UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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

                  For the quarterly period ended June 30, 2004

                                       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>

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

  1-8349                           Florida Progress Corporation                             59-2147112
                                    410 South Wilmington Street
                                  Raleigh, North Carolina 27601
                                     Telephone (919) 546-6111
                                 State of Incorporation: Florida



  1-3274                            Florida Power Corporation                               59-0247770
                               d/b/a Progress Energy Florida, Inc.
                                      100 Central Avenue
                                 St. Petersburg, Florida 33701
                                     Telephone (727) 820-5151
                                 State of Incorporation: Florida

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

Indicate  by check mark  whether  the  registrants  (1) have  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) have been subject to such
filing requirements for the past 90 days. Yes X No

Indicate  by check mark  whether  the  registrants  are  accelerated  filers (as
defined in Rule 12b-2 of the Exchange Act). Yes __ No X

This combined Form 10-Q is filed separately by two registrants: Florida Progress
Corporation and Florida Power  Corporation  d/b/a Progress Energy Florida (PEF).
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  issuers'  classes of
common  stock,  as of the latest  practicable  date.  As of July 31, 2004,  each
registrant had the following shares of common stock outstanding:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

           Registrant                          Description                              Shares
           ----------                          -----------                              ------
Florida Progress Corporation       Common Stock, without par value      98,616,658 (all of which were held
                                                                        by Progress Energy, Inc.)
PEF                                Common Stock, without par value      100 (all of which were held by
                                                                        Florida Progress Corporation)
</TABLE>

Florida Progress  Corporation and Florida Power  Corporation meet the conditions
set forth in General  Instruction H(1)(a) and (b) of Form 10-Q and are therefore
filing this form with the reduced disclosure format.


<PAGE>

         FLORIDA PROGRESS CORPORATION AND PROGRESS ENERGY FLORIDA, INC.
                 FORM 10-Q - For the Quarter Ended June 30, 2004



Glossary of Terms


Safe Harbor For Forward-Looking Statements


PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

      Florida Progress Corporation

      Unaudited Consolidated Statements of Income
      Unaudited Consolidated Balance Sheets
      Unaudited Consolidated Statements of Cash Flows

      Florida Power Corporation
      d/b/a Progress Energy Florida, Inc.

      Unaudited Statements of Income
      Unaudited Balance Sheets
      Unaudited Statements of Cash Flows

Notes to Financial Statements
    Florida Progress Corporation and Florida Power Corporation d/b/a Progress
    Energy Florida, Inc.


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 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
APB                                  Accounting Principles Board
BART                                 Best available retrofit technology
Bcf                                  Billion cubic feet
CAIR                                 Clean Air Interstate Rule
Colona                               Colona Synfuel Limited Partnership, L.L.L.P.
the Company                          Florida Progress Corporation
CR3                                  Progress Energy Florida Inc.'s nuclear generating plant, Crystal River
                                     Unit No. 3
DOE                                  United States Department of Energy
ECRC                                 Environmental Cost Recovery Clause
EIS                                  Environmental Impact Statement
EITF                                 Emerging Issues Task Force
EPA                                  United States Environmental Protection Agency
EPIK                                 EPIK Communications, Inc.
FASB                                 Financial Accounting Standards Board
FDEP                                 Florida Department of Environmental Protection
Federal Circuit                      United States Circuit Court of Appeals
FERC                                 Federal Energy Regulatory Commission
FIN No. 46R                          FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities -
                                     An Interpretation of ARB No. 51"
Florida Progress or FPC              Florida Progress Corporation
FPSC                                 Florida Public Service Commission
Global                               U.S. Global LLC
MACT                                 Maximum Available Control Technology
MGP                                  Manufactured Gas Plant
NOx                                  Nitrogen oxide
NRC                                  United States Nuclear Regulatory Commission
NSP                                  Northern States Power
PEF or the utility                   Progress Energy Florida, Inc., formerly referred to as Florida Power
                                     Corporation
PFA                                  IRS Prefiling Agreement
the Plan                             Revenue Sharing Incentive Plan
PLRs                                 Private Letter Rulings
Progress Capital                     Progress Capital Holdings, Inc.
Progress Energy or the Parent        Progress Energy, Inc.
Progress Fuels                       Progress Fuels Corporation
PTC LLC                              Progress Telecom LLC
PUHCA                                Public Utility Holding Company Act of 1935, as amended
PWR                                  Pressurized water reactor
RAFT                                 Railcar Asset Financing Trust
Rail Services or Rail                Rail Services business segment
RTO                                  Regional Transmission Organization
SEC                                  United States Securities and Exchange Commission
Section 29                           Section 29 of the Internal Revenue 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. 123                         Statement of Financial Accounting Standards No. 123, "Accounting for
                                     Stock-Based Compensation"

                                       3
<PAGE>

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"
SMD NOPR                             Notice of Proposed Rulemaking in Docket No. RM01-12-000, Remedying Undue
                                     Discrimination through Open Access Transmission and Standard Market Design
SO2                                  Sulfur dioxide
the Trust                            FPC Capital I trust
</TABLE>



                                       4
<PAGE>

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

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

In  addition,   forward-looking   statements  are  discussed  in   "Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations"
including,  but not limited to, statements under the sub-heading  "Liquidity and
Capital Resources" concerning operating cash flows.

Any forward-looking statement speaks only as of the date on which such statement
is  made,  and  neither  Florida   Progress  (the  Company)  nor  Florida  Power
Corporation doing business as Progress Energy Florida, Inc. (PEF) 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 stranded
costs; the uncertainty regarding the timing,  creation and structure of regional
transmission  organizations;  weather  conditions  that  directly  influence the
demand  for  electricity;   recurring   seasonal   fluctuations  in  demand  for
electricity;  fluctuations  in the price of  energy  commodities  and  purchased
power;  successful  maintenance  and operation of PEF's energy  commodities  and
purchased power;  economic  fluctuations and the  corresponding  impact on PEF's
commercial and industrial  customers;  the inherent  risks  associated  with the
operation of nuclear facilities, including environmental, health, regulatory and
financial  risks;  the  impact  of  any  terrorist  acts  generally  and  on our
generating  facilities and other properties;  the ability to successfully access
capital  markets on favorable  terms;  the impact that increases in leverage may
have on the  Company  and PEF;  the  ability of the  Company and PEF to maintain
their current  credit  ratings;  the impact of derivative  contracts used in the
normal course of business;  investment  performance of pension and benefit plans
and the ability to control costs;  the  availability and use of Internal Revenue
Code  Section 29 (Section 29) tax credits by synthetic  fuel  producers  and the
Company's  continued  ability to use Section 29 tax credits  related to its coal
and  synthetic  fuel  businesses;  the  impact to our  financial  condition  and
performance  in the  event it is  determined  the  Company  is not  entitled  to
previously taken Section 29 tax credits;  the Company's  ability to successfully
integrate  newly acquired assets or properties into its operations as quickly or
as  profitably as expected;  the outcome of any ongoing or future  litigation or
similar disputes and the impact of any such outcome or related settlements;  and
unanticipated  changes in operating expenses and capital  expenditures.  Many of
these risks similarly impact the Company's subsidiaries.

These and other risks are detailed  from time to time in Florida  Progress'  and
PEF's  SEC  reports.  All  such  factors  are  difficult  to  predict,   contain
uncertainties  that may materially affect actual results,  and may be beyond the
control of the Company and PEF. Many, but not all of the factors that may impact
actual results of the Company and PEF are discussed in the Risk Factors  section
of PEF's annual  report on Form 10-K for the year ended  December 31, 2003 which
was filed with the SEC on March 12, 2004.  You should  carefully  read these SEC
reports.  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 Florida Progress and PEF.


                                       5
<PAGE>

                          PART I. FINANCIAL INFORMATION


Item 1.  FINANCIAL STATEMENTS

                          Florida Progress Corporation
                    CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                  June 30, 2004

UNAUDITED CONSOLIDATED STATEMENTS of INCOME
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

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

(in millions)                                                 2004         2003          2004       2003
---------------------------------------------------------------------------------------------------------
Operating Revenues
   Utility                                                 $   860      $   767       $ 1,644    $ 1,495
   Diversified business                                        644          440         1,171        927
---------------------------------------------------------------------------------------------------------
      Total Operating Revenues                               1,504        1,207         2,815      2,422
---------------------------------------------------------------------------------------------------------
Operating Expenses
Utility
   Fuel used in electric generation                            276          217           545        402
   Purchased power                                             139          141           260        271
   Operation and maintenance                                   152          154           312        295
   Depreciation and amortization                                72           80           141        159
   Taxes other than on income                                   64           59           126        117
Diversified business
    Cost of sales                                              562          388         1,033        826
    Depreciation and amortization                               27           22            52         43
    Other                                                       32           25            65         62
---------------------------------------------------------------------------------------------------------
        Total Operating Expenses                             1,324        1,086         2,534      2,175
---------------------------------------------------------------------------------------------------------
Operating Income                                               180          121           281        247
---------------------------------------------------------------------------------------------------------
Other Income (Expense)
   Interest income                                               1            1             2          2
   Other, net                                                   (2)          (1)           (7)        (7)
---------------------------------------------------------------------------------------------------------
        Total Other Expense                                     (1)           -            (5)        (5)
---------------------------------------------------------------------------------------------------------
Interest Charges
   Interest charges                                             47           48            92         95
   Allowance for borrowed funds used during construction        (1)          (2)           (2)        (4)
---------------------------------------------------------------------------------------------------------
        Total Interest Charges, Net                             46           46            90         91
---------------------------------------------------------------------------------------------------------
Income before Income Taxes                                     133           75           186        151
Income Tax Benefit                                              (2)         (39)           (4)       (55)
---------------------------------------------------------------------------------------------------------
Net Income                                                 $   135      $   114       $   190    $   206
---------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Interim Financial Statements.

                                       6
<PAGE>

Florida Progress Corporation
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

(in millions)                                                              June 30          December 31
Assets                                                                        2004                 2003
----------------------------------------------------------------------------------------------------------
Utility Plant
  Utility plant in service                                               $   8,281            $   8,150
  Accumulated depreciation                                                  (2,856)              (2,828)
----------------------------------------------------------------------------------------------------------
        Utility plant in service, net                                        5,425                5,322
  Held for future use                                                            8                    8
  Construction work in progress                                                349                  328
  Nuclear fuel, net of amortization                                             57                   69
----------------------------------------------------------------------------------------------------------
        Total Utility Plant, Net                                             5,839                5,727
----------------------------------------------------------------------------------------------------------
Current Assets
  Cash and cash equivalents                                                     30                   27
  Accounts receivable                                                          540                  487
  Unbilled accounts receivable                                                  77                   59
  Receivables from affiliated companies                                         45                   43
  Inventory                                                                    437                  412
  Deferred fuel cost                                                           178                  204
  Assets held for sale                                                           6                   75
  Prepayments and other current assets                                         166                  137
----------------------------------------------------------------------------------------------------------
        Total Current Assets                                                 1,479                1,444
----------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
  Regulatory assets                                                            131                  126
  Nuclear decommissioning trust funds                                          436                  433
  Diversified business property, net                                           892                  841
  Miscellaneous other property and investments                                  95                   90
  Prepaid pension cost                                                         226                  223
  Deferred tax asset                                                           349                  189
  Other assets and deferred debits                                             130                  132
----------------------------------------------------------------------------------------------------------
        Total Deferred Debits and Other Assets                               2,259                2,034
----------------------------------------------------------------------------------------------------------
         Total Assets                                                    $   9,577            $   9,205
----------------------------------------------------------------------------------------------------------
Capitalization and Liabilities
----------------------------------------------------------------------------------------------------------
Common Stock Equity
  Common stock without par value                                         $   1,701            $   1,699
  Retained earnings                                                            955                  842
  Accumulated other comprehensive loss                                         (30)                 (17)
----------------------------------------------------------------------------------------------------------
     Total Common Stock Equity                                               2,626                2,524
----------------------------------------------------------------------------------------------------------
Preferred Stock of Subsidiaries - Not Subject to Mandatory Redemption           34                   34
Long-Term Debt, Affiliate                                                      809                  809
Long-Term Debt, Net                                                          2,045                2,045
----------------------------------------------------------------------------------------------------------
        Total Capitalization                                                 5,514                5,412
----------------------------------------------------------------------------------------------------------
Current Liabilities
  Current portion of long-term debt                                             43                   68
  Accounts payable                                                             458                  415
  Payables to affiliated companies                                             121                   68
  Notes payable to affiliated companies                                        327                  636
  Taxes accrued                                                                177                   16
  Short-term obligations                                                       231                    -
  Customer deposits                                                            130                  127
  Other current liabilities                                                    341                  279
----------------------------------------------------------------------------------------------------------
        Total Current Liabilities                                            1,828                1,609
----------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
  Accumulated deferred income taxes and investment tax credits                  81                   85
  Regulatory liabilities                                                     1,388                1,365
  Asset retirement obligations                                                 347                  339
  Other liabilities and deferred credits                                       419                  395
----------------------------------------------------------------------------------------------------------
        Total Deferred Credits and Other Liabilities                         2,235                2,184
----------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 12)
----------------------------------------------------------------------------------------------------------
         Total Capitalization and Liabilities                            $   9,577            $   9,205
----------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Interim Financial Statements.

                                       7
<PAGE>

Florida Progress Corporation
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

                                                                               Six Months Ended June 30
(in millions)                                                                       2004           2003
------------------------------------------------------------------------------------------------------------
Operating Activities
Net income                                                                       $   190        $   206
Adjustments to reconcile net income to net cash provided by operating
activities:
      Depreciation and amortization                                                  207            215
      Deferred income taxes and investment tax credits, net                         (159)           (44)
      Deferred fuel cost (credit)                                                     26           (103)
Cash provided (used) by changes in operating assets and liabilities:
      Accounts receivable                                                            (84)           (78)
      Affiliate accounts receivable                                                   (2)           (11)
      Inventories                                                                    (23)            30
      Prepayments and other current assets                                           (46)           (16)
      Accounts payable                                                                51             37
      Affiliate accounts payable                                                      51            (58)
      Income taxes, net                                                              162             38
      Other current liabilities                                                       45             56
      Other                                                                           26             24
------------------------------------------------------------------------------------------------------------
         Net Cash Provided by Operating Activities                                   444            296
------------------------------------------------------------------------------------------------------------
Investing Activities
Utility property additions                                                          (235)          (283)
Diversified business property additions                                             (103)          (214)
Nuclear fuel additions                                                                 -            (38)
Proceeds from sale of assets                                                          84              1
Other                                                                                (13)            (8)
------------------------------------------------------------------------------------------------------------
          Net Cash Used in Investing Activities                                     (267)          (542)
------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt                                               1            639
Net increase (decrease) in short-term obligations                                    231            (35)
Retirement of long-term debt                                                         (26)          (227)
Net change in intercompany notes                                                    (309)           (78)
Equity contributions from parent                                                       1            140
Dividends paid to parent                                                             (78)          (203)
Other                                                                                  6             (2)
------------------------------------------------------------------------------------------------------------
           Net Cash (Used in) Provided by Financing Activities                      (174)           234
------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                                   3            (12)
Cash and Cash Equivalents at Beginning of Period                                      27             34
------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period                                       $    30        $    22
------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the year - interest (net of amount capitalized)                 $    92        $    84
                            income taxes (net of refunds)                        $    (6)       $    (1)
------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Interim Financial Statements.

                                       8
<PAGE>

                            Florida Power Corporation
                       d/b/a Progress Energy Florida, Inc.
                          INTERIM FINANCIAL STATEMENTS
                                  June 30, 2004

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

UNAUDITED STATEMENTS of INCOME
                                                            Three Months Ended          Six Months Ended
                                                                 June 30                     June 30
                                                         ------------------------------------------------------
(in millions)                                                 2004         2003         2004           2003
--------------------------------------------------------------------------------------------------------------

Operating Revenues                                          $  860       $  767      $ 1,644        $ 1,495

Operating Expenses
   Fuel used in electric generation                            276          217          545            402
   Purchased power                                             139          141          260            271
   Operation and maintenance                                   152          154          312            295
   Depreciation and amortization                                72           80          141            159
   Taxes other than on income                                   64           59          126            117
--------------------------------------------------------------------------------------------------------------
        Total Operating Expenses                               703          651        1,384          1,244
--------------------------------------------------------------------------------------------------------------
Operating Income                                               157          116          260            251
--------------------------------------------------------------------------------------------------------------
Other Income (Expense)
   Other, net                                                    -            1           (1)             1
--------------------------------------------------------------------------------------------------------------
        Total Other Income (Expense)                             -            1           (1)             1
--------------------------------------------------------------------------------------------------------------
Interest Charges
   Interest charges                                             29           29           60             58
   Allowance for borrowed funds used during construction        (1)          (2)          (2)            (4)
--------------------------------------------------------------------------------------------------------------
        Total Interest Charges, Net                             28           27           58             54
--------------------------------------------------------------------------------------------------------------

Income before Income Taxes                                     129           90          201            198
Income Tax Expense                                              45           28           67             65
--------------------------------------------------------------------------------------------------------------

Net Income                                                      84           62          134            133
Preferred Stock Dividend Requirement                             -            1            1              1
--------------------------------------------------------------------------------------------------------------
Earnings for Common Stock                                   $   84       $   61      $   133        $   132
--------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Interim Financial Statements.

                                       9
<PAGE>

FLORIDA POWER CORPORATION
d/b/a PROGRESS ENERGY FLORIDA, INC.
UNAUDITED BALANCE SHEETS
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

(in millions)                                                      June 30          December 31
Assets                                                                2004                 2003
--------------------------------------------------------------------------------------------------
Utility Plant
  Utility plant in service                                       $   8,281            $   8,150
  Accumulated depreciation                                          (2,856)              (2,828)
--------------------------------------------------------------------------------------------------
        Utility plant in service, net                                5,425                5,322
  Held for future use                                                    8                    8
  Construction work in progress                                        349                  328
  Nuclear fuel, net of amortization                                     57                   69
--------------------------------------------------------------------------------------------------
        Total Utility Plant, Net                                     5,839                5,727
--------------------------------------------------------------------------------------------------
Current Assets
  Cash and cash equivalents                                             11                   10
  Accounts receivable                                                  217                  191
  Unbilled accounts receivable                                          77                   59
  Receivables from affiliated companies                                  6                    7
  Deferred income taxes                                                 23                   39
  Inventory                                                            241                  230
  Deferred fuel cost                                                   178                  204
  Prepayments and other current assets                                   4                    6
--------------------------------------------------------------------------------------------------
        Total Current Assets                                           757                  746
--------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
  Regulatory assets                                                    131                  126
  Debt issuance costs                                                   22                   25
  Nuclear decommissioning trust funds                                  436                  433
  Miscellaneous other property and investments                          44                   40
  Prepaid pension cost                                                 223                  220
  Other assets and deferred debits                                       5                    6
--------------------------------------------------------------------------------------------------
        Total Deferred Debits and Other Assets                         861                  850
--------------------------------------------------------------------------------------------------
         Total Assets                                            $   7,457            $   7,323
--------------------------------------------------------------------------------------------------
Capitalization and Liabilities
--------------------------------------------------------------------------------------------------
Common Stock Equity
  Common stock without par value                                 $   1,081            $   1,081
  Retained earnings                                                  1,117                1,062
  Accumulated other comprehensive loss                                  (4)                  (4)
--------------------------------------------------------------------------------------------------
     Total Common Stock Equity                                       2,194                2,139
--------------------------------------------------------------------------------------------------
  Preferred Stock - Not Subject to Mandatory Redemption                 34                   34
  Long-Term Debt, Net                                                1,902                1,904
--------------------------------------------------------------------------------------------------
        Total Capitalization                                         4,130                4,077
--------------------------------------------------------------------------------------------------
Current Liabilities
  Current portion of long-term debt                                     43                   43
  Accounts payable                                                     198                  161
  Payables to affiliated companies                                     132                   75
  Notes payable to affiliated companies                                  -                  363
  Taxes accrued                                                         76                   20
  Interest accrued                                                      39                   42
  Short-term obligations                                               231                    -
  Customer deposits                                                    130                  127
  Other current liabilities                                            114                   85
--------------------------------------------------------------------------------------------------
        Total Current Liabilities                                      963                  916
--------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
  Accumulated deferred income taxes                                    353                  363
  Accumulated deferred investment tax credits                           39                   41
  Regulatory liabilities                                             1,388                1,365
  Asset retirement obligations                                         328                  319
  Other liabilities and deferred credits                               256                  242
--------------------------------------------------------------------------------------------------
        Total Deferred Credits and Other Liabilities                 2,364                2,330
--------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 12)
--------------------------------------------------------------------------------------------------
         Total Capitalization and Liabilities                    $   7,457            $   7,323
--------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Interim Financial Statements.

                                       10
<PAGE>

FLORIDA POWER CORPORATION
d/b/a PROGRESS ENERGY FLORIDA, INC.
UNAUDITED STATEMENTS of CASH FLOWS

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

                                                                                    Six Months Ended June  30
(in millions)                                                                               2004         2003
----------------------------------------------------------------------------------------------------------------
Operating Activities
Net income                                                                               $   134      $   133
Adjustments to reconcile net income to net cash provided by operating activities:
     Depreciation and amortization                                                           155          172
     Deferred income taxes and investment tax credits, net                                     1            1
     Deferred fuel cost (credit)                                                              26         (103)
Cash provided (used) by changes in operating assets and liabilities:
     Accounts receivable                                                                     (43)         (18)
     Inventories                                                                              (6)          (4)
     Prepayments and other current assets                                                      2            1
     Accounts payable                                                                         87          (44)
     Other current liabilities                                                                82          124
     Other                                                                                     9            7
----------------------------------------------------------------------------------------------------------------
         Net Cash Provided by Operating Activities                                           447          269
----------------------------------------------------------------------------------------------------------------
Investing Activities
Property additions                                                                          (235)        (283)
Nuclear fuel additions                                                                         -          (38)
Other                                                                                          -            1
----------------------------------------------------------------------------------------------------------------
         Net Cash Used in Investing Activities                                              (235)        (320)
----------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt                                                       1          639
Net increase (decrease) in short-term obligations                                            231          (36)
Retirement of long-term debt                                                                  (1)        (227)
Net change in intercompany notes                                                            (363)        (125)
Dividends paid to parent                                                                     (78)        (203)
Other                                                                                         (1)          (1)
----------------------------------------------------------------------------------------------------------------
         Net Cash (Used in) Provided by Financing Activities                                (211)          47
----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                                           1           (4)
----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of Period                                              10           16
----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period                                               $    11      $    12
----------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the year - interest (net of amount capitalized)                         $    62      $    48
                            income taxes (net of refunds)                                $    11      $    15
----------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Interim Financial Statements.

                                       11
<PAGE>

Florida Progress Corporation and Florida Power Corporation
d/b/a Progress Energy Florida, Inc.
NOTES TO INTERIM FINANCIAL STATEMENTS

1.   ORGANIZATION AND BASIS OF PRESENTATION

     A. Organization

     Florida Progress Corporation (the Company or Florida Progress) is a holding
     company under the Public Utility Holding  Company Act of 1935 (PUHCA).  The
     Company became subject to the  regulations of PUHCA when it was acquired by
     Progress Energy,  Inc.  (Progress Energy or the Parent).  Florida Progress'
     two primary  subsidiaries  are Florida  Power  Corporation  d/b/a  Progress
     Energy Florida, Inc. (PEF) and Progress Fuels Corporation (Progress Fuels).

     PEF is a regulated  public  utility  engaged in the  generation,  purchase,
     transmission, distribution and sale of electricity primarily in portions of
     Florida.  PEF is regulated by the Florida Public Service Commission (FPSC),
     the Federal Energy Regulatory  Commission (FERC) and the Nuclear Regulatory
     Commission  (NRC).  Progress  Fuels  is a  diversified  non-utility  energy
     company,  whose principal business segments are Energy and Related Services
     and Rail Services.  Throughout the report,  the terms utility and regulated
     will be used to discuss items pertaining to PEF.  Diversified  business and
     nonregulated  will be used to discuss the  subsidiaries of Florida Progress
     excluding PEF.

     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  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  and  notes  thereto
     included  in  Florida  Progress'  and PEF's  Form  10-K for the year  ended
     December 31, 2003.

     In accordance  with the provisions of Accounting  Principles  Board Opinion
     (APB) No. 28, "Interim  Financial  Reporting,"  GAAP requires  companies to
     apply a levelized  effective tax rate to interim periods that is consistent
     with  the  estimated  annual  effective  tax  rate.  The  intra-period  tax
     allocation,  which will have no impact on total year net income,  maintains
     an effective tax rate  consistent with the estimated  annual  effective tax
     rate. For the three months ended June 30, 2004 and 2003, income tax expense
     was  decreased  by $11 million and $10 million,  respectively.  For the six
     months  ended June 30, 2004 and 2003,  income tax expense was  increased by
     $23 million and  decreased  by $15  million,  respectively.  The income tax
     provisions  for the Company  differ from  amounts  computed by applying the
     federal statutory tax rate to income before income taxes,  primarily due to
     the recognition of synthetic fuel tax credits.

     PEF collects  from  customers  certain  excise  taxes,  which include gross
     receipts tax, franchise taxes, and other excise taxes,  levied by the state
     or local government upon the customers.  PEF accounts for excise taxes on a
     gross  basis.  For the three  months  ended June 30, 2004 and 2003,  excise
     taxes of  approximately  $37 million  and $34  million,  respectively,  are
     included in taxes other than on income in the  accompanying  Statements  of
     Income.  For the six months  ended June 30, 2004 and 2003,  excise taxes of
     approximately  $69 million and $64 million,  respectively,  are included in
     taxes other than on income in the accompanying  Statements of Income. These
     approximate amounts are also included in utility revenues.

     The amounts included in the interim financial statements are unaudited but,
     in the  opinion of  management,  reflect all normal  recurring  adjustments
     necessary to fairly present Florida Progress' and PEF'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 the  nuclear-fueled  unit, the results of operations for interim
     periods are not necessarily  indicative of amounts  expected for the entire
     year or future periods.

     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.  Certain  reclassifications  for 2003  have  been made to
     conform to the 2004 presentation.

                                       12
<PAGE>

     The results of  operations  of the Rail  Services  segment are reported one
     month in arrears.

     C. Subsidiary Reporting Period Change

     In the fourth  quarter of 2003, the Company  ceased  recording  portions of
     Fuels' segment operations,  primarily synthetic fuel operations,  one month
     in arrears.  As a result,  earnings for the year ended December 31, 2003 as
     reported  in the  Company's  Form 10-K,  included  13 months of results for
     these  operations.  The 2003 quarterly  results for periods ended March 31,
     June  30 and  September  30 have  been  restated  for  the  above-mentioned
     reporting  period  change.  This resulted in four months of earnings in the
     first quarter of 2003. The  reclassification  of earnings  between quarters
     resulted in a $4 million  and a $15 million  increase in net income for the
     quarter and year to date periods,  respectively,  from $110 million to $114
     million  for the  second  quarter  of 2003,  and from $191  million to $206
     million for the six months ended June 30, 2003.

     D. Stock-Based Compensation

     The  Company  measures  compensation  expense  for  stock  options  as  the
     difference  between the market  price of its common  stock and the exercise
     price of the option at the grant date.  The exercise price at which options
     are granted by the Company  equals the market price at the grant date,  and
     accordingly,  no compensation  expense has been recognized for stock option
     grants. For purposes of the pro forma disclosures required by SFAS No. 148,
     "Accounting for  Stock-Based  Compensation - Transition and Disclosure - an
     Amendment of FASB  Statement No. 123" (SFAS No. 148),  the  estimated  fair
     value of the  Company's  stock  options is  amortized  to expense  over the
     options' vesting period.  The following table illustrates the effect on net
     income and  earnings per share if the fair value method had been applied to
     all outstanding and unvested awards in each period:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                   Three Months Ended          Six Months Ended
         (in millions)                                                  June 30                     June 30
                                                               --------------------------- -------------------------
     FLORIDA PROGRESS CORPORATION                                       2004         2003          2004        2003
                                                               --------------  ----------- ------------- -----------
     Net Income, as reported                                          $  135       $  114        $  190      $  206
     Deduct:  Total stock option expense determined under fair
       value method for all awards, net of related tax effects             1            -             2           1
                                                               --------------  ----------- ------------- -----------
     Pro forma net income                                             $  134       $  114        $  188      $  205
                                                               ==============  =========== ============= ===========

                                                                   Three Months Ended          Six Months Ended
         (in millions)                                                  June 30                     June 30
                                                               --------------------------- -------------------------
     PROGRESS ENERGY FLORIDA, INC.                                      2004         2003          2004        2003
                                                               --------------  ----------- ------------- -----------
     Earnings for Common Stock, as reported                           $   84       $   61        $  133      $  132
     Deduct:  Total stock option expense determined under fair
       value method for all awards, net of related tax effects             1            -             2           1
                                                               --------------  ----------- ------------- -----------
     Pro forma earnings for common stock                              $   83       $   61        $  131      $  131
                                                               ==============  =========== ============= ===========
</TABLE>

     E. Consolidation of Variable Interest Entities

     Florida Progress and PEF consolidate all voting interest  entities in which
     they own a majority voting interest and all variable  interest entities for
     which  they  are  the  primary   beneficiary   in   accordance   with  FASB
     Interpretation  No. 46R,  "Consolidation of Variable Interest Entities - an
     Interpretation of ARB No. 51" (FIN No. 46R). During the first six months of
     2004 and 2003,  Florida Progress or PEF did not participate in the creation
     of, or obtain a significant new variable interest in, any variable interest
     entity.

     A  subsidiary  of Florida  Progress  is the primary  beneficiary  of Colona
     Synfuel  Limited  Partnership  LLLP (Colona),  a synthetic fuel  production
     facility  that  qualifies  for federal tax credits  under Section 29 of the
     Internal  Revenue Code and therefore has  consolidated the entity under FIN
     No. 46R. As of June 30, 2004, Colona's total assets were $16 million.  None
     of Florida  Progress'  consolidated  assets  are  collateral  for  Colona's
     obligations.

     Florida  Progress  and PEF have  interests  in  several  variable  interest
     entities for which they are not the primary beneficiary. These arrangements
     include  investments in  approximately  six limited  partnerships,  limited
     liability  corporations  and venture capital funds.  The aggregate  maximum
     loss exposure at June 30, 2004, that Florida  Progress could be required to
     record  in  its  consolidated   income  statement  as  a  result  of  these
     arrangements totals  approximately $15 million.  The aggregate maximum loss

                                       13
<PAGE>

     exposure  at June 30,  2004,  that PEF could be  required  to record in its
     income statement as a result of these arrangements totals  approximately $5
     million.  The  creditors of these  variable  interest  entities do not have
     recourse to the general credit of Florida  Progress or PEF in excess of the
     aggregate maximum loss exposure.

2.   NEW ACCOUNTING STANDARDS

     In  December  2003,  the  Medicare   Prescription  Drug,   Improvement  and
     Modernization Act of 2003 (the Act) was signed into law. In accordance with
     guidance  issued by the FASB in FASB Staff Position FAS 106-1,  the Company
     elected to defer accounting for the effects of the Act due to uncertainties
     regarding the effects of the  implementation  of the Act and the accounting
     for certain provisions of the Act. Therefore, OPEB information presented in
     the financial  statements does not reflect the effects of the Act. The FASB
     recently issued  definitive  accounting  guidance for the Act in FASB Staff
     Position 106-2,  which is effective for the Company in the third quarter of
     2004.  FASB Staff  Position  106-2 will result in the  recognition of lower
     OPEB costs to reflect  prescription  drug-related  federal  subsidies to be
     received  under the Act. The Company is in the process of  quantifying  the
     impact of the Act on OPEB costs.

3.   DIVESTITURES

     A. Divestiture of Synfuel Partnership Interests

     In June 2004, the Company through its subsidiary, Progress Fuels sold, in
     two transactions, a combined 49.8 percent partnership interest in Colona
     Synfuel Limited Partnership, LLLP, one of its synthetic fuel facilities.
     Substantially all proceeds from the sales will be received over time, which
     is typical of such sales in the industry. Gain from the sales will be
     recognized on a cost recovery basis. The Company's book value of the
     interests sold totaled approximately $3 million. Based on projected
     production levels, the Company anticipates receiving total gross proceeds
     of approximately $30 million per year, on an annualized basis. Under the
     agreements, the buyers have a right to unwind the transactions if an IRS
     reconfirmation private letter ruling (PLR) is not received by October 15,
     2004. Therefore, no gain would be recognized prior to the expiration of
     that right.

     B. Railcar Ltd. Divestiture

     In  December  2002,  the  Progress  Energy  Board of  Directors  adopted  a
     resolution approving the sale of Railcar Ltd., a subsidiary included in the
     Rail Services segment. In March 2003, the Company signed a letter of intent
     to sell the majority of Railcar Ltd. assets to The Andersons, Inc., and the
     transaction   closed  in  February  2004.   Proceeds  from  the  sale  were
     approximately   $82  million   before   transaction   costs  and  taxes  of
     approximately  $13  million.  The assets of Railcar  Ltd.  were  grouped as
     assets  held for sale and are  included  in  other  current  assets  on the
     Company's  Consolidated  Balance  Sheets at June 30, 2004 and  December 31,
     2003. The assets were recorded at  approximately $6 million and $75 million
     at June 30, 2004 and December 31, 2003,  respectively,  which  reflects the
     Company's estimates of the fair value expected to be realized from the sale
     of these  assets less costs to sell.  In July 2004,  the  Company  sold the
     remaining  assets  classified  as held  for sale to a  third-party  for net
     proceeds of $6 million.

4.   REGULATORY MATTERS

     A. Retail Rate Matters

     On June 29, 2004, the FPSC approved a Stipulation and Settlement Agreement,
     executed on April 29, 2004,  by PEF,  the Office of Public  Counsel and the
     Florida  Industrial  Power Users  Group.  The  stipulation  and  settlement
     resolved the issue  currently  pending  before the FPSC regarding the costs
     PEF will be allowed to recover  through its Fuel and  Purchased  Power Cost
     Recovery  clause in 2004 and beyond for waterborne  coal  deliveries by the
     Company's  affiliated  coal  supplier,  Progress  Fuels  Corporation.   The
     settlement  sets  fixed per ton  prices  based on point of  origin  for all
     waterborne coal deliveries in 2004, and establishes a market-based  pricing
     methodology for  determining  recoverable  waterborne  coal  transportation
     costs  through a competitive  solicitation  process or market price proxies
     beginning in 2005 and  thereafter.  The  settlement  will reduce the amount
     that PEF will charge to the Fuel and Purchased  Power Cost Recovery  clause
     for waterborne  transportation  by approximately  $13 million  beginning in
     2004.  This  concludes  the  FPSC's   investigation  of  PEF's  recoverable
     waterborne coal transportation costs.

                                       14
<PAGE>

     In March 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 and is generally  effective from May
     1, 2002 through December 31, 2005;  provided,  however,  that if PEF's base
     rate earnings fall below a 10% return on equity,  PEF may petition the FPSC
     to amend its base rates.

     B. Regional Transmission Organizations

     In  2000,  the  FERC  issued  Order  No.  2000  on  Regional   Transmission
     Organizations (RTOs), which set minimum  characteristics and functions that
     RTOs must meet, including  independent  transmission service. In July 2002,
     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 filed
     comments in November 2002 and supplement comments in January 2003. In April
     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
     RTOs and the FERC's  assertion  of  jurisdiction  over  certain  aspects of
     retail  service.  FERC has not yet  issued  a final  rule on SMD  NOPR.  In
     December   2003,  the  FPSC  issued  an  order   requiring   further  state
     proceedings. The Company cannot predict the outcome of these matters or the
     effect that they may have on the GridFlorida  proceedings currently ongoing
     before the FERC. It is unknown what impact the future proceedings will have
     on the Company's earnings, revenues or prices.

     PEF has $4 million invested in GridFlorida related to startup costs at June
     30, 2004.  PEF expects to recover these startup costs in  conjunction  with
     the  GridFlorida  original  structure or in conjunction  with any alternate
     combined transmission structure that emerges.

5.   GOODWILL AND OTHER INTANGIBLE ASSETS

     The changes in the carrying amount of goodwill,  by reportable segment, are
     as follows:

                                                Energy and
                                                 Related
     (in millions)                               Services      Other     Total
                                              ----------------------------------
     Balance as of January 1, 2003                   $ 11      $   -     $ 11
     Divestitures                                      (1)         -       (1)
     Acquisition                                        -          7        7
                                              ----------------------------------
     Balance as of December 31, 2003                 $ 10      $   7     $ 17
     Purchase accounting adjustment                     -          4        4
                                              ----------------------------------
     Balance as of June 30, 2004                     $ 10      $  11     $ 21
                                              ==================================

     In  December  2003,  $7 million in  goodwill  was  acquired  as part of the
     Progress Telecommunications  Corporation business combination and is in the
     Other segment.  The $4 million purchase  accounting  adjustment  during the
     first  half  of 2004  resulted  primarily  from  changes  in the  estimated
     restructuring  costs related to the partial acquisition of EPIK in December
     2003.

     The  Company has $9 million of net  intangible  assets at June 30, 2004 and
     December  31,  2003.  All of  the  Company's  intangibles  are  subject  to
     amortization.  The Company's  intangibles are primarily  acquired  customer
     contracts  that are amortized  over their  respective  lives.  Amortization
     expense  recorded on  intangible  assets for the three and six months ended
     June 30,  2004 and 2003,  and  estimated  annual  amortization  expense for
     intangible  assets for 2004 through 2008 are not material to the results of
     operations.  PEF has no goodwill or significant  intangible  assets at June
     30, 2004 or December 31, 2003.

                                       15
<PAGE>

6.   COMPREHENSIVE INCOME

     Comprehensive  income for Florida  Progress for the three months ended June
     30, 2004 and 2003 was $131 million and $113 million, respectively, and $177
     million and $204  million  for the six months  ended June 30, 2004 and June
     2003, respectively. Comprehensive income for PEF for the three months ended
     June 30, 2004 and 2003 was $84 million and $62 million,  respectively,  and
     $134  million and $133  million for the six months  ended June 30, 2004 and
     2003, respectively. Items of other comprehensive income consisted primarily
     of changes in fair value of derivatives used to hedge cash flows related to
     interest  on  long-term  debt  and  gas  sales,  and  to  foreign  currency
     translation adjustments.

7.   FINANCING ACTIVITIES

     On February 9, 2004,  Progress Capital Holdings,  Inc. paid at maturity $25
     million 6.48% medium term notes with excess cash.

8.   BENEFIT PLANS

     The  Company  and  some  of  its   subsidiaries   (including  PEF)  have  a
     non-contributory    defined   benefit   retirement   (pension)   plan   for
     substantially all full-time  employees.  The Company also has supplementary
     defined  benefit  pension  plans  that  provide  benefits  to  higher-level
     employees.  In  addition to pension  benefits,  the Company and some of its
     subsidiaries  (including  PEF) provide  contributory  other  postretirement
     benefits (OPEB), including certain health care and life insurance benefits,
     for retired  employees who meet specified  criteria.  The components of the
     net periodic benefit cost for the three and six months ended June 30 are:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     Three Months Ended June 30,                                                     Other Postretirement
                                                               Pension Benefits            Benefits
                                                            ---------------------    --------------------
     (in millions)                                              2004        2003          2004     2003
                                                            ---------------------    --------------------
     Service cost                                           $      5   $       5     $       1  $      1
     Interest cost                                                12          11             4         4
     Expected return on plan assets                              (18)        (15)            -         -
     Net amortization                                              1           -             1         1
                                                            ---------------------    --------------------
     Net cost recognized by Florida Progress                $      -   $       1     $       6  $      6
                                                            ---------------------    --------------------
     Net cost/(benefit) recognized by PEF                   $     (1)  $       -     $       6  $      6
                                                            =====================    ====================

     Six Months Ended June 30,                                                       Other Postretirement
                                                              Pension Benefits             Benefits
                                                            ---------------------    --------------------
     (in millions)                                              2004        2003          2004      2003
                                                            ---------------------    --------------------
     Service cost                                           $     11   $      10     $       3  $      3
     Interest cost                                                23          23             8         7
     Expected return on plan assets                              (36)        (31)            -         -
     Net amortization                                              1           -             2         2
                                                            ---------------------    --------------------
     Net cost/(benefit) recognized by Florida Progress      $     (1)  $       2     $      13  $     12
                                                            ---------------------    --------------------
     Net cost/(benefit) recognized by PEF                   $     (2)  $       1     $      12  $     12
                                                            =====================    ====================
</TABLE>

9.   RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS

     Progress  Energy and its  subsidiaries,  including the Company and PEF, are
     exposed to various  risks  related  to  changes in market  conditions.  The
     Company has a risk  management  committee that 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,  under  its risk  management  policy,  may use a  variety  of
     instruments  to manage  exposure to  fluctuations  in commodity  prices and
     interest rates.

     The Company 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.

                                       16
<PAGE>

     As of June 30, 2004, there were no outstanding interest rate derivatives at
     PEF.

     PEF has entered into derivative  instruments to hedge its exposure to price
     fluctuations  on fuel  oil  purchases.  These  instruments  did not  have a
     material impact on the Company's  consolidated and PEF's financial position
     or results of operations.

     Progress Fuels Corporation, through an affiliate,  periodically enters into
     derivative  instruments  to hedge its  exposure  to price  fluctuations  on
     natural gas sales.  As of June 30, 2004,  Progress  Fuels  Corporation  has
     executed cash flow hedges of natural gas sales through December 2005. These
     instruments  did not have a material  impact on the Company's  consolidated
     financial position or results of operations.

10.  FINANCIAL INFORMATION BY BUSINESS SEGMENT

     The Company's  principal  business segment is PEF, a utility engaged in the
     generation,  purchase,  transmission,  distribution and sale of electricity
     primarily in Florida.  The other reportable  business segments are Progress
     Fuels' Energy & Related  Services and Rail  Services.  The Energy & Related
     Services segment  includes coal and synthetic fuel operations,  natural gas
     production  and  sales,   river  terminal  services  and  off-shore  marine
     transportation.  Rail Services'  operations  include railcar  repair,  rail
     parts  reconditioning  and sales,  providing rail and track  material,  and
     scrap metal recycling.  The Other category  consists  primarily of PTC LLC,
     the  Company's  telecommunications  subsidiary,  and the  holding  company,
     Florida Progress  Corporation.  PTC LLC markets wholesale fiber-optic based
     capacity  service in the Eastern  United  States and also markets  wireless
     structure attachments to wireless communication  companies and governmental
     entities.  The  Company  allocates a portion of its  operating  expenses to
     business segments.

     The Company's  significant  operations  are  geographically  located in the
     United States with limited  operations in Mexico and Canada.  The Company's
     segments are based on differences  in products and services,  and therefore
     no additional  disclosures are presented.  Intersegment sales and transfers
     consist  primarily  of coal  sales from the  Energy  and  Related  Services
     segment of Progress  Fuels to PEF. The price  Progress Fuels charges PEF is
     based  on  market  rates  for  coal  procurement.  Prices  for  water-borne
     transportation in 2003 were based on a methodology approved by the FPSC. In
     April 2004, PEF executed a Stipulation  and  Settlement  agreement with the
     Office of Public Counsel and the Florida Industrial Power Users Group which
     amends the  transportation  rate.  On June 29, 2004,  the FPSC approved the
     Stipulation  and  Settlement.  This concludes the FPSC's  investigation  of
     PEF's recoverable  waterborne coal transportation  costs. See discussion at
     Note 4A. Rail  transportation  is also based on market  rates plus a return
     allowed  by the FPSC on  equity in  transportation  equipment  utilized  in
     transporting  coal to PEF. The allowed rate of return is currently  12%. No
     single customer accounted for 10% or more of unaffiliated revenues.

     The following summarizes the revenues and segment profits or losses for the
     reportable  business  segments.  The  combined  segment  profits and losses
     represents Florida Progress' total income.
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                        Energy and
     (in millions)                            PEF         Related          Rail         Other     Consolidated
                                                         Services
     -----------------------------------------------------------------------------------------------------------
     Three Months Ended June 30, 2004:
       Revenues                             $   860       $   343          $ 285       $   16        $ 1,504
       Intersegment  revenues                     -            69              -          (69)             -
          Total revenues                        860           412            285          (53)         1,504
       Segment profit                            84            41              4            6            135
         Total segment assets               $ 7,457       $ 1,002          $ 532       $  586        $ 9,577
     Three Months Ended June 30, 2003:
       Revenues                             $   767       $   219          $ 214       $    7        $ 1,207
       Intersegment  revenues                     -            88              -          (88)             -
          Total revenues                        767           307            214          (81)         1,207
          Segment profit (loss)                  61            42              2            9            114
</TABLE>


                                       17
<PAGE>

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

                                                        Energy and
                                              PEF         Related          Rail         Other     Consolidated
                                                         Services
     -----------------------------------------------------------------------------------------------------------
     Six Months Ended June 30, 2004:
       Revenues                             $ 1,644       $   616          $ 523       $   32        $ 2,815
       Intersegment  revenues                     -           151              -         (151)             -
          Total revenues                      1,644           767            523         (119)         2,815
       Segment profit                           133            79              9          (31)           190
     -----------------------------------------------------------------------------------------------------------
     Six Months Ended June 30, 2003:
       Revenues                             $ 1,495       $   522          $ 392       $   13        $ 2,422
       Intersegment  revenues                     -           169              -         (169)             -
          Total revenues                      1,495           691            392         (156)         2,422
          Segment profit (loss)                 132            67             (1)           8            206
</TABLE>

11.  OTHER INCOME AND OTHER EXPENSE

     Other  income and expense  includes  interest  income and other  income and
     expense items as discussed  below. The components of other, net as shown on
     the  accompanying  Statements  of Income for the three and six months ended
     June 30, 2004 and 2003, are as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                              Three Months Ended                  Six Months Ended
    (in millions)                                                   June 30                           June 30
                                                          ----------------------------     ---------------------------
                                                                 2004            2003            2004            2003
                                                          ------------    ------------     -----------     -----------
    Other income
    Nonregulated energy and delivery services income                3               3               7               7
    AFUDC equity                                                    1               3               2               4
    Other                                                           1               1               2               2
                                                          ------------    ------------     -----------     -----------
        Total other income - PEF                                $   5           $   7           $  11           $  13
    Other income - Florida Progress                                 3               4               2               2
                                                          ------------    ------------     -----------     -----------
        Total other income - PEF and Florida Progress           $   8           $  11           $  13           $  15
                                                          ------------    ------------     -----------     -----------

    Other expense
    Nonregulated energy and delivery services expenses          $   3           $   3           $   5           $   6
    Donations                                                       1               2               5               4
    Other                                                           1               1               2               2
                                                          ------------    ------------     -----------     -----------
       Total other expense - PEF                                $   5           $   6           $  12           $  12
    Loss from equity investments                                    4               4               7               7
    Other expense - Florida Progress                                1               2               1               3
                                                          ------------    ------------     -----------     -----------
       Total other expense - PEF and Florida Progress           $  10           $  12           $  20           $  22
                                                          ------------    ------------     -----------     -----------
    Other, net                                                  $  (2)          $  (1)          $  (7)          $  (7)
                                                          ============    ============     ===========     ===========
</TABLE>

     Nonregulated energy and delivery services include power protection services
     and mass market programs such as surge protection,  appliance  services and
     area light sales, and delivery,  transmission and substation work for other
     utilities.

12.  COMMITMENTS AND CONTINGENCIES

     Contingencies and significant changes to the commitments  discussed in Note
     19 of the Company's 2003 Annual Report on Form 10-K are described below.

     A. Guarantees

     As a part of normal  business,  Florida  Progress and certain  subsidiaries
     including  PEF  enter  into  various  agreements   providing  financial  or
     performance   assurances  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 June 30, 2004,  management
     does not believe  conditions are likely for significant  performance  under
     these agreements.

                                       18
<PAGE>

     Guarantees  at June  30,  2004,  are  summarized  in the  table  below  and
     discussed more fully in the subsequent paragraphs:

        (in millions)
        Guarantees issued on behalf of the Company and affiliates
             Standby letters of credit                                 $  27
             Surety bonds                                                  -
             Other guarantees                                             20
        Guarantees issued on behalf of third parties
             Securities of affiliated trust                              300
             Other guarantees                                             24
                                                                     -----------
           Total                                                       $ 371
                                                                     ===========

     Standby Letters of Credit

     Financial  institutions  have  issued  standby  letters  of credit  for the
     Company 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.  Of the total standby  letters of credit  issued,
     PEF has outstanding letters of credit totaling $2 million. Any amounts owed
     by the Company's  subsidiaries are reflected in the Company's  Consolidated
     Balance Sheets.

     Other Guarantees

     The Company has total other  guarantees  outstanding of  approximately  $44
     million.  Included  are $10 million of  guarantees  in support of synthetic
     fuel operations at a third party plant.  The remaining $34 million in other
     guarantees is related  primarily to prompt  performance  payments and other
     payments subject to contingencies.

     In connection  with the sale of  partnership  interests in Colona (see Note
     3.A),  Progress Fuels  indemnified the buyers against any claims related to
     Colona resulting from violations of any  environmental  laws.  Although the
     terms of the agreement  provide for no limitation to the maximum  potential
     future payments under the  indemnification,  the Company has estimated that
     the maximum total of such payments would be insignificant.

     Securities of Affiliated Trust

     The Company has guaranteed certain payments of an affiliated  company,  FPC
     Capital I (the Trust).  Due to the nature of the  relationship  between the
     Trust and Florida Progress Funding Corporation,  the Company has guaranteed
     the  payment  of  all  distributions  related  to the  Trust's  outstanding
     mandatorily  redeemable preferred  securities.  At June 30, 2004, the Trust
     had  outstanding  12 million  shares of the  securities  with a liquidation
     value of $300 million.

     Guarantees Issued by Progress Energy

     Progress  Energy has issued  approximately  $46  million of  guarantees  on
     behalf of Progress Fuels and its  subsidiaries  for obligations  under coal
     brokering operations.

     B. Insurance

     PEF is insured against public liability for a nuclear incident up to $10.76
     billion per occurrence.  Under the current provisions of the Price Anderson
     Act, which limits liability for accidents at nuclear power plants,  PEF, as
     owner of a nuclear  unit,  can be  assessed  a portion  of any  third-party
     liability  claims arising from an accident at any commercial  nuclear power
     plant in the United States.  In the event that public liability claims from
     an insured  nuclear  incident  exceed  $300  million  (currently  available
     through commercial insurers),  each company would be subject to assessments
     of up to $101 million for each  reactor  owned per  occurrence.  Payment of
     such assessments  would be made over time as necessary to limit the payment
     in any one year to no more than $10 million per reactor owned.  Congress is
     considering  revisions to the Price  Anderson  Act during 2004,  that could
     include  increased  limits and  assessments  per reactor  owned.  The final
     outcome of this matter cannot be predicted at this time.

                                       19
<PAGE>

     PEF self-insures their transmission and distribution lines against loss due
     to storm  damage  and other  natural  disasters.  PEF  accrues  $6  million
     annually to a storm damage reserve  pursuant to a regulatory  order and may
     defer losses in excess of the reserve.

     C. Claims and Uncertainties

     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
     the Company has some connection.  In this regard, PEF 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) and the
     Florida Department of Environmental  Protection (FDEP). In addition, PEF is
     periodically  notified  by  regulators  such as the EPA and  various  state
     agencies of its involvement or potential  involvement in sites,  other than
     MGP sites, that may require investigation and/or remediation.

     PEF has  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.
     The Company cannot predict the outcome of this matter.

     PEF At June  30,  2004,  PEF has  accrued  $27  million  for  probable  and
     estimable  costs related to various  environmental  sites. Of this accrual,
     $17 million is for costs  associated  with the  remediation of distribution
     and substation transformers for which PEF has received approval by the FPSC
     for recovery through the Environmental Cost Recovery Clause (ECRC). For the
     six months  ended June 30,  2004,  PEF  accrued  an  additional  $8 million
     related to the remediation of transformers  and a regulatory  asset for the
     probable recovery through the ECRC. The remaining $10 million is related to
     two former MGP sites and other sites associated with PEF that have required
     or are anticipated to require  investigation  and/or remediation costs. PEF
     is  unable  to  provide  an  estimate  of  the  reasonably  possible  total
     remediation costs beyond what is currently accrued.

     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.  Presently,  PEF
     cannot  determine the total costs that may be incurred in  connection  with
     the remediation of all sites.  As more activity occurs at these sites,  PEF
     will assess the need to adjust the accruals.

     Florida   Progress  In  2001,   Progress   Fuels  sold  its  Inland  Marine
     Transportation  business to AEP Resources,  Inc. Progress Fuels established
     an accrual to address  indemnities  and  retained  environmental  liability
     associated  with  the  transaction.   Progress  Fuels  estimates  that  its
     contractual liability to AEP Resources,  Inc. associated with Inland Marine
     Transportation  is $4 million at June 30, 2004 and has accrued such amount.
     The  previous  accrual of $10 million was reduced in 2003 based on a change
     in estimate.  This accrual has been  determined on an  undiscounted  basis.
     Progress  Fuels measures its liability for this site based on estimable and
     probable remediation  scenarios.  The Company cannot predict the outcome of
     this matter.

     Certain  historical  sites exist that are being  addressed  voluntarily  by
     Progress  Fuels and FPC.  An  immaterial  accrual has been  established  to
     address  investigation  expenses related to these sites. The Company cannot
     determine  the total costs that may be incurred  in  connection  with these
     sites. The Company cannot predict the outcome of this matter.

     Rail 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.

     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.

                                       20
<PAGE>

     Air Quality

     There has been and may be further proposed 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  and PEF's financial
     position or results of operations.  Some companies may seek recovery of the
     related cost through rate adjustments or similar mechanisms.  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.
     PEF was asked to provide  information to the EPA as part of this initiative
     and  cooperated in providing the requested  information.  During 2003,  PEF
     received a supplemental  information  request from the EPA and responded to
     it. 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 the EPA's  initiative or its impact,
     if any, on the Company.

     In 2003,  the EPA  published  a final  rule  addressing  routine  equipment
     replacement  under the New Source Review program.  The rule defines routine
     equipment  replacement  and the types of activities that are not subject to
     New Source Review  requirements or New Source  Performance  Standards under
     the Clean Air Act. The rule was challenged in the Federal Appeals Court and
     its  implementation  stayed.  In  July  2004,  the  EPA  announced  it will
     reconsider   certain  issues  arising  from  the  final  routine  equipment
     replacement rule.  Reconsideration does not impact the court-approved stay.
     The agency plans to issue a final decision on these reconsidered  issues by
     year end. 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.  In 2003,  the EPA proposed,  and  solicited  comment on,
     alternative   control  plans  that  would  limit  mercury   emissions  from
     coal-fired power plants. The first, a Maximum Achievable Control Technology
     (MACT)  standard  applicable  to  every  coal-fired  plant,  would  require
     compliance in 2008. The second,  which the EPA has stated it prefers,  is a
     mercury cap and trade  program that would  require  limits to be met in two
     phases,  2010 and 2018.  The EPA  expects to finalize  the mercury  rule in
     March  2005.  Achieving  compliance  with  either  proposal  could  involve
     significant  capital  costs  which  could be  material  and  adverse to the
     Company's and PEF's financial condition or results of operations.  However,
     the Company cannot predict the outcome of this matter.

     In conjunction  with the proposed  mercury rule, the EPA proposed a Maximum
     Available  Control  Technology (MACT) standard to regulate nickel emissions
     from  residual  oil-fired  units.  The agency  estimates  the proposal will
     reduce national nickel emissions to approximately 103 tons. The EPA expects
     to finalize the nickel rule in March 2005.  The Company  cannot predict the
     outcome of this matter.

     In December  2003,  the EPA released its  proposed  Interstate  Air Quality
     Rule,  currently  referred to as the Clean Air Interstate Rule (CAIR).  The
     EPA's proposal requires 28 jurisdictions,  including North Carolina,  South
     Carolina,  Georgia and Florida,  to further reduce nitrogen oxide (NOx) and
     sulfur  dioxide  (SO2)  emissions  in order to attain  pre-set  NOx and SO2
     emissions  levels.  The rule is  expected  to  become  final in 2004.  In a
     supplemental  notice of proposed  rulemaking on the CAIR, the EPA indicated
     that  compliance  with the rule  would  meet  the best  available  retrofit
     technology (BART)  requirements of its regional haze rule, as the emissions
     controls  to be  installed  for the  CAIR  are  roughly  equivalent  to the
     regional haze BART provisions.  The  installation of controls  necessary to
     comply with the rule could involve significant capital costs.

                                       21
<PAGE>

     Water Quality

     As a result of the operation of certain control equipment needed to address
     the air  quality  issues  outlined  above,  new  wastewater  streams may be
     generated.  Integration  of these  new  wastewater  streams  into  existing
     wastewater  treatment processes may result in permitting,  construction and
     water  treatment  requirements  imposed on the Company in the immediate and
     extended future.

     After many years of litigation and settlement negotiations, the EPA adopted
     final regulations in February 2004 for the implementation of Section 316(b)
     of the Clean Water Act. These  regulations  become  effective  September 7,
     2004. The purpose of these regulations is to minimize adverse environmental
     impacts  caused by cooling  water  intake  structures  and  intake  systems
     located  at  existing  facilities.  Over  the  next  several  years,  these
     regulations  may require the  facilities to mitigate the effects to aquatic
     organisms  by  undertaking   intake   modifications  or  other  restorative
     activities.  Substantial costs could be incurred by the facilities in order
     to comply with the new regulations.  The Company cannot predict the outcome
     and impacts to the facilities at this time.

     The EPA has published for comment a draft  Environmental  Impact  Statement
     (EIS) for  surface  coal  mining  (sometimes  referred  to as  "mountaintop
     mining") and valley fills in the  Appalachian  coal region,  where Progress
     Fuels  currently  operates  a surface  mine and may  operate  others in the
     future.  The final EIS,  when  published,  may affect  regulations  for the
     permitting  of  mining   operations   and  the  cost  of  compliance   with
     environmental  regulations.  Regulatory  changes for mining may also affect
     the cost of fuel for the coal-fueled electric generating plant. The Company
     cannot predict the outcome of this matter.

     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  has  stated it 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 the Company's
     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.

     Other Contingencies

     1. Franchise Litigation

     Three  cities,  with  a  total  of  approximately  18,000  customers,  have
     litigation  pending  against PEF in various  circuit courts in Florida.  As
     discussed below, three other cities,  with a total of approximately  30,000
     customers,  have  subsequently  settled their  lawsuits with PEF and signed
     new,  30-year  franchise  agreements.  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
     those circuit court decisions and authorized  cities to determine the value
     of  PEF's   electric   distribution   system  within  the  cities   through
     arbitration.

     Arbitration  in one of the  cases  (the  City of  Casselberry)  was held in
     August  2002.  Following   arbitration,   the  parties  entered  settlement
     discussions,  and in July 2003 the City approved a settlement agreement and
     a new, 30-year  franchise  agreement with PEF. The settlement  resolves all
     pending   litigation  with  that  City.  A  second  arbitration  (with  the
     13,000-customer  City of Winter Park) was completed in February 2003.  That
     arbitration  panel  issued an award in May 2003  setting the value of PEF's
     distribution  system  within the City of Winter Park at  approximately  $32
     million,  not including  separation and reintegration and construction work
     in  progress,  which could add several  million  dollars to the award.  The
     panel also awarded PEF approximately  $11 million in stranded costs,  which
     according to the award decreases over time. In September 2003,  Winter Park

                                       22
<PAGE>

     voters passed a referendum  that would authorize the City to issue bonds of
     up to  approximately  $50 million to acquire  PEF's  electric  distribution
     system.  While the City has not yet  definitively  decided  whether it will
     acquire the system,  on April 26, 2004, the City Commission  voted to enter
     into a hedge  agreement to lock into interest rates for the  acquisition of
     the  system  and to  proceed  with the  acquisition.  The City  sought  and
     received  wholesale  power  supply  bids and on June 23,  2004,  executed a
     wholesale  power  supply  contract  with  PEF.  On May 12,  2004,  the City
     solicited bids to operate and maintain the  distribution  system.  The City
     received bids on July 1, 2004,  and expects to make its selection in August
     2004. The City has indicated that its goal is to begin electric  operations
     in June  2005.  At this  time,  whether  and  when  there  will be  further
     proceedings regarding the bids on City of Winter Park cannot be determined.

     A  third  arbitration  (with  the  2,500-customer  Town  of  Belleair)  was
     completed in June 2003. In September 2003, the arbitration  panel issued an
     award in that case  setting the value of the electric  distribution  system
     within the Town at approximately $6 million. The panel further required the
     Town to pay to PEF its requested $1 million in separation and reintegration
     costs  and $2  million  in  stranded  costs.  The Town has not yet  decided
     whether it will  attempt to acquire the system.  At this time,  whether and
     when there  will be  further  proceedings  regarding  the Town of  Belleair
     cannot be determined.  A fourth arbitration (with the 13,000-customer  City
     of Apopka) had been  scheduled  for January  2004.  In December  2003,  the
     Apopka  City  Commission  voted on first  reading to  approve a  settlement
     agreement and a 30-year  franchise  with PEF. The  settlement and franchise
     became effective upon approval by the Commission at a second reading of the
     franchise  in  January  2004.  The  settlement   resolves  all  outstanding
     litigation between the parties.

     Arbitration in the remaining city's litigation (the  1,500-customer City of
     Edgewood) has not yet been scheduled.

     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 held oral  argument  in one of the  appeals in August  2003.
     Subsequently,  the Court  requested  briefing from the parties in the other
     appeal,  which was completed in November 2003. The Court has not yet issued
     a decision in these cases.  PEF cannot predict the outcome of these matters
     at this time.

     2. DOE Litigation

     As required  under the Nuclear Waste Policy Act of 1982, PEF 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  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.  The U.S.  Circuit  Court  of  Appeals  (Federal
     Circuit)  has  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.

                                       23
<PAGE>

     In January 2004,  PEF filed a complaint  with the DOE claiming that the DOE
     breached  the  Standard  Contract  for  Disposal of Spent  Nuclear  Fuel by
     failing  to  accept  spent  nuclear  fuel  from  various   Progress  Energy
     facilities on or before January 31, 1998.  Damages due to DOE's breach will
     likely exceed $100 million.  Similar suits have been  initiated by over two
     dozen other utilities.

     In July 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. On November
     5, 2003,  Congressional  negotiators  approved $580 million for fiscal year
     2004 for the Yucca  Mountain  project,  $123 million more than the previous
     year. In January 2003, the State of Nevada,  Clark County,  Nevada, and the
     City of Las Vegas  petitioned the U.S. Court of Appeals for the District of
     Columbia Circuit for review of the Congressional  override  resolution.  On
     July 9, 2004, the Court rejected the challenge to the  constitutionality of
     the resolution  approving Yucca Mountain,  but ruled that the EPA was wrong
     to set a 10,000-year compliance period. The DOE continues to state it plans
     to begin  operation of the repository at Yucca Mountain in 2010. PEF cannot
     predict the outcome of this matter.

     PEF is  currently  storing  spent  nuclear fuel onsite in spent fuel pools.
     PEF's nuclear unit,  Crystal River Unit No. 3, (CR3) has sufficient storage
     capacity in place for fuel  consumed  through the end of the  expiration of
     the current  license in 2016.  PEF will seek  renewal of the CR3  operating
     license and if approved, additional dry storage may be necessary.

     3. Advanced Separation Technologies (AST)

     In 1996,  Florida  Progress  sold its 80% interest in AST to Calgon  Carbon
     Corporation  (Calgon)  for net  proceeds of $56  million in cash.  In 1998,
     Calgon  filed a lawsuit  against  Florida  Progress  and the other  selling
     shareholder  and amended it in April 1998,  alleging  misstatement of AST's
     1996 revenues, assets and liabilities,  seeking damages and granting Calgon
     the right to rescind  the sale.  The  lawsuit  also  accused the sellers of
     failing to  disclose  flaws in AST's  manufacturing  process  and a lack of
     quality control.  Florida Progress believes that the aggregate total of all
     legitimate  warranty  claims by  customers  of AST for which it is probable
     that Florida  Progress  will be  responsible  for under the Stock  Purchase
     Agreement with Calgon is approximately $3 million, and accordingly, accrued
     $3 million in the third  quarter of 1999 as an estimate  of probable  loss.
     All parties  filed motions for summary  judgment in July 2001.  The summary
     judgment motions of Calgon and the other selling shareholder were denied in
     April 2002. The summary  judgment motion of Florida  Progress was withdrawn
     pending a legal  challenge  to portions  of the report of Calgon's  expert,
     Arthur  Andersen,  which  had been  used to  oppose  summary  judgment.  In
     September 2003, the United States  District Court for the Western  District
     of  Pennsylvania  issued final orders  excluding  from evidence in the case
     that portion of Arthur  Andersen's  damage analysis based on the discounted
     cash flow  methodology  of  valuation.  The Court  did not  exclude  Arthur
     Andersen's use of the guideline publicly traded company  methodology in its
     damage  analysis.  Florida  Progress  filed a renewed  motion  for  summary
     judgment in October 2003, which is pending.  The Company cannot predict the
     outcome of this matter, but will present a vigorous defense.

     4. Synthetic Fuel Tax Credits

     At December 31, 2003,  Florida Progress,  through its  subsidiaries,  was a
     majority-owner  in three  entities and a minority  owner in three  entities
     that own  facilities  that  produce  synthetic  fuel as  defined  under the
     Internal  Revenue Code (Code).  In June 2004,  Progress  Fuels sold, in two
     transactions,  a  combined  49.8  percent  partnership  interest  in Colona
     Synfuel  Limited  Partnership,  LLLP  (Colona),  one of its majority  owned
     synthetic fuel  operations.  The Company is now a minority owner in Colona,
     but continues to consolidate Colona in accordance with FASB  Interpretation
     No.  46R.  Florida  Progress,  through  its  subsidiaries,  is  currently a
     majority  owner in two synthetic fuel entities and a minority owner in four
     synthetic fuel entities,  including Colona.  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 and
     that the fuel was  produced  from a  facility  that was  placed in  service
     before July 1, 1998.  Synthetic  fuel tax credit  amounts not  utilized are
     carried  forward  indefinitely  as  alternative  minimum tax  credits.  All
     majority-owned and minority-owned  entities received private letter rulings
     (PLRs)  from the  Internal  Revenue  Service  (IRS)  with  respect to their
     synthetic  fuel  operations.  The PLRs do not limit the production on which
     synthetic fuel credits may be claimed.

                                       24
<PAGE>

     In September 2002, all of Florida Progress'  majority-owned  synthetic fuel
     entities at that time,  including Colona, and two of the Company's minority
     owned  synthetic  fuel entities  were  accepted  into the IRS's  Pre-Filing
     Agreement  (PFA) program.  The PFA program allows  taxpayers to voluntarily
     accelerate  the IRS exam  process in order to seek  resolution  of specific
     issues.  Either the Company or the IRS can withdraw from the program at any
     time,  and issues not resolved  through the program may proceed to the next
     level of the IRS exam process.

     In July  2004,  Progress  Energy was  notified  that the  Internal  Revenue
     Service  (IRS)  field  auditors   anticipate  taking  an  adverse  position
     regarding  the  placed-in-service   date  of  the  Company's  four  Earthco
     synthetic  fuel  facilities.  Due to the  auditors'  position,  the IRS has
     decided to exercise  its right to withdraw  from the  Pre-Filing  Agreement
     (PFA) program with Progress Energy.  With the IRS's withdrawal from the PFA
     program,  the review of Progress Energy's Earthco facilities is back on the
     normal  procedural  audit path of the  Company's  tax returns.  The IRS has
     indicated that the field audit team will provide its written recommendation
     later this year.  After the field audit team's  written  recommendation  is
     received,  the  Company  will  begin the  Appeals  process  within the IRS.
     Through June 30, 2004, based on its ownership  percentage,  the Company has
     claimed $528 million of tax credits  generated  by Earthco  facilities.  If
     these credits were disallowed, the Company's one time exposure for cash tax
     payments would be $64 million (excluding interest), and earnings and equity
     would be reduced by $528 million,  excluding interest. The Company believes
     that the appeals  process could take up to two years to complete,  however,
     it cannot  control the actual timing of resolution  and cannot  predict the
     outcome of this matter.

     In February 2004,  subsidiaries of the Company  finalized  execution of the
     Colona Closing  Agreement with the IRS  concerning  their Colona  synthetic
     fuel facilities.  The Closing Agreement provided that the Colona facilities
     were  placed  in  service  before  July  1,  1998,  which  is  one  of  the
     qualification  requirements  for tax credits  under Section 29 of the Code.
     The Closing Agreement further provides that the fuel produced by the Colona
     facilities in 2001 is a "qualified fuel" for purposes of the Section 29 tax
     credits. This action concluded the IRS PFA program with respect to Colona.

     In October  2003,  the  United  States  Senate  Permanent  Subcommittee  on
     Investigations began a general investigation  concerning synthetic fuel tax
     credits  claimed  under  Section  29 of  the  Code.  The  investigation  is
     examining the  utilization of the credits,  the nature of the  technologies
     and fuels  created,  the use of the  synthetic  fuel,  and other aspects of
     Section 29 and is not specific to the Company's  synthetic fuel operations.
     Progress   Energy  is  providing   information  in  connection   with  this
     investigation. The Company cannot predict the outcome of this matter.

     In  management's  opinion,  the Company is complying with all the necessary
     requirements to be allowed such credits under Section 29, and,  although it
     cannot  provide  certainty,  it  believes  that it will  prevail  in  these
     matters.  Accordingly,  the  Company  has no  current  plans to  alter  its
     synthetic fuel production  schedule as a result of these matters.  However,
     should  the  Company  fail to prevail in these  matters,  there  could be a
     material liability for previously taken Section 29 credits, with a material
     adverse impact on earnings and cash flows.

     5. Other Legal Matters

     Florida  Progress  and PEF are  involved in various  other claims and legal
     actions arising 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. Florida Progress and PEF believe the ultimate disposition
     of these  matters  will not have a  material  adverse  effect  upon  either
     Company's   consolidated  and  PEF's  financial   position  or  results  of
     operations.

                                       25
<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. Many, but not
all of the  factors  that may impact  actual  results of the Company and PEF are
discussed  in the Risk Factors  section of PEF's annual  report on Form 10-K for
the year ended December 31, 2003 which was filed with the SEC on March 12, 2004.
You should  carefully  read these SEC  reports.  Please  review "SAFE HARBOR FOR
FORWARD-LOOKING  STATEMENTS" for a discussion of the factors that may impact any
such forward-looking statements made herein.

Amounts  reported in the interim  Consolidated  Statements of Income for Florida
Progress Corporation (Florida Progress) and the interim Statements of Income for
Progress  Energy Florida,  Inc. (PEF) are not necessarily  indicative of amounts
expected  for the  respective  annual or future  periods  due to the  effects of
seasonal  temperature  variations  on  energy  consumption  and  the  timing  of
maintenance on electric generating units, among other factors.

This discussion  should be read in conjunction with the  accompanying  financial
statements  found elsewhere in this report and in conjunction with the 2003 Form
10-K.

OPERATING RESULTS

Beginning in the fourth quarter of 2003, the Company ceased  recording  portions
of Energy and Related Services segment's  operations,  primarily  synthetic fuel
facilities,  one month in  arrears.  As a result,  earnings  for the year  ended
December 31, 2003  included 13 months of  operations,  resulting in a net income
increase of $2 million for the year. The Company  restated  previously  reported
consolidated  quarterly  earnings to reflect  the new  reporting  periods  which
resulted in four  months of  earnings  in the first  quarter of 2003 and changed
reported net income for subsequent  quarters.  Earnings increased $4 million and
$15 million,  respectively,  for the three and six months ended June 30, 2003 as
compared to amounts originally reported.

The Company's segments  contributed  segment profits or losses for the three and
six months ended June 30, 2004 and 2003 as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

---------------------------------------------------------------------------------------
(in millions)                     Three Months Ended June 30   Six Months Ended June 30
---------------------------------------------------------------------------------------
Business Segment                           2004         2003          2004         2003
---------------------------------------------------------------------------------------
PEF                                      $   84        $  61        $  133       $  132
Energy and Related Services                  41           42            79           67
Rail                                          4            2             9           (1)
Other                                         6            9           (31)           8
                                 ------------------------------------------------------
    Segment profit/(loss)                $  135        $ 114        $  190       $  206
---------------------------------------------------------------------------------------
</TABLE>


Progress Energy Florida

PEF  contributed  segment  profits of $84  million and $61 million for the three
months  ended June 30, 2004 and 2003,  respectively,  and $133  million and $132
million  for the six months  ended  June 30,  2004 and 2003,  respectively.  The
increase in profits for the three  months  ended June 30, 2004 when  compared to
2003 is primarily due to a reduction in the provision for revenue  sharing,  the
additional return on investment for Hines 2 plant and favorable customer growth.
Profits for six months ended June 30, 2004 increased slightly due to a reduction
in the  provision  for  revenue  sharing,  favorable  customer  growth  and  the
additional return on investment on the Hines 2 plant, partially offset by higher
operations and maintenance (O&M) charges and increased depreciation expense from
assets placed in service.

                                       26
<PAGE>

PEF's  electric  revenues  for the three and six months  ended June 30, 2004 and
2003, and the amount and percentage change by customer class are as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

---------------------------------------------------------------------------------------------------------------------
                                    Three Months Ended June 30                    Six Months Ended June 30
(in millions of $)
---------------------------------------------------------------------------------------------------------------------
Customer Class                  2004   Change     % Change        2003       2004   Change     % Change         2003
---------------------------------------------------------------------------------------------------------------------
Residential                 $    422  $      8       1.9       $   414    $   824    $   26        3.3       $   798
Commercial                       214        22      11.5           192        395        53       15.5           342
Industrial                        66        10      17.9            56        128        24       23.1           104
Governmental                      52         6      13.0            46         99        15       17.9            84
Retail revenue sharing            (3)       25                     (28)        (7)       21                      (28)
                            --------------------              -------------------------------              ----------
    Total retail revenues        751        71      10.4       $   680      1,439       139       10.7         1,300
Wholesale                         53         3       6.0            50        120        (1)      (0.8)          121
Unbilled                          24        17                       7         18        11                        7
Miscellaneous                     32         2       6.7            30         67         -         -             67
                            --------------------              -------------------------------              ----------
  Total electric revenues   $    860  $     93      12.1       $   767    $ 1,644    $  149       10.0       $ 1,495
---------------------------------------------------------------------------------------------------------------------
</TABLE>

PEF's electric energy sales for the three and six months ended June 30, 2004 and
2003, and the amount and percentage change by customer class are as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

---------------------------------------------------------------------------------------------------------------------
(in thousands of mWh)                   Three Months Ended June 30                   Six Months Ended June 30
---------------------------------------------------------------------------------------------------------------------
Customer Class                     2004   Change     % Change        2003     2004    Change    % Change       2003
--------------------------------------------------- ------------------------------------------ ----------------------
Residential                       4,505     (198)       (4.2)       4,703    8,797      (459)     (5.0)       9,256
Commercial                        2,941      (10)       (0.3)       2,951    5,431        38       0.7        5,393
Industrial                        1,051       43         4.3        1,008    2,074       150       7.8        1,924
Governmental                        751        9         1.2          742    1,423        25       1.8        1,398
                              ---------------------             ------------------------------             ----------
    Total retail energy sales     9,248     (156)       (1.7)       9,404   17,725      (246)     (1.4)      17,971
Wholesale                         1,093      203        22.8          890    2,415       249      11.5        2,166
Unbilled                            790      292                      498      655       101                    554
                              ---------------------             ------------------------------             ----------
  Total mWh sales                11,131      339         3.1       10,792   20,795       104       0.5       20,691
---------------------------------------------------------------------------------------------------------------------
</TABLE>

Three  months  ended June 30, 2004  compared to the three  months ended June 30,
2003

PEF's revenues,  excluding  recoverable fuel and other pass-through  revenues of
$479 million and $422 million for the three months ended June 30, 2004 and 2003,
respectively,  increased  $36  million.  This  increase  was due  primarily to a
reduction in the provision for revenue sharing of $25 million. The provision for
revenue  sharing  recorded in the prior year included an additional  $18 million
related  to 2002 as ordered  by the FPSC and the year to date  accrual  for 2003
which was $7 million higher than the provisions  recorded during 2004.  Revenues
also  increased  $1l million and $10  million,  respectively,  due to  favorable
customer  growth and the return on  investment on Hines 2 Plant which was placed
in service in December 2003. PEF has approximately  37,000 additional  customers
as of June 30, 2004  compared to June 30,  2003.  Based on the  Stipulation  and
Settlement  Agreement  reached with the FPSC in April 2002,  beginning  with the
in-service date of PEF's Hines Unit 2 and continuing  through December 2005, PEF
will be allowed to recover  through  the fuel cost  recovery  clause a return on
average investment and depreciation expense for Hines Unit 2, to the extent such
costs do not exceed the Unit's cumulative fuel savings over the recovery period.
These  increases  were  partially  offset by the impact of milder weather in the
current year of approximately $5 million.

Fuel and purchased power costs represent the costs of generation, which includes
fuel purchases for generation, as well as energy purchased in the market to meet
customer load. Fuel and purchased power expenses are recovered primarily through
cost recovery  clauses and, as such,  changes in these  expenses,  do not have a
material  impact on earnings.  The difference  between fuel and purchased  power
costs incurred and associated fuel revenues is deferred for future collection or
refund to customers.

                                       27
<PAGE>

Fuel and purchased  power  expenses  increased $57 million from $358 million for
the three  months ended June 30, 2003 to $415 million for the three months ended
June 30, 2004.  This increase is  attributable  primarily to an increase in fuel
used  in  electric  generation  which  increased  $59  million.   Higher  system
requirements  and  increased  fuel costs in the  current  year  account  for $32
million of the  increase  in fuel used in  electric  generation.  The  remaining
increase is due to the recovery of fuel expenses that were deferred in the prior
year, as well as the deferral of fuel expenses in the current year.

O&M costs  decreased  $2 million,  when  compared to the $154  million  incurred
during the three months ended June 30, 2003. This decrease is primarily  related
to the timing of outages and maintenance at generation  facilities of $3 million
and a  reduction  in costs  allocated  from the  Service  Company  of $1 million
partially   offset  by  higher  costs   associated   with  planned   reliability
improvements of approximately $2 million.

Depreciation  and  amortization  decreased $8 million  when  compared to the $80
million  incurred during the three months ended June 30, 2003,  primarily due to
the  amortization of the Tiger Bay regulatory asset in the prior year. The Tiger
Bay regulatory asset, for contract  termination costs, was recovered pursuant to
an  agreement  between PEF which was  approved by the FPSC in 1997,  and as such
fluctuations  in this  expense  did not have an impact on  earnings.  During the
second quarter of 2003, Tiger Bay  amortization  was $15 million.  The Tiger Bay
asset  was  fully  amortized  in  September  2003.  The  decrease  in Tiger  Bay
amortization was partially  offset by additional  depreciation for assets placed
in service.

Six months ended June 30, 2004 compared to the six months ended June 30, 2003

PEF's revenues,  excluding  recoverable fuel and other pass-through  revenues of
$926  million and $794  million for the six months ended June 30, 2004 and 2003,
respectively,  increased  $17  million.  This  increase  was due  primarily to a
reduction in the provision for revenue sharing of $21 million.  Results for 2003
included the accrual of an  additional  $18 million  related to the 2002 revenue
sharing  provision  as ordered  by the FPSC in June of 2003.  In  addition,  the
return on investment in Hines 2 and favorable customer growth increased revenues
by $19 million and $9 million,  respectively.  These  increases  were  partially
offset by the impact of milder weather in the current year of approximately  $17
million.

Fuel and purchased power costs represent the costs of generation, which includes
fuel purchases for generation, as well as energy purchased in the market to meet
customer load. Fuel and purchased power expenses are recovered primarily through
cost recovery  clauses and, as such,  changes in these  expenses,  do not have a
material  impact on earnings.  The difference  between fuel and purchased  power
costs incurred and associated fuel revenues is deferred for future collection or
refund to customers.

Fuel and  purchased  power  expenses  were $805 million for the six months ended
June 30, 2004,  which  represents a $132 million  increase  compared to the same
period in the prior  year.  This  increase is due to an increase in fuel used in
electric  generation  of $143 million  offset by a reduction in purchased  power
costs. This increase in fuel used in electric  generation is due to the recovery
of fuel expenses that were deferred in the prior year as well as the deferral of
current year fuel  expenses.  In November  2003, the FPSC approved PEF's request
for a cost adjustment in its annual fuel filing due to the rising costs of fuel.
The new rates became  effective  January 2004.  The decrease in purchased  power
expense of $11  million is  attributable  primarily  to the Hines 2 Plant  being
placed in service in December of 2003,  thereby  reducing the need for purchased
power.

O&M costs  increased  $17 million,  when  compared to the $295 million  incurred
during the six months ended June 30, 2003. This increase is primarily related to
higher costs associated with plant outages and planned reliability  improvements
of approximately $9 million each.

Depreciation  and  amortization  decreased $18 million when compared to the $159
million incurred during the six months ended June 30, 2003, primarily due to the
amortization of the Tiger Bay regulatory  asset in the prior year. The Tiger Bay
regulatory asset, for contract  termination  costs, was recovered pursuant to an
agreement  between  PEF  which  was  approved  by the  FPSC in 1997  and as such
fluctuations in this expense did not have an impact on earnings.  During the six
months ended June 30, 2003, Tiger Bay  amortization  was $30 million.  The Tiger
Bay asset was fully  amortized  in  September  2003.  The  decrease in Tiger Bay
amortization was partially  offset by additional  depreciation for assets placed
in service.

                                       28
<PAGE>

ENERGY AND RELATED SERVICES

The Energy and Related  Services  segment  operations  include  synthetic  fuels
production,  natural gas production,  coal  extraction and terminal  operations.
Energy and Related  Services results for the six months ended June 30, 2003 were
restated to reflect seven months of earnings for certain  operations,  primarily
synthetic fuel facilities as discussed previously.

The following  summarizes  Energy and Related  Services' segment profits for the
three and six months ended June 30, 2004 and 2003:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

-----------------------------------------------------------------------------------------------
                                      Three Months Ended June 30      Six Months Ended June 30
-----------------------------------------------------------------------------------------------
(in millions)                                2004           2003        2004              2003
-----------------------------------------------------------------------------------------------
  Synthetic fuel operations                $   21         $   33      $   47            $   54
  Gas production                               12              9          25                16
  Coal fuel and other operations                8              -           7                (3)
                                      ---------------------------------------------------------
     Segments Profits                      $   41         $   42      $   79            $   67
-----------------------------------------------------------------------------------------------
</TABLE>

Synthetic Fuel Operations

The  synthetic  fuel  operations  generated  net  profits of $21 million and $33
million for the three months ended June 30, 2004 and 2003, respectively, and $47
million  and $54  million  for the six  months  ended  June 30,  2004 and  2003,
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.  See Note 12 of the Notes to the Interim
Financial  Statements  for  further  discussion  of  synthetic  fuel tax  credit
matters.

The operations resulted in the following for the three and six months ended June
30, 2004 and 2003:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

-----------------------------------------------------------------------------------------------------
                                             Three Months Ended June 30     Six Months Ended June 30
-----------------------------------------------------------------------------------------------------
(in millions)                                     2004             2003         2004            2003
-----------------------------------------------------------------------------------------------------
Tons sold                                          1.5              1.8          3.4             3.2
                                          -----------------------------------------------------------

Operating losses, excluding tax credits        $   (16)        $    (17)     $   (40)        $   (33)
Tax credits generated                               37               50           87              87
                                          -----------------------------------------------------------
    Net profits                                $    21         $     33      $    47         $    54
-----------------------------------------------------------------------------------------------------
</TABLE>

Synthetic  fuels' tons net profits  decreased in the three months ended June 30,
2004 as  compared  to the same period in 2003 due  primarily  to a reduction  in
credits  earned of as a result of a  decrease  in tons sold and an  increase  in
operating  cost.  Synthetic fuel profits  decreased in the six months ended June
30, 2004 due primarily to increases in operating cost

Natural Gas Operations

Natural gas operations  generated  profits of $12 million and $9 million for the
three months ended June 30, 2004 and 2003, respectively, and $25 million and $16
million  for the six  months  ended  June 30,  2004 and 2003.  The  increase  in
production  resulting  from the  acquisition of North Texas Gas in late February
2003 and  increased  drilling,  and  higher gas  prices in 2004  contributed  to
increased  earnings in 2004 as compared to 2003.  In October  2003,  the Company
completed  the  sale  of  certain  gas  producing   properties   owned  by  Mesa
Hydrocarbons,  LLC. The following  summarizes the gas  production,  revenues and
gross  margins  for the three and six  months  ended  June 30,  2004 and 2003 by
production facility:

                                       29
<PAGE>
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

-------------------------------------------------------------------------------------------------
                                           Three Months Ended June 30   Six Months Ended June 30
-------------------------------------------------------------------------------------------------
                                                   2004          2003        2004           2003
-------------------------------------------------------------------------------------------------
         Production in Bcf equivalent
Mesa                                                  -           1.5           -            3.2
Westchester                                         4.9           3.1         9.0            6.3
North Texas Gas                                     2.7           1.8         5.3            2.4
                                         --------------------------------------------------------
    Total Production                                7.6           6.4        14.3           11.9
                                         --------------------------------------------------------

             Revenues in millions
Mesa                                              $   -         $   3       $   -          $   8
Westchester                                          26            16          48             31
North Texas Gas                                      14            10          27             14
                                         --------------------------------------------------------
    Total Revenues                                $  40         $  29       $  75          $  53
                                         --------------------------------------------------------

                 Gross Margin
in millions of $                                  $  33         $  24       $  60          $  43
As a % of revenues                                   83%           83%         80%            81%
-------------------------------------------------------------------------------------------------
</TABLE>

Coal Fuel and Other Operations

Coal fuel and other operations  generated  segment profits of $8 million for the
three  months  ended June 30, 2004  compared  to zero profit for the  comparable
period in the prior year. For the six months ended June 30, 2004,  coal fuel and
other operations  generated  segment profits of $7 million compared to a segment
loss of $3 million for the comparable period in the prior year. This increase in
profits for the quarter and year to date is due to higher volumes and margin for
coal fuel operations of $9 million after-tax offset by a reduction in profits of
$4  million  after-tax  for  fuel  transportation   operations  related  to  the
waterborne  transportation  ruling  by the  FPSC.  See  Note  4A of the  Interim
Financial  Statements.  The  increase in net income is also due to the impact of
the  retroactive  Service Company  allocation in the prior year.  Results in the
same  period  for the prior year were  negatively  impacted  by the  retroactive
reallocation of Service Company costs of $4 million after-tax.

Rail

Rail's operations include railcar and locomotive repair,  trackwork,  rail parts
reconditioning and sales, scrap metal recycling and other rail related services.
The  Company  sold the  majority  of the  assets  of  Railcar  Ltd.,  a  leasing
subsidiary,  in 2004.  See  Note 3B of the  Notes  to the  Consolidated  Interim
Financial Statements.

Rail  contributed  segment  profit of $4 million  and $2  million  for the three
months ended June 30, 2004 and 2003,  respectively.  Revenues have increased $71
million to $285 million for the three months ended June 30, 2004 compared to the
same  period in the prior year.  This  increase is due  primarily  to  increased
volumes  and higher  prices in  recycling  operations  and in part to  increased
production  and sales in locomotive  and railcar  services and  engineering  and
track  services.  Cost of goods sold  increased  $62  million  compared  to $188
million  in the  prior  year.  The  increase  in  costs  of good  sold is due to
increased costs for inventory, labor and operations as a result of the increased
volume  in  the  recycling  operations,  locomotive  and  railcar  services  and
engineering  and track  services.  The  increase  in margins  of $9 million  was
partially  offset by an  increase in general and  administrative  costs  related
primarily to higher professional fees.

Rail contributed  segment profit of $9 million for the six months ended June 30,
2004  compared  with a net loss of $1 million  for the same  period in the prior
year.  Revenues have  increased  $130 million to $523 million for the six months
ended June 30, 2004 compared to the same period in the prior year. This increase
is due primarily to increased volumes and higher prices in recycling  operations
and in part to increased production and sales in locomotive and railcar services
and engineering  and track  services.  Cost of goods sold increased $112 million
compared to $455  million in the prior year.  The increase in costs of good sold
is due to increased costs for inventory, labor and operations as a result of the
increased  volume in the recycling  operations,  locomotive and railcar services
and engineering  and track  services.  Results in the prior year were negatively
impacted by the retroactive  reallocation of Service Company costs of $3 million
after-tax.  The  favorability  related  to the  reallocation  was  offset  by an
increase  in  general  and  administrative  costs in the  current  year  related
primarily to higher professional fees.


                                       30
<PAGE>

OTHER

The Other segment  includes  telecommunications,  holding  company and financing
expenses.

Other segment  profits  decreased $3 million for the three months ended June 30,
2004  compared  to the same  period in the prior  year.  Other  segment  profits
decreased  $39  million for the six months  ended June 30, 2004  compared to the
same period in the prior year. The decreases were due primarily to the impact of
tax levelization  adjustments  booked each quarter.  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 decreased by $11
million and  decreased  by $10 million for the three  months ended June 30, 2004
and 2003,  respectively,  in order to maintain an effective tax rate  consistent
with the estimated annual rate.  Income tax expense was increased by $23 million
and  decreased  by $15 million for the six months  ended June 30, 2004 and 2003,
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.  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.

LIQUIDITY AND CAPITAL RESOURCES

Statements of Cash Flows and Financing Activities

Florida Progress
Cash provided by operating  activities increased $148 million for the six months
ended June 30, 2004,  when  compared to the six months ended June 30, 2003.  The
increase in operating  cash flow was due primarily to the recovery of previously
deferred fuel costs.

Net cash used in investing  activities decreased $275 million for the six months
ended June 30, 2004,  when compared to the three months ended June 30, 2003. The
decrease  is  primarily  due  to  reduced  nonregulated  capital   expenditures,
primarily  the  purchase of North Texas Gas assets in the first  quarter of 2003
and proceeds from the sale of Railcar Ltd. in 2004.

On  February 9, 2004,  Progress  Capital  Holdings,  Inc.  paid at maturity  $25
million 6.48% medium term notes with excess cash.

PEF
Cash provided by operating  activities increased $178 million for the six months
ended June 30, 2004,  when  compared to the six months ended June 30, 2003.  The
increase in operating cash flow was due primarily to approximately  $100 million
of lower operating cash flow at PEF for the period in 2003,  which resulted from
an under recovery of fuel costs.

Net cash used in investing  activities  decreased $85 million for the six months
ended June 30, 2004,  when compared to the three months ended June 30, 2003. The
decrease is due to the absence of nuclear  fuel  purchases  and reduced  capital
spending in 2004.

The amount  and timing of future  sales of  company  securities  will  depend on
market  conditions,  operating cash flow,  asset sales and the specific needs of
the Company and PEF.  The Company and PEF may from time to time sell  securities
beyond the amount needed to meet capital  requirements in order to allow for the
early  redemption of long-term  debt,  the  redemption of preferred  stock,  the
reduction of short-term debt or for other generation corporate purposes.

Future Commitments

As of  June  30,  2004,  both  Florida  Progress'  and  PEF's  contractual  cash
obligations and other commercial  commitments  have not changed  materially from
what was reported in the 2003 Annual Report on Form 10-K.

                                       31
<PAGE>

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by ITEM 3 is omitted pursuant to Instruction  H(2)(c)
to Form 10-Q (Omission of Information by Certain Wholly Owned Subsidiaries).

Item 4. CONTROLS AND PROCEDURES

Florida Progress Corporation

Pursuant to the Securities Exchange Act of 1934, Florida Progress carried out an
evaluation,  with the participation of Florida Progress'  management,  including
Florida  Progress'  President and Chief Executive  Officer,  and Chief Financial
Officer,  of the  effectiveness  of Florida  Progress'  disclosure  controls and
procedures (as defined under the Securities  Exchange Act of 1934) as of the end
of the  period  covered by this  report.  Based  upon that  evaluation,  Florida
Progress'  President and Chief Executive  Officer,  and Chief Financial  Officer
concluded  that  Florida  Progress'   disclosure  controls  and  procedures  are
effective in timely  alerting them to material  information  relating to Florida
Progress  (including its consolidated  subsidiaries)  required to be included in
Florida Progress' periodic SEC filings.

There has been no change in Florida  Progress'  internal  control over financial
reporting  during the quarter ended June 30, 2004 that has materially  affected,
or is reasonably likely to materially affect, Florida Progress' internal control
over financial reporting.

Progress Energy Florida, Inc.

Pursuant to the Securities  Exchange Act of 1934, PEF carried out an evaluation,
with the participation of PEF's management,  including PEF's President and Chief
Executive Officer,  and Chief Financial  Officer,  of the effectiveness of PEF's
disclosure controls and procedures (as defined under the Securities Exchange Act
of 1934) as of the end of the  period  covered by this  report.  Based upon that
evaluation,  PEF's  President and Chief Executive  Officer,  and Chief Financial
Officer concluded that PEF's disclosure controls and procedures are effective in
timely  alerting  them to material  information  relating to PEF  required to be
included in PEF's periodic SEC filings.

There has been no change in PEF's  internal  control  over  financial  reporting
during the  quarter  ended June 30,  2004 that has  materially  affected,  or is
reasonably  likely to materially  affect,  PEF's internal control over financial
reporting.

                                       32
<PAGE>

                           PART II. OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

Legal aspects of certain matters are set forth in Part I, Item 1. See Note 12 to
the Florida Progress Corporation and PEF Interim Financial Statements.

1.   U.S. Global,  LLC v. Progress Energy,  Inc. et al, Case No. 03004028-03 and
     Progress  Synfuel  Holdings,  Inc.  et al, v. U.S.  Global,  LLC,  Case No.
     03004028-03

A number of Progress Energy, Inc. subsidiaries and affiliates are parties to two
lawsuits  arising  out of an Asset  Purchase  Agreement  dated as of October 19,
1999, by and among U.S.  Global LLC  (Global),  EARTHCO,  certain  affiliates of
EARTHCO  (collectively  the  EARTHCO  Sellers),  EFC Synfuel LLC (which is owned
indirectly be Progress  Energy,  Inc.) and certain of its affiliates,  including
Solid Energy LLC,  Solid Fuel LLC,  Ceredo  Synfuel LLC,  Gulf Coast Synfuel LLC
(currently   named  Sandy  River   Synfuel  LLC)   (Collectively   the  Progress
Affiliates),  as amended by an amendment to Purchase  Agreement as of August 23,
2000 (the Asset  Purchase  Agreement).  Global has asserted that pursuant to the
Asset  Purchase  Agreement it is entitled to (1) interest in two synthetic  fuel
facilities  currently  owned by the  Progress  Affiliates,  and (2) an option to
purchase additional interests in the two synthetic fuel facilities.

The first suit, U.S. Global,  LLC v. Progress  Energy,  Inc. et al, was filed in
the Circuit Court for Broward County,  Florida in March 2003 (the Florida Global
Case).  The Florida  Global Case asserts claims for breach of the Asset Purchase
Agreement and other contract and tort claims related to the Progress Affiliates'
alleged  interference  with Global's rights under the Asset Purchase  Agreement.
The Florida Global Case requests an unspecified amount of compensatory  damages,
as well as declaratory  relief.  On December 15, 2003,  the Progress  Affiliates
filed a motion to dismiss the Third  Amended  Complaint  in the  Florida  Global
Case.  The  motion  to  dismiss  filed on behalf of the  Progress  Energy,  Inc.
subsidiaries  and  affiliates  that are parties to the case will be heard by the
Circuit Court of Broward County, Florida on June 7, 2004. The case was dismissed
on procedural  issues, but allowed the plaintiff to refile. The case was refiled
on June 23, 2004.

The second suit, Progress Synfuel Holdings, Inc. et al. v. U.S. Global, LLC, was
filed by the Progress  Affiliates in the Superior  Court for Wake County,  North
Carolina seeking declaratory relief consistent with the Company's interpretation
of the asset Purchase  Agreement (the North  Carolina  Global Case).  Global was
served with the North Carolina Global Case on April 17, 2003.

On May 15, 2003, Global moved to dismiss the North Carolina Global Case for lack
of personal jurisdiction over Global. In the alternative,  Global requested that
the court decline to exercise its  discretion  to hear the Progress  Affiliates'
declaratory  judgment action.  On August 7, 2003, the Wake County Superior court
denied  Global's  motion to  dismiss  and  entered  an order  staying  the North
Carolina  Global  Case,  pending  the outcome of the Florida  Global  Case.  The
Progress  Affiliates have appealed the Superior  court's order staying the case;
Global  has cross  appealed  the  denial of its  motion to  dismiss  for lack of
personal jurisdiction. The North Carolina Court of Appeals heard argument on the
Progress Affiliates' Appeal and the Global's cross appeal on May 26, 2004. There
has been no ruling on the appeal or the cross appeal. The Company cannot predict
the  outcome  of  these  matters,   but  will  vigorously   defend  against  the
allegations.  On July 29,  2004,  the  Progress  Affiliates  filed a  motion  to
dismiss.



                                       33
<PAGE>

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

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

    Exhibit                                                              Florida Progress        Progress Energy
     Number                          Description                           Corporation            Florida, Inc.
     ------                          -----------                           -----------            -------------

     31(a)        Certifications pursuant to Section 302 of the                 X                       X
                  Sarbanes-Oxley Action of 2002 - Chairman,
                  President and Chief Executive Officer

     31(b)        Certifications pursuant to Section 302 of the                 X                       X
                  Sarbanes-Oxley Action of 2002 - Executive Vice
                  President and Chief Financial Officer

     32(a)        Certifications pursuant to Section 906 of the                 X                       X
                  Sarbanes-Oxley Action of 2002 - Chairman,
                  President and Chief Executive Officer

     32(b)        Certifications pursuant to Section 906 of the                 X                       X
                  Sarbanes-Oxley Action of 2002 - Executive Vice
                  President and Chief Financial Officer
</TABLE>

(b) Reports filed or furnished on Form 8-K since the beginning of the quarter:

         Florida Progress Corporation
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                   Financial
                     Item          Statements
                   Reported         Included             Date of Event         Date Filed or Furnished

                    9, 12             Yes                July 21, 2004              July 21, 2004
                     5, 9              No                 July 7, 2004               July 7, 2004
                    9, 12             Yes               April 21, 2004             April 21, 2004

         Florida Power Corporation
         d/b/a Progress Energy Florida, Inc.

                                   Financial
                     Item          Statements
                   Reported         Included             Date of Event         Date Filed or Furnished

                    9, 12             Yes                July 21, 2004              July 21, 2004
                    9, 12             Yes               April 21, 2004             April 21, 2004
</TABLE>


                                       34
<PAGE>

                                   SIGNATURES


     Pursuant to the  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.



                                            FLORIDA PROGRESS CORPORATION
                                            FLORIDA POWER CORPORATION
                                            (Registrants)




Date:  August 6, 2004                       By:  /s/ Geoffrey S. Chatas
                                                 ----------------------
                                            Geoffrey Chatas
                                            Executive Vice President and
                                            Chief Financial Officer





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