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, 2002
                                                 -------------

                                       OR

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

               For the transition period from _______ to _______.


<TABLE>
<S>     <C>

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

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



  1-3274                                  Florida Power Corporation                                  59-0247770
                                            A Florida Corporation
                                             100 Central Avenue
                                        St. Petersburg, Florida 33701
                                          Telephone (727) 820-5151



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

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

     This combined Form 10-Q is filed  separately  by two  registrants:  Florida
     Progress Corporation and Florida Power Corporation.  Information  contained
     herein relating to either individual registrant is filed by such registrant
     solely on its own behalf.

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

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

<TABLE>
<S>     <C>

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

                                       1
<PAGE>

           FLORIDA PROGRESS CORPORATION AND FLORIDA POWER CORPORATION
                 FORM 10-Q - For the Quarter Ended June 30, 2002




Glossary of Terms


Safe Harbor For Forward-Looking Statements


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

      Florida Progress Corporation

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

      Florida Power Corporation

      Statements of Income
      Balance Sheets
      Statements of Cash Flows

Notes to Financial Statements
    Florida Progress Corporation and Florida Power Corporation


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


Item 3.  Quantitative and Qualitative Disclosures About Market Risk


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings


Item 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:
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<S>     <C>

       TERM                                                   DEFINITION

CR3                                  Florida Power's nuclear generating plant, Crystal River Unit No. 3
DOE                                  United States Department of Energy
EPA                                  United States Environmental Protection Agency
FASB                                 Financial Accounting Standards Board
FDEP                                 Florida Department of Environmental Protection
FERC                                 Federal Energy Regulatory Commission
Florida Power or the utility         Florida Power Corporation
Florida Progress or the Company      Florida Progress Corporation
FPSC                                 Florida Public Service Commission
Funding Corp.                        Florida Progress Funding Corporation
IRS                                  Internal Revenue Service
MEMCO                                MEMCO Barge Line, Inc.
MGP                                  Manufactured Gas Plant
MW                                   Megawatts
NRC                                  United States Nuclear Regulatory Commission
PLR                                  Private Letter Ruling
Preferred Securities                 7.10% Cumulative Quarterly Income Preferred Securities, Series A, of FPC Capital
                                     I, fully and unconditionally guaranteed by Florida Progress
Preferred Stock                      Florida Power Cumulative Preferred Stock, $100 par value
Progress Capital                     Progress Capital Holdings, Inc.
Progress Energy                      Progress Energy, Inc.
Progress Fuels                       Progress Fuels Corporation, formerly referred to as Electric Fuels Corporation
Progress Rail                        Progress Rail Services Corporation
Progress Telecom                     Progress Telecommunications Corporation
Progress Ventures, Inc.              Legal entity holding certain non-regulated operations and part of Progress
                                     Energy's Progress Ventures business segment
PUHCA                                Public Utility Holding Company Act of 1935, as amended
RTO                                  Regional Transmission Organization
SEC                                  United States Securities and Exchange Commission
Section 29                           Section 29 of the Internal Revenue Service Code
SFAS                                 Statements of Financial Accounting Standards
The Trust                            FPC Capital I
</TABLE>




                                       3
<PAGE>





SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

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

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

Any forward-looking statement speaks only as of the date on which such statement
is made,  and Florida  Progress and Florida  Power  undertake no  obligation  to
update  any  forward-looking  statement  or  statements  to  reflect  events  or
circumstances after the date on which such statement is made.

Examples of factors that you should consider with respect to any forward-looking
statements made throughout  this document  include,  but are not limited to, the
following:  governmental policies and regulatory actions (including those of the
Federal Energy Regulatory Commission,  the Environmental  Protection Agency, the
Nuclear  Regulatory  Commission,  the  Department of Energy,  the Securities and
Exchange  Commission  under the Public Utility  Holding  Company Act of 1935, as
amended and the Florida Public Service Commission), particularly legislative and
regulatory  initiatives  regarding the restructuring of the electricity industry
or  potential  national  deregulation  legislation;  the  outcome  of legal  and
administrative   proceedings,   including   proceedings   before  our  principal
regulators, and the impact of the settlement of Florida Power's rate case; risks
associated  with operating  nuclear power  facilities,  availability  of nuclear
waste storage facilities,  and nuclear  decommissioning costs; terrorist threats
and  activities,  economic  uncertainty  caused by such activities on the United
States,  and  potential  adverse  reactions  to  United  States   anti-terrorism
activities;  changes in the  economy of areas  served by  Florida  Progress  and
Florida  Power;  the extent to which we are able to obtain  adequate  and timely
rate  recovery of costs,  including  potential  stranded  costs arising from the
restructuring of the electricity  industry;  weather conditions and catastrophic
weather-related   damage;   general  industry  trends,  changes  in  technology,
increased  competition  from  energy and gas  suppliers,  and market  demand for
energy;  inflation and capital  market  conditions;  realization of cost savings
related to  synergies  resulting  from  acquisition  by Progress  Energy and the
success of our direct and indirect subsidiaries; the extent to which we are able
to continue to use tax credits  associated  with the operations of the synthetic
fuel facilities;  and  unanticipated  changes in operating  expenses and capital
expenditures.

All such  factors are  difficult  to  predict,  contain  uncertainties  that may
materially  affect  actual  results,  and may be beyond  the  control of Florida
Progress or Florida  Power.  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 or Florida Power.


                                       4
<PAGE>

<TABLE>
<S>     <C>


                          PART I. FINANCIAL INFORMATION


Item 1. FINANCIAL STATEMENTS

                          Florida Progress Corporation
                    CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                  June 30, 2002

CONSOLIDATED STATEMENTS of INCOME

(Unaudited)                                                        Three Months Ended            Six Months Ended
                                                                        June 30,                     June 30,
(In thousands)                                                     2002             2001      2002               2001
------------------------------------------------------------ -------------  ------------- ---------------  -------------
Operating Revenues
   Electric                                                     $ 765,923      $ 783,660     $ 1,452,364    $ 1,594,133
   Diversified businesses                                         359,198        349,988         666,435        684,426
------------------------------------------------------------ -------------  ------------- ---------------  -------------
      Total Operating Revenues                                  1,125,121      1,133,648       2,118,799      2,278,559
------------------------------------------------------------ -------------  ------------- ---------------  -------------
Operating Expenses
   Fuel used in electric generation                               199,123        220,616         399,415        437,003
   Purchased power                                                133,767        126,603         241,731        252,222
   Other operation and maintenance                                149,983        119,815         281,317        230,681
   Depreciation and amortization                                   75,284         94,646         144,577        246,714
   Taxes other than on income                                      56,792         57,076         113,933        117,185
   Diversified businesses                                         381,369        384,772         706,341        735,369
------------------------------------------------------------ -------------  ------------- ---------------  -------------
        Total Operating Expenses                                  996,318      1,003,528       1,887,314      2,019,174
------------------------------------------------------------ -------------  ------------- ---------------  -------------
Operating Income                                                  128,803        130,120         231,485        259,385
------------------------------------------------------------ -------------  ------------- ---------------  -------------
Other Income (Expense)
   Interest income                                                  3,154          2,164           3,875          3,927
   Other, net                                                     (5,842)        (5,243)         (9,474)       (10,983)
 ------------------------------------------------------------ -------------  ------------- ---------------  -------------
        Total Other Income (Expense)                              (2,688)        (3,079)         (5,599)        (7,056)
------------------------------------------------------------ -------------  ------------- ---------------  -------------
Income before Interest Charges and Income Taxes                   126,115        127,041         225,886        252,329
------------------------------------------------------------ -------------  ------------- ---------------  -------------
Interest Charges
   Gross interest charges                                          47,779         48,361          95,310         99,907
   Allowance for borrowed funds used during construction            (574)          (111)         (1,033)          (204)
------------------------------------------------------------ -------------  ------------- ---------------  -------------
Net Interest Charges                                               47,205         48,250          94,277         99,703
------------------------------------------------------------ ------------- ------------- ---------------  -------------
Income from Continuing Operations before Income Taxes              78,910         78,791         131,609        152,626
Income Taxes (Benefit)                                           (11,446)       (23,109)        (34,520)       (24,899)
------------------------------------------------------------ -------------  ------------- ---------------  -------------
Income from Continuing Operations                                  90,356        101,900         166,129        177,525
Discontinued Operations, net of tax (Note 3):
  Loss from discontinued operations                                     -       (12,089)               -       (11,726)
------------------------------------------------------------ -------------  ------------- ---------------  -------------
Net Income                                                       $ 90,356       $ 89,811      $  166,129      $ 165,799
------------------------------------------------------------ -------------  ------------- ---------------  -------------

See Notes to Interim Financial Statements.


                                       5
<PAGE>



Florida Progress Corporation
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)                                                     June 30,       December 31,
Assets                                                               2002             2001
------------------------------------------------------------------------------------------------
Utility Plant
  Electric utility plant in service                             $  7,206,421     $  7,151,729
  Accumulated depreciation                                       (4,083,609)      (3,984,308)
------------------------------------------------------------------------------------------------
        Utility plant in service, net                              3,122,812        3,167,421
  Held for future use                                                  7,921            8,274
  Construction work in progress                                      404,033          292,883
  Nuclear fuel, net of amortization                                   51,388           62,536
------------------------------------------------------------------------------------------------
        Total Utility Plant, Net                                   3,586,154        3,531,114
------------------------------------------------------------------------------------------------
Current Assets
  Cash and cash equivalents                                           25,191            5,201
  Accounts receivable                                                375,276          357,038
  Unbilled accounts receivable                                        74,919           63,080
  Receivable from affiliates                                          39,971           26,976
  Notes receivable from affiliates                                     9,723                -
  Taxes receivable                                                     4,331           14,761
  Deferred income taxes                                               21,070           32,334
  Inventory                                                          520,610          485,891
  Deferred fuel cost                                                   5,186           15,147
  Prepayments                                                         26,676           10,748
  Other current assets                                                34,243           48,175
------------------------------------------------------------------------------------------------
        Total Current Assets                                       1,137,196        1,059,351
------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
  Regulatory assets                                                  138,908          157,725
  Unamortized debt expense                                            20,355           21,021
  Nuclear decommissioning trust funds                                409,853          406,100
  Diversified business property, net                                 869,438          669,078
  Miscellaneous other property and investments                       109,769          117,535
  Prepaid pension costs                                              215,466          202,167
  Other assets and deferred debits                                   170,670          147,713
------------------------------------------------------------------------------------------------
        Total Deferred Debits and Other Assets                     1,934,459        1,721,339
------------------------------------------------------------------------------------------------
         Total Assets                                            $ 6,657,809      $ 6,311,804
------------------------------------------------------------------------------------------------
Capitalization and Liabilities
------------------------------------------------------------------------------------------------
Capitalization
  Common stock                                                   $ 1,608,437      $ 1,409,034
  Retained earnings                                                  672,735          666,201
  Accumulated other comprehensive loss                               (2,683)          (2,985)
------------------------------------------------------------------------------------------------
         Total Common Stock Equity                                 2,278,489        2,072,250
  Preferred stock of subsidiaries-not subject to mandatory
      redemption                                                      33,497           33,497
  Unsecured note with Parent                                         500,000          500,000
  Long-term debt, net                                              2,024,909        2,143,934
------------------------------------------------------------------------------------------------
        Total Capitalization                                       4,836,895        4,749,681
------------------------------------------------------------------------------------------------
Current Liabilities
  Current portion of long-term debt                                  102,860           88,053
  Accounts payable                                                   286,930          285,524
  Payable to affiliates                                              133,055          116,520
  Notes payable to affiliates                                        292,009          147,583
  Interest accrued                                                    66,705           67,861
  Customer deposits                                                  123,060          118,285
  Accrued taxes other than on income                                  75,196           16,361
  Other current liabilities                                          113,521          128,004
------------------------------------------------------------------------------------------------
        Total Current Liabilities                                  1,193,336          968,191
------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
  Accumulated deferred income taxes                                  203,633          165,816
  Accumulated deferred investment tax credits                         50,501           54,387
  Regulatory liabilities                                              48,746           45,643
  Other liabilities and deferred credits                             324,698          328,086
------------------------------------------------------------------------------------------------
        Total Deferred Credits and Other Liabilities                 627,578          593,932
------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 11)
------------------------------------------------------------------------------------------------
         Total Capitalization and Liabilities                    $ 6,657,809      $ 6,311,804
------------------------------------------------------------------------------------------------
See Notes to Interim Financial Statements.

                                       6
<PAGE>



Florida Progress Corporation
CONSOLIDATED STATEMENTS of CASH FLOWS                                                      Six Months Ended
(Unaudited)                                                                                     June 30,
(In thousands)                                                                            2002             2001
-----------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income                                                                               $ 166,129         $ 165,799
Adjustments to reconcile net income to net cash provided by operating activities:
      Income from discontinued operations                                                        -            (2,682)
      Estimated loss on disposal of discontinued operations                                      -            14,408
      Depreciation and amortization                                                        189,555           288,497
      Deferred income taxes and investment tax credits, net                                 22,950            22,518
      Deferred fuel cost                                                                     9,961             4,222
      Changes in working capital, net of effects from sale or acquisition of
       business
         Net increase in accounts receivable                                               (38,231)          (27,375)
         Net increase in inventories                                                       (35,639)          (85,123)
         Net (increase) decrease in prepaids and other current assets                       (2,179)            9,353
         Net increase (decrease) in accounts payable                                        11,681            (5,195)
         Net increase in other current liabilities                                          23,000            28,412
      Other                                                                                  9,373           (75,314)
-----------------------------------------------------------------------------------------------------------------------
         Net Cash Provided by Operating Activities                                         356,600           337,520
-----------------------------------------------------------------------------------------------------------------------
Investing Activities:
Utility property additions                                                                (187,979)         (121,701)
Diversified business property additions                                                    (62,688)          (47,307)
Nuclear fuel additions                                                                        (108)          (33,058)
Proceeds from sale of asset                                                                      -             5,532
Acquisition, net of cash acquired                                                          (17,355)                -
Other investing activities                                                                  (7,427)          (15,115)
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
          Net Cash Used in Investing Activities                                           (275,557)         (211,649)
-----------------------------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds from issuance of long-term debt                                                         -                87
Net decrease in commercial paper reclassified to long-term debt                            (47,420)                -
Net increase in intercompany notes                                                         134,703           147,590
Net decrease in short-term indebtedness                                                          -          (165,243)
Retirement of long-term debt                                                               (58,626)          (36,429)
Equity contribution from parent                                                             70,617            33,466
Dividends paid to parent                                                                  (159,595)         (109,224)
Other financing activities                                                                    (732)           (2,244)
-----------------------------------------------------------------------------------------------------------------------
           Net Cash Used in Financing Activities                                           (61,053)         (131,997)
-----------------------------------------------------------------------------------------------------------------------
Cash Used in Discontinued Operations                                                                             (17)
-----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                                        19,990            (6,143)
-----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of the Period                                         5,201            24,200
-----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period                                               $  25,191         $  18,057
-----------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid (received) during the period - interest (net of amount capitalized)            $  80,153         $  97,659
                                         income taxes (net of refunds)                   $  10,517         $ (86,670)
See Note 6 for non-cash investing and financing activities.

See Notes to Interim Financial Statements.



                                       7
<PAGE>




                            Florida Power Corporation
                          INTERIM FINANCIAL STATEMENTS
                                  June 30, 2002


STATEMENTS of INCOME                                         Three Months Ended           Six Months Ended
(Unaudited)                                                       June 30,                    June 30,
(In thousands)                                               2002          2001         2002             2001
-------------------------------------------------------- ------------- ------------- -------------- -------------
Operating Revenues
   Electric                                                 $ 765,923     $ 783,660   $  1,452,364   $ 1,594,133
Operating Expenses
   Fuel used in electric generation                           199,123       220,616        399,415       437,003
   Purchased power                                            133,767       126,603        241,731       252,222
   Operation and maintenance                                  149,983       119,815        281,317       230,681
   Depreciation and amortization                               75,284        94,646        144,577       246,714
   Taxes other than on income                                  56,792        57,076        113,933       117,185
-------------------------------------------------------- ------------- ------------- -------------- -------------
        Total Operating Expenses                              614,949       618,756      1,180,973     1,283,805
-------------------------------------------------------- ------------- ------------- -------------- -------------
Operating Income                                              150,974       164,904        271,391       310,328
-------------------------------------------------------- ------------- ------------- -------------- -------------
Other Income (Expense)
   Interest income                                                569           739          1,276           777
   Other, net                                                    (740)       (3,187)        (2,075)       (4,941)
-------------------------------------------------------- ------------- ------------- -------------- -------------
        Total Other Income (Expense)                             (171)       (2,448)          (799)       (4,164)
-------------------------------------------------------- ------------- ------------- -------------- -------------
Income before Interest Charges and Income Taxes               150,803       162,456        270,592       306,164
-------------------------------------------------------- ------------- ------------- -------------- -------------
Interest Charges
   Gross interest charges                                      28,624        27,945         57,363        57,033
   Allowance for borrowed funds used during construction         (574)         (111)        (1,033)         (204)
-------------------------------------------------------- ------------- ------------- -------------- -------------
Net Interest Charges                                           28,050        27,834         56,330        56,829
-------------------------------------------------------- ------------- ------------- -------------- -------------
Income before Income Taxes                                    122,753       134,622        214,262       249,335
Income Taxes                                                   45,622        49,933         79,010        92,662
-------------------------------------------------------- ------------- ------------- -------------- -------------
Net Income                                                     77,131        84,689        135,252       156,673
Dividends on Preferred Stock                                      378           378            756           756
-------------------------------------------------------- ------------- ------------- -------------- -------------
Earnings for Common Stock                                    $ 76,753      $ 84,311      $ 134,496     $ 155,917
-------------------------------------------------------- ------------- ------------- -------------- -------------
See Notes to Interim Financial Statements.




                                       8
<PAGE>



Florida Power Corporation
BALANCE SHEETS
(Unaudited)
(In thousands)                                                                June 30,          December 31,
Assets                                                                          2002                2001
---------------------------------------------------------------------------------------------------------------
Utility Plant
  Electric utility plant in service                                         $ 7,206,421          $ 7,151,729
  Accumulated depreciation                                                   (4,083,609)          (3,984,308)
---------------------------------------------------------------------------------------------------------------
        Utility plant in service, net                                         3,122,812            3,167,421
  Held for future use                                                             7,921                8,274
  Construction work in progress                                                 404,033              292,883
  Nuclear fuel, net of amortization                                              51,388               62,536
---------------------------------------------------------------------------------------------------------------
        Total Utility Plant, Net                                              3,586,154            3,531,114
---------------------------------------------------------------------------------------------------------------
Current Assets
  Cash and cash equivalents                                                       8,020                    -
  Accounts receivable                                                           205,034              185,562
  Unbilled accounts receivable                                                   74,919               63,080
  Receivable from affiliates                                                     15,190               16,424
  Notes receivable from affiliates                                                9,723              119,799
  Deferred income taxes                                                          21,070               32,334
  Inventory                                                                     205,246              188,630
  Deferred fuel cost                                                              5,186               15,147
  Prepayments and other current assets                                            8,942                4,336
---------------------------------------------------------------------------------------------------------------
        Total Current Assets                                                    553,330              625,312
---------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
  Regulatory assets                                                             138,908              157,725
  Unamortized debt expense                                                       11,338               11,844
  Nuclear decommissioning trust funds                                           409,853              406,100
  Miscellaneous other property and investments                                   43,476               46,442
  Prepaid pension costs                                                         209,651              198,351
  Other assets and deferred debits                                               15,288               21,274
---------------------------------------------------------------------------------------------------------------
        Total Deferred Debits and Other Assets                                  828,514              841,736
---------------------------------------------------------------------------------------------------------------
         Total Assets                                                       $ 4,967,998          $ 4,998,162
---------------------------------------------------------------------------------------------------------------
Capitalization and Liabilities
---------------------------------------------------------------------------------------------------------------
Capitalization
  Common stock                                                              $ 1,081,257          $ 1,081,257
  Retained earnings                                                             925,284              950,387
---------------------------------------------------------------------------------------------------------------
        Total Common Stock Equity                                             2,006,541            2,031,644
  Preferred stock of subsidiaries-not subject to mandatory redemption            33,497               33,497
  Long-term debt, net                                                         1,501,007            1,619,280
---------------------------------------------------------------------------------------------------------------
        Total Capitalization                                                  3,541,045            3,684,421
---------------------------------------------------------------------------------------------------------------
Current Liabilities
  Current portion of long-term debt                                             101,937               32,000
  Accounts payable                                                              160,679              143,828
  Payable to affiliates                                                         126,556              189,817
  Taxes accrued                                                                  29,764                1,768
  Interest accrued                                                               54,383               54,440
  Customer deposits                                                             123,060              118,285
  Accrued taxes other than on income                                             66,892                9,202
  Other current liabilities                                                      48,182               57,778
---------------------------------------------------------------------------------------------------------------
        Total Current Liabilities                                               711,453              607,118
---------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
  Accumulated deferred income taxes                                             406,853              394,828
  Accumulated deferred investment tax credits                                    49,999               53,875
  Regulatory liabilities                                                         48,746               45,643
  Other liabilities and deferred credits                                        209,902              212,277
---------------------------------------------------------------------------------------------------------------
        Total Deferred Credits and Other Liabilities                            715,500              706,623
---------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 11)
---------------------------------------------------------------------------------------------------------------
         Total Capitalization and Liabilities                               $ 4,967,998          $ 4,998,162
---------------------------------------------------------------------------------------------------------------
See Notes to Interim Financial Statements.

                                       9
<PAGE>



Florida Power Corporation
STATEMENTS of CASH FLOWS                                                                Six Months Ended
(Unaudited)                                                                                  June 30,
(In thousands)                                                                        2002             2001
---------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income                                                                         $ 135,252        $ 156,673
Adjustments to reconcile net income to net cash provided by operating activities:
      Depreciation and amortization                                                  157,166          249,542
      Deferred income taxes and investment tax credits, net                           16,073            4,397
      Deferred fuel cost                                                               9,961            4,222
      Changes in working capital:
         Net increase in accounts receivable                                         (30,077)         (29,657)
         Net increase in inventories                                                 (16,616)         (37,809)
         Net (increase) decrease in prepaids and other current assets                 (4,606)           5,691
         Net increase (decrease) in accounts payable                                 (46,410)          16,487
         Net increase in other current liabilities                                    80,808           73,619
             Other                                                                    (4,786)         (78,760)
---------------------------------------------------------------------------------------------------------------
         Net Cash Provided by Operating Activities                                   296,765          364,405
---------------------------------------------------------------------------------------------------------------
Investing Activities:
Property additions                                                                  (187,979)        (121,701)
Nuclear fuel additions                                                                  (108)         (33,058)
Other investing activities                                                            (1,859)          (9,139)
---------------------------------------------------------------------------------------------------------------
          Net Cash Used in Investing Activities                                     (189,946)        (163,898)
---------------------------------------------------------------------------------------------------------------
Financing Activities:
Net increase in commercial paper reclassified to long-term debt                      (47,420)         (74,930)
Net increase (decrease) in intercompany notes                                        110,076          (10,353)
Retirement of long-term debt                                                          (1,100)          (1,000)
Dividends paid to parent                                                            (159,599)        (109,223)
Dividends paid on preferred stock                                                       (756)            (756)
---------------------------------------------------------------------------------------------------------------
           Net Cash Used in Financing Activities                                     (98,799)        (196,262)
---------------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents                                              8,020            4,245
---------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of the Period                                       -            3,380
---------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period                                          $  8,020         $  7,625
---------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period - interest (net of amount capitalized)                  $ 56,387         $ 59,519
                              income taxes (net of refunds)                         $ 10,348         $ 20,849

See Notes to Interim Financial Statements.


                                       10
<PAGE>
</TABLE>



Florida Progress Corporation and Florida Power Corporation
NOTES TO INTERIM FINANCIAL STATEMENTS


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 (Florida Power) and Progress
Fuels Corporation (Progress Fuels).

Florida  Power  is  a  regulated  public  utility  engaged  in  the  generation,
transmission,  distribution  and sale of  electricity  in  portions  of Florida.
Florida Power is regulated by the Florida Public Service  Commission  (FPSC) and
the Federal Energy Regulatory Commission (FERC).

Progress Fuels is a diversified  non-utility  energy  company,  whose  principal
business  segments  are Energy & Related  Services and Rail  Services.  Progress
Fuels'  Rail  Services  and the  non-Florida  portion  of its  Energy &  Related
Services  operations  report their  results  one-month in arrears,  due to their
wide-ranging geographical locations.

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

The amounts  included  in the  consolidated  interim  financial  statements  are
unaudited but, in the opinion of management,  reflect all adjustments  necessary
to fairly present Florida Progress' and Florida Power'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, the results
of  operations  for interim  periods are not  necessarily  indicative of amounts
expected  for the  entire  year.  Certain  reclassifications  have  been made to
prior-year amounts to conform to the current year's presentation.

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

NOTE 2.  FINANCIAL INFORMATION BY BUSINESS SEGMENT

The Company's  principal  business segment is Florida Power, an electric 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 Inland Marine
Transportation business,  formerly a business segment, was sold in November 2001
(See Note 3). The Energy & Related  Services  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, railcar leasing and sales, rail and
track  material  sales,  and scrap metal  recycling.  These  activities  include
maintenance  and  reconditioning  of salvageable  scrap  components of railcars,
locomotive  repair,   right-of-way   maintenance  and  operating   manufacturing
facilities for new rail cars. The other category consists  primarily of Progress
Telecommunications,  the Company's telecommunications  subsidiary, the Company's
investment in FPC Capital Trust, which holds the Preferred  Securities,  and the
holding  company,  Florida  Progress  Corporation.  Progress  Telecommunications
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. Florida Progress allocates a portion of its
operating expenses to business segments.


                                       11
<PAGE>

<TABLE>
<S>     <C>


Financial data for business segments for the periods covered in this Form 10-Q
are presented in the table below:

                                                              Energy and
                                                                Related         Rail
(In thousands)                                    Utility      Services      Services (a)       Other       Consolidated
----------------------------------------------- ------------ -------------- -------------- --------------- ---------------
Three months ended June 30, 2002:
  Revenues                                       $ 765,923       $ 84,288      $ 210,534         $64,376      $1,125,121
  Intersegment  revenues                             --           127,889            855       (128,744)        --
  Income (loss) from continuing operations          76,753         37,719          2,947        (27,063)          90,356
  Total assets                                   4,967,998        807,829        607,617         274,365       6,657,809
=============================================== ============ ============== ============== =============== ===============

                                                              Energy and
                                                                Related         Rail
                                                  Utility      Services      Services           Other       Consolidated
----------------------------------------------- ------------ -------------- -------------- --------------- ---------------
Three months ended June 30, 2001:
  Revenues                                       $ 783,660       $ 91,800      $ 225,861         $32,327      $1,133,648
  Intersegment  revenues                             --           111,896            541       (112,437)        --
  Income (loss) from continuing operations          84,311         38,242        (9,690)        (10,963)         101,900
  Total assets                                   4,925,985        438,526        802,536         255,981       6,423,028
=============================================== ============ ============== ============== =============== ===============

                                                              Energy and
                                                                Related         Rail
                                                  Utility      Services      Services (a)       Other       Consolidated
----------------------------------------------- ------------ -------------- -------------- --------------- ---------------
Six months ended June 30, 2002:
  Revenues                                      $1,452,364       $154,303     $  379,903       $ 132,229     $ 2,118,799
  Intersegment  revenues                           --             259,819          1,350       (261,169)        --
  Income (loss) from continuing operations         134,496         68,466          2,246        (39,079)         166,129
  Total assets                                   4,967,998        807,829        607,617         274,365       6,657,809
=============================================== ============ ============== =============  =============== ===============

                                                              Energy and
                                                                Related         Rail
                                                  Utility      Services      Services           Other       Consolidated
----------------------------------------------- ------------ -------------- ------------- ---------------- ---------------
Six months ended June 30, 2001:
  Revenues                                      $1,594,133      $ 176,488     $  450,026         $57,912      $2,278,559
  Intersegment  revenues                           --             192,412            578       (192,990)        --
  Income (loss) from continuing operations         155,917         67,423       (11,788)        (34,027)         177,525
  Total assets                                   4,925,985        438,526        802,536         255,981       6,423,028
=============================================== ============ ============== ============= ================ ===============
(a)      Rail Services' total segment assets at June 30, 2002, decreased from
         the prior year due to asset sales and impairments recorded in the
         fourth quarter of 2001.
</TABLE>

NOTE 3.  DISCONTINUED OPERATIONS

On July 23, 2001, Progress Energy announced the disposition of the Inland Marine
Transportation  segment of the Company,  which was operated by MEMCO Barge Line,
Inc.  Inland Marine  provides  transportation  of coal,  agricultural  and other
dry-bulk  commodities  as well as fleet  management  services.  Progress  Energy
entered into a contract to sell MEMCO Barge Line, Inc., to AEP Resources,  Inc.,
a wholly-owned  subsidiary of American  Electric Power. On November 1, 2001, the
Company completed the sale of the Inland Marine Transportation segment.

The results of operations for the three and six months ended June 30, 2001, have
been   restated  for  the   discontinued   operations   of  the  Inland   Marine
Transportation  segment.  The net income of these  operations is reported in the
Consolidated Statements of Income under discontinued operations.


                                       12
<PAGE>


Results for discontinued operations for the three and six months ended June 30,
2001, were as follows:
<TABLE>
<S>     <C>

(in thousands)                                                         Three Months ended           Six Months ended
                                                                         June 30, 2001                June 30, 2001
                                                                  ------------------------     ----------------------
Revenues                                                           $               41,039       $             75,307
                                                                  ========================     ======================
Earnings before income taxes                                       $                3,800       $              4,530
Income taxes                                                                        1,481                      1,848
                                                                  ------------------------     ----------------------
Net earnings                                                                        2,319                      2,682
Estimated loss on disposal of discontinued operations,
    including provision of $5,468 for pre-tax operating income
    during phase-out period, (net of applicable income tax
    expense of $1,231)                                                            14,408)                   (14,408)
                                                                  ------------------------     ----------------------
Loss from discontinued operations                                  $             (12,089)       $           (11,726)
                                                                  ========================     ======================
</TABLE>

NOTE 4.  IMPACT OF NEW ACCOUNTING STANDARD

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

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

Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." This statement clarifies the criteria for recording of other
intangible assets separately from goodwill. See Note 5 for more information.

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

NOTE 5.  GOODWILL AND OTHER INTANGIBLE ASSETS

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

The Company has  completed the first step of the initial  transitional  goodwill
impairment test, which indicated that the Company's goodwill was not impaired as
of January 1, 2002.


                                       13
<PAGE>
The changes in the carrying amount of goodwill for the six months ended June 30,
2002, are as follows:

                 (in thousands)
                 Balance as of January 1, 2002                $11,101
                 Acquisitions                                  33,747
                                                            ---------
                 Balance as of June 30, 2002                  $44,848

The acquired  goodwill  relates to the acquisition of Westchester Gas Company in
April 2002 (see Note 6). As of June 30, 2002,  all goodwill has been assigned to
the Energy and Related Services segment.

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

<TABLE>
<S>     <C>
                                  Three Months        Six Months        Year Ended        Year Ended         Year Ended
(in thousands)                        Ended             Ended              2001              2000               1999
                                  June 30, 2001     June 30, 2001
                                ------------------ ----------------- ----------------- ------------------ -----------------
Reported net income                 $ 89,811          $ 165,799         $ 244,331          $ 144,241         $ 314,897
Add back: Goodwill amortization          393              1,173             2,394              3,001             5,509
                                   ---------          ----------        ---------          ----------        ----------
Adjusted net income                 $ 90,204          $ 166,972         $ 246,725          $ 147,242         $ 320,406

</TABLE>

The Company has no other significant  intangible assets as of June 30, 2002, and
December 31, 2001.  Florida Power has no goodwill and no significant  intangible
assets as of June 30, 2002, and December 31, 2001.

NOTE 6. FUEL ACQUISITION

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

The aggregate  purchase price of  approximately  $153 million  consisted of cash
consideration  of  approximately  $22  million  and the  issuance of 2.5 million
shares of Progress Energy common stock valued at approximately $129 million. The
purchase price includes  approximately $1.7 million of direct transaction costs.
The  purchase  price  was  allocated  primarily  to  fixed  assets  based on the
preliminary fair values of the assets acquired. The excess of the purchase price
over the preliminary fair value of the net  identifiable  assets and liabilities
acquired has been recorded as goodwill.  Based on this  preliminary  allocation,
goodwill  of  approximately  $34  million  has been  recorded.  The  preliminary
purchase  price   allocation  is  subject  to  adjustment  for  changes  in  the
preliminary  assumptions  and  analyses  used,  pending  additional  information
including final asset valuations and allocations to gas properties.

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

NOTE 7.   COMPANY-OBLIGATED   MANDATORILY  REDEEMABLE  CUMULATIVE  QUARTERLY
          INCOME  PREFERRED  SECURITIES  (QUIPS) OF A SUBSIDIARY  TRUST  HOLDING
          SOLELY FLORIDA PROGRESS  GUARANTEED  SUBORDINATED  DEFERRABLE INTEREST
          NOTES

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

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

                                       14
<PAGE>

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

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

These Preferred Securities are classified as long-term debt on Florida Progress'
consolidated balance sheets.

NOTE 8.  FLORIDA POWER RATE CASE SETTLEMENT

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

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

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

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

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

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

                                       15
<PAGE>

The  Agreement  also  provides  that Florida  Power will refund to customers $35
million of revenues  Florida  Power  collected  during the interim  period since
March 13, 2001.  This one-time  retroactive  revenue  refund was recorded in the
first  quarter  of 2002  and  will  be  returned  to  retail  customers  over an
eight-month period ending December 31, 2002.

NOTE 9.  FINANCING ACTIVITIES

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

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

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

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

NOTE 10.  COMPREHENSIVE INCOME

Comprehensive  income for Florida  Progress  for the three and six months  ended
June 30, 2002, was $91.1 million and $166.4 million, respectively. Comprehensive
income for Florida  Progress  for the three and six months  ended June 30, 2001,
was $89.8 million and $165.5 million, respectively. Items of other comprehensive
income  for the three and  six-month  periods  consisted  primarily  of  foreign
currency translation adjustments. Florida Power does not have any items of other
comprehensive income.

NOTE 11.  COMMITMENTS AND CONTINGENCIES

Contingencies

1)  Impairment  of  Long-Lived  Assets  - Due  to  the  recent  decline  of  the
telecommunications  industry,  the  Company has  initiated a valuation  study to
assess the recoverability of Progress Telecom's long-lived assets, which totaled
approximately  $288 million at June 30, 2002.  The Company  expects to record an
impairment  in the  third  quarter.  Progress  Telecom  is  currently  providing
broadband services to WorldCom Inc. and its subsidiaries. Due to WorldCom Inc.'s
bankruptcy  filing in July 2002, the Company is assessing  what impact,  if any,
the WorldCom Inc. developments will have on Progress Telecom's  operations.  The
Company does not expect the WorldCom Inc. developments to have a material impact
on its consolidated results of operations, financial position or cash flows.

2) IRS Audit - One of Progress  Fuels'  synthetic fuel entities,  Colona Synfuel
Limited Partnership, L.L.L.P., is being audited by the IRS. The Company has been
allocated  approximately  $202 million in tax credits to date for this synthetic
fuel entity.  In  management's  opinion,  the Company is complying  with all the
necessary  requirements  to be allowed  such  credits and believes it is likely,
although it cannot provide certainty,  that it will prevail if challenged by the
IRS on any credits taken. The timing for the ultimate  disposition of this audit
is uncertain.

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

                                       16
<PAGE>

Various organic  materials  associated with the production of manufactured  gas,
generally  referred to as coal tar, are regulated  under federal and state laws.
The lead or sole regulatory  agency that is responsible for a particular  former
coal tar site depends largely upon the state in which the site is located. There
are  several  MGP  sites to which  Florida  Power has some  connection.  In this
regard,   Florida  Power,  with  other  potentially   responsible   parties,  is
participating in investigating  and, if necessary,  remediating  former coal tar
sites with several regulatory agencies,  including, but not limited to, the U.S.
Environmental  Protection Agency (EPA) and the FDEP. In addition, the Company is
periodically  notified by regulators  such as the EPA and various state agencies
of their  involvement or potential  involvement  in site,  other than MGP sites,
that may require investigation and/or remediation.

There are two former MGP sites and 8 other active waste sites or  categories  of
sites  associated  with Florida Power that have required or are  anticipated  to
require  investigation  and/or  remediation  costs. As of June 30, 2002, Florida
Power has  accrued  approximately  $8.4  million  for  probable  and  reasonably
estimable  costs  at these  sites.  Florida  Power  believes  that  the  maximum
liability it can  currently  estimate on these sites is $12.9  million.  As more
activity occurs at these sites, Florida Power will assess the need to adjust the
accruals.  These accruals have been recorded on an undiscounted  basis.  Florida
Power  measures  its  liability  for these  sites  based on  available  evidence
including its experience in  investigation  and/or  remediation of  contaminated
sites,  which includes assessing and developing  cost-sharing  arrangements with
other  potentially  responsible  parties.  A rollforward  of the balance in this
accrual is not provided due to the immateriality of this activity in the periods
presented.

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

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

There  has  been  and may be  further  proposed  federal  legislation  requiring
reductions in air emissions for nitrogen oxides, sulfur dioxide,  carbon dioxide
and mercury  setting forth  national  caps and emission  levels over an extended
period of time. This national  multi-pollutant  approach would have  significant
costs which could be material to the Company's  consolidated  financial position
or results of  operations.  Some companies may seek recovery of the related cost
through rate adjustments or similar  mechanisms.  The Company cannot predict the
outcome of this matter.

The EPA has been  conducting an  enforcement  initiative  related to a number of
coal-fired utility power plants in an effort to determine whether  modifications
at those facilities were subject to New Source Review requirements or New Source
Performance  Standards  under  the  Clean  Air Act.  Florida  Power was asked to
provide  information  to the EPA as part of this  initiative  and  cooperated in
providing the requested  information.  The EPA has initiated enforcement actions
against other utilities as part of this initiative,  some of which have resulted
in or may result in  settlement  agreements,  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  costs
through rate adjustments. The Company cannot predict the outcome of this matter.

In July 1997,  the EPA issued final  regulations  establishing  a new eight-hour
ozone  standard.  In October  1999,  the District of Columbia  Circuit  Court of
Appeals  ruled  against  the EPA with  regard to the  federal  eight-hour  ozone
standard.  The U.S. Supreme Court has upheld,  in part, the District of Columbia
Circuit  Court of  Appeals  decision.  Further  litigation  and  rulemaking  are
anticipated. The Company cannot predict the outcome of this matter.

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

                                       17
<PAGE>

LEGAL MATTERS

Age  Discrimination  Suit -- Florida Power and Florida  Progress have been named
defendants in an age discrimination lawsuit. The number of plaintiffs remains at
116, but four of those plaintiffs have had their federal claims dismissed and 74
others have had their  state age claims  dismissed.  While no dollar  amount was
requested,  each plaintiff  seeks back pay,  reinstatement  or front pay through
their  projected  dates of normal  retirement,  costs and  attorneys'  fees.  In
October  1996,  the Federal Court  approved an agreement  between the parties to
provisionally   certify  this  case  as  a  class  action  suit  under  the  Age
Discrimination  in Employment Act. Florida Power filed a motion to decertify the
class and in August 1999, the Court granted Florida  Power's motion.  In October
1999, the judge  certified the question of whether the case should be tried as a
class action to the Eleventh  Circuit Court of Appeals for  immediate  appellate
review.  In  December  1999,  the Court of Appeals  agreed to review the judge's
order decertifying the class. In anticipation of a potential ruling decertifying
the case as a class  action,  plaintiffs  filed a virtually  identical  lawsuit,
which identified all opt-in plaintiffs as named plaintiffs. On July 5, 2001, the
Eleventh  Circuit  Court of  Appeals  ruled  that as a matter of law,  disparate
claims cannot be brought under the Americans with Disabilities Act (ADEA).  This
ruling has the effect of decertifying the case as a class action.  On October 3,
2001,  the  plaintiffs  filed a petition  in the United  States  Supreme  Court,
requesting a hearing of the case, on the issue of whether  disparate  claims can
be brought under the ADEA. On December 3, 2001,  the United States Supreme Court
agreed  to hear the case.  Oral  arguments  on the issue  were held on March 20,
2002.  On April 1, 2002,  the U.S.  Supreme  Court issued a per curiam  affirmed
order in the case stating they had  improvidently  granted the oral argument and
they  would  uphold  the  ruling  of the  Eleventh  Circuit  Court  of  Appeals.
Therefore, the case will remain decertified. As a result of the decertification,
the trial court has grouped the plaintiffs  cases to be tried. The trial for the
first  set of  twelve  plaintiffs  began on July 22,  2002.  The jury  entered a
verdict  in favor of Florida  Power in that  trial on August 9, 2002.  The other
plaintiffs'  trial  dates have not been set.  The  Company  cannot  predict  the
outcome of this matter.

In December 1998, during mediation in this age discrimination  suit,  plaintiffs
alleged  damages  of $100  million.  Company  management,  while  not  believing
plaintiffs' claim to have merit,  offered $5 million in an attempt to settle all
claims. Plaintiffs rejected that offer. Florida Power and the plaintiffs engaged
in informal settlement discussions,  which terminated on December 22, 1998. As a
result of the plaintiffs' claims,  management has identified a probable range of
$5 million to $100 million with no amount within that range a better estimate of
probable loss than any other amount;  accordingly,  Florida Power has accrued $5
million.  In  December  1999,  Florida  Power also  recorded  an accrual of $4.8
million  for  legal  fees  associated  with  defending  its  position  in  these
proceedings.  There can be no assurance that this litigation will be settled, or
if settled,  that the settlement will not exceed $5 million.  Additionally,  the
ultimate outcome, if all cases are litigated, cannot presently be determined.

Franchise  Litigation  -- Seven  cities,  with a total of  approximately  59,000
customers,  have sued Florida Power in various  circuit  courts in Florida.  The
lawsuits  principally  seek 1) a  declaratory  judgment that the cities have the
right to purchase  Florida Power's electric  distribution  system located within
the municipal boundaries of the cities, 2) a declaratory judgment that the value
of the  distribution  system  must be  determined  through  arbitration,  and 3)
injunctive  relief  requiring  Florida Power to continue to collect from Florida
Power's  customers  and remit to the cities,  franchise  fees during the pending
litigation,  and as long as  Florida  Power  continues  to  occupy  the  cities'
rights-of-way to provide electric service, notwithstanding the expiration of the
franchise  ordinances under which Florida Power had agreed to collect such fees.
Three circuit courts have entered orders requiring  arbitration to establish the
purchase price of Florida Power's electric distribution  facilities within three
cities.  One  appellate  court has held that one city has the right to determine
the value of Florida Power's facilities within the city through arbitration.  To
date,  no city has  attempted  to actually  exercise  the right to purchase  any
portion of Florida Power's electric  distribution system, nor has there been any
proceeding  to  determine  the  value at which  such a  purchase  could be made.
Arbitration  in one of the cases is scheduled  to occur in the third  quarter of
2002. In July 2002,  Florida  Power reached a settlement  with one of the cities
and signed a new franchise  agreement that includes a purchase option at the end
of the  30-year  agreement.  The  Company  cannot  predict  the outcome of these
matters.

Other  Legal  Matters -- Florida  Progress  and  Florida  Power are  involved in
various  other  claims  and legal  actions  arising  in the  ordinary  course of
business, some of which involve substantial amounts. Where appropriate, accruals
have been made in accordance with SFAS No. 5, "Accounting for Contingencies," to
provide for such matters. In the opinion of management, the ultimate disposition
of these matters will not have a material  adverse effect upon either  company's
consolidated financial position, results of operations or liquidity.


                                       18
<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OPERATING RESULTS

Florida  Progress'  consolidated  income from  continuing  operations  was $90.4
million for the three months ended June 30, 2002, compared to earnings of $101.9
million for the same period in 2001. Florida Progress'  consolidated income from
continuing  operations for the six months ended June 30, 2002 was $166.1 million
compared to earnings of $177.5 million for the same period in 2001.

Business segment results and the factors affecting them are discussed below:

FLORIDA POWER CORPORATION

Florida Power, the largest subsidiary of Florida Progress, reported earnings for
common stock of $76.8 million for the second quarter of 2002,  compared to $84.3
million for the  comparable  period in 2001.  For the six months  ended June 30,
2002,  Florida  Power  reported  earnings  for  common  stock of $134.5  million
compared to $155.9 million for the comparable  period in 2001.  Florida  Power's
earnings  for the three and six months  ended  June 30,  2002,  were  negatively
affected  by the  outcome  of the  Florida  Power  rate case  settlement,  which
included a one-time retroactive revenue refund of $35 million, $21 million after
tax,  recorded  in the first  quarter of 2002,  as well as a decrease  in retail
rates,  which was partially  offset by reductions in  depreciation in accordance
with  the  settlement.  See  Note  8 to the  Interim  Financial  Statements  for
additional information on the settlement. In addition, Florida Power results for
the three  months and six months ended were  negatively  affected by increase in
operations and maintenance expense as described more fully below.

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

--------------------------------------- --------------------------------------- ----------------------------------------
                                             Three Months Ended June 30,               Six Months Ended June 30,
                                        --------------------------------------- ----------------------------------------
           Customer Class                   2002       % Change       2001          2002        % Change       2001
--------------------------------------- ------------- ------------ ------------ ------------- ------------- ------------
Residential                                $395.6         2.5%       $386.0        $774.8         (1.3)%      $784.9
Commercial                                  183.4        (4.7)        192.5         350.2         (0.3)        351.4
Industrial                                   55.1        (6.9)         59.2         105.1         (6.7)        112.6
Governmental                                 43.5        (1.6)         44.2          83.5          1.8          82.0
Retroactive Retail Revenue Refund              -           -             -          (35.0)          -             -
--------------------------------------- ------------- ------------ ------------ ------------- ------------- ------------
    Total Retail Revenues                   677.6        (0.6)        681.9       1,278.6         (3.9)      1,330.9
Wholesale                                    55.8       (10.3)         62.2         108.3        (32.3)        159.9
Unbilled                                      5.4          -           17.5          11.8           -           (4.8)
Miscellaneous                                27.1        22.6          22.1          53.7        (50.3)        108.1
--------------------------------------- ------------- ------------ ------------ ------------- ------------- ------------
    Total Electric Revenues                $765.9        (2.3)%      $783.7      $1,452.4         (8.9)%    $1,594.1
--------------------------------------- ------------- ------------ ------------ ------------- ------------- ------------
</TABLE>

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

<TABLE>
<S>     <C>

--------------------------------------- --------------------------------------- ----------------------------------------
                                             Three Months Ended June 30,               Six Months Ended June 30,
                                        --------------------------------------- ----------------------------------------
            Customer Class                  2002       % Change       2001          2002        % Change       2001
--------------------------------------- ------------- ------------ ------------ ------------- ------------- ------------
Residential                                 4,515        11.1%        4,063         8,575          1.2%        8,472
Commercial                                  2,857         2.8         2,780         5,313          2.1         5,203
Industrial                                    994        (1.6)        1,010         1,876         (5.7)        1,989
Governmental                                  715         5.9           675         1,335          3.4         1,291
--------------------------------------- ------------- ------------ ------------ ------------- ------------- ------------
    Total Retail Energy Sales               9,081         6.5         8,528        17,099          0.8        16,955
Wholesale                                     976        (7.9)        1,060         1,956        (16.6)        2,346
Unbilled                                      443          -            555           474           -             59
--------------------------------------- ------------- ------------ ------------ ------------- ------------- ------------
    Total mWh sales                        10,500         3.5%       10,143        19,529          0.9%       19,360
--------------------------------------- ------------- ------------ ------------ ------------- ------------- ------------
</TABLE>


                                       19
<PAGE>

As a result of the  settlement of the Florida Power rate case,  effective May 1,
2002, Florida Power reduced its rates by 9.25%. The effect of this reduction was
to reduce  revenue by $20.6  million for the second  quarter of 2002.  Partially
offsetting  the decrease in rates and one-time  refund as part of the settlement
detailed  above were the impacts of favorable  weather and customer  growth.  In
addition,  revenues for the first six months of 2002  decreased when compared to
the same  period in the prior  year due to the  recognition  of $63  million  of
deferred   revenue  in  the  first  quarter  of  2001,   which  is  included  in
miscellaneous  revenues in the table above. In 2001, the deferred  revenues were
offset by accelerated  amortization of the Tiger Bay regulatory asset, discussed
below, and therefore, had no earnings impact.

Fuel used in generation and purchased  power  decreased  $14.3 million and $48.1
million  for the three and six months  ended June 30,  2002,  when  compared  to
$347.2  million and $689.2  million,  respectively,  for the same periods in the
prior year,  primarily due to lower oil and gas prices,  partially  offset by an
increase in coal prices.  In  addition,  the decrease for the three months ended
June 30,  2002,  was due to the lowered  recovery of fuel expense as part of the
mid-course  correction of Florida  Power's fuel cost recovery  clause as part of
the  settlement.  Fuel and  purchased  power  expenses are  recovered  primarily
through cost recovery clauses and, as such, have no material impact on operating
results.

Operations and maintenance  expense increased by $30.2 million and $50.6 million
for the three and six months ended June 30, 2002, respectively, when compared to
operations  and  maintenance  expense  of $119.8  million  and  $230.7  million,
respectively,  for the same  periods  in the  prior  year.  These  amounts  have
increased due to a decreased  pension  credit in the current year ($12.2 million
and $16.6  million  lower for the three and six  months  ended  June 30,  2002);
increased  other  employee  benefit  costs,  primarily  driven by medical  costs
(approximately $3 million and $6 million for the three and six months ended June
30,  2002);  increased  spending  related to system  reliability,  including the
Commitment to Excellence  program aimed at increasing  Florida Power's  customer
satisfaction  ($7.8 million and $13.0 million for the three and six months ended
June 30, 2002);  and  increased  support  charges from the Service  Company as a
result  of  lower  vacancy  rates  in the  prior  year  subsequent  to  the  FPC
acquisition.

Depreciation  and  amortization  expense  decreased by $19.4  million and $102.1
million  for the three and six months  ended June 30,  2002,  when  compared  to
expense of $94.6 million and $246.7 million,  respectively, for the same periods
in the prior year. The Florida Power rate case  settlement  provides for ongoing
reductions in depreciation,  nuclear  decommissioning  and fossil  dismantlement
costs that  reduced the amount of  depreciation  recorded  by $19.6  million and
$39.2 million for the three and six months ended June 30, 2002, respectively. In
addition,   the  first  half  of  2001  depreciation  includes  $63  million  of
accelerated  amortization  on the Tiger Bay  regulatory  asset  associated  with
deferred revenue from 2000.

PROGRESS FUELS CORPORATION

Progress  Fuels  makes  up  the  majority  of  Florida   Progress'   diversified
operations.  The results of  operations  for Progress  Fuels' Energy and Related
Services and Rail Services units are discussed below.

Energy and Related  Services - Earnings at the Energy and Related Services Group
----------------------------
decreased  $0.5 million for the three months ended June 30, 2002,  and increased
$1.0 for the six months ended June 30, 2002,  when  compared to the same periods
in the prior year. The Energy and Related  Services segment sold 2.1 million and
3.6 million tons of  synthetic  fuel for the three and six months ended June 30,
2002, respectively,  compared to 2.1 million and 3.9 million tons, respectively,
for the same  periods in the prior  year.  The sales  resulted in tax credits of
$55.8  million and $99.7  million  being  recorded  for the three and six months
ended June 30, 2002, respectively,  compared to tax credits of $58.8 million and
$103.2  million,  respectively,  for the same  periods  in the prior  year.  The
production  and sale of the synthetic fuel from these  facilities  qualifies for
tax credits  under  Section 29 of the Code.  See  "Synthetic  Fuels" under OTHER
MATTERS below for additional discussion of these tax credits.

Rail Services - Results in the Rail Services  group  improved  $12.6 million and
-------------
$14.0  million for the three and six months ended June 30,  2002,  respectively,
when compared to net losses of $9.7 million and $11.8 million, respectively, for
the  same  periods  in the  prior  year.  Rail  Services  2001  operations  were
negatively affected by the significant downturn in the domestic scrap market and
the continuing weak market for railcar parts. Rail Service's  revenues decreased
$15.0 million and $69.4 million for the three and six months ended June 30, 2002
due to the continued  weak business  environment.  In addition,  Rail  Services'
transition  from acting as a scrap  reseller in 2001 to acting as a scrap resale
agent  in 2002  and  asset  sales  in  2001  decreased  revenues.  Corresponding
decreases in operating  costs and the impact of targeted  cost cutting  measures
more than offset these revenue reductions.


                                     20
<PAGE>
OTHER

The other group  includes  telecommunications,  holding  company  and  financing
expenses.  The decreased loss over the first quarter of 2001 is due primarily to
the intra-period income tax allocation adjustment. Generally accepted accounting
principles require companies to apply a levelized  effective tax rate to interim
periods that is consistent  with the estimated  annual rate.  Income tax expense
was  increased by $19.0  million and $21.8  million for the three and six months
ended June 30, 2002,  respectively,  in order to maintain an effective  tax rate
consistent with the estimated  annual rate.  Income tax expense was increased by
$5.5 million and $20.4 million for the three and six months ended June 30, 2001,
respectively.  The tax credits  associated  with the  Company's  synthetic  fuel
operations  lower the overall  effective  tax rate.  These  credits,  along with
seasonal earnings  variations,  can also cause large swings in the effective tax
rate for interim periods. Therefore, this adjustment will vary each quarter, but
have no effect on net income for the year.

Progress  Telecom  recorded  revenues  of $11.4  million  and a net loss of $5.7
million for the quarter  compared  with revenues of $11.1 million and a net loss
of $2.0 million for the same period last year. For the six months ended June 30,
2002, Progress Telecom recorded revenues of $22.4 million and a net loss of $9.7
compared  with  revenues of $21.3 million and a net loss of $4.0 million for the
same  period  last  year.  Due to the recent  decline of the  telecommunications
industry,   the  Company  has   initiated  a  valuation   study  to  assess  the
recoverability  of  Progress   Telecom's   long-lived   assets,   which  totaled
approximately  $288 million at June 30, 2002.  The Company  expects to record an
impairment  in the  third  quarter.  Progress  Telecom  is  currently  providing
broadband services to WorldCom Inc. and its subsidiaries. Due to WorldCom Inc.'s
bankruptcy  filing in July 2002, the Company is assessing  what impact,  if any,
the WorldCom Inc. developments will have on Progress Telecom's  operations.  The
Company does not expect the WorldCom Inc. developments to have a material impact
on its consolidated results of operations, financial position or cash flows.

MATERIAL CHANGES IN LIQUIDITY AND CAPITAL RESOURCES

Statements of Cash Flows and Financing Activities

Cash provided by operating activities increased $19.1 million for the six months
ended June 30,  2002,  when  compared to the  corresponding  period in the prior
year. The increase in cash from operating  activities for the 2002 period is due
to changes in the  balances of certain  current  assets and  liabilities  due to
operational fluctuations.

Net cash used in investing activities increased $63.9 million for the six months
ended June 30,  2002,  when  compared to the  corresponding  period in the prior
year.  This is  primarily  due to  increased  expenditures  on  Florida  Power's
construction  program and the acquisition of Westchester Gas Company (See Note 6
to the  Interim  Financial  Statements).  During  the first six  months of 2002,
$188.0  million was spent on the Florida  Power  construction  program and $62.7
million was spent in diversified operations.  The acquisition of Westchester Gas
Company resulted in a net cash outflow of $17.4 million.

Net cash used in financing activities decreased $70.9 million for the six months
ended June 30,  2002,  when  compared to the  corresponding  period in the prior
year.  The  decrease  is  primarily  due to the  Company  paying  off  $165.2 of
short-term  indebtedness  in the prior  year.  This  decrease  was  offset  with
increases  in the net  equity  transactions  with the  parent  and  intercompany
borrowings in the current year.

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

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

The change in outlook by the rating agency has not affected the Company's access
to liquidity nor the cost of its short-term borrowings. The Company is committed
to maintaining its current ratings and is currently assessing the situation with
the rating agency to determine an appropriate course of action, if necessary, to
address its concerns.

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

On July 11, 2002,  Florida  Power  announced the  redemption of $108.55  million
principal amount of Citrus County  Pollution  Control  Refunding  Revenue Bonds,
Series 1992 A Due January 1, 2027, $90 million principal amount of Citrus County
Pollution Control  Refunding Revenue Bonds,  Series 1992 B Due February 1, 2022,
and $10.115 million principal amount of Pasco County Pollution Control Refunding
Revenue  Bonds,  Series  1992A Due  February 1, 2022,  at 102% of the  principal
amount of such  bonds and $32.2  million  principal  amount of  Pinellas  County
Pollution Control  Refunding Revenue Bonds,  Series 1991 Due December 1, 2014 at
101% of the principal amount of such bonds.  These redemptions were finalized on
August 12, 2002.
                                       21
<PAGE>


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

Future Commitments

As of June 30, 2002, both Florida Progress' and Florida Power's contractual cash
obligations and other  commercial  commitments  has not changed  materially from
what was reported in the 2001 Annual Report on Form 10-K.

OTHER MATTERS

Florida Power Rate Case Settlement

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

See Note 8 to the Interim Financial Statements for additional information on the
Agreement.

Fuel Acquisition

On April 26, 2002,  Progress Fuels  finalized the acquisition of Westchester Gas
Company,  which includes approximately 215 producing natural gas wells, 52 miles
of intrastate gas pipeline and 170 miles of gas-gathering systems. The aggregate
purchase price of approximately  $153 million consisted of cash consideration of
approximately  $22  million and the  issuance of 2.5 million  shares of Progress
Energy common stock valued at  approximately  $129 million.  The purchase  price
includes  approximately $1.7 million of direct transaction costs. The properties
are located within a 25-mile radius of Jonesville, Texas, on the Texas-Louisiana
border.  This transaction  added 140 billion cubic feet (Bcf) of gas reserves to
Progress Fuels' fuel business.  See Note 6 to the Interim  Financial  Statements
for additional information on this acquisition.

Synthetic Fuels Tax Credits

The Company,  through Progress Fuels and its  subsidiaries,  produces  synthetic
fuel from coal.  The production and sale of the synthetic fuel qualifies for tax
credits  under  Section 29 of the Internal  Revenue Code (Section 29) if certain
requirements  are  satisfied,  including a requirement  that the synthetic  fuel
differs significantly in chemical composition from the coal used to produce such
synthetic  fuel. All of the Company's  synthetic fuel  facilities  have received
favorable  private letter rulings from the Internal  Revenue  Service (IRS) with
respect to their operations. These tax credits are subject to review by the IRS,
and if the  Company  failed  to  prevail  through  the  administrative  or legal
process,  there could be a significant  tax liability owed for previously  taken
Section 29 credits,  with a significant  impact on earnings and cash flows.  Tax
credits for the year ended  December  31, 2001 and the six months ended June 30,
2002, were $213.4 million and $99.7 million,  respectively,  offset by operating
losses, net of tax, of $110.3 million and $43.2 million,  respectively,  for the
same periods.  One synthetic fuel entity,  Colona Synfuel  Limited  Partnership,
L.L.L.P.,  from which the Company has been allocated  approximately $202 million
in tax credits to date,  is being  audited by the IRS.  Total Section 29 credits
generated to date are approximately $503 million. In management's  opinion,  the
Company is  complying  with the private  letter  rulings  and all the  necessary
requirements  to be allowed  such  credits  under  Section 29 and believes it is
likely, although it cannot provide certainty, that it will prevail if challenged
by the IRS on any credits taken.  The current Section 29 tax credit program will
expire in 2007.

                                       22
<PAGE>

Standard Market Design

On July 31, 2002, the Federal  Energy  Regulatory  Commission  (FERC) issued its
Notice  of  Proposed  Rulemaking  in Docket  No.  RM01-12-000,  Remedying  Undue
Discrimination through Open Access Transmission Service and Standard Electricity
Market  Design (SMD NOPR).  The  proposed  rules set forth in the SMD NOPR would
require,  among other things, that 1) all transmission owning utilities transfer
control of their  transmission  facilities  to an  independent  third party;  2)
transmission   service  to  bundled  retail  customers  be  provided  under  the
FERC-regulated   transmission  tariff,  rather  than  state-mandated  terms  and
condition;  3) new terms and  conditions  for  transmission  service  be adopted
nationwide,  including new provisions for pricing  transmission  in the event of
transmission congestion; 4) new energy markets be established for the buying and
selling of electric  energy;  and 5) load  serving  entities be required to meet
minimum criteria for generating reserves. If adopted as proposed,  the rules set
forth in the SMD NOPR would  materially  alter the manner in which  transmission
and generation  services are provided and paid for. Progress Energy is reviewing
the SMD NOPR and expects to file  comments.  Currently,  comments  are due to be
filed on October  14,  2002.  FERC also has  indicated  that it expects to issue
final rules during the first  quarter of 2003.  The Company  cannot  predict the
outcome of this rulemaking or the possible  outcome of any further  proceedings,
including appeals, related to this matter.


Franchise Litigation

Seven cities, with a total of approximately 59,000 customers,  have sued Florida
Power in various circuit courts in Florida.  The lawsuits  principally seek 1) a
declaratory  judgment that the cities have the right to purchase Florida Power's
electric  distribution  system  located  within the municipal  boundaries of the
cities, 2) a declaratory judgment that the value of the distribution system must
be determined  through  arbitration,  and 3) injunctive relief requiring Florida
Power to continue to collect from  Florida  Power's  customers  and remit to the
cities,  franchise  fees during the pending  litigation,  and as long as Florida
Power continues to occupy the cities' rights-of-way to provide electric service,
notwithstanding  the expiration of the franchise  ordinances under which Florida
Power had agreed to collect such fees.  Three circuit courts have entered orders
requiring  arbitration  to  establish  the  purchase  price of  Florida  Power's
electric  distribution  facilities within three cities.  One appellate court has
held  that one city has the right to  determine  the  value of  Florida  Power's
facilities within the city through  arbitration.  To date, no city has attempted
to  actually  exercise  the right to  purchase  any  portion of Florida  Power's
electric distribution system, nor has there been any proceeding to determine the
value at which such a purchase could be made. Arbitration in one of the cases is
scheduled to occur in the third  quarter of 2002.  In July 2002,  Florida  Power
reached a settlement with one of the cities and signed a new franchise agreement
that includes a purchase option at the end of the 30-year agreement. The Company
cannot predict the outcome of these matters.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

Florida Progress Corporation

Certain market risks are inherent in Florida  Progress'  financial  instruments,
which arise from  transactions  entered  into in the normal  course of business.
Florida  Progress'  primary exposures are changes in interest rates with respect
to  long-term  debt,   commercial  paper  reclassified  as  long-term  debt  and
fluctuations in the return on marketable  securities with respect to its nuclear
decommissioning  trust funds. Florida Progress' exposure to return on marketable
securities for the decommissioning  trust funds has not changed materially since
December  31,  2001.  In  addition,  Florida  Progress'  exposure  to changes in
interest rates from the Company's  fixed rate long-term debt,  commercial  paper
reclassified as long-term debt, FPC mandatorily  redeemable  securities of trust
and unsecured note with parent at June 30, 2002,  was not  materially  different
than at December 31, 2001.

Florida Power Corporation

Certain  market risks are  inherent in Florida  Power's  financial  instruments,
which arise from  transactions  entered  into in the normal  course of business.
Florida Power's primary  exposures are changes in interest rates with respect to
long-term debt, commercial paper reclassified as long-term debt and fluctuations
in  the  return  on   marketable   securities   with   respect  to  its  nuclear
decommissioning  trust funds.  Florida Power's  exposure to return on marketable
securities for the decommissioning  trust funds has not changed materially since
December 31, 2001. In addition,  Florida Power's exposure to changes in interest
rates from its fixed rate long-term debt and commercial  paper  reclassified  as
long-term debt at June 30, 2002,  was not materially  different than at December
31, 2001.



                                       23
<PAGE>



PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

1.   Wanda L.  Adams,  et al. v.  Florida  Power  Corporation  and  Florida
     Progress Corporation, U.S. District Court, Middle District of Florida,
     Ocala Division, Case No. 95-123-C.V.-OC-10.

See prior  discussion of this matter in the 2001 Form 10-K, Item 3, paragraph 2.
On October 3, 2001, the plaintiffs filed a petition in the United States Supreme
Court,  requesting  a hearing  of the case,  on the issue of  whether  disparate
claims can be brought  under the  Americans  with  Disabilities  Act (ADEA).  On
December 3, 2001, the United States Supreme Court agreed to hear the case.  Oral
arguments on the issue were held on March 20, 2002.  On April 1, 2002,  the U.S.
Supreme  Court issued a per curiam  affirmed  order in the case stating they had
improvidently  granted the oral argument and they would uphold the ruling of the
Eleventh Circuit Court of Appeals.  Therefore, the case will remain decertified.
As a result of the  decertification,  the trial court has grouped the plaintiffs
cases to be tried.  The trial  for the first set of twelve  plaintiffs  began on
July 22,  2002.  The jury  entered a verdict in favor of  Florida  Power in that
trial on August 9, 2002.  The other  plaintiffs'  trial dates have not been set.
The Company cannot predict the outcome of this matter.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)    Exhibits:

       None

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

       Florida Progress Corporation and Florida Power Corporation

       None


                                       24
<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 13, 2002                  By:  /s/ Peter M. Scott III
                                        ------------------------------------
                                        Peter M. Scott III
                                        Executive Vice President and
                                        Chief Financial Officer





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




                                       25