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, 2003

                                       OR

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

               For the transition period from         to        .
                                              -------    ------
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

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

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



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

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

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

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

This combined Form 10-Q is filed separately by two registrants: Florida Progress
Corporation and Florida Power Corporation d/b/a Progress Energy Florida.
Information contained herein relating to either individual registrant is filed
by such registrant solely on its own behalf. Each registrant makes no
representation as to information relating exclusively to the other registrant.

Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of the latest practicable date. As of July 31, 2003, each
registrant had the following shares of common stock outstanding:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

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

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


         FLORIDA PROGRESS CORPORATION AND PROGRESS ENERGY FLORIDA, INC.
                 FORM 10-Q - For the Quarter Ended June 30, 2003

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
        d/b/a Progress Energy Florida, Inc.

        Statements of Income
        Balance Sheets
        Statements of Cash Flows

Notes to Financial Statements
    Florida Progress Corporation and Progress Energy Florida, Inc.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

Signatures








                                       2

<PAGE>

                                GLOSSARY OF TERMS


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

       TERM                                                   DEFINITION

AFUDC                                     Allowance for funds used during construction
the Agreement                             Stipulation and Settlement Agreement
Bcf                                       Billion cubic feet
Btu                                       British thermal units
Code                                      Internal Revenue Service Code
Colona                                    Colona Synfuel Limited Partnership, L.L.L.P.
Company or Florida Progress               Florida Progress Corporation
CPI                                       Consumer Price Index
CP&L Energy                               CP&L Energy, Inc.
CR3                                       Florida Power's nuclear generating plant, Crystal River Unit No. 3
DIG                                       Derivative Implementation Group
DOE                                       United States Department of Energy
Dt                                        Dekatherm
EITF                                      Emerging Issues Task Force
EPA                                       United States Environmental Protection Agency
FASB                                      Financial Accounting Standards Board
FDEP                                      Florida Department of Environmental Protection
FERC                                      Federal Energy Regulatory Commission
FIN No. 46                                FASB Interpretation No. 46, "Consolidation of Variable Interest Entities - An
                                          Interpretation of ARB No. 51"
Florida Progress or FPC                   Florida Progress Corporation
FPSC                                      Florida Public Service Commission
Funding Corp.                             Florida Progress Funding Corporation
Fuels                                     Progress Fuels Corporation
GAAP                                      Accounting principles generally accepted in the United States of America
IRS                                       Internal Revenue Service
ISO                                       Independent System Operator
KWh                                       Kilowatt hour
MACT                                      Maximum Available Control Technology
MGP                                       Manufactured Gas Plant
MW                                        Megawatts
NEIL                                      Nuclear Electric Insurance Limited
NRC                                       United States Nuclear Regulatory Commission
NSP                                       Northern States Power
PEF or the utility                        Progress Energy Florida, Inc., formerly referred to as Florida Power Corporation
PFA                                       IRS Prefiling Agreement
the Plan                                  Revenue Sharing Incentive Plan
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
Progress Capital                          Progress Capital Holdings, Inc.
Progress Energy or the Parent             Progress Energy, Inc.
Progress Fuels                            Progress Fuels Corporation
Progress Rail                             Progress Rail Services Corporation
Progress Telecom                          Progress Telecommunications Corporation
PVI                                       Progress Ventures, Inc., formerly referred to as Energy Ventures
PUHCA                                     Public Utility Holding Company Act of 1935, as amended
RAFT                                      Railcar Asset Financing Trust
Rail                                      Rail Services
RTO                                       Regional Transmission Organization
SEC                                       United States Securities and Exchange Commission
Section 29                                Section 29 of the Internal Revenue Service Code
Service Company                           Progress Energy Service Company, LLC
SFAS                                      Statement of Financial Accounting Standards

                                       3
<PAGE>

SFAS No. 5                                Statement of Financial Accounting Standards No. 5, "Accounting for
                                          Contingencies"
SFAS No. 71                               Statement of Financial Accounting Standards No. 71, "Accounting for the Effects
                                          of Certain Types of Regulation"
SFAS No. 133                              Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
                                          and Hedging Activities"
SFAS No. 142                              Statement of Financial Accounting Standards No. 142, "Goodwill and Other
                                          Intangible Assets"
SFAS No. 143                              Statement of Financial Accounting Standards No. 143, "Accounting for Asset
                                          Retirement Obligations"
SFAS No. 148                              Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
                                          Compensation - Transition and Disclosure - An Amendment of FASB Statement No.
                                          123"
SFAS No. 149                              Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133
                                          on Derivative Instruments and Hedging Activities"
SFAS No. 150                              Statement of Financial Accounting Standards No. 150, "Accounting for Certain
                                          Financial Instruments with Characteristics of Both Liabilities and Equity"
SMD NOPR                                  Notice of Proposed Rulemaking in Docket No. RM01-12-000, Remedying Undue
                                          Discrimination through Open Access Transmission and Standard Market Design
the Trust                                 FPC Capital I
Westchester                               Westchester Gas Company
</TABLE>

                                       4
<PAGE>


SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

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

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

Any forward-looking statement speaks only as of the date on which such statement
is made, and Florida  Progress and Florida Power  Corporation  doing business as
Progress  Energy  Florida,  Inc.  (PEF)  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:  the impact of fluid and  complex  government  laws and  regulations,
including those relating to the environment;  the impact of recent events in the
energy markets that have  increased the level of public and regulatory  scrutiny
in the energy industry and in the capital markets;  the impact of the settlement
of PEF's rate case;  deregulation or restructuring in the electric industry that
may result in  increased  competition  and  unrecovered  (stranded)  costs;  the
uncertainty   regarding   the  timing,   creation  and   structure  of  regional
transmission  organizations;  weather  conditions  that  directly  influence the
demand for  electricity  and natural gas;  recurring  seasonal  fluctuations  in
demand for  electricity  and natural  gas;  fluctuations  in the price of energy
commodities and purchased power;  successful  maintenance and operation of PEF's
energy   commodities  and  purchased  power;   economic   fluctuations  and  the
corresponding impact on PEF's commercial and industrial customers;  the inherent
risks associated with operating  nuclear  facilities,  including  environmental,
health,  regulatory  and  financial  risks;  the  impact of any  terrorist  acts
generally and on our generating facilities and other properties;  the ability to
access capital markets on favorable terms; the impact that increases in leverage
may have on the Company and PEF;  the ability of the Company and PEF to maintain
their current  credit  ratings;  the impact of derivative  contracts used in the
normal  course of business;  the outcome of the IRS's audit and inquiry into the
availability  and use of Section 29 tax credits by synthetic  fuel producers and
the  Company's  continued  ability to use Section 29 tax credits  related to its
coal and  synthetic  fuels  businesses;  the  continued  depressed  state of the
telecommunications  industry and the Company's ability to realize future returns
from Progress  Telecommunications  Corporation (Progress Telecom); the Company's
ability to  successfully  integrate newly acquired assets or properties into its
operations  as quickly or as profitably  as expected;  the Company's  ability to
obtain an extension of the Securities and Exchange  Commission's order requiring
us to divest of Progress Rail  Services  Corporation  by November 30, 2003;  and
unanticipated  changes in operating expenses and capital  expenditures.  Most of
these risks similarly impact the Company's subsidiaries, including PEF.

These and other risks are  detailed  from time to time in the SEC reports of the
Company  and  PEF.   All  such  factors  are   difficult  to  predict,   contain
uncertainties  that may materially affect actual results,  and may be beyond the
control of the Company and PEF. Many, but not all of the factors that may impact
actual results of the Company and PEF are discussed in the Risk Factors  section
of PEF's annual  report on Form 10-K for the year ended  December 31, 2002 which
were filed with the SEC on March 21, 2003.  You should  carefully read these SEC
reports.  New  factors  emerge  from time to time,  and it is not  possible  for
management  to predict  all such  factors,  nor can it assess the effect of each
such factor on Florida Progress and PEF.


                                       5
<PAGE>

                          PART I. FINANCIAL INFORMATION


Item 1.  FINANCIAL STATEMENTS

                          Florida Progress Corporation
                    CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                  June 30, 2003
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

CONSOLIDATED STATEMENTS of INCOME
(Unaudited)
                                                       Three Months Ended         Six Months Ended
                                                            June 30,                   June 30,
-----------------------------------------------------------------------------------------------------
(In thousands)                                           2003        2002         2003          2002
-----------------------------------------------------------------------------------------------------
Operating Revenues
   Utility                                        $   766,547 $   765,923  $ 1,494,964   $ 1,452,364
   Diversified business                               403,279     344,300      719,016       636,638
-----------------------------------------------------------------------------------------------------
      Total Operating Revenues                      1,169,826   1,110,223    2,213,980     2,089,002
-----------------------------------------------------------------------------------------------------
Operating Expenses
Utility
   Fuel used in electric generation                   217,409     195,779      402,392       394,106
   Purchased power                                    140,848     133,767      270,410       241,731
   Operation and maintenance                          153,885     153,327      294,733       286,626
   Depreciation and amortization                       79,367      75,284      158,796       144,577
   Taxes other than on income                          58,785      56,792      117,419       113,933
Diversified business
    Cost of sales                                     350,948     326,290      620,258       601,664
    Depreciation and amortization                      21,444      16,199       40,150        32,589
    Other                                              25,355      23,982       60,436        42,291
-----------------------------------------------------------------------------------------------------
        Total Operating Expenses                    1,048,041     981,420    1,964,594     1,857,517
-----------------------------------------------------------------------------------------------------
Operating Income                                      121,785     128,803      249,386       231,485
-----------------------------------------------------------------------------------------------------
Other Income (Expense)
   Interest income                                        782       3,154        1,686         3,875
   Other, net                                            (744)     (5,842)      (5,997)       (9,474)
-----------------------------------------------------------------------------------------------------
        Total Other Income (Expense)                       38      (2,688)      (4,311)       (5,599)
-----------------------------------------------------------------------------------------------------
Interest Charges
   Interest charges                                    47,877      47,779        94,692       95,310
   Allowance for borrowed funds used during            (1,565)       (574)       (3,526)      (1,033)
   construction
-----------------------------------------------------------------------------------------------------
        Total Interest Charges, Net                    46,312      47,205       91,166        94,277
-----------------------------------------------------------------------------------------------------
Income before Income Taxes                             75,511      78,910      153,909       131,609
Income Tax Benefit                                    (34,230)    (11,446)     (36,750)      (34,520)
-----------------------------------------------------------------------------------------------------
Net Income                                        $   109,741 $    90,356  $   190,659   $   166,129
-----------------------------------------------------------------------------------------------------
See Notes to Interim Financial Statements.
</TABLE>
                                       6
<PAGE>
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Florida Progress Corporation
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)                                                                 June 30,           December 31,
Assets                                                                           2003                2002
----------------------------------------------------------------------------------------------------------------
Utility Plant
  Utility plant in service                                                  $  7,724,994         $  7,477,025
  Accumulated depreciation                                                    (3,926,985)          (4,123,947)
----------------------------------------------------------------------------------------------------------------
        Utility plant in service, net                                          3,798,009            3,353,078
  Held for future use                                                              7,921                7,921
  Construction work in progress                                                  508,251              426,641
  Nuclear fuel, net of amortization                                               66,367               40,260
----------------------------------------------------------------------------------------------------------------
        Total Utility Plant, Net                                               4,380,548            3,827,900
----------------------------------------------------------------------------------------------------------------
Current Assets
  Cash and cash equivalents                                                       21,925               33,601
  Accounts receivable                                                            476,826              385,431
  Unbilled accounts receivable                                                    67,064               60,481
  Receivables from affiliated companies                                           57,373               42,418
  Deferred income taxes                                                           24,354               26,209
  Inventory                                                                      460,328              492,273
  Deferred fuel cost                                                             140,179               37,503
  Prepayments and other current assets                                            96,852               93,802
----------------------------------------------------------------------------------------------------------------
        Total Current Assets                                                   1,344,901            1,171,718
----------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
  Regulatory assets                                                              115,616              130,114
  Unamortized debt expense                                                        31,603               23,363
  Nuclear decommissioning trust funds                                            396,710              373,551
  Diversified business property, net                                             848,352              699,493
  Miscellaneous other property and investments                                    80,486               83,222
  Prepaid pension cost                                                           227,023              226,413
  Other assets and deferred debits                                               138,566               90,716
----------------------------------------------------------------------------------------------------------------
        Total Deferred Debits and Other Assets                                 1,838,356            1,626,872
----------------------------------------------------------------------------------------------------------------
         Total Assets                                                       $  7,563,805         $  6,626,490
----------------------------------------------------------------------------------------------------------------
Capitalization and Liabilities
----------------------------------------------------------------------------------------------------------------
Capitalization
----------------------------------------------------------------------------------------------------------------
  Common stock                                                              $  1,769,026         $  1,628,951
  Retained earnings                                                              585,589              598,191
  Accumulated other comprehensive loss                                           (17,830)             (15,737)
  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                                                          2,187,088            1,710,363
----------------------------------------------------------------------------------------------------------------
        Total Capitalization                                                   5,057,370            4,455,265
----------------------------------------------------------------------------------------------------------------
Current Liabilities
  Current portion of long-term debt                                              230,308              275,397
  Accounts payable                                                               368,888              348,842
  Payables to affiliated companies                                                43,129              102,619
  Notes payable to affiliated companies                                          301,214              379,677
  Interest accrued                                                                74,976               68,120
  Short-term obligations                                                         222,210              257,100
  Customer deposits                                                              124,013              121,998
  Other current liabilities                                                      291,138              167,164
----------------------------------------------------------------------------------------------------------------
        Total Current Liabilities                                              1,655,876            1,720,917
----------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
  Accumulated deferred investment tax credits                                     44,892               47,914
  Regulatory liabilities                                                         152,974               61,004
  Asset retirement obligations                                                   320,267                    -
  Other liabilities and deferred credits                                         332,426              341,390
----------------------------------------------------------------------------------------------------------------
        Total Deferred Credits and Other Liabilities                             850,559              450,308
----------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 14)
----------------------------------------------------------------------------------------------------------------
         Total Capitalization and Liabilities                               $  7,563,805         $  6,626,490
----------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Interim Financial Statements.

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

Florida Progress Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                                                                                        Six Months Ended
                                                                                            June 30,
(In thousands)                                                                         2003          2002
---------------------------------------------------------------------------------------------------------------
Operating Activities
Net income                                                                           $  190,659    $  166,129
Adjustments to reconcile net income to net cash provided by operating activities:
      Depreciation and amortization                                                     211,719       188,066
      Deferred income taxes and investment tax credits, net                             (43,701)       22,950
      Deferred fuel cost (credit)                                                      (102,676)        9,961
      Net increase in accounts receivable                                               (92,678)      (25,236)
      Net increase in affiliate accounts receivable                                     (11,051)      (12,995)
      Net (increase) decrease in inventories                                             29,980       (29,626)
      Net increase in prepayments and other current assets                               (1,622)       (1,614)
      Net increase (decrease) in accounts payable                                        36,857       (11,622)
      Net increase (decrease) in affiliate accounts payable                             (57,791)       16,535
      Net increase (decrease) in income taxes, net                                       38,403       (23,308)
      Net increase in other current liabilities                                          73,860        48,393
      Other                                                                              24,526        15,194
---------------------------------------------------------------------------------------------------------------
         Net Cash Provided by Operating Activities                                      296,485       362,827
---------------------------------------------------------------------------------------------------------------
Investing Activities
Gross utility property additions                                                       (282,679)     (187,564)
Diversified business property additions and acquisitions                               (214,410)      (85,284)
Nuclear fuel additions                                                                  (38,408)            -
Other                                                                                    (6,169)       (4,949)
---------------------------------------------------------------------------------------------------------------
          Net Cash Used in Investing Activities                                        (541,666)     (277,797)
---------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt                                                638,824             -
Net decrease in short-term obligations                                                  (35,939)      (47,420)
Retirement of long-term debt                                                           (226,989)      (58,626)
Net increase (decrease) in intercompany notes                                           (78,463)      134,703
Equity contributions from parent                                                        140,075        66,630
Dividends paid to parent                                                               (203,273)     (159,599)
Other                                                                                      (730)         (728)
---------------------------------------------------------------------------------------------------------------
           Net Cash Provided by (Used in) Financing Activities                          233,505       (65,040)
---------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                                    (11,676)       19,990
---------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of the Period                                     33,601         5,201
---------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period                                       $   21,925    $   25,191
---------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid (received) during the year - interest (net of amount capitalized)          $   84,309    $   80,153
                                       income taxes (net of refunds)                 $  (30,044)   $   15,175
</TABLE>

See Notes to Interim Financial Statements.

                                       8
<PAGE>

                            Florida Power Corporation
                       d/b/a Progress Energy Florida, Inc.
                          INTERIM FINANCIAL STATEMENTS
                                  June 30, 2003


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

STATEMENTS of INCOME
(Unaudited)
                                                             Three Months Ended                Six Months Ended
                                                                  June 30,                         June 30,
-------------------------------------------------------------------------------------------------------------------------
(In thousands)                                             2003              2002            2003              2002
-------------------------------------------------------------------------------------------------------------------------
Operating Revenues - Utility                            $ 766,547         $ 765,923     $ 1,494,964       $ 1,452,364
-------------------------------------------------------------------------------------------------------------------------
Operating Expenses
   Fuel used in electric generation                       217,409           195,779         402,392           394,106
   Purchased power                                        140,848           133,767         270,410           241,731
   Operation and maintenance                              153,885           153,327         294,733           286,626
   Depreciation and amortization                           79,367            75,284         158,796           144,577
   Taxes other than on income                              58,785            56,792         117,419           113,933
-------------------------------------------------------------------------------------------------------------------------
        Total Operating Expenses                          650,294           614,949       1,243,750         1,180,973
-------------------------------------------------------------------------------------------------------------------------
Operating Income                                          116,253           150,974         251,214           271,391
-------------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
   Interest income                                             14               569             134             1,276
   Other, net                                               1,378              (740)            896            (2,075)
-------------------------------------------------------------------------------------------------------------------------
        Total Other Income (Expense)                        1,392              (171)          1,030              (799)
-------------------------------------------------------------------------------------------------------------------------
Interest Charges
   Interest charges                                        29,491            28,624          57,954            57,363
   Allowance for borrowed funds used during                (1,565)             (574)         (3,526)           (1,033)
   construction
-------------------------------------------------------------------------------------------------------------------------
        Total Interest Charges, Net                        27,926            28,050          54,428            56,330
-------------------------------------------------------------------------------------------------------------------------
Income before Income Taxes                                 89,719           122,753         197,816           214,262
Income Tax Expense                                         27,982            45,622          64,944            79,010
-------------------------------------------------------------------------------------------------------------------------
Net Income                                              $  61,737         $  77,131     $   132,872       $   135,252
Dividends on Preferred Stock                                  378               378             756               756
-------------------------------------------------------------------------------------------------------------------------
Earnings for Common Stock                               $  61,359         $  76,753     $   132,116       $   134,496
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Interim Financial Statements.

                                       9
<PAGE>

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Florida Power Corporation
d/b/a Progress Energy Florida, Inc.
BALANCE SHEETS
(Unaudited)
(In thousands)                                                          June 30,          December 31,
Assets                                                                    2003                2002
---------------------------------------------------------------------------------------------------------
Utility Plant
  Utility plant in service                                           $  7,724,994         $  7,477,025
  Accumulated depreciation                                             (3,926,985)          (4,123,947)
---------------------------------------------------------------------------------------------------------
        Utility plant in service, net                                   3,798,009            3,353,078
  Held for future use                                                       7,921                7,921
  Construction work in progress                                           508,251              426,641
  Nuclear fuel, net of amortization                                        66,367               40,260
---------------------------------------------------------------------------------------------------------
        Total Utility Plant, Net                                        4,380,548            3,827,900
---------------------------------------------------------------------------------------------------------
Current Assets
  Cash and cash equivalents                                                11,792               15,636
  Accounts receivable                                                     218,983              186,630
  Unbilled accounts receivable                                             67,064               60,481
  Receivables from affiliated companies                                    23,904               44,976
  Deferred income taxes                                                    24,354               26,209
  Inventory                                                               238,989              235,043
  Deferred fuel cost                                                      140,179               37,503
  Prepayments and other current assets                                      4,268                5,339
---------------------------------------------------------------------------------------------------------
        Total Current Assets                                              729,533              611,817
---------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
  Regulatory assets                                                       115,616              130,114
  Unamortized debt expense                                                 22,900               14,503
  Nuclear decommissioning trust funds                                     396,710              373,551
  Miscellaneous other property and investments                             38,361               39,298
  Prepaid pension cost                                                    223,133              222,543
  Other assets and deferred debits                                          5,351                6,517
---------------------------------------------------------------------------------------------------------
        Total Deferred Debits and Other Assets                            802,071              786,526
---------------------------------------------------------------------------------------------------------
          Total Assets                                               $  5,912,152         $  5,226,243
---------------------------------------------------------------------------------------------------------
Capitalization and Liabilities
---------------------------------------------------------------------------------------------------------
Capitalization
---------------------------------------------------------------------------------------------------------
  Common stock                                                       $  1,081,257         $  1,081,257
  Retained earnings                                                       898,638              969,795
  Accumulated other comprehensive loss                                     (2,449)              (2,684)
  Preferred stock - not subject to mandatory redemption                    33,497               33,497
  Long-term debt, net                                                   1,746,132            1,244,411
---------------------------------------------------------------------------------------------------------
        Total Capitalization                                            3,757,075            3,326,276
---------------------------------------------------------------------------------------------------------
Current Liabilities
  Current portion of long-term debt                                       147,000              216,921
  Accounts payable                                                        159,630              147,978
  Payables to affiliated companies                                         32,970               88,661
  Notes payable to affiliated companies                                   112,356              237,425
  Taxes accrued                                                            73,394               24,472
  Interest accrued                                                         62,353               55,675
  Short-term obligations                                                  222,210              257,100
  Customer deposits                                                       124,013              121,998
  Other current liabilities                                               119,837               55,323
---------------------------------------------------------------------------------------------------------
        Total Current Liabilities                                       1,053,763            1,205,553
---------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
  Accumulated deferred income taxes                                       368,033              361,133
  Accumulated deferred investment tax credits                              44,411               47,423
  Regulatory liabilities                                                  152,974               61,004
  Asset retirement obligations                                            310,932                    -
  Other liabilities and deferred credits                                  224,964              224,854
---------------------------------------------------------------------------------------------------------
        Total Deferred Credits and Other Liabilities                    1,101,314              694,414
---------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 14)
---------------------------------------------------------------------------------------------------------
         Total Capitalization and Liabilities                        $  5,912,152         $  5,226,243
---------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Interim Financial Statements.

                                       10
<PAGE>

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Florida Power Corporation
d/b/a Progress Energy Florida, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
                                                                                        Six Months Ended
                                                                                            June 30,
(In thousands)                                                                         2003         2002
--------------------------------------------------------------------------------------------------------------
Operating Activities
Net income                                                                          $   132,872  $   135,252
Adjustments to reconcile net income to net cash provided by operating
activities:
     Depreciation and amortization                                                      171,726      155,660
     Deferred income taxes and investment tax credits, net                                1,228       16,073
     Deferred fuel cost (credit)                                                       (102,676)       9,961
     Net increase in accounts receivable                                                (38,935)     (31,312)
     Net decrease in affiliate accounts receivable                                       21,072        1,235
     Net increase in inventories                                                         (3,946)     (16,616)
     Net (increase) decrease in prepayments and other current assets                      1,071       (4,606)
     Net increase in accounts payable                                                    11,652       10,083
     Net decrease in affiliate accounts payable                                         (55,691)     (63,261)
     Net increase in customer deposits                                                    2,015        4,775
     Net increase in income taxes, net                                                   48,922       27,997
     Net increase in other current liabilities                                           71,570       51,098
     Other                                                                                8,630       (2,339)
--------------------------------------------------------------------------------------------------------------
         Net Cash Provided by Operating Activities                                      269,510      294,000
--------------------------------------------------------------------------------------------------------------
Investing Activities
Gross utility property additions                                                       (282,679)    (187,564)
Nuclear fuel additions                                                                  (38,408)           -
Other                                                                                       771          383
--------------------------------------------------------------------------------------------------------------
          Net Cash Used in Investing Activities                                        (320,316)    (187,181)
--------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt                                                638,824            -
Net decrease in short-term obligations                                                  (35,939)     (47,420)
Retirement of long-term debt                                                           (226,825)      (1,100)
Net  increase (decrease) in intercompany notes                                         (125,069)     110,076
Dividends paid to parent                                                               (203,273)    (159,599)
Dividends paid on preferred stock                                                          (756)        (756)
--------------------------------------------------------------------------------------------------------------
           Net Cash Provided by  (Used in) Financing Activities                          46,962      (98,799)
--------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                                     (3,844)       8,020
--------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of the Period                                     15,636            -
--------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period                                      $    11,792  $     8,020
--------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the year - interest (net of amount capitalized)                    $    47,751  $    56,387
                            income taxes (net of refunds)                           $    14,794  $    34,940
</TABLE>

See Notes to Interim Financial Statements.

                                       11
<PAGE>

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


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A. Organization

     Florida Progress Corporation (the Company or Florida Progress) is a holding
     company under the Public Utility  Holding  Company Act of 1935 (PUHCA),  as
     amended.  The Company became subject to the  regulations of PUHCA when CP&L
     Energy,   Inc.  acquired  it  on  November  30,  2000.  CP&L  Energy,  Inc.
     subsequently  changed its name to Progress Energy, Inc. (Progress Energy or
     the Parent).  Effective  January 1, 2003,  Florida Power  Corporation began
     doing business  under the assumed name Progress  Energy  Florida,  Inc. The
     legal name of the entity has not changed and there was no  restructuring of
     any kind related to the name  change.  The current  corporate  and business
     unit   structure   remains   unchanged.   Florida   Progress'  two  primary
     subsidiaries  are Progress  Energy  Florida,  Inc. (PEF) and Progress Fuels
     Corporation (Progress Fuels).

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

     Progress Fuels  Corporation is a diversified  non-utility  energy  company,
     whose  principal  business  segments are Fuels and Rail Services.  Progress
     Fuels' Rail Services and the  non-Florida  portion of its Fuels  operations
     report their results one month in arrears.

     B.  Basis of Presentation

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

     In accordance  with the  provisions  of APB 28, GAAP requires  companies to
     apply a levelized  effective tax rate to interim periods that is consistent
     with the estimated annual effective tax rate.

     The amounts included in the consolidated  interim financial  statements are
     unaudited but, in the opinion of management,  reflect all normal  recurring
     adjustments  necessary  to  fairly  present  Florida  Progress'  and  PEF's
     financial  position and results of operations for the interim periods.  Due
     to  seasonal  weather  variations  and the timing of  outages  of  electric
     generating  units,  especially  the  nuclear-fueled  unit,  the  results of
     operations for interim  periods are not  necessarily  indicative of amounts
     expected for the entire year or future periods.

     The financial  statements  include the financial results of the Company and
     its  majority-owned  operations.  Investments  in 20% to  50%  owned  joint
     ventures are accounted for using the equity method.  Other  investments are
     stated principally at cost.

     In preparing financial  statements that conform with GAAP,  management must
     make estimates and assumptions  that affect the reported  amounts of assets
     and  liabilities,  disclosure of contingent  assets and  liabilities at the
     date of the  financial  statements  and  amounts of revenues  and  expenses
     reflected  during the reporting  period.  Actual  results could differ from
     those  estimates.  Certain  reclassifications  have been made to prior-year
     amounts to conform to the 2003 presentation.

2.   ACQUISITION OF NATURAL GAS RESERVES

     During the first quarter of 2003, Progress Fuels, a wholly owned subsidiary
     of Florida Progress, entered into three independent transactions to acquire
     approximately  162  natural  gas-producing  wells with  proven  reserves of
     approximately  195 billion cubic feet (Bcf) from Republic Energy,  Inc. and
     two other  privately-owned  companies,  all  headquartered  in  Texas.  The
     primary assets in the acquisition  have been  contributed to Progress Fuels
     North Texas Gas,  L.P., a wholly owned  subsidiary of Progress  Fuels.  The
     total cash purchase price for the transactions was $148 million.

                                       12
<PAGE>

3.   RAILCAR LTD. DIVESTITURE

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

     The assets of Railcar  Ltd.  have been  grouped as assets held for sale and
     are included in other current assets on the Consolidated  Balance Sheets as
     of June 30, 2003.

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

4.   FINANCIAL INFORMATION BY BUSINESS SEGMENT

     The Company currently has the following business segments: PEF, Fuels, Rail
     Services (Rail) and Other Businesses (Other).

     The PEF segment is engaged in the  generation,  transmission,  distribution
     and sale of electric energy primarily in portions of Florida.

     Fuels' operations include natural gas drilling and production,  coal mining
     and terminals and the  production of synthetic  fuels.  Fuels sells coal to
     Progress  Ventures,  Inc. a subsidiary  of Progress  Energy.  These related
     party sales are included in the revenues  that follow and are $43.9 million
     and $54.1  million for the second  quarter of 2003 and 2002,  respectively,
     and $75.7  million and $112.0  million for the first half of 2003 and 2002,
     respectively.

     Rail segment operations include railcar repair,  rail parts  reconditioning
     and sales,  railcar leasing (primarily through Railcar Ltd.) and sales, and
     scrap  metal   recycling.   These   activities   include   maintenance  and
     reconditioning  of  salvageable  scrap  components of railcars,  locomotive
     repair and right-of-way maintenance.

     Other  primarily  includes the  operations  of Progress  Telecommunications
     Corporation   (Progress   Telecom),   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 Telecom markets wholesale fiber-optic based capacity
     service in the Eastern  United States and also markets  wireless  structure
     attachments to wireless communication companies and governmental entities.

     The Company's  significant  operations  are  geographically  located in the
     United States with limited  operations  in Mexico and Canada.  Intersegment
     sales and transfers  consist primarily of coal sales from the Fuels segment
     to PEF. The price that Fuels  charges PEF is based on market rates for coal
     procurement and for water-borne transportation under a methodology approved
     by the FPSC.

     The  following  summarizes  the  revenues,  net  income  and assets for the
     business  segments.  The amounts  indicated for the net income of PEF below
     represent its earnings for common stock.

                                       13
<PAGE>
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


     (In thousands)                             PEF          Fuels          Rail         Other       Consolidated
     --------------------------------------------------------------------------------------------------------------
     Three Months Ended June 30, 2003:
       Revenues                             $   766,547    $   182,679   $ 213,740      $    6,860     $ 1,169,826
       Intersegment  revenues                         -         87,762           -         (87,762)             -
          Total revenues                        766,547        270,441     213,740         (80,902)      1,169,826
       Net income  (loss)                        61,359         38,239       2,192           7,951         109,741


                                                PEF          Fuels          Rail         Other       Consolidated
     --------------------------------------------------------------------------------------------------------------
     Three Months Ended June 30, 2002:
       Revenues                             $   765,923    $   138,416   $ 196,489      $    9,395     $ 1,110,223
       Intersegment  revenues                         -         72,907           -         (72,907)              -
       Total revenues                           765,923        211,323     196,489         (63,512)      1,110,223
       Net income (loss)                         76,753         34,077       2,947         (23,421)         90,356
     ==============================================================================================================

     (In thousands)                             PEF          Fuels        Rail           Other       Consolidated
     --------------------------------------------------------------------------------------------------------------
     Six Months Ended June 30, 2003:
       Revenues                             $ 1,494,964    $   313,998   $ 391,549      $   13,469    $ 2,213,980
       Intersegment  revenues                         -        169,390           -        (169,390)             -
       Total revenues                         1,494,964        483,388     391,549        (155,921)     2,213,980
       Net income (loss)                        132,116         51,795     (1,204)           7,952        190,659
       Total segment assets                   5,912,152      1,003,300     503,897         144,456      7,563,805
     ==============================================================================================================

                                                PEF          Fuels        Rail           Other       Consolidated
     --------------------------------------------------------------------------------------------------------------
     Six Months Ended June 30, 2002:
       Revenues                             $ 1,452,364    $   266,796   $ 351,456      $   18,386    $ 2,089,002
       Intersegment  revenues                         -        145,976           -        (145,976)             -
       Total revenues                         1,452,364        412,772     351,456        (127,590)     2,089,002
       Net income (loss)                        134,496         61,725       2,246         (32,338)       166,129
       Total segment assets                   4,967,998        811,198     607,617         270,996      6,657,809
     ==============================================================================================================
</TABLE>

5.   IMPACT OF NEW ACCOUNTING STANDARDS

     SFAS  No.  148,  "Accounting  for  Stock-Based  Compensation"
     The  Company  measures  compensation  expense  for  stock  options  as  the
     difference  between the market  price of its common  stock and the exercise
     price of the option at the grant date. Accordingly, no compensation expense
     has been recognized for stock option grants.

     For  purposes  of the pro  forma  disclosures  required  by SFAS  No.  148,
     "Accounting for  Stock-Based  Compensation - Transition and Disclosure - an
     Amendment of FASB  Statement No. 123," the estimated fair value of Progress
     Energy's  stock  options is amortized to expense over the options'  vesting
     period.  The  Company's  information  related  to the pro  forma  impact on
     earnings  assuming  stock options were expensed for the second  quarter and
     first half of 2003 and 2002 is as follows:

                                       14
<PAGE>
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

         (in thousands)
                                                                 Three Months Ended June 30,      Six Months Ended June 30,
                                                                ------------------------------ -------------------------------
         FLORIDA PROGRESS CORPORATION                                2003            2002           2003           2002
                                                                ---------------  ------------- -------------- ----------------
         Net income, as reported                                   $ 109,741       $  90,356      $ 190,659      $ 166,129
         Deduct:  Total stock option expense determined under
           fair value method for all awards, net of related
           tax effects                                                   275             194            693            504
                                                                ---------------  ------------- -------------- ----------------
         Pro forma net income                                      $ 109,466       $  90,162      $ 189,966      $ 165,625
                                                                ===============  ============= ============== ================

                                                                 Three Months Ended June 30,        Six Months Ended June 30,
                                                                ------------------------------ -------------------------------
         PROGRESS ENERGY FLORIDA, INC.                               2003            2002           2003           2002
                                                                ---------------  ------------- -------------- ----------------
         Earnings for common stock, as reported                    $  61,359       $  76,753      $ 132,116      $ 134,496
         Deduct:  Total stock option expense determined under
           fair value method for all awards, net of related
           tax effects                                                   252             167            635            462
                                                                ---------------  ------------- -------------- ----------------
         Pro forma earnings for common stock                       $  61,107       $  76,586      $ 131,481      $ 134,034
                                                                ===============  ============= ============== ================
</TABLE>

     In April 2003, the Financial  Accounting  Standards  Board (FASB)  approved
     certain decisions on its stock-based  compensation project. Some of the key
     decisions reached by the FASB were that stock-based  compensation should be
     recognized  in the  income  statement  as an expense  and that the  expense
     should be measured as of the grant date at fair value. A significant  issue
     yet to be resolved by the FASB is the determination of the appropriate fair
     value measure.  The FASB continues to deliberate  additional issues in this
     project;  however,  the FASB plans to issue an exposure  draft in 2003 that
     could become effective in 2004.

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

     In connection  with the January 2003 FASB Emerging Issues Task Force (EITF)
     meeting, the FASB was requested to reconsider an interpretation of SFAS No.
     133.  The   interpretation,   which  is   contained   in  the   Derivatives
     Implementation  Group's C11  guidance,  relates to the pricing of contracts
     that include broad market indices (e.g., CPI). In particular, that guidance
     discusses  whether the pricing in a contract  that  contains  broad  market
     indices could qualify as a normal  purchase or sale (the normal purchase or
     sale term is a defined accounting term, and may not, in all cases, indicate
     whether the contract would be "normal" from an operating entity viewpoint).
     In late June 2003,  the FASB issued final  superseding  guidance (DIG Issue
     C20) on this issue,  which is  significantly  different  from the tentative
     superseding  guidance  that was issued in April 2003.  The new  guidance is
     effective  October 1, 2003 for the  Company.  DIG Issue C20  specifies  new
     pricing-related  criteria for qualifying as a normal  purchase or sale, and
     it  requires a special  transition  adjustment  as of October 1, 2003.  The
     Company has no current contracts affected by this revised guidance.

     SFAS  No.  150,   "Accounting  for  Certain   Financial   Instruments  with
     Characteristics  of Both  Liabilities  and  Equity"
     In May  2003,  the  FASB  issued  SFAS No.  150,  "Accounting  for  Certain
     Financial Instruments with Characteristics of Both Liabilities and Equity."
     SFAS  No.  150  establishes  standards  for how an  issuer  classifies  and
     measures  certain  financial   instruments  with  characteristics  of  both
     liabilities and equity. The financial  instruments within the scope of SFAS
     No. 150 include mandatorily redeemable stock, obligations to repurchase the
     issuer's equity shares by transferring  assets, and certain  obligations to
     issue a variable  number of shares.  SFAS No. 150 is effective  immediately
     for such  instruments  entered into or modified  after May 31, 2003, and is
     effective for previously issued financial  instruments  within its scope on
     July 1, 2003.

     Upon the  Company's  adoption  of FIN No.  46,  Consolidation  of  Variable
     Interest Entities (see below), the FPC Capital I Preferred  Securities,  as
     discussed  in  Note  8,  are  anticipated  to be  deconsolidated  from  the
     Company's  financial  statements  effective  July 1, 2003.  Therefore,  the
     Company  does not  expect the  adoption  of SFAS No. 150 to have a material
     impact on its results of operations or financial position.

     FIN No. 46, "Consolidation of Variable Interest Entities"
     In January 2003, the FASB issued  Interpretation No. 46,  "Consolidation of
     Variable Interest Entities - an Interpretation of ARB No. 51" (FIN No. 46).
     This  interpretation  provides  guidance  related to  identifying  variable
     interest entities (previously know as special purpose entities or SPEs) and

                                       15
<PAGE>

     determining   whether  such  entities  should  be   consolidated.   Certain
     disclosures  are required if it is reasonably  possible that a company will
     consolidate or disclose  information  about a variable interest entity when
     it  initially  applies  FIN No.  46.  This  interpretation  must be applied
     immediately to variable interest entities created or obtained after January
     31,  2003.  During  the  first  six  months of 2003,  the  Company  did not
     participate  in the creation of, or obtain a new variable  interest in, any
     variable  interest entity.  For those variable interest entities created or
     obtained  on or  before  January  31,  2003,  the  Company  must  apply the
     provisions of FIN No. 46 in the third quarter of 2003.

     The  Company  is  currently   evaluating   what   effects,   if  any,  this
     interpretation  will  have  on its  results  of  operations  and  financial
     position.  During this evaluation process, several arrangements through its
     Railcar Ltd.  subsidiary have been identified to which this  interpretation
     may apply.  These  arrangements  include an agreement  with  Railcar  Asset
     Financing  Trust (RAFT),  a  receivables  securitization  trust,  and seven
     synthetic  leases.  Because  the  Company  expects to sell the  majority of
     Railcar Ltd.  during 2003 (See Note 3) and divest of its interests in these
     arrangements,  the  application  of FIN No.  46 is not  expected  to have a
     material impact with respect to these arrangements.  If these interests are
     not divested as currently  expected,  the maximum  cash  obligations  under
     these arrangements  total  approximately $54 million.  However,  management
     believes the maximum loss exposure would be significantly  reduced based on
     the  current  fair  values  of  the  underlying  assets  related  to  these
     arrangements.

     The  implementation  of FIN No. 46 may require  deconsolidation  of certain
     previously  consolidated  entities.  Upon adoption, the company anticipates
     deconsolidating   the  FPC  Capital  I  Trust,  which  holds  FPC-obligated
     mandatorily  redeemable  preferred securities. The Company will reflect its
     subordinate  note obligation to the Trust as detailed in Note 8. Therefore,
     the deconsolidation is not expected to have a material effect.

     The Company is in the final  stages of  completing  the adoption of FIN No.
     46, but having considered the facts described  herein,  does not expect the
     results to have a material impact on its consolidated  financial  position,
     results of operations or liquidity.

     EITF Issue No. 03-04, "Accounting for 'Cash Balance' Pension Plans"
     In May  2003,  the  EITF  reached  consensus  in EITF  Issue  No.  03-04 to
     specifically address the accounting for certain cash balance pension plans.
     The consensus reached in EITF Issue No. 03-04 requires certain cash balance
     pension  plans to be  accounted  for as  defined  benefit  plans.  For cash
     balance plans  described in the consensus,  the consensus also requires the
     use of the  traditional  unit credit  method for purposes of measuring  the
     benefit  obligation  and annual cost of  benefits  earned as opposed to the
     projected unit credit method.  The Company has  historically  accounted for
     its cash balance plans as defined  benefit plans;  however,  the Company is
     required  to adopt the  measurement  provisions  of EITF  03-04 at its cash
     balance plans' next  measurement date of December 31, 2003. Any differences
     in the measurement of the obligations as a result of applying the consensus
     will be reported as a component of actuarial  gain or loss.  The Company is
     currently  evaluating  what  effects EITF 03-04 will have on its results of
     operations and financial position.

6.   ASSET RETIREMENT OBLIGATIONS

     SFAS No.  143,  "Accounting  for Asset  Retirement  Obligations,"  provides
     accounting  and   disclosure   requirements   for  retirement   obligations
     associated with long-lived  assets and was adopted by the Company effective
     January  1,  2003.  This  statement  requires  that  the  present  value of
     retirement  costs for which the Company has a legal  obligation be recorded
     as a  liability  with an  equivalent  amount  added to the  asset  cost and
     depreciated over an appropriate period. The liability is then accreted over
     time by  applying  an  interest  method  of  allocation  to the  liability.
     Cumulative  accretion and accumulated  depreciation were recognized for the
     time period from the date the liability  would have been recognized had the
     provisions  of this  statement  been in effect,  to the date of adoption of
     this statement.

     Upon adoption of SFAS No. 143, PEF recorded  asset  retirement  obligations
     (AROs)  totaling  $302.8  million for nuclear  decommissioning  of radiated
     plant.   PEF  used  an  expected   cash  flow  approach  to  measure  these
     obligations.  This  amount  includes  accruals  recorded  prior to adoption
     totaling  $283.9  million,  which were  previously  recorded in accumulated
     depreciation.  The  related  asset  retirement  costs,  net of  accumulated
     depreciation,  recorded upon  adoption  totaled $38.5 million for regulated
     operations.  The adoption of this  statement had no impact on the income of
     PEF,  as the  effects  were  offset by the  establishment  of a  regulatory
     liability  in the  amount  of  $19.6  million,  pursuant  to SFAS  No.  71,
     "Accounting for the Effects of Certain Types of Regulation." The regulatory
     liability  represents  the  amount by which  previously  recorded  accruals
     exceeded the cumulative accretion and accumulated depreciation for the time
     period  from the date the  liability  would  have been  recognized  had the
     provisions of this statement been in effect to the date of adoption.

     Funds set aside in PEF's nuclear decommissioning trust fund for the nuclear
     decommissioning  liability  totaled  $396.7  million  at June 30,  2003 and
     $373.6 million at December 31, 2002.

     The  Company  also  recorded  AROs  totaling  $9.6  million  for coal  mine
     operations,  synthetic fuel operations and gas production of Progress Fuels
     Corporation.  The Company  used an expected  cash flow  approach to measure
     these obligations. This amount includes accruals recorded prior to adoption
     totaling $4.6 million,  which were previously recorded in other liabilities
     and  deferred   credits.   The  related  asset  retirement  costs,  net  of
     accumulated  depreciation,  recorded upon adoption totaled $3.4 million for
     nonregulated operations.  The cumulative effect of initial adoption of this
     statement  related to  nonregulated  operations was $1.6 million of pre-tax
     expense.   The  ongoing  impact  on  earnings   related  to  accretion  and
     depreciation was not significant for the three or six months ended June 30,
     2003.

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

                                       16
<PAGE>

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

     PEF has previously  recognized removal costs as a component of depreciation
     in accordance with regulatory  treatment.  As of June 30, 2003, the portion
     of such costs not representing  AROs under SFAS No. 143 was $940.1 million.
     This amount is included in  accumulated  depreciation  on the  accompanying
     Balance Sheets. PEF has collected amounts for non-radiated areas at nuclear
     facilities,  which do not represent AROs. These amounts as of June 30, 2003
     totaled $61.5 million, which is included in accumulated depreciation on the
     accompanying   Balance  Sheets.   PEF  previously   collected  amounts  for
     dismantlement of its fossil  generation  plants.  As of June 30, 2003, this
     amounted to $142.2,  which is included in accumulated  depreciation  on the
     accompanying  Balance Sheets. This collection was suspended pursuant to the
     rate case settlement discussed in Note 9.

     On January 23, 2003, the Staff of the FPSC issued a notice of proposed rule
     development to adopt provisions  relating to accounting for AROs under SFAS
     No. 143.  Accompanying  the notice was a draft rule  presented by the Staff
     which adopts the  provisions of SFAS No. 143 along with the  requirement to
     record the difference between amounts prescribed by the FPSC and those used
     in the  application  of SFAS No.  143 as  regulatory  assets or  regulatory
     liabilities, which was accepted by all parties. The Commission has approved
     this draft rule and a final order is expected in the third quarter of 2003.

7.   GOODWILL AND OTHER INTANGIBLE ASSETS

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

     During 2002, the Company  acquired  Westchester  Gas Company.  The purchase
     price was finalized  during the first quarter 2003 with the purchase  price
     being primarily allocated to fixed assets including oil and gas properties.
     No goodwill was recorded and a contract for $9.2 million was  identified as
     an intangible.

     The Company's carrying amount of goodwill at June 30, 2003 and December 31,
     2002,  was $9.9  million  and  $11.1  million,  respectively,  in the Fuels
     segment.  The Company has $9.2 million of intangible  assets as of June 30,
     2003 and no significant intangible assets as of December 31, 2002. The $9.2
     million  relates  to a contract  acquired  as part of the  Westchester  Gas
     Company  acquisition,  which was  identified  as an intangible in the final
     purchase price allocation.  PEF has no significant intangible assets and no
     goodwill as of June 30, 2003 and December 31, 2002.

8.   COMPANY-OBLIGATED   MANDATORILY   REDEEMABLE  CUMULATIVE  QUARTERLY  INCOME
     PREFERRED  SECURITIES 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
     with 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
     and used for  general  corporate  purposes  including  the  repayment  of a
     portion of certain outstanding short-term bank loans and commercial paper.

                                       17
<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.  Upon adoption of FIN No. 46, the
     Company  anticipates  deconsolidating  the FPC Capital I Trust which is not
     expected to have a material effect on the consolidated  financial position,
     results of operations or liquidity (see Note 5).

9.   REGULATORY MATTERS

     A. Retail Rate Matters

     On  March  27,  2002,  the  parties  in  PEF's  rate  case  entered  into a
     Stipulation and Settlement Agreement (the Agreement) related to retail rate
     matters.  The  Agreement  was approved by the FPSC on April 23,  2002.  The
     Agreement  provides that PEF will operate under a Revenue Sharing Incentive
     Plan (the Plan) through 2005, and thereafter until terminated by the FPSC.

     The Plan  provides  that all retail base  revenues  between an  established
     threshold  and cap will be  shared - a 2/3  share to be  refunded  to PEF's
     retail customers, and a 1/3 share to be received by PEF's shareholders. All
     retail  base  rate  revenues  above  the  retail  base  rate  revenue  caps
     established  for each year will be refunded 100% to retail  customers on an
     annual  basis.  The retail base revenue cap for 2003 is $1.393  billion and
     will  increase $37 million each year  thereafter.  As of December 31, 2002,
     $4.7 million was accrued and was  refunded to  customers in March 2003.  On
     February 24, 2003,  the parties to the Agreement  filed a motion seeking an
     order from the FPSC to enforce the Agreement.  In this motion,  the parties
     disputed  PEF's  calculation  of  retail  revenue  subject  to  refund  and
     contended that the refund should be approximately  $23 million.  On July 9,
     2003,  the FPSC ruled that PEF must provide an  additional  refund of $18.4
     million  to its  retail  customers  related  to the  2002  revenue  sharing
     calculation.  PEF recorded  this refund in the second  quarter of 2003 as a
     charge against electric operating revenue and will refund this amount by no
     later  than  October  31,  2003.  In the second  quarter of 2003,  PEF also
     recorded an additional  accrual of $9.5 million  related to estimated  2003
     revenue sharing.

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

     B. Regional Transmission Organizations

     In early 2000, the FERC issued Order 2000 regarding  regional  transmission
     organizations (RTOs). This Order set minimum  characteristics and functions
     that RTOs must  meet,  including  independent  transmission  service.  As a
     result of Order 2000,  PEF,  along with Florida  Power & Light  Company and
     Tampa  Electric  Company,   filed  with  the  FERC,  in  October  2000,  an
     application  for  approval of a  GridFlorida  RTO. In March 2001,  the FERC
     issued an order provisionally approving GridFlorida. However, in July 2001,
     the FERC issued orders  recommending that companies in the Southeast engage
     in a mediation  to develop a plan for a single RTO for the  Southeast.  PEF
     participated   in  the  mediation.   The  FERC  has  not  issued  an  order
     specifically on this mediation. In July 2002, the FERC issued its Notice of
     Proposed   Rulemaking   in  Docket   No.   RM01-12-000,   Remedying   Undue
     Discrimination  through  Open  Access  Transmission  Service  and  Standard
     Electricity Market Design (SMD NOPR). If adopted as proposed, the rules set
     forth  in  the  SMD  NOPR  would  materially  alter  the  manner  in  which
     transmission  and generation  services are provided and paid for. PEF, as a
     subsidiary  of Progress  Energy,  filed  comments on November  15, 2002 and
     supplemental  comments on January 10,  2003.  On April 28,  2003,  the FERC
     released a White Paper on the Wholesale  Market  Platform.  The White Paper
     provides  an overview  of what the FERC  currently  intends to include in a
     final rule in the SMD NOPR docket.  The White Paper retains the fundamental
     and most protested  aspects of SMD NOPR,  including  mandatory RTOs and the
     FERC's  assertion of  jurisdiction  over certain aspects of retail service.
     PEF, as a  subsidiary  of Progress  Energy,  plans to file  comments on the

                                       18
<PAGE>

     White Paper.  The FERC has also  indicated that it expects to issue a final
     rule after Congress votes this fall on the proposed House and Senate Energy
     Bills.  The Company  cannot  predict  the  outcome of these  matters or the
     effect that they may have on the GridFlorida  proceedings currently ongoing
     before the FERC.

     The Company has actively  participated in the RTO formation in Florida. The
     three peninsular Florida investor-owned  utilities,  PEF, Florida Power and
     Light Company,  and Tampa Electric Company,  (the Applicants) have proposed
     the formation of GridFlorida,  a single ISO  (Independent  System Operator)
     for peninsular  Florida.  Participation  is expected from many of the other
     transmission  owners in the state of Florida.  The GridFlorida  proposal is
     pending before both the FERC and the FPSC. The FERC provisionally  approved
     the structure and  governance of GridFlorida in May 2001. In December 2001,
     the  FPSC  found  the  Applicants  were  prudent  in  proactively   forming
     GridFlorida  but ordered the  Applicants  to modify the proposal in several
     material  respects,  including a change to status as a not-for-profit  ISO.
     The Commission's  most recent order in September 2002 ordered further state
     proceedings.  The issues to be addressed as  modifications  include but are
     not limited to 1)  pricing/rate  structure;  2)  elimination  of  pancaking
     revenues;  3) cost recovery of incremental  costs; 4) demarcation dates for
     new facilities and long-term transmission  contracts; 5) market design. The
     Florida  Office of  Public  Counsel  appealed  the  September  order to the
     Florida  Supreme Court and in October 2002 the FPSC abated its  proceedings
     pending  the outcome of the  appeal.  On June 2, 2003 the  Florida  Supreme
     Court  dismissed  the appeal  without  prejudice on the ground that certain
     portions  of the  Commission's  order  constituted  non-final  action.  The
     dismissal is without  prejudice to any party to challenge the  Commission's
     order after all portions are final. A technical conference for the state of
     Florida to be conducted by the FERC is scheduled for September 15, 2003. It
     is unknown  what the outcome of this  appeal will be at this time.  At June
     30, 2003, the Company had an immaterial amount invested in GridFlorida.  It
     is unknown  when the FERC or the FPSC will take final action with regard to
     the status of  GridFlorida or what the impact of further  proceedings  will
     have on the Company's or PEF's earnings, revenues or prices.

10.  COMPREHENSIVE INCOME

     Comprehensive  income  for  Florida  Progress  for the three and six months
     ended June 30, 2003 was $108.7  million and $188.6  million,  respectively.
     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 PEF for the three and six  months  ended June 30,
     2003 was $61.7 million and $133.1 million,  respectively.  PEF did not have
     any items of other  comprehensive  income for the three or six months ended
     June 30, 2002. Items of other  comprehensive  income consisted primarily of
     changes in fair value of  derivatives  used to hedge cash flows  related to
     interest  on  long-term  debt  and  gas  sales,  and  to  foreign  currency
     translation adjustments.

11.  FINANCING ACTIVITIES

     On February 21,  2003,  PEF issued $425  million of First  Mortgage  Bonds,
     4.80%  Series Due March 1, 2013 and $225 million of First  Mortgage  Bonds,
     5.90% Series Due March 1, 2033.  Proceeds  from this issuance were used and
     will be used to repay the balance of its outstanding  commercial  paper, to
     refinance its secured and unsecured  indebtedness  including $70 million of
     First Mortgage Bonds, 6.125% Series and to redeem the aggregate outstanding
     balance of its 8% First Mortgage Bonds Due 2022.

     On March 1, 2003, $70 million of PEF First Mortgage  Bonds,  6.125% Series,
     matured  and were  retired.  PEF funded  this  maturity  through  the First
     Mortgage Bonds issued in February 2003.

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

     On April 1,  2003,  PEF  entered  into a new $200  million  364-day  credit
     agreement and a new $200 million three-year credit agreement  replacing its
     prior credit  facilities (which had been a $90 million 364-day facility and
     a $200 million five-year facility). The new PEF credit facilities contain a
     defined  maximum  total debt to total  capital ratio of 65%; as of June 30,
     2003 the calculated ratio was 52.6%. The new credit facilities also contain
     a requirement  that the ratio of EBITDA,  as defined in the facilities,  to
     interest  expense to be at least 3 to 1; as of June 30, 2003 the calculated
     ratio was 8.7 to 1.

                                       19
<PAGE>

12.  RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS

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

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

     The Company uses interest rate  derivative  instruments to adjust the fixed
     and  variable  rate  debt  components  of its debt  portfolio  and to hedge
     interest rates with regard to future fixed rate debt issuances.

     Progress Fuels Corporation  periodically enters into derivative instruments
     to hedge its  exposure to price  fluctuations  on natural gas sales.  As of
     June 30, 2003,  Progress Fuels Corporation has executed cash flow hedges on
     approximately  16.6 Bcf of natural gas sales through  December 2004.  These
     instruments  did not have a material  impact on the Company's  consolidated
     financial position or results of operations.

13.  OTHER INCOME AND OTHER EXPENSE

     Other  income and expense  includes  interest  income and other  income and
     expense items as discussed  below. The components of other, net as shown on
     the Consolidated  Statements of Income for second quarter and first half of
     2003 and 2002 are as follows:

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

      (in thousands)                                   Three Months Ended June 30,        Six Months Ended June 30,
                                                       -----------------------------     ----------------------------
                                                           2003             2002             2003           2002
                                                       ------------     ------------     -----------    -------------
      Other income
      Net energy brokered for resale gain (loss)            (1,301)             214            (112)             306
      Nonregulated energy and delivery services              3,600            2,846           6,903            6,893
      income
      AFUDC equity                                           3,261              231           4,049              415
      Other                                                     45              (54)            125              (82)
                                                       ------------     ------------     -----------    -------------
        Total other income - PEF and Florida Progress        5,605            3,237          10,965            7,532
                                                       ------------     ------------     -----------    -------------

      Other expense
      Nonregulated energy and delivery services
      expenses                                               3,457            2,616           5,700            4,115
      Donations                                              2,026            1,550           4,053            4,448
      Other                                                 (1,256)            (189)            316            1,044
                                                       ------------     ------------     -----------    -------------
        Total other expense - PEF                            4,227            3,977          10,069            9,607
      Other expense - Florida Progress                       2,122            5,102           6,893            7,399
                                                       ------------     ------------     -----------    -------------
        Total other expense - PEF and Florida Progress       6,349            9,079          16,962           17,006
                                                       ------------     ------------     -----------    -------------
      Other, net                                             (744)          (5,842)         (5,997)          (9,474)
                                                       ============     ============     ===========    =============
</TABLE>

     Net energy brokered for resale gain (loss) represents electricity purchased
     for  sale to a third  party.  Nonregulated  energy  and  delivery  services
     include  power   protection   services  and  mass  market  programs  (surge
     protection,   appliance  services  and  area  light  sales)  and  delivery,
     transmission and substation work for other utilities.

14.  COMMITMENTS AND CONTINGENCIES

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

     A. Guarantees

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

                                       20
<PAGE>

     Guarantees  as of June 30,  2003,  are  summarized  in the table  below and
     discussed more fully in the subsequent paragraphs:

     (in millions)
     Guarantees   issued  on  behalf  of  the  Company  and
     affiliates
          Standby letters of credit                                   $ 35.3
          Surety bonds                                                  41.1
          Other guarantees                                              30.6
     Guarantees issued on behalf of third parties
          Other guarantees                                              16.4
                                                                 ---------------
        Total                                                         $123.4
                                                                ================

     Standby Letters of Credit
     The Company has issued standby letters of credit to financial  institutions
     for the benefit of third parties that have  extended  credit to the Company
     and certain  subsidiaries.  Of the total standby  letters of credit issued,
     PEF has issued commitments  totaling $11.1 million.  Letters of credit have
     decreased  approximately  $7 million over the first half of the year. These
     letters of credit have been issued  primarily for the purpose of supporting
     payments of trade payables,  securing performance under contracts and lease
     obligations  and self insurance for workers  compensation.  If a subsidiary
     does not pay amounts when due under a covered  contract,  the  counterparty
     may present its claim for payment to the financial institution,  which will
     in turn request payment from the Company. Any amounts owed by the Company's
     subsidiaries are reflected in the Consolidated Balance Sheets.

     Surety Bonds
     At June 30, 2003,  the Company had $41.1 million in surety bonds,  of which
     PEF accounted for $5.2  million,  purchased  primarily for purposes such as
     providing workers compensation coverage and obtaining licenses, permits and
     rights-of-way.  To the extent  liabilities  are incurred as a result of the
     activities  covered by the surety bonds,  such  liabilities are included in
     the Consolidated Balance Sheets.

     Other Guarantees
     The Company has other guarantees outstanding of approximately $47.0 million
     related primarily to prompt performance  payments,  lease obligations,  and
     other payments  subject to  contingencies.  Approximately  $25.5 million in
     additional guarantees were issued during the year to date.

     Guarantees Issued by the Parent
     Progress  Energy  has  issued   approximately  $7.5  million  of  financial
     guarantees on behalf of Progress Rail Services  Corporation for obligations
     related to the purchase and sale of railcar  parts,  equipment and services
     which are not included in the table above.

     As of June 30, 2003,  management does not believe conditions are likely for
     performance under these agreements.

     B. Insurance

     PEF is insured against public liability for a nuclear  incident.  Under the
     current  provisions of the Price Anderson Act,  which limits  liability for
     accidents at nuclear power plants,  PEF, as owner of a nuclear unit, can be
     assessed a portion of any  third-party  liability  claims  arising  from an
     accident at any commercial nuclear power plant in the United States. In the
     event that public  liability claims from an insured nuclear incident exceed
     $300  million  (currently  available  through  commercial  insurers),  each
     company would be subject to pro rata assessments for each reactor owned per
     occurrence.  Effective August 20, 2003, the retroactive premium assessments
     will  increase to $100.6  million per  reactor  from the current  amount of
     $88.1 million.  The total limit available to cover nuclear liability losses
     will  increase  as well from $9.6  billion  to $10.6  billion.  The  annual
     retroactive premium limit of $10 million per reactor owned will not change.

     C. Claims and Uncertainties

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

     Hazardous and Solid Waste Management

     Various  organic  materials  associated with the production of manufactured
     gas,  generally  referred to as coal tar, are  regulated  under federal and
     state laws.  The  principal  regulatory  agency that is  responsible  for a
     specific former  manufactured gas plant (MGP) site depends largely upon the

                                       21
<PAGE>

     state in which the site is  located.  There are  several MGP sites to which
     the Company has some connection.  In this regard, PEF and other potentially
     responsible  parties, are participating in investigating and, if necessary,
     remediating former MGP sites with several regulatory  agencies,  including,
     but not limited to, the U.S. Environmental Protection Agency (EPA), and the
     Florida Department of Environmental  Protection (FDEP). In addition, PEF is
     periodically  notified  by  regulators  such as the EPA and  various  state
     agencies of their involvement or potential involvement in sites, other than
     MGP sites, that may require investigation and/or remediation.

     PEF
     There are two former MGP sites and 11 other  active sites  associated  with
     PEF that have required or are anticipated to require  investigation  and/or
     remediation costs. As of June 30, 2003, PEF has accrued  approximately $9.4
     million,  for probable and reasonably  estimable costs at these sites.  PEF
     does not believe that it can provide an estimate of the reasonably possible
     total  remediation  costs beyond what is currently  accrued.  In 2002,  PEF
     filed a petition  for annual  recovery  of  approximately  $4.0  million in
     environmental  cost through the Environmental Cost Recovery Clause with the
     FPSC.  PEF was  successful  with this filing and will recover costs through
     rates for  investigation  and remediation  associated with transmission and
     distribution substations and transformers. As more activity occurs at these
     sites, PEF will assess the need to adjust the accruals. These accruals have
     been  recorded on an  undiscounted  basis.  PEF measures its  liability for
     these  sites  based on  available  evidence  including  its  experience  in
     investigating and remediating  environmentally impaired sites. This process
     often includes  assessing and  developing  cost-sharing  arrangements  with
     other potentially responsible parties.  Presently, PEF cannot determine the
     total costs that may be incurred in connection  with the remediation of all
     sites.

     Florida Progress
     In  2001,  Florida  Progress  sold  Inland  Marine  Transportation  to  AEP
     Resources,   Inc.  Florida  Progress  established  an  accrual  to  address
     indemnities  and  retained  environmental  liability  associated  with  the
     transaction.  Florida  Progress  estimates  that  its  maximum  contractual
     liability  to  AEP   Resources,   Inc.   associated   with  Inland   Marine
     Transportation is $60 million.  The balance in this accrual is $9.9 million
     at June 30,  2003.  This  accrual has been  determined  on an  undiscounted
     basis.  Florida  Progress  measures  its  liability  for this site based on
     estimable and probable remediation scenarios.  The Company believes that it
     is reasonably  probable that  additional  costs,  which cannot be currently
     estimated,  may be incurred  related to the  environmental  indemnification
     provision beyond the amount accrued. The Company cannot predict the outcome
     of this matter.

     PEF has  filed  claims  with  the  Company's  general  liability  insurance
     carriers to recover costs arising out of actual or potential  environmental
     liabilities.  Some claims have been  settled and others are still  pending.
     The Company cannot predict the outcome of this matter.

     Certain  historical waste sites exist that are being addressed  voluntarily
     by the Fuels segment. The Company cannot determine the total costs that may
     be incurred in connection with these sites.  The Company cannot predict the
     outcome of this matter.

     Rail Services is voluntarily addressing certain historical waste sites. The
     Company cannot determine the total costs that may be incurred in connection
     with these sites. The Company cannot predict the outcome of this matter.

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

     Air Quality

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

     The EPA is  conducting  an  enforcement  initiative  related to a number of
     coal-fired   utility  power  plants  in  an  effort  to  determine  whether
     modifications  at  those  facilities  were  subject  to New  Source  Review
     requirements or New Source  Performance  Standards under the Clean Air Act.
     PEF was asked to provide  information to the EPA as part of this initiative
     and  cooperated in providing the  requested  information.  During the first
     quarter of 2003, PEF received a supplemental  information  request from the

                                       22
<PAGE>

     EPA and  responded to it in the second  quarter.  The EPA  initiated  civil
     enforcement  actions against other  unaffiliated  utilities as part of this
     initiative. Some of these actions resulted in settlement agreements calling
     for expenditures, ranging from $1.0 billion to $1.4 billion. A utility that
     was not subject to a civil enforcement action settled its New Source Review
     issues with the EPA for $300  million.  These  settlement  agreements  have
     generally  called for  expenditures  to be made over extended time periods,
     and some of the  companies  may seek  recovery of the related  cost through
     rate  adjustments  or similar  mechanisms.  The Company  cannot predict the
     outcome of the EPA's initiative or its impact, if any, on the Company.

     Other Environmental Matters

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

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

     Legal Matters

     1) Franchise Litigation

     Six cities, with a total of approximately  49,000 customers,  have sued PEF
     in various circuit courts in Florida.  As discussed  below,  two of the six
     cities, with a total of approximately  21,000 customers,  have subsequently
     settled  their  lawsuits  with  PEF  and  signed  new,  30-year   franchise
     agreements.  The lawsuits  principally seek (1) a declaratory judgment that
     the cities have the right to purchase  PEF's electric  distribution  system
     located  within the municipal  boundaries of the cities,  (2) a declaratory
     judgment  that the  value of the  distribution  system  must be  determined
     through arbitration, and (3) injunctive relief requiring PEF to continue to
     collect from PEF's customers and remit to the cities, franchise fees during
     the pending litigation,  and as long as PEF continues to occupy the cities'
     rights-of-way to provide electric service,  notwithstanding  the expiration
     of the  franchise  ordinances  under  which PEF had agreed to collect  such
     fees.  Five circuit  courts have entered  orders  requiring  arbitration to
     establish the purchase price of PEF's electric  distribution  system within
     five cities. Two appellate courts have upheld those circuit court decisions
     and authorized cities to determine the value of PEF's electric distribution
     system  within  the  cities  through  arbitration.  To  date,  no city  has
     attempted to actually  exercise the option to purchase any portion of PEF's
     electric  distribution system. An arbitration in one of the cases (the City
     of Casselberry)  was held in August 2002 and an award was issued in October
     2002  setting the value of PEF's  distribution  system  within that city at
     approximately  $22 million.  On April 2, 2003, PEF filed a rate filing with
     the FERC to  recover  $10.6  million  in  stranded  costs  from the City of
     Casselberry in the event the city ultimately chooses and is allowed to form
     a municipal  electric  utility.  PEF's rate filing has been abated  pending
     settlement discussions between the parties. On July 28, the City approved a
     settlement  agreement and a new, 30-year franchise  agreement with PEF. The
     settlement  resolves  all  pending  litigation  with  that  City.  A second
     arbitration  (with the City of Winter Park) was completed in February 2003.
     That arbitration panel issued an award on May 29, 2003 setting the value of
     PEF's  distribution  system within the City of Winter Park at approximately
     $31.5 million,  not including separation and reintegration and construction
     work in progress, which could add several million dollars to the award. The
     panel also awarded PEF  approximately  $10.7 million in stranded costs. The
     City of Winter  Park has  scheduled a September  9, 2003  referendum  where
     citizens  will  decide  whether to issue bonds of up to  approximately  $50
     million  to  acquire  PEF's  electric  distribution  system.  At this time,
     whether and when there will be further  proceedings  regarding  the City of
     Winter Park cannot be  determined.  A third  arbitration  (with the Town of
     Belleair) was  completed on June 16, 2003. A decision from the  arbitration
     panel has not yet been issued in that case. A fourth  arbitration (with the
     City of Apopka) has been scheduled for January 2004. On August 4, 2003, the

                                       23
<PAGE>

     City of Longwood  approved a 30-year  franchise and a settlement  agreement
     with PEF,  which  will  resolve  all  pending  litigation  with the City of
     Longwood.  Arbitration  in the  remaining  city's  litigation  (the City of
     Edgewood) has not yet been scheduled.

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

     2) DOE Litigation

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

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

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

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

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

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

     3) Easement Litigation

     In  December  1998,  PEF was served  with a class  action  lawsuit  seeking
     damages,  declaratory and injunctive relief for the alleged improper use of
     electric transmission easements.  The plaintiffs contend that the licensing
     of   fiber-optic    telecommunications    lines   to   third   parties   or
     telecommunications  companies  for other than PEF's  internal use along the
     electric  transmission line  right-of-way  exceeds the authority granted in
     the  easements.  In June 1999,  plaintiffs  amended their  complaint to add
     Progress Telecom as a defendant and adding counts for unjust enrichment and
     constructive   trust.  In  January  2000,  the  trial  court  conditionally
     certified the class statewide. In mediation held in March 2000, the parties
     reached a tentative  settlement of this claim.  In January 2001,  the trial
     court preliminarily  approved the amended settlement  agreement,  certified
     the settlement  class and approved the class notice.  On November 16, 2001,
     the trial court  issued a final order  approving  the  settlement.  Several
     objectors to the settlement  appealed the order to the First District Court
     of Appeal.  On February 12,  2003,  the  appellate  court issued an opinion
     upholding the trial court's subject matter  jurisdiction over the case, but
     reversing the trial court's order approving the mandatory  settlement class
     for purposes of declaratory  and  injunctive  relief.  The appellate  court
     remanded the case to the trial court for further  proceedings.  The Company
     filed a motion to seek  discretionary  review  before the  Florida  Supreme
     Court. Other parties filed similar motions as well as motions for rehearing
     before the First  District  Court of  Appeal.  Subsequent  to filing  these
     motions,  the Company and the appellants reached a settlement resolving the

                                       24
<PAGE>

     appellants'  dispute.  The settlement  was contingent  upon the trial court
     approving a mandatory class  settlement  consistent with the First District
     Court of  Appeal's  February  12, 2003  opinion.  On May 29, 2003 the trial
     court entered an Amended Final Judgment again approving the mandatory class
     settlement,  consistent with the First District Court of Appeals'  February
     12, 2003 opinion.  No appeals have been taken from that  judgment,  and the
     time to appeal has expired. On July 1, 2003, PEF, the class representatives
     and the appellants filed a joint withdrawal of all pending motions with the
     First  District  Court of  Appeal.  The  First  District  Court  of  Appeal
     acknowledged  the withdrawal of all pending motions and issued a mandate on
     July 14, 2003. Under the terms of the mandatory class settlement,  PEF will
     make  settlement  payments to class members in August 2003.  The settlement
     payments  will not have a material  adverse  effect  upon  PEF's  financial
     condition or results of operations.

     4) Synthetic Fuel Tax Credits

     The Company,  through its subsidiaries,  produces  synthetic fuel from coal
     fines.  The production and sale of the synthetic fuel from these facilities
     qualifies  for tax credits  under  Section 29 of the Code  (Section  29) if
     certain  requirements  are  satisfied,  including  a  requirement  that the
     synthetic fuel differs  significantly in chemical composition from the coal
     used to produce such synthetic  fuel. Any synthetic fuel tax credit amounts
     not utilized are carried  forward  indefinitely.  All of Progress  Energy's
     synthetic fuel facilities have received  private letter rulings (PLRs) from
     the Internal  Revenue  Service (IRS) with respect to their  synthetic  fuel
     operations.  These tax  credits  are  subject to review by the IRS,  and if
     Progress  Energy  fails to  prevail  through  the  administrative  or legal
     process,  there could be a significant  tax liability  owed for  previously
     taken Section 29 credits,  with a  significant  impact on earnings and cash
     flows. Additionally, the ability to use tax credits currently being carried
     forward could be denied.  Total Section 29 credits generated to date at FPC
     are  approximately  $642.3 million,  of which $271.7 million have been used
     and $340.6  million  are being  carried  forward as of June 30,  2003.  The
     current Section 29 tax credit program expires in 2007.

     One synthetic fuel entity,  Colona Synfuel  Limited  Partnership,  L.L.L.P.
     (Colona),  from which the Company (and FPC prior to its  acquisition by the
     Company) has been allocated  approximately $269.5 million in tax credits to
     date, is being  audited by the IRS. The audit of Colona was  expected.  The
     Company is audited regularly in the normal course of business,  as are most
     similarly situated companies.

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

     In late June 2003,  the Company was informed  that IRS field  auditors have
     raised questions  regarding the chemical change  associated with coal-based
     synthetic fuel  manufactured at its Colona facility and the testing process
     by  which  the  chemical  change  is  verified.  (The  questions  arose  in
     connection  with  the  Company's  participation  in the PFA  program.)  The
     chemical  change and the associated  testing process were described as part
     of the PLR request for Colona. Based on that application,  the IRS ruled in
     Colona's  PLR that the  synthetic  fuel  produced  at  Colona  undergoes  a
     significant  chemical  change  and thus  qualifies  for tax  credits  under
     Section 29 of the Internal  Revenue Code.  While the IRS has announced that
     they may revoke PLRs if test procedures and results do not demonstrate that
     a  significant  chemical  change  has  occurred,  based on the  information
     received to date, the Company does not believe the issues warrant  reversal
     by the IRS National Office of its prior position in the Colona PLR.

     The information  provided by the IRS field auditors addresses only Progress
     Energy's Colona facility.  The Company,  however,  applies  essentially the
     same chemical process and uses the same independent laboratories to confirm
     chemical  change in the  synthetic  fuel  manufactured  at each of its four
     other  facilities.  The  independent  laboratories  used by the  Company to
     determine  significant  chemical  change are the  leading  experts in their
     field  and are  used by  many  other  industry  participants.  The  Company
     believes that the  laboratories'  work and the chemical  change process are
     consistent with the bases upon which the PLRs were issued.

     The Company is working to resolve  this matter as quickly as  possible.  At
     this time,  the Company  cannot predict how long the IRS process will take;
     however,  the Company intends to continue  working  cooperatively  with the
     IRS. The Company firmly  believes that it is operating the Colona  facility
     and its other  plants in  compliance  with its PLRs and  Section  29 of the
     Internal  Revenue  Code.  Accordingly,  the Company has no current plans to
     alter its synthetic fuel production schedules as a result of these matters.

     In  addition,  the Company has  retained an advisor to assist in selling an
     interest in one or more synthetic  fuel  entities.  The Company is pursuing
     the sale of a portion of its  synthetic  fuel  production  capacity that is
     underutilized  due to limits on the amount of credits that can be generated

                                       25
<PAGE>

     and  utilized  by the  Company.  The  Company  would  expect  to  retain an
     ownership  interest and to operate any sold facility for a management  fee.
     However,  the IRS has suspended issuance of PLRs relating to synthetic fuel
     production  (typically a closing  condition to the sale of an interest in a
     synthetic fuel entity).  Unless that  suspension on new PLRs is lifted,  it
     will be difficult to  consummate  the  successful  sale of interests in the
     Company's synthetic fuel facilities.  The Company cannot predict when or if
     the IRS will recommence  issuing such PLRs. The final outcome and timing of
     the Company's  efforts to sell  interests in synthetic  fuel  facilities is
     uncertain and while the Company  cannot predict the outcome of this matter,
     the outcome is not expected to have a material  effect on the  consolidated
     financial position, cash flows or results of operations.

     5) Other Legal Matters

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



                                       26
<PAGE>


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

The following  Management's  Discussion  and Analysis  contains  forward-looking
statements that involve estimates,  projections, goals, forecasts,  assumptions,
risks and  uncertainties  that could cause actual  results or outcomes to differ
materially from those expressed in the forward-looking statements. Please review
"SAFE HARBOR FOR  FORWARD-LOOKING  STATEMENTS"  for a discussion  of the factors
that may impact any such forward-looking statements made herein.

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

This discussion  should be read in conjunction with the  accompanying  financial
statements  found elsewhere in this report and in conjunction with the 2002 Form
10-K.

OPERATING RESULTS

Florida  Progress' net income for the second quarter of 2003 and 2002 was $109.7
million and $90.4 million,  respectively.  Net income for the first half of 2003
and 2002 was $190.7 million and $166.1 million, respectively.

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

Progress Energy Florida

PEF contributed  earnings for common stock of $61.4 million and $76.8 million in
the second quarter of 2003 and 2002, respectively, and $132.1 million and $134.5
million in the first half of 2003 and 2002,  respectively.  These  decreases are
primarily  attributed to impacts of the 2002 rate case and are partially  offset
by favorable  retail customer growth and usage and the impact of the tax benefit
reallocation.

In March 2002, PEF settled a rate case which provided for a one-time retroactive
rate refund,  decreased  future retail rates by 9.25%  (effective  May 1, 2002),
provided for lower  depreciation  and  amortization,  provided for  increases in
certain  service  revenue rates and provided for revenue sharing with the retail
customers if certain revenue  thresholds were met. The impacts of the settlement
agreement are included below.

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

------------------------------------------------------------------------------------------------------------------------
(in millions of $)                    Three Months Ended June 30,                  Six Months Ended June 30,
------------------------------------------------------------------------------------------------------------------------
Customer Class                  2003         Change    % Change     2002       2003     Change     % Change       2002
------------------------------------------------------------------------------------------------------------------------
Residential                   $ 413.5        $ 17.9     4.5      $ 395.6   $   798.5   $ 23.7           3.1   $   774.8
Commercial                      192.1           8.7     4.7        183.4       342.5     (7.7)         (2.2)      350.2
Industrial                       56.1           1.0     1.8         55.1       103.5     (1.6)         (1.5)      105.1
Governmental                     45.8           2.3     5.3         43.5        83.8      0.3           0.4        83.5
Retroactive rate refund             -             -      -             -           -     35.0         100.0       (35.0)
Revenue sharing/rate
 refund                         (28.1)        (28.1)     -             -       (28.1)   (28.1)            -           -
                            ------------------------            --------------------------------              ----------
    Total retail revenues       679.4           1.8     0.3        677.6     1,300.2     21.6           1.7     1,278.6
Wholesale                        49.8          (6.0)  (10.8)        55.8       121.1     12.8          11.8       108.3
Unbilled                          7.3           1.9      -           5.4         6.6     (5.2)            -        11.8
Miscellaneous                    30.0           2.9    10.7         27.1        67.1     13.4          25.0        53.7
                            ------------------------            --------------------------------              ----------
    Total electric revenues   $ 766.5        $  0.6     0.1      $ 765.9   $ 1,495.0   $ 42.6           2.9   $ 1,452.4
------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       27
<PAGE>

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

-----------------------------------------------------------------------------------------------------------------------
(in thousands of mWh)                 Three Months Ended June 30,                 Six Months Ended June 30,
-----------------------------------------------------------------------------------------------------------------------
Customer Class                 2003       Change   % Change        2002       2003     Change     % Change       2002
-----------------------------------------------------------------------------------------------------------------------
Residential                    4,703         188     4.2            4,515     9,256     681           7.9        8,575
Commercial                     2,951          94     3.3            2,857     5,393      80           1.5        5,313
Industrial                     1,008          14     1.4              994     1,924      48           2.6        1,876
Governmental                     726          11     1.5              715     1,383      48           3.6        1,335
                            ---------------------             --------------------------------               ----------
    Total   retail   energy    9,388         307     3.4            9,081    17,956     857           5.0       17,099
sales
Wholesale                        890         (86)   (8.8)             976     2,166     210          10.7        1,956
Unbilled                         498          55      -               443       553      79             -          474
                            ---------------------             --------------------------------               ----------
    Total mWh sales           10,776         276     2.6           10,500    20,675   1,146           5.9       19,529
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

Second Quarter of 2003 Compared to Second Quarter of 2002

Retail  revenues,  excluding  fuel revenues of $286.3 million and $259.8 million
for the second quarter of 2003 and 2002, respectively,  decreased as a result of
the impact of the final resolution of the revenue sharing provisions in the 2002
rate settlement  agreement.  Fuel revenues  increased compared to the prior year
primarily due to increased fuel prices and generation. On July 9, 2003, the FPSC
issued an order that required PEF to refund an additional  $18.4 million related
to 2002 revenue  sharing.  In the second  quarter of 2003,  PEF also recorded an
additional  accrual of $9.5 million  related to estimated 2003 revenue  sharing.
This accrual will be reviewed and adjusted, if necessary,  on a quarterly basis.
Revenues were further reduced due to the impact of the 9.25% rate reduction that
went into effect in May 2002, as part of the settlement agreement.

These  decreases were partially  offset by additional  retail  revenues of $11.4
million related to customer growth and usage.

Operation and maintenance  costs increased $0.6 million,  compared to the $153.3
million  incurred  during the second  quarter of 2002. A decrease in the pension
credit of $5.4 million,  due to continued weak market performance,  is offset by
lower spending by PEF's business units.

Income tax expense was $28.0 million for the second quarter of 2003, compared to
$45.6  million  during the second  quarter of 2002.  Fluctuations  in income tax
expense result from the tax benefit  reallocation and changes in pre-tax income.
In  accordance  with an SEC order,  tax  benefits  not  related  to  acquisition
interest  expense  that were  previously  held  unallocated  at Progress  Energy
Holding Company are now allocated to the profitable subsidiaries.

First Half of 2003 Compared to First Half of 2002

Retail  revenues,  excluding  fuel revenues of $529.3 million and $498.1 million
for the first half of 2003 and 2002,  respectively,  decreased due to the impact
of the 9.25% rate  reduction,  2002  revenue  sharing  resolution,  and the 2003
revenue sharing accrual, all of which are discussed  previously.  Fuel revenues,
which have no earnings  impact,  increased  compared to the prior year primarily
due to increased fuel prices and generation.  Partially  offsetting  these items
was the  absence  of the  impact  of the  $35.0  million  rate  refund  that was
recognized in 2002 as part of the settlement agreement.

Strong  customer  growth and usage and  favorable  weather  positively  impacted
revenues in 2003. The average  number of customers  during the first half of the
year increased by  approximately  34,000 or 2.3% in 2003 as compared to the same
period in 2002.

Operation and maintenance  costs increased $8.1 million,  compared to the $286.6
million  incurred  during  the first  half of 2002.  The  higher  operation  and
maintenance  costs were primarily due to a $10.7 million decrease in the pension
credit.

Income tax  expense was $64.9  million  for the first half of 2003,  compared to
$79.0 million during the first half of 2002.  Fluctuations in income tax expense
result from the tax benefit reallocation and changes in pre-tax income.

FUELS

The Fuels segment,  which includes coal and synthetic fuel  operations,  natural
gas operations and other fuel related operations, earned $38.2 million and $34.1
million in the second quarter of 2003 and 2002, respectively,  and $51.8 million
and  $61.7  million  for the  first  half of 2003 and  2002,  respectively.  The
increase in earnings was due  primarily to increased  gas  production  and sales
offset partially by a lower synthetic fuels contribution.

                                       28
<PAGE>

The Fuels  segment  produced 1.7 million and 2.1 million tons of synthetic  fuel
for the second  quarter of 2003 and 2002,  respectively,  that  resulted  in tax
credits  of $45.9  million  and  $55.8  million,  respectively.  Synthetic  fuel
production  in the  first  half of 2003 and 2002  was 2.6  million  tons and 3.6
million  tons,  respectively,  which  generated tax credits of $69.0 million and
$99.7  million,  respectively.  These tax  credits  more than offset the pre-tax
credit  operating  losses of $19.7  million  and $24.1  million  for the  second
quarters of 2003 and 2002, respectively, and $30.0 million and $43.2 million for
the first half of 2003 and 2002, respectively.

In late June 2003, the IRS announced  that field auditors have raised  questions
associated with synthetic fuel manufactured at the Colona facility regarding the
scientific  validity of test procedures and results used to verify a significant
chemical  change,  which is a  requirement  of the synthetic  fuel program.  The
impact of this review on the  Company's  synthetic  fuel tax credits  previously
taken or expected  to be taken in the future  cannot be  predicted  at this time
(See Synthetic Fuel Tax Credits section of Note 14).

Gas  operations  generated  net income of $9.8  million and $0.9  million in the
second  quarter of 2003 and 2002,  respectively,  and of $14.7  million and $1.2
million  in the  first  half of 2003 and 2002,  respectively.  The  increase  in
production  resulting from the  acquisitions  of  Westchester  Gas (in 2002) and
North  Texas  Gas (in  first  quarter  2003)  drove the  increased  revenue  and
earnings.  Although the Mesa  operations  continue to produce gas, no additional
wells  are  being  drilled  by Mesa as  various  divestiture  options  are being
explored.  The  following  summarizes  the gas sales for the second  quarter and
first half of 2003 and 2002 by production facility.

------------------------------------------------------------------------------
                      Three Months Ended June 30,   Six Months Ended June 30,
------------------------------------------------------------------------------
------------------------------------------------------------------------------
(in millions)              2003           2002          2003            2002
------------------------------------------------------------------------------
  Mesa                   $  4.0          $ 3.5        $  8.7            $ 6.6
  Westchester Gas          13.4            1.6          28.6              1.6
  North Texas Gas          10.4              -          10.4                -
  Other                     2.7            0.8           2.6              0.8
                         -----------------------------------------------------
     Total gas sales     $ 30.5          $ 5.9        $ 50.3            $ 9.0
------------------------------------------------------------------------------

Rail Services

Rail  Service's  (Rail)  operations   include  railcar  and  locomotive  repair,
trackwork,  rail parts reconditioning and sales, scrap metal recycling,  railcar
leasing and other rail related services.  The Company intends to sell the assets
of Railcar Ltd., a leasing  subsidiary,  in 2003 and has classified these assets
as assets held for sale at June 30, 2003.  See Note 3 for further  discussion of
this planned divestiture.

Progress  Rail  contributed  net income of $2.2 million and $2.9 million for the
second  quarter of 2003 and 2002,  respectively,  and a loss of $1.2 million and
gain of $2.2  million  for the first half of 2003 and 2002,  respectively.  As a
result of the SEC order, Rail incurred additional Service Company allocations of
$1.2 and $6.9 million in the first quarter and first half of 2003, respectively.
These  increased  costs were partially  offset by  improvements in the recycling
business and reduced operating costs.

An SEC order approving the merger of Florida Progress with Progress Energy, Inc.
requires  the  Progress  Energy to divest Rail by November  30,  2003.  Progress
Energy  is  pursuing  alternatives,  but  does  not  expect  to find  the  right
divestiture  opportunity by that date.  Therefore,  Progress Energy has sought a
three year extension from the SEC.

OTHER

The  Other  group,  which  includes  telecommunications,   holding  company  and
financing  expenses,  generated  earnings  of $8.0  million  and a loss of $23.4
million for the second quarter of 2003 and 2002,  respectively,  and earnings of
$8.0  million  and a loss of $32.3  million for the first half of 2003 and 2002,
respectively.  The  improvement  in the second  quarter is due  primarily to the
recording  of an  intra-period  income  tax  allocation  adjustment  which  GAAP
requires in order to apply a  levelized  effective  tax rate to interim  periods
that is  consistent  with the  estimated  annual  rate.  This  resulted in a tax
benefit being  allocated from Progress Energy of $10.5 million and a tax expense
of $19.0  million for the second  quarters of 2003 and 2002,  respectively.  The
allocation  resulted in a tax benefit of $14.9  million and tax expense of $21.8
million in the first half of 2003 and 2002, respectively.

Additional  favorability  is related to Progress  Telecom which  contributed net
income of $0.3 million and a net loss of $5.7  million in the second  quarter of
2003 and 2002, respectively, and net losses of $0.8 million and $9.7 million for
the first half of 2003 and 2002,  respectively.  The  improvement in earnings is
primarily related to lower depreciation  resulting from the impairment of assets
in the third quarter of 2002.

                                       29
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Statements of Cash Flows and Financing Activities

Cash provided by operating activities decreased $66.3 million for the six months
ended June 30,  2003,  when  compared to the  corresponding  period in the prior
year. The decrease in operating cash flow was due primarily to the underrecovery
of fuel costs at PEF. The cash flow impact of an  underrecovery of fuel costs is
temporary as PEF should subsequently  recover these costs along with interest in
the next fuel clause recovery period.

Net cash used in  investing  activities  increased  $263.9  million  for the six
months ended June 30, 2003,  when  compared to the  corresponding  period in the
prior  year.  The  increase  is  primarily  due  to  construction   expenditures
associated with PEF's Hines II generating  unit,  nuclear fuel purchases and the
acquisition of gas reserves by Progress Fuels Corporation (See Note 2).

Lower  operating  cash flow,  higher  investing  activity and the  retirement of
long-term debt resulted in the new financing needs of approximately $300 million
during the first six months of 2003.

On February 21, 2003,  PEF issued $425 million of First  Mortgage  Bonds,  4.80%
Series Due March 1, 2013 and $225 million of First Mortgage Bonds,  5.90% Series
Due March 1, 2033.  Proceeds  from this  issuance  were used and will be used to
repay the balance of its outstanding  commercial paper, to refinance its secured
and  unsecured  indebtedness,  including  $70 million of First  Mortgage  Bonds,
6.125%  Series and to redeem the aggregate  outstanding  balance of its 8% First
Mortgage Bonds due 2022.

On April 1, 2003, PEF entered into a new $200 million  364-day credit  agreement
and a new $200 million  three-year credit agreement,  replacing its prior credit
facilities  (which had been a $90 million  364-day  facility  and a $200 million
five-year facility).

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

The new PEF  credit  facilities  contain a defined  maximum  total debt to total
capital ratio of 65%; as of June 30, 2003 the  calculated  ratio was 52.6%.  The
new credit  facilities also contain a requirement  that the ratio of EBITDA,  as
defined in the facilities, to interest expense to be at least 3 to 1; as of June
30, 2003 the calculated ratio was 8.7 to 1.

Future Commitments

As of June 30, 2003, both Florida Progress' and PEF's contractual cash
obligations and other commercial commitments has not changed materially from
what was reported in the 2002 Annual Report on Form 10-K.

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Item 4.  CONTROLS AND PROCEDURES

Florida Progress Corporation

Pursuant to Rule 13a-15(b)  under the Securities  Exchange Act of 1934,  Florida
Progress carried out an evaluation,  with the participation of Florida Progress'
management,  including Florida Progress'  Chairman and Chief Executive  Officer,
and  Chief  Financial  Officer,   of  the  effectiveness  of  Florida  Progress'
disclosure  controls and procedures  (as defined under Rule 13a-15(e)  under the
Securities  Exchange  Act of 1934) as of the end of the  period  covered by this
report.  Based  upon  that  evaluation,  Florida  Progress'  Chairman  and Chief
Executive Officer,  and Chief Financial Officer concluded that Florida Progress'
disclosure  controls and  procedures  are  effective in timely  alerting them to
material  information  relating to Florida Progress  (including its consolidated
subsidiaries) required to be included in Florida Progress' periodic SEC filings.
There has been no change in Florida  Progress'  internal  control over financial
reporting  during the quarter ended June 30, 2003 that has materially  affected,
or is reasonably likely to materially affect, Florida Progress' internal control
over financial reporting.

Progress Energy Florida, Inc.

Pursuant  to Rule  13a-15(b)  under the  Securities  Exchange  Act of 1934,  PEF
carried out an evaluation, with the participation of PEF's management, including
PEF's Chairman and Chief Executive Officer,  and Chief Financial Officer, of the
effectiveness of PEF's disclosure controls and procedures (as defined under Rule
13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period
covered by this report.  Based upon that  evaluation,  PEF's  Chairman and Chief

                                       30
<PAGE>

Executive  Officer,  and Chief Financial Officer concluded that PEF's disclosure
controls  and  procedures  are  effective  in timely  alerting  them to material
information relating to PEF (including its consolidated  subsidiaries)  required
to be included in PEF's periodic SEC filings.  There has been no change in PEF's
internal control over financial reporting during the quarter ended June 30, 2003
that has  materially  affected,  or is reasonably  likely to materially  affect,
PEF's internal control over financial reporting.



                                       31
<PAGE>

                           PART II. OTHER INFORMATION

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

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

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

   4             Forty-second Supplemental Indenture, dated as of April                                     X
                 1, 2003, from Florida Power Corporation d/b/a Progress
                 Energy Florida, Inc. to First Chicago Trust Company of
                 New York (Resigning Trustee) and Bank One, N.A.
                 (Successor Trustee), supplement to Indenture dated as
                 of January 1, 1944, as supplemented

 10(i)           Amended and Restated Progress Energy, Inc. Restoration                X                    X
                 Retirement plan, effective as of July 10, 2002

 10(ii)          Progress Energy, Inc. Non-Employee Director Stock Unit X
                 Plan, amended and restated effective July 10, 2002

10(iii)          Amended and Restated Supplemental Senior Executive                    X                    X
                 Retirement Plan of Progress Energy, Inc., effective
                 January 1, 1984 (As last amended effective July 10,
                 2002)

 10(iv)          Amended Management Incentive Compensation Plan of                     X                    X
                 Progress Energy, Inc., as amended January 1, 2003

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

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

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

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


                                       32
<PAGE>

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

      Florida Progress Corporation

                         Financial
           Item          Statements
         Reported         Included         Date of Event         Date Filed

            5                No            April 1, 2003       April 1, 2003
          9, 12             Yes            April 23, 2003      April 23, 2003
            5                No            June 24, 2003       June 25, 2003
          9, 12             Yes            July 23, 2003       July 23, 2003

      Progress Energy Florida, Inc.

                         Financial
           Item          Statements
         Reported         Included         Date of Event         Date Filed

            5                No            April 1, 2003       April 1, 2003
          9, 12             Yes            April 23, 2003      April 23, 2003
          9, 12             Yes            July 23, 2003       July 23, 2003


                                       33
<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 11, 2003                   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




                                       34
<PAGE>