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 March 31, 2003
                                                 ---------------

                                       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
                                  d/b/a Progress Energy Carolinas, Inc.
                                      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 .

Indicate by check mark whether Progress Energy, Inc. is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X. No __.

Indicate by check mark whether  Carolina Power & Light Company is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act). Yes __. No X .

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

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock,  as of the latest  practicable  date.  As of April 30, 2003,  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)    240,800,322
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 PROGRESS ENERGY CAROLINAS, INC.
                FORM 10-Q - For the Quarter Ended March 31, 2003



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
        d/b/a Progress Energy Carolinas, Inc.
        ------------------------------------------
        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


                                       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

AFUDC              Allowance for funds used during construction
the Agreement      Stipulation and Settlement Agreement
Bcf                Billion cubic feet
the Code           Internal Revenue Service Code
Colona             Colona Synfuel Limited Partnership, L.L.L.P.
the Company        Progress Energy, Inc. and subsidiaries
CP&L               Carolina Power & Light Company, currently referred to as Progress Energy Carolinas or PEC
CR3                Progress Energy Florida's nuclear generating plant, Crystal River Unit No. 3
CVO                Contingent value obligation
DIG                Derivatives Implementation Group
DOE                United States Department of Energy
Dt                 Dekatherm
DWM                North Carolina Department of Environment and Natural Resources, Division of Waste
                   Management
EBITDA             Earnings before interest, taxes, and depreciation and amortization
EITF               Emerging Issues Task Force
ENCNG              Eastern North Carolina Natural Gas Company, formerly referred to as Eastern NC
EPA                United States Environmental Protection Agency
FASB               Financial Accounting Standards Board
FDEP               Florida Department of Environment and Protection
FERC               Federal Energy Regulatory Commission
FIN No. 45         FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements"
FIN No. 46         FASB Interpretation No. 46, "Consolidation of Variable Interest Entities - An
                   Interpretation of ARB No. 51"
FPC                Florida Progress Corporation
FPSC               Florida Public Service Commission
GAAP               Accounting principles generally accepted in the United States of America
Genco              Progress Genco Ventures, LLC
IRS                Internal Revenue Service
Jackson            Jackson Electric Membership Corp.
KWh                Kilowatt-hour
MACT               Maximum Available Control Technology
MGP                Manufactured Gas Plant
MW                 Megawatt
NCNG               North Carolina Natural Gas Corporation
NCUC               North Carolina Utilities Commission
NOx                SIP Call EPA rule which requires 23
                   jurisdictions including North and South
                   Carolina and Georgia to further reduce
                   nitrogen oxide emissions
NRC                United States Nuclear Regulatory Commission
PCH                Progress Capital Holdings, Inc.
PEC                Progress Energy Carolinas, Inc., formerly referred to as Carolina Power & Light Company
PEF                Progress Energy Florida, Inc., formerly referred to as Florida Power Corporation
PES                Progress Energy Solutions, formerly referred to as Strategic Resource Solutions Corp.  or
                   SRS
PFA                IRS Prefiling Agreement
the Plan           Revenue Sharing Incentive Plan
PLRs               Private Letter Rulings
Progress Energy    Progress Energy, Inc.
Progress Rail      Progress Rail Services Corporation
Progress Telecom   Progress Telecommunications Corporation

                                       3
<PAGE>


PUHCA              Public Utility Holding Company Act of 1935, as amended
PVI                Legal entity of Progress Ventures, Inc., formerly referred to as CPL Energy Ventures, Inc.
PWR                Pressurized water reactor
RAFT               Railcar Asset Financing Trust
RTO                Regional Transmission Organization
SCPSC              Public Service Commission of South Carolina
SEC                United States Securities and Exchange Commission
Section 29         Section 29 of the Internal Revenue Service Code
Service Company    Progress Energy Service Company, LLC
SFAS No. 5         Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies"
SFAS No. 71        Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of
                   Certain Types of Regulation"
SFAS No. 131       Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an
                   Enterprise and Related Information"
SFAS No. 133       Statement of Financial Accounting Standards No. 133, "Accounting for Derivative and
                   Hedging Activities"
SFAS No. 142       Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
                   Assets"
SFAS No. 143       Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement
                   Obligations"
SFAS No. 148       Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
                   Compensation - Transition and Disclosure - An Amendment of FASB Statement No. 123"
SFAS No. 149       Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133 on
                   Derivative Instruments and Hedging Activities"
SMD NOPR           Notice of Proposed Rulemaking in Docket No. RM01-12-000, Remedying Undue Discrimination
                   through Open Access Transmission and Standard Market Design
SRS                Strategic Resource Solutions Corp.
the Trust          FPC Capital I

</TABLE>


                                       4
<PAGE>

         SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

The matters discussed throughout this Form combined 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"
about the  effects of new  environmental  regulations,  nuclear  decommissioning
costs and the effect of electric utility industry restructuring.

Any forward-looking statement speaks only as of the date on which such statement
is made, and neither Progress Energy, Inc. (Progress Energy) nor Progress Energy
Carolinas,  Inc. (PEC)  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  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  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;  the
ability of the Company to maintain  its current  credit  ratings;  the impact of
derivative  contracts used in the normal course of business by the Company;  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  Telecommunications  Corporation and Caronet,  Inc.; the Company's
ability  to  successfully   integrate  newly  acquired  assets,   properties  or
businesses  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 nonregulated 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;  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 PEC SEC  reports.  Many,  but not all of the factors  that may impact
actual results are discussed in the Risk Factors  sections of Progress  Energy's
and PEC's annual report on Form 10-K for the year ended December 31, 2002, which
was filed with the SEC on March 21,  2003.  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 PEC. 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 PEC.

                                       5
<PAGE>

                          PART I. FINANCIAL INFORMATION


Item 1.  Financial Statements

                              Progress Energy, Inc.
                    CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                 March 31, 2003
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

CONSOLIDATED STATEMENTS OF INCOME
                                                                 Three Months Ended
(Unaudited)                                                           March 31,
--------------------------------------------------------------------------------------
(In thousands except per share data)                               2003        2002
--------------------------------------------------------------------------------------
Operating Revenues
   Utility                                                   $ 1,653,887  $ 1,497,923
   Diversified business                                          362,117      289,379
--------------------------------------------------------------------------------------
      Total Operating Revenues                                 2,016,004    1,787,302
--------------------------------------------------------------------------------------
Operating Expenses
Utility
   Fuel used in electric generation                              411,622      370,588
   Purchased power                                               202,742      181,273
   Operation and maintenance                                     334,313      328,438
   Depreciation and amortization                                 220,088      211,888
   Taxes other than on income                                    102,832       95,922
Diversified business
   Cost of sales                                                 306,941      300,525
   Depreciation and amortization                                  28,268       27,335
   Other                                                          50,258       29,352
--------------------------------------------------------------------------------------
      Total Operating Expenses                                 1,657,064    1,545,321
--------------------------------------------------------------------------------------
Operating Income                                                 358,940      241,981
--------------------------------------------------------------------------------------
Other Income (Expense)
   Interest income                                                 2,767        1,952
   Other, net                                                    (2,450)        6,058
--------------------------------------------------------------------------------------
      Total Other Income                                             317        8,010
--------------------------------------------------------------------------------------
Income before Interest Charges and Income Taxes                  359,257      249,991
--------------------------------------------------------------------------------------
Interest Charges
   Net interest charges                                          156,248      170,168
   Allowance for borrowed funds used during construction         (2,886)      (3,553)
--------------------------------------------------------------------------------------
      Total Interest Charges, Net                                153,362      166,615
--------------------------------------------------------------------------------------
Income from Continuing Operations before Income Tax              205,895       83,376
Income Tax Expense (Benefit)                                       9,029     (40,686)
--------------------------------------------------------------------------------------
Income from Continuing Operations                                196,866      124,062
Discontinued Operations, Net of Tax                               11,290        8,465
--------------------------------------------------------------------------------------
Net Income                                                   $   208,156  $   132,527
--------------------------------------------------------------------------------------
Average Common Shares Outstanding                                233,438      212,979
--------------------------------------------------------------------------------------
Basic and Fully Diluted Earnings per Common Share
   Income from Continuing Operations                         $      0.84  $      0.58
   Discontinued Operations, Net of Tax                       $      0.05  $      0.04
   Net Income                                                $      0.89  $      0.62
--------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------
Dividends Declared per Common Share                          $     0.560  $     0.545
--------------------------------------------------------------------------------------
</TABLE>

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

                                       6
<PAGE>
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Progress Energy, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except share data)                                            March 31,            December 31,
Assets                                                                        2003                  2002
-------------------------------------------------------------------------------------------------------------
   Utility Plant
Utility plant in service                                                 $  20,803,671        $   20,152,787
Accumulated depreciation                                                    (9,866,434)          (10,480,880)
-------------------------------------------------------------------------------------------------------------
   Utility plant in service, net                                            10,937,237             9,671,907
Held for future use                                                             15,109                15,109
Construction work in progress                                                  826,674               752,336
Nuclear fuel, net of amortization                                              254,771               216,882
-------------------------------------------------------------------------------------------------------------
      Total Utility Plant, Net                                              12,033,791            10,656,234
-------------------------------------------------------------------------------------------------------------
   Current Assets
Cash and cash equivalents                                                       35,487                61,358
Accounts receivable                                                            780,655               737,369
Unbilled accounts receivable                                                   187,451               225,011
Inventory                                                                      844,919               875,485
Deferred fuel cost                                                             229,522               183,518
Assets of discontinued operations                                              494,485               490,429
Prepayments and other current assets                                           255,233               283,036
-------------------------------------------------------------------------------------------------------------
      Total Current Assets                                                   2,827,752             2,856,206
-------------------------------------------------------------------------------------------------------------
   Deferred Debits and Other Assets
Regulatory assets                                                              658,828               393,215
Nuclear decommissioning trust funds                                            788,766               796,844
Diversified business property, net                                           2,074,373             1,884,271
Miscellaneous other property and investments                                   472,642               463,776
Goodwill                                                                     3,719,327             3,719,327
Prepaid pension costs                                                           58,669                60,169
Other assets and deferred debits                                               538,744               522,662
-------------------------------------------------------------------------------------------------------------
      Total Deferred Debits and Other Assets                                 8,311,349             7,840,264
-------------------------------------------------------------------------------------------------------------
      Total Assets                                                       $  23,172,892        $   21,352,704
-------------------------------------------------------------------------------------------------------------
Capitalization and Liabilities
-------------------------------------------------------------------------------------------------------------
Common Stock Equity
   Common stock without par value, 500,000,000 shares authorized,
   239,816,121 and 237,992,513 shares issued and outstanding,
   respectively                                                          $   5,007,203        $    4,929,104
   Unearned ESOP common stock                                                  (90,890)             (101,560)
   Accumulated other comprehensive loss                                       (238,290)             (237,762)
   Retained earnings                                                         2,163,431             2,087,227
-------------------------------------------------------------------------------------------------------------
      Total Common Stock Equity                                              6,841,454             6,677,009
-------------------------------------------------------------------------------------------------------------
Preferred Stock of Subsidiaries-Not Subject to Mandatory Redemption             92,831                92,831
Long-Term Debt                                                               9,597,948             9,747,293
-------------------------------------------------------------------------------------------------------------
      Total Capitalization                                                  16,532,233            16,517,133
-------------------------------------------------------------------------------------------------------------
Current Liabilities
   Current portion of long-term debt                                           880,164               275,397
   Accounts payable                                                            718,814               756,287
   Interest accrued                                                            162,817               220,400
   Dividends declared                                                          133,475               132,232
   Short-term obligations                                                      489,675               694,850
   Customer deposits                                                           159,780               158,214
   Liabilities of discontinued operations                                      117,471               124,767
   Other current liabilities                                                   368,474               372,161
-------------------------------------------------------------------------------------------------------------
      Total Current Liabilities                                              3,030,670             2,734,308
-------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
   Accumulated deferred income taxes                                           901,258               932,813
   Accumulated deferred investment tax credits                                 202,160               206,221
   Regulatory liabilities                                                      451,769               119,766
   Asset retirement obligations                                              1,209,587                     -
   Other liabilities and deferred credits                                      845,215               842,463
-------------------------------------------------------------------------------------------------------------
      Total Deferred Credits and Other Liabilities                           3,609,989             2,101,263
-------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 15)
-------------------------------------------------------------------------------------------------------------
           Total Capitalization and Liabilities                          $  23,172,892        $   21,352,704
-------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                       7
<PAGE>
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Progress Energy, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS                                                        Three Months Ended
(Unaudited)                                                                                       March 31,
(In thousands)                                                                            2003                2002
-------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income                                                                           $   208,156         $   132,527
Adjustments to reconcile net income to net cash provided by operating activities:
   Income from discontinued operations                                                   (11,290)             (8,466)
   Depreciation and amortization                                                         281,380             271,029
   Deferred income taxes                                                                  (2,608)             12,194
   Investment tax credit                                                                  (4,061)             (5,435)
   Deferred fuel cost (credit)                                                           (46,004)             49,442
   Net increase in accounts receivable                                                   (14,982)            (16,082)
   Net (increase) decrease in inventories                                                 29,831             (33,766)
   Net (increase) decrease in prepayments and other current assets                        10,184             (10,137)
   Net increase (decrease) in accounts payable                                            42,621             (71,494)
   Net decrease in accrued interest                                                      (57,311)            (64,004)
   Net decrease in other current liabilities                                             (16,776)            (24,053)
   Other                                                                                  14,256              28,113
-------------------------------------------------------------------------------------------------------------------------
      Net Cash Provided by Operating Activities                                          433,396             259,868
-------------------------------------------------------------------------------------------------------------------------
Investing Activities
Gross utility property additions                                                        (291,318)           (253,739)
Diversified business property additions and acquisitions                                (222,626)           (495,144)
Nuclear fuel additions                                                                   (67,954)            (33,386)
Net contributions to nuclear decommissioning trust                                       (10,262)            (12,226)
Investments in non-utility activities                                                     (3,383)             (6,088)
Other                                                                                      3,369            (100,313)
-------------------------------------------------------------------------------------------------------------------------
      Net Cash Used in Investing Activities                                             (592,174)           (900,896)
-------------------------------------------------------------------------------------------------------------------------
Financing Activities
Issuance of common stock, net                                                             73,901                   -
Purchase of restricted shares                                                             (6,560)             (5,393)
Issuance of long-term debt, net                                                          655,136             152,660
Net increase (decrease) in short-term indebtedness                                      (205,175)            892,302
Net decrease in cash provided by checks drawn in excess of bank balances                 (36,847)            (40,046)
Retirement of long-term debt                                                            (225,608)           (104,533)
Dividends paid on common stock                                                          (133,286)           (119,206)
Other                                                                                     11,240              68,597
-------------------------------------------------------------------------------------------------------------------------
      Net Cash Provided by Financing Activities                                          132,801             844,381
-------------------------------------------------------------------------------------------------------------------------
Cash Provided by (Used in) Discontinued Operations                                           106                (542)
-------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                                     (25,871)            202,811
Cash and Cash Equivalents at Beginning of the Period                                      61,358              53,708
-------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period                                       $    35,487         $   256,519
-------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the year -  interest (net of amount capitalized)                    $   209,194         $   231,067
                             income taxes (net of refunds)                           $     3,345         $     4,334
</TABLE>

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


                                       8
<PAGE>
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Progress Energy, Inc.
SUPPLEMENTAL  DATA SCHEDULE                                   Three Months Ended
                                                                   March 31,
(Unaudited)                                                 2003             2002
------------------------------------------------------------------------------------------

Operating Revenues (in thousands)
Utility
   Retail                                              $ 1,344,132     $ 1,260,810
   Wholesale                                               280,723         194,945
   Unbilled                                                (31,673)         (3,259)
   Miscellaneous revenue                                    60,705          45,427
----------------------------------------------------------------------------------------
      Total Utility                                      1,653,887       1,497,923
Diversified business                                       362,117         289,379
----------------------------------------------------------------------------------------
      Total Operating Revenues                         $ 2,016,004     $ 1,787,302
----------------------------------------------------------------------------------------

Energy Sales - Utility
Utility (millions of kWh)
   Retail
      Residential                                            9,140           8,045
      Commercial                                             5,425           5,246
      Industrial                                             3,921           3,869
      Other retail                                             999             946
----------------------------------------------------------------------------------------
      Total Retail                                          19,485          18,106
   Wholesale                                                 5,895           4,311
   Unbilled                                                   (425)           (156)
----------------------------------------------------------------------------------------
      Total Utility                                         24,955          22,261
----------------------------------------------------------------------------------------

Energy Supply - Utility (millions of kWh)
   Generated - Steam                                        12,982          11,414
               Nuclear                                       7,612           7,228
               Hydro                                           254             139
               Combustion turbines                           1,732           1,585
   Purchased                                                 3,446           2,993
----------------------------------------------------------------------------------------
      Total Energy Supply - (Company Share)                 26,026           23,359
----------------------------------------------------------------------------------------

Detail of Income Taxes (in thousands)
   Income tax expense (credit) - Current               $    15,698     $   (47,445)
                                 Deferred                   (2,608)         12,194
                                 Investment tax credit      (4,061)         (5,435)
----------------------------------------------------------------------------------------
      Total Income Tax Expense (Benefit)               $     9,029     $   (40,686)
----------------------------------------------------------------------------------------
</TABLE>



                                       9
<PAGE>

Progress Energy, Inc.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1.   ORGANIZATION AND BASIS OF PRESENTATION

     A.   Organization

     Progress  Energy,  Inc.  (Progress  Energy or the  Company) is a registered
     holding  company  under the  Public  Utility  Holding  Company  Act of 1935
     (PUHCA),  as amended.  Both the Company and its subsidiaries are subject to
     the regulatory  provisions of PUHCA.  Effective  January 1, 2003,  Carolina
     Power & Light Company,  Florida Power  Corporation  and Progress  Ventures,
     Inc. (PVI) began doing business under the names Progress Energy  Carolinas,
     Inc.,  Progress Energy Florida,  Inc. and Progress Energy  Ventures,  Inc.,
     respectively. The legal names of these entities have not changed, and there
     was no restructuring  of any kind related to the name  change.  The current
     corporate and business unit structure remains unchanged.

     Through its wholly owned  subsidiaries,  Progress  Energy  Carolinas,  Inc.
     (PEC) and Progress  Energy Florida,  Inc. (PEF),  the Company is engaged in
     the  generation,   purchase,   transmission,   distribution   and  sale  of
     electricity  primarily in portions of North  Carolina,  South  Carolina and
     Florida.  The Progress  Ventures  business  unit  consists of the Fuels and
     Competitive  Commercial  Operations  (CCO)  operating  segments.  The Fuels
     operating segment includes natural gas drilling and production, coal mining
     and  synthetic  fuels  production.   The  CCO  operating  segment  includes
     nonregulated   generation   and  energy   marketing  and  limited   trading
     activities.  Through other  business  units,  the Company  engages in other
     nonregulated  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 unit.  Whether,  and
     when,  the legal and  functional  structures  will  converge  depends  upon
     legislative and regulatory action, which cannot currently be anticipated.

     B.   Basis of Presentation

     These financial statements have been prepared in accordance with accounting
     principles  generally  accepted in the United States of America  (GAAP) 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 GAAP for complete financial  statements.  Because the
     accompanying  consolidated  interim financial statements do not include all
     of the information  and footnotes  required by GAAP, they should be read in
     conjunction  with the audited  financial  statements  for the period  ended
     December 31, 2002 and notes thereto included in Progress Energy's Form 10-K
     for the year ended December 31, 2002.

     The amounts included in the consolidated  interim financial  statements are
     unaudited  but,  in the  opinion of  management,  reflect  all  adjustments
     necessary to fairly present the Company's financial position and results of
     operations for the interim periods.  Due to seasonal weather variations and
     the  timing  of   outages  of   electric   generating   units,   especially
     nuclear-fueled units, the results of operations for interim periods are not
     necessarily  indicative  of amounts  expected for the entire year.  Certain
     amounts   for  2002  have  been   reclassified   to  conform  to  the  2003
     presentation.

     In preparing financial  statements that conform with GAAP,  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

     A.   Acquisition of Natural Gas Reserves

     During the first  quarter of 2003,  Progress  Fuels  Corporation,  a wholly
     owned  subsidiary  of  Progress  Energy,  entered  into  three  independent
     transactions to acquire  approximately 162 natural gas-producing wells with
     proven reserves of approximately 195 billion cubic feet (Bcf) from Republic
     Energy, Inc. and two other privately-owned  companies, all headquartered in
     Texas.  The primary  assets in the  acquisition  have been  contributed  to

                                       10
<PAGE>

     Progress Fuels North Texas Gas, L.P., a wholly owned subsidiary of Progress
     Fuels  Corporation.  The total cash purchase price for the transactions was
     $148 million.

     B.   Wholesale Energy Contract Acquisition

     On March 20, 2003,  PVI entered into a definitive  agreement  with Williams
     Energy Marketing and Trading, a subsidiary of The Williams Companies, Inc.,
     to acquire a long-term  full-requirements  power supply  agreement at fixed
     prices  with  Jackson  Electric  Membership  Corp.  (Jackson),  located  in
     Jefferson,  Georgia. The agreement calls for a $188 million cash payment to
     Williams  Energy  Marketing  and Trading in exchange for  assignment of the
     Jackson supply  agreement.  The power supply agreement  terminates in 2015,
     with a first  refusal  option  to  extend  for five  years.  The  agreement
     includes  the  use of 640  megawatts  (MW)  of  contracted  Georgia  System
     generation  comprised  of  nuclear,  coal,  gas  and  pumped-storage  hydro
     resources.  PVI expects to supplement  the acquired  resources with its own
     intermediate  and peaking assets in Georgia to serve  Jackson's  forecasted
     1,100 MW peak  demand in 2005  growing to a  forecasted  1,700 MW demand by
     2015.  The  transaction is expected to close in the second quarter of 2003,
     subject to customary closing conditions.

3.   DIVESTITURES

     A.   NCNG Divestiture

     On October 16, 2002, the Company announced the Board of Directors' approval
     to sell North  Carolina  Natural Gas  Corporation  (NCNG) and the Company's
     equity  investment in Eastern North Carolina Natural Gas Company (ENCNG) to
     Piedmont Natural Gas Company,  Inc., for approximately  $400 million in net
     proceeds.  The sale is expected to close during the summer of 2003 and must
     be approved by the NCUC and federal regulatory agencies.

     The  accompanying  consolidated  interim  financial  statements  have  been
     restated for all periods presented for the discontinued operations of NCNG.
     The net income of these  operations is reported as discontinued  operations
     in the Consolidated  Statements of Income. Interest expense of $3.7 million
     and $4.0  million  for the three  months  ended  March  31,  2003 and 2002,
     respectively,  has been allocated to discontinued  operations  based on the
     net assets of NCNG,  assuming  a uniform  debt-to-equity  ratio  across the
     Company's  operations.  The  Company  ceased  recording  depreciation  upon
     classification  of  the  assets  as  discontinued   operations.   After-tax
     depreciation  expense recorded by NCNG during the first quarter of 2002 was
     $2.9 million.  The asset group,  including  goodwill,  has been recorded at
     fair value less cost to sell, resulting in an estimated loss on disposal of
     approximately  $29.4  million,  which was recorded in the fourth quarter of
     2002  until  the  disposition  is  complete  and  the  actual  loss  can be
     determined.  Results of discontinued  operations for the three months ended
     March 31, were as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     (in thousands)                                      2003                2002
                                                    ----------------    ---------------
     Revenues                                          $  154,226           $ 86,115
                                                    ================    ===============
     Earnings before income taxes                      $   18,483           $ 14,035
     Income tax expense                                     7,193              5,570
                                                    ----------------    ---------------
     Net earnings from discontinued operations         $   11,290            $ 8,465
                                                    ================    ===============

     The major  balance  sheet  classes  included in assets and  liabilities  of
     discontinued operations in the Consolidated Balance Sheets are as follows:

                                                       March 31,          December 31,
     (in thousands)                                      2003                2002
                                                    ---------------    ----------------
     Utility plant, net                                $  401,035         $  398,931
     Current assets                                        75,338             72,821
     Deferred debits and other assets                      18,112             18,677
                                                    ---------------    ----------------
          Assets of discontinued operations            $  494,485         $  490,429
                                                    ===============    ================

     Current liabilities                               $   68,185         $   76,372
     Deferred credits and other liabilities                49,286             48,395
                                                    ---------------    ----------------
          Liabilities of discontinued operations       $  117,471         $  124,767
                                                    ===============    ================
</TABLE>

     The  Company's  equity  investment in ENCNG of $7.7 million as of March 31,
     2003 and December 31, 2002 is included in miscellaneous  other property and
     investments in the Consolidated Balance Sheets.

                                       11
<PAGE>

     B.   Railcar Ltd. Divestiture

     In  December  2002,  the  Progress  Energy  Board of  Directors  adopted  a
     resolution  to sell the  assets  of  Railcar  Ltd.,  a  leasing  subsidiary
     included in the Rail Services  segment.  A series of sales  transactions is
     expected to take place throughout  2003. An estimated  impairment on assets
     held for sale was  recognized  in December  2002 for the  write-down of the
     assets to be sold to fair value less the costs to sell.

     The assets of Railcar  Ltd.  have been  grouped as assets held for sale and
     are included in other current assets on the Consolidated  Balance Sheets as
     of March 31,  2003.  The assets are  recorded  at $23.8  million  and $23.6
     million as of March 31, 2003 and December 31, 2002, respectively.

     On March  12,  2003,  the  Company  signed a letter  of  intent to sell the
     majority of Railcar Ltd. assets to The Andersons,  Inc. The majority of the
     proceeds  from  the sale  will be used by the  Company  to pay off  certain
     Railcar Ltd. off balance sheet lease  obligations for railcars that will be
     transferred to The Andersons,  Inc. as part of the sales  transaction.  The
     transaction is subject to various closing conditions  including  financing,
     due diligence and the completion of a definitive purchase agreement.

4.   FIANANCIAL INFORMATION BY BUSINESS SEGMENT

     The Company currently has the following business segments:  Progress Energy
     Carolinas  Electric (PEC Electric),  Progress Energy Florida (PEF),  Fuels,
     Competitive  Commercial  Operations  (CCO),  Rail Services (Rail) and Other
     Businesses (Other).  Prior to 2003, Fuels and CCO were reported together as
     the Progress Ventures business segment and corporate costs were included in
     the Other segment.  These  reportable  segment  changes reflect the current
     management  structure.  Additionally,  earnings from wholesale customers of
     the regulated  plants have  previously  been reported in both the regulated
     utilities'  results  and  the  results  of  Progress  Ventures.   With  the
     realignment  of the  reportable  business  segments,  these results are now
     included in each of the respective  regulated  utilities' results only. The
     prior period has been restated to reflect these changes.

     The PEC Electric and PEF segments are engaged in the generation,  purchase,
     transmission,  distribution  and  sale  of  electric  energy  primarily  in
     portions of North  Carolina,  South  Carolina and Florida.  These  electric
     operations  are subject to the rules and  regulations of the Federal Energy
     Regulatory Commission (FERC), the North Carolina Utility Commission (NCUC),
     the Public Service Commission of South Carolina (SCPSC), the Florida Public
     Service Commission (FPSC) and the U.S. Nuclear Regulatory Commission (NRC).

     Fuels' operations include natural gas drilling and production,  coal mining
     and terminals and synthetic fuels production.

     CCO operations  include  nonregulated  electric  generation  operations and
     energy   marketing  and  limited  trading   activities  on  behalf  of  its
     nonregulated  plants.  The  increase in revenue and income from  continuing
     operations  in 2003 is  primarily  due to a tolling  agreement  termination
     payment from Dynegy.

     Rail 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 and right-of-way maintenance.

     The  Other   segment   primarily   includes  the   operations  of  Progress
     Telecommunications   Corporation   (Progress   Telecom)  and   nonregulated
     subsidiaries that do not meet the disclosure  requirements of SFAS No. 131,
     "Disclosures about Segments of an Enterprise and Related Information."

     The Company's  corporate  operations  include the operations of the holding
     company,  the Progress Energy Service  Company,  LLC (Service  Company) and
     intercompany  elimination  transactions.  The operating  business  segments
     combined  with the  corporate  operations  represent  the total  continuing
     operations of the Company.  In prior  periods,  Corporate was reported as a
     component of the Other segment.

     The discontinued operations related to the sale of NCNG are not included as
     an operating segment.

                                       12
<PAGE>

     The following  summarizes the revenues,  income from continuing  operations
     and assets for the business segments,  corporate and total Progress Energy.
     The 2002  information  has been  restated  to align  with the 2003  segment
     structure.
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                         Revenues
                                       -----------------------------------------------
                                                                                            Income
                                                                                             from
                                                                                          Continuing
     (in thousands)                    Unaffiliated   Intersegment         Total          Operations         Assets
                                       ------------  ---------------  ----------------   ------------    -------------
     FOR THE THREE MONTHS ENDED
     MARCH 31, 2003
     PEC Electric                      $   925,470     $        -       $   925,470       $ 134,577      $  9,616,357
     PEF                                   728,417              -           728,417          70,757         5,716,828
     Fuels                                 129,874        117,396           247,270          26,565         1,151,361
     CCO                                    37,152              -            37,152           8,526         1,504,197
     Rail                                  177,687            122           177,809          (3,396)          504,533
     Other                                  17,352              -            17,352             335            50,091
     Corporate                                  52       (117,518)         (117,466)        (40,498)        4,135,040
                                       ------------  ---------------  ----------------   ------------    -------------
     Consolidated totals               $ 2,016,004     $        0       $ 2,016,004       $ 196,866      $ 22,678,407
                                       ------------  ---------------  ----------------   ------------    -------------

     FOR THE THREE MONTHS ENDED
     MARCH 31, 2002
     PEC Electric                      $   811,482     $        -       $   811,482       $  85,533      $  9,092,069
     PEF                                   686,441              -           686,441          57,743         5,039,094
     Fuels                                 102,312        133,976           236,288          41,596           743,686
     CCO                                     9,046              -             9,046          (2,112)        1,157,066
     Rail                                  154,469            496           154,965            (701)          596,765
     Other                                  23,552              -            23,552          (4,938)          618,796
     Corporate                                   -       (134,472)         (134,472)        (53,059)        3,858,691
                                       ------------  ---------------  ----------------   ------------    -------------
     Consolidated totals               $ 1,787,302     $        0       $ 1,787,302       $ 124,062      $ 21,106,167
                                       ------------  ---------------  ----------------   ------------    -------------
</TABLE>


5.   IMPACT OF NEW ACCOUNTING STANDARDS

     SFAS No. 148,  "Accounting  for Stock-Based  Compensation"
     For purposes of Company's stock the pro forma disclosures  required by SFAS
     No.  148,  "Accounting  for  Stock-Based   Compensation  -  Transition  and
     Disclosure - an Amendment of FASB  Statement No. 123," the  estimated  fair
     value of the  Company's  stock  options is  amortized  to expense  over the
     options' vesting period. The Company's information related to the pro forma
     impact on earnings  and  earnings  per share  assuming  stock  options were
     expensed for the three months ended March 31 is as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     (in thousands except per share data)                               2003               2002
                                                                   ----------------   ---------------
     Net income, as reported                                             $ 208,156         $ 132,527
     Deduct:  Total stock option expense determined under fair
       value method for all awards, net of related tax effects               2,579             1,792
                                                                   ----------------   ---------------
     Pro forma net income                                                $ 205,577         $ 130,735
                                                                   ================   ===============

     Basic and fully diluted earnings per share
       As reported                                                           $0.89             $0.62
       Pro forma                                                             $0.88             $0.61
</TABLE>

     In April 2003, the Financial  Accounting  Standards  Board (FASB)  approved
     certain decisions on its stock-based  compensation project. Some of the key
     decisions reached by the FASB were that stock-based  compensation should be
     recognized  in the  income  statement  as an expense  and that the  expense
     should be measured as of the grant date at fair value. A significant  issue
     yet to be addressed  by the FASB is the  determination  of the  appropriate
     fair value measure.  The FASB has not yet scheduled when it will deliberate
     additional  issues in this  project;  however,  the FASB  plans to issue an
     exposure draft in 2003 that could become effective in 2004.

     SFAS No. 149,  "Amendment of Statement 133 on  Derivative  Instruments  and
     Hedging Activities"
     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
     Derivative  Instruments and Hedging  Activities."  The statement amends and
     clarifies SFAS No. 133 on accounting for derivative instruments,  including
     certain derivative instruments embedded in other contracts, and for hedging
     activities.  The new guidance  incorporates  decisions  made as part of the
     Derivatives  Implementation  Group  (DIG)  process,  as well  as  decisions

                                       13
<PAGE>

     regarding  implementation  issues raised in relation to the  application of
     the  definition  of a derivative.  SFAS No. 149 is generally  effective for
     contracts  entered  into or modified  after June 30,  2003.  The Company is
     currently  evaluating what effects, if any, this statement will have on its
     results of operations and financial position.

     FIN  No.  45,  "Guarantor's  Accounting  and  Disclosure  Requirements  for
     Guarantees,  Including  Indirect  Guarantees of  Indebtedness of Others"
     In November  2002,  the FASB  issued  Interpretation  No. 45,  "Guarantor's
     Accounting and Disclosure  Requirements for Guarantees,  Including Indirect
     Guarantees of Indebtedness of Others - an Interpretation of FASB Statements
     No. 5, 57 and 107 and  Rescission of FASB  Interpretation  No. 34" (FIN No.
     45).  This  interpretation  clarifies  the  disclosures  to  be  made  by a
     guarantor in its interim and annual financial  statements about obligations
     under  certain  guarantees  that it has issued.  It also  clarifies  that a
     guarantor is required to recognize, at the inception of certain guarantees,
     a liability for the fair value of the obligation  undertaken in issuing the
     guarantee.  The initial recognition and initial  measurement  provisions of
     this  interpretation  are  applicable on a prospective  basis to guarantees
     issued or modified  after  December 31, 2002.  The  applicable  disclosures
     required  by FIN No. 45 have been made in Notes 12 and 15. The  adoption of
     FIN No. 45 did not have a  material  effect  on the  Company's  results  of
     operations or financial condition.

     FIN No. 46,  "Consolidation of Variable Interest Entities"
     In January 2003, the FASB issued  Interpretation No. 46,  "Consolidation of
     Variable Interest Entities - an Interpretation of ARB No. 51" (FIN No. 46).
     This  interpretation  provides  guidance  related to  identifying  variable
     interest  entities  (previously  known as special purpose entities or SPEs)
     and  determining  whether such  entities  should be  consolidated.  Certain
     disclosures  are required if it is reasonably  possible that a company will
     consolidate or disclose  information  about a variable interest entity when
     it  initially  applies  FIN No.  46.  This  interpretation  must be applied
     immediately to variable interest entities created or obtained after January
     31, 2003. During the first quarter of 2003, the Company did not participate
     in the  creation  of, or obtain a new  variable  interest  in, any variable
     interest entity.  For those variable  interest entities created or obtained
     on or before January 31, 2003, the Company must apply the provisions of FIN
     No. 46 in the third quarter of 2003.

     The  Company  is  currently   evaluating   what   effects,   if  any,  this
     interpretation  will  have  on its  results  of  operations  and  financial
     position.  During this evaluation process, several arrangements through its
     Railcar Ltd.  subsidiary have been identified to which this  interpretation
     may apply.  These  arrangements  include an agreement  with  Railcar  Asset
     Financing  Trust (RAFT),  a  receivables  securitization  trust,  and seven
     synthetic  leases.  Because  the  Company  expects to sell the  majority of
     Railcar Ltd. during 2003 (See Note 3B) and divest of its interests in these
     arrangements,  the  application  of FIN No.  46 is not  expected  to have a
     material impact with respect to these arrangements.  If these interests are
     not divested as currently planned, the maximum cash obligations under these
     arrangements  total  approximately  $54.3  million.   However,   management
     believes the maximum cash obligations would be significantly  reduced based
     on the  current  fair  values of the  underlying  assets  related  to these
     arrangements.

6.   ASSET RETIREMENT OBLIGATIONS

     SFAS No.  143,  "Accounting  for Asset  Retirement  Obligations,"  provides
     accounting  and   disclosure   requirements   for  retirement   obligations
     associated with long-lived  assets and was adopted by the Company 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  liability.
     Cumulative  accretion and accumulated  depreciation were recognized for the
     time period from the date the liability  would have been recognized had the
     provisions  of this  statement  been in effect,  to the date of adoption of
     this statement.  For assets acquired  through  acquisition,  the cumulative
     effect was based on the acquisition date.

     Upon  adoption  of SFAS No.  143,  the Company  recorded  asset  retirement
     obligations (AROs) totaling $1,182.5 million for nuclear decommissioning of
     radiated  plant at PEC and PEF.  The  Company  used an  expected  cash flow
     approach  to measure  these  obligations.  This  amount  includes  accruals
     recorded prior to adoption  totaling $775.2 million,  which were previously
     recorded in accumulated  depreciation.  The related asset retirement costs,
     net of  accumulated  depreciation,  recorded upon adoption  totaled  $367.5
     million for  regulated  operations.  The adoption of this  statement had no
     impact on the income of the regulated entities,  as the effects were offset
     by the  establishment  of a  regulatory  asset and a  regulatory  liability
     pursuant to SFAS No. 71,  "Accounting  for the Effects of Certain  Types of
     Regulation." A regulatory  asset was recorded  related to PEC in the amount
     of $271.1 million,  representing  the cumulative  accretion and accumulated
     depreciation  for the time  period from the date the  liability  would have
     been  recognized had the provisions of this statement been in effect to the

                                       15
<PAGE>

     date of adoption,  less amounts previously recorded. A regulatory liability
     was recorded  related to PEF in the amount of $231.3 million,  representing
     the amount by which previously  recorded  accruals  exceeded the cumulative
     accretion and  accumulated  depreciation  for the time period from the date
     the  liability  would  have  been  recognized  had the  provisions  of this
     statement  been in effect at the date of the  acquisition  of the assets by
     Progress Energy to the date of adoption.

     Funds set aside in the Company's nuclear decommissioning trust fund for the
     nuclear decommissioning  liability totaled $788.8 million at March 31, 2003
     and $796.8 million at December 31, 2002.

     The Company also recorded AROs  totaling  $10.3 million for synthetic  fuel
     operations of PVI and coal mine  operations,  synthetic fuel operations and
     gas production of Progress Fuels Corporation.  The Company used an expected
     cash flow  approach to measure  these  obligations.  This  amount  includes
     accruals  recorded  prior to  adoption  totaling  $4.6  million,  which was
     previously recorded in other liabilities and deferred credits.  The related
     asset  retirement  costs,  net of accumulated  depreciation,  recorded upon
     adoption totaled $7.0 million for nonregulated  operations.  The cumulative
     effect of  initial  adoption  of this  statement  related  to  nonregulated
     operations  was $1.3  million  of pre-tax  income.  The  ongoing  impact on
     earnings  related to accretion and depreciation was not significant for the
     three months ended March 31, 2003.

     Pro forma net income has not been presented for prior years because the pro
     forma  application of SFAS No. 143 to prior years would result in pro forma
     net income not materially different from the actual amounts reported.

     The Company has  identified  but not  recognized  AROs  related to electric
     transmission and  distribution,  gas  distribution  and  telecommunications
     assets as the result of easements  over  property not owned by the Company.
     These easements are generally  perpetual and only require retirement action
     upon  abandonment  or cessation  of use of the  property for the  specified
     purpose.  The ARO  liability  is not  estimable  for such  easements as the
     Company intends to utilize these properties indefinitely.  In the event the
     Company  decides to abandon or cease the use of a particular  easement,  an
     ARO liability would be recorded at that time.

     The utilities have  previously  recognized  removal costs as a component of
     depreciation in accordance with regulatory treatment. As of March 31, 2003,
     the  portion  of such  costs not  representing  AROs under SFAS No. 143 was
     $893.2 million for PEC,  $931.4 million for PEF and $38.3 million for NCNG.
     The amounts for PEC and PEF are included in accumulated depreciation on the
     accompanying  Consolidated  Balance Sheets. The amount for NCNG is included
     as an  offset  to assets of  discontinued  operations  on the  accompanying
     Consolidated  Balance  Sheets.  PEC  and PEF  have  collected  amounts  for
     non-radiated  areas at nuclear  facilities,  which do not  represent  asset
     retirement  obligations.  The amounts at March 31, 2003 were $63.8  million
     for PEC and $61.5  million  for PEF,  which  are  included  in  accumulated
     depreciation  on  the  accompanying   Consolidated   Balance  Sheets.   PEF
     previously  collected  amounts for  dismantlement of its fossil  generation
     plants.  As of March 31, 2003,  this amounted to $142.0  million,  which is
     included  in  accumulated  depreciation  on the  accompanying  Consolidated
     Balance  Sheets.  This  collection was suspended  pursuant to the rate case
     settlement discussed in Note 13A.

     PEC filed a request  with the NCUC  requesting  deferral of the  difference
     between  expense  pursuant  to SFAS  No.  143  and  expense  as  previously
     determined  by the NCUC.  The NCUC  granted the  deferral of the January 1,
     2003 cumulative adjustment, but denied the deferral of the ongoing effects,
     citing a lack of  information  concerning  the ongoing  effects  that would
     support the  granting of such a deferral.  The Company is in the process of
     providing  additional  information  to  the  NCUC  that  it  believes  will
     demonstrate  that deferral of the ongoing  effects  should also be allowed.
     Accordingly, for the quarter ended March 31, 2003, PEC deferred the ongoing
     effects.  If PEC had not deferred the ongoing  effects,  pre-tax income for
     the quarter  would have  increased by  approximately  $5.7  million,  which
     represents a decrease in non-ARO cost of removal expense,  partially offset
     by an increase in decommissioning expense.

     On April 8, 2003,  the SCPSC  approved a joint  request by PEC, Duke Energy
     and South  Carolina  Electric  and Gas Company for an  accounting  order to
     authorize the deferral of all cumulative and prospective effects related to
     the adoption of SFAS No. 143.

     On January 23, 2003, the Staff of the FPSC issued a notice of proposed rule
     development to adopt provisions relating to accounting for asset retirement
     obligations  under SFAS No. 143.  Accompanying  the notice was a draft rule
     presented  by the Staff which adopts the  provisions  of SFAS No. 143 along
     with the requirement to record the difference between amounts prescribed by

                                       15
<PAGE>

     the FPSC and those used in the  application  of SFAS No. 143 as  regulatory
     assets or regulatory  liabilities,  which was accepted by all parties.  The
     adoption and acceptance of this draft rule is subject to FPSC approval.

7.   GOODWILL AND OTHER INTANGIBLE ASSETS

     SFAS No.  142,  "Goodwill  and  Other  Intangible  Assets,"  requires  that
     goodwill be tested for  impairment  at least  annually and more  frequently
     when indicators of impairment  exist. SFAS No. 142 requires a two-step fair
     value-based  test. The first step, used to identify  potential  impairment,
     compares the fair value of the  reporting  unit with its  carrying  amount,
     including  goodwill.  The second  step,  used to measure  the amount of the
     impairment loss if step one indicates a potential impairment,  compares the
     implied fair value of the reporting unit goodwill with the carrying  amount
     of the  goodwill.  This  assessment  could  result in  periodic  impairment
     charges.

     During  2002,  the  Company  completed  the  acquisition  of  two  electric
     generating projects,  Walton County Power, LLC and Washington County Power,
     LLC. The  acquisition  resulted in goodwill of $64.1  million.  The Company
     performed the annual goodwill impairment test in the first quarter of 2003,
     which indicated no impairment.

     During  2002,  the Company  also  acquired  Westchester  Gas  Company.  The
     purchase price was finalized  during the first quarter 2003 with all of the
     purchase price allocated to fixed assets  including oil and gas properties.
     No goodwill was recorded.

     The carrying amounts of goodwill at March 31, 2003, by reportable  segment,
     are $1.9 billion, $1.7 billion, and $64.1 million for PEC Electric, PEF and
     CCO, respectively.

     The gross carrying  amount and  accumulated  amortization  of the Company's
     intangible  assets  as of March  31,  2003  and  December  31,  2002 are as
     follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                  March 31, 2003                               December 31, 2002
                                    -------------------------------------------    ------------------------------------------
     (in thousands)                    Gross Carrying         Accumulated             Gross Carrying         Accumulated
                                           Amount             Amortization                Amount            Amortization
                                    --------------------- ---------------------    --------------------- --------------------
     Synthetic fuel intangibles          $ 140,469             $ (49,953)                $ 140,469            $ (45,189)
     Power sale agreements                  33,000                (7,265)                   33,000               (5,593)
     Other                                  42,005                (8,531)                   40,968               (7,792)
                                    --------------------- ---------------------    --------------------- --------------------
                 Total                   $ 215,474             $ (65,749)                $ 214,437            $ (58,574)
                                    --------------------- ---------------------    --------------------- --------------------
</TABLE>

     All of the Company's  intangibles  are subject to  amortization.  Synthetic
     fuel intangibles represent intangibles for synthetic fuel technology. These
     intangibles  are  being  amortized  on  a  straight-line  basis  until  the
     expiration of tax credits under Section 29 of the Internal  Revenue Service
     Code (the Code) in December 2007. The power sale  agreements  were recorded
     as part of the acquisition of generating  assets from LG&E Energy Corp. and
     are amortized on a  straight-line  basis beginning with the in-service date
     of these plants through December 31, 2004. Other  intangibles are primarily
     customer  contracts  and permits that are amortized  over their  respective
     lives.

     Net intangible  assets are included in other assets and deferred  debits in
     the accompanying Consolidated Balance Sheets. Amortization expense recorded
     on  intangible  assets for the three  months ended March 31, 2003 and 2002,
     respectively, was $7.2 million and $8.1 million. The estimated amortization
     expense for  intangible  assets for 2003  through  2007,  in  millions,  is
     approximately $33.5, $36.5, $20.3, $19.8 and $19.8, respectively.

8.   COMPREHENSIVE INCOME

     Comprehensive income for the three months ended March 31, 2003 and 2002 was
     $207.6   million  and  $136.8   million,   respectively.   Items  of  other
     comprehensive  income for the three month  periods  consisted  primarily of
     changes in the fair value of  derivatives  used to hedge cash flows related
     to interest on long-term debt and gas sales.

9.   FINANCING ACTIVITIES

     On February 21,  2003,  PEF issued $425  million of First  Mortgage  Bonds,
     4.80% Series,  Due March 1, 2013 and $225 million of First Mortgage  Bonds,
     5.90% Series, Due March 1, 2033.

     On March 1, 2003, $70 million of PEF First Mortgage  Bonds,  6.125% Series,
     matured and were retired.

                                       16
<PAGE>

     On March 24, 2003,  PEF redeemed $150 million of First Mortgage  Bonds,  8%
     Series,  Due  December 1, 2022 at 103.75% of the  principal  amount of such
     bonds.

     On April 1,  2003,  PEF  entered  into a new $200  million  364-day  credit
     agreement and a new $200 million three-year credit agreement, replacing its
     prior credit  facilities (which had been a $90 million 364-day facility and
     a $200 million five-year facility). The new PEF credit facilities contain a
     defined  maximum  total debt to total capital ratio of 65%; as of March 31,
     2003 the calculated ratio was 50.9%. The new credit facilities also contain
     a requirement  that the ratio of EBITDA,  as defined in the facilities,  to
     interest expense to be at least 3 to 1; as of March 31, 2003 the calculated
     ratio was 8.7 to 1.

     Also on April 1, 2003, PEC reduced the size of its existing  364-day credit
     facility  from  $285  million  to $165  million.  The  other  terms of this
     facility were not changed.  PEC's $285 million  three-year credit agreement
     entered into in July 2002 remains in place,  for total  facilities  of $450
     million.

     On April 25, 2003,  PEC announced  the  redemption of $150 million of First
     Mortgage Bonds, 7.5% Series,  Due March 1, 2023 at 103.22% of the principal
     amount of such bonds.  The date of the redemption will be May 27, 2003; PEC
     will fund the redemption through commercial paper.

     In March  2003,  Progress  Genco  Ventures,  LLC  (Genco),  a wholly  owned
     subsidiary  of PVI,  terminated  its $50  million  working  capital  credit
     facility.  The remaining  $260 million of Genco's  credit  facility was not
     changed.

     The  Company  issued   approximately   1.8  million   shares   representing
     approximately  $74 million in proceeds from its Dividend  Reinvestment  and
     Stock Purchase Plan and its employee  benefit plans during the three months
     ended March 31, 2003.

10.  RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS

     Progress Energy and its  subsidiaries  are exposed to various risks related
     to  changes  in  market  conditions.  The  Company  has a  risk  management
     committee  that is  chaired by the Chief  Financial  Officer  and  includes
     senior  executives  from  various  business  groups.  The  risk  management
     committee is responsible for  administering  risk  management  policies and
     monitoring compliance with those policies by all subsidiaries.

     The Company manages its market risk in accordance with its established risk
     management  policies,  which may include  entering into various  derivative
     transactions.

     Progress  Energy uses interest rate  derivative  instruments  to adjust the
     fixed and variable rate debt  components of its debt portfolio and to hedge
     interest  rates with regard to future fixed rate debt  issuances.  Treasury
     rate lock agreements were terminated in conjunction with the pricing of the
     PEF First  Mortgage  Bonds in February 2003. The loss on the agreements was
     deferred  and is  being  amortized  over  the  life of the  bonds  as these
     agreements had been designated as cash flow hedges for accounting purposes.

     Progress  Energy  currently  has $950 million of fixed rate debt swapped to
     floating rate debt by executing interest rate derivative agreements.  Under
     terms of these swap rate  agreements,  Progress Energy will receive a fixed
     rate and will pay a floating rate based on 3-month LIBOR.  These agreements
     expire in March of 2006, April 2007 and October 2008.

     In March and April of 2003,  PEC entered into  treasury rate locks to hedge
     its  exposure to interest  rates with regard to a future  issuance of debt.
     These  agreements  have  a  computational  period  of  ten  years  and  are
     designated as cash flow hedges for accounting purposes. The agreements have
     a total notional amount of $35 million.

     Progress Fuels Corporation  periodically enters into derivative instruments
     to hedge its  exposure to price  fluctuations  on natural gas sales.  As of
     March 31, 2003,  Progress Fuels Corporation had  approximately  22.6 Bcf of
     cash flow hedges in place for its natural gas  production.  These positions
     span  the  remainder  of 2003  and  extend  through  December  2004.  These
     instruments  did not have a material  impact on the Company's  consolidated
     financial position or results of operations.

     Genco has a series of interest rate collars to hedge floating rate exposure
     associated with the construction  credit facility.  These collars hedge 75%
     of the drawn facility balance through March of 2007.

                                       17
<PAGE>

     The notional  amounts of the above  contracts are not exchanged and do  not
     represent   exposure  to  credit  loss.  In  the  event  of  default  by  a
     counterparty,  the risk in the  transaction  is the cost of  replacing  the
     agreements  at current  market  rates.  Progress  Energy  only  enters into
     derivative agreements with banks with credit ratings of single A or better.

     In connection  with the January 2003 FASB Emerging Issues Task Force (EITF)
     meeting, the FASB was requested to reconsider an interpretation of SFAS No.
     133.  The   interpretation,   which  is   contained   in  the   Derivatives
     Implementation  Group's C11  guidance,  relates to the pricing of contracts
     that include broad market indices (e.g., CPI). In particular, that guidance
     discusses  whether the pricing in a contract  that  contains  broad  market
     indices could qualify as a normal  purchase or sale (the normal purchase or
     sale term in a defined accounting term, and may not, in all cases, indicate
     whether the contract would be "normal" from an operating entity viewpoint).
     In April 2003, the FASB issued  tentative  superceding  guidance (DIG Issue
     C20) on this issue that is expected to be  finalized in the second or third
     quarter of 2003.

     PEC has determined that it has one existing "normal" contract that could be
     affected by this revised guidance,  and PEC is in the process of evaluating
     the revised  guidance to determine if that  contract will be required to be
     recorded at fair value if the  revised  guidance is approved in its present
     form.

11.  EARNINGS PER COMMON SHARE

     Restricted  stock  awards  and  stock  options  did not have a  significant
     dilutive effect on earnings per share.

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

                                                       Three Months Ended
                                                     March 31,       March 31,
                                                       2003            2002
                                                  --------------   ------------
     Weighted-average common shares - basic             233,438         212,979
     Restricted stock awards                                931             646
     Stock options                                            -             119
                                                  --------------   ------------
     Weighted-average shares - fully dilutive           234,369         213,744
                                                  --------------   ------------

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.

                                       18
<PAGE>

     These  Preferred  Securities  are  classified  as  long-term  debt  on  the
     Company's Consolidated Balance Sheets.

13.  REGULATORY MATTERS

     A.   Retail Rate Matters

     In conjunction  with the acquisition of NCNG, PEC agreed to cap base retail
     electric rates in North Carolina and South Carolina  through December 2004.
     The cap on base retail  electric  rates in South  Carolina  was extended to
     December 2005 in  conjunction  with  regulatory  approval to form a holding
     company.  NCNG also agreed to cap its North  Carolina  margin rates for gas
     sales  and  transportation  services,  with  limited  exceptions,   through
     November 1, 2003.  On May 16,  2002,  NCNG filed a request to increase  its
     margin rates and  rebalance  its rates with the NCUC,  requesting an annual
     rate  increase of $4.1 million to recover  costs  associated  with specific
     system  improvements.  On  September  23,  2002,  the NCUC issued its order
     approving the $4.1 million rate  increase.  The rate increase was effective
     October 1, 2002.  NCNG filed a general rate case with the NCUC on March 31,
     2003. NCNG anticipates that new rates, if approved,  will go into effect in
     November 2003, after the terms of the joint stipulation agreement expire.

     On  March  27,  2002,  the  parties  in  PEF'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  provides that PEF will operate under a Revenue Sharing Incentive
     Plan (the Plan) through 2005 and thereafter until terminated by the FPSC.

     The Plan establishes annual revenue caps and sharing  thresholds.  The Plan
     provides that all retail base revenues between an established threshold and
     cap will be shared - a 2/3 share to be refunded to PEF's retail  customers,
     and a 1/3 share to be received by PEF's shareholders.  All retail base rate
     revenues above the retail base rate revenue caps  established for each year
     will be refunded 100% to retail customers on an annual basis. For 2002, the
     refund to customers  was limited to 67.1% of the retail base rate  revenues
     that exceeded the 2002 cap. The retail base rate revenue sharing  threshold
     amounts for 2003 are $1.333 billion and will increase $37 million each year
     thereafter. The retail base revenue cap for 2003 is $1.393 billion and will
     increase $37 million each year  thereafter.  As of December 31, 2002,  $4.7
     million was  accrued  and was  refunded  to  customers  in March  2003.  On
     February 24, 2003,  the parties to the Agreement  filed a motion seeking an
     order from the FPSC to enforce the Agreement.  In this motion,  the parties
     dispute PEF's  calculation of retail revenue  subject to refund and contend
     that the refund  should be  approximately  $23 million.  This issue will be
     addressed by the FPSC in the near future. PEF cannot predict the outcome of
     this matter.

     On March 4, 2003,  the FPSC  approved  PEF's  petition to increase its fuel
     factors  due to  continuing  increases  in oil and  natural  gas  commodity
     prices.  The  crisis in the  Middle  East  along  with the  Venezuelan  oil
     workers' strike have put upward  pressure on commodity  prices that was not
     anticipated  by PEF when fuel factors for 2003 were approved by the FPSC in
     November 2002. New rates became effective on March 28, 2003.

     B.   Regional Transmission Organizations

     In early 2000, the FERC issued Order 2000 regarding  regional  transmission
     organizations (RTOs). This Order set minimum  characteristics and functions
     that RTOs must  meet,  including  independent  transmission  service.  As a
     result of Order 2000,  PEF,  along with Florida  Power & Light  Company and
     Tampa  Electric  Company,   filed  with  the  FERC,  in  October  2000,  an
     application  for  approval of a  GridFlorida  RTO. In March 2001,  the FERC
     issued an order provisionally  approving GridFlorida.  PEC, along with Duke
     Energy  Corporation and South Carolina  Electric & Gas Company,  filed with
     the FERC,  for  approval of a GridSouth  RTO.  On July 12,  2001,  the FERC
     issued an order provisionally  approving GridSouth.  However, in July 2001,
     FERC issued orders recommending that companies in the Southeast engage in a
     mediation to develop a plan for a single RTO for the Southeast. PEF and PEC
     participated   in  the  mediation.   The  FERC  has  not  issued  an  order
     specifically on this mediation. In July 2002, the 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). 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. PEF and
     PEC, as  subsidiaries  of Progress  Energy,  filed comments on November 15,
     2002 and  supplement  comments on January 10, 2003. On April 28, 2003,  the
     FERC released a White Paper on the  Wholesale  Market  Platform.  The White
     Paper provides an overview of what the FERC currently intends to include in
     a  final  rule  in the  SMD  NOPR  docket.  The  White  Paper  retains  the
     fundamental  and most protested  aspects of SMD NOPR,  including  mandatory

                                       19
<PAGE>

     RTOs and the FERC's  assertion  of  jurisdiction  over  certain  aspects of
     retail service.  PEF and PEC, as subsidiaries of Progress  Energy,  plan to
     file  comments  on the White  Paper.  The FERC has also  indicated  that it
     expects to issue final rules  during the summer  2003.  The Company  cannot
     predict  the  outcome of these  matters or the effect that they may have on
     the  GridFlorida  and GridSouth  proceedings  currently  ongoing before the
     FERC. The Company has $29.4 million and an insignificant amount invested in
     GridSouth and GridFlorida,  respectively,  at March 31, 2003. It is unknown
     what impact the future  proceedings  will have on the  Company's  earnings,
     revenues or prices.

     On October 15, 2002, the FPSC abated its  proceedings  regarding its review
     of the proposed  GridFlorida  RTO. The FPSC action to abate the proceedings
     came in response to the Florida  Office at Public  Counsel's  appeal before
     the State Supreme Court requesting review of the FPSC's order approving the
     transfer of operational  control of electric  transmission assets to an RTO
     under the  jurisdiction  of the FERC.  Oral  argument  before  the  Florida
     Supreme  Court  occurred on May 6, 2003.  It is unknown what the outcome of
     this appeal will be at this time.  It is unknown  when the FERC or the FPSC
     will take final action with regard to the status of GridFlorida or what the
     impact of further proceedings will have on the Company's earnings, revenues
     or prices.

14.  OTHER INCOME AND OTHER EXPENSE

     Other  income and expense  includes  interest  income,  gain on the sale of
     investments,  impairment of investments  and other income and expense items
     as  discussed  below.  The  components  of  other,  net  as  shown  on  the
     Consolidated Statements of Income for the three months ended March 31, 2003
     and 2002 are as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     (in thousands)                                                   2003                 2002
                                                                -----------------    ------------------
     Other income
     Net financial trading loss                                    $  (2,698)             $  (2,541)
     Net energy purchased for resale                                   1,525                     62
     Nonregulated energy and delivery services income                  5,590                  6,598
     Contingent value obligation unrealized gain                       1,677                 11,342
     Investment gains                                                    370                    969
     AFUDC equity                                                      1,879                  2,244
     Other                                                             4,576                    597
                                                                -----------------    ------------------
          Total other income                                       $  12,919              $  19,271
                                                                -----------------    ------------------

     Other expense
     Nonregulated energy and delivery services expenses                4,217                  3,138
     Donations                                                         3,490                  5,343
     Other                                                             7,662                  4,732
                                                                -----------------    ------------------
          Total other expense                                      $  15,369              $  13,213
                                                                -----------------    ------------------

     Other, net                                                    $  (2,450)             $   6,058
                                                                =================    ==================
</TABLE>

     Net  financial   trading  loss   represents   non-asset-backed   trades  of
     electricity and gas. Net energy purchased for resale represents electricity
     purchased  for sale to a third  party.  Nonregulated  energy  and  delivery
     services include power protection  services and mass market programs (surge
     protection,   appliance  services  and  area  light  sales)  and  delivery,
     transmission and substation work for other utilities.

15.  COMMITMENTS AND CONTINGENCIES

     Contingencies and significant changes to the commitments  discussed in Note
     24 of the financial statements included in the Company's 2002 Annual Report
     on Form 10-K are described below.

     Commitments

     Guarantees

     As a part of normal  business,  Progress  Energy and  certain  subsidiaries
     enter  into  various   agreements   providing   financial  or   performance
     assessments to third parties.  Such agreements include guarantees,  standby
     letters of credit and surety  bonds.  These  agreements  are  entered  into
     primarily to support or enhance the  creditworthiness  otherwise attributed
     to a subsidiary on a stand-alone basis,  thereby facilitating the extension
     of sufficient  credit to accomplish the subsidiaries'  intended  commercial
     purposes.

     At March 31, 2003, outstanding guarantees are summarized as follows:

                                       20
<PAGE>

     (in millions)
     Guarantees supporting nonregulated portfolio expansion
          and energy marketing and trading activities                  $ 331.6
     Guarantees supporting nuclear decommissioning                       276.0
     Standby letters of credit                                            48.2
     Surety bonds                                                        104.7
     Other guarantees                                                     23.4
                                                                   ------------
          Total                                                        $ 783.9
                                                                   ============

     Each of these guarantees is discussed more fully below.

     Guarantees Supporting Nonregulated Portfolio Expansion and Energy Marketing
     and Trading Activities

     Progress  Energy has issued  approximately  $319.6 million of guarantees on
     behalf of PVI and its  subsidiaries  for  obligations  under power purchase
     agreements, tolling agreements, gas agreements, construction agreements and
     trading  operations.  In  addition,  PVI issued a $12.0  million  guarantee
     related  to  expansion  of its  nonregulated  generation  portfolio,  which
     ensures performance under generation construction and operating agreements.

     Approximately  $74.4 million of the $319.6 million of guarantees  issued by
     Progress Energy relate to certain  guarantee  agreements  issued to support
     obligations  related  to PVI's  expansion  of its  nonregulated  generation
     portfolio.  No new  guarantees of this type were issued during the quarter.
     The remaining $245.2 million of these commitments issued by Progress Energy
     are  guarantees  issued to  support  PVI's  energy  marketing  and  trading
     functions.  Approximately  $23.0  million of these  guarantees  were issued
     during the quarter.  The majority of the  marketing  and trading  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 March 31, 2003, if the Company's  ratings were to
     decline below  investment  grade, the Company would have to deposit cash or
     provide letters of credit or other cash collateral of  approximately  $14.7
     million for the benefit of the Company's counterparties.

     Guarantees Supporting Nuclear Decommissioning

     In 2003, PEC determined that its external funding levels did not fully meet
     the nuclear decommissioning financial assurance levels required by the NRC.
     Therefore,  PEC met the  financial  assurance  requirements  by obtaining a
     parent company guarantee.

     Standby Letters of Credit

     The Company has issued standby letters of credit to financial  institutions
     for the benefit of third parties that have  extended  credit to the Company
     and  certain  subsidiaries.  These  letters  of  credit  have  been  issued
     primarily  for the  purpose  of  supporting  payments  of  trade  payables,
     securing   performance   under   contracts   and  lease   obligations   and
     self-insurance  for workers'  compensation.  If a  subsidiary  does not pay
     amounts when due under a covered contract, the counterparty may present its
     claim for payment to the financial institution,  which will in turn request
     payment from the Company.  Any amounts owed by the  Company's  subsidiaries
     are reflected in the accompanying Consolidated Balance Sheets.

     Surety Bonds

     At March 31, 2003, the Company had $104.7 million in surety bonds purchased
     primarily for purposes such as providing  workers'  compensation  coverage,
     obtaining licenses,  permits and rights-of-way and project performance.  To
     the extent  liabilities are incurred as a result of the activities  covered
     by the surety  bonds,  such  liabilities  are included in the  accompanying
     Consolidated Balance Sheets.

     Other Guarantees

     The Company has other guarantees  outstanding  related  primarily to prompt
     performance  payments,  lease  obligations  and other  payments  subject to
     contingencies.

                                       21
<PAGE>

     On March 20, 2003,  PVI entered into a definitive  agreement  with Williams
     Energy Marketing and Trading, a subsidiary of The Williams Companies, Inc.,
     to acquire a long-term  full-requirements  power supply  agreement at fixed
     prices with  Jackson.  The power supply  agreement  includes a  performance
     guarantee by Progress  Energy.  In the event that Progress  Energy's credit
     ratings fall below  investment  grade,  Progress Energy will be required to
     provide  additional  security for its  guarantee in form and amount (not to
     exceed $285 million)  acceptable to Jackson.  Because this  transaction has
     not  closed,  the amount of this  guarantee  is not  included  in the table
     above.

     As of March 31, 2003, management does not believe conditions are likely for
     performance under these agreements.

     Contingencies

     Claims and uncertainties

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

     Hazardous and Solid Waste Management

     Various  organic  materials  associated with the production of manufactured
     gas,  generally  referred to as coal tar, are  regulated  under federal and
     state laws.  The  principal  regulatory  agency that is  responsible  for a
     specific former  manufactured gas plant (MGP) site depends largely upon the
     state in which the site is  located.  There are  several MGP sites to which
     both electric  utilities and the gas utility have some connection.  In this
     regard,  both electric  utilities and the gas utility and other potentially
     responsible  parties are participating in investigating  and, if necessary,
     remediating former MGP 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,  the  Company  and its  subsidiaries  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.

     PEC There are 12 former MGP sites and 14 other  sites  associated  with PEC
     that have  required  or are  anticipated  to require  investigation  and/or
     remediation  costs.  PEC  received  insurance  proceeds  to  address  costs
     associated with environmental  liabilities  related to its involvement with
     MGP sites.  All eligible  expenses  related to these are charged  against a
     specific  fund   containing   these   proceeds.   As  of  March  31,  2003,
     approximately  $5.7 million remains in this centralized fund with a related
     accrual  of  $5.7  million   recorded  for  the   associated   expenses  of
     environmental  issues.  As  PEC's  share  of costs  for  investigating  and
     remediating these sites becomes known, the fund is assessed to determine if
     additional  accruals  will be  required.  PEC does not believe  that it can
     provide an estimate of the  reasonably  possible  total  remediation  costs
     beyond what remains in the environmental  insurance  recovery 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 seven  sites  and four  sites  have  begun  remediation.  PEC
     measures  its  liability  for  these  sites  based  on  available  evidence
     including its experience in investigating  and remediating  environmentally
     impaired  sites.  The  process  often  involves  assessing  and  developing
     cost-sharing  arrangements with other potentially responsible parties. Once
     the  environmental  insurance  recovery  fund is depleted,  PEC will accrue
     costs for the sites to the extent its  liability  is probable and the costs
     can be  reasonably  estimated.  Presently,  PEC cannot  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 PEC sites are
     not expected to be material to the Company's financial condition or results
     of operations.

     PEF There are two former  MGP sites and 11 other  active  sites  associated
     with PEF that have  required or are  anticipated  to require  investigation
     and/or   remediation   costs.  As  of  March  31,  2003,  PEF  has  accrued
     approximately $10.8 million, for probable and reasonably estimable costs at
     these  sites.  PEF does not believe  that it can provide an estimate of the
     reasonably  possible  total  remediation  costs  beyond  what is  currently
     accrued. In 2002, PEF filed a petition for annual recovery of approximately
     $4.0 million in environmental costs through the Environmental Cost Recovery
     Clause with the FPSC. PEF was successful  with this filing and will recover
     costs through  rates for  investigation  and  remediation  associated  with
     transmission  and  distribution  substations  and  transformers.   As  more
     activity  occurs at these  sites,  PEF will  assess  the need to adjust the
     accruals.  These accruals have been recorded on an undiscounted  basis. PEF
     measures  its  liability  for  these  sites  based  on  available  evidence
     including its experience in investigating  and remediating  environmentally
     impaired  sites.  This process  often  includes  assessing  and  developing
     cost-sharing  arrangements  with  other  potentially  responsible  parties.

                                       22
<PAGE>

     Presently,  PEF cannot  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 PEF sites are not  expected to be
     material to the Company's financial condition or results of operations.

     NCNG There are five former MGP sites  associated with NCNG that have or are
     anticipated to have  investigation  or remediation  costs  associated  with
     them. As of March 31, 2003, NCNG has accrued approximately $2.3 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 investigating and remediating environmentally impaired sites.
     This  process  often  involves   assessing  and   developing   cost-sharing
     arrangements  with other  potentially  responsible  parties.  NCNG does not
     believe  it can  provide  an  estimate  of the  reasonably  possible  total
     remediation  costs  beyond  the  accrual  because  two  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.  Based
     upon current  information,  the Company does not expect the future costs at
     the NCNG sites to be  material  to the  Company's  financial  condition  or
     results of operations. In October 2002, the Company announced plans to sell
     NCNG to Piedmont  Natural Gas  Company,  Inc.  The Company  will retain the
     environmental liability associated with the five former MGP sites.

     Florida   Progress   Corporation  In  2001,  FPC  sold  its  Inland  Marine
     Transportation   business  operated  by  MEMCO  Barge  Line,  Inc.  to  AEP
     Resources,  Inc.  FPC  established  an accrual to address  indemnities  and
     retained an environmental  liability  associated with the transaction.  The
     balance in this accrual is $9.9 million at March 31,  2003.  FPC  estimates
     that its maximum contractual  liability to AEP Resources,  Inc., associated
     with Inland  Marine  Transportation  is $60 million.  This accrual has been
     determined on an  undiscounted  basis.  FPC measures its liability for this
     site based on estimable  and probable  remediation  scenarios.  The Company
     believes that it is reasonably probable that additional costs, which cannot
     be  currently  estimated,  may be  incurred  related  to the  environmental
     indemnification  provision  beyond the amount  accrued.  The Company cannot
     predict the outcome of this matter.

     Certain  historical waste sites exist that are being addressed  voluntarily
     by Fuels. The Company cannot determine the total costs that may be incurred
     in connection  with these sites.  According to current  information,  these
     future  costs are not  expected to be material to the  Company's  financial
     condition or results of operations.

     Rail Services is voluntarily addressing certain historical waste sites. The
     Company cannot determine the total costs that may be incurred in connection
     with these sites. According to current information,  these future costs are
     not expected to be material to the Company's financial condition or results
     of operations.

     PEC,  PEF,  Fuels 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 the Company 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.

     The Company is also currently in the process of assessing  potential  costs
     and exposures at other  environmentally  impaired sites. 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.

     Air and Water Quality

     There has been and may be further  proposed federal  legislation  requiring
     reductions in air emissions for nitrogen  oxides,  sulfur  dioxide,  carbon
     dioxide and mercury.  Some of these proposals establish nationwide caps and
     emission   rates  over  an   extended   period  of  time.   This   national
     multi-pollutant approach to air pollution control could involve significant
     capital  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. However, the
     Company cannot predict the outcome of this matter.

     The EPA is  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.

                                       23
<PAGE>

     Both PEC and PEF were  asked to provide  information  to the EPA as part of
     this  initiative  and  cooperated in providing  the requested  information.
     During  the  first  quarter  of  2003,  PEC  responded  to  a  supplemental
     information  request from the EPA. PEF has received a similar  supplemental
     information  request, and will respond to it in the second quarter. The EPA
     initiated civil enforcement actions against other unaffiliated utilities as
     part of this  initiative.  Some of these  actions  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 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  pre-set state NOx emission  levels by May 31, 2004. PEC is
     currently  installing  controls  necessary to comply with the rule. Capital
     expenditures  needed to meet  these  measures  in North and South  Carolina
     could reach  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  PEC to  install  nitrogen  oxide
     controls under the state's eight-hour standard. The costs of those controls
     are included in the $370 million  cost  estimate 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.

     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
     coal-fired  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 Section 126 petitions. PEC,
     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 PEC and other utilities to delay the implementation of
     the Section 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 EPA
     has approved North  Carolina's NOx SIP Call rule and has formally  proposed
     to rescind  the  Section 126 rule.  This  rulemaking  is expected to become
     final during the summer of 2003. The Company expects a favorable outcome of
     this matter.

     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 by 2013.  PEC  currently has  approximately  5,100 MW of coal-fired
     generation capacity 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  utility's  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  utilities or unless the  utilities  persistently
     earn a return substantially in excess of the rate of return established and
     found  reasonable  by the NCUC in the  utilities'  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
     ten-year compliance period beginning on January 1, 2003. The utilities must

                                       24
<PAGE>

     recover at least 70% of their projected  capital costs during the five-year
     rate freeze period.  Pursuant to the new law, PEC entered into an agreement
     with the state of North  Carolina  to  transfer  to the  state  any  future
     emissions  allowances  acquired as a result of compliance with the new law.
     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.  PEC has recorded  $20 million of clean air  amortization  to date and
     clean air expenditures to date are $2.5 million.

     Other Environmental Matters

     The Kyoto  Protocol  was  adopted in 1997 by the United  Nations to address
     global  climate  change by reducing  emissions of carbon  dioxide and other
     greenhouse  gases.  The United  States has not adopted the Kyoto  Protocol;
     however,  a number of carbon dioxide  emissions control proposals have been
     advanced   in   Congress   and  by  the  Bush   administration.   The  Bush
     administration  favors  voluntary  programs.  Reductions in carbon  dioxide
     emissions  to  the  levels   specified  by  the  Kyoto  Protocol  and  some
     legislative proposals could be materially adverse to Company financials and
     operations  if associated  costs cannot be recovered  from  customers.  The
     Company  favors  the  voluntary   program   approach   recommended  by  the
     administration,  and is evaluating options for the reduction, avoidance and
     sequestration of greenhouse gases.  However, the Company cannot predict the
     outcome of this matter.

     In 1997,  the EPA's  Mercury  Study  Report and Utility  Report to Congress
     conveyed  that mercury is not a risk to the average  American and expressed
     uncertainty  about whether  reductions in mercury emissions from coal-fired
     power plants would reduce human exposure.  Nevertheless, the EPA determined
     in 2000 that regulation of mercury  emissions from coal-fired  power plants
     was appropriate. Pursuant to a Court Order, the EPA is developing a Maximum
     Available Control  Technology (MACT) standard,  which is expected to become
     final in December 2004, with compliance in 2008.  Achieving compliance with
     the MACT standard  could be materially  adverse to the Company's  financial
     condition and results of  operations.  However,  the Company cannot predict
     the outcome of this matter.

     b) As required under the Nuclear Waste Policy Act of 1982, PEC and PEF each
     entered  into a contract  with the U.S.  Department  of Energy  (DOE) under
     which the DOE agreed to begin  taking  spent  nuclear fuel by no later than
     January 31, 1998.  All similarly  situated  utilities were required to sign
     the same standard contract.

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

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

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

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

     On July 9, 2002, Congress passed an override resolution to Nevada's veto of
     DOE's  proposal to locate a permanent  underground  nuclear  waste  storage
     facility  at  Yucca  Mountain,  Nevada.  DOE  plans  to  submit  a  license
     application for the Yucca Mountain facility by the end of 2004. PEC and PEF
     cannot predict the outcome of this matter.

                                       25
<PAGE>

     With certain  modifications and additional approval by the NRC, PEC's spent
     nuclear fuel storage facilities will be sufficient to provide storage space
     for spent fuel  generated on PEC's  system  through the  expiration  of the
     current  operating  licenses  for all of PEC's  nuclear  generating  units.
     Subsequent or prior to the expiration of these licenses,  or any renewal of
     these  licenses,  dry storage or  acquisition  of new shipping casks may be
     necessary.  PEC obtained  approval from the NRC to use  additional  storage
     space at the Harris Plant in December  2000. PEF currently is storing spent
     nuclear  fuel onsite in spent fuel pools.  If PEF does not seek  renewal of
     the Crystal  River  Nuclear Plant (CR3)  operating  license,  CR3 will have
     sufficient  storage  capacity in place for fuel consumed through the end of
     the  expiration  of the license in 2016.  If PEF extends the CR3  operating
     license, dry storage may be necessary.

     c) Progress Energy, through its subsidiaries,  produces synthetic fuel from
     coal  fines.  The  production  and sale of the  synthetic  fuel from  these
     facilities  qualifies for tax credits under Section 29 of the 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. Any synthetic fuel tax credit amounts
     not utilized are carried  forward  indefinitely.  All of Progress  Energy's
     synthetic fuel facilities have received  private letter rulings (PLRs) from
     the Internal  Revenue  Service (IRS) with respect to their  synthetic  fuel
     operations.  These tax  credits  are  subject to review by the IRS,  and if
     Progress  Energy  fails 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.

     One synthetic fuel entity,  Colona Synfuel  Limited  Partnership,  L.L.L.P.
     (Colona),  from which the Company (and FPC prior to its  acquisition by the
     Company) has been  allocated  approximately  $258 million in tax credits to
     date, is being  audited by the IRS. The audit of Colona was  expected.  The
     Company is audited regularly in the normal course of business,  as are most
     similarly situated  companies.  In September 2002, all of Progress Energy's
     majority-owned  synthetic fuel entities,  including  Colona,  were accepted
     into the IRS Prefiling  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 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.

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

                                       26
<PAGE>

                         CAROLINA POWER & LIGHT COMPANY
                      d/b/a PROGRESS ENERGY CAROLINAS, INC.
                    CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                 March 31, 2003
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

CONSOLIDATED STATEMENTS OF INCOME
                                                               Three Months Ended
(Unaudited)                                                         March 31,
-----------------------------------------------------------------------------------
(In thousands)                                                   2003        2002
-----------------------------------------------------------------------------------
Operating Revenues
   Electric                                                  $ 925,470   $ 811,482
   Diversified business                                          3,397       3,389
-----------------------------------------------------------------------------------
      Total Operating Revenues                                 928,867     814,871
-----------------------------------------------------------------------------------
Operating Expenses
   Fuel used in electric generation                            225,542     171,726
   Purchased power                                              73,180      73,309
   Operation and maintenance                                   189,875     193,436
   Depreciation and amortization                               138,797     141,386
   Taxes other than on income                                   44,176      38,768
   Diversified business                                            939       3,061
-----------------------------------------------------------------------------------
      Total Operating Expenses                                 672,509     621,686
-----------------------------------------------------------------------------------
Operating Income                                               256,358     193,185
-----------------------------------------------------------------------------------
Other Income (Expense)
   Interest income                                               1,367       1,666
   Other, net                                                   (2,553)     (2,973)
-----------------------------------------------------------------------------------
      Total Other Expense                                       (1,186)     (1,307)
-----------------------------------------------------------------------------------
Interest Charges
   Interest charges                                             49,303      61,645
   Allowance for borrowed funds used during construction          (925)     (3,094)
-----------------------------------------------------------------------------------
      Total Interest Charges, Net                               48,378      58,551
-----------------------------------------------------------------------------------
Income before Income Taxes                                     206,794     133,327
Income Tax Expense                                              71,733      48,208
-----------------------------------------------------------------------------------
Net Income                                                   $ 135,061   $  85,119
Preferred Stock Dividend Requirement                               741         741
-----------------------------------------------------------------------------------
Earnings for Common Stock                                    $ 134,320   $  84,378
-----------------------------------------------------------------------------------
</TABLE>

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

                                       27
<PAGE>
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Carolina Power & Light Company
d/b/a Progress Energy Carolinas, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)                                                     March 31,       December 31,
Assets                                                                2003            2002
-----------------------------------------------------------------------------------------------
      Utility Plant
  Utility plant in service                                     $ 12,954,849       $ 12,675,761
  Accumulated depreciation                                       (5,999,260)        (6,356,933)
-----------------------------------------------------------------------------------------------
      Utility plant in service, net                               6,955,589          6,318,828
  Held for future use                                                 7,188              7,188
  Construction work in progress                                     374,031            325,695
  Nuclear fuel, net of amortization                                 182,253            176,622
-----------------------------------------------------------------------------------------------
      Total Utility Plant, Net                                    7,519,061          6,828,333
-----------------------------------------------------------------------------------------------
      Current Assets
  Cash and cash equivalents                                          13,454             18,284
  Accounts receivable                                               322,638            301,178
  Unbilled accounts receivable                                      120,417            151,352
  Receivables from affiliated companies                              26,527             36,870
  Notes receivable from affiliated companies                              -             49,772
  Taxes receivable                                                        -              5,890
  Inventory                                                         326,562            342,886
  Deferred fuel cost                                                138,273            146,015
  Prepayments and other current assets                               84,654             94,658
-----------------------------------------------------------------------------------------------
      Total Current Assets                                        1,032,525          1,146,905
-----------------------------------------------------------------------------------------------
      Deferred Debits and Other Assets
  Regulatory assets                                                 518,747            252,083
  Nuclear decommissioning trust funds                               421,159            423,293
  Diversified business property, net                                  9,763              9,435
  Miscellaneous other property and investments                      213,123            209,657
  Other assets and deferred debits                                  100,471            104,978
-----------------------------------------------------------------------------------------------
      Total Deferred Debits and Other Assets                      1,263,263            999,446
-----------------------------------------------------------------------------------------------
          Total Assets                                         $  9,814,849       $  8,974,684
-----------------------------------------------------------------------------------------------

Capitalization and Liabilities
-----------------------------------------------------------------------------------------------
Capitalization
-----------------------------------------------------------------------------------------------
  Common stock                                                 $  3,122,281       $  3,089,115
  Preferred stock - not subject to mandatory redemption              59,334             59,334
  Long-term debt, net                                             2,898,985          3,048,466
-----------------------------------------------------------------------------------------------
      Total Capitalization                                        6,080,600          6,196,915
-----------------------------------------------------------------------------------------------
Current Liabilities
  Current portion of long-term debt                                 150,000                  -
  Accounts payable                                                  242,622            259,217
  Payables to affiliated companies                                  101,615             98,572
  Notes payable to affiliated companies                              39,679                  -
  Taxes accrued                                                      86,465                  -
  Interest accrued                                                   47,385             58,791
  Short-term obligations                                            221,975            437,750
  Current portion of accumulated deferred income taxes               67,562             66,088
  Other current liabilities                                          73,672             93,171
-----------------------------------------------------------------------------------------------
      Total Current Liabilities                                   1,030,975          1,013,589
-----------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
  Accumulated deferred income taxes                               1,164,952          1,179,689
  Accumulated deferred investment tax credits                       155,757            158,308
  Regulatory liabilities                                             67,536              7,774
  Asset retirement obligations                                      892,422                  -
  Other liabilities and deferred credits                            422,607            418,409
-----------------------------------------------------------------------------------------------
      Total Deferred Credits and Other Liabilities                2,703,274          1,764,180
-----------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 9)
-----------------------------------------------------------------------------------------------
          Total Capitalization and Liabilities                 $  9,814,849       $  8,974,684
-----------------------------------------------------------------------------------------------
</TABLE>

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

                                       28
<PAGE>
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Carolina Power & Light Company
d/b/a Progress Energy Carolinas, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS                                                   Three Months Ended
(Unaudited)                                                                                 March 31,
(In thousands)                                                                         2003           2002
-----------------------------------------------------------------------------------------------------------------
     Operating Activities
Net income                                                                          $   135,061    $    85,119
Adjustments to reconcile net income to net cash provided by operating activities:
      Depreciation and amortization                                                     164,008        167,980
      Deferred income taxes                                                             (10,377)       (12,891)
      Investment tax credit                                                              (2,550)        (3,496)
      Deferred fuel credit                                                                7,742         12,063
      Net (increase) decrease in accounts receivable                                     19,818       (126,306)
      Net (increase) decrease in inventories                                             16,324        (14,452)
      Net (increase) decrease in prepayments and other current assets                     5,469        (13,622)
      Net increase (decrease) in accounts payable                                        14,239        (78,351)
      Net increase in other current liabilities                                          61,616         62,332
      Other                                                                              28,124         32,962
-----------------------------------------------------------------------------------------------------------------
         Net Cash Provided by Operating Activities                                      439,474        111,338
-----------------------------------------------------------------------------------------------------------------
     Investing Activities
Gross property additions                                                               (149,938)      (176,230)
Nuclear fuel additions                                                                  (29,592)       (33,406)
Contributions to nuclear decommissioning trust                                          (10,262)       (10,225)
Diversified business property additions                                                    (181)        (8,350)
Investments in non-utility activities                                                    (4,000)        (4,480)
-----------------------------------------------------------------------------------------------------------------
         Net Cash Used in Investing Activities                                         (193,973)      (232,691)
-----------------------------------------------------------------------------------------------------------------
     Financing Activities
Proceeds from issuance of long-term debt                                                      -         46,507
Net increase (decrease) in short-term obligations                                      (215,775)       243,930
Net increase in intercompany notes                                                       89,450        107,507
Retirement of long-term debt                                                               (153)       (49,697)
Dividends paid to parent                                                               (123,112)      (131,000)
Dividends paid on preferred stock                                                          (741)          (741)
-----------------------------------------------------------------------------------------------------------------
         Net Cash Provided by (Used in) Financing Activities                           (250,331)       216,506
-----------------------------------------------------------------------------------------------------------------
     Net Increase (Decrease) in Cash and Cash Equivalents                                (4,830)        95,153
-----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of the Period                                     18,284         21,250
-----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period                                      $    13,454    $   116,403
-----------------------------------------------------------------------------------------------------------------
     Supplemental Disclosures of Cash Flow Information
Cash paid during the year -  interest (net of amount capitalized)                   $    58,305    $    58,410
                             income taxes (net of refunds)                          $     3,382    $    31,307
</TABLE>

Non-cash investing and financing activity
o    In February 2002,  Progress Energy  Carolinas,  Inc.  transferred the Rowan
     Plant to Progress  Ventures,  Inc. The property and  inventory  transferred
     totaled approximately $245 million.

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

                                       29
<PAGE>

Carolina Power & Light Company
d/b/a Progress Energy Carolinas, Inc.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS


1.   ORGANIZATION AND BASIS OF PRESENTATION

     A.   Organization.

     Progress  Energy  Carolinas,  Inc.  (PEC) is a public  service  corporation
     primarily engaged in the generation, transmission, distribution and sale of
     electricity primarily in portions of North Carolina and South Carolina. PEC
     is a wholly  owned  subsidiary  of Progress  Energy,  Inc.  (the Company or
     Progress  Energy),  which was formed as a result of the  reorganization  of
     Carolina Power & Light Company (CP&L) into a holding  company  structure on
     June 19,  2000.  All shares of common stock of CP&L were  exchanged  for an
     equal  number of shares of CP&L  Energy,  Inc.  On  December  4, 2000,  the
     Company changed its name from CP&L Energy,  Inc. to Progress  Energy,  Inc.
     The  Company is a  registered  holding  company  under the  Public  Utility
     Holding Company Act of 1935 (PUHCA),  as amended.  Both the Company and its
     subsidiaries are subject to the regulatory provisions of PUHCA.

     Effective January 1, 2003, CP&L began doing business under the assumed name
     Progress  Energy  Carolinas,  Inc. The legal name has not changed and there
     was no  restructuring  of any kind related to the name change.  The current
     corporate and business unit structure remains unchanged.

     B.   Basis of Presentation.

     These financial statements have been prepared in accordance with accounting
     principles  generally  accepted in the United States of America  (GAAP) 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 GAAP 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,  2002 and  notes  thereto
     included in PEC's Form 10-K for the year ended December 31, 2002.

     The amounts included in the consolidated  interim financial  statements are
     unaudited  but,  in the  opinion of  management,  reflect  all  adjustments
     necessary  to fairly  present  PEC's  financial  position  and  results  of
     operations for the interim periods.  Due to seasonal weather variations and
     the  timing  of   outages  of   electric   generating   units,   especially
     nuclear-fueled units, the results of operations for interim periods are not
     necessarily  indicative  of amounts  expected for the entire year.  Certain
     amounts   for  2002  have  been   reclassified   to  conform  to  the  2003
     presentation,  with no effect on  previously  reported net income or common
     stock equity.

     In preparing financial  statements that conform with GAAP,  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

     PEC's  operations  consist  primarily of the PEC  Electric  segment with no
     other material segments.

     The financial information for the PEC Electric segment for the three months
     ended March 31, 2003 and 2002 is as follows:

                                           Three Months Ended
     (in thousands)                  March 31, 2003     March 31, 2002
     -----------------------------------------------------------------
     Revenues                         $   925,470        $   811,482
     Segment income                   $   134,577        $    85,533
     Total segment assets             $ 9,616,357        $ 9,092,069
     =================================================================

     The  primary   differences   between  the  PEC  Electric  segment  and  PEC
     consolidated financial information relate to other non-electric  operations
     and elimination entries.

                                       30
<PAGE>

3.   IMPACT OF NEW ACCOUNTING STANDARDS

     SFAS No. 148,  "Accounting  for Stock-Based  Compensation"  For purposes of
     Company's  stock  the pro  forma  disclosures  required  by SFAS  No.  148,
     "Accounting for  Stock-Based  Compensation - Transition and Disclosure - an
     Amendment  of FASB  Statement  No.  123," the  estimated  fair value of the
     Company's  stock options is amortized to expense over the options'  vesting
     period.  PEC's  information  related  to the pro forma  impact on  earnings
     assuming stock options were expensed for the three months ended March 31 is
     as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     (in thousands)                                                       2003              2002
                                                                   ----------------   ---------------
     Earnings for common stock, as reported                              $ 134,320          $ 84,378
     Deduct:  Total stock option expense determined under fair
       value method for all awards, net of related tax effects               1,073               759
                                                                   ----------------   ---------------
     Pro forma earnings for common stock                                 $ 133,247          $ 83,619
                                                                   ================   ===============
</TABLE>

     In April 2003, the Financial  Accounting  Standards  Board (FASB)  approved
     certain decisions on its stock-based  compensation project. Some of the key
     decisions reached by the FASB were that stock-based  compensation should be
     recognized  in the  income  statement  as an expense  and that the  expense
     should be measured as of the grant date at fair value. A significant  issue
     yet to be addressed  by the FASB is the  determination  of the  appropriate
     fair value measure.  The FASB has not yet scheduled when it will deliberate
     additional  issues in this  project;  however,  the FASB  plans to issue an
     exposure draft in 2003 that could become effective in 2004.

     SFAS No. 149,  "Amendment of Statement 133 on  Derivative  Instruments  and
     Hedging Activities"
     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
     Derivative  Instruments and Hedging  Activities."  The statement amends and
     clarifies SFAS No. 133 on accounting for derivative instruments,  including
     certain derivative instruments embedded in other contracts, and for hedging
     activities.  The new guidance  incorporates  decisions  made as part of the
     Derivatives  Implementation  Group  (DIG)  process,  as well  as  decisions
     regarding  implementation  issues raised in relation to the  application of
     the  definition  of a derivative.  SFAS No. 149 is generally  effective for
     contracts  entered into or modified  after June 30, 2003.  PEC is currently
     evaluating what effects, if any, this statement will have on its results of
     operations and financial position.

     FIN  No.  45,  "Guarantor's  Accounting  and  Disclosure  Requirements  for
     Guarantees,  Including  Indirect  Guarantees of  Indebtedness of Others"
     In November  2002,  the FASB  issued  Interpretation  No. 45,  "Guarantor's
     Accounting and Disclosure  Requirements for Guarantees,  Including Indirect
     Guarantees of Indebtedness of Others - an Interpretation of FASB Statements
     No. 5, 57 and 107 and  Rescission of FASB  Interpretation  No. 34" (FIN No.
     45).  This  interpretation  clarifies  the  disclosures  to  be  made  by a
     guarantor in its interim and annual financial  statements about obligations
     under  certain  guarantees  that it has issued.  It also  clarifies  that a
     guarantor is required to recognize, at the inception of certain guarantees,
     a liability for the fair value of the obligation  undertaken in issuing the
     guarantee.  The initial recognition and initial  measurement  provisions of
     this  interpretation  are  applicable on a prospective  basis to guarantees
     issued or modified after  December 31, 2002. See Note 9 for  disclosures of
     current  guarantees.  The  adoption  of FIN No. 45 did not have a  material
     effect on PEC's results of operations or financial position.

     FIN No. 46,  "Consolidation of Variable Interest Entities"
     In January 2003, the FASB issued  Interpretation No. 46,  "Consolidation of
     Variable Interest Entities - an Interpretation of ARB No. 51" (FIN No. 46).
     This  interpretation  provides  guidance  related to  identifying  variable
     interest  entities  (previously  known as special purpose entities or SPEs)
     and  determining  whether such  entities  should be  consolidated.  Certain
     disclosures  are  required  when  FIN No.  46  becomes  effective  if it is
     reasonably possible that a company will consolidate or disclose information
     about a variable interest entity when it initially applies FIN No. 46. This
     interpretation  must be applied  immediately to variable  interest entities
     created or obtained  after  January 31, 2003.  During the first  quarter of
     2003, PEC did not  participate in the creation of, or obtain a new variable
     interest in, any variable  interest  entity.  For those  variable  interest
     entities  created or obtained on or before January 31, 2003, PEC must apply
     the provisions of FIN No. 46 in the third quarter of 2003. PEC is currently
     evaluating  what  effects,  if any,  this  interpretation  will have on its
     results of operations and financial position.

                                       31
<PAGE>

4.   ASSET RETIREMENT OBLIGATIONS

     SFAS No.  143,  "Accounting  for Asset  Retirement  Obligations,"  provides
     accounting  and   disclosure   requirements   for  retirement   obligations
     associated with long-lived  assets and was adopted by the Company effective
     January  1,  2003.  This  statement  requires  that  the  present  value of
     retirement  costs for  which  PEC 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  liability.
     Cumulative  accretion and accumulated  depreciation were recognized for the
     time period from the date the liability  would have been recognized had the
     provisions  of this  statement  been in effect,  to the date of adoption of
     this statement.

     Upon adoption of SFAS No. 143, PEC recorded  asset  retirement  obligations
     (AROs) for  nuclear  decommissioning  of  radiated  plant  totaling  $879.7
     million.  PEC  used  an  expected  cash  flow  approach  to  measure  these
     obligations.  This  amount  includes  accruals  recorded  prior to adoption
     totaling  $491.3  million,  which were  previously  recorded in accumulated
     depreciation.  The  related  asset  retirement  costs,  net of  accumulated
     depreciation, recorded upon adoption totaled $117.3 million. The cumulative
     effect of  adoption  of this  statement  had no impact on the net income of
     PEC, as the effects were offset by the  establishment of a regulatory asset
     in the amount of $271.1 million,  pursuant to SFAS No. 71,  "Accounting for
     the  Effects  of  Certain  Types  of  Regulation."   The  regulatory  asset
     represents the cumulative  accretion and accumulated  depreciation  for the
     time period from the date the liability  would have been recognized had the
     provisions of this statement  been in effect to the date of adoption,  less
     the amount previously recorded.

     Funds set aside in PEC's nuclear decommissioning trust fund for the nuclear
     decommissioning  liability  totaled  $421.2  million at March 31,  2003 and
     $423.3 million at December 31, 2002.

     Pro forma net income has not been presented for prior years because the pro
     forma  application of SFAS No. 143 to prior years would result in pro forma
     net income not materially different from the actual amounts reported.

     PEC has identified but not recognized AROs related to electric transmission
     and distribution and  telecommunications  assets as the result of easements
     over property not owned by PEC. These easements are generally perpetual and
     only require  retirement action upon abandonment or cessation of use of the
     property for the specified purpose.  The ARO liability is not estimable for
     such easements as PEC intends to utilize these properties indefinitely.  In
     the event PEC decides to abandon or cease the use of a particular easement,
     an ARO liability would be recorded at that time.

     PEC has previously  recognized removal costs as a component of depreciation
     in accordance with regulatory treatment.  As of March 31, 2003, the portion
     of such costs not representing  AROs under SFAS No. 143 was $893.2 million.
     This amount is included in  accumulated  depreciation  on the  accompanying
     Consolidated  Balance Sheets.  PEC has collected  amounts for  non-radiated
     areas at  nuclear  facilities,  which  do not  represent  asset  retirement
     obligations.  These  amounts  totaled  $63.8  million as of March 31, 2003,
     which  is  included  in  accumulated   depreciation  on  the   accompanying
     Consolidated Balance Sheets.

     PEC  filed a request  with the North  Carolina  Utility  Commission  (NCUC)
     requesting  deferral of the difference between expense pursuant to SFAS No.
     143 and expense as previously  determined by the NCUC. The NCUC granted the
     deferral  of the  January  1, 2003  cumulative  adjustment,  but denied the
     deferral of the ongoing  effects,  citing a lack of information  concerning
     the ongoing effects that would support the granting of such a deferral. PEC
     is in the process of providing  additional  information to the NCUC that it
     believes will  demonstrate  that deferral of the ongoing  effects should be
     allowed.  Accordingly,  for the quarter ended March 31, 2003,  PEC deferred
     the ongoing effects.  If PEC had not deferred the ongoing effects,  pre-tax
     income for the quarter would have increased by approximately  $5.7 million,
     which represents a decrease in non-ARO cost of removal  expense,  partially
     offset by an increase in decommissioning expense.

     On April 8, 2003, the Public Service  Commission of South Carolina  (SCPSC)
     approved a joint  request by PEC, Duke Energy and South  Carolina  Electric
     and Gas Company for an  accounting  order to authorize  the deferral of all
     cumulative and prospective effects related to the adoption of SFAS No. 143.

                                       32
<PAGE>

5.   COMPREHENSIVE INCOME

     Comprehensive income for the three months ended March 31, 2003 and 2002 was
     $135.2   million   and  $88.5   million,   respectively.   Items  of  other
     comprehensive  income for the three month  periods  consisted  primarily of
     changes in fair value of  derivatives  used to hedge cash flows  related to
     interest on long-term debt.

6.   FINANCING ACTIVITIES

     On April 1, 2003,  PEC  reduced  the size of its  existing  364-day  credit
     facility  from  $285  million  to $165  million.  The  other  terms of this
     facility were not changed.  PEC's $285 million  three-year credit agreement
     entered into in July 2002 remains in place,  for total  facilities  of $450
     million.

     On April 25, 2003,  PEC announced  the  redemption of $150 million of First
     Mortgage Bonds, 7.5% Series,  Due March 1, 2023 at 103.22% of the principal
     amount of such bonds.  The date of the redemption will be May 27, 2003. PEC
     will fund the redemption through commercial paper.

7.   RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS

     PEC uses  interest  rate  derivative  instruments  to adjust  the fixed and
     variable rate debt  components of its debt  portfolio and to hedge interest
     rates with regard to future  fixed rate debt issuances.  In March and April
     of 2003,  PEC entered  into  treasury  rate locks to hedge its  exposure to
     interest rates with regard to a future issuance of debt.  These  agreements
     have a  computational  period of ten years and are  designated as cash flow
     hedges for accounting purposes.

     The notional  amounts of the above  contracts  are not exchanged and do not
     represent  exposure  to credit  loss.  In the event of default by a counter
     party,  the risk in the transaction is the cost of replacing the agreements
     at current market rates.  PEC only enters into swap  agreements  with banks
     with credit ratings of single A or better.

     In connection  with the January 2003 FASB Emerging Issues Task Force (EITF)
     meeting, the FASB was requested to reconsider an interpretation of SFAS No.
     133.  The   interpretation,   which  is   contained   in  the   Derivatives
     Implementation  Group's C11  guidance,  relates to the pricing of contracts
     that include broad market indices (e.g., CPI). In particular, that guidance
     discusses  whether the pricing in a contract  that  contains  broad  market
     indices could qualify as a normal  purchase or sale (the normal purchase or
     sale term is a defined accounting term, and may not, in all cases, indicate
     whether the contract would be "normal" from an operating entity viewpoint).
     In April 2003, the FASB issued  tentative  superceding  guidance (DIG Issue
     C20) on this issue and is expected to be  finalized  in the second or third
     quarter of 2003.

     The Company has determined that it has one existing  "normal" contract that
     could be  affected  by this  revised  guidance,  and the  Company is in the
     process of  evaluating  the revised  guidance to determine if that contract
     will be required  to be  recorded at fair value if the revised  guidance is
     approved in its present form.

8.   OTHER INCOME AND OTHER EXPENSE

     Other  income and expense  includes  interest  income,  gain on the sale of
     investments,  impairment of investments  and other income and expense items
     as  discussed  below.  The  components  of  other,  net  as  shown  on  the
     Consolidated Statements of Income for the three months ended March 31, 2003
     and 2002 are as follows:

                                       33
<PAGE>
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     (in thousands)                                                    2003                 2002
                                                                -----------------    ------------------
     Other income
     Net financial trading loss                                       $  (2,698)           $ (2,541)
     Net energy purchased for resale                                        338                 (36)
     Nonregulated energy and delivery services income                     2,286               2,551
     AFUDC equity                                                         1,090               2,059
     Other                                                                2,703                   -
                                                                -----------------    ------------------
         Total other income                                           $   3,719            $  2,033
                                                                -----------------    ------------------

      Other expense
     Nonregulated energy and delivery services expenses               $   1,973            $  1,635
     Donations                                                            1,306               1,370
     Other                                                                2,993               2,001
                                                                -----------------    ------------------
        Total other expense                                           $   6,272            $  5,006
                                                                -----------------    ------------------
     Other, net                                                       $  (2,553)           $ (2,973)
                                                                =================    ==================
</TABLE>

     Net  financial   trading  loss   represents   non-asset-backed   trades  of
     electricity and gas. Net energy purchased for resale represents electricity
     purchased  externally  for sale to a third party.  Nonregulated  energy and
     delivery  services  include  power  protection  services  and  mass  market
     programs (surge  protection,  appliance  services and area light sales) and
     delivery, transmission and substation work for other utilities.

9.   COMMITMENTS AND CONTINGENCIES

     Contingencies  existing as of the date of these  statements  are  described
     below.  No significant  changes have occurred since December 31, 2002, with
     respect to the commitments discussed in Note 18 of the financial statements
     included in PEC's 2002 Annual Report on Form 10-K.

     Other

     In 2003, PEC determined that its external funding levels did not fully meet
     the nuclear decommissioning financial assurance levels required by the NRC.
     Therefore,  PEC  obtained a parent  company  guarantee to meet the required
     levels.

     As of March 31, 2003, management does not believe conditions are likely for
     performance under these agreements.

     Contingencies

     1)   Claims and uncertainties

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

     Hazardous and Solid Waste Management

     Various  organic  materials  associated with the production of manufactured
     gas,  generally  referred to as coal tar, are  regulated  under federal and
     state laws.  The  principal  regulatory  agency that is  responsible  for a
     specific  former MGP site depends  largely upon the state in which the site
     is located.  There are several MGP sites to which PEC has some  connection.
     In  this  regard,  PEC  and  other  potentially  responsible  parties,  are
     participating in investigating  and, if necessary,  remediating  former MGP
     sites with several regulatory agencies,  including, but not limited to, the
     EPA and the North Carolina Department of Environment and Natural Resources,
     Division  of Waste  Management  (DWM).  In  addition,  PEC is  periodically
     notified by regulators  such as the EPA and various state agencies of their
     involvement or potential  involvement in sites,  other than MGP sites, that
     may require investigation and/or remediation.

     There are 12 former MGP sites and 14 other sites  associated  with PEC that
     have  required  or  are   anticipated  to  require   investigation   and/or
     remediation  costs.  PEC  received  insurance  proceeds  to  address  costs
     associated with PEC  environmental  liabilities  related to its involvement
     with MGP sites. All eligible  expenses related to these are charged against
     a  specific  fund  containing  these  proceeds.   As  of  March  31,  2003,
     approximately  $5.7 million remains in this centralized fund with a related
     accrual  of  $5.7  million   recorded  for  the   associated   expenses  of
     environmental  issues.  As  PEC's  share  of costs  for  investigating  and

                                       34
<PAGE>

     remediating  these sites become known, the fund is assessed to determine if
     additional  accruals  will be  required.  PEC does not believe  that it can
     provide an estimate of the  reasonably  possible  total  remediation  costs
     beyond what remains in the environmental  insurance  recovery 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 seven  sites  and four  sites  have  begun  remediation.  PEC
     measures  its  liability  for  these  sites  based  on  available  evidence
     including its experience in investigating  and remediating  environmentally
     impaired  sites.  The  process  often  involves  assessing  and  developing
     cost-sharing  arrangements with other potentially responsible parties. Once
     the  environmental  insurance  recovery  fund is depleted,  PEC will accrue
     costs for the sites to the extent its  liability  is probable and the costs
     can be  reasonably  estimated.  Presently,  PEC cannot  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 PEC sites are
     not  expected  to be material to PEC's  financial  condition  or results of
     operations.

     PEC 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.

     PEC is also  currently  in the  process of  assessing  potential  costs and
     exposures at other  environmentally  impaired sites. As the assessments are
     developed and  analyzed,  PEC will accrue costs for the sites to the extent
     the costs are probable and can be reasonably estimated.

     Air Quality

     There has been and may be further  proposed federal  legislation  requiring
     reductions in air emissions for nitrogen  oxides,  sulfur  dioxide,  carbon
     dioxide and mercury. Some of these proposals establish nation-wide caps and
     emission   rates  over  an   extended   period  of  time.   This   national
     multi-pollutant approach to air pollution control could involve significant
     capital  costs  which could be  material  to PEC'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.  However, PEC cannot predict the
     outcome of this matter.

     The EPA is  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.
     PEC was asked to provide  information to the EPA as part of this initiative
     and  cooperated in providing the  requested  information.  During the first
     quarter of 2003, PEC responded to a supplemental  information  request from
     EPA. The EPA initiated civil enforcement actions against other unaffiliated
     utilities as part of this  initiative.  Some of these  actions  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. PEC cannot predict the outcome of this matter.

     In 1998, the EPA published a final rule  addressing the 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,  to further reduce  nitrogen oxide  emissions in order to attain a
     pre-set  state  NOx  emission  levels  by May 31,  2004.  PEC is  currently
     installing controls necessary to comply with the rule. Capital expenditures
     needed to meet  these  measures  in North and South  Carolina  could  reach
     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 PEC's  results  of  operations.  Further
     controls  are  anticipated  as  electricity  demand  increases.  PEC 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  PEC to  install  nitrogen  oxide
     controls under the State's eight-hour standard. The costs of those controls

                                       35
<PAGE>

     are included in the $370 million  cost  estimate set forth above.  However,
     further  technical  analysis and rulemaking may result in a requirement for
     additional  controls at some units.  PEC 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 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
     coal-fired  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.  PEC, 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 PEC 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 EPA has
     approved North  Carolina's  NOx SIP Call rule and has formally  proposed to
     rescind the Section 126 rule.  This  rulemaking is expected to become final
     during the summer of 2003. PEC expects a favorable outcome of this matter.

     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.  PEC expects its capital costs
     to meet these emission targets will be approximately  $813 million by 2013.
     PEC 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
     utility's  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
     utilities or unless the utilities  persistently earn a return substantially
     in excess of the rate of return  established  and found  reasonable  by the
     NCUC in the utilities'  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, PEC entered  into an  agreement  with the state of
     North  Carolina to transfer  to the state any future  emissions  allowances
     acquired  as a result  of  compliance  with  the new law.  The new law also
     requires  the state to  undertake  a study of mercury  and  carbon  dioxide
     emissions  in North  Carolina.  PEC cannot  predict  the future  regulatory
     interpretation,  implementation or impact of this new law. PEC has recorded
     $20 million of clean air amortization to date and clean air expenditures to
     date are $2.5 million.

     Other Environmental Matters

     The Kyoto  Protocol  was  adopted in 1997 by the United  Nations to address
     global  climate  change by reducing  emissions of carbon  dioxide and other
     greenhouse  gases.  The United  States has not adopted the Kyoto  Protocol;
     however,  a number of carbon dioxide  emissions control proposals have been
     advanced   in   Congress   and  by  the  Bush   administration.   The  Bush
     administration  favors  voluntary  programs.  Reductions in carbon  dioxide
     emissions  to  the  levels   specified  by  the  Kyoto  Protocol  and  some
     legislative  proposals could be materially  adverse to PEC's financials and
     operations  if associated  costs cannot be recovered  from  customers.  PEC
     favors the voluntary  program approach  recommended by the  administration,
     and is evaluating options for the reduction,  avoidance,  and sequestration
     of  greenhouse  gases.  However,  PEC cannot  predict  the  outcome of this
     matter.

     In 1997,  the EPA's  Mercury  Study  Report and Utility  Report to Congress
     conveyed  that mercury is not a risk to the average  American and expressed
     uncertainty  about whether  reductions in mercury emissions from coal-fired
     power plants would reduce human exposure.  Nevertheless,  EPA determined in
     2000 that regulation of mercury  emissions from coal-fired power plants was
     appropriate.  Pursuant to a Court  Order,  the EPA is  developing a Maximum
     Available Control  Technology (MACT) standard,  which is expected to become
     final in December 2004, with compliance in 2008.  Achieving compliance with
     the MACT standard could be materially adverse to PEC's financial  condition
     and results of operations.  However, PEC cannot predict the outcome of this
     matter.

                                       36
<PAGE>

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

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

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

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

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

     On July 9, 2002, Congress passed an override resolution to Nevada's veto of
     DOE's  proposal to locate a permanent  underground  nuclear  waste  storage
     facility  at  Yucca  Mountain,  Nevada.  DOE  plans  to  submit  a  license
     application for the Yucca Mountain facility by the end of 2004. PEC and PEF
     cannot predict the outcome of this matter.

     With certain  modifications and additional approval by the NRC, PEC's spent
     nuclear fuel storage facilities will be sufficient to provide storage space
     for spent  fuel  generated  on its system  through  the  expiration  of the
     current  operating  licenses  for  all of  its  nuclear  generating  units.
     Subsequent or prior to the expiration of these licenses,  or any renewal of
     these  licenses,  dry storage or  acquisition  of new shipping casks may be
     necessary. PEC obtained NRC approval to use additional storage space at the
     Harris Plant in 2000.

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

                                       37
<PAGE>

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

The following  Management's  Discussion  and Analysis  contains  forward-looking
statements that 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. Please review
"SAFE HARBOR FOR  FORWARD-LOOKING  STATEMENTS"  for a discussion  of the factors
that may impact any such forward-looking statements made herein.

RESULTS OF OPERATIONS

In this  section,  earnings  and the factors  affecting  earnings  for the three
months  ended  March  31,  2003 as  compared  to the  same  period  in 2002  are
discussed.  The  discussion  begins  with a general  overview,  then  separately
discusses earnings by business segment.

Amounts  reported  in the  interim  Consolidated  Statements  of Income  are not
necessarily indicative of amounts expected for the respective annual periods due
to the effects of seasonal temperature  variations on energy consumption and the
timing of maintenance on electric generating units, among other factors.

Overview

The net income and basic earnings per share of Progress Energy,  Inc.  (Progress
Energy or the Company) was $208.2  million or $0.89 per share and $132.5 million
or $0.62 per share for the quarters ended March 31, 2003 and 2002, respectively.
Income  from  continuing  operations  was $196.9  million  and  $124.1  million,
respectively,  with the  operations of North  Carolina  Natural Gas  Corporation
(NCNG) being classified as discontinued  operations.  The increase in net income
in 2003 is primarily due to:
o    the favorable impact of weather and customer growth on retail sales,
o    strong, weather-related wholesale sales,
o    lower interest expense,
o    positive impact of the Westchester Gas acquisition and
o    a wholesale contract termination agreement.

Partially offsetting these items were:
o    higher operation and maintenance  costs primarily due to ice storm costs in
     the Carolinas and a decreased pension credit and
o    lower planned synthetic fuel production.

         Effective January 1, 2003, Carolina Power and Light Company (CP&L),
         Florida Power Corporation and Progress Ventures, Inc. began doing
         business under the names Progress Energy Carolinas, Inc., Progress
         Energy Florida, Inc., and Progress Energy Ventures, Inc., respectively.
         The legal names of these entities have not changed and there is no
         restructuring of any kind related to the name change. The corporate and
         business unit structure remains unchanged.

The Company's business segments and their primary operations are:
o    PEC Electric - engaged in the generation,  transmission,  distribution  and
     sale of electricity in portions of North Carolina and South Carolina;
o    PEF - engaged in the  generation,  transmission,  distribution  and sale of
     electricity in portions of Florida;
o    Fuels - engaged in natural gas drilling and production, coal mining and the
     production of synthetic fuels;
o    Competitive   Commercial   Operations   (CCO)  -  engaged  in  nonregulated
     generation operations and energy marketing and limited trading activities;
o    Progress Rail Services (Rail) - engaged in various rail and railcar related
     services; and
o    Other  Businesses  (Other) - engaged in other  nonregulated  business areas
     including telecommunications and energy services operations.

In prior  reporting,  CCO and Fuels were  components  of the  Progress  Ventures
segment. With the expansion of the nonregulated energy generation facilities and
the current management  structure,  CCO is now a distinct operating segment.  In
addition to these operating segments, the Company has other corporate activities
that  include  holding  company  operations,   service  company  operations  and
eliminations. These corporate activities have been included in the Other segment
in the past.  Additionally,  earnings from wholesale  customers on the regulated

                                       38
<PAGE>

plants have  previously been reported in both the regulated  utilities'  results
and the results of Progress  Ventures.  With the  realignment  of the reportable
business  segments,  this activity is now included in the  regulated  utilities'
results only. For comparative  purposes,  the 2002 results have been restated to
align with the new business segments.

In 2002, the operations of NCNG,  previously reported in the Other segment, were
reclassified to  discontinued  operations and therefore were not included in the
results from continuing  operations during the periods reported. A discussion of
the planned divestiture of NCNG is in the Discontinued Operations section.

In  March  2003,  the SEC  completed  an audit of the  Progress  Energy  Service
Company,  LLC (Service Company) and recommended that the Company change its cost
allocation  methodology  for allocating  Service  Company costs.  As part of the
audit  process,   the  Company  was  required  to  change  the  cost  allocation
methodology for 2003 and record retroactive reallocations between its affiliates
in the first quarter of 2003 for  allocations  originally made in 2001 and 2002.
This change in allocation  methodology and the related  retroactive  adjustments
have no impact on consolidated expense or earnings. The impact on the affiliates
is included in the segment discussion that follows.

Electric Segments

The  operating  results of both electric  utilities are primarily  influenced by
customer  demand for  electricity,  the ability to control costs and  regulatory
return on  equity.  Annual  demand  for  electricity  is based on the  number of
customers and their annual usage,  with usage  largely  impacted by weather.  In
addition,  the current economic conditions in the service territories may impact
the annual demand for electricity.

Effective  January 1, 2003, the Company  implemented SFAS No. 143 which 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
liability.  Both electric  utilities  recognized  asset  retirement  obligations
(AROs) in the first quarter of 2003. The adoption of the statement had no impact
on the income of the electric  segments,  due to the establishment of regulatory
assets and liabilities pursuant to SFAS No. 71. At March 31, 2003, the utilities
have  recorded  AROs of  $892.4  million  and  $306.8  million  for PEC and PEF,
respectively.

PEC filed a request with the NCUC requesting  deferral of the difference between
expense  pursuant to SFAS No. 143 and expense as  previously  determined  by the
NCUC.  The  NCUC  granted  the  deferral  of the  January  1,  2003,  cumulative
adjustment,  but denied the  deferral of the ongoing  effects,  citing a lack of
information  concerning  the ongoing  effects that would support the granting of
such  a  deferral.  The  Company  is in  the  process  of  providing  additional
information to the NCUC that it believes will  demonstrate  that deferral of the
ongoing effects should also be allowed. Accordingly, for the quarter ended March
31, 2003, PEC deferred the ongoing effects.  If PEC had not deferred the ongoing
effects,  expense for the quarter  would have  decreased by  approximately  $5.7
million,  which  represents  a  decrease  in non-ARO  cost of  removal  expense,
partially offset by an increase in decommissioning expense.

On April 8, 2003,  the SCPSC  approved a joint  request by PEC,  Duke Energy and
South Carolina Electric and Gas Company for an accounting order to authorize the
deferral of all cumulative and  prospective  effects  related to the adoption of
SFAS No. 143.

On January 23,  2003,  the Staff of the FPSC  issued a notice of  proposed  rule
development  to adopt  provisions  relating to accounting  for asset  retirement
obligations  under  SFAS No.  143.  Accompanying  the  notice  was a draft  rule
presented  by the staff which adopts the  provisions  of SFAS No. 143 along with
the requirement to record the difference  between amounts prescribed by the FPSC
and  those  used in the  application  of SFAS No.  143 as  regulatory  assets or
regulatory  liabilities,  which was  accepted by all  parties.  The adoption and
acceptance of this draft rule is subject to FPSC approval.

PROGRESS ENERGY CAROLINAS ELECTRIC

PEC Electric contributed income from continuing operations of $134.6 million and
$85.5 million in the first quarter of 2003 and 2002, respectively.  The increase
is primarily  attributed to favorable weather conditions in the first quarter of
2003, as compared to the first quarter of 2002,  which  impacted both the retail
and wholesale markets, strong customer growth and lower interest charges.

                                       39
<PAGE>

Revenues

PEC's  electric  revenues for the first  quarter of 2003 and 2002 and the amount
and percentage change by quarter and by customer class are as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

----------------------------------------------------------------------------------------
(in millions)
----------------------------------------------------------------------------------------
Customer Class                   2003        Amount Change       % Change      2002
----------------------------------------------------------------------------------------
Residential                      $356.9          $47.6            15.4%        $309.3
Commercial                        200.9          13.6              7.3          187.3
Industrial                        146.7           1.0              0.7          145.7
Governmental                       18.7           1.2              6.9           17.5
                             -----------------------------------------------------------
    Total retail revenues         723.2          63.4              9.6          659.8
Wholesale                         209.4          66.8             46.8          142.6
Unbilled                          (30.9)        (21.2)              -            (9.7)
Miscellaneous                      23.8           5.0             26.6           18.8
                             -----------------------------------------------------------
    Total electric revenues      $925.5         $114.0            14.0%        $811.5
----------------------------------------------------------------------------------------
</TABLE>

PEC's  electric  energy  sales for 2003 and 2002 and the amount  and  percentage
change by quarter and by customer class are as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

-------------------------------------------------------------------------------------------
(in thousands of mWh)
-------------------------------------------------------------------------------------------
Customer Class                      2003        Amount Change      % Change       2002
-------------------------------------------------------------------------------------------
Residential                          4,587           602             15.1%         3,985
Commercial                           2,984           194              7.0          2,790
Industrial                           3,005           18               0.6          2,987
Governmental                           343           18               5.5            325
                                -----------------------------------------------------------
    Total retail energy sales       10,919           832              8.2         10,087
Wholesale                            4,619         1,288             38.7          3,331
Unbilled                              (480)         (293)              -            (187)
                                -----------------------------------------------------------
    Total mWh sales                 15,058         1,827             13.8%        13,231
-------------------------------------------------------------------------------------------
</TABLE>

Favorable  weather in the first quarter of 2003 as compared to the first quarter
of 2002 was the primary  driver of the  increased  retail and  wholesale  energy
sales and revenue.  Wholesale  revenue  growth is also  attributed  to increased
weather driven sales of energy to the Northeastern  United States markets during
the first quarter of 2003.  The  residential  and commercial  customer  classes'
customer base increased two percent.

Expenses

The following  summarizes PEC Electric's  expenses for the first quarter of 2003
and 2002.
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

-------------------------------------------------------------------------------------------
(in millions)
-------------------------------------------------------------------------------------------
Expense Category                     2003       Amount Change      % Change       2002
-------------------------------------------------------------------------------------------
Fuel and purchased power            $298.7         $51.5             20.8%        $247.2
Operations and maintenance           189.9          (1.4)            (0.7)         191.3
Depreciation and amortization        138.8          (2.6)            (1.8)         141.4
Taxes other than on income            44.2           5.4             13.9           38.8
Net interest charges                  48.4         (10.1)           (17.3)          58.5
Income taxes                          70.0          22.6             47.7           47.4
Other expenses                         0.9          (0.5)           (35.7)           1.4
                                  ---------------------------------------------------------
    Total expenses                  $790.9         $64.9              8.9%        $726.0
-------------------------------------------------------------------------------------------
</TABLE>

The increase in fuel and purchased  power expense is due to an 11.8% increase in
generation,  higher fuel prices and changes in generation mix. Fuel expenses are
recovered primarily through cost recovery clauses and, as such, have no material
impact on operating results.

The decrease in operations  and  maintenance  expense is primarily the result of
the  revised  Service  Company  cost  allocation  methodology.   Operations  and
maintenance  costs decreased $15.9 million related to the  reallocation of prior
years'  costs and $2.5  million  related  to  current  year  costs.  These  cost
reductions  were partially  offset by costs incurred for the February ice storms
of $10.4 million.

                                       40
<PAGE>


The  decrease in  depreciation  and  amortization  expense  results from a $25.0
million  reduction in accelerated  nuclear  amortization,  partially offset by a
$20.0  million  increase in clean air  amortization.  An NCUC order  allowed the
reduction  in the  accelerated  nuclear  amortization  and extended the recovery
time.

Interest  expense  decreased due to both a decrease in average  outstanding debt
and a slightly lower interest rate.

In accordance with an SEC order under PUHCA,  effective in the second quarter of
2002,  tax  benefits  not  related to  acquisition  interest  expense  that were
previously  held  unallocated  at the holding  company  must be allocated to the
profitable  subsidiaries.  As a result, $5.5 million of the tax benefit that was
previously held at the holding company was allocated to PEC in the first quarter
of 2003. The allocation has no impact on the Company's  consolidated tax expense
or net income.  Other  fluctuations in income taxes are primarily due to changes
in pre-tax income.

PROGRESS ENERGY FLORIDA

PEF  contributed  income from  continuing  operations of $70.8 million and $57.7
million in the first  quarter of 2003 and 2002,  respectively.  This increase is
primarily  attributed to favorable weather,  retail growth/usage and the absence
of the impact of the retroactive rate refund in 2002. Partially offsetting these
improvements  was the impact of the reduced rates in 2003 resulting from the May
2002 rate case settlement.

In March 2002, PEF settled a rate case which provided for a one-time retroactive
rate refund,  decreased  future retail rates by 9.25%  (effective  May 1, 2002),
provided for lower  depreciation  and amortization and provided for increases in
certain service revenue rates.

Revenues

PEF's  electric  revenues for the first  quarter of 2003 and 2002 and the amount
and percentage change by quarter and by customer class are as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

------------------------------------------------------------------------------------------
(in millions)
------------------------------------------------------------------------------------------
Customer Class                        2003      Amount Change      % Change       2002
------------------------------------------------------------------------------------------
Residential                            $385.0        $5.8             1.5%       $379.2
Commercial                              150.4       (16.4)           (9.8)        166.8
Industrial                               47.5        (2.5)           (5.0)         50.0
Governmental                             38.0        (1.9)           (4.8)         39.9
Revenue Sharing/Rate Refund                 -        35.0           100.0         (35.0)
                                    ------------------------------------------------------
    Total retail revenues               620.9        20.0             3.3         600.9
Wholesale                                71.3        18.9            36.1          52.4
Unbilled                                 (0.7)       (7.2)              -           6.5
Miscellaneous                            36.9        10.3            38.7          26.6
                                    ------------------------------------------------------
    Total electric revenues            $728.4       $42.0             6.1%       $686.4
------------------------------------------------------------------------------------------
</TABLE>

PEF's  electric  energy  sales  for the first  quarter  of 2003 and 2002 and the
amount and percentage change by quarter and by customer class are as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

------------------------------------------------------------------------------------------
(in thousands of mWh)
------------------------------------------------------------------------------------------
Customer Class                        2003      Amount Change      % Change       2002
------------------------------------------------------------------------------------------
Residential                             4,553        493             12.1%          4,060
Commercial                              2,442        (14)            (0.6)          2,456
Industrial                                916         34              3.9             882
Governmental                              657         36              5.8             621
                                    ------------------------------------------------------
    Total Retail Energy Sales           8,568        549              6.8           8,019
Wholesale                               1,277        298             30.4             979
Unbilled                                   54         22               -               32
                                    ------------------------------------------------------
    Total mWh Sales                     9,899        869              9.6%          9,030
------------------------------------------------------------------------------------------
</TABLE>

The first quarter 2002 rate refund of $35.0 million was virtually  offset by the
2003 first  quarter rate  reduction,  both of which  resulted from the 2002 rate
case  settlement.  Excluding these impacts,  revenue  increased due to favorable
weather in the first  quarter of 2003,  as compared to the first quarter of 2002
(heating  degree days  increased  25.6%) and continued  retail  customer  growth

                                       41
<PAGE>

(retail  customer base increased  1.25%).  Increased demand from other utilities
drove the wholesale revenue increase. Higher service charges allowed in the rate
case settlement contributed to the higher miscellaneous revenues.

Expenses

The following summarizes PEF's expenses for the first quarter of 2003 and 2002.
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

-------------------------------------------------------------------------------------------
(in millions)
-------------------------------------------------------------------------------------------
Expense Category                     2003       Amount Change      % Change       2002
-------------------------------------------------------------------------------------------
Fuel and purchased power            $315.6          $8.8              2.9%        $306.8
Operations and maintenance           139.8           7.0              5.3          132.8
Depreciation and amortization         79.4          10.1             14.6           69.3
Taxes other than on income            58.6           1.5              2.6           57.1
Net interest charges                  26.5          (1.8)            (6.4)          28.3
Income taxes                          37.0           3.6             10.8           33.4
Other expenses                         0.7          (0.3)           (30.0)           1.0
                                  ---------------------------------------------------------
    Total expenses                  $657.6         $28.9              4.6%        $628.7
-------------------------------------------------------------------------------------------
</TABLE>

Fuel and purchased power expenses are recovered  primarily through cost recovery
clauses and, as such, have no material impact on operating results.

The increase in operations and  maintenance  expense results from a $5.3 million
lower pension credit.

The increase in depreciation  and amortization  expense relates  primarily to an
increase in amortization of the Tiger Bay regulatory  asset. The amortization is
recovered  through a cost  recovery  clause and has no impact on  earnings.  The
regulatory  asset was  created as a result of the early  termination  of certain
long-term  cogeneration  contracts and is amortized according to a plan approved
by the Florida Public Service Commission.

In accordance with an SEC order under PUHCA,  effective in the second quarter of
2002,  tax  benefits  not  related to  acquisition  interest  expense  that were
previously  held  unallocated  at the holding  company  must be allocated to the
profitable  subsidiaries.  As a result, $3.4 million of the tax benefit that was
previously held at the holding company was allocated to PEF in the first quarter
of 2003. The allocation has no impact on the Company's  consolidated tax expense
or net income.  Other  fluctuations in income taxes are primarily due to changes
in pre-tax income.

DIVERSIFIED BUSINESSES

The Company's diversified  businesses consist primarily of the Fuels segment and
the CCO segment,  the Rail segment,  Progress  Telecom and SRS, which are in the
Other segment. These businesses and are explained in more detail below.

FUELS

The Fuels segment's  operations includes synthetic fuel operations,  natural gas
exploration  and  production and coal  extraction.  Fuels' results for the first
quarter of 2003 were impacted most significantly by the timing of synthetic fuel
production and the increase in gas production.

The  following  summarizes  the income from  continuing  operations of the Fuels
segment for the first quarter 2003 and 2002.
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

-------------------------------------------------------------------------------------
(in millions)                                     2003        Change          2002
-------------------------------------------------------------------------------------
  Synthetic fuel operations                      $25.4        $(13.4)        $38.8
  Gas production and coal fuel operations          5.2           4.7           0.5
  Other (losses) earnings                         (4.0)         (6.3)          2.3
                                             ----------------------------------------
     Income from continuing operations           $26.6        $(15.0)        $41.6
-------------------------------------------------------------------------------------
</TABLE>

                                       42
<PAGE>

Synthetic Fuel Operations

The synthetic fuels operations  generated  income from continuing  operations of
$25.4  million  and  $38.8  million  in the  first  quarter  of 2003  and  2002,
respectively.  The  production  and sale of synthetic  fuel  generate  operating
losses,  but qualify for tax credits  under  Section 29 of the Code,  which more
than offset the effect of such losses.  The following  summarizes  the synthetic
fuel operations for the first quarter of 2003 and 2002.

------------------------------------------------------------------------------
(in millions)                                    2003             2002
------------------------------------------------------------------------------
Tons produced                                      2.0              3.0
                                            ----------------------------------

Operating losses, excluding tax credits         $(27.3)          $(45.0)
Tax credits generated                             52.7             83.8
                                            ----------------------------------
    Income from continuing operations           $ 25.4           $ 38.8
------------------------------------------------------------------------------

Total  synthetic  fuel sales  decreased in the current year  primarily  due to a
change  in  the  synthetic  fuel  production   pattern  for  2003.  The  Company
anticipates  total  synthetic  fuel  production of 12 to 13 million tons for the
year, which is comparable to 2002 production levels.

Gas production and coal fuel operations

Gas operations  generated income from continuing  operations of $4.9 million and
$0.3 million in the first quarter of 2003 and 2002,  respectively.  The increase
in production drove the increased  revenue and earnings with the addition of the
Westchester  operations  accounting  for 64% of the gas  production in the first
quarter of 2003.  Income from  operations  related to coal fuel  operations  was
immaterial for both periods presented.

During the first quarter of 2003,  Progress  Fuels  Corporation,  a wholly owned
subsidiary of Progress Energy,  entered into three  independent  transactions to
acquire  approximately 162 natural  gas-producing  wells with proven reserves of
195 billion cubic feet for $148 million.  The primary assets in the  acquisition
have been  transferred  to Progress  Fuels North Texas Gas, L.P., a wholly owned
subsidiary of Progress Fuels Corporation.

Fuels'  operations also include  terminals,  coal production and  transportation
operations and other  unallocated  segment costs. The 2003  unallocated  segment
costs include $4.7 million after tax of additional  Service Company  allocations
related to the SEC audit.

COMPETITIVE COMMERCIAL OPERATIONS

CCO generates and sells (on a wholesale basis) electricity through  nonregulated
plants. These operations also include limited financial trading activities.  The
following summarizes the income from continuing operations, sales and generating
capacity of the nonregulated plants for the first quarters of 2003 and 2002.

------------------------------------------------------------------------------
(in millions except megawatts)              2003         Change         2002
------------------------------------------------------------------------------
Income/loss from continuing operations      $  8.5       $ 10.6       $ (2.1)
Operating revenue                           $ 37.2       $ 28.2       $  9.0
Generation capacity (MW)                     1,554        1,239          315
------------------------------------------------------------------------------

On March 21, 2003,  PVI  announced  entering  into a definitive  agreement  with
Williams  Energy  Marketing  and  Trading to acquire a  full-requirements  power
supply  agreement with Jackson in Georgia for $188 million.  This transaction is
expected to close in the second quarter.

The  increase in revenue and earnings is  primarily  due to a tolling  agreement
termination payment from Dynegy. Also contributing  slightly to the increase was
the increased production capacity from the addition of generating capacity.  The
earnings and revenue increases  related to the increased  capacity was partially
offset by lower prices in the  wholesale  energy  market.  Including the Jackson
contract and the impact of the Dynegy contract termination, mentioned above, the
Company has  contracts for 68%, 74% and 49% of planned  production  capacity for
2003 through 2005, respectively. The 2005 decline results from the expiration of
four contracts.  The Company continues to pursue opportunities with both current
customers and other potential customers.

The first  quarter 2003 results  include  $2.8 million  after tax of  additional
Service Company allocations related to the SEC order.

                                       43
<PAGE>

During 2002, the Company  completed the  acquisition of two electric  generation
projects,  Walton  County  Power,  LLC and  Washington  County  Power,  LLC. The
acquisition  resulted in goodwill of $64.1  million.  The Company  performed the
annual goodwill  impairment test in the first quarter of 2003 which indicated no
impairment.  However,  modest changes in either assumptions or market conditions
could  cause  some or all of the $64  million  of  goodwill  related  to the CCO
operating segment to become impaired.

RAIL SERVICES (RAIL)

Rail's operations include railcar and locomotive repair,  trackwork,  rail parts
reconditioning and sales, scrap metal recycling,  railcar leasing and other rail
related  services.  The Company  intends to sell the assets of Railcar  Ltd.,  a
leasing  subsidiary,  in 2003 and has  reported  these assets as assets held for
sale at March 31, 2003.

Progress Rail contributed losses from continuing  operations of $3.4 million and
$0.7 million for the first quarters of 2003 and 2002, respectively.  As a result
of the SEC order, Rail incurred  additional Service Company  allocations of $3.4
million after tax in the first quarter of 2003. Rail's results for both quarters
were affected by the downturn in the overall economy.  Rail experienced  revenue
growth in the first quarter of 2003 with stronger  wheel set sales and recycling
sales.  Aggressive cost management programs were identified  throughout 2002 and
in the first quarter of 2003.

An SEC order  approving the merger of FPC requires the Company to divest Rail by
November 30, 2003. The Company is pursuing alternatives,  but does not expect to
find the right divestiture opportunity by that date. Therefore,  the Company has
sought an extension from the SEC.

OTHER BUSINESSES SEGMENT

Progress  Energy's  Other  segment  primarily  includes the  operations  of SRS,
Progress  Telecom and small  nonregulated  subsidiaries of PEC.  Holding company
operations and other  corporate  functions that have previously been included in
the Other  segment  have been  removed and are being  reported  separately.  The
segment  contributed  earnings of $0.3 million and a loss of $4.9 million in the
first quarter of 2003 and 2002, respectively.

The  improvement is related to Progress  Telecom's  lower  depreciation  charges
resulting  from the  impairment  of a  significant  portion of its assets in the
third quarter of 2002.

CORPORATE SERVICES

Corporate  Services includes the operations of the Holding Company,  the Service
Company, and consolidation entities, as summarized below (expenses are indicated
by positive numbers).

------------------------------------------------------------------------------
(in millions)                            2003     Amount Change       2002
------------------------------------------------------------------------------
  Interest expense                      $ 71.0       $   -           $ 71.0
  Contingent value obligations            (1.7)         9.6           (11.3)
  Tax reallocation                         9.1          9.1              -
  Tax levelization                       (10.3)       (31.5)           21.2
  Other income taxes                     (30.9)         1.0           (31.9)
  Other expenses                           3.3         (0.8)            4.1
                                       ---------------------------------------
    Loss from continuing operations     $ 40.5       $(12.6)         $ 53.1
------------------------------------------------------------------------------

Progress  Energy  issued 98.6 million  contingent  value  obligations  (CVOs) in
connection  with the FPC  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.  At March 31, 2003 and 2002,  the CVOs had
fair  market  values  of   approximately   $12.1  million  and  $30.6   million,
respectively.  Progress  Energy  recorded an unrealized gain of $1.7 million and
$11.3  million for the first quarter of 2003 and 2002,  respectively,  to record
the changes in fair value of the CVOs,  which had  average  unit prices of $0.12
and $0.31 at March 31, 2003 and 2002, respectively.

According to an SEC order under PUHCA, 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 was
allocated to the  profitable  subsidiaries  effective with the second quarter of

                                       44
<PAGE>

2002.  The  allocation  has no impact on  consolidated  tax expense or earnings.
However,  in the first quarter of 2003, the  allocation  increased the Corporate
Services tax expense $9.1 million with  offsetting  decreases in other  segments
(primarily PEC and PEF).

GAAP  requires  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 increased by $10.3  million and decreased  $21.2 million for the
first quarter of 2003 and 2002, respectively,  in order to maintain an effective
tax rate consistent with the estimated  annual rate. The tax credits  associated
with the  Company's  synthetic  fuel  operations  primarily  drive the  required
levelization  amount.  In the first  quarter  of 2003,  a benefit  was  realized
because  synthetic  fuel  production  was shifted  out of the first  quarter and
weather conditions hindered the delivery of synthetic fuels to customers. In the
first quarter of 2002, a tax expense was recognized  because of higher synthetic
fuel  production and sales.  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.

Other  fluctuations  in income  taxes are  primarily  due to  changes in pre-tax
income.

DISCONTINUED OPERATIONS

In the fourth  quarter of 2002,  the Company's  Board of Directors  approved the
sale of North Carolina  Natural Gas Corporation  (NCNG) to Piedmont  Natural Gas
Company,  Inc. As a result of this action,  the  operating  results of NCNG were
reclassified to  discontinued  operations for all reportable  periods.  With its
classification  as a  discontinued  operation,  the assets of NCNG are no longer
depreciated, resulting in $2.9 million less after-tax depreciation expense, when
compared to the first quarter 2002.  Progress Energy expects to sell NCNG in the
summer of 2003 for net  proceeds  of  approximately  $400  million.  The company
expects to use the proceeds to reduce outstanding debt.

LIQUIDITY AND CAPITAL RESOURCES

Progress Energy, Inc.

Statement of Cash Flows and Financing Activities

Cash  provided by  operating  activities  increased  $174  million for the three
months ended March 31, 2003,  when compared to the  corresponding  period in the
prior year. The increase in cash from  operating  activities for the 2003 period
is due to improved  operating results at both electric  utilities.  In addition,
changes  in the  balances  of certain  current  assets  and  liabilities  due to
operational fluctuations provided cash by operating activities.

Net cash used in  investing  activities  decreased  $309  million  for the three
months ended March 31, 2003,  when compared to the  corresponding  period in the
prior year.  The decrease in cash used in investing  activities is primarily due
to lower capital spending at PVI, which acquired  generating assets from LG&E in
February 2002 for approximately  $350 million.  During the first three months of
2003, $222.6 million was spent in diversified  business property additions.  The
acquisition  of the natural  gas  reserves  resulted  in a cash  outflow of $148
million,  which is  included  in the  $222.6  million  in  diversified  property
additions.

Net cash provided by financing  activities  decreased $712 million for the three
months ended March 31, 2003,  when compared to the  corresponding  period in the
prior year.  The decrease in financing  requirements  was  primarily  due to the
improved operating cash flow and lower capital expenditures for the quarter.

On February 7, 2003,  Moody's Investors Service (Moody's)  announced that it was
lowering Progress Energy, Inc.'s senior unsecured debt rating from Baa1 to Baa2,
and changing the outlook of the rating from  negative to stable.  Moody's  cited
the slower than planned pace of the Company's  efforts to pay down debt from its
acquisition of Florida  Progress as the primary  reason for the ratings  change.
Moody's also  changed the outlook of Progress  Energy  Florida,  Inc. (A1 senior
secured) and Progress Capital  Holdings,  Inc. (A3 senior unsecured) from stable
to negative and lowered the trust  preferred  rating of FPC Capital I from A3 to
Baa1 with a negative outlook.

The change in outlook by the rating agency has not materially  affected Progress
Energy's access to liquidity or the cost of its short-term borrowings.

On February 21, 2003,  PEF issued $425 million of First  Mortgage  Bonds,  4.80%
Series,  Due March 1,  2013 and $225  million  of First  Mortgage  Bonds,  5.90%
Series,  Due March 1, 2033.  Proceeds  from this issuance were used to repay the

                                       45
<PAGE>

balance of its  outstanding  commercial  paper,  to  refinance  its  secured and
unsecured  indebtedness,  including PEF's First Mortgage Bonds 6.125% Series Due
March 1, 2003, and to redeem the  aggregate outstanding  balance of its 8% First
Mortgage Bonds due 2022.

On March 1,  2003,  $70  million of PEF First  Mortgage  Bonds,  6.125%  Series,
matured and were retired.

Effective  March 24, 2003, PEF redeemed $150 million of First Mortgage Bonds, 8%
Series, due December 1, 2022 at 103.75% of the principal amount of such bonds.

On April 1, 2003, PEF entered into a new $200 million  364-day credit  agreement
and a new $200 million  three-year credit agreement,  replacing its prior credit
facilities  (which had been a $90 million  364-day  facility  and a $200 million
five-year  facility).  The new PEF credit  facilities  contain a defined maximum
total debt to total  capital  ratio of 65%; as of March 31, 2003 the  calculated
ratio was 50.9%.  The new credit  facilities also contain a requirement that the
ratio of EDITDA,  as defined in the  facilities,  to  interest  expense to be at
least 3 to 1; as of March 31, 2003 the calculated ratio was 8.7 to 1.

Also on April 1, 2003,  PEC  reduced  the size of its  existing  364-day  credit
facility  from $285 million to $165  million.  The other terms of this  facility
were not changed.  Progress  Energy  Carolinas' $285 million  three-year  credit
agreement  entered into in July 2002 remains in place,  for total  facilities of
$450 million.

On April 25,  2003,  PEC  announced  the  redemption  of $150  million  of First
Mortgage  Bonds,  7.5%  Series,  Due March 1, 2023 at 103.22%  of the  principal
amount of such bonds.  The date of the  redemption  will be May 27, 2003 and PEC
will fund the redemption through commercial paper.

In March 2003,  Progress Genco Ventures,  LLC (Genco), a wholly owned subsidiary
of  PVI,  terminated  its $50  million  working  capital  credit  facility.  The
remaining $260 million of Genco's credit facility was not changed.

The Company issued  approximately 1.8 million shares representing  approximately
$74 million in proceeds from its Dividend  Reinvestment  and Stock Purchase Plan
and its employee benefit plans during the three months ended March 31, 2003.

Future Commitments

As of March 31, 2003,  Progress Energy's  contractual cash obligations and other
commercial  commitments has not changed materially from what was reported in the
2002 Annual Report on Form 10-K.  The only changes in Progress  Energy's  future
commitments  involve the additional  first quarter 2003 long-term debt issuances
that are detailed above.

OTHER MATTERS

PEF Rate Case Settlement

On March 27, 2002, the parties in PEF'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  provides
that PEF will operate under a Revenue Sharing  Incentive Plan (the Plan) through
2005 and thereafter until terminated by the FPSC.

The  Plan  provides  that all  retail  base  revenues  between  the  established
threshold and cap will be shared on a 2/3 - 1/3, customer/shareholder basis. All
retail base rate  revenues  above the retail base rate revenue caps  established
for each year will be refunded 100% to retail  customers on an annual basis. For
2002,  the refund to  customers  was  limited  to 67.1% of the retail  base rate
revenues  that  exceeded  the 2002 cap.  The retail base revenue cap for 2003 is
$1.393  billion  and will  increase  $37  million  each year  thereafter.  As of
December  31,  2002,  $4.7  million was accrued and was refunded to customers in
March 2003. On February 24, 2003,  the parties to the  Agreement  filed a motion
seeking an order from the FPSC to enforce the  Agreement.  In this  motion,  the
parties  dispute  PEF's  calculation  of retail  revenue  subject  to refund and
contend that the refund should be approximately $23 million.  This issue will be
addressed by the FPSC in the near future. The Company cannot predict the outcome
of this matter.

                                       46
<PAGE>

Synthetic Fuels Tax Credits

Progress Energy,  through its  subsidiaries,  produces  synthetic fuel from coal
fines.  The  production  and sale of the  synthetic  fuel from these  facilities
qualifies  for tax credits  under Section 29 of the 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.  Any synthetic fuel tax credit amounts not utilized are carried
forward  indefinitely.  All of Progress Energy's  synthetic fuel facilities have
received  private letter rulings (PLRs) from the Internal  Revenue Service (IRS)
with respect to their synthetic fuel  operations.  These tax credits are subject
to review by the IRS,  and if  Progress  Energy  fails 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.  Total Section 29 credits generated to date (including FPC prior
to its acquisition by the Company) are approximately $949.9 million.

One  synthetic  fuel  entity,  Colona  Synfuel  Limited  Partnership,   L.L.L.P.
(Colona),  from  which  the  Company  (and FPC prior to its  acquisition  by the
Company) has been allocated  approximately  $258 million in tax credits to date,
is being  audited by the IRS. The audit of Colona was  expected.  The Company is
audited  regularly  in the  normal  course of  business,  as are most  similarly
situated companies.  In September 2002, all of Progress Energy's  majority-owned
synthetic fuel entities,  including Colona, were accepted into the IRS Prefiling
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  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.

The Company  has  retained an advisor to assist in selling an interest in one or
more synthetic  fuel entities.  The Company is pursuing the sale of a portion of
its synthetic fuel production  capacity that is  underutilized  due to limits on
the amount of credits  that can be generated  and  utilized by the Company.  The
Company  would  expect to retain an  ownership  interest and to operate any sold
facility for a management fee. The final outcome and timing of these discussions
is uncertain and the Company cannot predict the outcome of this matter.

Nuclear Matters

Progress  Energy's  Brunswick  Nuclear  Plant  Unit  2  completed  a  successful
refueling outage on April 6, 2003, when the unit was returned to service. During
the outage, the first of two phases of an extended power uprate project for that
unit was  completed,  which  added  approximately  70  additional  megawatts  of
electricity at the plant.

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  penetration leakage and no corrosion of the head
itself.  During the outage, a boric acid leakage walkdown of the reactor coolant
pressure boundary was also completed and no corrosion was found.

The Company currently plans to re-inspect the Robinson Plant reactor head during
its next refueling outage in the spring of 2004 and replace the head in the fall
of 2005. The Harris Plant is ranked in the lowest susceptibility classification.
During the Harris Plant's Spring 2003 outage,  the Company completed a series of
examinations of the entire reactor pressure vessel head and found no degradation
or indication of leakage.

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.

In February 2003, the NRC issued Order EA-03-009, requiring specific inspections
of the  reactor  pressure  vessel  head and  associated  penetration  nozzles at
pressurized  water  reactors  (PWRs).  The Company has  responded  to the Order,
stating that the Company  intends to comply with the provisions of the Order. No
adverse impact is anticipated.

                                       47
<PAGE>

In April  2003,  the STP  Nuclear  Operating  Company,  an  unaffilated  entity,
notified  the NRC of a  potential  leak  indication  on the  bottom  head of the
reactor  vessel of one of its units.  The Company is  continuing to monitor this
development for applicability to our plants and will take appropriate  action if
and when necessary.

In January  2003,  the NRC issued a final order with  regard to access  control.
This order requires the Company to enhance its current access control program by
January 7, 2004. The Company expects that it will be in full compliance with the
order by the established deadline.

The NRC continues to issue  additional  orders designed to increase  security at
nuclear  facilities.  In April 2003, one of the orders issued by the NRC imposes
revisions  to the Design  Basis  Threat and  requires  power plants to implement
additional  protective  actions to protect  against  sabotage by terrorists  and
other  adversaries.  The Company is currently  in the process of reviewing  this
order and  cannot  currently  predict  the  potential  impact  to the  Company's
financial  condition or results of operations.  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.

Franchise Litigation

Six cities,  with a total of approximately  49,000  customers,  have sued PEF in
various  circuit  courts  in  Florida.   The  lawsuits  principally  seek  1)  a
declaratory  judgment that the cities have the right to purchase  PEF'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  PEF to
continue to collect from PEF's customers and remit to the cities, franchise fees
during  the  pending  litigation,  and as long as PEF  continues  to occupy  the
cities'   rights-of-way  to  provide  electric  service,   notwithstanding   the
expiration  of the  franchise  ordinances  under which PEF had agreed to collect
such fees.  Five circuit  courts have entered  orders  requiring  arbitration to
establish the purchase price of PEF's electric  distribution  system within five
cities.  Two  appellate  courts have upheld these  circuit  court  decisions and
authorized cities to determine the value of PEF's electric  distribution  system
within  the  cities  through  arbitration.  To date,  no city has  attempted  to
actually  exercise  the  option  to  purchase  any  portion  of  PEF's  electric
distribution  system.  Arbitration in one of the cases (the City of Casselberry)
was held in August  2002 and an award was issued in  October  2002  setting  the
value of  PEF's  distribution  system  within  that  city at  approximately  $22
million.  On April 2,  2003,  PEF filed a rate  filing  with the FERC to recover
$10.6 million in stranded  costs from the City of  Casselberry  in the event the
City ultimately chooses and is allowed to form a municipal electric utility. PEF
has made a  settlement  proposal,  which is scheduled to be voted on by the City
Commission on May 12, 2003. At this time, whether and when there will be further
proceedings regarding the City cannot be determined.  A second arbitration (with
the City of Winter  Park) was  completed in February  2003. A decision  from the
arbitration  panel  has  not  yet  been  issued  in that  case.  Two  additional
arbitrations  have been scheduled to occur in the second quarter of 2003 and the
first quarter of 2004.

As part of the above litigation, two appellate courts have also reached opposite
conclusions  regarding  whether PEF must  continue to collect from its customers
and remit to the cities "franchise fees" under the expired franchise ordinances.
PEF has filed an appeal with the Florida  Supreme  Court to resolve the conflict
between  the two  appellate  courts.  The  Florida  Supreme  Court  has set oral
argument for August 27, 2003.  The Company  cannot  predict the outcome of these
matters at this time.

Progress Energy Carolinas, Inc.

The information required by this item is incorporated herein by reference to the
following portions of Progress Energy's Management's  Discussion and Analysis of
Financial  Condition and Results of  Operations,  insofar as they relate to PEC:
RESULTS OF OPERATIONS; LIQUIDITY AND CAPITAL RESOURCES and OTHER MATTERS.


RESULTS OF OPERATIONS

The results of operations for the PEC Electric segment are identical between PEC
and  Progress   Energy.   The  results  of  operations  for  PEC's   non-utility
subsidiaries for the three months ended March 31, 2003 and 2002 are not material
to PEC's consolidated financial statements.

                                       48

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

During  the  first  three  months  of  2003,  $150  million  was  spent on PEC's
construction program and $0.2 million was spent on diversified business property
additions.

As of March 31, 2003,  PEC's  liquidity,  contractual cash obligations and other
commercial commitments have not changed materially from what was reported in the
2002 Annual Report on Form 10-K.

On April 1, 2003, PEC reduced the size of its existing  364-day credit  facility
from $285 million to $165  million.  The other terms of this  facility  were not
changed.  PEC's $285 million  three-year  credit agreement  entered into in July
2002 remains in place, for total facilities of $450 million.

On April 25,  2003,  PEC  announced  the  redemption  of $150  million  of First
Mortgage  Bonds,  7.5%  Series,  Due March 1, 2023 at 103.22%  of the  principal
amount of such bonds.  The date of the  redemption  will be May 27, 2003 and PEC
will fund the redemption through commercial paper.

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, 2002.
The  Company's  exposure to market  value risk with respect to the CVOs has also
not changed materially since December 31, 2002.

On February 21, 2003,  PEF issued $425 million of First  Mortgage  Bonds,  4.80%
Series,  Due March 1,  2013 and $225  million  of First  Mortgage  Bonds,  5.90%
Series, Due March 1, 2033.

On March 1,  2003,  $70  million of PEF First  Mortgage  Bonds,  6.125%  Series,
matured and were retired.

Effective  March 24, 2003, PEF redeemed $150 million of First Mortgage Bonds, 8%
Series, Due December 1, 2022 at 103.75% of the principle amount of such bonds.

The  exposure to changes in  interest  rates from the  Company's  fixed rate and
variable  rate  long-term  debt at March 31, 2003 has changed from  December 31,
2002.  The total fixed rate  long-term  debt at March 31, 2003 was $9.1 billion,
with an average interest rate of 6.7% and fair market value of $10 billion.  The
total variable rate long-term debt at March 31, 2003, was $1.1 billion,  with an
average interest rate of 1.44% and fair market value of $1.1 billion.

The exposure to changes in interest  rates from the Company's  commercial  paper
and FPC  mandatorily  redeemable  securities of trust at March 31, 2003, was not
materially different than at December 31, 2002.

Progress Energy Carolinas, Inc.

PEC has certain market risks inherent in its financial instruments,  which arise
from transactions  entered into in the normal course of business.  PEC's primary
exposures  are  changes in interest  rates with  respect to  long-term  debt and
commercial  paper, and fluctuations in the return on marketable  securities with
respect to its nuclear  decommissioning trust funds. PEC's exposure to return on
marketable   securities  for  the  decommission  trust  funds  has  not  changed
materially since December 31, 2002.

In March and April of 2003,  PEC entered into  treasury  rate locks to hedge its
exposure to  interest  rates with  regard to a future  issuance  of debt.  These
agreements have a  computational  period of ten years and are designated as cash
flow hedges for accounting purposes.

                                       49
<PAGE>

The  exposure to changes in interest  rates from the PEC's fixed rate  long-term
debt,  variable rate long-term  debt and commercial  paper at March 31, 2003 was
not materially different than at December 31, 2002. In addition,  PEC's exposure
on the  notional  amount  of  interest  rate swap  agreements  used to hedge its
exposure on variable  rate debt  positions at March 31, 2003 was not  materially
different than at December 31, 2002.

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 (CEO) and
Chief Financial  Officer (CFO), of the effectiveness of the design and operation
of Progress Energy's disclosure controls and procedures pursuant to Rules 13a-14
and  15d-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  the
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.

Progress Energy Carolinas, Inc.

Within the 90 days prior to the filing date of this  report,  PEC carried out an
evaluation,  under the supervision and with the participation of its management,
including PEC's CEO and CFO, of the effectiveness of the design and operation of
PEC's  disclosure  controls and  procedures  pursuant to Rules 13a-14 and 15d-14
under the Securities Exchange Act of 1934. Based upon that evaluation, PEC's CEO
and CFO concluded that its  disclosure  controls and procedures are effective in
timely  alerting them to material  information  relating to PEC  (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
PEC'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 15 to
the Progress Energy, Inc.  Consolidated  Interim Financial Statements and Note 9
to the PEC's Consolidated Interim Financial Statements.

1.   Strategic  Resource Solutions Corp. ("SRS") v. San Francisco Unified School
     District, et al., Sacramento Superior Court, Case No. 02AS033114

In November of 2001, SRS filed a claim against the San Francisco  Unified School
District ("the District") and other defendants  claiming that SRS is entitled to
approximately  $10  million  in unpaid  contract  payments  and delay and impact
damages  related to the  District's  $30 million  contract with SRS. On March 4,
2002,  the  District  filed a  counterclaim,  seeking  compensatory  damages and
liquidated  damages in excess of $120  million,  for various  claims,  including
breach of contract and demand on a performance  bond. SRS has asserted  defenses
to the District's claims.

On March 13, 2003, the City Attorney's office announced the filing of new claims
by the City Attorney and the District in the form of a  cross-complaint  against
SRS,  Progress  Energy,  Inc.,  Progress  Energy  Solutions,  Inc.,  and certain
individuals,  alleging fraud, false claims,  violations of California  statutes,
and seeking compensatory damages,  punitive damages,  liquidated damages, treble
damages,  penalties,  attorneys' fees and injunctive relief. The City Attorney's
announcement  states that the City and the District seek "more than $300 million
in damages and penalties."

The Company has  reviewed  the  District's  earlier  pleadings  against SRS  and
believes that those claims are not meritorious.  SRS filed its answer to the new
pleadings on April 14, 2003.  The Company has reviewed the new pleadings and the
Company believes that the new claims are not meritorious.  The Company will file

                                       50
<PAGE>

appropriate  responsive  pleadings in due course. SRS, the Company and  Progress
Energy Solutions,  Inc. will vigorously defend and litigate all of these claims.
The Company cannot predict the outcome of this matter,  but the Company believes
that it and its  subsidiaries  have good defenses to all claims asserted by both
the District and the City.

Item 2.   Changes in Securities and Use of Proceeds

RESTRICTED STOCK AWARDS:

(a)  Securities  Delivered.  On March 18, 2003, 167,400 restricted shares of the
     Company's  Common Shares were granted to certain key employees  pursuant to
     the terms of the Company's  2002 Equity  Incentive  Plan (Equity  Incentive
     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.

                                       51
<PAGE>

Item 6.   Exhibits and Reports on Form 8-K

(a)  Exhibits
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     Exhibit                                                                    Progress            Progress Energy
     Number                            Description                            Energy, Inc.          Carolinas, Inc.
     ------                            -----------                            ------------          ---------------

     *10(i)     Progress Energy, Inc. Amended and Restated Management              X                       X
                Deferred Compensation Plan Adopted as of January 1,
                2000, Revised and Restated effective January 1, 2003
                (filed as Exhibit 4.3 to Progress Energy Form S-8 on May
                2, 2003, File No. 333-104952).

     10(ii)     Notice, dated March 25, 2003, to the Agent for the                                         X
                lenders named in the Carolina Power & Light Company
                364-day Revolving Credit Agreement, dated July 31, 2002,
                of a commitment reduction in the amount of $120,000

     10(iii)    Florida Power Corporation d/b/a Progress Energy Florida,           X
                Inc. 364-Day $200,000,000 Credit Agreement, dated as of
                April 1, 2003 (filed as Exhibit 10(ii) to Florida Power
                Corporation Form 10-Q for the quarter ended March 31, 2003).

     10(iv)     Florida Power Corporation d/b/a Progress Energy Florida,           X
                Inc. 30-Year 200,000,000 Credit Agreement, dated as of
                April 1, 2003 (filed as Exhibit 10(iii) to the Florida
                Power Corporation Form 10-Q for the quarter ended
                March 31, 2003).

       99       Certifications   pursuant   to   Section   906   of   the          X                       X
                Sarbanes-Oxley Act of 2002
</TABLE>

     *Incorporated herein by reference as indicated.

                                       52
<PAGE>

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

     Progress Energy, Inc.

                       Financial
         Item          Statements
       Reported        Included             Date of Event                Date Filed

          5                No               February 7, 2003           February 12, 2003
          7                Yes              February 18, 2003          February 18, 2003
          5                No               April 1, 2003              April 1, 2003
        9, 12              Yes              April 23, 2003             April 23, 2003


     Carolina Power & Light Company
     d/b/a Progress Energy Carolinas, Inc.

                       Financial
         Item          Statements
       Reported        Included             Date of Event                Date Filed

          5                No               January 1, 2003            January 3, 2003
          7                Yes              February 18, 2003          February 18, 2003
          5                No               April 1, 2003              April 1, 2003
        9, 12              Yes              April 23, 2003             April 23, 2003

</TABLE>


                                       53
<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:  May 9, 2003                     (Registrants)

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

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

     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  officer 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: May 9, 2003                      /s/ William Cavanaugh III
                                       -------------------------
                                       William Cavanaugh III
                                       Chairman and Chief Executive 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, 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  officer  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  officer 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:

     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  officer 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: May 9, 2003                      /s/ Peter M. Scott III
                                       ----------------------
                                       Peter M. Scott III
                                       Executive Vice President and
                                       Chief Financial 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, 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  officer  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  officer 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:

     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  officer 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: May 9, 2003                      /s/ William Cavanaugh III
                                       -------------------------
                                       William Cavanaugh III
                                       Chairman and Chief Executive Officer


                                       57
<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  officer  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  officer 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:

     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  officer 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: May 9, 2003                      /s/ Peter M. Scott III
                                       ----------------------
                                       Peter M. Scott III
                                       Executive Vice President and
                                       Chief Financial Officer



                                       58

<PAGE>


                                                                      Exhibit 99

                       CERTIFICATION FURNISHED PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection  with the Quarterly  Report on Form 10-Q of Progress  Energy,
Inc.  (the  "Company")  for the period  ending  March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, William
Cavanaugh III,  Chairman and Chief  Executive  Officer of the Company,  certify,
pursuant  to 18  U.S.C.  ss.  1350,  as  adopted  pursuant  to  ss.  906  of the
Sarbanes-Oxley Act of 2002, that:

     (1) the Report fully  complies  with the  requirements  of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

     (2)  the  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and result of  operations of the
Company.



/s/ William Cavanaugh III
-------------------------
William Cavanaugh III
Chairman and Chief Executive Officer
May 9, 2003


A signed  original of this  written  statement  required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.

                                       59
<PAGE>

                       CERTIFICATION FURNISHED PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection  with the Quarterly  Report on Form 10-Q of Progress  Energy,
Inc.  (the  "Company")  for the period  ending  March 31, 2003 as filed with the
Securities and Exchange  Commission on the date hereof (the "Report"),  I, Peter
M.  Scott III,  Executive  Vice  President  and Chief  Financial  Officer of the
Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906
of the Sarbanes-Oxley Act of 2002, that:

     (1) the Report fully  complies  with the  requirements  of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

     (2)  the  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and result of  operations of the
Company.



/s/ Peter M. Scott III
----------------------
Peter M. Scott III
Executive Vice President and
Chief Financial Officer
May 9, 2003


A signed  original of this  written  statement  required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.


                                       60
<PAGE>

                       CERTIFICATION FURNISHED PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection  with the Quarterly  Report on Form 10-Q of Carolina  Power &
Light Company (the "Company") for the period ending March 31, 2003 as filed with
the Securities  and Exchange  Commission on the date hereof (the  "Report"),  I,
William  Cavanaugh  III,  Chairman and Chief  Executive  Officer of the Company,
certify,  pursuant to 18 U.S.C.  ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:

     (1) the Report fully  complies  with the  requirements  of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

     (2)  the  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and result of  operations of the
Company.



/s/ William Cavanaugh III
-------------------------
William Cavanaugh III
Chairman and Chief Executive Officer
May 9, 2003


A signed  original of this  written  statement  required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.

                                       61
<PAGE>

                       CERTIFICATION FURNISHED PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection  with the Quarterly  Report on Form 10-Q of Carolina  Power &
Light Company (the "Company") for the period ending March 31, 2003 as filed with
the Securities  and Exchange  Commission on the date hereof (the  "Report"),  I,
Peter M. Scott III,  Executive Vice President and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906
of the Sarbanes-Oxley Act of 2002, that:

     (1) the Report fully  complies  with the  requirements  of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

     (2)  the  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and result of  operations of the
Company.



/s/ Peter M. Scott III
----------------------
Peter M. Scott III
Executive Vice President and
Chief Financial Officer
May 9, 2003


A signed  original of this  written  statement  required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.

                                       62