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 September 30, 2002
                                               ------------------

                                       OR

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

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

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

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

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



  1-3382                               Carolina Power & Light Company                               56-0165465
                                         410 South Wilmington Street
                                     Raleigh, North Carolina 27601-1748
                                          Telephone: (919) 546-6111
                                   State of Incorporation: North Carolina


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

</TABLE>

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

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


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock,  as of the latest  practicable  date. As of October 31, 2002, each
registrant had the following shares of common stock outstanding

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

              Registrant                                Description                                Shares
              ----------                                -----------                                ------
Progress Energy, Inc.                    Common Stock (Without Par Value)                       222,152,799
Carolina Power & Light Company           Common Stock (Without Par Value)              159,608,055 (all of which were
                                                                                       held by Progress Energy, Inc.)

</TABLE>
                                       1
<PAGE>



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



Glossary of Terms

Safe Harbor For Forward-Looking Statements

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Interim Financial Statements:

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

               Carolina Power & Light Company
               ------------------------------
               Consolidated Statements of Income
               Consolidated Balance Sheets
               Consolidated Statements of Cash Flows
               Notes to Consolidated Interim Financial Statements

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Item 4.  Controls and Procedures

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

Item 2.  Changes in Securities and Use of Proceeds

Item 6.  Exhibits and Reports on Form 8-K

Signatures

Certifications

                                       2
<PAGE>




                                GLOSSARY OF TERMS

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

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

     TERM                                    DEFINITION

Code                       Internal Revenue Service Code
CP&L                       Carolina Power & Light Company
CR3                        Florida Power's nuclear generating plant, Crystal River Unit No. 3
CVO                        Contingent value obligation
DEP                        Florida Department of Environment and Protection
DOE                        United States Department of Energy
Dt                         Dekatherm
DWM                        North Carolina Department of Environment and Natural Resources, Division of Waste
                           Management
EasternNC                  Eastern North Carolina Natural Gas Company, formerly referred to as ENCNG
EITF 98-10                 Accounting for Contracts Involved in Energy Trading and Risk Management Activities
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
IBEW                       International Brotherhood of Electrical Workers
IRS                        Internal Revenue Service
KWh                        Kilowatt-hour
MGP                        Manufactured Gas Plant
MW                         Megawatt
NCNG                       North Carolina Natural Gas Corporation
NCUC                       North Carolina Utilities Commission
NOx SIP Call               EPA rule which requires 22 states including North and South Carolina to further reduce
                           nitrogen oxide emissions.
NRC                        United States Nuclear Regulatory Commission
PCH                        Progress Capital Holdings, Inc.
PLR                        Private Letter Ruling
Progress Energy            Progress Energy, Inc.
Progress Fuels             Progress Fuels Corporation, formerly referred to as Electric Fuels Corporation
Progress Rail              Progress Rail Services Corporation
Progress Telecom           Progress Telecommunications Corporation
Progress Ventures          Business segment of Progress Energy primarily made up of non-regulated energy generation,
                           coal and synthetic fuel operations and energy marketing and trading, formerly referred to
                           as Energy Ventures
Progress Ventures, Inc.    Legal entity holding certain non-regulated operations and part of Progress Ventures
                           business segment
PUHCA                      Public Utility Holding Company Act of 1935, as amended
RTO                        Regional Transmission Organization
SCPSC                      Public Service Commission of South Carolina
SEC                        United States Securities and Exchange Commission
Service Company            Progress Energy Service Co., LLC
SFAS No. 133               Statements of Financial Accounting Standards No. 133, Accounting for Derivative and
                           Hedging Activities
SFAS No. 142               Statements of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
SFAS No. 143               Statements of Financial Accounting Standards No. 143, Accounting for Asset Retirement
                           Obligations
SFAS No. 144               Statements of Financial Accounting Standards No. 144, Accounting for the Impairment or
                           Disposal of Long-Lived Assets

                                       3
<PAGE>


SFAS No. 145               Statements of Financial Accounting Standards No. 145, Rescission of FASB Statement Nos.
                           4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections
SFAS No. 146               Statements of Financial Accounting Standards No. 146, Accounting for Costs Associated
                           with Exit or Disposal Activities
SRS                        Strategic Resource Solutions Corp.
the Company                Progress Energy, Inc. and subsidiaries

                                       4
</TABLE>

<PAGE>




         SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

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

In  addition,   forward-looking   statements  are  discussed  in   "Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations"
including,  but not limited to, statements under the sub-heading "Other Matters"
concerning synthetic fuel tax credits and regulatory developments.

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

Examples of factors that you should consider with respect to any forward-looking
statements made throughout  this document  include,  but are not limited to, the
following:  the impact of fluid and  complex  government  laws and  regulations,
including those relating to the environment;  the impact of recent events in the
energy markets that have  increased the level of public and regulatory  scrutiny
in the energy industry and in the capital markets; deregulation or restructuring
in  the  electric  industry  that  may  result  in  increased   competition  and
unrecovered (stranded) costs; the uncertainty regarding the timing, creation and
structure  of  regional  transmission  organizations;  weather  conditions  that
directly  influence  the demand  for  electricity  and  natural  gas;  recurring
seasonal fluctuations in demand for electricity and natural gas; fluctuations in
the price of energy commodities and purchased power;  economic  fluctuations and
the  corresponding  impact on the Company's and CP&L's commercial and industrial
customers;  the ability of the Company's  subsidiaries to pay upstream dividends
or  distributions  to it; the impact on the facilities and the businesses of the
Company and CP&L from a terrorist attack; the inherent risks associated with the
operation of nuclear facilities, including environmental, health, regulatory and
financial risks; the ability to successfully access capital markets on favorable
terms;  the impact that  increases in leverage may have on the Company and CP&L;
the ability of the Company and CP&L to maintain  their current  credit  ratings;
the impact of derivative  contracts used in the normal course of business by the
Company and CP&L; the Company's  continued ability to use Section 29 tax credits
related to its coal and synthetic  fuels  businesses;  the  continued  depressed
state of the  telecommunications  industry and the Company's  ability to realize
future returns from Progress Telecom and Caronet, Inc.; the Company's ability to
successfully  integrate  newly acquired  businesses,  including  Westchester Gas
Company,  into its  operations  as quickly or as  profitably  as  expected;  the
Company's  ability to successfully  complete the sale of North Carolina  Natural
Gas and apply the proceeds  therefrom to reduce  outstanding  indebtedness;  the
Company's  ability  to  manage  the risks  involved  with the  construction  and
operation of its non-regulated plants, including construction delays, dependence
on third  parties  and  related  counter-party  risks,  and a lack of  operating
history;  the Company's  ability to manage the risks  associated with its energy
marketing  and  trading  operations;  the extent to which the Company is able to
reduce its  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.  Many of
these risks similarly impact the Company's subsidiaries.

These and other risk  factors  are  detailed  from time to time in the  Progress
Energy  and CP&L SEC  reports.  You  should  closely  read  these  SEC  reports,
including, particularly, Progress Energy's current report on Form 8-K filed with
the SEC on August 9, 2002.  All such factors are  difficult to predict,  contain
uncertainties  that may materially affect actual results,  and may be beyond the
control of Progress  Energy and CP&L.  New factors emerge from time to time, and
it is not possible for management to predict all such factors, nor can it assess
the effect of each such factor on Progress Energy and CP&L.


                                       5

<PAGE>





                          PART I. FINANCIAL INFORMATION


Item 1.  Financial Statements

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

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

CONSOLIDATED STATEMENTS OF INCOME
                                                                     Three Months Ended            Nine Months Ended
(Unaudited)                                                            September 30,                 September 30,
(In thousands except per share amounts)                          2002             2001            2002              2001
-----------------------------------------------------------------------------------------------------------------------------
Operating Revenues
  Electric                                                 $  1,908,817    $    1,879,934   $   5,007,321   $     5,077,928
  Natural gas                                                    60,568            51,671         211,171           258,820
  Diversified businesses                                        383,141           398,942       1,060,613         1,217,532
-----------------------------------------------------------------------------------------------------------------------------
       Total Operating Revenues                               2,352,526         2,330,547       6,279,105         6,554,280
-----------------------------------------------------------------------------------------------------------------------------
Operating Expenses
  Fuel used in electric generation                              459,293           446,309       1,205,731         1,194,453
  Purchased power                                               269,108           268,794         675,066           698,218
  Gas purchased for resale                                       47,505            36,282         150,277           203,060
  Other operation and maintenance                               324,880           290,651       1,011,096           890,148
  Depreciation and amortization                                 211,088           268,475         642,979           849,395
  Taxes other than on income                                    106,144           105,125         297,775           298,716
  Diversified businesses                                        737,243           461,393       1,536,229         1,372,840
-----------------------------------------------------------------------------------------------------------------------------
      Total Operating Expenses                                2,155,261         1,877,029       5,519,153         5,506,830
-----------------------------------------------------------------------------------------------------------------------------
Operating Income                                                197,265           453,518         759,952         1,047,450
-----------------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
  Interest income                                                 3,002             5,549          11,317            24,997
  Other, net                                                    (13,394)           16,671          (8,505)            7,214
-----------------------------------------------------------------------------------------------------------------------------
      Total Other Income (Expense)                              (10,392)           22,220           2,812            32,211
-----------------------------------------------------------------------------------------------------------------------------
Interest Charges
  Net interest charges                                          149,431           170,044         498,475           530,259
  Allowance for borrowed funds used during construction          (3,721)           (4,206)        (11,064)           (9,559)
-----------------------------------------------------------------------------------------------------------------------------
      Total Interest Charges                                    145,710           165,838         487,411           520,700
-----------------------------------------------------------------------------------------------------------------------------
Income before Income Taxes                                       41,163           309,900         275,353           558,961
Income Tax Benefit                                             (110,771)          (56,543)       (129,728)          (73,187)
-----------------------------------------------------------------------------------------------------------------------------
Net Income                                                 $    151,934    $      366,443   $     405,081   $       632,148
-----------------------------------------------------------------------------------------------------------------------------

Average Common Shares Outstanding                               216,079           205,866         214,700           201,925
Basic Earnings per Common Share                            $       0.71    $         1.78   $        1.89   $          3.13
Diluted Earnings per Common Share                          $       0.70    $         1.77   $        1.88   $          3.12
Dividends Declared per Common Share                        $      0.545    $        0.530   $       1.635   $         1.590

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


                                       6
<PAGE>




Progress Energy, Inc
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except share data)                                               September 30,      December 31,
Assets                                                                             2002              2001
---------------------------------------------------------------------------------------------------------------
Utility Plant
  Electric utility plant in service                                         $  19,764,622     $    19,176,021
  Gas utility plant in service                                                    540,693             491,903
  Accumulated depreciation                                                    (10,522,018)        (10,096,412)
---------------------------------------------------------------------------------------------------------------
        Utility plant in service, net                                           9,783,297           9,571,512
  Held for future use                                                              15,027              15,380
  Construction work in progress                                                   806,922           1,065,154
  Nuclear fuel, net of amortization                                               215,493             262,869
---------------------------------------------------------------------------------------------------------------
        Total Utility Plant, Net                                               10,820,739          10,914,915
---------------------------------------------------------------------------------------------------------------
Current Assets
  Cash and cash equivalents                                                        58,940              54,419
  Accounts receivable                                                             794,659             723,807
  Unbilled accounts receivable                                                    231,393             199,593
  Taxes receivable                                                                      -              32,325
  Inventory                                                                       918,297             893,971
  Deferred fuel cost                                                              183,942             146,652
  Prepayments                                                                      62,740              49,056
  Other current assets                                                            190,358             224,409
---------------------------------------------------------------------------------------------------------------
        Total Current Assets                                                    2,440,329           2,324,232
---------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
  Regulatory assets                                                               403,168             448,631
  Nuclear decommissioning trust funds                                             790,858             822,821
  Diversified business property, net                                            1,768,477           1,073,046
  Miscellaneous other property and investments                                    515,613             464,589
  Goodwill, net                                                                 3,785,073           3,690,210
  Prepaid pension costs                                                           503,357             489,600
  Restricted cash                                                                  73,821                   -
  Other assets and deferred debits                                                479,321             513,099
---------------------------------------------------------------------------------------------------------------
        Total Deferred Debits and Other Assets                                  8,319,688           7,501,996
---------------------------------------------------------------------------------------------------------------
           Total Assets                                                     $  21,580,756     $    20,741,143
---------------------------------------------------------------------------------------------------------------

Capitalization and Liabilities
---------------------------------------------------------------------------------------------------------------
Capitalization
  Common stock (without par value, 500,000,000 shares authorized,
  221,933,138 and 218,725,352 shares issued and outstanding, respectively) $    4,278,913     $     4,107,493
  Unearned ESOP common stock                                                     (101,560)           (114,385)
  Accumulated other comprehensive loss                                            (39,102)            (32,180)
  Retained earnings                                                             2,094,639           2,042,605
---------------------------------------------------------------------------------------------------------------
        Total common stock equity                                               6,232,890           6,003,533
  Preferred stock of subsidiaries-not subject to mandatory redemption              92,831              92,831
  Long-term debt, net                                                           9,735,025           8,618,960
---------------------------------------------------------------------------------------------------------------
           Total Capitalization                                                16,060,746          14,715,324
---------------------------------------------------------------------------------------------------------------
Current Liabilities
  Current portion of long-term debt                                               375,202             688,052
  Accounts payable                                                                657,572             725,977
  Taxes accrued                                                                   123,645                   -
  Interest accrued                                                                153,903             212,387
  Dividends declared                                                              120,001             117,857
  Short-term obligations                                                        1,060,267             942,314
  Customer deposits                                                               159,920             154,343
  Other current liabilities                                                       391,470             419,398
---------------------------------------------------------------------------------------------------------------
        Total Current Liabilities                                               3,041,980           3,260,328
---------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
  Accumulated deferred income taxes                                             1,157,446           1,434,506
  Accumulated deferred investment tax credits                                     211,446             226,382
  Regulatory liabilities                                                          292,544             287,239
  Other liabilities and deferred credits                                          816,594             817,364
---------------------------------------------------------------------------------------------------------------
        Total Deferred Credits and Other Liabilities                            2,478,030           2,765,491
---------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 13)
---------------------------------------------------------------------------------------------------------------
           Total Capitalization and Liabilities                            $   21,580,756     $    20,741,143
---------------------------------------------------------------------------------------------------------------
See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.


                                       7
<PAGE>




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

Operating Activities
  Net income                                                           $     405,081     $       632,148
  Adjustments to reconcile net income to net cash provided by
  Operating activities
      Impairment of long-lived assets and investments                        329,997                   -
      Depreciation and amortization                                          801,157             997,680
      Deferred income taxes                                                 (312,020)            (78,987)
      Investment tax credit                                                  (14,930)            (18,479)
      Deferred fuel cost (credit)                                            (37,290)             25,616
      Net increase in accounts receivable                                    (96,005)            (48,536)
      Net increase in inventories                                            (29,069)           (252,505)
      Net increase in prepaids and other current assets                      (23,169)             (1,815)
      Net increase (decrease) in accounts payable                             13,605             (60,828)
      Net increase in other current liabilities                               99,521              65,630
      Other                                                                   69,457             (24,281)
----------------------------------------------------------------------------------------------------------
        Net Cash Provided by Operating Activities                          1,206,335           1,235,643
----------------------------------------------------------------------------------------------------------

Investing Activities
  Gross property additions                                                  (738,559)           (884,837)
  Diversified business property additions and acquisitions                  (764,553)           (194,661)
  Proceeds from sale of assets                                                   670               5,532
  Nuclear fuel additions                                                     (56,102)           (113,099)
  Net contributions to nuclear decommissioning trust                         (13,367)            (40,540)
  Fuel acquisition, net of cash acquired                                     (17,355)                  -
  Net cash flow of company-owned life insurance program                       (4,086)             (5,137)
  Investments in non-utility activities                                       (5,068)              3,390
  Net increase in restricted cash                                            (73,821)                  -
  Other                                                                          388                   -
----------------------------------------------------------------------------------------------------------
        Net Cash Used in Investing Activities                             (1,671,853)         (1,229,352)
----------------------------------------------------------------------------------------------------------

Financing Activities
  Proceeds from issuance of long-term debt                                 1,787,711           3,772,376
  Net increase (decrease) in short-term indebtedness                         117,953          (3,632,802)
  Net decrease in cash provided by checks drawn in excess of bank            (37,471)            (78,816)
balances
  Retirement of long-term debt                                            (1,049,918)           (186,295)
  Issuance of common stock                                                          -            488,290
  Dividends paid on common stock                                            (350,903)           (318,910)
  Other                                                                        2,667             (47,567)
----------------------------------------------------------------------------------------------------------
        Net Cash Provided by (Used in) Financing Activities                  470,039              (3,724)
----------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents                                      4,521               2,567
Cash and Cash Equivalents at Beginning of the Period                          54,419             101,296
----------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period                         $      58,940     $       103,863
----------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period - interest                                 $     540,512     $       507,284
                              income taxes                             $     104,863     $        31,664
See Note 2 for non-cash investing and financing activity.
----------------------------------------------------------------------------------------------------------
See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.


                                       8
<PAGE>




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

Operating Revenues (in thousands)
Electric
    Retail                                                $ 1,602,600     $ 1,591,713     $    4,176,454    $     4,214,165
    Wholesale                                                 251,797         254,054            659,316            729,608
    Unbilled                                                    2,542          (7,493)            28,769            (54,272)
    Miscellaneous revenue                                      51,878          41,660            142,782            188,427
-----------------------------------------------------------------------------------------------------------------------------
         Total Electric                                     1,908,817       1,879,934          5,007,321          5,077,928
Natural gas                                                    60,568          51,671            211,171            258,820
Diversified businesses                                        383,141         398,942          1,060,613          1,217,532
-----------------------------------------------------------------------------------------------------------------------------
            Total Operating Revenues                      $ 2,352,526     $ 2,330,547     $    6,279,105    $     6,554,280
-----------------------------------------------------------------------------------------------------------------------------

Energy Sales - Utility
 Electric (millions of kWh)
  Retail
     Residential                                                9,988           9,385             25,810             25,310
     Commercial                                                 6,881           6,597             18,012             17,553
     Industrial                                                 4,552           4,473             12,776             13,068
     Other retail                                               1,185           1,164              3,183              3,135
-----------------------------------------------------------------------------------------------------------------------------
          Total retail                                         22,606          21,619             59,781             59,066
  Unbilled                                                         (3)           (350)               716               (893)
  Wholesale                                                     5,550           5,087             14,331             13,946
-----------------------------------------------------------------------------------------------------------------------------
     Total Electric                                            28,153          26,356             74,828             72,119
-----------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------
Natural Gas Delivered (thousands of dt)                        19,965          13,080             52,463             39,022
-----------------------------------------------------------------------------------------------------------------------------

Energy Supply - Utility (millions of kWh)
  Generated - Steam                                            14,529          13,451             37,628             37,242
              Nuclear                                           7,720           7,553             22,640             21,503
              Hydro                                                51              83                297                200
              Combustion turbines                               3,121           2,461              6,868              5,270
  Purchased                                                     4,142           3,945             10,991             11,330
-----------------------------------------------------------------------------------------------------------------------------
            Total Energy Supply - (Company Share) (a)          29,563          27,493             78,424             75,545
-----------------------------------------------------------------------------------------------------------------------------

Detail of Income Taxes (in thousands)
    Income tax expense (credit) - current                 $   163,024      $   (4,197)    $      197,212    $        24,279
                                  deferred                   (269,087)        (47,082)          (312,020)           (78,987)
                                  investment tax credit        (4,708)         (5,264)           (14,920)           (18,479)
-----------------------------------------------------------------------------------------------------------------------------
               Total Income Tax Benefit                   $  (110,771)     $  (56,543)    $     (129,728)   $       (73,187)
-----------------------------------------------------------------------------------------------------------------------------

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


                                       9
<PAGE>




Progress Energy, Inc.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1.   ORGANIZATION AND BASIS OF PRESENTATION

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

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

     The amounts included in the consolidated  interim financial  statements are
     unaudited  but,  in the  opinion of  management,  reflect  all  adjustments
     necessary to fairly present the Company's financial position and results of
     operations for the interim periods.  Due to seasonal weather variations and
     the  timing  of   outages  of   electric   generating   units,   especially
     nuclear-fueled units, the results of operations for interim periods are not
     necessarily  indicative of amounts expected for the entire year.  Effective
     with the quarter  ended  September  30,  2002,  the Company  will no longer
     reclassify  commercial  paper as long-term  debt.  Certain amounts for 2001
     have been reclassified to conform to the 2002 presentation.

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

2.   ACQUISITIONS

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

     The aggregate cash purchase price of  approximately  $348 million  included
     approximately  $1.7 million of direct transaction costs. The purchase price
     was  primarily  allocated  to fixed assets  based on the  preliminary  fair
     values of the assets  acquired.  The transaction  also included tolling and
     power sale  agreements  with LG&E Energy  Marketing,  Inc. for each project
     through  December  31,  2004.  The  excess of the  purchase  price over the
     preliminary  fair  value of the net  identifiable  assets  and  liabilities
     acquired  has  been  recorded  as  goodwill.   Based  on  this  preliminary
     allocation,  goodwill of approximately $64.1 million has been recorded. The
     preliminary  purchase price allocation is subject to adjustment for changes
     in the  preliminary  assumptions  and  analyses  used,  pending  additional
     information including final asset valuations.

                                       10
<PAGE>

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

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

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

     The aggregate  purchase price of  approximately  $153 million  consisted of
     cash  consideration  of  approximately  $22 million and the issuance of 2.5
     million shares of Progress Energy common stock valued at approximately $129
     million.  The purchase price included  approximately $1.7 million of direct
     transaction  costs.  The purchase  price was  primarily  allocated to fixed
     assets based on the  preliminary  fair values of the assets  acquired.  The
     excess of the  purchase  price over the  preliminary  fair value of the net
     identifiable assets and liabilities acquired has been recorded as goodwill.
     Based on this preliminary allocation, goodwill of approximately $33 million
     has been recorded.  The preliminary purchase price allocation is subject to
     adjustment for changes in the  preliminary  assumptions  and analyses used,
     pending  additional   information  including  final  asset  valuations  and
     allocations to gas properties.

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

3.   IMPAIRMENT OF LONG-LIVED ASSETS, INVESTMENTS AND OTHER ONE-TIME CHARGES

     Due to  the  decline  of  the  telecommunications  industry  and  continued
     operating  losses,  the Company  initiated a valuation  study to assess the
     recoverability of Progress Telecom's and Caronet's long-lived assets. Based
     on this  assessment,  the  Company  recorded  asset  impairments  and other
     one-time  charges  totaling  $330.4 million on a pre-tax basis in the third
     quarter of 2002 ($208.5 million after-tax). The asset write-downs and other
     one-time  charges are included in  diversified  businesses  expenses on the
     Consolidated  Statements  of Income.  The results of  Progress  Telecom and
     Caronet are  included in the Other  segment  (See Note 5). This  write-down
     constitutes a significant  reduction in the book value of these  long-lived
     assets.

     The  long-lived  asset  write-downs  of $305.0  million on a pre-tax  basis
     include an impairment of property,  plant and equipment,  construction work
     in process and  intangible  assets.  The impairment  charge  represents the
     difference  between the fair value and carrying amount of these  long-lived
     assets.  The fair value of these  assets was  determined  using a valuation
     study heavily  weighted on the discounted  cash flow  methodology and using
     market approaches as supporting information.  The other one-time charges of
     $25.4 million on a pre-tax basis primarily relate to inventory adjustments.

     Effective  June 28,  2000,  Caronet  entered  into an  agreement  with Bain
     Capital where it contributed the net assets used in its application service
     provider business to a newly formed company,  for a 35% ownership  interest
     (15% voting interest), named Interpath Communications, Inc. (Interpath). In
     May 2002,  Interpath merged with  Usinternetworking,  Inc.  Pursuant to the
     terms of the merger  agreement and  additional  funds being  contributed by
     Bain  Capital,  CP&L now owns  approximately  19% of the company (7% voting
     interest).  As a result of the merger,  the Company  reviewed the Interpath
     investment  for  impairment  and  wrote  off the  remaining  amount  of its
     cost-basis investment in Interpath, recording a pre-tax impairment of $25.0
     million  in the  third  quarter  of 2002  ($16.3  million  after-tax).  The
     investment  write-down  is  included  in  other,  net on  the  Consolidated
     Statements of Income.

4.   FLORIDA POWER RATE CASE SETTLEMENT

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

                                       11
<PAGE>

     Florida  Power's  base rate  earnings  fall  below a 10%  return on equity,
     Florida Power may petition the FPSC to amend its base rates.

     The Agreement  provides that Florida Power will reduce its retail  revenues
     from the sale of  electricity  by an  annual  amount of $125  million.  The
     Agreement  also  provides  that Florida  Power will operate under a Revenue
     Sharing  Incentive  Plan (the Plan)  through  2005,  and  thereafter  until
     terminated by the FPSC,  that  establishes  annual revenue caps and sharing
     thresholds.  The Plan provides  that retail base rate revenues  between the
     sharing  thresholds  and the retail base rate  revenue caps will be divided
     into  two  shares  -  a  1/3  share  to  be  received  by  Florida  Power's
     shareholders,  and a 2/3 share to be  refunded  to Florida  Power's  retail
     customers;  provided,  however,  that for the year 2002 only, the refund to
     customers  will be limited to 67.1% of the 2/3 customer  share.  The retail
     base rate revenue sharing threshold amounts for 2002 will be $1,296 million
     and will increase $37 million each year thereafter.  The Plan also provides
     that all retail base rate revenues  above the retail base rate revenue caps
     established for each year will be refunded to retail customers on an annual
     basis.  For 2002,  the refund to customers  will be limited to 67.1% of the
     retail base rate revenues that exceed the 2002 cap. The retail base revenue
     caps for 2002 will be $1,356  million and will  increase  $37 million  each
     year  thereafter.  Any amounts  above the retail base  revenue caps will be
     refunded 100 percent to customers.

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

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

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

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

     The Agreement also provides that Florida Power will refund to customers $35
     million of revenues Florida Power collected during the interim period since
     March 13, 2001.  This one-time  retroactive  revenue refund was recorded in
     the first quarter of 2002 and will be returned to retail  customers over an
     eight-month  period ending December 31, 2002. Any additional  refunds under
     the  Agreement  will be  recorded as they become  probable.  No  additional
     refunds have been accrued at September 30, 2002.

5.   FINANCIAL INFORMATION BY BUSINESS SEGMENT

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

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

     The Progress Ventures segment is primarily engaged in non-regulated  energy
     generation and coal, gas and synthetic fuel operations.  Management reviews
     the  operations of the Progress  Ventures  segment after the  allocation of

                                       12
<PAGE>

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

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

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

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

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

                                                      Florida Power      Progress     Rail Services                   Segment
(in thousands)                        CP&L Electric      Electric      Ventures (b)        (c)          Other (d)      Totals
------------------------------------------------------------------------------------------------------------------------------
Three Months Ended 9/30/02
Revenues
     Unaffiliated                        $1,045,180        $863,637      $168,777        $194,611       $70,902     $2,343,107
     Intersegment                                 -               -       135,029           1,282      (126,892)         9,419
                                      ----------------------------------------------------------------------------------------
          Total Revenues                 $1,045,180        $863,637      $303,806        $195,893      $(55,990)    $2,352,526
Net Income (Loss)                          $179,308        $123,774       $72,976            $733     $(224,857)      $151,934
Segment Income (Loss) After                $167,974        $120,513       $87,571            $733     $(224,857)      $151,934
  Allocation (a)
Total Segment Assets                     $8,785,416      $5,079,719    $2,381,706        $579,947    $4,753,968    $21,580,756
==============================================================================================================================

                                                      Florida Power     Progress                                      Segment
                                      CP&L Electric     Electric       Ventures       Rail Services       Other        Totals
------------------------------------------------------------------------------------------------------------------------------
Three Months Ended 9/30/01
Revenues
     Unaffiliated                          $973,803        $906,131      $144,511        $219,554       $77,926     $2,321,925
     Intersegment                                 -               -        88,014             478       (79,870)         8,622
                                      ----------------------------------------------------------------------------------------
          Total Revenues                   $973,803        $906,131      $232,525        $220,032       $(1,944)    $2,330,547
Net Income (Loss)                          $168,456        $114,079       $61,660         $(2,165)      $24,413       $366,443
Segment Income (Loss) After                $156,725        $107,397       $80,073         $(2,165)      $24,413       $366,443
Allocation (a)
Total Segment Assets                     $9,101,248      $5,044,029    $1,005,962        $828,384    $4,693,366    $20,672,989
==============================================================================================================================

                                       13

<PAGE>


                                      CP&L Electric   Florida Power     Progress      Rail Services     Other (d)     Segment
                                                        Electric      Ventures (b)         (c)                        Totals
   ---------------------------------------------------------------------------------------------------------------------------
   Nine Months Ended 9/30/02
   Revenues
        Unaffiliated                     $2,691,320      $2,316,001      $419,702        $574,514      $258,413     $6,259,950
        Intersegment                              -               -       394,848           2,632      (378,325)        19,155
                                         -------------------------------------------------------------------------------------
             Total Revenues              $2,691,320      $2,316,001      $814,550        $577,146     $(119,912)    $6,279,105
   Net Income (Loss)                       $396,530        $258,271      $165,928          $2,979     $(418,627)      $405,081
   Segment Income (Loss) After             $355,251        $248,741      $216,737          $2,979     $(418,627)      $405,081
   Allocation (a)
   Total Segment Assets                  $8,785,416      $5,079,719    $2,381,706        $579,947    $4,753,968    $21,580,756
   ===========================================================================================================================

                                                      Florida Power     Progress                                    Segment
                                      CP&L Electric     Electric        Ventures      Rail Services     Other       Totals
   ---------------------------------------------------------------------------------------------------------------------------
   Nine Months Ended 9/30/01
   Revenues
        Unaffiliated                     $2,577,664      $2,500,265      $395,767        $739,863      $327,211     $6,540,770
        Intersegment                              -               -       280,410           1,102      (268,002)        13,510
                                         -------------------------------------------------------------------------------------
             Total Revenues              $2,577,664      $2,500,265      $676,177        $740,965       $59,209     $6,554,280
   Net Income (Loss)                       $373,949        $269,996      $161,026         $(9,698)    $(163,125)      $632,148
   Segment Income Loss) After              $334,593        $251,601      $218,777         $(9,698)    $(163,125)      $632,148
   Allocation (a)
   Total Segment Assets                  $9,101,248      $5,044,029    $1,005,962        $828,384    $4,693,366    $20,672,989
   ===========================================================================================================================
   (a) After allocation of energy trading and marketing net income managed by
   Progress Ventures on behalf of the electric utilities.
   (b) Progress Ventures total segment assets at September 30, 2002, increased
   from the prior year due to the addition of non-regulated generating assets
   including Effingham, DeSoto, Walton and Washington, the transfer of the
   Rowan plant from CP&L in the first quarter of 2002 and the acquisition of
   Westchester Gas Company (See Note 2). The Effingham and Washington units
   are still under construction.
   (c) Rail Services total segment assets at September 30, 2002, decreased from
   the prior year due to the final purchase price allocation being recorded in
   the fourth quarter of 2001.
   (d) All goodwill is included in the Other Segment herein (See Note 7).
</TABLE>

6.   IMPACT OF NEW ACCOUNTING STANDARDS

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

     See Note 7 for  more  information  on SFAS No.  142,  "Goodwill  and  Other
     Intangible Assets."

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

                                       14
<PAGE>


     Effective  January 1, 2002, the Company  adopted SFAS No. 144,  "Accounting
     for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 provides
     guidance for the  accounting  and  reporting of  impairment  or disposal of
     long-lived assets. The statement  supersedes SFAS No. 121,  "Accounting for
     the  Impairment  of  Long-Lived  Assets  and for  Long-Lived  Assets  to be
     Disposed Of." It also supersedes the accounting and reporting provisions of
     APB Opinion No. 30,  "Reporting  the Results of  Operations - Reporting the
     Effects of Disposal of a Segment of a Business, and Extraordinary,  Unusual
     and Infrequently Occurring Events and Transactions" related to the disposal
     of a segment  of a  business.  Adoption  of this  statement  did not have a
     material effect on the Company's financial statements.

     In April 2002, the FASB issued SFAS No. 145  "Rescission of FASB Statements
     No.  4, 44 and 64,  Amendment  of FASB  Statement  No.  13,  and  Technical
     Corrections"   This   standard   will   require   gains  and  losses   from
     extinguishment of debt to be classified as extraordinary items only if they
     meet the criteria of unusual and  infrequent in Opinion 30,  "Reporting the
     Results of Operations - Reporting the Effects of Disposal of a Segment of a
     Business, and Extraordinary,  Unusual and Infrequently Occurring Events and
     Transactions."  Any gain or loss on extinguishment  will be recorded in the
     most  appropriate  line item to which it relates  within net income  before
     extraordinary  items.  SFAS No. 145 is effective for fiscal years beginning
     after  May  15,  2002;   however,   certain   sections  are  effective  for
     transactions  occurring  after May 15, 2002.  The Company does not have any
     transactions  that are affected by this statement as of September 30, 2002.
     For regulated companies,  any expenses or call premiums associated with the
     reacquisition  of debt obligations are amortized over the remaining life of
     the original debt using the straight-line method consistent with ratemaking
     treatment.

     In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
     with Exit or  Disposal  Activities."  This  statement  supercedes  Emerging
     Issues Task Force (EITF) Issue No. 94-3 "Liability  Recognition for Certain
     Employee   Termination  Benefits  and  Other  Costs  to  Exit  an  Activity
     (including  Certain  Costs  Incurred  in a  Restructuring)".  SFAS No.  146
     requires  that a liability for a cost  associated  with an exit or disposal
     activity be recognized  when the liability is incurred.  Under EITF 94-3, a
     liability is recognized at the date an entity commits to an exit plan. SFAS
     No. 146 also  establishes  that the liability  should initially be measured
     and  recorded  at fair  value.  The  provisions  of SFAS  No.  146  will be
     effective for any exit and disposal  activities  covered under the scope of
     this standard and initiated after December 31, 2002.

7.   GOODWILL AND OTHER INTANGIBLE ASSETS

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

     The  Company  has  completed  the first  step of the  initial  transitional
     goodwill  impairment test, which indicated that the Company's  goodwill was
     not impaired as of January 1, 2002. In addition,  the Company performed the
     annual  goodwill  impairment  test for the CP&L  Electric and Florida Power
     Electric segments as of April 1, 2002, and for the Other segment as of July
     1, 2002.

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

                                                            Florida
                                               CP&L          Power          Progress
     (in thousands)                          Electric       Electric        Ventures          Other          Total
                                             --------       --------        --------          -----          -----
     Balance as of January 1, 2002          $1,921,802      $1,733,448         $ -           $34,960       $3,690,210
     Acquisitions                                -              -             96,583            -              96,583
     Divestitures                                -              -               -             (1,720)          (1,720)
                                           -----------------------------------------------------------------------------
     Balance as of September 30, 2002       $1,921,802      $1,733,448       $96,583         $33,240       $3,785,073

</TABLE>

     The acquired goodwill relates to the acquisition of Westchester Gas Company
     in April 2002 and the  acquisition  of  generating  assets from LG&E Energy
     Corp in February 2002 (See Note 2).

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

                                       15

<PAGE>

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


                                       Three Months Ended    Nine Months Ended     Year Ended      Year Ended       Year Ended
(in thousands, except per share data)  September 30, 2001    September 30, 2001       2001            2000             1999
                                       ------------------    ------------------       ----            ----             ----
Reported net income                        $ 366,443             $ 632,148          $ 541,610       $ 478,361        $ 379,288
Add back: Goodwill amortization               24,927                75,576             96,828          14,100            3,968
Adjusted net income                        $ 391,370             $ 707,724          $ 638,438       $ 492,461        $ 383,256

Basic earnings per common share:
Reported net income                           $ 1.78                $ 3.13             $ 2.65          $ 3.04         $   2.56
Adjusted net income                           $ 1.90                $ 3.50             $ 3.12          $ 3.13         $   2.58

Diluted earnings per common share:
Reported net income                           $ 1.77                $ 3.12             $ 2.64          $ 3.03         $   2.55
Adjusted net income                           $ 1.89                $ 3.49             $ 3.11          $ 3.12         $   2.58

</TABLE>

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

                                                   September 30, 2002                              December 31, 2001
                                      -------------------------------------------    ------------------------------------------
     (in thousands)                      Gross Carrying         Accumulated             Gross Carrying         Accumulated
                                             Amount             Amortization                Amount            Amortization
     -------------------------------- --------------------- ---------------------    --------------------- --------------------
     Synthetic fuel intangibles (a)         $ 140,469             $ (39,450)               $ 140,469            $ (22,237)
     Power sale agreements (b)                 34,074                (3,912)                  -                     -
     Customer contracts (c)                    11,500                (6,200)                  17,300               (5,600)
     Other                                     21,546                  (626)                  18,771                 (338)
     -------------------------------- --------------------- ---------------------    --------------------- --------------------
                  Total                     $ 207,589             $ (50,188)               $ 176,540            $ (28,175)
</TABLE>


     (a) Represents intangibles for synthetic fuel technology. These intangibles
     are being  amortized on a  straight-line  basis over the period ending with
     the expiration of tax credits under Section 29 of the Internal Revenue Code
     on December 31, 2007.
     (b)  Relates  to  the  power  sale  agreements  recorded  as  part  of  the
     acquisition of generating assets from LG&E Energy Corp. (See Note 2), which
     are amortized on a  straight-line  basis beginning with the in-service date
     of these plants  through  December 31, 2004.
     (c) Decrease at September  30, 2002 relates to the  write-down  of Progress
     Telecom assets (See Note 3).

     Total net  intangible  assets of  $157.4  million  and  $148.4  million  at
     September 30, 2002,  and December 31, 2001,  respectively,  are included in
     other  assets  and  deferred  debits in the  accompanying  balance  sheets.
     Amortization  expense recorded on intangible  assets for the three and nine
     months  ended  September  30,  2002 was $8.3  million  and  $24.5  million,
     respectively.  The estimated  amortization expense on intangible assets for
     the next five years is as follows:

                        (in thousands)
                             2002                 $32,822
                             2003                  33,817
                             2004                  36,542
                             2005                  20,333
                             2006                  19,864

8.   COMPREHENSIVE INCOME

     Comprehensive  income for the three and nine  months  ended  September  30,
     2002, was $141.8 million and $398.2  million,  respectively.  Comprehensive
     income for the three and nine months ended  September 30, 2001,  was $363.0
     million  and $594.5  million,  respectively.  Items of other  comprehensive
     income for the three-month and nine-month  periods  consisted  primarily of
     changes in the fair value of  derivatives  used to hedge cash flows related
     to interest on long-term debt, the cumulative  effect of implementing  SFAS
     No. 133 as of January 1, 2001 and reclassification of amounts into income.

9.   FINANCING ACTIVITIES

     On February 6, 2002,  CP&L issued $48.5 million  principal  amount of First
     Mortgage Bonds,  Pollution  Control Series W, Wake County Pollution Control
     Revenue Refunding Bonds,  5.375% Series 2002 Due February 1, 2017. On March

                                       16
<PAGE>

     1, 2002, CP&L redeemed $48.5 million  principal amount of Pollution Control
     Revenue  Bonds,  Wake  County  (Carolina  Power  & Light  Company  Project)
     Adjustable Rate Option Bond 1983 Series Due April 1, 2019, at 101.5% of the
     principal amount of such bonds.

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

     In March  2002,  a  Progress  Ventures,  Inc.  subsidiary,  Progress  Genco
     Ventures,  LLC,  obtained a $440 million bank  facility that was to be used
     exclusively  for  expansion  of  its  non-regulated  generation  portfolio.
     Borrowings  under this facility are secured by the assets in the generation
     portfolio.  In March 2002,  June 2002 and September  2002,  Progress  Genco
     Ventures,  LLC made draws under this facility of $120 million,  $67 million
     and $25 million,  respectively. In September 2002, Progress Genco Ventures,
     LLC  terminated  $130 million of the bank  facility,  reducing it from $440
     million to $310 million.  Borrowings  under the facility are restricted for
     the operations,  construction,  repayments and other related charges of the
     credit  facility  for  development   projects,   including   DeSoto  County
     Generating  Company,  LLC,  Effingham  County  Power,  LLC, MPC  Generating
     Company,  LLC and Rowan County  Power,  LLC.  Cash held and  restricted  to
     operations  was $13.0  million at September  30,  2002,  and is included in
     other current assets.  Cash held and restricted for long-term  purposes was
     $73.8 million at September 30, 2002 and is included in deferred  debits and
     other assets.

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

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

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

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

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

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

     Progress Energy's 364-day revolving credit facility expired on November 12,
     2002. In connection with the renewal, the facility was reduced in size from
     $550 million to approximately $430 million. In addition, the permitted debt
     to capital  ratio was  lowered  from 70% to 68%  effective  June 30,  2003;
     Progress  Energy's  debt to capital  ratio as of September  30,  2002,  was
     65.3%. Finally, a minimum EBITDA to interest expense ratio of 2.5x to 1 was
     imposed;  for the twelve months ended September 30, 2002, Progress Energy's
     ratio of EBITDA to interest expense was 3.28x to 1.

     On November 13, 2002,  Progress Energy issued 14.7 million shares of common
     stock at $40.90 per share for net proceeds of $600.0 million. Proceeds from
     the issuance will be used to retire commercial paper.

                                       17
<PAGE>

10.  RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS

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

     Progress Genco Ventures, LLC is required to hedge 75 percent of the amounts
     outstanding  under its bank facility through  September 2005 and 50 percent
     thereafter  pursuant to the terms of the  agreement  for  expansion  of its
     non-regulated  generation portfolio.  In May 2002, Progress Genco Ventures,
     LLC entered  into hedges that  included a series of zero cost  collars that
     have been designated as cash flow hedges for accounting purposes.  The fair
     value  of these  instruments  was a $10.9  million  liability  position  at
     September 30, 2002.

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

     In August 2002,  Progress Energy  converted $800 million of fixed rate debt
     into variable rate debt by executing  interest rate  derivative  agreements
     with four  counterparties  with a total  notional  amount of $800  million.
     Under the terms of the  agreements,  which were scheduled to expire in 2006
     and coincide with the maturity date of the related debt issuance,  Progress
     Energy  received a fixed  rate of 3.38% and paid a  floating  rate based on
     three-month  LIBOR.  These instruments were designated as fair value hedges
     for accounting  purposes.  The fair value of these  instruments was a $14.2
     million asset  position at September 30, 2002. In November  2002,  Progress
     Energy  terminated these agreements.  The terminations  resulted in a $14.0
     million  deferred  hedging gain reflected in long-term debt,  which will be
     amortized and recorded as a reduction to interest  expense over the life of
     the related debt issuance.

     Progress Ventures periodically enters into derivative  instruments to hedge
     its  exposure  to price  fluctuations  on natural gas sales.  During  2002,
     Progress  Ventures has executed cash flow hedges on approximately  17.3 Bcf
     of natural  gas sales for the fourth  quarter of 2002 and entire year 2003.
     These  instruments  did  not  have  a  material  impact  on  the  Company's
     consolidated financial position or results of operations.


     The notional  amount of the above  contracts is not  exchanged and does not
     represent   exposure  to  credit  loss.  In  the  event  of  default  by  a
     counterparty,  the risk in the  transaction  is the cost of  replacing  the
     agreements at current market rates.

11.  EARNINGS PER COMMON SHARE

     Restricted  stock awards and  contingently  issuable  shares had a dilutive
     effect on earnings per share for the three and nine months ended  September
     30, 2002 and 2001. At September 30, 2002, there were options outstanding to
     purchase  2.5  million  shares  of common  stock  with a  weighted  average
     exercise price of $43.81.

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

                                                          Three Months Ended,                  Nine Months Ended,
                                                    September 30,    September 30,     September 30,     September 30,
                                                    --------------   --------------    --------------    -------------
                                                         2002             2001              2002              2001
                                                         ----             ----              ----              ----
     Weighted Average Common Shares - Basic            216,079          205,866           214,700           201,925
     Restricted Stock Awards                               746              673               709               658
     Stock Options                                          59                -               173                 -
                                                      ---------         ---------         ---------        ---------
     Weighted Average Shares - Fully Dilutive          216,884           206,539           215,582          202,583
</TABLE>

                                       18
<PAGE>

     Employee  Stock  Ownership  Plan shares that have not been  committed to be
     released to participants'  accounts are not considered  outstanding for the
     determination of earnings per common share.  Those shares totaled 4,616,400
     and 5,223,387 at September 30, 2002 and September 30, 2001, respectively.

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

     In  April  1999,  FPC  Capital  I (the  Trust),  an  indirect  wholly-owned
     subsidiary  of  FPC,  issued  12  million  shares  of  $25  par  cumulative
     FPC-obligated   mandatorily   redeemable  preferred  securities  (Preferred
     Securities) due 2039, with an aggregate  liquidation  value of $300 million
     and an annual distribution rate of 7.10%. Currently,  all 12 million shares
     of the Preferred  Securities that were issued are  outstanding.  Concurrent
     with the issuance of the Preferred Securities,  the Trust issued to Florida
     Progress Funding  Corporation  (Funding Corp.) all of the common securities
     of the Trust (371,135  shares) for $9.3 million.  Funding Corp. is a direct
     wholly owned subsidiary of FPC.

     The existence of the Trust is for the sole purpose of issuing the Preferred
     Securities  and the common  securities  and using the  proceeds  thereof to
     purchase  from  Funding  Corp.  its 7.10%  Junior  Subordinated  Deferrable
     Interest Notes  (subordinated  notes) due 2039,  for a principal  amount of
     $309.3  million.  The  subordinated  notes  and  the  Notes  Guarantee  (as
     discussed below) are the sole assets of the Trust. Funding Corp.'s proceeds
     from the sale of the  subordinated  notes were advanced to Progress Capital
     and used for  general  corporate  purposes  including  the  repayment  of a
     portion of certain outstanding short-term bank loans and commercial paper.

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

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

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

13.  COMMITMENTS AND CONTINGENCIES

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

     Commitments

          Guarantees

          During  the  first  nine  months  of  2002,   Progress  Energy  issued
          approximately  $363  million  of  guarantees  on  behalf  of  Progress
          Ventures and its  subsidiaries  for  obligations  under power purchase
          agreements,  tolling agreements,  construction  agreements and trading
          operations.  Approximately $184 million of these commitments relate to
          certain guarantee  agreements issued to support obligations related to
          Progress   Ventures'   expansion  of  its   non-regulated   generation
          portfolio.   These  guarantees  ensure  performance  under  generation
          construction and operating agreements.

          The remaining  $179 million of these new  commitments  are  guarantees
          issued to support  Progress  Ventures'  energy  trading and  marketing
          functions.  The  majority  of  the  trading  and  marketing  contracts
          supported  by the  guarantees  contain  language  regarding  downgrade
          events, ratings triggers,  monthly netting of exposure and/or payments
          and offset provisions in the event of a default. Based upon the amount
          of trading  positions  outstanding  at October 31,  2002,  if Progress
          Energy's ratings were to decline below  investment  grade, the Company
          would have to deposit cash or provide  letters of credit or other cash
          collateral  for  approximately  $17  million  for the  benefit  of the
          Company's counterparties.

                                       19
<PAGE>

     Contingencies

          1)   IRS Audit

               One of Progress Energy's synthetic fuel entities,  Colona Synfuel
               Limited Partnership,  L.L.L.P.,  is being audited by the Internal
               Revenue  Service (IRS).  The audit of Colona was not  unexpected.
               The Company is audited regularly in the normal course of business
               as are most similarly situated companies.  The Company (including
               Florida  Progress  prior to its  acquisition  by the Company) has
               been allocated  approximately $241 million in tax credits to date
               for this  synthetic  fuel entity.  As provided for in contractual
               arrangements  pertaining to Progress Energy's purchase of Colona,
               the Company has begun escrowing  quarterly  royalty payments owed
               to an unaffiliated entity until final resolution of the audit.

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

               In  management's  opinion,  Progress Energy is complying with all
               the  necessary  requirements  to  be  allowed  such  credits  and
               believes it is likely, although it cannot provide certainty, that
               it will prevail if challenged by the IRS on any credits taken.

          2)   Franchise Taxes

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

               In  response  to the  state's  failure  to  distribute  the State
               Franchise Tax proceeds,  certain  cities in which CP&L  maintains
               facilities adopted municipal franchise tax ordinances  purporting
               to  impose on CP&L a local  franchise  tax.  The local  taxes are
               intended  to be  collected  for as  long as the  state  withholds
               distribution of the State Franchise Tax proceeds from the cities.
               The first local tax payments  were due August 15, 2002. On August
               2, 2002,  CP&L  filed a lawsuit  against  the  cities  seeking to
               enjoin the  enforcement  of the local taxes and to have the local
               ordinances  struck  down  because the  ordinances  are beyond the
               cities' statutory  authority and violate  provisions of the North
               Carolina and United States Constitutions.

               On September 14, 2002, the Governor of North Carolina signed into
               law a provision  that  prevents  cities and counties from levying
               local franchise taxes on electric utilities.  The new law is also
               intended to prevent a recurrence  of the  withholding  of utility
               franchise tax payments by the state.  This new legislation  makes
               it likely that the lawsuit CP&L filed in August  against  certain
               cities  that  were  seeking  to  enforce   local   franchise  tax
               ordinances will become moot.

          3)   Claims and Uncertainties

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

               Various  organic  materials  associated  with the  production  of
               manufactured  gas,   generally  referred  to  as  coal  tar,  are
               regulated  under  federal  and  state  laws.  The  lead  or  sole
               regulatory  agency that is  responsible  for a particular  former
               coal tar site depends largely upon the state in which the site is
               located.  There are several manufactured gas plant (MGP) sites to
               which  both  electric  utilities  and the gas  utility  have some

                                       20
<PAGE>

               connection.  In this regard,  both electric utilities and the gas
               utility,   with  other  potentially   responsible   parties,  are
               participating  in  investigating  and, if necessary,  remediating
               former  coal  tar  sites  with   several   regulatory   agencies,
               including,  but not limited to, the U.S. Environmental Protection
               Agency (EPA), the Florida Department of Environmental  Protection
               (FDEP)  and the North  Carolina  Department  of  Environment  and
               Natural  Resources,   Division  of  Waste  Management  (DWM).  In
               addition,  both electric utilities,  the gas utility and Progress
               Ventures are periodically  notified by regulators such as the EPA
               and various  state  agencies of their  involvement  or  potential
               involvement  in sites,  other  than MGP sites,  that may  require
               investigation and/or remediation.  A discussion of these sites by
               legal entity follows.

               CP&L.  There are 12 former  MGP sites and 14 other  active  waste
               sites  associated with CP&L that have required or are anticipated
               to  require   investigation   and/or  remediation  costs.  As  of
               September  30,  2002,  CP&L has not  recorded  any  accruals  for
               investigation  and/or  remediation  costs for these  sites.  CP&L
               received insurance proceeds to address costs associated with CP&L
               waste sites.  All eligible  expenses related to these waste costs
               are charged against a centralized fund containing these proceeds.
               As of September 30, 2002,  approximately  $8.3 million remains in
               this  centralized  fund. As costs associated with CP&L's share of
               investigation  and  remediation of these sites become known,  the
               fund is assessed to  determine  if  additional  accruals  will be
               required.  CP&L does not believe  that it can provide an estimate
               of the reasonably  possible total  remediation  costs beyond what
               remains in the centralized fund. This is due to the fact that the
               sites are at different stages:  investigation has not begun at 15
               sites,   investigation  has  begun  but  remediation   cannot  be
               estimated  at 7 sites and 4 sites  have begun  remediation.  CP&L
               measures  its  liability  for  these  sites  based  on  available
               evidence   including   its   experience  in   investigation   and
               remediation of contaminated  sites, which also involves assessing
               and developing  cost-sharing  arrangements with other potentially
               responsible parties. Once the centralized fund is depleted,  CP&L
               will accrue  costs for the sites to the extent its  liability  is
               probable and the costs can be  reasonably  estimated.  Therefore,
               CP&L  cannot  currently  determine  the total  costs  that may be
               incurred  in  connection  with  the  remediation  of  all  sites.
               According to current information,  these future costs at the CP&L
               sites are not expected to be material to the Company's  financial
               condition or results of operations.  A rollforward of the balance
               in this fund is not  provided  due to the  immateriality  of this
               activity in the periods presented.

               Florida Power. There are two former MGP sites and 10 other active
               waste sites or categories of sites  associated with Florida Power
               that have required or are  anticipated  to require  investigation
               and/or remediation costs. As of September 30, 2002, Florida Power
               has  accrued   approximately   $11.1  million  for  probable  and
               reasonably estimable costs at these sites. Florida Power believes
               that the maximum  liability  it can  currently  estimate on these
               sites is $17.0  million.  Florida Power has filed for recovery of
               approximately  $4.0  million  of these  costs.  As more  activity
               occurs at these  sites,  Florida  Power  will  assess the need to
               adjust the  accruals.  These  accruals  have been  recorded on an
               undiscounted  basis.  Florida  Power  measures its  liability for
               these sites based on available  evidence including its experience
               in investigation  and/or remediation of contaminated sites, which
               includes assessing and developing cost-sharing  arrangements with
               other  potentially  responsible  parties.  A  rollforward  of the
               balance in this accrual is not provided due to the  immateriality
               of this activity in the periods presented.

               NCNG. There are 5 former MGP sites associated with NCNG that have
               or are  estimated  to have  investigation  or  remediation  costs
               associated  with them. As of September 30, 2002, NCNG has accrued
               approximately $2.7 million for probable and reasonably  estimable
               remediation  costs at  these  sites.  These  accruals  have  been
               recorded on an  undiscounted  basis.  NCNG measures its liability
               for  these  sites  based  on  available  evidence  including  its
               experience  in  investigation  and  remediation  of  contaminated
               sites, which also involves assessing and developing  cost-sharing
               arrangements with other  potentially  responsible  parties.  NCNG
               will accrue  costs for the sites to the extent its  liability  is
               probable and the costs can be reasonably estimated. NCNG does not
               believe it can  provide an estimate  of the  reasonably  possible
               total  remediation  costs beyond the accrual because three of the
               five  sites  associated  with NCNG  have not begun  investigation
               activities.  Therefore, NCNG cannot currently determine the total
               costs that may be incurred in connection  with the  investigation
               and/or   remediation   of  all   sites.   According   to  current
               information,  these  future  costs  at the  NCNG  sites  are  not
               expected to be material to the Company's  financial  condition or
               results  of  operations.  A  rollforward  of the  balance in this
               accrual is not provided due to the immateriality of this activity
               for the periods  presented.  NCNG has received insurance proceeds
               associated  with pollution  liability  settlements.  In addition,
               NCNG is receiving  approximately $5,000 per month in its rates to
               fund expenses  associated with its share of costs to investigate,
               and if necessary, remediate these sites. On October 16, 2002, the
               Company  announced  plans to sell NCNG to  Piedmont  Natural  Gas
               Company, Inc. See Note 14 for more information.

                                       21
<PAGE>

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

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

               There has been and may be further  proposed  federal  legislation
               requiring reductions in air emissions for nitrogen oxides, sulfur
               dioxide,  carbon dioxide and mercury  setting forth national caps
               and  emission  levels  over an  extended  period  of  time.  This
               national  multi-pollutant  approach would have significant  costs
               which could be material to the Company's  consolidated  financial
               position  or  results  of  operations.  Some  companies  may seek
               recovery of the related cost through rate  adjustments or similar
               mechanisms.  Control  equipment  that will be  installed on North
               Carolina  fossil  generating  facilities  as  part  of the  North
               Carolina  legislation  discussed  below may  address  some of the
               issues outlined above.  The Company cannot predict the outcome of
               this matter.

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

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

               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.  Designation of areas that do not attain the
               standard is proceeding,  and further litigation and rulemaking on
               this and other  aspects of the  standard 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; however, further technical analysis
               and  rulemaking  may  result  in  a  requirement  for  additional
               controls at some units. The Company cannot predict the outcome of
               this matter.

                                       22
<PAGE>

               The EPA published a final rule approving  petitions under Section
               126 of the Clean Air Act.  This  rule as  originally  promulgated
               required  certain  sources to make  reductions in nitrogen  oxide
               emissions by May 1, 2003.  The final rule also  includes a set of
               regulations  that affect  nitrogen  oxide  emissions from sources
               included  in the  petitions.  The  North  Carolina  fossil-fueled
               electric  generating  plants  are  included  in these  petitions.
               Acceptable  state plans under the NOx SIP Call can be approved in
               lieu  of the  final  rules  the EPA  approved  as part of the 126
               petitions.  CP&L, other utilities,  trade organizations and other
               states  participated in litigation  challenging the EPA's action.
               On May 15,  2001,  the  District  of  Columbia  Circuit  Court of
               Appeals  ruled in  favor  of the EPA  which  will  require  North
               Carolina to make reductions in nitrogen oxide emissions by May 1,
               2003.  However,  the Court in its May 15th decision  rejected the
               EPA's  methodology  for  estimating the future growth factors the
               EPA used in calculating  the emissions  limits for utilities.  In
               August  2001,  the  Court  granted  a  request  by CP&L and other
               utilities  to  delay  the  implementation  of the  126  Rule  for
               electric  generating  units pending  resolution by the EPA of the
               growth  factor  issue.  The Court's  order  tolls the  three-year
               compliance  period  (originally  set to end on May 1,  2003)  for
               electric  generating units as of May 15, 2001. On April 30, 2002,
               the EPA  published  a final  rule  harmonizing  the dates for the
               Section  126  Rule and the NOx SIP  Call.  In  addition,  the EPA
               determined in this rule that the future growth factor  estimation
               methodology  was  appropriate.  The new  compliance  date for all
               affected  sources is now May 31,  2004,  rather than May 1, 2003.
               The Company cannot predict the outcome of this matter.

               On June 20,  2002,  legislation  was  enacted  in North  Carolina
               requiring the state's  electric  utilities to further  reduce the
               emissions of nitrogen  oxide and sulfur  dioxide from  coal-fired
               power plants. These levels exceed requirements of Title IV of the
               Clean Air Act  pertaining  to control of acid rain as well as the
               requirements  discussed  above  with  regard to the NOx SIP Call,
               8-hour ozone standard and Section 126 petitions.  Progress Energy
               expects its capital costs to meet these emission  targets will be
               approximately  $813 million.  CP&L  currently  has  approximately
               5,100  MW of  coal-fired  generation  in North  Carolina  that is
               affected  by  this  legislation.  The  legislation  requires  the
               emissions  reductions  to be  completed  in phases  by 2013,  and
               applies to each  utilities'  total  system  rather  than  setting
               requirements  for individual  power plants.  The legislation also
               freezes the utilities' base rates for five years unless there are
               extraordinary  events beyond the control of the utility or unless
               the utility  persistently earns a return  substantially in excess
               of the rate of return  established  and found  reasonable  by the
               NCUC in the  utility's  last  general  rate  case.  Further,  the
               legislation  allows the  utilities  to recover  from their retail
               customers  the  projected  capital  costs  during the first seven
               years of the 10-year  compliance  period  beginning on January 1,
               2003. The utilities must recover at least 70% of their  projected
               capital costs during the five-year rate freeze  period.  Pursuant
               to the new law, CP&L entered into an agreement  with the state of
               North  Carolina  to  transfer  to the state all future  emissions
               allowances it generates from  over-complying with the new federal
               emission limits when these units are completed.  The new law also
               requires  the state to  undertake  a study of mercury  and carbon
               dioxide  emissions  in North  Carolina.  Progress  Energy  cannot
               predict the future regulatory  interpretation,  implementation or
               impact of this new law.

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

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


14.  SUBSEQUENT EVENT

     On October 16, 2002, the Company announced the Board of Directors' approval
     to sell  NCNG,  and the  Company's  ownership  interest  in  EasternNC,  to
     Piedmont Natural Gas Company, Inc., for approximately $425 million in gross
     cash  proceeds.  The sale is  expected  to close  in  mid-2003  and must be
     approved by North  Carolina and federal  regulatory  agencies.  The Company
     expects to report NCNG as a discontinued operation in the fourth quarter of

                                       23
<PAGE>

     2002.  The  carrying   amounts  for  the  assets  and  liabilities  of  the
     discontinued operations disposal group included in the Consolidated Balance
     Sheets, are as follows:

                                                     September 30,  December 31,
     (in thousands)                                       2002          2001
     ----------------------------------------------  -------------  ------------
     Total Utility plant, net                         $ 393,889      $ 393,149
     Total Current Assets                                58,952        118,378
     Total Deferred Debits and Other Assets              42,474         42,419
     Total Capitalization                               389,715        387,981
     Total Current Liabilities                           66,813        129,027
     Total Deferred Credits and Other Liabilities        38,787         36,938



                                       24
<PAGE>

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

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

CONSOLIDATED STATEMENTS OF INCOME
                                                         Three Months Ended                Nine Months Ended
(Unaudited)                                                 September 30,                    September 30,
(In thousands)                                      2002              2001               2002              2001
---------------------------------------------------------------------------------------------------------------------
Operating Revenues
  Electric                                    $   1,045,180    $        973,803    $    2,691,320    $   2,577,664
  Diversified businesses                              4,304               3,088            11,127            9,208
---------------------------------------------------------------------------------------------------------------------
       Total Operating Revenues                   1,049,484             976,891         2,702,447        2,586,872
---------------------------------------------------------------------------------------------------------------------
Operating Expenses
  Fuel used in electric generation                  222,273             186,546           569,295          497,687
  Purchased power                                   123,365             113,837           287,593          291,038
  Other operation and maintenance                   181,007             167,153           564,011          515,241
  Depreciation and amortization                     130,530             143,720           405,375          421,513
  Taxes other than on income                         43,502              40,872           118,345          115,130
  Diversified businesses                            108,756               2,286           114,571            7,756
---------------------------------------------------------------------------------------------------------------------
      Total Operating Expenses                      809,433             654,414         2,059,190        1,848,365
---------------------------------------------------------------------------------------------------------------------
Operating Income                                    240,051             322,477           643,257          738,507
---------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
  Interest income                                       330               2,660             5,198           13,686
  Other, net                                        (30,562)              4,610           (28,881)          16,530
---------------------------------------------------------------------------------------------------------------------
      Total Other Income (Expense)                  (30,232)              7,270           (23,683)          30,216
---------------------------------------------------------------------------------------------------------------------
Interest Charges
  Net interest charges                               49,390              63,010           167,289          193,189
  Allowance for borrowed funds used during
  construction                                          276              (3,777)           (5,597)          (8,125)
---------------------------------------------------------------------------------------------------------------------
      Total Interest Charges                         49,666              59,233           161,692          185,064
---------------------------------------------------------------------------------------------------------------------
Income before Income Taxes                          160,153             270,514           457,882          583,659
Income Taxes                                         66,014             102,640           147,471          210,033
---------------------------------------------------------------------------------------------------------------------
Net Income                                           94,139             167,874           310,411          373,626
Preferred Stock Dividend Requirements                  (741)               (741)           (2,223)          (2,223)
---------------------------------------------------------------------------------------------------------------------
Earnings for Common Stock                     $      93,398     $       167,133     $     308,188    $     371,403
---------------------------------------------------------------------------------------------------------------------
See notes to Carolina Power & Light Company Interim Financial Statements.


                                       25
<PAGE>


Carolina Power & Light Company
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)                                                                  September 30,      December31,
Assets                                                                              2002               2001
-----------------------------------------------------------------------------------------------------------------
Utility Plant
  Electric utility plant in service                                           $    12,390,340    $    12,024,291
  Accumulated depreciation                                                         (6,272,139)        (5,952,206)
-----------------------------------------------------------------------------------------------------------------
        Utility plant in service, net                                               6,118,201          6,072,085
  Held for future use                                                                   7,105              7,105
  Construction work in progress                                                       463,408            711,129
  Nuclear fuel, net of amortization                                                   169,806            200,332
-----------------------------------------------------------------------------------------------------------------
        Total Utility Plant, Net                                                    6,758,520          6,990,651
-----------------------------------------------------------------------------------------------------------------
Current Assets
  Cash and cash equivalents                                                            13,911             21,250
  Accounts receivable                                                                 331,214            302,781
  Unbilled accounts receivable                                                        145,047            136,514
  Receivables from affiliated companies                                                75,314             26,182
  Notes receivable from affiliated companies                                           67,722                998
  Taxes receivable                                                                          -             17,543
  Inventory                                                                           351,520            372,725
  Deferred fuel cost                                                                  154,101            131,505
  Prepayments                                                                          21,170             11,863
  Other current assets                                                                 68,956             66,193
-----------------------------------------------------------------------------------------------------------------
        Total Current Assets                                                        1,228,955          1,087,554
-----------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
  Regulatory assets                                                                   260,651            277,550
  Nuclear decommissioning trust funds                                                 413,620            416,721
  Diversified business property, net                                                    8,437            111,802
  Miscellaneous other property and investments                                        238,647            239,034
  Other assets and deferred debits                                                     97,253            135,373
-----------------------------------------------------------------------------------------------------------------
        Total Deferred Debits and Other Assets                                      1,018,608          1,180,480
-----------------------------------------------------------------------------------------------------------------
           Total Assets                                                       $     9,006,083    $     9,258,685
-----------------------------------------------------------------------------------------------------------------

Capitalization and Liabilities
-----------------------------------------------------------------------------------------------------------------
Capitalization
  Common stock                                                                $     1,926,999    $     1,904,246
  Unearned ESOP common stock                                                         (101,560)          (114,385)
  Retained earnings                                                                 1,320,829          1,312,641
  Accumulated other comprehensive loss                                                 (9,574)            (7,046)
-----------------------------------------------------------------------------------------------------------------
        Total common stock equity                                                   3,136,694          3,095,456
  Preferred stock - not subject to mandatory redemption                                59,334             59,334
  Long-term debt, net                                                               3,047,857          2,698,318
-----------------------------------------------------------------------------------------------------------------
           Total Capitalization                                                     6,243,885          5,853,108
-----------------------------------------------------------------------------------------------------------------
Current Liabilities
  Current portion of long-term debt                                                   100,000            600,000
  Accounts payable                                                                    230,292            300,829
  Payables to affiliated companies                                                    120,998            106,114
  Notes payable affiliated companies                                                        -             47,913
  Taxes accrued                                                                        91,265                  -
  Interest accrued                                                                     48,584             61,124
  Short-term obligations                                                              252,285            260,535
  Other current liabilities                                                           165,016            208,645
-----------------------------------------------------------------------------------------------------------------
        Total Current Liabilities                                                   1,008,440          1,585,160
-----------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
  Accumulated deferred income taxes                                                 1,238,114          1,316,823
  Accumulated deferred investment tax credits                                         161,017            170,302
  Regulatory liabilities                                                                7,774              7,494
  Other liabilities and deferred credits                                              346,853            325,798
-----------------------------------------------------------------------------------------------------------------
        Total Deferred Credits and Other Liabilities                                1,753,758          1,820,417
-----------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 8)
-----------------------------------------------------------------------------------------------------------------
         Total Capitalization and Liabilities                                 $     9,006,083    $     9,258,685
-----------------------------------------------------------------------------------------------------------------
See Notes to Carolina Power & Light Company Consolidated Interim Financial Statements.

                                       26
<PAGE>




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

Operating Activities
  Net income                                                                   $      310,411     $      373,626
  Adjustments to reconcile net income to net cash provided by
  operating activities
      Impairment of long-lived assets and investments                                 126,262                  -
      Depreciation and amortization                                                   489,581            494,996
      Deferred income taxes                                                           (73,640)           (93,073)
      Investment tax credit                                                            (9,285)           (12,518)
      Deferred fuel cost (credit)                                                     (22,596)           (12,217)
      Net decrease in accounts receivable                                             159,263             84,570
      Net (increase) decrease in inventories                                           11,893           (95,209)
      Net (increase) decrease in prepaids and other current assets                     (9,173)             2,607
      Net decrease in accounts payable                                                 (4,547)          (198,543)
      Net increase in other current liabilities                                        89,205            137,804
      Other                                                                            52,874             45,704
------------------------------------------------------------------------------------------------------------------
        Net Cash Provided by Operating Activities                                   1,120,248            727,747
------------------------------------------------------------------------------------------------------------------

Investing Activities
  Gross property additions                                                           (405,179)          (615,554)
  Diversified business property additions                                             (10,840)            (5,311)
  Nuclear fuel additions                                                              (55,982)           (70,316)
  Contributions to nuclear decommissioning trust                                      (25,573)           (25,564)
  Net cash flow of company-owned life insurance program                                (9,998)            (5,137)
  Investments in non-utility activities                                               (10,701)           (18,827)
------------------------------------------------------------------------------------------------------------------
        Net Cash Used in Investing Activities                                        (518,273)          (740,709)
------------------------------------------------------------------------------------------------------------------

Financing Activities
  Proceeds from issuance of long-term debt                                            543,967            296,124
  Net decrease in short-term obligations                                               (8,250)          (181,860)
  Net decrease in intercompany notes                                                 (114,638)            (6,543)
  Retirement of long-term debt                                                       (705,681)              (217)
  Payment for termination of hedge                                                    (22,489)                 -
  Equity contribution from parent                                                           -            115,000
  Dividends paid to parent                                                           (300,000)          (197,664)
  Dividends paid on preferred stock                                                    (2,223)            (2,223)
------------------------------------------------------------------------------------------------------------------
        Net Cash Provided by Financing Activities                                    (609,314)            22,617
------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                                   (7,339)             9,655
Cash and Cash Equivalents at Beginning of the Period                                   21,250             30,070
------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period                                 $       13,911     $       39,725
------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period - interest                                         $      169,092     $      178,463
                              income taxes                                     $      181,444     $      118,206
See Note 2 for non-cash investing activity.
------------------------------------------------------------------------------------------------------------------
See Notes to Carolina Power & Light Company Consolidated Interim Financial Statements.
</TABLE>


                                       27
<PAGE>

Carolina Power & Light Company
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS


1.   ORGANIZATION AND BASIS OF PRESENTATION

     Organization.  Carolina  Power & Light Company  (CP&L) is a public  service
     corporation primarily engaged in the generation, transmission, distribution
     and sale of electricity  in portions of North Carolina and South  Carolina.
     CP&L is a wholly owned subsidiary of Progress Energy,  Inc. (the Company or
     Progress  Energy).  The Company is a registered  holding  company under the
     Public Utility  Holding  Company Act (PUHCA) of 1935, as amended.  Both the
     Company and its  subsidiaries  are subject to the regulatory  provisions of
     PUHCA.

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

     The amounts included in the consolidated  interim financial  statements are
     unaudited  but,  in the  opinion of  management,  reflect  all  adjustments
     necessary  to fairly  present  CP&L's  financial  position  and  results of
     operations for the interim periods.  Due to seasonal weather variations and
     the  timing  of   outages  of   electric   generating   units,   especially
     nuclear-fueled units, the results of operations for interim periods are not
     necessarily  indicative of amounts expected for the entire year.  Effective
     with the quarter ended September 30, 2002,  CP&L will no longer  reclassify
     commercial  paper as  long-term  debt.  Certain  amounts for 2001 have been
     reclassified  to  conform  to the  2002  presentation,  with no  effect  on
     previously reported net income or common stock equity.

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

2.   FINANCIAL INFORMATION BY BUSINESS SEGMENT

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

     The  financial  information  by business  segment for CP&L Electric for the
     three and nine months ended September 30, 2002 and 2001 is as follows:

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

       (In thousands)                               Three Months Ended                    Nine Months Ended
                                             September 30,      September 30,       September 30,    September 30,
                                                 2002               2001               2002              2001
       ------------------------------------------------------------------------------------------------------------
       Revenues                               $1,045,180            $973,803         $2,691,320         $2,577,664
       Segment Income                           $179,308            $168,456           $396,530           $373,949
       Total Segment Assets (a)               $8,785,416          $9,101,248         $8,785,416         $9,101,248
       ============================================================================================================
          (a) CP&L  Electric's  total  segment  assets at  September  30,  2002,
          decreased  from the prior year due to the  transfer of the Rowan plant
          to Progress  Ventures in February 2002 in the amount of  approximately
          $245 million.
</TABLE>

     The primary  differences  between the CP&L  Electric and CP&L  consolidated
     financial   information  relate  to  other   non-electric   operations  and
     elimination  entries.  For the three and nine months  ended  September  30,
     2002,  the  primary  difference  relates  to asset  impairments  and  other
     one-time charges recorded in the third quarter related to its Caronet, Inc.
     (Caronet) subsidiary and its investment in Interpath (See Note 3).

                                       28
<PAGE>

3.   IMPAIRMENT OF LONG-LIVED ASSETS, INVESTMENTS AND ONE-TIME CHARGES

     Due to  the  decline  of  the  telecommunications  industry  and  continued
     operating   losses,   CP&L  initiated  a  valuation  study  to  assess  the
     recoverability of Caronet's  long-lived  assets.  Based on this assessment,
     CP&L recorded asset  impairments and other one-time charges totaling $108.3
     on a pre-tax basis in the third quarter of 2002 ($71.1 million  after-tax).
     The  asset   write-downs  and  other  one-time   charges  are  included  in
     diversified  business  expenses on the  Consolidated  Statements of Income.
     This  write-down  constitutes a significant  reduction in the book value of
     these long-lived assets.

     The  long-lived  asset  write-downs  of $101.3  million on a pre-tax  basis
     include an  impairment of property,  plant and  equipment and  construction
     work in process.  The impairment charge  represents the difference  between
     the fair value and carrying  amount of these  long-lived  assets.  The fair
     value of these  assets  was  determined  using a  valuation  study  heavily
     weighted  on  the  discounted  cash  flow   methodology  and  using  market
     approaches as supporting  information.  The other one-time  charges of $7.0
     million on a pre-tax basis primarily relate to inventory adjustments.

     Effective  June 28,  2000,  Caronet  entered  into an  agreement  with Bain
     Capital where it contributed the net assets used in its application service
     provider business to a newly formed company,  for a 35% ownership  interest
     (15% voting interest) named Interpath Communications,  Inc. (Interpath). In
     May 2002,  Interpath merged with  Usinternetworking,  Inc.  Pursuant to the
     terms of the merger  agreement and  additional  funds being  contributed by
     Bain  Capital,  CP&L now owns  approximately  19% of the company (7% voting
     interest).  As  a  result  of  the  merger,  CP&L  reviewed  the  Interpath
     investment  for  impairment  and  wrote  off the  remaining  amount  of its
     cost-basis investment in Interpath, recording a pre-tax impairment of $25.0
     million  in the  third  quarter  of 2002  ($16.3  million  after-tax).  The
     investment  write-down  is  included  in  other,  net on  the  Consolidated
     Statements of Income.

4.   IMPACT OF NEW ACCOUNTING STANDARDS

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

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

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

     Effective  January 1, 2002, the Company  adopted SFAS No. 144,  "Accounting
     for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 provides
     guidance for the  accounting  and  reporting of  impairment  or disposal of

                                       29
<PAGE>

     long-lived assets. The statement  supersedes SFAS No. 121,  "Accounting for
     the  Impairment  of  Long-Lived  Assets  and for  Long-Lived  Assets  to be
     Disposed Of." It also supersedes the accounting and reporting provisions of
     APB Opinion No. 30,  "Reporting  the Results of  Operations - Reporting the
     Effects of Disposal of a Segment of a Business, and Extraordinary,  Unusual
     and Infrequently Occurring Events and Transactions" related to the disposal
     of a segment  of a  business.  Adoption  of this  statement  did not have a
     material effect on the Company's financial statements.

     In April 2002, the FASB issued SFAS No. 145  "Rescission of FASB Statements
     No.  4, 44 and 64,  Amendment  of FASB  Statement  No.  13,  and  Technical
     Corrections"   This   standard   will   require   gains  and  losses   from
     extinguishment of debt to be classified as extraordinary items only if they
     meet the criteria of unusual and  infrequent in Opinion 30,  "Reporting the
     Results of Operations - Reporting the Effects of Disposal of a Segment of a
     Business, and Extraordinary,  Unusual and Infrequently Occurring Events and
     Transactions."  Any gain or loss on extinguishment  will be recorded in the
     most  appropriate  line item to which it relates  within net income  before
     extraordinary  items.  SFAS No. 145 is effective for fiscal years beginning
     after  May  15,  2002;   however,   certain   sections  are  effective  for
     transactions  occurring  after  May  15,  2002.  CP&L  does  not  have  any
     transactions  that are affected by this statement as of September 30, 2002.
     For CP&L, any expenses or call premiums  associated with the  reacquisition
     of debt  obligations  are amortized over the remaining life of the original
     debt using the straight-line method consistent with ratemaking treatment.

     In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
     with Exit or  Disposal  Activities."  This  statement  supercedes  Emerging
     Issues Task Force (EITF) Issue No. 94-3 "Liability  Recognition for Certain
     Employee   Termination  Benefits  and  Other  Costs  to  Exit  an  Activity
     (including  Certain  Costs  Incurred  in a  Restructuring)".  SFAS No.  146
     requires  that a liability for a cost  associated  with an exit or disposal
     activity be recognized  when the liability is incurred.  Under EITF 94-3, a
     liability is recognized at the date an entity commits to an exit plan. SFAS
     No. 146 also  establishes  that the liability  should initially be measured
     and  recorded  at fair  value.  The  provisions  of SFAS  No.  146  will be
     effective for any exit and disposal  activities  covered under the scope of
     this standard and initiated after December 31, 2002.

5.   COMPREHENSIVE INCOME

     Comprehensive income for the three and nine months ended September 30, 2002
     was $89.7 million and $307.9 million,  respectively.  Comprehensive  income
     for the three and nine months ended  September 30, 2001 was $164.1  million
     and $365.2 million,  respectively.  Items of other comprehensive income for
     the three-month and nine-month  periods  consisted  primarily of changes in
     fair value of  derivatives  used to hedge cash flows related to interest on
     long-term  debt,  the  cumulative  effect of  adopting  SFAS No.  133 as of
     January 1, 2001 and reclassification of amounts into income.

6.   FINANCING ACTIVITIES

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

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

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

7.   RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS

     In April,  May and June 2002,  CP&L entered into a series of treasury  rate
     locks to hedge its  exposure  to  interest  rates  with  regard to a future
     issuance of fixed-rate debt. These agreements had a computational period of

                                       30
<PAGE>

     ten  years.  These  instruments  were  designated  as cash flow  hedges for
     accounting purposes.  The agreements,  with a total notional amount of $350
     million,  were  terminated  simultaneously  with  the  pricing  of the $500
     million CP&L senior  unsecured  notes in July 2002.  CP&L  realized a $22.5
     million  hedging loss,  which will be amortized and recorded as an increase
     to interest expense over the life of the notes.

     The notional  amount of the above  contracts is not  exchanged and does not
     represent   exposure  to  credit  loss.  In  the  event  of  default  by  a
     counterparty,  the risk in the  transaction  is the cost of  replacing  the
     agreements at current market rates.

8.   COMMITMENTS AND CONTINGENCIES

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

     Contingencies

          1)   Franchise Taxes

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

               In  response  to the  state's  failure  to  distribute  the State
               Franchise Tax proceeds,  certain  cities in which CP&L  maintains
               facilities adopted municipal franchise tax ordinances  purporting
               to  impose on CP&L a local  franchise  tax.  The local  taxes are
               intended  to be  collected  for as  long as the  state  withholds
               distribution of the State Franchise Tax proceeds from the cities.
               The first local tax payments  were due August 15, 2002. On August
               2, 2002,  CP&L  filed a lawsuit  against  the  cities  seeking to
               enjoin the  enforcement  of the local taxes and to have the local
               ordinances  struck  down  because the  ordinances  are beyond the
               cities' statutory  authority and violate  provisions of the North
               Carolina and United States Constitutions.

               On September 14, 2002, the Governor of North Carolina signed into
               law a provision  that  prevents  cities and counties from levying
               local franchise taxes on electric utilities.  The new law is also
               intended to prevent a recurrence  of the  withholding  of utility
               franchise tax payments by the state.  This new legislation  makes
               it likely that the lawsuit CP&L filed in August  against  certain
               cities  that  were  seeking  to  enforce   local   franchise  tax
               ordinances will become moot.

          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). In addition, CP&L
               is  periodically  notified  by  regulators  such  as the  EPA and
               various  state   agencies  of  their   involvement  or  potential
               involvement  in sites,  other  than MGP sites,  that may  require
               investigation and/or remediation.

                                       31
<PAGE>

               There are 12 former  MGP sites and 14 other  active  waste  sites
               associated  with CP&L that have  required or are  anticipated  to
               require  investigation  and/or remediation costs. As of September
               30, 2002,  CP&L has not  recorded any accruals for  investigation
               and/or remediation costs for these sites. CP&L received insurance
               proceeds to address costs  associated with CP&L waste sites.  All
               eligible  expenses  related  to these  waste  costs  are  charged
               against a  centralized  fund  containing  these  proceeds.  As of
               September 30, 2002,  approximately  $8.3 million  remains in this
               centralized  fund.  As  costs  associated  with  CP&L's  share of
               investigation  and  remediation of these sites become known,  the
               fund is assessed to  determine  if  additional  accruals  will be
               required.  CP&L does not believe  that it can provide an estimate
               of the reasonably  possible total  remediation  costs beyond what
               remains in the centralized fund. This is due to the fact that the
               sites are at different stages:  investigation has not begun at 15
               sites,   investigation  has  begun  but  remediation   cannot  be
               estimated  at 7 sites and 4 sites  have begun  remediation.  CP&L
               measures  its  liability  for  these  sites  based  on  available
               evidence   including   its   experience  in   investigation   and
               remediation of contaminated  sites, which also involves assessing
               and developing  cost-sharing  arrangements with other potentially
               responsible parties. Once the centralized fund is depleted,  CP&L
               will accrue  costs for the sites to the extent its  liability  is
               probable and the costs can be  reasonably  estimated.  Therefore,
               CP&L  cannot  currently  determine  the total  costs  that may be
               incurred  in  connection  with  the  remediation  of  all  sites.
               According to current information,  these future costs at the CP&L
               sites are not expected to be material to its financial  condition
               or results of  operations.  A rollforward  of the balance in this
               fund is not provided due to the immateriality of this activity in
               the periods presented.

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

               There has been and may be further  proposed  federal  legislation
               requiring reductions in air emissions for nitrogen oxides, sulfur
               dioxide,  carbon dioxide and mercury  setting forth national caps
               and  emission  levels  over an  extended  period  of  time.  This
               national  multi-pollutant  approach would have significant  costs
               which could be material to CP&L's consolidated financial position
               or results of operations. Some companies may seek recovery of the
               related  cost  through rate  adjustments  or similar  mechanisms.
               Control equipment that will be installed on North Carolina fossil
               generating  facilities as part of the North Carolina  legislation
               discussed  below may address some of the issues  outlined  above.
               CP&L cannot predict the outcome of this matter.

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

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

               In July 1997, the EPA issued final regulations establishing a new
               eight-hour  ozone  standard.  In October  1999,  the  District of
               Columbia  Circuit  Court of Appeals  ruled  against  the EPA with
               regard to the federal eight-hour ozone standard. The U.S. Supreme
               Court has upheld, in part, the District of Columbia Circuit Court
               of Appeals decision.  Designation of areas that do not attain the
               standard is proceeding,  and further litigation and rulemaking on
               this and other  aspects of the  standard are  anticipated.  North
               Carolina  adopted the federal  eight-hour  ozone  standard and is
               proceeding with the  implementation  process.  North Carolina has

                                       32
<PAGE>

               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; however, further technical analysis
               and  rulemaking  may  result  in  a  requirement  for  additional
               controls at some units.  CP&L cannot  predict the outcome of this
               matter.

               The EPA published a final rule approving  petitions under Section
               126 of the Clean Air Act.  This  rule as  originally  promulgated
               required  certain  sources to make  reductions in nitrogen  oxide
               emissions  by  2003.  The  final  rule  also  includes  a set  of
               regulations  that affect  nitrogen  oxide  emissions from sources
               included  in the  petitions.  The  North  Carolina  fossil-fueled
               electric  generating  plants  are  included  in these  petitions.
               Acceptable  state plans under the NOx SIP Call can be approved in
               lieu  of the  final  rules  the EPA  approved  as part of the 126
               petitions.  CP&L, other utilities,  trade organizations and other
               states  participated in litigation  challenging the EPA's action.
               On May 15,  2001,  the  District  of  Columbia  Circuit  Court of
               Appeals  ruled in  favor  of the EPA  which  will  require  North
               Carolina to make reductions in nitrogen oxide emissions by May 1,
               2003.  However,  the Court in its May 15th decision  rejected the
               EPA's  methodology  for  estimating the future growth factors the
               EPA used in calculating  the emissions  limits for utilities.  In
               August  2001,  the  court  granted  a  request  by CP&L and other
               utilities  to  delay  the  implementation  of the  126  Rule  for
               electric  generating  units pending  resolution by the EPA of the
               growth  factor  issue.  The court's  order  tolls the  three-year
               compliance  period  (originally  set to end on May 1,  2003)  for
               electric  generating units as of May 15, 2001. On April 30, 2002,
               the EPA  published  a final  rule  harmonizing  the dates for the
               Section  126  Rule and the NOx SIP  Call.  In  addition,  the EPA
               determined in this rule that the future growth factor  estimation
               methodology  was  appropriate.  The new  compliance  date for all
               affected  sources is now May 31,  2004,  rather than May 1, 2003.
               CP&L cannot predict the outcome of this matter.

               On June 20,  2002,  legislation  was  enacted  in North  Carolina
               requiring the state's  electric  utilities to further  reduce the
               emissions of nitrogen  oxide and sulfur  dioxide from  coal-fired
               power plants. These levels exceed requirements of Title IV of the
               Clean Air Act  pertaining  to control of acid rain as well as the
               requirements  discussed  above  with  regard to the NOx SIP Call,
               8-hour ozone standard and Section 126 petitions. CP&L expects its
               capital   costs  to  meet   these   emission   targets   will  be
               approximately  $813 million.  CP&L  currently  has  approximately
               5,100  MW of  coal-fired  generation  in North  Carolina  that is
               affected  by  this  legislation.  The  legislation  requires  the
               emissions  reductions  to be  completed  in phases  by 2013,  and
               applies to each  utilities'  total  system  rather  than  setting
               requirements  for individual  power plants.  The legislation also
               freezes the utilities' base rates for five years unless there are
               extraordinary  events beyond the control of the utility or unless
               the utility  persistently earns a return  substantially in excess
               of the rate of return  established  and found  reasonable  by the
               NCUC in the  utility's  last  general  rate  case.  Further,  the
               legislation  allows the  utilities  to recover  from their retail
               customers  the  projected  capital  costs  during the first seven
               years of the 10-year  compliance  period  beginning on January 1,
               2003. The utilities must recover at least 70% of their  projected
               capital costs during the five-year rate freeze  period.  Pursuant
               to the new law, CP&L entered into an agreement  with the state of
               North  Carolina  to  transfer  to the state all future  emissions
               allowances it generates from  over-complying with the new federal
               emission limits when these units are completed.  The new law also
               requires  the state to  undertake  a study of mercury  and carbon
               dioxide  emissions  in North  Carolina.  CP&L cannot  predict the
               future  regulatory  interpretation,  implementation  or impact of
               this new law.

               CP&L has  filed  claims  with  its  general  liability  insurance
               carriers  to recover  costs  arising  out of actual or  potential
               environmental  liabilities.  Some claims have  settled and others
               are still pending. While management cannot predict the outcome of
               these  matters,  the  outcome is not  expected to have a material
               effect on the  consolidated  financial  position  or  results  of
               operations.

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

                                       33
<PAGE>

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

     RESULTS OF OPERATIONS
     For the three and nine months ended September 30, 2002, as compared to
     the corresponding periods in the prior year

     Progress Energy, Inc.

     Operating Results

     Progress Energy's consolidated earnings for the three and nine months ended
     September 30, 2002,  were $151.9  million  ($0.71 basic earnings per common
     share) and $405.1  million  ($1.89 per  share),  respectively,  compared to
     earnings of $366.4  million ($1.78 per share) and $632.1 million ($3.13 per
     share) for the same periods ended September 30, 2001. Current year earnings
     for the three and nine months  ended  September  30,  2002 were  negatively
     impacted by the  recognition of an impairment of the  long-lived  assets in
     the telecommunications  business,  decreases in revenues as part of Florida
     Power's retail rate  settlement and increases in operations and maintenance
     expenses related to increased  benefit costs and decreased pension credits.
     In addition, the common stock issuance in August 2001 (12.5 million shares)
     and purchase of Westchester  Gas Company in April 2002 (2.5 million shares)
     resulted in dilution.  Offsetting  these  negative  factors  were  customer
     growth and improved  weather which  increased  retail and wholesale  sales,
     decreases in  depreciation  expense for the CP&L Electric and Florida Power
     Electric  segments,  decreases  in interest  charges  resulting  from lower
     average interest rates and additional  capitalized  interest as well as the
     elimination of goodwill amortization.

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

     ----------------------------------------------------------------------------------------------------------------
                                                                    Three Months Ended        Nine Months Ended
                                                                       September 30,            September 30,
     ----------------------------------------------------------------------------------------------------------------
     ($ millions, except per share figures)                         2002         2001        2002         2001
                                                                    ----         ----        ----         ----
     Reported Earnings                                             $151.9       $366.4      $405.1       $632.1
     Intra-period tax allocation adjustment                         (39.0)       (72.8)       40.5        (27.4)
     Contingent Value Obligations (CVO) mark to market               (9.4)       (16.8)      (22.2)        (7.9)
     Florida Retroactive Retail Rate Refund                            -           -          21.0          -
     Progress Telecom/Caronet Asset Impairment and One-time
        Charges                                                     224.8          -         224.8          -
     ----------------------------------------------------------------------------------------------------------------
     Ongoing Earnings                                              $328.3       $276.8      $669.2       $596.8
                                                                   ======       ======      ======       ======
     Ongoing Earnings Per Share                                     $1.53       $1.34        $3.12        $2.96
                                                                    =====       =====        =====        =====
     ----------------------------------------------------------------------------------------------------------------
</TABLE>

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

     CP&L Electric

     CP&L  Electric  contributed  net income for the three and nine months ended
     September  30,  2002 of $179.3  million and $396.5  million,  respectively,
     compared to net income of $168.5 million and $373.9 million,  respectively,
     for the same  periods in the prior  year.  Included  in these  amounts  are
     energy  marketing  and  trading  activities,  which are managed by Progress
     Ventures  on behalf  of CP&L,  that had net  income  for the three and nine
     months  ended  September  30,  2002 of $11.3  million  and  $41.3  million,
     respectively,  compared to net income of $11.7  million and $39.4  million,
     respectively, for the same periods in the prior year.

     Factors  contributing to CP&L Electric's results include favorable electric
     revenue and margins  driven by  favorable  weather  compared to 2001 ($20.5
     million and $22.7  million  margin gain for the three and nine months ended
     September 30, 2002,  respectively);  a decrease in accelerated depreciation
     expense  related to the nuclear  plants  ($16.8  million and $35.1  million
     decrease  for  the  three  and  nine  months  ended   September  30,  2002,
     respectively); and a decrease in interest expense resulting from lower debt
     and an average interest rate reduction (interest decreased by $13.6 million
     and $25.9  million for the three and nine months ended  September 30, 2002,
     respectively).  Additionally,  CP&L Electric's  results for the nine months
     ended  September  30, 2002 were  favorably  impacted by a $25.7 million tax
     benefit reallocation from the holding company to CP&L. See Other Businesses
     section below for additional information on the tax benefit reallocation.

                                       34
<PAGE>

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

     ------------------------------------------------------------------------------------------------------------------
                                          Three Months Ended September 30,         Nine Months Ended September 30,
                                       --------------------------------------------------------------------------------
               Customer Class               2002     % Change        2001          2002     % Change        2001
     ------------------------------------------------------------------------------------------------------------------
     Residential                           $384.6      12.6%        $341.7       $952.4       4.5%          $911.6
     Commercial                             244.6       8.0          226.5        630.7       5.4            598.5
     Industrial                             183.0       0.3          182.4        488.9      (1.8)           497.9
     Governmental                            23.5       4.0           22.6         58.9       3.7             56.8
     ----------------------------------------------              ------------------------             -----------------
         Total Retail Revenues              835.7       8.1          773.2      2,130.9       3.2          2,064.8
     Wholesale                              193.9       6.6          181.9        493.2      (0.9)           497.6
     Unbilled                                (5.8)     28.0           (0.2)         8.5        -             (42.3)
     Miscellaneous                           21.4      13.2           18.9         58.7       1.9             57.6
     ----------------------------------------------              ------------------------             -----------------
         Total Electric Revenues         $1,045.2       7.3%        $973.8     $2,691.3       4.4%        $2,577.7
     ------------------------------------------------------------------------------------------------------------------

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

     ------------------------------------------------------------------------------------------------------------------
                                          Three Months Ended September 30,           Nine Months Ended June 30,
                                       --------------------------------------------------------------------------------
               Customer Class               2002     % Change        2001         2002        % Change        2001
     ------------------------------------------------------------------------------------------------------------------
     Residential                            4,485      11.7%         4,015       11,732       2.3%          11,469
     Commercial                             3,675       7.0          3,433        9,493       3.3            9,186
     Industrial                             3,569       0.8          3,540        9,917      (2.2)          10,145
     Governmental                             425       2.7            414        1,087      (0.4)           1,093
     ----------------------------------------------              ------------------------             -----------------
         Total Retail Energy Sales         12,154       6.6         11,402       32,229       1.1           31,893
     Wholesale                              4,530      20.3          3,766       11,356      10.5           10,280
     Unbilled                               (218)      29.0          (169)           27        -              (771)
     ----------------------------------------------              ------------------------             -----------------
         Total mWh sales                   16,466       9.8%        14,999       43,612       5.3%          41,402
     ------------------------------------------------------------------------------------------------------------------
</TABLE>

     Sales of energy to retail and wholesale  customers  increased for the three
     and nine months ended  September 30, 2002, when compared to the same period
     in the prior year primarily due to the impacts of favorable  weather in the
     current year and  customer  growth.  In  addition,  an increase in the fuel
     factor for electric  retail rates caused  retail  revenues to increase over
     the prior year. For the nine months ended,  this was partially  offset by a
     decrease in sales in the  industrial  customer  class,  primarily  due to a
     decline in the industrial  customer base (largely  textiles  customers) and
     the continued overall softness in the industrial markets driven by the weak
     economic environment. Wholesale energy sales growth rates for the three and
     nine months ended  September 30, 2002  exceeded  wholesale  energy  revenue
     growth  rates as sales to other  utilities  were  negatively  impacted by a
     depressed market in 2002 and higher market prices in 2001.

     CP&L Electric's  fuel expense  increased $35.7 million for the three months
     ended  September  30,  2002,  when  compared  to  $186.5  million  in 2001,
     primarily  due to an  increase  in volume and a change in  generation  mix,
     which was partially offset by a decrease in price.  Purchased power expense
     increased $9.5 million for the three months ended  September 30, 2002, when
     compared to $113.8  million in 2001,  due to increases in volume and price.
     CP&L  Electric's  fuel expense  increased $71.6 million for the nine months
     ended  September  30,  2002,  when  compared  to  $497.7  million  in 2001,
     primarily  due to an  increase  in volume and a change in  generation  mix,
     which was partially offset by a decrease in price.  Purchased power expense
     decreased $3.4 million for the nine months ended  September 30, 2002,  when
     compared to $291.0  million in 2001,  primarily  due to decreases in volume
     attributable to favorable market  conditions and prices that existed in the
     first quarter of 2001. Fuel expenses are recovered  primarily  through cost
     recovery  clauses  and,  as such,  have no  material  impact  on  operating
     results.

     CP&L  Electric's  operations  and  maintenance  expense  increased by $13.9
     million and $48.8 million for the three and nine months ended September 30,
     2002, respectively,  when compared to operations and maintenance expense of
     $167.2 million and $515.2  million,  respectively,  for the same periods in
     the prior year. The increase for the three and nine months ended  September
     30, 2002 was  primarily  due to  increased  salary and benefit  costs ($6.3
     million and $15.0 million for the three and nine months ended September 30,

                                       35
<PAGE>

     2002);  increased  insurance  costs combined with a lower NEIL refund ($2.0
     million and $4.2 million for the three and nine months ended  September 30,
     2002); costs incurred to prepare for a nuclear outage ($4.5 million for the
     three and nine months ended September 30, 2002);  costs related to a boiler
     overhaul  ($9.4  million for the nine months ended  September 30, 2002) and
     increased  support  charges from the Service  Company as a result of higher
     vacancy rates in the prior year.

     Depreciation  expense  decreased  $13.2  million and $16.1  million for the
     three  and  nine  months  ended   September  30,  2002,  when  compared  to
     depreciation  expense of $143.7 million and $421.5  million,  respectively,
     for the same periods in the prior year.  CP&L's  accelerated  cost recovery
     program for nuclear  generating  assets  allows  flexibility  in  recording
     accelerated depreciation expense. The decrease for these periods relates to
     CP&L Electric's  election to depreciate the nuclear assets at the lower end
     of the allowable range as set by the state utility  commissions.  See OTHER
     MATTERS  below  for  additional  information  on  CP&L's  accelerated  cost
     recovery  program.  For the three and nine months ended September 30, 2002,
     CP&L recorded  accelerated  depreciation expense of $13.2 million and $54.9
     million,  respectively.  For the three and nine months ended  September 30,
     2001, CP&L recorded  accelerated  depreciation expense of $30.0 million and
     $90.0  million,  respectively.  These  reductions  are partially  offset by
     increased depreciation costs resulting from the first phase of the Richmond
     units being placed into service in May 2001.

     Florida Power Electric

     Florida Power Electric contributed net income for the three and nine months
     ended   September   30,  2002  of  $123.8   million  and  $258.3   million,
     respectively,  compared to net income of $114.1 million and $270.0 million,
     respectively  for the same  periods in the prior  year.  Included  in these
     amounts are energy marketing and trading  activities,  which are managed by
     Progress  Ventures on behalf of Florida Power,  that had net income for the
     three and nine months  ended  September  30, 2002 of $3.3  million and $9.5
     million,  respectively,  compared  to net income of $6.7  million and $18.4
     million,   respectively,   for  the  same   periods  in  the  prior   year.
     Additionally,  Florida  Power  Electric's  results  for the  three and nine
     months ended September 30, 2002 were favorably  impacted by a $13.4 million
     tax  benefit  reallocation  from  the  holding  company  to  Florida  Power
     Electric.  See Other Businesses section below for additional information on
     the tax benefit reallocation.

     Florida  Power  Electric's  earnings  for the three and nine  months  ended
     September 30, 2002, were negatively  affected by the outcome of the Florida
     Power rate case settlement,  which included a one-time  retroactive revenue
     refund of $35.0  million,  $21.0 million  after tax,  recorded in the first
     quarter of 2002 and a decrease in retail rates,  which was partially offset
     by reductions in depreciation in accordance with the settlement. See Note 3
     to the Progress Energy, Inc.  Consolidated Interim Financial Statements for
     additional  information  on the  settlement.  In  addition,  Florida  Power
     Electric results for the three months and nine months ended were negatively
     affected by increases in operations  and  maintenance  expense as described
     more fully below.

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

     ---------------------------------------------------------------------------------------------------------------
                                           Three Months Ended September 30,     Nine Months Ended September 30,
                                        ----------------------------------------------------------------------------
               Customer Class               2002     % Change       2001          2002     % Change       2001
     ---------------------------------------------------------------------------------------------------------------
     Residential                           $469.8      (5.7)%       $498.2     $1,244.7      (3.0)%       $1,283.2
     Commercial                             199.5      (8.0)         216.9        549.7      (3.3)           568.2
     Industrial                              52.6      (4.0)          54.8        157.7      (5.8)           167.5
     Governmental                            45.1      (7.2)          48.6        128.5      (1.6)           130.6
     Retroactive Retail Revenue Refund          -        -               -        (35.0)       -                 -
     ----------------------------------------------              ------------------------               ------------
         Total Retail Revenues              767.0      (6.3)         818.5      2,045.6      (4.8)         2,149.5
     Wholesale                               57.8     (19.9)          72.2        166.1     (28.4)           232.0
     Unbilled                                 8.4        -            (7.3)        20.2       -              (12.1)
     Miscellaneous                           30.4      33.9           22.7         84.1     (35.8)           130.9
     ----------------------------------------------              ------------------------               ------------
         Total Electric Revenues           $863.6      (4.7)%       $906.1     $2,316.0      (7.4)%       $2,500.3
     ---------------------------------------------------------------------------------------------------------------


                                       36
<PAGE>

     Florida  Power's  electric energy sales for the three and nine months ended
     September 30, 2002 and 2001,  and the  percentage  change by customer class
     are as follows (in thousands of mWh):

     ---------------------------------------------------------------------------------------------------------------
                                           Three Months Ended September 30,     Nine Months Ended September 30,
                                        ----------------------------------------------------------------------------
                                            2002     % Change       2001          2002     % Change       2001
     ---------------------------------------------------------------------------------------------------------------
     Residential                            5,503       2.5%         5,370       14,078       1.7%          13,841
     Commercial                             3,207       1.4          3,164        8,519       1.8            8,367
     Industrial                               983       5.3            934        2,859      (2.2)           2,923
     Governmental                             759       1.2            750        2,095       2.6            2,042
     ----------------------------------------------              ------------------------               ------------
         Total Retail Energy Sales         10,452       2.3         10,218       27,551       1.4           27,173
     Wholesale                              1,020     (22.7)         1,320        2,975     (18.8)           3,666
     Unbilled                                 214        -            (181)         689        -              (122)
     ----------------------------------------------              ------------------------               ------------
         Total mWh sales                   11,686       2.9%        11,357       31,215       1.6%          30,717
     ---------------------------------------------------------------------------------------------------------------
</TABLE>

     As a result of the settlement of the Florida Power rate case, effective May
     1,  2002,  Florida  Power  reduced  its rates by 9.25%.  The effect of this
     reduction  was to reduce  revenue by $30.9 million for the third quarter of
     2002 and $51.4 million for the nine months ended  September 30, 2002,  when
     compared to the same periods in the prior year.  Partially  offsetting  the
     decrease  in rates and the  one-time  refund from the  settlement  detailed
     above  were the  impacts of  favorable  weather  and  customer  growth.  In
     addition,  revenues  for the  first  nine  months  of 2002  decreased  when
     compared to the same period in the prior year due to the recognition of $63
     million of deferred revenue in the first quarter of 2001, which is included
     in  miscellaneous  revenues  in the  table  above.  In 2001,  the  deferred
     revenues  were  offset  by  accelerated   amortization  of  the  Tiger  Bay
     regulatory  asset,  discussed  below,  and  therefore,  had no net earnings
     impact. Wholesale electric revenues and sales decreased from the prior year
     due to the expiration of specific contracts.

     Fuel used in generation  and purchased  power  decreased  $32.0 million and
     $80.0  million  for the three and nine months  ended  September  30,  2002,
     respectively,  when  compared  to  $414.7  million  and  $1,103.9  million,
     respectively,  for the same  periods in the prior  year,  primarily  due to
     lower oil and gas prices and purchased power costs,  partially offset by an
     increase  in coal prices and volume from  higher  system  requirements.  In
     addition,  the decrease for the three months ended  September 30, 2002, was
     due to the lowered  recovery of fuel expense as a result of the  mid-course
     correction  of Florida  Power's  fuel cost  recovery  clause as part of the
     settlement.  Fuel and  purchased  power  expenses are  recovered  primarily
     through  cost  recovery  clauses and, as such,  have no material  impact on
     operating results.

     Operations  and  maintenance  expense  increased by $19.2 million and $69.9
     million  for  the  three  and  nine  months  ended   September   30,  2002,
     respectively, when compared to operations and maintenance expense of $119.9
     million and $350.6 million, respectively, for the same periods in the prior
     year. These amounts have increased due to a decreased pension credit in the
     current year ($6.5  million and $22.8  million lower for the three and nine
     months ended September 30, 2002);  increased other employee  benefit costs,
     primarily  driven by medical  costs  (approximately  $6.1 million and $15.6
     million for the three and nine months ended September 30, 2002);  increased
     spending related to Florida Power's  Commitment to Excellence Program which
     is aimed at improving system  reliability and customer  satisfaction  ($2.9
     million and $8.5 million for the three and nine months ended  September 30,
     2002);  and increased  support charges from the Service Company as a result
     of higher vacancy rates in the prior year.

     Depreciation and amortization expense decreased by $21.7 million and $123.8
     million  for  the  three  and  nine  months  ended   September   30,  2002,
     respectively, when compared to expense of $95.1 million and $341.8 million,
     respectively,  for the same  periods in the prior year.  The Florida  Power
     rate case  settlement  provides  for ongoing  reductions  in  depreciation,
     nuclear  decommissioning  and fossil  dismantlement  costs that reduced the
     amount of depreciation  recorded by $19.5 million and $58.9 million for the
     three and nine months ended September 30, 2002, respectively.  In addition,
     the first half of 2001  depreciation and amortization  includes $63 million
     of accelerated  amortization on the Tiger Bay regulatory  asset  associated
     with deferred revenue from 2000.

     Progress Ventures

     The Progress  Ventures segment  operations  include natural gas exploration
     and production;  coal fuel extraction,  manufacturing  and delivery,  which
     includes synthetic fuels production;  non-regulated generation;  and energy
     marketing  and  trading  activities  on  behalf  of the  utility  operating

                                       37
<PAGE>

     companies  as well  as for  its  non-regulated  plants.  Progress  Ventures
     contributed  segment income,  including  allocation of energy marketing and
     trading on behalf of the utilities, of $87.6 million and $216.7 million for
     the three and nine months ended September 30, 2002, respectively,  compared
     to net income of $80.1 million and $218.8  million,  respectively,  for the
     same periods in the prior year.  For the three months ended  September  30,
     2002, the majority of the increase relates to the addition of non-regulated
     plants in the current year.  For the nine months ended  September 30, 2002,
     the majority of the decrease  relates to minor reductions in the net income
     related to energy marketing and trading,  and in both the coal and gas fuel
     extraction,  manufacturing and delivery operations, partially offset by the
     additions of non-regulated plants during the year.

     Progress  Ventures'  energy  marketing  and trading  activities,  including
     activities  on behalf of CP&L and Florida  Power,  generated  net income of
     $13.1  million  and  $49.1  million  for the three  and nine  months  ended
     September 30, 2002,  respectively,  compared to net income of $18.4 million
     and $57.8  million,  respectively,  for the same periods in the prior year.
     See Note 5 to the Progress  Energy,  Inc.  Consolidated  Interim  Financial
     Statements for additional  information on trading and marketing activities.
     Earnings  for the three and nine months  ended  September  30,  2002,  have
     decreased  primarily due to the  expiration  of specific  contracts and the
     impact of lower natural gas prices on the pricing of certain contracts.

     Progress Ventures' non-regulated generation operations generated net income
     of $16.5  million and $23.3  million  for the three and nine  months  ended
     September  30,  2002,  respectively,  when  compared  to net income of $2.3
     million and $3.4 million,  respectively,  for the same periods in the prior
     year.  This increase is due to the completion of construction of additional
     non-regulated  plants,  transfer  of  generation  assets  from CP&L and the
     acquisitions of non-regulated plants in the current year. See Note 2 to the
     Progress  Energy,  Inc.   Consolidated  Interim  Financial  Statements  for
     additional information on this acquisition.

     Progress Ventures,  Inc.'s subsidiary,  MPC Generating,  LLC, currently has
     two tolling  agreements for output on one of its non-regulated  plants with
     Dynegy,  Inc. through June 2008. These contracts are not subject to mark to
     market  accounting  under SFAS No. 133. If Dynegy,  Inc., was to default on
     this contract and Progress Ventures was required to replace the contract on
     this  non-regulated  plant, this could negatively impact Progress Ventures'
     cash flows.  Progress  Energy does not expect these  developments to have a
     material  impact  on the  Company's  consolidated  results  of  operations,
     financial position or cash flows.

     Progress  Ventures'  natural  gas  exploration  and  production  operations
     include  the  operations  of Mesa  Hydrocarbons,  Inc.  (Mesa),  which owns
     natural gas reserves and operates  wells in Colorado and sells natural gas.
     These  operations  also include the  activities  of the  recently  acquired
     Westchester  Gas  Company.   See  Note  2  to  the  Progress  Energy,  Inc.
     Consolidated  Interim  Financial  Statements for additional  information on
     this acquisition. These operations generated net income of $2.5 million and
     $3.7  million  for the three and nine  months  ended  September  30,  2002,
     respectively, when compared to net income of $0.7 million and $5.1 million,
     respectively,  for  the  same  periods  in  the  prior  year.  Due  to  the
     acquisition of Westchester  Gas Company in April 2002, the results of these
     operations are not comparative. However, the current year results have been
     negatively  affected by the  decreases in sales price of gas over the prior
     year.

     Progress Ventures periodically enters into derivative  instruments to hedge
     its  exposure  to price  fluctuations  on natural gas sales.  During  2002,
     Progress  Ventures has entered into cash flow hedges for  approximately  81
     percent  and 56  percent,  respectively,  of Mesa and  Westchester's  total
     projected  natural gas sales for the fourth  quarter of 2002 and the entire
     year  2003.  See  Note  10 to  the  Progress  Energy  consolidated  interim
     financial statements for more information on these instruments.

     Progress  Ventures'  coal  fuel  extraction,   manufacturing  and  delivery
     operations generated net income of $55.1 million and $139.9 million for the
     three and nine months ended September 30, 2002, when compared to net income
     of $57.3 million and $147.9 million,  respectively, for the same periods in
     the prior year.  The  Progress  Ventures  segment  sold 3.0 million and 9.4
     million  tons of  synthetic  fuel  for the  three  and  nine  months  ended
     September 30, 2002, respectively,  compared to 4.0 million and 10.4 million
     tons,  respectively,  for the same  periods  in the prior  year.  The sales
     resulted in tax credits of $78.7 million and $253.8  million being recorded
     for the three and nine  months  ended  September  30,  2002,  respectively,
     compared to tax credits of $102.9 million and $271.8 million, respectively,
     for the same periods in the prior year. The synthetic  fuel  production and
     related tax credits are lower in 2002 than in 2001  because the  production
     schedule in 2002 has been evenly distributed based on anticipated full-year
     production  whereas in 2001 excess  production  in the first nine months of
     the year mandated lower fourth quarter production.  The production and sale
     of the synthetic fuel from these facilities qualifies for tax credits under
     Section 29 of the Code. See "Synthetic Fuels" under OTHER MATTERS below for
     additional discussion of these tax credits.  Results for the three and nine
     months ended  September  30, 2002 were also  favorably  impacted from $10.2
     million of interest being capitalized in accordance with SFAS No. 34.

                                       38
<PAGE>

     Rail Services

     Rail  Services'  operations  represent  the  activities  of  Progress  Rail
     Services Corporation (Progress Rail) and include railcar repair, rail parts
     reconditioning  and sales,  scrap metal  recycling  and other rail  related
     services.  In the second  quarter of 2001,  Rail Services was  reclassified
     from net assets held for sale and the cumulative Rail Services'  operations
     since the acquisition  date of November 30, 2000, were included in Progress
     Energy's  consolidated  results of operations.  Progress Energy recorded an
     after-tax  charge of $10.1 million in the second quarter of 2001 reflecting
     the  reallocation  of the purchase  price and the reversal of the effect of
     net assets held for sale accounting. In the third quarter of 2001 and 2002,
     Rail Services was accounted for as an ongoing operation. As a result of the
     classification  to net  assets  held  for  sale in  November  2000  and the
     reversal  of that  designation  in 2001,  Rail  Services  year to date 2001
     activity includes activity from December 2000.

     Rail  Services  contributed  earnings  for the three and nine months  ended
     September 30, 2002 of $0.7 million and $3.0 million, respectively, compared
     to losses of $2.2  million and $9.7 million for the  comparable  periods in
     2001.  Rail Service's year to year results were impacted by a weak business
     environment,  which  resulted in $24.1 million  decreased  revenues for the
     quarter and a decrease of $93.5 million for the nine months ended September
     30, 2002 when compared to 2001. In addition, Rail Services' transition from
     acting as a scrap  reseller  in 2001 to acting as a scrap  resale  agent in
     2002  and  asset  sales  in  2001  contributed  to  the  revenue  decrease.
     Corresponding  decreases in operating costs and the impact of targeted cost
     cutting measures offset the revenue reductions.

     Other Businesses

     The Other  segment  primarily  includes the  operations  of North  Carolina
     Natural Gas Corporation  (NCNG),  Strategic Resource Solutions Corp. (SRS),
     Progress  Telecommunications  Corporation  (Progress  Telecom) and Caronet,
     Inc. (Caronet).  This segment also includes other non-regulated  operations
     of CP&L and FPC as well as  holding  company  results.  The  Other  segment
     generated a net loss of $224.9 million and $418.6 million for the three and
     nine months ended September 30, 2002, respectively,  compared to net income
     of $24.4 million and a net loss of $163.1  million,  respectively,  for the
     same periods in the prior year.  The decrease in earnings for the three and
     nine months ended  September 30, 2002, when compared to the same periods in
     the prior year, was primarily due to the  recognition  of long-lived  asset
     impairments  and one  time  charges  in the  telecommunications  businesses
     (total  impairment and one-time  charges of $355.4 million offset by $130.6
     million tax  benefit  for a $224.8  million  after-tax  impact),  partially
     offset by the elimination of goodwill  amortization in 2002.  Other segment
     earnings for the three and nine months ended  September  30, 2002 were also
     positively  impacted from $11.8 million of interest  being  capitalized  in
     accordance with SFAS No. 34.

     In accordance with SFAS No. 142, effective January 1, 2002, Progress Energy
     no longer amortizes goodwill. For the three and nine months ended September
     30,  2001,  the  Company  amortized  goodwill  of $24.9  million  and $75.6
     million, respectively. At September 30, 2002, the Company had approximately
     $3.8 billion of unamortized  goodwill.  See Note 7 to the Progress  Energy,
     Inc.  Consolidated Interim Financial Statements for additional  information
     on SFAS No. 142.

     NCNG recorded a net loss of $5.3 million and net income of $1.7 million for
     the three and nine months ended September 30, 2002, respectively,  compared
     to net losses of $3.2 million and $1.0 million,  respectively, for the same
     periods in the prior year.  NCNG's  margin on gas sales  decreased  by $2.3
     million and  increased  by $5.2 million for the three and nine months ended
     September 30, 2002, respectively, when compared to margin on sales of $15.4
     million and $55.8 million for the same periods in the prior year. The third
     quarter  margin  decrease  resulted   primarily  from  a  retroactive  rate
     reduction for one  customer.  The  year-to-date  margin  increase  resulted
     primarily  from an increase in industrial  volumes  related to a decline in
     gas prices.

     NCNG's  operations and maintenance  expense  decreased $0.2 million for the
     three months and increased $3.7 million for the nine months ended September
     30, 2002,  respectively.  The increase for the nine months ended  September
     30, 2002 was primarily due to increased  staffing and increased  operations
     and maintenance expense associated with an increase in its fleet.

     In February  2002,  NCNG filed a general rate case with the North  Carolina
     Utilities  Commission  (NCUC)  requesting  an annual rate increase of $47.6
     million. On May 3, 2002, NCNG withdrew the application, based upon the NCUC
     Public Staff's and other parties' interpretation of the order approving the
     merger of CP&L and NCNG that such a case was not  permitted  until 2003. On
     May 16,  2002,  NCNG  filed a request  to  increase  its  margin  rates and
     rebalance  its rates with the NCUC,  requesting  an annual rate increase of

                                       39
<PAGE>

     $4.1 million to recover costs associated with specific system improvements.
     On September 23, 2002, the NCUC issued its order approving the $4.1 million
     rate increase. The rate increase was effective October 1, 2002.

     On October 16,  2002,  the Company  announced  plans to sell NCNG,  and the
     Company's ownership interest in EasternNC, to Piedmont Natural Gas Company,
     Inc. for approximately $425 million in gross cash proceeds.  See Note 14 to
     the Progress Energy,  Inc.  Consolidated  Interim Financial  Statements for
     further discussion on the planned sale.

     Generally  accepted  accounting  principles  require  companies  to apply a
     levelized effective tax rate to interim periods that is consistent with the
     estimated  annual  effective tax rate.  Income tax expense was decreased by
     $39.0 million for the three months and increased $40.5 million for the nine
     months  ended  September  30, 2002,  respectively,  in order to maintain an
     effective tax rate  consistent with the estimated  annual rate.  Income tax
     expense was  decreased by $72.6 million and $27.2 million for the three and
     nine  months  ended  September  30,  2001,  respectively.  The tax  credits
     associated  with Progress  Energy's  synthetic  fuel  operations  lower the
     overall  effective tax rate.  Fluctuations in estimated annual earnings and
     tax  credits  can also cause  large  swings in the  effective  tax rate for
     interim  periods.  Therefore,  this adjustment will vary each quarter,  but
     will have no effect on net income for the year.

     Progress  Energy is subject to regulation  under the Public Utility Holding
     Company Act (PUHCA) of 1935, as amended,  of the SEC. According to a recent
     SEC order,  Progress  Energy's  tax  benefit  not  related  to  acquisition
     interest expense is to be allocated to profitable subsidiaries.  Therefore,
     the tax benefit that was previously held in the holding  company,  included
     in  the  Other  segment,  was  allocated  on a  preliminary  basis  to  the
     profitable  subsidiaries  effective  with the second  quarter of 2002.  The
     allocation has no impact on consolidated tax expense or earnings.  However,
     in the nine months ended  September 30, 2002, the allocation  increased the
     holding  company's tax expense $40.6 million with  offsetting  decreases in
     other segments.

     Progress  Energy  issued 98.6 million CVOs in  connection  with the Florida
     Progress  acquisition.  Each CVO represents the right to receive contingent
     payments based on the performance of four synthetic fuel  facilities  owned
     by Progress  Energy.  The payments,  if any, are based on the net after-tax
     cash flows the facilities  generate.  These CVOs are recorded at fair value
     based on published  prices and unrealized  gains and losses from changes in
     fair value are recognized in earnings.  At September 30, 2002, the CVOs had
     a fair  market  value  of  approximately  $19.7  million.  Progress  Energy
     recorded a gain of $9.4  million  and $22.2  million for the three and nine
     months ended September 30, 2002, respectively,  compared to a gain of $16.8
     million and $7.9 million,  respectively,  for the same periods in the prior
     year to record the changes in fair value of CVOs.

     Progress Telecom,  including Caronet's operations, had net losses of $225.3
     million and $234.6  million for the three and nine months  ended  September
     30,  2002,  respectively.  This  compares to net losses of $2.4 million and
     $4.6  million  for the same  periods in 2001.  The  decrease in earnings in
     2002,  when  compared  to  2001,  is  primarily  due  to  long-lived  asset
     impairments  and other  one-time  after tax charges of $208.5  million that
     resulted from a valuation study of the unit's long-lived assets. See Note 3
     to the Progress Energy, Inc.  Consolidated Interim Financial Statements for
     further  discussion  of  these  charges.  This  write-down   constitutes  a
     significant  reduction  in the book value of these  assets and the  ongoing
     operations  are expected to have a negligible  impact on Progress  Energy's
     net income.

     Effective  June 28,  2000,  Caronet  entered  into an  agreement  with Bain
     Capital where it contributed the net assets used in its application service
     provider business to a newly formed company,  for a 35% ownership  interest
     (15% voting interest), named Interpath Communications, Inc. (Interpath). In
     May 2002,  Interpath merged with  USinternetworking,  Inc.  Pursuant to the
     terms of the merger  agreement and  additional  funds being  contributed by
     Bain  Capital,  CP&L now owns  approximately  19% of the company (7% voting
     interest).  As a result of the merger,  the Company  reviewed the Interpath
     investment  for  impairment  and  wrote  off the  remaining  amount  of its
     cost-basis investment in Interpath, recording a pre-tax impairment of $25.0
     million in the third quarter of 2002 ($16.3 million after-tax).

     Excluding the asset  impairments and one-time charges,  Progress  Telecom's
     (including  Caronet's  operations)  third quarter 2002 loss of $0.5 million
     compares to the prior year's  comparable  period loss of $2.4 million.  The
     reduced  loss  resulted  primarily  from  lower  depreciation  charges as a
     consequence  of the  asset  writedown.  A loss  for the nine  months  ended
     September  30,  2002  (excluding  the  one-time  charges)  of $9.7  million
     compares to a loss of $4.6 million for the  comparable  period in 2001. The
     depreciation  reduction related to the asset writedown was more than offset
     by depreciation on additional fiber optics that were placed into service in
     the first half of the year.

                                       40
<PAGE>

     LIQUIDITY AND CAPITAL RESOURCES

     Progress Energy, Inc.

     Statement of Cash Flows and Financing Activities

     Cash provided by operating  activities decreased $29.3 million for the nine
     months ended September 30, 2002, when compared to the corresponding  period
     in the prior year. The decrease in cash from  operating  activities for the
     2002 period is due to a decrease in operating income from the impact of the
     Florida Power rate case settlement. In addition, changes in the balances of
     certain  current assets and  liabilities  due to  operational  fluctuations
     decreased cash provided by operating activities.

     Net cash used in investing activities increased $442.5 million for the nine
     months ended September 30, 2002, when compared to the corresponding  period
     in the prior year.  The  increase in cash used in investing  activities  is
     primarily  due to an expansion of Progress  Ventures'  generation  and fuel
     portfolio (see Note 2 to the Progress  Energy,  Inc.  Consolidated  Interim
     Financial Statements). During the first nine months of 2002, $738.6 million
     was spent on its  utility  subsidiaries'  construction  program  and $764.6
     million  was  spent  in  diversified   business  property  additions.   The
     acquisition  of Westchester  Gas Company  resulted in a net cash outflow of
     $17.4 million.

     Net cash provided by financing  activities increased $473.8 million for the
     nine months ended  September 30, 2002,  when compared to the  corresponding
     period in the prior  year.  The  increase  in cash  provided  by  financing
     activities  is primarily due to an increase in  short-term  obligations  as
     well as an increase in long-term  debt,  the details of which are described
     below.

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

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

     In March  2002,  a  Progress  Ventures,  Inc.  subsidiary,  Progress  Genco
     Ventures,  LLC,  obtained a $440 million bank  facility that was to be used
     exclusively  for  expansion  of  its  non-regulated  generation  portfolio.
     Borrowings  under this facility are secured by the assets in the generation
     portfolio.  In March, June and September 2002, Progress Genco Ventures, LLC
     made  draws  under this  facility  of $120  million,  $67  million  and $25
     million,  respectively.  In September 2002,  Progress Genco  Ventures,  LLC
     terminated $130 million of the bank facility, reducing it from $440 million
     to $310 million.

     Progress Genco Ventures, LLC is required to hedge 75 percent of the amounts
     outstanding  under its bank facility through  September 2005 and 50 percent
     thereafter  pursuant to the terms of the  agreement  for  expansion  of its
     non-regulated  generation portfolio.  In May 2002, Progress Genco Ventures,
     LLC entered  into hedges that  included a series of zero cost  collars that
     have been designated as cash flow hedges for accounting purposes.  The fair
     value  of these  instruments  was a $10.9  million  liability  position  at
     September 30, 2002.

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

     On March 28, 2002,  Standard & Poor's affirmed Progress Energy's  corporate
     credit rating of BBB+ and the ratings of Florida Power and CP&L but revised
     the outlook for all three entities to negative from stable. S&P stated that
     its change in outlook  reflects  the  increased  business  risk at Progress
     Ventures and  lower-than-projected  credit protection measures.  S&P stated

                                       41
<PAGE>

     that  Progress  Energy's  plan to divest  of  non-core  assets  and use the
     proceeds to pay down acquisition-related debt is moving slower than S&P had
     expected.  On September 4, 2002, S&P reaffirmed  Progress  Energy's  credit
     ratings and maintained the negative outlook.

     On April 10,  2002,  Moody's  Investors  Services  revised  its  outlook to
     negative from stable on Progress  Energy's senior  unsecured debt rating of
     Baa1.  Moody's maintained a stable outlook for both Florida Power and CP&L.
     Moody's  stated that its change in outlook to  negative  was in response to
     the increased  level of debt incurred by the company,  primarily to finance
     the expansion of its Progress Ventures unregulated generation portfolio. On
     October 18, 2002,  Moody's  announced that it had placed Progress  Energy's
     senior  unsecured debt rating (Baa1) on review for possible  downgrade.  As
     its basis for review,  Moody's cited  primarily  Progress  Energy's  recent
     writedown of the value of its long-lived  telecommunications assets and the
     related delay in its deleveraging  plan.  Moody's further indicated that it
     did not expect its review to result in more than a one notch  downgrade  of
     Progress  Energy's  senior  unsecured  debt rating.  Moody's  confirmed its
     ratings of Progress Energy's  commercial paper (P-2) and the ratings of its
     two operating utilities, CP&L (senior secured--A-3,  commercial paper--P-2,
     stable  outlook)  and  Florida  Power  (senior   secured--A-1,   commercial
     paper--P-1, stable outlook).

     The change in outlook by the rating  agencies has not  materially  affected
     Progress  Energy's  access  to  liquidity  nor the  cost of its  short-term
     borrowings.

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

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

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

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

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

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

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

                                       42
<PAGE>

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

     In August 2002,  Progress Energy  converted $800 million of fixed rate debt
     into variable rate debt by executing  interest rate  derivative  agreements
     with four  counterparties  with a total  notional  amount of $800  million.
     Under the terms of the  agreements,  which were scheduled to expire in 2006
     and coincide with the maturity date of the related debt issuance,  Progress
     Energy  received a fixed  rate of 3.38% and paid a  floating  rate based on
     three-month  LIBOR.  These instruments were designated as fair value hedges
     for accounting purposes. In November 2002, Progress Energy terminated these
     agreements.  The terminations  resulted in a $14.0 million deferred hedging
     gain reflected in long-term debt, which will be amortized and recorded as a
     reduction to interest expense over the life of the related debt issuance.

     Progress Energy's 364-day revolving credit facility expired on November 12,
     2002. In connection with the renewal, the facility was reduced in size from
     $550 million to approximately $430 million. In addition, the permitted debt
     to capital  ratio was  lowered  from 70% to 68%  effective  June 30,  2003;
     Progress  Energy's  debt to capital  ratio as of September  30,  2002,  was
     65.3%. Finally, a minimum EBITDA to interest expense ratio of 2.5x to 1 was
     imposed;  for the twelve months ended September 30, 2002, Progress Energy's
     ratio of EBITDA to interest expense was 3.28x to 1.

     On November 13, 2002,  Progress Energy issued 14.7 million shares of common
     stock at $40.90 per share for net proceeds of $600.0 million. Proceeds from
     the issuance will be used to retire commercial paper.

     Future Commitments

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

     As of September 30, 2002,  Progress  Energy's other commercial  commitments
     have changed from what was reported in the 2001 Annual Report on Form 10-K.
     During the first nine months of 2002, Progress Energy issued  approximately
     $363 million of guarantees on behalf of Progress  Ventures for  obligations
     under  power  purchase   agreements,   tolling   agreements,   construction
     agreements  and trading  operations.  Approximately  $184  million of these
     commitments  relate to  certain  guarantee  agreements  issued  to  support
     obligations  related to Progress  Ventures'  expansion of its non-regulated
     generation portfolio.  These guarantees ensure performance under generation
     construction and operating agreements.

     The remaining $179 million of these new commitments  are guarantees  issued
     to support Progress Ventures' energy trading and marketing  functions.  The
     majority of the trading and marketing contracts supported by the guarantees
     contain language regarding downgrade events,  ratings triggers,  netting of
     exposure and/or  payments and offset  provisions in the event of a default.
     Based upon the amount of trading positions outstanding at October 31, 2002,
     if Progress  Energy's ratings were to decline below  investment  grade, the
     Company  would have to deposit  cash or provide  letters of credit or other
     cash  collateral  for  approximately  $17  million  for the  benefit of the
     Company's counterparties.

     OTHER MATTERS

     Florida Power Rate Case Settlement

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

     See Note 4 to the Progress  Energy,  Inc.  Consolidated  Interim  Financial
     Statements for additional information on the Agreement.

                                       43
<PAGE>

     North Carolina Clean Air Legislation

     On June 20, 2002,  legislation was enacted in North Carolina  requiring the
     state's  electric  utilities to reduce the emissions of nitrogen  oxide and
     sulfur dioxide from  coal-fired  power plants.  Progress Energy expects its
     capital costs to meet these  emission  targets will be  approximately  $813
     million. CP&L currently has approximately 5,100 MW of coal-fired generation
     in North  Carolina that is affected by this  legislation.  The  legislation
     requires the emissions  reductions  to be completed in phases by 2013,  and
     applies to each  utilities'  total system rather than setting  requirements
     for individual  power plants.  The legislation  also freezes the utilities'
     base rates for five years unless there are extraordinary  events beyond the
     control of the  utility or unless the utility  persistently  earns a return
     substantially  in  excess  of the  rate of  return  established  and  found
     reasonable  by the NCUC in the utility's  last general rate case.  Further,
     the legislation allows the utilities to recover from their retail customers
     the  projected  capital  costs  during the first seven years of the 10-year
     compliance  period beginning on January 1, 2003. The utilities must recover
     at least 70% of their  projected  capital costs during the  five-year  rate
     freeze period. Pursuant to the new law, CP&L entered into an agreement with
     the state of North  Carolina to transfer to the state all future  emissions
     allowances it generates from  over-complying  with the new federal emission
     limits when these units are completed.  The new law also requires the state
     to  undertake  a study of mercury  and carbon  dioxide  emissions  in North
     Carolina.   Progress   Energy   cannot   predict   the  future   regulatory
     interpretation, implementation or impact of this new law.

     On June  14,  2002,  the  NCUC  approved  modification  of  CP&L's  ongoing
     accelerated  cost  recovery of its  nuclear  generating  assets.  Effective
     January  1,  2003,  the  NCUC  will no  longer  require  a  minimum  annual
     depreciation.  The  aggregate  minimum and maximum  amounts of  accelerated
     depreciation,  $415 million and $585 million  respectively,  are  unchanged
     from the original NCUC order.  The date by which the minimum amount must be
     depreciated  was extended  from  December 31, 2004 to December 31, 2009. On
     October 29, 2002, the SCPSC approved a similar  modification.  The order is
     effective as of November 1, 2002, and the aggregate  minimum and maximum of
     $115 million and $165 million  established for accelerated cost recovery by
     the SCPSC is  unaffected by the order.  As of September 30, 2002,  CP&L has
     recorded cumulative accelerated  depreciation expense of approximately $405
     million.

     Franchise Taxes

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

     In response to the state's  failure to distribute  the State  Franchise Tax
     proceeds,  certain  cities  in  which  CP&L  maintains  facilities  adopted
     municipal  franchise  tax  ordinances  purporting to impose on CP&L a local
     franchise  tax. The local taxes are intended to be collected for as long as
     the state  withholds  distribution of the State Franchise Tax proceeds from
     the  cities.  The first local tax  payments  were due August 15,  2002.  On
     August 2, 2002,  CP&L filed a lawsuit  against the cities seeking to enjoin
     the enforcement of the local taxes and to have the local ordinances  struck
     down because the ordinances are beyond the cities' statutory  authority and
     violate provisions of the North Carolina and United States Constitutions.

     On September  14, 2002,  the Governor of North  Carolina  signed into law a
     provision  that prevents  cities and counties from levying local  franchise
     taxes on  electric  utilities.  The new law is also  intended  to prevent a
     recurrence  of the  withholding  of utility  franchise  tax payments by the
     state.  This new legislation makes it likely that the lawsuit CP&L filed in
     August against  certain cities that were seeking to enforce local franchise
     tax ordinances will become moot.

     Generation Acquisition

     During February 2002, Progress Ventures,  Inc. completed the acquisition of
     two electric generating projects located in Georgia from LG&E Energy Corp.,
     a subsidiary  of Powergen  plc.  The two projects  consist of 1) the Walton
     project in Monroe,  Georgia,  a 460 megawatt natural gas-fired plant placed
     in service in June 2001 and 2) the Washington project in Washington County,
     Georgia,  a planned 600 megawatt  natural  gas-fired  plant  expected to be
     operational by June 2003. The transaction  included  tolling and power sale
     agreements  with LG&E Energy  Marketing,  Inc.  for both  projects  through

                                       44
<PAGE>

     December 31, 2004. The aggregate cash purchase price of approximately  $348
     million included  approximately  $1.7 million of direct  transaction costs.
     See Note 2 to the Progress  Energy,  Inc.  Consolidated  Interim  Financial
     Statements for additional information on this acquisition.

     Fuel Acquisition

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

     Synthetic Fuels Tax Credits

     Progress  Energy,  through the Progress  Ventures  business unit,  produces
     synthetic  fuel from coal.  The  production  and sale of the synthetic fuel
     qualifies  for tax credits  under  Section 29 of the Internal  Revenue Code
     (Section 29) if certain requirements are satisfied, including a requirement
     that the synthetic fuel differs  significantly in chemical composition from
     the coal used to produce  such  synthetic  fuel.  All of Progress  Energy's
     synthetic fuel  facilities have received  favorable  private letter rulings
     from the Internal  Revenue Service (IRS) with respect to their  operations.
     These tax credits are subject to review by the IRS, and if Progress  Energy
     failed to prevail through the administrative or legal process,  there could
     be a  significant  tax  liability  owed for  previously  taken  Section  29
     credits,  with a significant impact on earnings and cash flows. Tax credits
     for the nine months ended  September 30, 2002 and 2001, were $253.8 million
     and $271.8 million,  respectively,  offset by operating losses, net of tax,
     of $121.9 million and $128.1 million,  respectively,  for the same periods.
     One synthetic fuel entity,  Colona Synfuel Limited  Partnership,  L.L.L.P.,
     from which the Company (and Florida  Progress  prior to its  acquisition by
     the Company) has been allocated  approximately  $241 million in tax credits
     to date,  is  being  audited  by the  IRS.  The  audit  of  Colona  was not
     unexpected.  The  Company is  audited  regularly  in the  normal  course of
     business as are most similarly situated companies. Total Section 29 credits
     generated to date (including  Florida  Progress prior to its acquisition by
     the Company) are approximately $963 million.

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

     In  management's  opinion,  Progress  Energy is complying  with the private
     letter  rulings  and all the  necessary  requirements  to be  allowed  such
     credits  under  Section 29 and  believes  it is likely,  although it cannot
     provide  certainty,  that it will prevail if  challenged  by the IRS on any
     credits taken. The current Section 29 tax credit program expires in 2007.

     Nuclear Matters

     Spent Fuel Storage

     On December 21, 2000, CP&L received permission from the NRC to increase its
     storage  capacity for spent fuel rods in Wake County,  North Carolina.  The
     NRC's  decision came two years after CP&L asked for  permission to open two
     unused storage pools at the Shearon  Harris  Nuclear Plant (Harris  Plant).
     The approval means CP&L can complete  cooling  systems and install  storage
     racks in its third and fourth storage pools at the Harris Plant.

     Orange County,  North Carolina appealed the NRC license amendment to expand
     spent fuel storage  capacity at the 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.

                                       45
<PAGE>

     On June 29, 2001, the 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 parties  filed briefs,  and the court heard oral  arguments on
     September  5, 2002.  The court  issued its ruling on  September  19,  2002,
     denying  Orange  County's  petitions  for review of NRC orders,  finding no
     error in the NRC's determinations.

     Pressurized Water Reactors

     On March 18, 2002 the Nuclear  Regulatory  Commission (NRC) sent a bulletin
     to companies  that hold  licenses for  pressurized  water  reactors  (PWRs)
     requiring  information  on the  structural  integrity of the reactor vessel
     head and a basis for  concluding  that the  vessel  head will  continue  to
     perform its  function as a coolant  pressure  boundary.  The Company  filed
     responses as required. Inspections of the vessel heads at the Company's PWR
     plants have been performed during previous outages.  In October 2001 at the
     Crystal  River  plant  (CR3),  one nozzle was found to have a crack and was
     repaired;   however,   no  degradation  of  the  reactor  vessel  head  was
     identified.  Current plans are to replace the vessel head at CR3 during its
     next regularly  scheduled  refueling outage in 2003. At the Robinson plant,
     an  inspection  was  completed  in  April  2001 and no  penetration  nozzle
     cracking was  identified and there was no degradation of the reactor vessel
     head. At the Harris plant, sufficient inspections were completed during the
     last refueling outage in the fourth quarter of 2001 to conclude there is no
     degradation of the reactor vessel head. The Company's Brunswick plant has a
     different design and is not affected by the issue.

     On August 9, 2002, the NRC issued an additional  Bulletin dealing with head
     leakage  due to cracks  near the  control  rod  nozzles.  The NRC has asked
     licensees  to  commit  to high  inspection  standards  to  ensure  the more
     susceptible  plants have no cracks.  The Robinson plant is in this category
     and had a refueling outage in October 2002. The Company  completed a series
     of examinations in October 2002 of the entire reactor  pressure vessel head
     and found no  indications  of control rod drive  mechanism  cracking and no
     corrosion  of the head  itself.  During the  outage,  a boric acid  leakage
     walkdown of the reactor  coolant  pressure  boundary was  completed  and no
     corrosion  was found.  For CR3,  the Company has  responded to the NRC that
     previous  inspections are sufficient  until the reactor head is replaced in
     the fall of 2003.  For the Harris plant,  the Company does not plan further
     inspections until its next regularly scheduled outage in Spring 2003.

     Security

     On  February  25,  2002,  the NRC  issued  orders  formalizing  many of the
     security  enhancements made at the Company's nuclear plants since September
     2001.  These orders include  additional  restrictions on access,  increased
     security presence and closer  coordination  with the Company's  partners in
     intelligence,  military,  law  enforcement  and  emergency  response at the
     federal,  state and local  levels.  These  interim  security  measures were
     required to be  completed  at each  nuclear  site by August 31,  2002.  The
     Company  completed the  requirements by the deadline and expects the NRC to
     perform an inspection for compliance in the near future.

     As the NRC,  other  governmental  entities,  and the  industry  continue to
     consider security issues, it is possible that more extensive security plans
     could be required.

     Standard Market Design

     On July 31, 2002, the Federal Energy  Regulatory  Commission  (FERC) issued
     its Notice of  Proposed  Rulemaking  in Docket No.  RM01-12-000,  Remedying
     Undue Discrimination  through Open Access Transmission Service and Standard
     Electricity  Market Design (SMD NOPR).  The proposed rules set forth in the
     SMD NOPR would require, among other things, that 1) all transmission owning
     utilities  transfer  control  of  their   transmission   facilities  to  an
     independent  third  party;  2)  transmission   service  to  bundled  retail
     customers be provided under the FERC-regulated  transmission tariff, rather
     than state-mandated  terms and conditions;  3) new terms and conditions for
     transmission  service be adopted  nationwide,  including new provisions for
     pricing transmission in the event of transmission congestion; 4) new energy
     markets be established for the buying and selling of electric  energy;  and
     5)  load  serving  entities  be  required  to  meet  minimum  criteria  for
     generating reserves. If adopted as proposed, the rules set forth in the SMD
     NOPR would materially alter the manner in which transmission and generation
     services are provided and paid for.  Progress  Energy is reviewing  the SMD
     NOPR and  expects to file  comments  thereto,  portions of which are due on
     November 15, 2002 and January 10,  2003.  FERC also has  indicated  that it
     expects to issue final rules during the third quarter of 2003.  The Company
     cannot  predict the outcome of this  rulemaking or the possible  outcome of
     any further proceedings, including appeals, related to this matter.

                                       46
<PAGE>

     Regional Transmission Organizations

     On June 18, 2002, the GridSouth RTO sponsors  (CP&L,  Duke Energy and South
     Carolina   Electric  and  Gas)   announced  that  they  will  delay  filing
     applications  with their state  commissions  and will suspend the GridSouth
     implementation project. Postponing the filings will allow GridSouth time to
     review the effects of state and  federal  regulatory  initiatives  that are
     ongoing and  continuing  through the end of 2002.  GridSouth will determine
     the appropriate  time to file new applications  with the state  commissions
     based on the results of these regulatory developments.

     The  GridFlorida  applicants  filed a revised RTO proposal with the FPSC on
     March  20,  2002  incorporating  certain  changes  required  by the  FPSC's
     December  2001 order.  The FPSC then  conducted a series of  workshops  and
     meetings  to allow  parties an  opportunity  to comment on the  applicants'
     March 20 compliance filing. As a result of these comments,  the GridFlorida
     applicants filed  modifications to certain aspects of the compliance filing
     on June 21, 2002. On September 3, 2002, the FPSC issued an order addressing
     the compliance of the applicants'  modified filing with the FPSC's December
     2001 order through final agency action,  requiring  additional revisions to
     the  applicants'  modified  filing  through  proposed  agency  action,  and
     scheduling  an  expedited  hearing for late  October  2002 to consider  the
     applicants' revised market design proposal and other proposed agency action
     revisions  protested  by the  parties.  On October  3, 2002,  the Office of
     Public  Counsel  filed a Notice  of  Appeal to the  Florida  Supreme  Court
     regarding the FPSC's  September 3rd order.  At a public  meeting on October
     15, 2002,  the FPSC voted to hold further  proceedings  in the  GridFlorida
     docket in abeyance  pending  the outcome of the Office of Public  Counsel's
     appeal.

     The actual structure of GridSouth,  GridFlorida or any alternative combined
     transmission  structure,  as well as the  date it may  become  operational,
     depends upon the  resolution  of all  regulatory  approvals  and  technical
     issues. Given the regulatory uncertainty of the ultimate timing,  structure
     and  operations  of  GridSouth,   GridFlorida  or  an  alternate   combined
     transmission  structure,  the Company cannot predict whether their creation
     will have any material adverse effect on its future consolidated results of
     operations, cash flows or financial condition.

     Franchise Litigation

     Six  cities,  with a total of  approximately  49,000  customers,  have sued
     Florida  Power  in  various   circuit  courts  in  Florida.   The  lawsuits
     principally  seek 1) a declaratory  judgment that the cities have the right
     to purchase Florida Power's electric distribution system located within the
     municipal  boundaries  of the cities,  2) a  declaratory  judgment that the
     value of the distribution  system must be determined  through  arbitration,
     and 3)  injunctive  relief  requiring  Florida Power to continue to collect
     from Florida  Power's  customers  and remit to the cities,  franchise  fees
     during the pending  litigation,  and as long as Florida Power  continues to
     occupy   the   cities'   rights-of-way   to   provide   electric   service,
     notwithstanding  the  expiration  of the franchise  ordinances  under which
     Florida Power had agreed to collect such fees.  Three  circuit  courts have
     entered  orders  requiring  arbitration  to establish the purchase price of
     Florida Power's electric  distribution  facilities within three cities. Two
     appellate  courts have upheld those circuit court  decisions and authorized
     cities to  determine  the value of Florida  Power's  facilities  within the
     cities  through  arbitration.  To date,  no city has  attempted to actually
     exercise  the right to  purchase  any portion of Florida  Power's  electric
     distribution  system. An arbitration in one of the cases was held in August
     2002 and an award was issued in October  2002  setting the value of Florida
     Power's  distribution  system within one city at approximately $22 million.
     At this time, whether and when there will be further proceedings  following
     this  award  cannot  be  determined.   Additional  arbitrations  have  been
     scheduled  to occur in the fourth  quarter  of 2002 and  second  quarter of
     2003. Progress Energy cannot predict the outcome of these matters.

     Union Contract

     Approximately  2,100  employees  at Florida  Power are  represented  by the
     International  Brotherhood of Electrical  Workers (IBEW). The current union
     contract  was  ratified in  December  1999 and expires on December 1, 2002.
     Florida Power is currently in  negotiations  with the IBEW, but the Company
     cannot predict the outcome or impact of this matter.

     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

                                       47
<PAGE>

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

     RESULTS OF OPERATIONS

     The results of  operations  for the CP&L  Electric  segment  are  identical
     between  CP&L and  Progress  Energy.  For the three and nine  months  ended
     September 30, 2002,  the  operations  for CP&L's  non-utility  subsidiaries
     primarily relate to asset  impairments and one-time charges recorded in the
     third  quarter of 2002  related to its  Caronet,  Inc.  subsidiary  and its
     investment  in  Interpath  (See  Note 3 to the  CP&L  Consolidated  Interim
     Financial  Statements).  The results of operations  for CP&L's  non-utility
     subsidiaries for the three and nine months ended September 30, 2001 are not
     material to CP&L's consolidated financial statements.

     LIQUIDITY AND CAPITAL RESOURCES

     During the first nine  months of 2002,  $405.2  million was spent on CP&L's
     construction  program and $10.8 million was spent on  diversified  business
     property additions.

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

     Item 3.  Quantitative and Qualitative Disclosures About Market Risk
     ------   ----------------------------------------------------------

     Progress Energy, Inc.

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

     The  Company's  exposure  to  return  on  marketable   securities  for  the
     decommissioning  trust funds has not changed  materially since December 31,
     2001. The Company's  exposure to market value risk with respect to the CVOs
     has also not changed materially since December 31, 2001.

     In March  2002,  a  Progress  Ventures,  Inc.  subsidiary,  Progress  Genco
     Ventures,  LLC,  obtained a $440 million bank  facility that was to be used
     exclusively for expansion of its  non-regulated  generation  portfolio.  In
     March,  June and September 2002,  Progress Genco  Ventures,  LLC made draws
     under  this  facility  of  $120  million,  $67  million  and  $25  million,
     respectively.  In September 2002,  Progress Genco Ventures,  LLC terminated
     $130  million of the bank  facility,  reducing it from $440 million to $310
     million.

     Progress Genco Ventures, LLC is required to hedge 75 percent of the amounts
     outstanding  under  its  bank  facility  through  September  2005  and  50%
     thereafter  pursuant to the terms of the  agreement  for  expansion  of its
     non-regulated  generation portfolio.  In May 2002, Progress Genco Ventures,
     LLC entered  into hedges that  included a series of zero cost  collars that
     have been designated as cash flow hedges for accounting purposes.  The fair
     value  of these  instruments  was a $10.9  million  liability  position  at
     September 30, 2002.

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

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

                                       48
<PAGE>

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

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

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

     In August 2002,  Progress Energy  converted $800 million of fixed rate debt
     into variable rate debt by executing  interest rate  derivative  agreements
     with four  counterparties  with a total  notional  amount of $800  million.
     Under the terms of the  agreements,  which were scheduled to expire in 2006
     and coincide with the maturity date of the related debt issuance,  Progress
     Energy  received a fixed  rate of 3.38% and paid a  floating  rate based on
     three-month  LIBOR.  These instruments were designated as fair value hedges
     for accounting  purposes.  The fair value of these  instruments was a $14.2
     million asset  position at September 30, 2002. In November  2002,  Progress
     Energy  terminated these agreements.  The terminations  resulted in a $14.0
     million  deferred  hedging gain reflected in long-term debt,  which will be
     amortized and recorded as a reduction to interest  expense over the life of
     the related debt issuance.

     Progress Ventures periodically enters into derivative  instruments to hedge
     its  exposure  to price  fluctuations  on natural gas sales.  During  2002,
     Progress  Ventures has executed cash flow hedges on approximately  17.3 Bcf
     of natural  gas sales for the fourth  quarter of 2002 and entire year 2003.
     These  instruments  did  not  have  a  material  impact  on  the  Company's
     consolidated financial position or results of operations.

     As a result of these issuances and redemptions,  the exposure to changes in
     interest  rates from the Company's  fixed rate and variable rate  long-term
     debt at September 30, 2002,  has changed from December 31, 2001.  The total
     fixed rate long-term debt at September 30, 2002, was $8.9 billion,  with an
     average  interest rate of 6.85% and fair market value of $9.9 billion.  The
     total variable rate long-term debt at September 30, 2002, was $1.1 billion,
     with an  average  interest  rate of  1.78%  and fair  market  value of $1.1
     billion.

     The exposure to changes in interest rates from FPC  mandatorily  redeemable
     securities of trust at September  30, 2002,  was not  materially  different
     than at December 31, 2001.

     Effective  with the quarter ended  September 30, 2002,  the Company will no
     longer reclassify commercial paper as long-term debt. At December 31, 2001,
     the Company had reclassified  $865 million of commercial paper to long-term
     debt. At September 30, 2002, the exposure to changes in interest rates from
     the Company's commercial paper facilities was not materially different than
     at December 31, 2001.

     Carolina Power & Light Company

     CP&L has certain market risks inherent in its financial instruments,  which
     arise from  transactions  entered  into in the normal  course of  business.
     CP&L's  primary  exposures  are changes in interest  rates with  respect to
     long-term debt and commercial  paper  reclassified  as long-term  debt, and
     fluctuations  in the return on  marketable  securities  with respect to its
     nuclear   decommissioning   trust  funds.  CP&L's  exposure  to  return  on
     marketable  securities  for the  decommission  trust  funds has not changed
     materially since December 31, 2001.

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

                                       49
<PAGE>

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

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

     The exposure to changes in interest  rates from CP&L's fixed rate long-term
     debt and  variable  rate  long-term  debt at September  30,  2002,  was not
     materially different than at December 31, 2001.

     Effective  with the quarter ended  September 30, 2002,  CP&L will no longer
     reclassify  commercial  paper as long-term debt. At December 31, 2001, CP&L
     had  reclassified  $261 million of commercial  paper to long-term  debt. At
     September 30, 2002,  the exposure to changes in interest  rates from CP&L's
     commercial paper  facilities was not materially  different than at December
     31, 2001.

     Item 4.  Controls and Procedures
     -------  -----------------------

     Progress Energy, Inc.

     Within the 90 days prior to the filing date of this report, Progress Energy
     carried out an evaluation, under the supervision and with the participation
     of its management,  including Progress Energy's chief executive officer and
     chief financial  officer,  of the effectiveness of the design and operation
     of Progress Energy's  disclosure  controls and procedures  pursuant to Rule
     13a-14  under  the  Securities  Exchange  Act  of  1934.  Based  upon  that
     evaluation,  Progress  Energy's chief executive officer and chief financial
     officer concluded that its disclosure controls and procedures are effective
     in timely alerting them to material information relating to Progress Energy
     (including its  consolidated  subsidiaries)  required to be included in its
     periodic SEC filings.

     Since the date of the evaluation, there have been no significant changes in
     Progress  Energy's  internal  controls  or  in  other  factors  that  could
     significantly affect these controls.

     Carolina Power & Light Company

     Within the 90 days prior to the filing date of this  report,  CP&L  carried
     out an evaluation,  under the supervision and with the participation of its
     management,  including  CP&L's chief executive  officer and chief financial
     officer,  of the  effectiveness  of the  design  and  operation  of  CP&L's
     disclosure  controls  and  procedures  pursuant  to Rule  13a-14  under the
     Securities  Exchange Act of 1934. Based upon that evaluation,  CP&L's chief
     executive officer and chief financial officer concluded that its disclosure
     controls and procedures  are effective in timely  alerting them to material
     information  relating to CP&L  (including  its  consolidated  subsidiaries)
     required to be included in its periodic SEC filings.

     Since the date of the evaluation, there have been no significant changes in
     CP&L's  internal  controls  or in other  factors  that could  significantly
     affect these controls.


                           PART II. OTHER INFORMATION

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

     Legal aspects of certain  matters are set forth in Part I, Item 1. See Note
     12 to the Progress Energy, Inc.  Consolidated  Interim Financial Statements
     and Note 8 to the CP&L Consolidated Interim Financial Statements.

     Strategic  Resource  Solutions  Corp.  (SRS)  was  charged  in  a  criminal
     complaint filed on October 9, 2002 by the San Francisco District Attorney's

                                       50
<PAGE>

     office.  Working with the San Francisco District Attorney's office, SRS has
     pled guilty to two charges, taking responsibility for the misconduct of one
     of its former employees. This proceeding occurred on October 15, 2002.

     SRS has agreed to pay a fine of $500,000.  Although SRS did not receive any
     funds,  because of the involvement of a former  employee,  SRS has accepted
     corporate criminal  responsibility and agreed to pay an additional $500,000
     as  restitution.  SRS  will  also  be  placed  on  probation  and  continue
     cooperating with the District  Attorney's  investigation and prosecution of
     other defendants.

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

     RESTRICTED STOCK AWARDS:

     (a) Securities  Delivered.  On September 9, 2002 and October 1, 2002, 3,600
     and 180,000 restricted shares, respectively, of the Company's Common Shares
     were  granted  to  certain  key  employees  pursuant  to the  terms  of the
     Company's  2002 Equity  Incentive  Plan  (Plan),  which was approved by the
     Company's  shareholders on May 8, 2002.  Section 9 of the Plan provides for
     the  granting of  Restricted  Stock by the  Organization  and  Compensation
     Committee of the  Company's  Board of  Directors,  (the  Committee)  to key
     employees of the Company, including its Affiliates or any successor, and to
     outside directors of the Company.  The Common Shares delivered  pursuant to
     the Plan were acquired in market transactions  directly for the accounts of
     the recipients and do not represent newly issued shares of the Company.

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

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

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

     Item 6.  Exhibits and Reports on Form 8-K
     -------  --------------------------------
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     (a) Exhibits

              Exhibit                                Description                              Progress         CP&L
              Number                                 -----------                            Energy, Inc.       ----
              ------                                                                        ------------
              10(i)          Amendment  and  Restatement  dated July 26, 2002 to Progress        X
                             Energy Inc.'s $450,000,000 3-Year Revolving Credit
                             Agreement dated November 13, 2001, as amended
                             February 13, 2002.
              10(ii)         Assumption Agreement from Barclays Bank PLC dated
                             December X 17, 2001 for an additional commitment of
                             $50 million, increasing the amount of the Progress
                             Energy, Inc. 364-Day Revolving Credit Agreement,
                             dated November 13, 2001, to $550 million.
              10(iii)        Carolina   Power  &  Light  Company   $272,500,000   364-Day                       X
                             Revolving Credit Agreement dated as of July 31, 2002.
              10(iv)         Carolina   Power  &  Light   Company   $272,500,000   3-Year                       X
                             Revolving Credit Agreement dated as of July 31, 2002.
              10(v)          Assumption  Agreement from the Bank of New York dated August                       X
                             5, 2002 for a total  commitment  of $25 million,  increasing
                             the amount of the CP&L 364-Day and 3-Year  Revolving  Credit
                             Agreements dated as of July 31, 2002, to $285,000,000 each.

                                       51
<PAGE>

              10(vi)         Progress  Energy,  Inc. 2002 Equity  Incentive Plan (Amended        X              X
                             and Restated Effective July 10, 2002)
              10(vii)        2002  Performance  Share Sub-Plan  (effective July 9, 2002),        X              X
                             Exhibit  A  to  the  Progress   Energy,   Inc.  2002  Equity
                             Incentive Plan
</TABLE>

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

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

                                  Financial
                    Item          Statements
                  Reported         Included             Date of Event                Date Filed

                     5                No                August 9, 2002             August 9, 2002
                     9                No                August 13, 2002            August 13, 2002
                     9                No                August 29, 2002            August 29, 2002
                     5                Yes               October 16, 2002           November 6, 2002
                     5                No                November 7, 2002           November 7, 2002
                     5                No                November 6, 2002           November 13, 2002


                Carolina Power & Light Company

                                  Financial
                    Item          Statements
                  Reported         Included             Date of Event                Date Filed

                     9                No                August 13, 2002            August 13, 2002
</TABLE>

                                       52


<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: November 14, 2002                     (Registrants)

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

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


                                       53
<PAGE>



                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, William Cavanaugh III, certify that:

1.   I have  reviewed  this  quarterly  report on Form 10-Q of Progress  Energy,
     Inc.;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;
     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and
     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal  controls;  and
     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.



Date: November 14, 2002                     /s/ William Cavanaugh III
                                            -------------------------
                                            William Cavanaugh III
                                            Chairman and Chief Executive Officer


                                       54
<PAGE>



                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I,   Peter M. Scott III, certify that:

1.   I have  reviewed  this  quarterly  report on Form 10-Q of Progress  Energy,
     Inc.;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;
     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and
     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and
     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.



Date: November 14, 2002                     /s/ Peter M. Scott III
                                            ----------------------
                                            Peter M. Scott III
                                            Executive Vice President and
                                            Chief Financial Officer


                                       55
<PAGE>


                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I,   William Cavanaugh III, certify that:

1.   I have  reviewed  this  quarterly  report on Form 10-Q of Carolina  Power &
     Light Company;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;
     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and
     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and
     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.



Date: November 14, 2002                     /s/ William Cavanaugh III
                                            -------------------------
                                            William Cavanaugh III
                                            Chairman and Chief Executive Officer

                                       56
<PAGE>



                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I,   Peter M. Scott III, certify that:

1.   I have  reviewed  this  quarterly  report on Form 10-Q of Carolina  Power &
     Light Company;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;
     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and
     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and
     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.



Date: November 14, 2002                     /s/ Peter M. Scott III
                                            ----------------------
                                            Peter M. Scott III
                                            Executive Vice President and
                                            Chief Financial Officer


                                       57