                                    628,437         316,914
  Deferred income taxes                                                            (31,904)        (51,106)
  Investment tax credit                                                            (13,216)         (5,198)
  Deferred fuel cost (credit)                                                        5,014         (12,555)
  Net (increase) decrease in accounts receivable                                   105,763         (53,134)
  Net increase in inventories                                                     (177,027)        (25,350)
  Net decrease in prepaids and other current assets                                 39,040          82,283
  Net decrease in accounts payable                                                (217,139)         (9,087)
  Net increase in other current liabilities                                        125,134          83,103
  Other                                                                             12,653          61,529
----------------------------------------------------------------------------------------------------------
   Net Cash Provided by Operating Activities                                       742,460         580,120
----------------------------------------------------------------------------------------------------------

Investing Activities
 Gross property additions                                                         (542,798)       (418,321)
 Proceeds from sale of asset                                                         5,532               -
 Nuclear fuel additions                                                            (78,871)        (47,329)
 Contributions to nuclear decommissioning trust                                    (27,883)        (17,979)
 Increase in cash restricted for redemption of long-term debt                            -         (59,079)
 Net cash flow of company-owned life insurance program                              (6,098)         (4,963)
 Diversified business property additions                                          (120,393)        (33,468)
 Investments in non-utility activities                                              11,598         (28,018)
----------------------------------------------------------------------------------------------------------
   Net Cash Used in Investing Activities                                          (758,913)       (609,157)
----------------------------------------------------------------------------------------------------------

Financing Activities
 Proceeds from issuance of long-term debt                                        3,473,300         417,383
 Net decrease in short-term indebtedness                                        (3,125,695)        (57,600)
 Net increase (decrease) in outstanding payments                                   (64,774)         41,620
 Retirement of long-term debt                                                      (33,914)       (264,717)
 Dividends paid on common stock                                                   (212,506)       (158,056)
 Other                                                                             (47,587)              -
----------------------------------------------------------------------------------------------------------
   Net Cash Used in Financing Activities                                           (11,176)        (21,370)
----------------------------------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents                                          (27,629)        (50,407)
Cash and Cash Equivalents at Beginning of the Period                               101,296          79,871
----------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period                                $     73,667      $   29,464
----------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period - interest                                        $    265,462      $   96,864
    income taxes                                                              $     40,878      $  111,866
----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.

                                       7

<PAGE>

<TABLE>
<CAPTION>
Progress Energy, Inc.
SUPPLEMENTAL  DATA                                             Three Months Ended                      Six Months Ended
                                                                    June 30                                June 30
                                                                 2001        2000 (a)                  2001         2000 (a)
------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                  <C>               <C>                 <C>
Operating Revenues (in thousands)
Electric
  Retail                                               $    1,295,650     $    597,702       $    2,622,453     $    1,232,471
  Wholesale                                                   214,908          133,725              475,555            265,600
  Unbilled                                                     15,099           25,029              (46,780)            24,221
  Miscellaneous revenue                                        40,290           17,458              146,766             33,008
------------------------------------------------------------------------------------------------------------------------------
     Total Electric                                         1,565,947          773,914            3,197,994          1,555,300
Natural gas                                                    68,575           75,350              207,149            147,448
Diversified businesses                                        681,121           38,484              818,591             63,618
------------------------------------------------------------------------------------------------------------------------------
       Total Operating Revenues                        $    2,315,643     $    887,748       $    4,223,734     $    1,766,366
------------------------------------------------------------------------------------------------------------------------------
Energy Sales
Electric (millions of kWh)
 Retail
   Residential                                                  7,204            3,023               15,926              6,951
   Commercial                                                   5,682            2,803               10,956              5,359
   Industrial                                                   4,401            3,676                8,594              7,077
   Other retail                                                 1,007              323                1,970                663
------------------------------------------------------------------------------------------------------------------------------
      Total Retail                                             18,294            9,825               37,446             20,050
 Unbilled                                                         624              425                 (543)               361
 Wholesale                                                      4,080            3,287                8,859              7,004
------------------------------------------------------------------------------------------------------------------------------
    Total Electric                                             22,998           13,537               45,762             27,415
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Natural Gas (thousands of  dt)                                 11,096           13,497               25,942             30,841
------------------------------------------------------------------------------------------------------------------------------
Energy Supply (millions of kWh)
 Generated - steam                                             11,877            6,885               23,791             14,345
         nuclear                                                6,813            5,433               13,950             11,097
         hydro                                                     64              157                  117                333
         combustion turbines                                    1,672              282                2,809                316
 Purchased                                                      3,711            1,299                7,385              2,331
------------------------------------------------------------------------------------------------------------------------------
       Total Energy Supply (Company Share)                     24,137           14,056               48,052             28,422
------------------------------------------------------------------------------------------------------------------------------
Detail of Income Taxes (in thousands)
  Income tax expense (credit) - current                $       (6,730)    $     73,099       $       28,475     $      162,936
          Deferred                                            (12,723)         (20,066)             (31,904)           (51,106)
          investment tax credit                                (6,244)          (2,599)             (13,215)            (5,198)
------------------------------------------------------------------------------------------------------------------------------
        Total Income Tax Expense                       $      (25,697)    $     50,434       $      (16,644)    $      106,632
------------------------------------------------------------------------------------------------------------------------------
(a) Supplemental data does not include information related to Florida Progress for the three and six months ended June 30, 2000.
</TABLE>

                                       8

<PAGE>

Progress Energy, Inc.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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

A.  Organization. Progress Energy, Inc. (Progress Energy) is a registered
    ------------
    holding company under the Public Utility Holding Company Act of 1935, as
    amended (PUHCA). Both Progress Energy and its subsidiaries are subject to
    the regulatory provisions of the PUHCA. Progress Energy was formed as a
    result of the reorganization of Carolina Power & Light Company (CP&L) into a
    holding company structure on June 19, 2000. All shares of common stock of
    CP&L were exchanged for an equal number of shares of CP&L Energy, Inc (CP&L
    Energy). On December 4, 2000, CP&L Energy changed its name to Progress
    Energy, Inc. Through its wholly-owned regulated subsidiaries, CP&L, Florida
    Power Corporation (Florida Power) and North Carolina Natural Gas Corporation
    (NCNG), Progress Energy 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 Energy
    Ventures business segment, Progress Energy is involved in merchant energy
    generation, coal and synthetic fuel operations and energy marketing and
    trading. Through other business units, Progress Energy engages in other non-
    regulated business areas, including energy management and related services,
    railcar operations and telecommunications. Progress Energy's legal structure
    is not currently aligned with the functional management and financial
    reporting of the Energy Ventures business segment. Whether, and when, the
    legal and functional structures will converge depends upon legislative and
    regulatory action, which cannot currently be anticipated.

B.  Basis of Presentation. These financial statements have been prepared in
    ---------------------
    accordance with accounting principles generally accepted in the United
    States of America (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, 2000
    and notes thereto included in Progress Energy's Form 10-K for the year ended
    December 31, 2000.

    The amounts included in the consolidated interim financial statements are
    unaudited but, in the opinion of management, reflect all adjustments
    necessary to fairly present Progress Energy'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 2000 have been reclassified to conform to the 2001 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.  FLORIDA PROGRESS CORPORATION
    ----------------------------

    On November 30, 2000, Progress Energy completed its acquisition of Florida
    Progress Corporation (FPC) for an aggregate purchase price of approximately
    $5.4 billion. Progress Energy paid cash consideration of approximately $3.5
    billion and issued approximately 46.5 million common shares valued at
    approximately $1.9 billion. In addition, Progress Energy issued 98.6 million
    contingent value obligations (CVOs) valued at approximately $49.3 million.
    At June 30, 2001, the CVOs had a fair market value of approximately $49.3
    million. Charges of $5.9 million and $8.9 million were recorded by Progress
    Energy for the three and six-month periods ended June 30, 2001 to record
    the change in fair value of the CVO's. The purchase price includes
    approximately $18.6 million in direct transaction costs.

    The acquisition has been accounted for using the purchase method of
    accounting and, accordingly, the results of operations for FPC have been
    included in Progress Energy's consolidated financial statements since the
    date of acquisition. The excess of the purchase price over the estimated
    fair value of the net identifiable assets

                                       9

<PAGE>

    and liabilities acquired has been recorded as goodwill. The goodwill,
    approximately $3.6 billion, is being amortized on a straight-line basis over
    a period of primarily 40 years (See Note 5).

    The fair values of FPC's rate-regulated net assets acquired were considered
    to be equivalent to book value since book value represents the amount that
    is expected to be recoverable through regulated rates. The original
    allocation of the purchase price included estimated amounts expected to be
    realized from the sale of FPC's Rail Services and Inland Marine
    Transportation business segments, which were originally classified as net
    assets held for sale. Progress Energy no longer intends to sell Rail
    Services within one year of the acquisition date and, therefore, these
    assets no longer qualify as net assets held for sale. Accordingly, during
    the quarter ended June 30, 2001, Progress Energy removed amounts related to
    Rail Services from net assets held for sale resulting in an adjustment to
    the purchase price allocation (See Note 3).

    Progress Energy began the implementation of a plan to combine operations of
    the companies resulting in a non-executive involuntary termination cost
    accrual of approximately $52.2 million. Approximately $41.8 million is
    attributable to Florida Power employees and has been reflected as part of
    the purchase price allocation, while approximately $10.4 million
    attributable to acquiring company employees and was charged to operating
    results in 2000. Progress Energy completed the implementation phase of the
    plan in June 2001 and expects to finalize the plan by the end of 2001. The
    majority of the related severance payments are expected to occur in 2001
    with the remaining payments occurring through 2003.

    The second quarter activity for the termination costs is detailed in the
table below:

                                                   Non-Executive
    (In millions)                                Termination Costs
                                                 -----------------

    Balance at March 31, 2001                          $38.6
    Payments                                            (4.1)
                                                 -----------------
    Balance at June 30, 2001                           $34.5
                                                 =================


    The final purchase price allocation and estimated life of goodwill are
    subject to adjustment for changes in Progress Energy's preliminary
    assumptions and analyses, pending additional information concerning asset
    and liability valuations and the evaluation of certain pre-acquisition
    contingent liabilities, including but not limited to:

    .  final actuarial valuations of pension and other postretirement benefit
       plan obligations
    .  proceeds realized from the disposition of assets held for sale; and
    .  valuations of non-regulated businesses and individual assets and
       liabilities

   The following unaudited pro forma combined results of operations for the
   three and six months ended June 30, 2000, has been prepared assuming the
   acquisition of FPC had occurred on January 1, 2000. The pro forma results
   include the effect of including FPC's Rail Services segment in operations.
   The pro forma results are provided for information purposes only. The results
   are not necessarily indicative of the actual results that would have been
   realized had the acquisition occurred on the indicated date, nor are they
   necessarily indicative of future results of operations of the combined
   companies.

<TABLE>
<CAPTION>

(in thousands, except per share data)                 Three Months Ended         Six Months Ended
                                                         June 30, 2000            June 30, 2000
                                                         -------------            -------------
<S>                                              <C>                      <C>
Revenues                                                      $2,171,343               $3,762,808
Net income                                                    $  155,021               $  261,505
Basic earnings per share                                      $     0.78               $     1.31
Average shares - basic                                           199,803                  199,674
Diluted earnings per share                                    $     0.77               $     1.31
Average shares - diluted                                         200,203                  200,044
</TABLE>

3. NET ASSETS HELD FOR SALE
   ------------------------

   FPC's Inland Marine Transportation business segment is included in Progress
   Energy's net assets held for sale. Inland Marine Transportation provides
   transportation of coal, agriculture and other dry-bulk commodities as well as
   fleet management services. On July 23, 2001, Progress Energy announced that
   it had entered into a contract to sell the Inland Marine Transportation
   business

                                       10

<PAGE>

   segment to AEP Resources, Inc., a wholly owned subsidiary of American
   Electric Power, for a purchase price of $270 million. Of the $270 million
   purchase price, approximately $210 million will be used for the early
   termination of certain off-balance sheet arrangements for assets currently
   leased by the segment. The remaining proceeds, after disposition costs, will
   be used to pay down indebtedness. The transaction is expected to close by the
   end of September 2001. Progress Energy has adjusted the amount of purchase
   price allocable to the Inland Marine Transportation business segment,
   resulting in a decrease in net assets held for sale.

   Progress Energy had originally included FPC's Rail Services business segment
   in net assets held for sale. Rail Services' operations include railcar
   repair, rail parts reconditioning and sales, scrap metal recycling and other
   rail related services. Progress Energy no longer intends to sell Progress
   Rail within one year of the acquisition date and, therefore, these assets no
   longer qualify as net assets held for sale. During the quarter ended June 30,
   2001, Progress Energy recorded an after-tax charge of $10.1 million
   reflecting the reallocation of the purchase price and the reversal of the
   effect of net assets held for sale accounting. Progress Rail's operations
   will be included in Progress Energy's consolidated results of operations in
   the future.

   Progress Energy's results of operations for the three and six months ended
   June 30, 2001, exclude net income of $2.3 million and $2.7 million,
   respectively, from the Inland Marine Transportation business and allocated
   interest expense, net of tax, for the three and six months totaling
   approximately $1.2 million and $3.2 million, respectively. Both the expected
   earnings from this business and allocated interest expense, net of tax,
   during the holding period on the incremental debt incurred to finance the
   purchase of this business segments has been included in the determination of
   net assets held for sale.

   The table below reflects the adjustments to the carrying value of the net
   assets held for sale for the three months ended June 30, 2001:

<TABLE>
<CAPTION>
(in thousands)
-----------------------------------------------------------------------------------------
<S>                                                                             <C>
Carrying value at March 31, 2001                                                $ 782,763
   Adjustment to reclassify Rail Services to operating assets                    (712,522)
   Interest allocated, net of tax                                                     747
   Cash flows funded by parent                                                    (12,484)
   Adjustment to Inland Marine carrying value                                     (56,000)
-----------------------------------------------------------------------------------------
Carrying value at June 30, 2001                                                 $   2,504
</TABLE>

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

   Effective with the acquisition of FPC on November 30, 2000, Progress Energy
   changed the basis of segment reporting and measurement of segment
   profitability beginning with the fourth quarter of 2000. Prior periods have
   been restated to reflect this change. Progress Energy currently provides
   services through the following business segments: CP&L Electric, Florida
   Power Electric, Natural Gas, Energy Ventures, Rail Services and Other.
   Progress Energy changed its basis of segment reporting in the second quarter
   of 2001 to include the energy marketing and trading activities performed by
   Energy Ventures on behalf of CP&L and Florida Power in the Energy Ventures
   segment.

   FPC operations are not included in Progress Energy's results of operations
   prior to the acquisition date of November 30, 2000.

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

   The Natural Gas segment is engaged in the transportation, distribution and
   sale of gas in portions of North Carolina. Gas operations are subject to the
   rules and regulations of the NCUC.

   The Energy Ventures segment is primarily made up of merchant energy
   generation, coal and synthetic fuel operations, and energy marketing and
   trading. The energy marketing and trading activity is currently performed by
   Energy Ventures on behalf of the regulated utilities, CP&L and Florida Power,
   and includes wholesale sales on

                                       11

<PAGE>

   behalf of these utilities. Electric wholesale operations are subject to the
   rules and regulations of FERC, the NCUC, the SCPSC and the FPSC.

   The Rail Services segment operations include railcar repair, rail parts
   reconditioning and sales, railcar leasing and sales, providing rail and track
   material, and scrap metal recycling.

   The Other segment is primarily made up of other diversified businesses and
   holding company operations. The Other segment includes telecommunication
   services, energy management services and miscellaneous non-regulated
   activities and elimination entries.

   For reportable segments presented in the accompanying table, segment income
   includes intersegment revenues accounted for at prices representative of
   unaffiliated party transactions.

<TABLE>
<CAPTION>
                                                    CP&L           Florida Power                      Energy
(in thousands)                                    Electric           Electric       Natural Gas      Ventures
-------------------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>                <C>                <C>
Three Months Ended 6/30/01
Revenues
  Unaffiliated                                    $  629,582         $  726,371     $ 63,904          $345,177
  Intersegment                                             -                  -        4,671           111,890
                                             ----------------------------------------------------------------------
     Total Revenues                               $  629,582         $  726,371     $ 68,575          $457,067
Segment Income (Loss)                             $   69,254         $   81,011     $ (5,246)         $ 74,333
Total Segment Assets                              $8,942,454         $4,925,985     $671,432          $795,017
===================================================================================================================

                                                    CP&L           Florida Power                      Energy
                                                  Electric           Electric       Natural Gas      Ventures
-------------------------------------------------------------------------------------------------------------------
Three Months Ended 6/30/00
Revenues
  Unaffiliated                                    $  646,470                  -     $ 72,938          $137,378
  Intersegment                                             -                  -        2,412                 -
                                             ----------------------------------------------------------------------
     Total Revenues                               $  646,470                  -     $ 75,350          $137,378
Segment Income (Loss)                             $   93,764                  -     $    124          $ 25,879
Total Segment Assets                              $8,632,699                  -     $561,680          $208,712
===================================================================================================================

                                                    CP&L           Florida Power                      Energy
                                                  Electric           Electric       Natural Gas      Ventures
-------------------------------------------------------------------------------------------------------------------
Six Months Ended 6/30/01
Revenues
  Unaffiliated                                    $1,288,433         $1,454,833     $202,260          $697,155
  Intersegment                                             -                  -        4,889           192,396
                                             ----------------------------------------------------------------------
     Total Revenues                               $1,288,433         $1,454,833     $207,149          $889,551
Segment Income (Loss)                             $  174,448         $  144,216     $  2,288          $138,050
Total Segment Assets                              $8,942,454         $4,925,985     $671,432          $795,017
===================================================================================================================
                                                   CP&L           Florida Power                      Energy
                                                  Electric           Electric       Natural Gas      Ventures
-------------------------------------------------------------------------------------------------------------------
Six Months Ended 6/30/00
Revenues
  Unaffiliated                                    $1,295,878                  -     $144,906          $269,247
  Intersegment                                             -                  -        2,542                 -
                                             ----------------------------------------------------------------------
     Total Revenues                               $1,295,878                  -     $147,448          $269,247
Segment Income (Loss)                             $  170,025                  -     $  8,924          $ 39,811
Total Segment Assets                              $8,632,699                  -     $561,680          $208,712
===================================================================================================================

<CAPTION>
                                                   Rail                    Segment
(in thousands)                                  Services(a)     Other       Totals
------------------------------------------------------------------------------------
<S>                                             <C>         <C>          <C>
Three Months Ended 6/30/01
Revenues
  Unaffiliated                                   $520,308   $   25,630   $ 2,310,972
  Intersegment                                        625     (112,515)        4,671
                                             ---------------------------------------
     Total Revenues                              $520,933   $  (86,885)  $ 2,315,643
Segment Income (Loss)                            $ (7,533)  $ (100,117)  $   111,702
Total Segment Assets                             $802,536   $4,098,265   $20,235,689
====================================================================================

                                                   Rail                    Segment
                                                 Services       Other       Totals
------------------------------------------------------------------------------------
Three Months Ended 6/30/00
Revenues
  Unaffiliated                                          -   $   28,550   $   885,336
  Intersegment                                          -            -         2,412
                                             ---------------------------------------
     Total Revenues                                     -   $   28,550   $   887,748
Segment Income (Loss)                                   -   $  (12,307)  $   107,460
Total Segment Assets                                    -   $  368,555   $ 9,771,646
====================================================================================

                                                   Rail                    Segment
                                                 Services(a)    Other       Totals
------------------------------------------------------------------------------------
Six Months Ended 6/30/01
Revenues
  Unaffiliated                                   $520,308   $   55,856   $ 4,218,845
  Intersegment                                        625     (193,021)        4,889
                                             ---------------------------------------
     Total Revenues                              $520,933   $ (137,165)  $ 4,223,734
Segment Income (Loss)                            $ (7,533)  $ (185,764)  $   265,705
Total Segment Assets                             $802,536   $4,098,265   $20,235,689
====================================================================================
                                                   Rail                    Segment
                                                 Services       Other       Totals
------------------------------------------------------------------------------------
Six Months Ended 6/30/00
Revenues
  Unaffiliated                                          -   $   53,793   $ 1,763,824
  Intersegment                                          -            -         2,542
                                             ---------------------------------------
     Total Revenues                                     -   $   53,793   $ 1,766,366
Segment Income (Loss)                                   -   $  (26,039)  $   192,721
Total Segment Assets                                    -   $  368,555   $ 9,771,646
====================================================================================
</TABLE>

(a)  Amounts reflect cumulative operating results of Rail Services since the
     acquisition date of November 30, 2000 (See Note 3)

5. IMPACT OF NEW ACCOUNTING STANDARDS
   ----------------------------------

   Effective January 1, 2001, Progress Energy adopted Statement of Financial
   Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments
   and Hedging Activities", as amended by SFAS No. 138. SFAS No. 133, as
   amended, establishes accounting and reporting standards for derivative
   instruments, including certain derivative instruments embedded in other
   contracts, and for hedging activities. SFAS No. 133 requires that an entity
   recognize all derivatives as assets or liabilities in the consolidated
   balance sheet and measure those instruments at fair value.

                                       12

<PAGE>

     As a result of the adoption of SFAS No. 133, Progress Energy recorded a
     transition adjustment as a cumulative effect of a change in accounting
     principle of $23.6 million, net of tax, which increased accumulated other
     comprehensive loss as of January 1, 2001.   This amount relates to several
     derivatives used to hedge cash flows related to interest on long-term debt.
     The net derivative losses will be reclassified into earnings consistent
     with hedge designations, primarily over the life of the related debt
     instruments, which principally range from three to ten years.  Progress
     Energy estimates that approximately $6.8 million of the $23.6 million net
     losses will be reclassified into earnings during the twelve months ended
     December 31, 2001.  There was no transition adjustment affecting the
     consolidated statement of income as a result of the adoption of SFAS No.
     133.

     During the second quarter of 2001, the Financial Accounting Standards Board
     (FASB) issued interpretations of 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.  These interpretations are effective July 1,
     2001.  Progress Energy is continuing to review contracts to determine
     whether they meet the criteria for the normal purchases and sales
     exception. If an electricity or fuel supply contract in its regulated
     businesses is subject to mark-to-market accounting, there would be no
     income statement effect of the mark to market because the contract's mark-
     to-market gain or loss will be recorded as a regulatory asset or liability.
     Any mark-to-market gains or losses in its non-regulated businesses will
     affect income unless those contracts qualify for hedge accounting
     treatment.

     The application of the new rules is still evolving, and further guidance
     from the Financial Accounting Standards Board (FASB) is expected, which
     could additionally impact Progress Energy's financial statements.

     On July 20, 2001, the FASB issued SFAS No. 141 "Business Combinations" and
     No. 142 "Goodwill and Other Intangible Assets".  SFAS No. 141 requires
     business combinations initiated after June 30, 2001 to be accounted for
     using the purchase method of accounting and clarifies the criteria for
     recording of other intangible assets separately from goodwill.  SFAS No.
     142 requires that, effective January 1, 2002, Progress Energy cease
     amortization of goodwill.  It also requires Progress Energy to evaluate
     goodwill for impairment at least annually, which could result in periodic
     impairment charges.  Goodwill amortization was $24.8 million and $47.6
     million for the three and six months ended June 30, 2001, and is expected
     to be approximately $95.3 million for the year.  Progress Energy is
     currently assessing the impact adoption of these statements will have on
     the financial statements.

     In June 2001, the FASB approved the issuance of SFAS No. 143 "Accounting
     for Asset Retirement Obligations" that provides accounting guidance for the
     costs of retiring long-lived assets and is effective for fiscal years
     beginning after June 15, 2002. Progress Energy will assess the impact
     adoption of this statement will have on the financial statements once a
     final statement is issued.

6.   COMPREHENSIVE INCOME
     --------------------

     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 and six month periods consisted
     primarily of derivatives used to hedge cash flows related to interest on
     long term debt.  Prior to the adoption of SFAS No. 133 (see Note 5)
     Progress Energy had no other comprehensive income items and therefore
     comprehensive income for the three and six months ended June 30, 2000 is
     equal to net income for those periods.

7.   FINANCING ACTIVITIES
     --------------------

     On February 22, 2001, Progress Energy issued $3.2 billion of senior
     unsecured notes with maturities ranging from three to thirty years.
     Proceeds from this issuance were primarily used to retire short-term
     obligations issued in connection with the FPC acquisition. Additionally, as
     part of this transaction, Progress Energy terminated the $1.125 billion
     notional amount of interest rate forward contracts that were issued in
     anticipation of the debt issuance.  Progress Energy recognized a $45.3
     million loss on these contracts, designated as cash flow hedges, that is
     deferred through accumulated other comprehensive loss and amortized over
     the life of the associated debt instruments.

     On April 9, 2001, CP&L issued $300 million of Medium-Term Notes, 6.65%
     Series D due April 1, 2008. Proceeds from the issuance were primarily used
     to retire commercial paper.

                                       13

<PAGE>

     On July 18, 2001, Florida Power issued $300 million of First Mortgage
     Bonds, 6.65% Series due July 15, 2011.  Proceeds from the issuance were
     primarily used to retire commercial paper.

     On August 6, 2001, Progress Energy announced its plans to sell
     approximately 11 million shares of common stock to complete the financing
     of the Florida Progress acquisition.  The offering is expected to conclude
     in mid-August.

8.   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 and
     increased the weighted-average number of common shares outstanding for
     dilutive purposes by 676,639 and 650,645 for the three and six months ended
     June 30, 2001, respectively, and by 400,256 and 370,149 for the three and
     six months ended June 30, 2000, respectively.  The weighted-average number
     of common shares outstanding for dilutive purposes was 200.7 million and
     200.5 million for the three and six months ended June 30, 2001,
     respectively, and 153.7 million and 153.5 million for the three and six
     months ended June 30, 2000.

     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 5,330,408
     and 5,875,527 at June 30, 2001 and June 30, 2000, respectively.

9.   FPC-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES (QUIPS) OF
     ----------------------------------------------------------------------
     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 due 2039 (Preferred
     Securities), with an aggregate liquidation value of $300 million and a
     quarterly 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.

     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.

10.  COMMITMENTS AND CONTINGENCIES
     -----------------------------

     Contingencies existing as of the date of these statements are described
     below.  No significant changes have occurred since December 31, 2000, with
     respect to the commitments discussed in Note 19 of the financial statements
     included in Progress Energy's 2000 Annual Report on Form 10-K.

     Contingencies

       1) Insurance. Progress Energy is a member of Nuclear Electric Insurance
          ---------
          Limited (NEIL), which provides primary and excess insurance coverage
          against property damage to members' nuclear generating facilities.

                                       14

<PAGE>

          Under the primary program, Progress Energy is insured for $500 million
          at each of its nuclear plants. In addition to primary coverage, NEIL
          also provides decontamination, premature decommissioning and excess
          property insurance with limits of $2.0 billion on the Brunswick and
          Harris Plants, and $1.1 billion on the Robinson Plant and Crystal
          River Unit No. 3 (CR3).

          Insurance coverage against incremental costs of replacement power
          resulting from prolonged accidental outages at nuclear generating
          units is also provided through membership in NEIL. Progress Energy is
          insured thereunder, following a twelve week deductible period, for 52
          weeks in the amount of $3.5 million per week at each of the nuclear
          units. An additional 104 weeks of coverage is provided at 80% of the
          above weekly amount. For the current policy period, Progress Energy is
          subject to retrospective premium assessments of up to approximately
          $15 million with respect to the primary coverage, $16.6 million with
          respect to the decontamination, decommissioning and excess property
          coverage, and $11.3 million for the incremental replacement power
          costs coverage, in the event covered losses at insured facilities
          exceed premiums, reserves, reinsurance and other NEIL resources.
          Pursuant to regulations of the NRC, Progress Energy's property damage
          insurance policies provide that all proceeds from such insurance be
          applied, first, to place the plant in a safe and stable condition
          after an accident and, second, to decontamination costs, before any
          proceeds can be used for decommissioning, plant repair or restoration.
          Progress Energy is responsible to the extent losses may exceed limits
          of the coverage described above.

          Progress Energy is insured against public liability for a nuclear
          incident up to $9.54 billion per occurrence.  Under the provisions of
          the Price Anderson Act, which limits liability for accidents at
          nuclear power plants, Progress Energy, as an owner of nuclear plants,
          can be assessed for a portion of any third-party liability claims
          arising from an accident at any commercial nuclear power plant in the
          United States.  In the event that public liability claims from an
          insured nuclear incident exceed $200 million (currently available
          through commercial insurers), CP&L and Florida Power would be subject
          to a pro rata assessments of up to $88.1 million for each reactor
          owned per occurrence.  Payment of such assessments would be made over
          time as necessary to limit the payment in any one year to no more than
          $10 million per reactor owned.

          CP&L and Florida Power self-insure their transmission and distribution
          lines against loss due to storm damage and other natural disasters.
          Additionally, pursuant to a regulatory order, Florida Power is
          accruing $6 million annually to a storm damage reserve and may defer
          any losses in excess of the reserve.

       2) Regulatory developments. Florida Power previously operated under an
          -----------------------
          agreement committing several parties not to seek any reduction in its
          base rates or authorized return on equity.  That agreement expired on
          June 30, 2001.  On May 3, 2001, the staff of the Florida Public
          Service Commission, or FPSC, recommended that the FPSC require Florida
          Power to submit, by September 14, 2001, minimum filing requirements,
          based on a 2002 projected calendar year, to initiate a rate proceeding
          regarding its future base rates.  The FPSC staff also recommended to
          the FPSC that, pending completion of Florida Power's rate case, annual
          revenues of $114 million should be held subject to refund to its
          customers.  On June 20, 2001, the FPSC issued an order accepting its
          staff's recommendation that Florida Power be required to hold $114
          million of revenue subject to refund and to file, by September 14,
          2001, minimum filing requirements based on a projected 2002 test year.
          On July 2, 2001, Florida Power filed a request for rehearing of the
          portion of the FPSC's order requiring that it hold $114 million of
          revenues subject to refund on the grounds that the order contradicted
          FPSC precedent, was inconsistent with the applicable statutory
          requirements and violated Florida Power's due process rights.
          Also, since the FPSC's June 20, 2001 order, Florida Power has been
          working with FPSC staff and other interested parties to establish
          special procedures for the filing of the minimum filing requirements.
          Progress Energy cannot predict the outcome or impact of these matters.

       3) Claims and uncertainties.
          ------------------------

          a) Progress Energy 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

                                       15

<PAGE>

          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 Environment and Protection (DEP) and the North
          Carolina Department of Environment and Natural Resources, Division of
          Waste Management (DWM). Although Progress Energy may incur costs at
          these sites about which it has been notified, based upon current
          status of these sites, Progress Energy does not expect those costs to
          be material to its consolidated financial position or results of
          operations.

          Both electric utilities, the gas utility and Electric Fuels 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.
          Although Progress Energy's subsidiaries may incur costs at the sites
          about which they have been notified, based upon the current status of
          these sites, Progress Energy does not expect those costs to be
          material to the consolidated financial position or results of
          operations of Progress Energy.

          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 have been asked to provide
          information to the EPA as part of this initiative and have 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.
          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.  Progress Energy 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
          and South Carolina, 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 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 Progress Energy's results of
          operations.  Further controls are anticipated as electricity demand
          increases. Progress Energy 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 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 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 June 2001, CP&L and other
          utilities asked the court to delay the implementation of the 126 Rule
          by the EPA until the agency sets new emission limits based on a
          reconsideration of the growth factors mandated by the Court.  Progress
          Energy cannot predict the outcome of this matter.

                                       16

<PAGE>

          CP&L, Florida Power and NCNG have filed claims with Progress Energy's
          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) As required under the Nuclear Waste Policy Act of 1982, CP&L and
          Florida Power each entered into a contract with the Department of
          Energy (DOE) under which the DOE agreed to begin taking spent nuclear
          fuel by no later than January 31, 1998.  All similarly situated
          utilities were required to sign the same standard contract.

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

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

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

          Subsequently, a number of utilities each filed an action for damages
          in the Court of Claims.  In a recent decision, the U.S. Circuit Court
          of Appeals (Federal Circuit) ruled that utilities may sue the DOE for
          damages in the Federal Court of Claims instead of having to file an
          administrative claim with DOE.  CP&L and Florida Power are in the
          process of evaluating whether they should each file a similar action
          for damages.

          CP&L and Florida Power also continue to monitor legislation that has
          been introduced in Congress which might provide some limited relief.
          CP&L and Florida Power cannot predict the outcome of this matter.

          With certain modifications, CP&L's spent nuclear fuel storage
          facilities will be sufficient to provide storage space for spent fuel
          generated on CP&L's system through the expiration of the current
          operating licenses for all of CP&L's nuclear generating units.
          Subsequent to the expiration of these licenses, dry storage may be
          necessary.  CP&L obtained NRC approval to use additional storage space
          at the Harris Plant in December 2000.  Florida Power currently is
          storing spent nuclear fuel onsite in spent fuel pools.  If Florida
          Power does not seek renewal of the CR3 operating license, with certain
          modifications to its storage pools currently underway, CR3 will have
          sufficient storage capacity in place for fuel consumed through the end
          of the expiration of the license in 2016.  If Florida Power extends
          the CR3 operating license, dry storage may be necessary.

          c) Progress Energy 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 Progress Energy's consolidated results of operations or
          financial position.

                                       17

<PAGE>

                        CAROLINA POWER & LIGHT COMPANY
                   CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                  (Unaudited)
                                 June 30, 2001

STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                              Three Months Ended           Six Months Ended
                                                                                   June 30,                    June 30,
(In thousands)                                                                  2001         2000           2001           2000
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>          <C>          <C>            <C>
Operating Revenues
  Electric                                                                   $  782,287   $  778,470   $  1,603,861   $  1,558,378
  Natural gas                                                                         -       75,350              -        147,448
  Diversified businesses                                                          1,092       38,484          6,121         63,618
----------------------------------------------------------------------------------------------------------------------------------
       Total Operating Revenues                                                 783,379      892,304      1,609,982      1,769,444
----------------------------------------------------------------------------------------------------------------------------------
Operating Expenses
  Fuel used in electric generation                                              157,672      137,001        311,141        297,388
  Purchased power                                                                85,273       85,067        177,202        155,326
 Gas purchased for resale                                                             -       59,836              -        103,734
  Other operation and maintenance                                               179,434      164,989        348,088        363,216
  Depreciation and amortization                                                 139,831      136,951        277,792        274,721
  Taxes other than on income                                                     35,822       35,511         74,259         72,845
  Diversified businesses                                                            957       58,767          5,470        102,922
----------------------------------------------------------------------------------------------------------------------------------
      Total Operating Expenses                                                  598,989      678,122      1,193,952      1,370,152
----------------------------------------------------------------------------------------------------------------------------------
Operating Income                                                                184,390      214,182        416,030        399,292
----------------------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
  Interest income                                                                 6,340        2,048         11,025          5,311
  Other, net                                                                      2,536       (4,790)        11,921           (494)
----------------------------------------------------------------------------------------------------------------------------------
      Total Other Income (Expense)                                                8,876       (2,742)        22,946          4,817
----------------------------------------------------------------------------------------------------------------------------------
Interest Charges
  Long-term debt                                                                 62,698       54,851        125,266        104,923
  Other interest charges                                                          2,628        4,278          4,914          9,280
  Allowance for borrowed funds used during construction                          (1,576)      (6,322)        (4,349)       (10,929)
----------------------------------------------------------------------------------------------------------------------------------
      Net Interest Charges                                                       63,750       52,807        125,831        103,274
----------------------------------------------------------------------------------------------------------------------------------
Income before Income Taxes                                                      129,516      158,633        313,145        300,835
Income Taxes                                                                     44,637       50,434        107,393        106,632
----------------------------------------------------------------------------------------------------------------------------------
Net Income                                                                       84,879      108,199        205,752        194,203
Preferred Stock Dividend Requirements                                              (741)        (742)        (1,482)        (1,483)
----------------------------------------------------------------------------------------------------------------------------------
Earnings for Common Stock                                                     $  84,138   $  107,457   $    204,270   $    192,720
----------------------------------------------------------------------------------------------------------------------------------
See Notes to Carolina Power & Light Company Consolidated Interim Financial Statements.
</TABLE>

                                       18

<PAGE>

<TABLE>
<CAPTION>

Carolina Power & Light Company
CONSOLIDATED BALANCE SHEETS
(In thousands)                                                                                  June 30,        December 31,
Assets                                                                                            2001              2000
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>                <C>
Utility Plant
  Electric utility plant in service                                                          $ 11,659,934      $  11,125,901
  Accumulated depreciation                                                                     (5,760,153)        (5,505,731)
----------------------------------------------------------------------------------------------------------------------------
        Utility plant in service, net                                                           5,899,781          5,620,170
  Held for future use                                                                               7,105              7,105
  Construction work in progress                                                                   638,068            815,246
  Nuclear fuel, net of amortization                                                               181,421            184,813
----------------------------------------------------------------------------------------------------------------------------
        Total Utility Plant, Net                                                                6,726,375          6,627,334
----------------------------------------------------------------------------------------------------------------------------
Current Assets
  Cash and cash equivalents                                                                        35,022             30,070
  Accounts receivable                                                                             444,858            466,774
  Receivables from affiliated companies                                                           438,907            362,834
  Taxes receivable                                                                                      -             15,412
  Inventory                                                                                       287,098            233,369
  Deferred fuel cost                                                                              124,912            119,853
  Prepayments                                                                                      11,998             24,284
  Other current assets                                                                             74,960             75,451
----------------------------------------------------------------------------------------------------------------------------
        Total Current Assets                                                                    1,417,755          1,328,047
----------------------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
  Income taxes recoverable through future rates                                                   217,193            210,571
  Harris Plant deferred costs                                                                      38,796             44,813
  Unamortized debt expense                                                                         16,498             15,716
  Nuclear decommissioning trust funds                                                             420,574            411,279
  Diversified business property, net                                                              104,098            102,294
  Miscellaneous other property and investments                                                    353,598            395,995
  Other assets and deferred debits                                                                117,994            124,339
----------------------------------------------------------------------------------------------------------------------------
        Total Deferred Debits and Other Assets                                                  1,268,751          1,305,007
----------------------------------------------------------------------------------------------------------------------------
           Total Assets                                                                      $  9,412,881      $   9,260,388
----------------------------------------------------------------------------------------------------------------------------

Capitalization and Liabilities
----------------------------------------------------------------------------------------------------------------------------
Capitalization
----------------------------------------------------------------------------------------------------------------------------
  Common stock                                                                               $  1,780,965      $   1,753,105
  Unearned ESOP common stock                                                                     (117,268)          (127,211)
  Retained earnings                                                                             1,286,809          1,226,144
  Accumulated other comprehensive loss                                                             (4,606)                 -
  Preferred stock - not subject to mandatory redemption                                            59,334             59,334
  Long-term debt, net                                                                           4,014,938          3,619,984
----------------------------------------------------------------------------------------------------------------------------
        Total Capitalization                                                                    7,020,172          6,531,356
----------------------------------------------------------------------------------------------------------------------------
Current Liabilities
  Accounts payable                                                                                219,887            281,026
  Payables to affiliated companies                                                                  7,720            275,976
  Taxes accrued                                                                                    33,584                  -
  Interest accrued                                                                                 61,654             56,259
  Dividends declared                                                                                1,482              1,482
  Other current liabilities                                                                       196,204            146,191
----------------------------------------------------------------------------------------------------------------------------
        Total Current Liabilities                                                                 520,531            760,934
----------------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
  Accumulated deferred income taxes                                                             1,399,401          1,491,660
  Accumulated deferred investment tax credits                                                     175,988            197,207
  Other liabilities and deferred credits                                                          296,789            279,231
----------------------------------------------------------------------------------------------------------------------------
        Total Deferred Credits and Other Liabilities                                            1,872,178          1,968,098
----------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 6)
----------------------------------------------------------------------------------------------------------------------------
         Total Capitalization and Liabilities                                                $  9,412,881      $   9,260,388
----------------------------------------------------------------------------------------------------------------------------
See Notes to Carolina Power & Light Company Consolidated Interim Financial Statements.
</TABLE>

                                       19

<PAGE>

<TABLE>
<CAPTION>
Carolina Power & Light Company
STATEMENTS OF CASH FLOWS                                                                          Six Months Ended
                                                                                                      June 30,
(In thousands)                                                                                   2001          2000
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>              <C>
Operating Activities
 Net income                                                                                     $  205,752    $  194,203
 Adjustments to reconcile net income to net cash provided by
 operating activities
  Depreciation and amortization                                                                    321,767       316,914
  Deferred income taxes                                                                            (63,765)      (51,106)
  Investment tax credit                                                                             (9,241)       (5,198)
  Deferred fuel credit                                                                              (5,059)      (12,555)
  Net increase in accounts receivable                                                               (6,936)      (53,134)
  Net increase in inventories                                                                      (53,729)      (25,350)
  Net decrease in prepaids and other current assets                                                 12,776        82,283
  Net decrease in accounts payable                                                                (290,379)       (9,087)
  Net increase in other current liabilities                                                         49,175        83,103
  Other                                                                                             34,353        61,530
------------------------------------------------------------------------------------------------------------------------
   Net Cash Provided by Operating Activities                                                       194,714       581,603
------------------------------------------------------------------------------------------------------------------------

Investing Activities
 Gross property additions                                                                         (387,253)     (418,321)
 Nuclear fuel additions                                                                            (45,813)      (47,329)
 Contributions to nuclear decommissioning trust                                                    (17,899)      (17,979)
 Increase in cash restricted for redemption of long-term debt                                            -       (59,079)
 Net cash flow of company-owned life insurance program                                              (6,098)       (4,963)
 Diversified business property additions                                                            (1,714)      (33,468)
 Investments in non-utility activities                                                              (5,179)      (28,018)
------------------------------------------------------------------------------------------------------------------------
   Net Cash Used in Investing Activities                                                          (463,956)     (609,157)
------------------------------------------------------------------------------------------------------------------------

Financing Activities
 Proceeds from issuance of long-term debt                                                          296,747       417,383
 Net increase (decrease) in commercial paper reclassified to long-term debt                        103,558       (57,600)
 Net increase in outstanding payments                                                                    -        41,620
 Retirement of long-term debt                                                                         (163)     (264,717)
 Dividends paid to parent                                                                         (124,466)            -
 Dividends paid on common stock                                                                          -      (158,056)
 Dividends paid on preferred stock                                                                  (1,482)       (1,483)
------------------------------------------------------------------------------------------------------------------------
   Net Cash Provide by (Used in) Financing Activities                                              274,194       (22,853)
------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                                                 4,952       (50,407)
Cash and Cash Equivalents at Beginning of the Period                                                30,070        79,871
------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period                                                  $   35,022    $   29,464
------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid (received) during the period - interest                                               $  117,330    $   96,864
    income taxes                                                                                $  127,296    $  111,866
------------------------------------------------------------------------------------------------------------------------
See Notes to Carolina Power & Light Company Consolidated Interim Financial Statements.
</TABLE>

                                       20

<PAGE>

Carolina Power & Light Company
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS


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

     A.   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. (Progress Energy), which was formed as a result of the
          reorganization of CP&L into a holding company structure on June 19,
          2000.   All shares of common stock of CP&L were exchanged for an equal
          number of shares of CP&L Energy.  On December 4, 2000, CP&L Energy
          changed its name to Progress Energy, Inc.   Progress Energy is a
          registered holding company under the Public Utility Holding Company
          Act of 1935, as amended (PUCHA). Both Progress Energy and its
          subsidiaries are subject to the regulatory provisions of PUCHA.

          On July 1, 2000, CP&L distributed its ownership interest in the stock
          of North Carolina Natural Gas (NCNG), Strategic Resource Solutions
          Corporation (SRS), Monroe Power Company (Monroe Power) and Progress
          Energy Ventures, Inc. (formerly CPL Energy Ventures, Inc.) to Progress
          Energy.  As a result, those companies are direct subsidiaries of the
          Progress Energy, Inc. and are not included in CP&L's results of
          operations and financial position since that date.

     B.   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, 2000
          and notes thereto included in CP&L's Form 10-K for the year ended
          December 31, 2000.

          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 2000 have been reclassified to
          conform to the 2001 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
     -----------------------------------------

     As described in Note 1A, on July 1, 2000, CP&L distributed its ownership
     interest in the stock of NCNG, SRS, Monroe Power and Progress Energy
     Ventures, Inc. to Progress Energy.  As a result, those companies are direct
     subsidiaries of Progress Energy and are not included in CP&L's results of
     operations and financial position since that date.

     Through June 30, 2000, the operations and assets of Progress Energy and
     CP&L were substantially the same, except for the energy marketing and
     trading activities performed by Energy Ventures on behalf of CP&L.
     Subsequent to July 1, 2000, CP&L's operations consist primarily of the CP&L
     Utility segment with no other material segments.  The CP&L Utility segment
     includes both retail and wholesale electric operations and trading
     activities.  The energy

                                       21

<PAGE>

     marketing and trading activities performed by Energy Ventures on CP&L's
     behalf are included in the Energy Ventures segment in the Progress Energy
     consolidated financial statements.

     The financial information by business segment for CP&L Utility for the
     three and six months ended June 30, 2001 and 2000 is as follows:

<TABLE>
<CAPTION>
                                                                                               Three Months Ended
(in thousands)                                                                  June 30, 2001                      June 30, 2000
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                                       <C>
Revenues
  Unaffiliated                                                                    $  782,287                          $  778,470
  Intersegment                                                                             -                                   -
                                                               -----------------------------------------------------------------
     Total Revenues                                                               $  782,287                          $  778,470
Segment Income                                                                    $   84,254                          $  118,834
Total Segment Assets                                                              $8,942,454                          $8,632,699
================================================================================================================================

                                                                                                Six Months Ended
(in thousands)                                                                 June 30, 2001                       June 30, 2000
--------------------------------------------------------------------------------------------------------------------------------
Revenues
  Unaffiliated                                                                    $1,603,861                          $1,558,378
  Intersegment                                                                             -                                   -
                                                               -----------------------------------------------------------------
     Total Revenues                                                               $1,603,861                          $1,558,378
Segment Income                                                                    $  203,048                          $  208,797
Total Segment Assets                                                              $8,942,454                          $8,632,699
================================================================================================================================
</TABLE>

     The primary differences between the CP&L Utility and CP&L consolidated
     financial information relate to other non-electric operations and
     elimination entries.

3.   IMPACT OF NEW ACCOUNTING STANDARDS
     ----------------------------------

     Effective January 1, 2001, CP&L adopted Statement of Financial Accounting
     Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
     Hedging Activities", as amended by  SFAS No. 138.  SFAS No. 133, as
     amended, establishes accounting and reporting standards for derivative
     instruments, including certain derivative instruments embedded in other
     contracts, and for hedging activities.   SFAS No. 133 requires that an
     entity recognize all derivatives as assets or liabilities in the
     consolidated balance sheet and measure those instruments at fair value.

     The adoption of SFAS No. 133 did not result in a significant transition
     adjustment affecting accumulated other comprehensive loss.  Additionally,
     there was no transition adjustment affecting the consolidated statement of
     income as a result of the adoption of SFAS No. 133.

     During the second quarter of 2001, the Financial Accounting Standards Board
     (FASB) issued interpretations of 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.  These interpretations are effective July 1,
     2001.  CP&L is continuing to review contracts to determine whether they
     meet the criteria for the normal purchases and sales exception.  If an
     electricity or fuel supply contract in its regulated business is subject to
     mark-to-market accounting, there would be no income statement effect of the
     mark to market because the contract's mark-to-market gain or loss will be
     recorded as a regulatory asset or liability. Any mark-to-market gains or
     losses on contracts outside its regulated business will affect income
     unless those contracts qualify for hedge accounting treatment.

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

     On July 20, 2001, the FASB issued SFAS No. 141 "Business Combinations" and
     No. 142 "Goodwill and Other Intangible Assets".  SFAS No. 141 requires
     business combinations initiated after June 30, 2001 to be accounted for
     using the purchase method of accounting and clarifies the criteria for
     recording of other intangible assets separately from goodwill.  SFAS No.
     142 requires that, effective January 1, 2002, a company cease amortization
     of goodwill.  CP&L does not have any goodwill recorded on its records, and
     therefore the adoption of these statements will have no impact on CP&L's
     financial statements.

                                       22

<PAGE>

     In June 2001, the FASB approved the issuance of SFAS No. 143 "Accounting
     for Asset Retirement Obligations" that provides accounting guidance for the
     costs of retiring long-lived assets and is effective for fiscal years
     beginning after June 15, 2002. CP&L will assess the impact adoption of this
     statement will have on the financial statements once a final statement is
     issued.

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

     Comprehensive income for the three and six months ended June 30, 2001 was
     $84.8 and $201.1 million, respectively.  Items of other comprehensive
     income for the three and six month periods consisted of derivatives used to
     hedge cash flows related to interest on long term debt.  Prior to the
     adoption of SFAS No. 133 (see Note 3) CP&L had no other comprehensive
     income items and therefore comprehensive income for the three and six
     months ended June 30, 2000 is equal to net income for those periods.

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

     On April 9, 2001, CP&L issued $300 million of Medium-Term Notes, 6.65%
     Series D due April 1, 2008. Proceeds from the issuance were primarily used
     to retire commercial paper.

6.   COMMITMENTS AND CONTINGENCIES
     -----------------------------

     Contingencies existing as of the date of these statements are described
     below.  No significant changes have occurred since December 31, 2000, with
     respect to the commitments discussed in Note 16 of the financial statements
     included in CP&L's 2000 Annual Report on Form 10-K.

     Contingencies

        1)  Insurance. CP&L is a member of Nuclear Electric Insurance Limited
            ---------
            (NEIL), which provides primary and excess insurance coverage against
            property damage to members' nuclear generating facilities. Under the
            primary program, CP&L is insured for $500 million at each of its
            nuclear plants. In addition to primary coverage, NEIL also provides
            decontamination, premature decommissioning and excess property
            insurance with limits of $2.0 billion on the Brunswick and Harris
            Plants, and $1.1 million on the Robinson Plant.

            Insurance coverage against incremental costs of replacement power
            resulting from prolonged accidental outages at nuclear generating
            units is also provided through membership in NEIL. CP&L is insured
            thereunder, following a twelve week deductible period, for 52 weeks
            in the amount of $3.5 million per week at each of it's nuclear
            units. An additional 104 weeks of coverage is provided at 80% of the
            above weekly amount. For the current policy period, CP&L is subject
            to retrospective premium assessments of up to approximately $11.6
            million with respect to the primary coverage, $13.3 million with
            respect to the decontamination, decommissioning and excess property
            coverage and $8.9 million for the incremental replacement power
            costs coverage, in the event covered losses at insured facilities
            exceed premiums, reserves, reinsurance and other NEIL resources.
            Pursuant to regulations of the Nuclear Regulatory Commission, CP&L's
            property damage insurance policies provide that all proceeds from
            such insurance be applied, first, to place the plant in a safe and
            stable condition after an accident and, second, to decontamination
            costs, before any proceeds can be used for decommissioning, plant
            repair or restoration. CP&L is responsible to the extent losses may
            exceed limits of the coverage described above.

            CP&L is insured against public liability for a nuclear incident up
            to $9.54 billion per occurrence. Under the provisions of the Price
            Anderson Act, which limits liability for accidents at nuclear power
            plants, CP&L, as an owner of nuclear plants, can be assessed for a
            portion of any third-party liability claims arising from an accident
            at any commercial nuclear power plant in the United States. In the
            event that public liability claims from an insured nuclear incident
            exceed $200 million (currently available through commercial
            insurance), CP&L would be subject to a pro rata assessment of up to
            $88.1 million for each reactor owned per occurrence. Payment of such
            assessments would be made over time as necessary to limit the
            payment in any one year to no more than $10 million per reactor
            owned.

            CP&L self-insures its transmission and distribution lines against
            loss due to storm damage and other natural disasters.

                                       23

<PAGE>

      2)  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). Although CP&L may incur costs at
          these sites about which it has been notified, based upon current
          status of these sites, CP&L does not expect those costs to be material
          to its consolidated financial position or results of operations.

          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. Although CP&L may incur costs at the sites about which
          they have been notified, based upon the current status of these sites,
          CP&L does not expect those costs to be material to its consolidated
          financial position or results of operations.

          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 has 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.  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.  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
          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 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.

                                       24

<PAGE>

          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 June 2001, CP&L and other utilities asked the court to
          delay the implementation of the 126 Rule by the EPA until the agency
          sets new emission limits based on a reconsideration of the growth
          factors mandated by the Court. CP&L cannot predict the outcome of this
          matter.

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

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

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

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

          Subsequently, a number of utilities each filed an action for damages
          in the Court of Claims.  In a recent decision, the U.S. Circuit Court
          of Appeals (Federal Circuit) ruled that utilities may sue the DOE for
          damages in the Federal Court of Claims instead of having to file an
          administrative claim with DOE.  CP&L is in the process of evaluating
          whether they should file a similar action for damages.

          CP&L also continues to monitor legislation that has been introduced in
          Congress which might provide some limited relief.  CP&L cannot predict
          the outcome of this matter.

          With certain modifications, CP&L's spent nuclear fuel storage
          facilities will be sufficient to provide storage space for spent fuel
          generated on its system through the expiration of the current
          operating licenses for all of its nuclear generating units.
          Subsequent to the expiration of these licenses, dry storage may be
          necessary.  CP&L obtained NRC approval to use additional storage space
          at the Harris Plant in December 2000.

          c) 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.

                                       25

<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, 2001, as compared to the
     corresponding periods in the prior year

     Progress Energy, Inc.

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

     Progress Energy's consolidated earnings for the three months ended June 30,
     2001, were $111.7 million, or $0.56 per share, compared to earnings of
     $107.5 million, or $0.70 per share, for the same period in 2000. Earnings
     for the six months ended June 30, 2001 were $265.7 million, $1.33 per
     share, compared to earnings of $192.7 million, or $1.26 per share for the
     same period in 2000. The increase in Progress Energy's earnings for the six
     month period is primarily related to Florida Progress being included in
     Progress Energy's results of operations since the acquisition date of
     November 30, 2000. Operating results for the three and six months ended
     June 30, 2001 were also favorably impacted by expanded operations in the
     Energy Ventures business segment. Earnings from the CP&L Electric segment
     were negatively impacted during the second quarter by a significant
     slowdown in industrial sales, and increased operations and maintenance
     costs for planned nuclear plant outages.

     Business segment earnings and the factors affecting them are discussed
     below.

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

     CP&L Electric contributed net income of $69.3 million and $174.4 million
     for the three and six months ended June 30, 2001, and $93.8 million and
     $170.0 million for the same periods in 2000.  Wholesale sales are reported
     in the Energy Ventures segment.

     The components of retail electric megawatt-hour sales for the three and six
     months ended June 30, 2001, and 2000 were as follows:

     (In millions of mWh)
<TABLE>
<CAPTION>
                                                Three Months Ended                     Six Months Ended
                                                     June 30,                              June 30,
                                          2001       2000     % Change           2001        2000       % Change
                                         -----      ------  ------------        ------      ------     ------------
     <S>                                <C>         <C>     <C>                 <C>         <C>        <C>
     Residential                         3,098       3,172         (2.3)%        7,102       7,061              0.6%
     Commercial                          2,971       2,962           0.3         5,674       5,474              3.7
     Industrial                          3,411       3,767          (9.5)        6,475       7,191            (10.0)
     Governmental                          335         332           0.9           666         678             (1.8)
     --------------------------------------------------------------------------------------------------------------
     Total Retail mWh Sales              9,815      10,233         (4.1)%       19,917      20,404            (2.4)%
</TABLE>

     For the year to date, residential and commercial mWh sales reflect
     continued growth in the number of customers served by CP&L, and increased
     usage, offset by weather. For the second quarter, residential sales were
     down when compared to the same period last year due to unfavorable weather.
     Industrial sales experienced an overall decrease for the quarter and year
     to date primarily related to the textile, paper and chemical industries,
     which continue to be negatively affected by the economic downturn that is
     expected to continue.

     Fuel used for electric generation, excluding fuel related to wholesale
     sales, increased for the quarter due to price increases in coal, oil and
     gas. For the year to date, fuel related to retail sales decreased primarily
     due to a deferred fuel write-off in June 2000 and a decrease in generation.
     This decrease was partially offset by price increases in coal, oil and gas.

     Purchased power, excluding that purchased for wholesale sales, increased
     for the year to date period primarily due to increases in price and volume,
     offset by decreases in purchases from co-generators.  The decrease in co-
     generator

                                       26

<PAGE>

     purchases was due to the termination of two contracts in the fourth quarter
     of 2000. For the quarter, purchased power increased mainly due to price.

     Other operation and maintenance expense decreased for the six months ended
     June 30, 2001, due to the absence of restoration costs associated with the
     severe winter storm and record breaking snowfall in January 2000.  Also,
     general and administrative expenses decreased due to the establishment of
     the service company in June 2000, which allocates its costs among all
     Progress Energy entities.  Operation and maintenance expenses in the second
     quarter, as compared to the prior year, increased primarily due to the
     timing of planned nuclear plant outage costs, and higher transmission
     expenses.

     Interest on long-term debt increased during the three and six months ended
     June 30, 2001, primarily due to an increase in long-term debt outstanding.

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

     The results shown in the Progress Energy consolidated financial statements
     for the Florida Power Electric segment are not comparable to the prior year
     as the operating results of Florida Power have only been included in
     Progress Energy's results of operations since the date of acquisition on
     November 30, 2000.

     Florida Power Electric contributed net income of $81.0 million and $144.2
     million for the three and six months ended June 30, 2001.  Wholesale sales
     are being reported in the Energy Ventures segment.  The components of
     retail electric megawatt-hour sales for the three and six months ended June
     30, 2001, and 2000 were as follows:

     (In millions of mWh)
<TABLE>
<CAPTION>
                                              Three Months Ended                      Six Months Ended
                                                   June 30,                                June 30,
                                         2001        2000  % Change              2001       2000     % Change
                                        -----       -----  ------------        ------     ------     ------------
     <S>                               <C>          <C>    <C>                 <C>        <C>        <C>
     Residential                        4,375       4,358           0.4%        8,525      8,077              5.5%
     Commercial                         2,900       2,828           2.5         5,231      5,102              2.5
     Industrial                           995       1,080          (7.9)        1,962      2,164             (9.3)
     Governmental                         690         685           0.7         1,283      1,266              1.3
     ------------------------------------------------------------------------------------------------------------
     Total Retail mWh  Sales            8,960       8,951           0.1%       17,001     16,609              2.4%
</TABLE>

     Florida Power's retail kilowatt-hour sales increased slightly during the
     second quarter of 2001 and for the year to date when compared to 2000.
     Residential and commercial sectors increased due to continued customer
     growth. Weather, a key factor influencing usage among residential
     customers, negatively influenced retail sales for the quarter due to cooler
     than normal temperatures.  For the year to date, weather impacts have been
     flat compared to prior year.  Industrial sales declined due to weakness in
     the phosphate industry.

     Fuel used in generation and purchased power increased for the second
     quarter of 2001 and for the year to date when compared to the same periods
     last year.  The increase is due mainly to the increased price of coal, oil
     and gas when compared to the prior year, and increased usage.  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 decreased during the quarter and for the
     year. The decrease is due primarily to lower employee-related costs
     resulting from the reorganization after the acquisition by Progress Energy.

     Natural Gas
     -------------

     Natural Gas operations had a net loss of $5.2 million and net income of
     $2.3 million for the three and six months ended June 30, 2001,
     respectively. For the same periods in 2000, this segment contributed net
     income of $.1 million and $8.9 million, respectively. The decreased
     earnings is mainly due to reduced sales to certain large industrial
     customers with fuel switching capabilities. Natural gas revenues increased
     for the six months ended June 30, 2001, when compared to the same period in
     the prior year, primarily due to increases in the market price of natural
     gas, which are recovered primarily through cost recovery clauses.
     Revenues decreased for the three month period due to industrial sales,
     which are down due to lower consumption because gas prices are higher than
     alternative fuel prices and a shift from sales to transportation service.

                                       27

<PAGE>

     Operation and maintenance expenses increased slightly for the three and six
     months ended June 30, 2001 when compared to the same period in the prior
     year due to increases in bad debt expense associated with increases in
     natural gas revenues, increases in staffing levels and associated overhead.

     Energy Ventures
     ---------------

     Energy Ventures contributed net income of $74.3 million and $138.1 million
     for the three and six months ended June 30, 2001, and $25.9 million and
     $39.8 million for the same period in 2000.  The Energy Ventures operations
     include fuel extraction, manufacturing and delivery, synthetic fuels
     production, merchant generation, and energy marketing and trading
     activities on behalf of the utility operating companies.  Energy marketing
     and trading activities include wholesale sales on behalf of the utilities.
     Due to the creation of Energy Ventures in 2000 and the acquisition of
     Electric Fuels' subsidiaries through the FPC acquisition, the results of
     operations for the Energy Ventures segment are not comparable to the prior
     year.

     The increase in earnings for this segment is primarily due to the tax
     credits generated by Progress Energy's synthetic fuel operations (see
     "Other Matters" below).  The Energy Ventures segment sold 3.4 million and
     6.2 million tons of synthetic fuel for the three and six months ended June
     30, 2001, respectively, and 0.2 million tons for the quarter and year to
     date periods ended June 30, 2000.

     Energy Ventures' energy marketing and trading activities on behalf of CP&L
     generated net income of $15.0 million and $28.6 million for the three and
     six months ended June 30, 2001, respectively, compared to net income of
     $21.0 million and $34.7 million for the same period in the prior year.
     Earnings from the trading operations decreased over these periods due to
     softness in the energy market in the current year.  Earnings from the term
     marketing operations were relatively flat compared with the prior year.
     Earnings for the Florida energy marketing and trading operations for the
     six months ended June 30, 2001 of $11.7 million increased over the prior
     year due to increases in peaking demand in January and February of 2001.

     The fuel extraction, manufacturing and delivery operations were owned by
     Electric Fuels, and therefore results are not comparable due to the
     acquisition of FPC in November 2000. Merchant generation operations for the
     current year were consistent with the prior period results. Progress Energy
     expects earnings in merchant generation to increase with the addition of a
     plant in Florida, planned to produce output in June 2002. See "Company
     Activities" below for Progress Energy's additional merchant plant
     developments.

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

     Progress Energy had originally included FPC's Rail Services business
     segment in net assets held for sale.  Rail Services' operations include
     railcar repair, rail parts reconditioning and sales, scrap metal recycling
     and other rail related services.  Progress Energy no longer intends to sell
     Progress Rail in the near future and has therefore included Progress Rail's
     cumulative revenues and net loss from December 2000 through June 2001 of
     $520.9 million and $7.5 million, respectively, in the current quarter.
     Progress Energy also recorded the interest allocated to these assets, which
     is included in the Other segment. Going forward, Progress Rail's results
     will be included in consolidated earnings.

     Due to the acquisition of Progress Rail through the FPC acquisition, the
     results of operations for the Rail Services segment are not comparable to
     the prior year. Current year results for Rail Services were negatively
     affected by the significant downturn in the domestic scrap market and the
     continuing weak market for railcar parts.

     Other
     -----

     The Other segment contributed a net loss of $100.1 million and $185.8
     million for the three and six months ended June 30, 2001, and $12.3 million
     and $26.0 million for the same periods in 2000.  The other segment
     primarily includes the operations of Strategic Resource Solutions Corp.
     (SRS), Progress Telecommunications Corporation (Progress Telecom), Caronet,
     Inc. and certain holding company results.  The operations of SRS, Progress
     Telecom and Caronet did not have a material impact on Progress Energy's
     results for the three and six months ended June 30, 2001.  The decrease in
     earnings for this segment is primarily due to the increase in interest
     expense for holding company debt and goodwill amortization resulting from
     the acquisition of Florida Progress.  See "New Accounting Standards" below
     for information on recent developments related to goodwill amortization.

                                       28

<PAGE>

     Progress Energy issued 98.6 million Contingent Value Obligations (CVO's) 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
     CVO's are valued at fair value and unrealized gains and losses from changes
     in fair value are recognized in earnings. At June 30, 2001, the fair value
     of these CVO's was $49.3 million. Charges of $5.9 million and $8.9 million
     were recorded by the holding company for the three and six-month periods
     ended June 30, 2001 to record the change in fair value of the CVO's.

     Additionally, the other segment results also include the effect of an
     intra-period tax allocation adjustment. 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 $25.3 million and $45.4 million for the second
     quarter and year to date, respectively, in order to maintain an effective
     tax rate consistent with the estimated annual rate. The tax credits
     associated with Progress Energy's synthetic fuel operations lower the
     overall effective tax rate. These credits, along with seasonal earnings
     variations, 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.

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

     Progress Energy, Inc.

     During the six months ended June 30, 2001, $542.8 million was spent on the
     utility subsidiaries' construction program and $120.4 million was spent in
     diversified operations.

     In February 2001, Progress Energy issued $3.2 billion of senior unsecured
     notes with maturities ranging from three to thirty years.  These notes were
     issued with a weighted average coupon of 7.06%.  Proceeds from this
     issuance were primarily used to retire commercial paper and other short-
     term indebtedness issued in connection with the FPC acquisition.  As a
     result of the issuance of $3.2 billion of senior notes, availability under
     Progress Energy's line of credit, which is used to support its commercial
     paper borrowings, was reduced to $550 million

     During the first quarter of 2001, Progress Capital Holdings retired $31
     million of Medium-Term Notes.  The $6 million of medium-term notes that
     were retired in January had a 9.95% coupon rate, and the $25 million of
     medium-term notes that were retired in February had a 6.13% coupon rate.
     Progress Energy issued commercial paper to fund the maturing medium-term
     notes.

     On April 9, 2001, CP&L issued $300 million of Medium-Term Notes, 6.65%
     Series D due April 1, 2008. Proceeds from the issuance were primarily used
     to retire commercial paper.

     On July 18, 2001, Florida Power issued $300 million of First Mortgage
     Bonds, 6.65% Series due July 15, 2011. Proceeds from the issuance were
     primarily used to retire commercial paper.

     On August 6, 2001, Progress Energy announced its plans to sell
     approximately 11 million shares of common stock to complete the financing
     of the Florida Progress acquisition.  The offering is expected to conclude
     in mid-August.

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

     Company  Activities
     -------------------

     In July 2001, Progress Energy announced construction of a 320-megawatt
     plant in DeSoto County, Florida, Progress Energy's first merchant venture
     in Florida.  This gas-fired plant will be in commercial operation by June
     2002, and Energy Ventures is in late-stage negotiations to sell its output
     and capacity.

     In June 2001, the NCUC held a hearing concerning Progress Energy's request
     to transfer certificates granted for eleven generating units in Richmond
     and Rowan counties, N.C., from the regulated electric utility, CP&L, to
     Energy Ventures. Progress Energy anticipates a Commission order on this
     matter during the third quarter.  Combined, these natural gas-fired units
     will be capable of producing approximately 2,200 megawatts of power.  Seven
     of these units, representing approximately 1,100 megawatts of new gas-fired
     generation, began commercial operation in late May.

     Progress Energy expects that completion of the transfer, along with the
     DeSoto project, would bring Energy Ventures' merchant fleet to
     approximately 2,700 megawatts by the end of 2002.

                                       29

<PAGE>

     Natural Gas Activities
     ----------------------

     The Eastern North Carolina Natural Gas Co. (EasternNC) is a corporation
     formed equally between the Albemarle Pamlico Economic Development
     Corporation (APEC) and Progress Energy to build an 800-mile natural gas
     pipeline system to serve 14 eastern North Carolina counties.  EasternNC has
     begun surveying, designing, engineering and environmental permitting for
     the first phase of the project.  The initial phase consists of about 125
     miles of transmission (6- to 12-inch diameter) pipeline and about 75 miles
     of distribution (2- to 6-inch diameter) pipe.  Construction of the first
     phase is scheduled to begin in late 2001, and is scheduled to be completed
     by mid-summer 2002.  The entire project should be completed by the end of
     2004.

     Progress Energy has agreed to fund a portion of the project, currently
     estimated to be approximately $22 million.  EasternNC plans to obtain
     additional capital through bond funding.  On March 20, 2001 EasternNC filed
     its amended application for approval of the route design for Phases 2-7 of
     the project and additional gas bond funds of $149.6 million to construct
     this system. By order dated June 7, 2001 the NCUC approved EasternNC's
     proposed route design for the remaining 8 counties which constitutes Phases
     2-7 of the project and awarded EasternNC an additional $149.6 million in
     bond funds to construct the project.

     EasternNC has requested a Private Letter Ruling (PLR) from the IRS that the
     receipt of bond funds will not be considered income subject to federal
     income tax. If receipt of bond funds is found to be taxable, the design of
     the EasternNC system will be modified.  Progress Energy cannot predict the
     outcome of this matter.

     Regulatory Developments
     -----------------------

     Florida Power previously operated under an agreement committing several
     parties not to seek any reduction in its base rates or authorized return on
     equity.  That agreement expired on June 30, 2001.  On May 3, 2001, the
     staff of the Florida Public Service Commission, or FPSC, recommended that
     the FPSC require Florida Power to submit, by September 14, 2001, minimum
     filing requirements, based on a 2002 projected calendar year, to initiate a
     rate proceeding regarding its future base rates.  The FPSC staff also
     recommended to the FPSC that, pending completion of Florida Power's rate
     case, annual revenues of $114 million should be held subject to refund to
     its customers.  On June 20, 2001, the FPSC issued an order accepting its
     staff's recommendation that Florida Power be required to hold $114 million
     of revenue subject to refund and to file, by September 14, 2001, minimum
     filing requirements based on a projected 2002 test year. On July 2, 2001,
     Florida Power filed a request for rehearing of the portion of the FPSC 's
     order requiring that it hold $114 million of revenues subject to refund on
     the grounds that the order contradicted FPSC precedent, was inconsistent
     with the applicable statutory requirements and violated Florida Power's due
     process rights.  Also, since the FPSC's June 20, 2001 order, Florida Power
     has been working with FPSC staff and other interested parties to establish
     special procedures for the filing of the minimum filing requirements.
     Progress Energy cannot predict the outcome or impact of these matters.

     In its May 3, 2001 recommendation, the FPSC staff expressed concerns
     related to Florida Power's plans to participate in the creation of the
     GridFlorida regional transmission organization, or GridFlorida RTO, along
     with Florida Power & Light Company and Tampa Electric Company.  The FPSC
     staff raised questions about the prudence of establishing the new system
     and costs associated with the process.  Progress Energy is continuing to
     evaluate the concerns that the FPSC staff has raised about the GridFlorida
     RTO and the impact those concerns might have on the implementation of the
     GridFlorida RTO plan this year.

     On June 27, 2001, the FPSC issued an order establishing a two-phase process
     for addressing these GridFlorida RTO issues in the context of Florida
     Power's pending rate case.  In the first phase, the FPSC will address the
     general issues associated with the prudence of the GridFlorida RTO on an
     expedited basis, with a decision scheduled for October 30, 2001.  The
     second phase will address ratemaking issues and will be decided as part of
     the general rate proceeding.   Progress Energy cannot predict the outcome
     or impact of these matters.

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

     In October 2000, Florida Power, along with Florida Power & Light Company
     and Tampa Electric Company filed with the Federal Energy Regulatory
     Commission, or FERC, an application for approval of a regional transmission
     organization, or RTO, for peninsular Florida, currently named GridFlorida.
     On March 28, 2001, FERC issued an order provisionally granting GridFlorida
     RTO status and directing the GridFlorida applicants to make certain

                                       30

<PAGE>

     changes in the RTO documents and to file such changes within 60 days. On
     May 29, 2001, the GridFlorida applicants made the compliance filing as
     directed by FERC, but FERC has not yet issued an order on that compliance
     filing.

     On May 16, 2001, the FPSC initiated dockets to review the prudence of the
     GridFlorida applicants' decision to form and participate in the GridFlorida
     RTO. The GridFlorida applicants have announced that they will hold
     GridFlorida development activities in abeyance. An order on this issue is
     expected in late October of 2001. Progress Energy cannot predict the
     outcome of this matter.

     In October 2000, CP&L, along with Duke Energy Corporation and South
     Carolina Electric & Gas Company, filed with FERC an application for
     approval of a for-profit transmission company, currently named GridSouth.
     On July 12, 2001, FERC issued an order granting GridSouth RTO status and
     directing that certain modifications to the RTO documents be made and filed
     within 90 days.

     CP&L has applied to the North Carolina Utilities Commission, or NCUC, and
     the South Carolina Public Service Commission, or SCPSC, for permission to
     transfer operational control of its transmission assets to GridSouth. On
     June 21, 2001, the Public Staff of the NCUC filed a motion asking the NCUC
     to hold the GridSouth docket in abeyance until the U.S. Supreme Court had
     ruled on the appeal of FERC's Order No. 888. That appeal addresses the
     scope of FERC's jurisdiction over transmission service used to serve retail
     customers. The appeal of Order No. 888 is expected to be heard by the Court
     during the fall of 2001, with a decision anticipated in the summer of 2002.
     CP&L and Duke Energy opposed the Public Staff's motion. The NCUC has not
     yet ruled on the motion. Progress Energy cannot predict the outcome of this
     matter.

     On July 12, 2001, FERC issued an order requiring certain parties, including
     CP&L, Duke Energy Corporation, South Carolina Electric & Gas Company,
     Southern Company and Entergy to engage in a mediation to develop a plan for
     a single RTO for the southeast. The GridFlorida applicants and the parties
     to the GridFlorida docket before FERC were encouraged to participate, but
     were not required to do so. Florida Power and CP&L are participating in the
     mediation. The mediation is scheduled to last 45 days from July 12th, and
     ten days after the mediation the presiding administrative law judge will
     submit a proposal to FERC. Progress Energy cannot predict the outcome of
     this mediation or the effect that it may have on the GridFlorida
     proceedings currently ongoing before the FERC and the FPSC or the GridSouth
     proceedings currently ongoing before FERC, the SCPSC or the NCUC.

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

     Five cities, with a total of approximately 36,000 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 pendency of the 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.  One circuit court has
     entered a declaratory judgment and order requiring arbitration to establish
     the purchase price of Florida Power's facilities within one of the cities.
     Florida Power has appealed that decision to a district court of appeal.
     The appeal has been fully briefed and orally argued, and Florida Power is
     awaiting a decision from the appeals court.  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 price at which such a purchase could be made.  Progress
     Energy cannot predict the outcome of these matters.

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

     On April 20, 2001 and May 4, 2001, the Internal Revenue Service (IRS)
     released Revenue Procedure 2001-30 and Revenue Procedure 2001-34,
     respectively, that outline the conditions that must be met to receive a PLR
     for Section

                                       31

<PAGE>

     29 tax credits from the IRS. PLRs represent advance rulings from the IRS
     applying its interpretation of the tax law to the facts surrounding an
     entity that desires to qualify for Section 29 tax credits. Progress Energy
     continues to pursue PLRs for its four majority-owned facilities that have
     not received PLRs. In management's opinion, Progress Energy is complying
     with all the necessary requirements to be allowed such credits under
     Section 29, although it cannot provide certainty that it will receive PLRs
     or prevail, if challenged by the IRS, on any credits taken.

     Nuclear
     --------

     Orange County, North Carolina appealed the Nuclear Regulatory Commission
     (NRC) license amendment to expand spent fuel storage capacity at CP&L's
     Shearon Harris Nuclear Plant (Harris Plant).  On May 31, 2001, Orange
     County filed a petition for review in the U.S. Court of Appeals for the
     District of Columbia, and on June 1, 2001, filed a request for stay and
     expedition of the case with the court.

     On June 29, 2001, U.S. Court of Appeals denied Orange County's motion for a
     stay and rejected the request for an expedited schedule for the appeal.
     The court is expected to issue a briefing schedule for the case in the
     third quarter.   Progress Energy cannot predict the outcome of this matter.

     NEW ACCOUNTING STANDARDS
     ------------------------

     During the second quarter of 2001, the Financial Accounting Standards Board
     (FASB) issued interpretations of Statement of Financial Accounting
     Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
     Hedging Activities", as amended by  SFAS No. 138.  These interpretations
     indicate that options in general cannot qualify for the normal purchases
     and sales exception, but provide 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. These
     interpretations are effective July 1, 2001. Progress Energy is continuing
     to review contracts to determine whether they meet the criteria for the
     normal purchases and sales exception. If an electricity or fuel supply
     contract in its regulated businesses is subject to mark-to-market
     accounting, there would be no income statement effect of the mark to market
     because the contract's mark-to-market gain or loss will be recorded as a
     regulatory asset or liability. Any mark-to-market gains or losses in its
     non-regulated businesses will affect income unless those contracts qualify
     for hedge accounting treatment.

     On July 20, 2001, the FASB issued SFAS No. 141 "Business Combinations" and
     No. 142 "Goodwill and Other Intangible Assets".  SFAS No. 141 requires
     business combinations initiated after June 30, 2001 to be accounted for
     using the purchase method of accounting and clarifies the criteria for
     recording of other intangible assets separately from goodwill.  SFAS No.
     142 requires that, effective January 1, 2002, Progress Energy cease
     amortization of goodwill.  It also requires Progress Energy to evaluate
     goodwill for impairment at least annually, which could result in periodic
     impairment charges.  Goodwill amortization was $24.8 million and $47.6
     million for the three and six months ended June 30, 2001, and is expected
     to be approximately $95.3 million for the year. Progress Energy is still
     reviewing all impacts of the statement, including impairment testing and
     allocation to business units, and is currently assessing the impact
     adoption of these statements will have on the financial statements.  CP&L
     has no goodwill recorded as of June 30, 2001.

     In June, 2001, the FASB approved the issuance of SFAS No. 143 "Accounting
     for Asset Retirement Obligations" that provides accounting guidance for the
     costs of retiring long-lived assets and is effective for fiscal years
     beginning after June 15, 2002. Progress Energy and CP&L will assess the
     impact adoption of this statement will have on the financial statements
     once a final statement is issued.

     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;
     OTHER MATTERS and NEW ACCOUNTING STANDARDS.

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

     On July 1, 2000, CP&L distributed its ownership interest in the stock of
     NCNG, SRS, Monroe Power and Progress Energy Ventures, Inc. to Progress
     Energy.  Prior to that date, the consolidated operations of CP&L and
     Progress Energy were substantially the same.  Subsequent to that date, the
     operations of these subsidiaries are no longer included in CP&L's results
     of operations and financial position.

                                       32

<PAGE>

     The CP&L Utility segment includes both retail and wholesale electric
     operations and trading activities.  The results of operations for the CP&L
     Utility segment are identical to the CP&L Electric segment at the Progress
     Energy level, except for the energy marketing and trading activities
     performed by Energy Ventures on behalf of CP&L. The energy marketing and
     trading activity is included in the Energy Ventures segment at the Progress
     Energy level. The results of operations for CP&L's non-utility subsidiaries
     are not material to CP&L's consolidated financial statements.

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

     The statement of cash flows for CP&L does not include amounts related to
     NCNG, SRS, Monroe Power and Progress Energy Ventures, Inc. after July 1,
     2000.  Additionally, the CP&L statement of cash flows for the six months
     ended June 30, 2001 does not reflect any amounts related to the acquisition
     of FPC, issuance of long-term debt as part of the transaction, and capital
     expenditures made for other Progress Energy subsidiaries.


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

     Progress Energy's exposure to return on marketable securities for the
     decommissioning trust funds has not changed materially since December 31,
     2000.  The fair value of the CVOs issued in connection with the FPC
     acquisition increased from $40.4 million at December 31, 2000 to $49.3
     million at June 30, 2001.

     In February 2001, Progress Energy issued $3.2 billion of fixed-rate senior
     unsecured notes with maturities ranging from three to thirty years.  The
     proceeds from this issuance were primarily used to retire commercial paper
     and other short-term indebtedness issued in connection with the FPC
     acquisition.  Additionally, as part of this transaction, Progress Energy
     terminated the $1.125 billion notional amount of interest rate forward
     contracts that were issued in anticipation of the debt issuance.  Progress
     Energy recognized a $45.3 million loss on these contracts that is  deferred
     through accumulated other comprehensive loss and amortized over the life of
     the associated debt instruments.

     On April 9, 2001, CP&L issued $300 million of Medium-Term Notes, 6.65%
     Series D due April 1, 2008. Proceeds from the issuance were primarily used
     to retire commercial paper.

     As a result of these issuances, the exposure to changes in interest rates
     from Progress Energy's long-term debt at June 30, 2001, has changed from
     December 31, 2000.  The total fixed rate long-term debt at June 30, 2001,
     was $7.2 billion, with an average interest rate of 7.00% and fair market
     value of $7.2 billion.

     The exposure to changes in interest rates from Progress Energy's variable
     rate long-term debt, commercial paper, extendible notes and FPC mandatorily
     redeemable securities of trust at June 30, 2001, was not materially
     different than at December 31, 2000.  The total variable rate long-term
     debt and commercial paper outstanding at June 30, 2001, was $620 million,
     with an average interest rate of 2.90%, and $1.1 billion, with an average
     interest rate of 4.19%, respectively.  The total extendible notes and FPC
     mandatorily redeemable securities of trust outstanding at June 30, 2001,
     was $500 million, with an average interest rate of 4.86%, and $300 million,
     with a fixed interest rate of 7.10%, respectively.

     Progress Energy's exposure on the $500 million notional amount of interest
     rate swap agreements used to hedge its exposure on variable rate debt
     positions was not materially different than at December 31, 2000.  The fair
     value of the swaps was a $15.0 million liability position at June 30, 2001.

                                       33

<PAGE>

     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, 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,
     2000.

     On April 9, 2001, CP&L issued $300 million of Medium-Term Notes, 6.65%
     Series D due April 1, 2008. Proceeds from the issuance were primarily used
     to retire commercial paper.

     As a result of this issuance, the exposure to changes in interest rates
     from CP&L's long-term debt at June 30, 2001, has changed from December 31,
     2000.  The total fixed rate long-term debt at June 30, 2001, was $2.3
     billion, with an average interest rate of 7.07% and fair market value of
     $2.3 billion.

     The exposure to changes in interest rates from CP&L's variable rate debt
     and commercial paper at June 30, 2001, was not materially different than at
     December 31, 2000.  The total variable rate debt and commercial paper
     outstanding at June 30, 2001, was $1.1 billion, with an average interest
     rate of 3.78%, and $590 million, with an average interest rate of 4.15%,
     respectively.

     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 was
     not materially different than at December 31, 2000.  The fair value of the
     swaps was a $15.0 million liability position at June 30, 2001.

                          PART II.  OTHER INFORMATION

     Item 1.  Legal Proceedings
     ------   -----------------

     Legal aspects of certain matters are set forth in Part I, Item 1.  See Note
     10 to the Progress Energy, Inc. Consolidated Interim Financial Statements
     and Note 6 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 23, 2001, 3,700 restricted shares of
          --------------------
     Progress Energy's Common Shares were granted to a certain key employee
     pursuant to the terms of Progress Energy's 1997 Equity Incentive Plan
     (Plan), which was approved by Progress Energy's shareholders on May 7,
     1997. (Sponsorship of the Plan was transferred from CP&L to Progress Energy
     effective August 1, 2000.) Section 9 of the Plan provides for the granting
     of Restricted Stock by the Personnel, Executive Development and
     Compensation Committee (currently the Committee on Organization and
     Compensation), (the Committee) to key employees of Progress Energy,
     including its Affiliates and Subsidiaries. The Common Shares delivered
     pursuant to the Plan were acquired in market transactions directly for the
     account of the recipient and do not represent newly issued shares of
     Progress Energy.

     (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 a key employee of Progress Energy.  The
     Plan defines "key employees" as an officer or other employee of Progress
     Energy who, in the opinion of the Committee, can contribute significantly
     to the growth and profitability of, or perform services of major importance
     to, Progress Energy.

     (c) Consideration.  The Common Shares were delivered to provide an
         -------------
     incentive to the employee recipient to exert his utmost efforts on Progress
     Energy's behalf and thus enhance Progress Energy's performance while
     aligning the employee's interest with those of Progress Energy'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 recipient.  All
     award decisions were made by the Committee, which consists entirely of non-
     employee directors.

                                       34

<PAGE>

     STRATEGIC RESOURCE SOLUTIONS CORP.:

     (a) Securities Delivered.  On June 15, 2001, Progress Energy issued 6,325
         --------------------
     shares of its Common Stock (Common Shares) in connection with the June 5,
     1997 merger of Knowledge Builders, Inc. (KBI) into a wholly-owned
     subsidiary of Progress Energy (CaroCapital, Inc., a North Carolina
     Enterprise Corporation since renamed Strategic Resource Solutions Corp.)
     Of these, 6,174 shares were issued as post-closing merger consideration to
     the former holders of KBI common stock for KBI shares that were canceled in
     the merger.  The remaining 151 shares were issued as incentive compensation
     payments based upon the 2000 performance of SRS and its subsidiaries
     arising under incentive compensation agreements entered into pursuant to
     the merger with KBI.

     (b) Underwriters and Other Purchasers.  No underwriters were used in
         ---------------------------------
     connection with this issuance of Common Shares.  The Common Shares were
     issued (A) as merger consideration to former holders of KBI common stock
     whose KBI shares were canceled in the merger and (B) as incentive
     compensation payments to certain SRS employees based upon the 2000
     performance of SRS.

     (c) Consideration.  The consideration for 6,174 of the Common Shares issued
         -------------
     was the cancellation of former shares of KBI in the merger.  The other 151
     Common Shares were issued as compensation pursuant to certain incentive
     compensation award agreements.

     (d) Exemption from Registration Claimed.  The Common Shares described above
         -----------------------------------
     were issued on the basis of an exemption from registration under Section
     4(2) of the Securities Act of 1933.  The Common Shares were issued to a
     limited number of persons and subjected to restrictions on resale
     appropriate for private placements, and appropriate disclosure was made to
     all persons to whom Common Shares were issued.


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

     Progress Energy, Inc.

     (a) The Annual Meeting of the Shareholders of Progress Energy, Inc. was
         held on May 9, 2001.

     (b) The meeting involved the election of two Class I directors to serve for
         one-year terms, one Class II director to serve a two-year term and four
         Class III directors to serve 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 2002)

       W. D. Frederick, Jr.       167,723,416       3,202,285
       Richard Korpan             165,242,127       5,683,574


       Class II                    Votes For      Votes Withheld
       -------------------------------------------------------------
       (Term Expiring in 2003)

       Richard A. Nunis            167,607,265       3,318,436


       Class III                   Votes For      Votes Withheld
       -------------------------------------------------------------
       (Term Expiring in 2004)

       William Cavanaugh III      167,782,614       3,143,087
       Charles W. Coker           167,986,510       2,939,191
       E. Marie McKee             167,909,462       3,016,239
       Jean Giles Wittner         167,648,884       3,240,817

                                       35

<PAGE>

          A shareholder proposal requiring Progress Energy to invest in solar
          and wind powered sources of electrical generation was presented, but
          was not approved by the shareholders.  The number of shares voted for
          the proposal was 8,591,190 and the number of shares voted against the
          proposal was 127,616,369.

     Carolina Power & Light Company

     (a) The Annual Meeting of the Shareholders of Carolina Power & Light
         Company was held on May 9, 2001.

     (b) The meeting involved the election of two Class I directors to serve for
         one-year terms, one Class II director to serve a two-year term and four
         Class III directors to serve 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 2002)

       W. D. Frederick, Jr.       159,814,447           1,610
       Richard Korpan             159,814,451           1,606


       Class II                   Votes For         Votes Withheld
       -------------------------------------------------------------
       (Term Expiring in 2003)

       Richard A. Nunis           159,814,456           1,601


       Class III                  Votes For         Votes Withheld
       -------------------------------------------------------------

       (Term Expiring in 2004)

       William Cavanaugh III      159,814,453           1,604
       Charles W. Coker           159,814,439           1,618
       E. Marie McKee             159,814,439           1,618
       Jean Giles Wittner         159,814,456           1,601


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:

         Progress Energy, Inc.
         ---------------------

<TABLE>
<CAPTION>

                      Financial
        Item         Statements
      Reported        Included           Date of Event         Date Filed
      --------       ----------          -------------         ----------

<C>                  <S>                 <C>                    <C>
         9                No               May 30, 2001          May 30, 2001
         9                No               June 11, 2001         June 11, 2001
         9                Yes              July 25, 2001        August 6, 2001
         9                No              August 6, 2001        August 7, 2001
</TABLE>

                                       36

<PAGE>

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

<TABLE>
<CAPTION>

                             Financial
             Item           Statements
           Reported          Included       Date of Event        Date Filed
           --------          --------       -------------        ----------
<S>                          <C>            <C>                  <C>
             5                   No         April 4, 2001       April 16, 2001
</TABLE>

                                       37

<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 10, 2001                       (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

                                       38