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

                                    FORM 10-Q

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

                 For the quarterly period ended March 31, 2005

                                       OR

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

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

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

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



  1-3274                            Florida Power Corporation                               59-0247770
                               d/b/a Progress Energy Florida, Inc.
                                        100 Central Avenue
                                   St. Petersburg, Florida 33701
                                     Telephone (727) 820-5151
                                 State of Incorporation: Florida
</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,  Inc.
(PEF).  Information contained herein relating to either individual registrant is
filed by such  registrant  solely on its own behalf.  Each  registrant  makes no
representation as to information relating exclusively to the other registrant.

Indicate the number of shares  outstanding  of each of the  issuers'  classes of
common stock,  as of the latest  practicable  date.  As of April 30, 2005,  each
registrant had the following shares of common stock outstanding:

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
           Registrant                          Description                              Shares

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

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

                                       1
<PAGE>


         FLORIDA PROGRESS CORPORATION AND PROGRESS ENERGY FLORIDA, INC.
                FORM 10-Q - For the Quarter Ended March 31, 2005



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

Item 1.  Legal Proceedings

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Item 4.  Controls and Procedures


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

Item 6.  Exhibits


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 related to retail rate matters
APB                                       Accounting Principles Board
ARO                                       Asset retirement obligation
AST                                       Advanced Separation Technology
Bcf                                       Billion cubic feet
CAIR                                      Clean Air Interstate Rule
CAMR                                      Clean Air Mercury Rule
Calgon                                    Calgon Carbon Corporation
CAMR                                      Clean air mercury rule
the Code                                  Internal Revenue Code
Colona                                    Colona Synfuel Limited Partnership, L.L.L.P.
the Company, Florida Progress or FPC      Florida Progress Corporation
CR3                                       PEF's nuclear generating plant, Crystal River Unit No. 3
DOE                                       United States Department of Energy
ECRC                                      Environmental Cost Recovery Clause
EIA                                       Energy Information Agency
EPA                                       United States Environmental Protection Agency
FASB                                      Financial Accounting Standards Board
FDEP                                      Florida Department of Environmental Protection
FERC                                      Federal Energy Regulatory Commission
FIN No. 45                                Financial Accounting Standards Board (FASB) Interpretation No. 45,
                                          "Guarantor's Accounting and Disclosure Requirements for Guarantees,
                                          Including Indirect Guarantees of Indebtedness of Others"
FIN No. 46R                               FASB Interpretation No. 46, "Consolidation of Variable Interest Entities - an
                                          Interpretation of ARB No. 51"
Financial Statements                      Florida Progress' Financial Statements and Progress Energy Florida's Financial Statements
                                          contained under ITEM 8 herein
Florida Power or the Utility              Florida Power Corporation d/b/a Progress Energy Florida, Inc.
FPSC                                      Florida Public Service Commission
GAAP                                      Accounting principles generally accepted in the United States of America
HLW                                       High Level Waste
IRS                                       Internal Revenue Service
MACT                                      Maximum Achievable Control Technology
MGP                                       Manufactured Gas Plant
MW                                        Megawatts
NOx                                       Nitrogen Oxide
NRC                                       United States Nuclear Regulatory Commission
OCI                                       Other comprehensive income
OPEB                                      Other postretirement benefits
PEF or the Utility                        Progress Energy Florida, Inc., formerly referred to as Florida Power Corporation
PFA                                       IRS Prefiling Agreement
PLRs                                      Private Letter Rulings
PRPs                                      Potentially Responsible Parties
Progress Energy or the Parent             Progress Energy, Inc.
Progress Fuels                            Progress Fuels Corporation, formerly Electric Fuels Corporation
Progress Rail                             Progress Rail Services Corporation
PTC                                       Progress Telecommunications Corporation
PT LLC                                    Progress Telecom LLC
PVI                                       Progress Ventures, Inc., formerly referred to as Energy Ventures, a business unit of
                                          Progress Energy
PUHCA                                     Public Utility Holding Company Act of 1935, as amended

                                       3
<PAGE>



RBCA or Global RBCA                       Risk-based corrective action
Rail                                      Rail Services
RCA                                       Revolving credit agreement
SEC                                       United States Securities and Exchange Commission
Section 29                                Section 29 of the Internal Revenue Service Code
Service Company                           Progress Energy Service Company, LLC
SFAS No. 71                               Statement of Financial Accounting Standards No. 71, "Accounting for the Effects
                                          of Certain Types of Regulation"
SFAS No. 123                              Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
                                          Compensation"
SFAS No. 133                              Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
                                          and Hedging Activities"
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"
SNF                                       Spent Nuclear Fuel
SO2                                       Sulfur dioxide
the Trust                                 FPC Capital I
</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  "Results of
Operations" about trends and uncertainties and "Liquidity and Capital Resources"
concerning operating cash flows and future liquidity requirements.

Any forward-looking  statement is based on information current as of the date of
this report and speaks only as of the date on which such  statement is made, and
neither  Florida  Progress  (the Company) nor Florida  Power  Corporation  doing
business as Progress  Energy  Florida,  Inc. (PEF)  undertakes any obligation to
update  any  forward-looking  statement  or  statements  to  reflect  events  or
circumstances after the date on which such statement is made.

Examples of factors that you should consider with respect to any forward-looking
statements made throughout  this document  include,  but are not limited to, the
following:  the impact of fluid and  complex  government  laws and  regulations,
including those relating to the  environment;  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 GridFlorida or other regional transmission organizations;  weather conditions
that directly  influence the demand for  electricity;  the Company's  ability to
recover through the regulatory process,  and the timing of such recovery of, the
costs associated with the four hurricanes that impacted our service territory in
2004 or other future significant weather events; recurring seasonal fluctuations
in demand for electricity;  fluctuations in the price of energy  commodities and
purchased  power;  economic  fluctuations  and the  corresponding  impact on the
Company and its subsidiaries'  commercial and industrial customers;  the ability
of the Company's  subsidiaries to pay upstream dividends or distributions to it;
the impact on the  facilities and the businesses of the Company from a terrorist
attack; the inherent risks associated with the operation of nuclear  facilities,
including environmental,  health, regulatory and financial risks; the ability to
successfully  access  capital  markets on  favorable  terms;  the ability of the
Company to maintain its current  credit  ratings and the impact of the Company's
financial condition and ability to meet its cash and other financial obligations
in the event its credit  ratings are  downgraded  below  investment  grade;  the
impact that increases in leverage and the affect it may have on the Company; the
impact of  derivative  contracts  used in the normal  course of  business by the
Company;  investment  performance  of pension and benefit  plans;  the Company's
ability to control costs, including pension and benefit expense, and achieve its
cost management  targets for 2007; the  availability and use of Internal Revenue
Code  Section 29 (Section 29) tax credits by synthetic  fuel  producers  and the
Company's  continued  ability to use Section 29 tax credits  related to its coal
and synthetic fuel businesses;  the impact to the Company's  financial condition
and  performance  in the event it is  determined  the Company is not entitled to
previously  taken  Section  29 tax  credits;  the  impact of  future  accounting
pronouncements  regarding  uncertain  tax  positions;  the outcome of PEF's rate
proceeding  in 2005  regarding its future base rates;  the Company's  ability to
manage  the  risks  involved  with the  operation  of its  nonregulated  plants,
including  dependence on third parties and related  counter-party  risks,  and a
lack of operating history;  the Company's ability to manage the risks associated
with its energy  marketing  operations;  the  outcome  of any  ongoing or future
litigation  or similar  disputes  and the impact of any such  outcome or related
settlements;  and  unanticipated  changes  in  operating  expenses  and  capital
expenditures. Many of these risks similarly impact the Company's subsidiaries.

These and other risks are detailed  from time to time in Florida  Progress'  and
PEF's filings with the United States  Securities and Exchange  Commission (SEC).
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, 2004 which was filed with the SEC
on March 16, 2005. You should carefully read this SEC report. 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
                                 March 31, 2005

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
UNAUDITED CONSOLIDATED STATEMENTS of INCOME
---------------------------------------------------------------------------------------
(in millions)
Three months ended March 31,                                         2005         2004
---------------------------------------------------------------------------------------
Operating revenues
   Utility                                                        $   848      $   784
   Diversified business                                               367          285
---------------------------------------------------------------------------------------
      Total operating revenues                                      1,215        1,069
---------------------------------------------------------------------------------------
Operating expenses
Utility
   Fuel used in electric generation                                   302          269
   Purchased power                                                    131          121
   Operation and maintenance                                          189          160
   Depreciation and amortization                                       70           69
   Taxes other than on income                                          67           62
Diversified business
    Cost of sales                                                     333          263
    Depreciation and amortization                                      23           20
    Gain on the sale of assets                                         (5)          (1)
    Other                                                              28           20
---------------------------------------------------------------------------------------
        Total operating expenses                                    1,138          983
---------------------------------------------------------------------------------------
Operating income                                                       77           86
---------------------------------------------------------------------------------------
Other income (expense)
   Interest income                                                      1            1
   Other, net                                                          (1)          (4)
---------------------------------------------------------------------------------------
        Total other expense                                             -           (3)
---------------------------------------------------------------------------------------
Interest charges
   Interest charges                                                    47           41
   Allowance for borrowed funds used during construction               (2)          (1)
---------------------------------------------------------------------------------------
        Total interest charges, net                                    45           40
---------------------------------------------------------------------------------------
Income from continuing operations before income taxes
    and minority interest                                              32           43
Income tax benefit                                                      5            5
---------------------------------------------------------------------------------------
Income from continuing operations before minority
    interest, net of tax                                               37           48
Minority interest in subsidiaries' loss (income), net of tax            8           (1)
---------------------------------------------------------------------------------------
Income from continuing operations                                      45           47
Discontinued operations, net of tax                                   (27)           8
---------------------------------------------------------------------------------------
Net income                                                        $    18      $    55
---------------------------------------------------------------------------------------
</TABLE>

See Notes to Interim Financial Statements.

                                       6
<PAGE>



<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
FLORIDA PROGRESS CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS
-----------------------------------------------------------------------------------------------------------
                                                                           March 31,         December 31,
(in millions)                                                                  2005                 2004
-----------------------------------------------------------------------------------------------------------
ASSETS
Utility plant
  Utility plant in service                                                  $ 8,368              $ 8,387
  Accumulated depreciation                                                   (3,312)              (2,978)
-----------------------------------------------------------------------------------------------------------
        Utility plant in service, net                                         5,056                5,409
  Held for future use                                                             8                    8
  Construction work in progress                                                 502                  420
  Nuclear fuel, net of amortization                                              73                   45
-----------------------------------------------------------------------------------------------------------
        Total utility plant, net                                              5,639                5,882
-----------------------------------------------------------------------------------------------------------
Current assets
  Cash and cash equivalents                                                      28                   24
  Receivables                                                                   482                  476
  Receivables from affiliated companies                                          32                   40
  Deferred income taxes                                                          35                   57
  Inventory                                                                     346                  341
  Deferred fuel cost                                                             72                   89
  Assets of discontinued operations                                               -                  590
  Prepayments and other current assets                                          101                   33
-----------------------------------------------------------------------------------------------------------
        Total current assets                                                  1,096                1,650
-----------------------------------------------------------------------------------------------------------
Deferred debits and other assets
  Regulatory assets                                                             491                  524
  Nuclear decommissioning trust funds                                           475                  463
  Diversified business property, net                                            589                  576
  Miscellaneous other property and investments                                  106                   95
  Other assets and deferred debits                                              519                  509
-----------------------------------------------------------------------------------------------------------
        Total deferred debits and other assets                                2,180                2,167
-----------------------------------------------------------------------------------------------------------
         Total assets                                                       $ 8,915              $ 9,699
-----------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
-----------------------------------------------------------------------------------------------------------
Common stock equity
  Common stock without par value                                            $ 1,726              $ 1,712
  Retained earnings                                                             994                  976
  Accumulated other comprehensive loss                                          (22)                  (7)
-----------------------------------------------------------------------------------------------------------
     Total common stock equity                                                2,698                2,681
-----------------------------------------------------------------------------------------------------------
Preferred stock of subsidiaries - not subject to mandatory redemption            34                   34
Minority interest                                                                34                   32
Long-term debt, affiliate                                                       440                  809
Long-term debt, net                                                           1,998                2,052
-----------------------------------------------------------------------------------------------------------
        Total capitalization                                                  5,204                5,608
-----------------------------------------------------------------------------------------------------------
Current liabilities
  Current portion of long-term debt                                              48                   49
  Accounts payable                                                              278                  333
  Payables to affiliated companies                                               84                   71
  Notes payable to affiliated companies                                         747                  431
  Short-term obligations                                                        153                  293
  Customer deposits                                                             140                  135
  Liabilities of discontinued operations                                          -                  152
  Other current liabilities                                                     337                  406
-----------------------------------------------------------------------------------------------------------
        Total current liabilities                                             1,787                1,870
-----------------------------------------------------------------------------------------------------------
Deferred credits and other liabilities
  Noncurrent income tax liabilities                                              63                   78
  Accumulated deferred investment tax credits                                    34                   36
  Regulatory liabilities                                                      1,117                1,362
  Asset retirement obligations                                                  274                  358
  Other liabilities and deferred credits                                        436                  387
-----------------------------------------------------------------------------------------------------------
        Total deferred credits and other liabilities                          1,924                2,221
-----------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 13)
-----------------------------------------------------------------------------------------------------------
         Total capitalization and liabilities                               $ 8,915              $ 9,699
-----------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Interim Financial Statements.

                                       7
<PAGE>



<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
FLORIDA PROGRESS CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------------------
(in millions)
----------------------------------------------------------------------------------------------------
Three Months Ended March 31,                                                   2005          2004
----------------------------------------------------------------------------------------------------
Operating activities
Net income                                                                   $   18        $   55
Adjustments to reconcile net income to net cash provided by operating
activities:
      Discontinued operations, net of tax                                        27            (8)
      Depreciation and amortization                                             102            95
      Deferred income taxes and investment tax credits, net                     (10)          (16)
      Deferred fuel cost                                                         36            49
      Other adjustments to net income                                            31             3
Cash provided/(used) by changes in operating assets and liabilities:
      Receivables                                                                14            22
      Receivables from affiliated companies                                     (12)           (6)
      Inventory                                                                 (38)          (24)
      Prepayments and other current assets                                       (6)           (6)
      Accounts payable                                                           19           (57)
      Payables to affiliated companies                                           12            33
      Other current liabilities                                                 (66)           (4)
      Regulatory assets and liabilities                                         (52)            6
      Other                                                                     (14)            7
----------------------------------------------------------------------------------------------------
         Net cash provided by operating activities                               61           149
----------------------------------------------------------------------------------------------------
Investing activities
Utility property additions                                                     (128)         (121)
Diversified business property additions                                         (33)          (35)
Nuclear fuel additions                                                          (34)            -
Proceeds from sales of subsidiaries and other investments                       405            82
Other                                                                            (4)           (3)
----------------------------------------------------------------------------------------------------
          Net cash provided by (used in) investing activities                   206           (77)
----------------------------------------------------------------------------------------------------
Financing activities
Net (decrease) increase in short-term obligations                              (140)          242
Retirement of long-term debt                                                   (425)          (25)
Net change in intercompany notes                                                335          (257)
Dividends paid to parent                                                          -           (39)
Other                                                                             9             5
----------------------------------------------------------------------------------------------------
           Net cash used in financing activities                               (221)          (74)
----------------------------------------------------------------------------------------------------
Cash (used) provided by discontinued operations                                 (42)            6
Net increase in cash and cash equivalents                                         4             4
Cash and cash equivalents at beginning of period                                 24            15
----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                   $   28        $   19
----------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Interim Financial Statements.

                                       8
<PAGE>


                            FLORIDA POWER CORPORATION
                       d/b/a PROGRESS ENERGY FLORIDA, INC.
                          INTERIM FINANCIAL STATEMENTS
                                 March 31, 2005



<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
UNAUDITED STATEMENTS of INCOME
------------------------------------------------------------------------------------------
(in millions)
Three months ended March 31,                                   2005             2004
------------------------------------------------------------------------------------------
Operating revenues                                           $  848           $  784

Operating expenses
   Fuel used in electric generation                             302              269
   Purchased power                                              131              121
   Operation and maintenance                                    189              160
   Depreciation and amortization                                 70               69
   Taxes other than on income                                    67               62
------------------------------------------------------------------------------------------
        Total operating expenses                                759              681
------------------------------------------------------------------------------------------
Operating income                                                 89              103
------------------------------------------------------------------------------------------
Other income (expense)
   Other, net                                                     3               (1)
------------------------------------------------------------------------------------------
        Total other income (expense)                              3               (1)
------------------------------------------------------------------------------------------
Interest charges
   Interest charges                                              34               31
   Allowance for borrowed funds used during construction         (2)              (1)
------------------------------------------------------------------------------------------
        Total interest charges, net                              32               30
------------------------------------------------------------------------------------------

Income before income taxes                                       60               72
Income tax expense                                               16               22
------------------------------------------------------------------------------------------

Net income                                                       44               50
Preferred stock dividend requirement                              1                1
------------------------------------------------------------------------------------------
Earnings for common stock                                    $   43           $   49
------------------------------------------------------------------------------------------
</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.
UNAUDITED BALANCE SHEETS
------------------------------------------------------------------------------------------------
                                                                March 31,         December 31,
(in millions)                                                       2005                 2004
------------------------------------------------------------------------------------------------
ASSETS
Utility plant
  Utility plant in service                                       $ 8,368              $ 8,387
  Accumulated depreciation                                        (3,312)              (2,978)
------------------------------------------------------------------------------------------------
        Utility plant in service, net                              5,056                5,409
  Held for future use                                                  8                    8
  Construction work in progress                                      502                  420
  Nuclear fuel, net of amortization                                   73                   45
------------------------------------------------------------------------------------------------
        Total utility plant, net                                   5,639                5,882
------------------------------------------------------------------------------------------------
Current assets
  Cash and cash equivalents                                           18                   12
  Receivables                                                        239                  266
  Receivables from affiliated companies                                6                   16
  Deferred income taxes                                               19                   42
  Inventory                                                          266                  279
  Deferred fuel cost                                                  72                   89
  Prepayments and other current assets                                95                   12
------------------------------------------------------------------------------------------------
        Total current assets                                         715                  716
------------------------------------------------------------------------------------------------
Deferred debits and other assets
  Regulatory assets                                                  491                  524
  Nuclear decommissioning trust funds                                475                  463
  Miscellaneous other property and investments                        47                   46
  Prepaid pension cost                                               237                  234
  Other assets and deferred debits                                    59                   59
------------------------------------------------------------------------------------------------
        Total deferred debits and other assets                     1,309                1,326
------------------------------------------------------------------------------------------------
         Total assets                                            $ 7,663              $ 7,924
------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
------------------------------------------------------------------------------------------------
Common stock equity
  Common stock without par value                                 $ 1,096              $ 1,081
  Retained earnings                                                1,283                1,240
------------------------------------------------------------------------------------------------
     Total common stock equity                                     2,379                2,321
------------------------------------------------------------------------------------------------
  Preferred stock - not subject to mandatory redemption               34                   34
  Long-term debt, net                                              1,856                1,912
------------------------------------------------------------------------------------------------
        Total capitalization                                       4,269                4,267
------------------------------------------------------------------------------------------------
Current liabilities
  Current portion of long-term debt                                   48                   48
  Accounts payable                                                   186                  262
  Payables to affiliated companies                                    85                   80
  Notes payable to affiliated companies                              479                  178
  Short-term obligations                                             153                  293
  Customer deposits                                                  140                  135
  Other current liabilities                                          123                  161
------------------------------------------------------------------------------------------------
        Total current liabilities                                  1,214                1,157
------------------------------------------------------------------------------------------------
Deferred credits and other liabilities
  Noncurrent income tax liabilities                                  492                  489
  Accumulated deferred investment tax credits                         34                   35
  Regulatory liabilities                                           1,117                1,362
  Asset retirement obligations                                       253                  337
  Other liabilities and deferred credits                             284                  277
------------------------------------------------------------------------------------------------
        Total deferred credits and other liabilities               2,180                2,500
------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 13)
------------------------------------------------------------------------------------------------
         Total capitalization and liabilities                    $ 7,663              $ 7,924
------------------------------------------------------------------------------------------------
</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.
UNAUDITED STATEMENTS of CASH FLOWS
---------------------------------------------------------------------------------------------------
(in millions)
Three Months Ended March 31,                                                  2005         2004
--------------------------------------------------------------------------------------------------
Operating activities
Net income                                                                   $  44        $  50
Adjustments to reconcile net income to net cash provided by operating
activities:
     Depreciation and amortization                                              79           75
     Deferred income taxes and investment tax credits, net                      13           31
     Deferred fuel cost                                                         36           49
     Other adjustments to net income                                            18            -
Cash provided/(used) by changes in operating assets and liabilities:
     Receivables                                                                22           37
     Receivables from affiliated companies                                      10           (5)
     Inventory                                                                 (16)         (21)
     Prepayments and other current assets                                       (6)          (4)
     Accounts payable                                                           (6)         (10)
     Payables to affiliated companies                                            5           27
     Other current liabilities                                                 (78)         (36)
     Regulatory assets and liabilities                                         (52)           6
     Other                                                                      (4)           3
--------------------------------------------------------------------------------------------------
         Net cash provided by operating activities                              65          202
--------------------------------------------------------------------------------------------------
Investing activities
Property additions                                                            (128)        (121)
Nuclear fuel additions                                                         (34)           -
Other                                                                           (1)           -
--------------------------------------------------------------------------------------------------
          Net cash used in investing activities                               (163)        (121)
--------------------------------------------------------------------------------------------------
Financing activities
Net (decrease) increase in short-term obligations                             (140)         242
Retirement of long-term debt                                                   (55)           -
Net change in intercompany notes                                               301         (279)
Dividends paid to parent                                                        (1)         (39)
Other                                                                           (1)            -
--------------------------------------------------------------------------------------------------
           Net cash provided by (used in) financing activities                 104          (76)
--------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents                                        6            5
--------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period                                12           10
--------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                   $  18        $  15
------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Interim Financial Statements.

                                       11
<PAGE>


FLORIDA PROGRESS CORPORATION AND FLORIDA POWER CORPORATION
d/b/a PROGRESS ENERGY FLORIDA, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS


1.   BASIS OF PRESENTATION

     A. 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' (the Company) and Progress Energy  Florida's
     (PEF) Form 10-K for the year ended December 31, 2004.

     In accordance  with the  provisions of  Accounting  Principles  Board (APB)
     Opinion No. 28, "Interim  Financial  Reporting," GAAP requires companies to
     apply a levelized  effective tax rate to interim periods that is consistent
     with  the  estimated  annual  effective  tax  rate.  The  intra-period  tax
     allocation,  which will have no impact on total year net income,  maintains
     an effective tax rate  consistent with the estimated  annual  effective tax
     rate.  For the three  months  ended  March 31,  2005 and 2004,  income  tax
     expense was  increased  by $6 million and $33  million,  respectively.  The
     income tax  provisions  for the  Company  differ from  amounts  computed by
     applying the federal  statutory  tax rate to income  before  income  taxes,
     primarily due to the recognition of synthetic fuel tax credits.

     PEF collects  from  customers  certain  excise taxes levied by the state or
     local  government  upon the  customer.  PEF  accounts for excise taxes on a
     gross  basis.  For the three  months  ended March 31, 2005 and 2004,  gross
     receipts  tax and  franchise  taxes of  approximately  $35  million and $32
     million,  respectively,  are  included in electric  operating  revenues and
     taxes other than on income on the Statements of Income.

     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 is not  necessarily  indicative of amounts
     expected for the entire year or future periods.

     In preparing financial  statements that conform with GAAP,  management must
     make estimates and assumptions  that affect the reported  amounts of assets
     and  liabilities,  disclosure of contingent  assets and  liabilities at the
     date of the  financial  statements  and  amounts of revenues  and  expenses
     reflected  during the reporting  period.  Actual  results could differ from
     those  estimates.  Certain  reclassifications  for 2004  have  been made to
     conform to the 2005 presentation.

     B. Stock-Based Compensation

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

                                       12
<PAGE>


<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
    -------------------------------------------------------------------------------------------
                                                                     Three Months Ended
     (in millions)                                                       March 31,
    -------------------------------------------------------------------------------------------
     FLORIDA PROGRESS CORPORATION                                       2005             2004
    -------------------------------------------------------------------------------------------
     Net income, as reported                                           $  18            $  55
     Deduct:  Total stock option expense determined under fair
       value method for all awards, net of related tax effects             -                1
    -------------------------------------------------------------------------------------------
     Pro forma net income                                              $  18            $  54
    -------------------------------------------------------------------------------------------

    -------------------------------------------------------------------------------------------
                                                                     Three Months Ended
     (in millions)                                                       March 31,
    -------------------------------------------------------------------------------------------
     PROGRESS ENERGY FLORIDA, INC.                                      2005             2004
    -------------------------------------------------------------------------------------------
     Net income, as reported                                           $  44            $  50
     Deduct:  Total stock option expense determined under fair
       value method for all awards, net of related tax effects             -                1
    -------------------------------------------------------------------------------------------
     Pro forma earnings for common stock                               $  44            $  49
    -------------------------------------------------------------------------------------------
</TABLE>

     The Company and PEF expect to begin expensing stock options on July 1, 2005
     (See Note 2).

     C. Consolidation of Variable Interest Entities

     Florida Progress and PEF consolidate all voting interest  entities in which
     they own a majority voting interest and all variable  interest entities for
     which  they  are  the  primary   beneficiary   in   accordance   with  FASB
     Interpretation  No. 46R,  "Consolidation of Variable Interest Entities - an
     Interpretation  of ARB No.  51" (FIN No.  46R).  A  subsidiary  of  Florida
     Progress is the primary  beneficiary  of and  consolidates  Colona  Synfuel
     Limited  Partnership  LLLP (Colona),  a synthetic fuel production  facility
     that  qualifies  for federal tax credits  under  Section 29 of the Internal
     Revenue Code. As of March 31, 2005, Colona's total assets were $32 million.
     None of Florida Progress'  consolidated  assets are collateral for Colona's
     obligations.

     Florida  Progress  and PEF have  interests  in  several  variable  interest
     entities for which they are not the primary beneficiary. These arrangements
     include  investments in approximately  five limited  partnerships,  limited
     liability  corporations  and venture capital funds.  The aggregate  maximum
     loss exposure at March 31, 2005, that Florida Progress could be required to
     record  in  its  consolidated   income  statement  as  a  result  of  these
     arrangements totals  approximately $13 million.  The aggregate maximum loss
     exposure  at March 31,  2005,  that PEF could be  required to record in its
     income statement as a result of these arrangements totals  approximately $6
     million.  The  creditors of these  variable  interest  entities do not have
     recourse to the general credit of Florida  Progress or PEF in excess of the
     aggregate maximum loss exposure.

2.   IMPACT OF NEW ACCOUNTING STANDARDS

     PROPOSED FASB INTERPRETATION OF SFAS NO. 109, "ACCOUNTING FOR INCOME TAXES"

     In July 2004, the Financial  Accounting  Standards Board (FASB) stated that
     it plans to issue an exposure  draft of a proposed  interpretation  of SFAS
     No. 109,  "Accounting  for Income Taxes," that would address the accounting
     for uncertain tax positions. The FASB has indicated that the interpretation
     would require that uncertain tax benefits be probable of being sustained in
     order to record such  benefits in the  financial  statements.  The exposure
     draft is expected to be issued in the second  quarter of 2005.  The Company
     cannot  predict  what  actions  the FASB will take or how any such  actions
     might  ultimately  affect the  Company's  financial  position or results of
     operations,  but such changes could have a material impact on the Company's
     evaluation and recognition of Section 29 tax credits (see Note 13).

     STATEMENT  OF  FINANCIAL  ACCOUNTING  STANDARDS  NO.  123  (REVISED  2004),
     "SHARE-BASED PAYMENT" (SFAS NO. 123R)

     In December  2004,  the FASB Issued SFAS No. 123R,  which  revises SFAS No.
     123,   "Accounting  for  Stock-Based   Compensation"  (SFAS  No.  123)  and
     supersedes  Accounting  Principles Board (APB) Opinion No. 25,  "Accounting
     for Stock Issued to  Employees."  The key  requirement  of SFAS No. 123R is
     that the cost of share-based  awards to employees will be measured based on
     an award's  fair value at the grant  date,  with such cost to be  amortized
     over the appropriate  service period.  Previously,  entities could elect to
     continue  accounting  for such awards at their grant date  intrinsic  value
     under APB Opinion No. 25, and the Company made that election. The intrinsic
     value  method  resulted in the Company and PEF  recording  no  compensation
     expense for stock options granted to employees (See Note 1B).

                                       13
<PAGE>

     As written,  SFAS No. 123R had an original  effective  date of July 1, 2005
     for the  Company.  In April 2005,  the SEC delayed the  effective  date for
     public companies, which resulted in a required effective date of January 1,
     2006 for the Company.  The SEC delayed the  effective  date due to concerns
     that  implementation  in mid-year could make  compliance more difficult and
     make comparisons of quarterly reports more difficult. The Company currently
     intends to implement  SFAS No. 123R on the original  effective date of July
     1, 2005.  The Company  intends to implement the standard using the required
     modified  prospective  method.  Under  that  method and with a July 1, 2005
     implementation, the Company will record compensation expense under SFAS No.
     123R for all  awards it  grants  after  July 1,  2005,  and it will  record
     compensation expense (as previous awards continue to vest) for the unvested
     portion of previously  granted  awards that remain  outstanding  at July 1,
     2005. In 2004,  Progress  Energy made the decision to cease  granting stock
     options  and  replaced  that   compensation   with  alternative   forms  of
     compensation.  Therefore, the amount of stock option expense expected to be
     recorded in 2005 is below the amount  that would have been  recorded if the
     stock option  program had  continued.  The Company and PEF expect to record
     less than $1 million of pre-tax expense for stock options in 2005.

     FASB  INTERPRETATION  NO. 47,  "ACCOUNTING FOR CONDITIONAL ASSET RETIREMENT
     OBLIGATIONS"

     On March 30, 2005, the FASB issued  Interpretation  No. 47, "Accounting for
     Conditional  Asset Retirement  Obligations," an  interpretation of SFAS No.
     143,  "Accounting for Asset  Retirement  Obligations."  The  interpretation
     clarifies that a legal obligation to perform an asset  retirement  activity
     that is  conditional on a future event is within the scope of SFAS No. 143.
     Accordingly,  an entity is required to  recognize a liability  for the fair
     value of an asset  retirement  obligation  that is  conditional on a future
     event if the  liability's  fair  value  can be  reasonably  estimated.  The
     interpretation  also provides  additional  guidance for evaluating  whether
     sufficient  information  is available to make a reasonable  estimate of the
     fair value. The interpretation is effective for Florida Progress and PEF no
     later than  December 31,  2005.  Neither  Florida  Progress nor PEF has yet
     determined  the impact of the  interpretation  on its  financial  position,
     results of operations or liquidity.

3.   DIVESTITURE

     Progress Rail Divestiture

     On March 24, 2005,  the Company  completed the sale of Progress Rail to One
     Equity Partners LLC, a private equity unit of J.P. Morgan Chase & Co. Gross
     cash proceeds from the sale are estimated to be $433 million, consisting of
     $405 million base proceeds plus an estimated  working  capital  adjustment.
     Proceeds from the sale were used to reduce debt.

     Based on the  estimated  gross  proceeds  associated  with the sale of $433
     million,  the Company  recorded an estimated  after-tax loss on disposal of
     $32  million  during the first  quarter of 2005.  The  Company  anticipates
     adjustments  to the loss on the  divestiture  during the second  quarter of
     2005 related to employee  benefit  settlements and the  finalization of the
     working capital adjustment and other operating estimates.

     The  accompanying  consolidated  interim  financial  statements  of Florida
     Progress  have been  restated  for all  periods  presented  to reflect  the
     operations of Progress Rail as discontinued  operations in the Consolidated
     Statements of Income.  Interest  expense has been allocated to discontinued
     operations  based on the net assets of  Progress  Rail,  assuming a uniform
     debt-to-equity  ratio across the  Company's  operations.  Interest  expense
     allocated for the three months ended March 31, 2005 and 2004 was $4 million
     each period. The Company ceased recording  depreciation upon classification
     of the  assets as  discontinued  operations  in  February  2005.  After-tax
     depreciation  expense  recorded  by Progress  Rail during the three  months
     ended  March 31,  2005 and 2004 was $3  million  each  period.  Results  of
     discontinued operations were as follows:

    ---------------------------------------------------------------------------
    (in millions)
    Three Months Ended March 31,                                  2005     2004
    ---------------------------------------------------------------------------
    Revenues                                                     $ 358    $ 239
    ---------------------------------------------------------------------------
    Earnings before income taxes                                 $   7    $  11
     Income tax expense                                              2        3
    ---------------------------------------------------------------------------
     Net earnings from discontinued operations                       5        8
    ---------------------------------------------------------------------------
    Estimated loss on disposal of discontinued operations,
        including income tax benefit of $21                        (32)       -
    ---------------------------------------------------------------------------
    Earnings (loss) from discontinued operations                 $ (27)   $   8
    ---------------------------------------------------------------------------

                                       14
<PAGE>

     Prior to the sale of Progress  Rail,  the results of operations of Progress
     Rail were  reported  one month in arrears.  Accordingly,  the net loss from
     discontinued  operations for the first quarter of 2005 includes four months
     of Progress Rail's operations.

     In connection  with the sale,  Progress Fuels and Progress  Energy provided
     guarantees and  indemnifications  of certain legal,  tax and  environmental
     matters to One Equity Partners.  See discussion of the Company's guarantees
     at Note 13A.

     The major  balance  sheet  classes  included in assets and  liabilities  of
     discontinued  operations in the Consolidated  Balance Sheets as of December
     31, 2004 are as follows:

    -------------------------------------------------------------
    (in millions)
    -------------------------------------------------------------
    Accounts receivable                                   $  172
    Inventory                                                177
    Other current assets                                      18
    Total property, plant and equipment, net                 199
    Total other assets                                        24
    -------------------------------------------------------------
        Assets of discontinued operations                 $  590
    -------------------------------------------------------------
    Accounts payable                                      $  113
    Accrued expenses                                          37
    -------------------------------------------------------------
    Total long-term liabilities                                2
    -------------------------------------------------------------
        Liabilities of discontinued operations            $  152
    -------------------------------------------------------------

     In February  2004,  the Company  sold the majority of the assets of Railcar
     Ltd., a subsidiary of Progress Rail, to The Andersons, Inc. for proceeds of
     approximately $82 million.

4.   REGULATORY MATTERS

     PEF Retail Rate Matters

     Hearings on PEF's  petition  for  recovery  of $252  million of storm costs
     filed with the  Florida  Public  Service  Commission  (FPSC) were held from
     March  30,  2005 to April 1,  2005.  The FPSC is  scheduled  to vote on the
     Company's  petition  on June 14,  2005,  with an order  expected on July 5,
     2005. The Company cannot predict the outcome of this matter.

     On May 4, 2005, a bill was approved by the Florida  Legislature  that would
     authorize  the  FPSC  to  consider  allowing  the  state's   investor-owned
     utilities to issue bonds that are secured by surcharges on utility customer
     bills.  These bonds would be issued for  recovery of storm damage costs and
     potentially  to  restore  depleted  storm  reserves.  The  amount  of funds
     established for recovery is subject to the review and approval of the FPSC.
     The bill  will now be sent to  Governor  Bush  for his  consideration.  The
     Governor  has  indicated  that he supports  the bill.  The  Company  cannot
     predict the outcome of this matter.

     On April 29, 2005, PEF submitted  minimum filing  requirements,  based on a
     2006 projected test year, to initiate a base rate proceeding  regarding its
     future base rates.  In its filing,  PEF has requested a $206 million annual
     increase  in base rates  effective  January 1, 2006.  PEF's  request for an
     increase in base rates reflects an increase in  operational  costs with (i)
     the addition of Hines 2 generation facility into base rates rather than the
     Fuel Clause as was permitted  under the terms of existing  Stipulation  and
     Settlement  Agreement  (the  Agreement)  (ii)  completion  of the  Hines  3
     generation  facility,  (iii) the need to  replenish  PEF's  depleted  storm
     reserve by  adjusting  the annual  accrual in light of recent  history on a
     going-forward basis, (iv) the expected infrastructure  investment necessary
     to meet high  customer  expectations,  coupled  with the demands  placed on
     PEF's strong customer  growth,  (v) significant  additional costs including
     increased  depreciation and fossil dismantlement  expenses and (vi) general
     inflationary pressures.

     Hearings on the base rate  proceeding are expected during the third quarter
     of 2005 and a final  decision is  expected by the end of 2005.  The Company
     cannot predict the outcome of this matter.

     The FPSC requires that PEF perform a depreciation  study no less than every
     four years. PEF filed a depreciation study with the FPSC on April 29, 2005,
     as part of the Company's base rate filing, which will increase depreciation
     expense in 2006 by $14 million and  forward,  if approved by the FPSC.  The

                                       15
<PAGE>

     Company  cannot  predict the outcome or impact of this matter.  PEF reduced
     its estimated  removal costs to take into account the estimates used in the
     depreciation  study.  This  resulted  in a  downward  revision  in the  PEF
     estimated  removal costs and equal increase in accumulated  depreciation of
     approximately $379 million.

     The  FPSC   requires   that  PEF  update  its  cost   estimate  for  fossil
     dismantlement  every four years. PEF filed an updated fossil  dismantlement
     study with the FPSC on April 29, 2005, as part of the  Company's  base rate
     filing,  which  will  increase  the  accrual  by $10  million  and what PEF
     collects  in base rates for  fossil  dismantlement  in 2006 and  forward if
     approved by the FPSC.  PEF's retail reserve for fossil plant  dismantlement
     was approximately  $133 million at March 31, 2005. Retail accruals on PEF's
     reserves  for  fossil   dismantlement  were  previously  suspended  through
     December  2005 under the terms of PEF's  existing  Agreement.  The  Company
     cannot predict the outcome or impact of this matter.

     The  FPSC   requires   that  PEF  update  its  cost  estimate  for  nuclear
     decommissioning every five years. PEF filed a new site-specific estimate of
     decommissioning  costs for the Crystal  River  Nuclear Plant (CR3) with the
     FPSC on April 29, 2005 as part of the  Company's  base rate  filing.  PEF's
     estimate  was  based  on  prompt  decommissioning.  The  estimate,  in 2005
     dollars,  is $614  million  and is subject to change  based on a variety of
     factors  including,  but  not  limited  to,  cost  escalation,  changes  in
     technology  applicable to nuclear  decommissioning  and changes in federal,
     state  or  local  regulations.  The  cost  estimate  excludes  the  portion
     attributable to other  co-owners of CR3. The NRC operating  license held by
     PEF for Crystal River Unit No. 3 (CR3) currently  expires in December 2016.
     An  application to extend this license 20 years is expected to be submitted
     in the first  quarter of 2009.  As part of this new  estimate  and  assumed
     license  extension,  PEF reduced its ARO  liability  by  approximately  $88
     million at March 31, 2005.  Retail  accruals on PEF's  reserves for nuclear
     decommissioning  were previously  suspended through December 2005 under the
     terms of the Agreement and the new study  supports a  continuation  of that
     suspension.  The  Company  cannot  predict  the  outcome  or impact of this
     matter.

5. COMPREHENSIVE INCOME

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
    -----------------------------------------------------------------------------------
                                                                    Three Months Ended
    Florida Progress Corporation                                        March 31,
    (in millions)                                                       2005       2004
    -----------------------------------------------------------------------------------
    Net income                                                         $  18      $  55
    Other comprehensive loss:
      Reclassification adjustments included in net income:
         Change in cash flow hedges (net of tax expense of $0
             and $1, respectively)                                         1          2
         Foreign currency translation adjustment included in
             discontinued operations                                      (5)         -
         Minimum pension liability adjustment included in
             discontinued operations (net of tax expense of $1)            1          -
      Changes in net unrealized losses on cash flow hedges
          (net of tax benefit of $7 and $7, respectively)                (12)       (12)
      Foreign currency translation adjustment and other                    -          1
    -----------------------------------------------------------------------------------
            Other comprehensive loss                                   $ (15)     $  (9)
    -----------------------------------------------------------------------------------
       Comprehensive income                                            $   3      $  46
    -----------------------------------------------------------------------------------
</TABLE>

     Comprehensive  income  and net income  for PEF for the three  months  ended
     March 31, 2005 and 2004 were $44 million and $50 million, respectively.

6.   DEBT AND CREDIT FACILITIES AND FINANCING ACTIVITIES

     Changes  to the  Company's  and  PEF's  debt and  credit  facilities  since
     December 31, 2004, discussed in Note 12 to the Financial Statements in Item
     8 of the Company's and PEF's 2004 Form 10-K, are described below.

     In January 2005, PEF used proceeds from the issuance of commercial paper to
     pay off $170  million  of  revolving  credit  agreement  (RCA)  loans.  PEF
     subsequently  used money pool  borrowings to reduce  commercial  paper.  In
     February 2005, PEF used proceeds from money pool  borrowings to pay off $55
     million of RCA loans.

                                       16
<PAGE>


     On  March  28,  2005,  PEF  entered  into a new  $450  million  RCA  with a
     syndication  of  financial  institutions.  The RCA will be used to  provide
     liquidity  support  for  PEF's  issuances  of  commercial  paper  and other
     short-term obligations. The RCA will expire on March 28, 2010. The new $450
     million RCA  replaced  PEF's $200 million  three-year  RCA and $200 million
     364-day RCA, which were each terminated  effective March 28, 2005. Fees and
     interest  rates under the $450 million RCA are to be determined  based upon
     the credit rating of PEF's long-term  unsecured senior non-credit  enhanced
     debt,  currently rated as A3 by Moody's Investor Services (Moody's) and BBB
     by Standard and Poor's (S&P). The RCA includes a defined maximum total debt
     to capital ratio of 65%. The RCA also contains  various  cross-default  and
     other  acceleration  provisions,  including a  cross-default  provision for
     defaults of indebtedness in excess of $35 million. The RCA does not include
     a material  adverse  change  representation  for  borrowings or a financial
     covenant for interest coverage, which had been provisions in the terminated
     agreements.

7.   BENEFIT PLANS

     The  Company  and  some  of  its   subsidiaries   (including  PEF)  have  a
     noncontributory defined benefit retirement (pension) plan for substantially
     all full-time employees. The Company also has supplementary defined benefit
     pension plans that provide benefits to higher-level  employees. In addition
     to pension  benefits,  the Company and some of its subsidiaries  (including
     PEF) provide contributory other postretirement  benefits (OPEB),  including
     certain health care and life insurance benefits,  for retired employees who
     meet specified  criteria.  The components of the net periodic  benefit cost
     for the three months ended March 31 are:

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
     -------------------------------------------------------------------------------------------------
                                                                                  Other Postretirement
                                                              Pension Benefits          Benefits
                                                           ---------------------  --------------------
     (in millions)                                             2005        2004        2005      2004
     -------------------------------------------------------------------------------------------------
     Service cost                                             $   6      $    5       $   1    $    1
     Interest cost                                               13          12           4         4
     Expected return on plan assets                             (19)        (18)          -         -
     Net amortization                                             -           1           1         1
     -------------------------------------------------------------------------------------------------
     Net cost recognized by Florida Progress                  $   -       $    -      $   6    $    6
     -------------------------------------------------------------------------------------------------
     Net cost/(benefit) recognized by PEF                     $  (1)      $  (1)      $   5    $    6
     -------------------------------------------------------------------------------------------------
</TABLE>

8.   RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS

     The  Company  and PEF are  exposed to various  risks  related to changes in
     market conditions.  The Company's and PEF's parent,  Progress Energy, has a
     risk  management  committee that includes  senior  executives  from various
     business  groups.   The  risk  management   committee  is  responsible  for
     administering risk management policies and monitoring compliance with those
     policies by all subsidiaries. Under its risk management policy, the Company
     and PEF may use a variety of  instruments,  including  swaps,  options  and
     forward  contracts,  to manage exposure to fluctuations in commodity prices
     and  interest  rates.   Such   instruments   contain  credit  risk  if  the
     counterparty  fails to perform  under the  contract.  The  Company  and PEF
     minimize such risk by performing credit reviews using,  among other things,
     publicly  available  credit  ratings  of  such  counterparties.   Potential
     non-performance by counterparties is not expected to have a material effect
     on  the  consolidated   financial  position  or  consolidated   results  of
     operations of the Company or PEF.

     A. Commodity Derivatives

     GENERAL

     Most  of the  Company's  and  PEF's  commodity  contracts  either  are  not
     derivatives  or qualify as normal  purchases or sales  pursuant to SFAS No.
     133. Therefore, such contracts are not recorded at fair value.

     ECONOMIC DERIVATIVES

     Derivative products,  primarily electricity and natural gas contracts,  may
     be entered  into from time to time for  economic  hedging  purposes.  While
     management  believes the economic hedges mitigate exposures to fluctuations
     in commodity  prices,  these  instruments  are not designated as hedges for
     accounting  purposes and are monitored  consistent with trading  positions.
     The Company and PEF manage open positions  with strict  policies that limit
     exposure  to market risk and  require  daily  reporting  to  management  of
     potential  financial  exposures.  Gains and losses from such contracts were

                                       17
<PAGE>

     not material to results of  operations  during the three months ended March
     31,  2005  and  2004,  and  the  Company  and PEF  did  not  have  material
     outstanding  positions in such  contracts at March 31, 2005 or December 31,
     2004.

     PEF  has   derivative   instruments   related  to  its  exposure  to  price
     fluctuations  on fuel oil purchases.  At March 31, 2005, the fair values of
     these instruments were a $34 million  short-term  derivative asset position
     included in other  current  assets and a $23 million  long-term  derivative
     asset position  included in other assets and deferred  debits.  At December
     31, 2004, the fair values of these  instruments were a $2 million long-term
     derivative asset position  included in other assets and deferred debits and
     a $5 million  short-term  derivative  liability  position included in other
     current  liabilities.   These  instruments  receive  regulatory  accounting
     treatment.   Unrealized   gains  and  losses  are  recorded  in  regulatory
     liabilities and regulatory assets, respectively.

     CASH FLOW HEDGES

     The  Company's  subsidiaries  designate a portion of  commodity  derivative
     instruments  as cash flow hedges  under SFAS No.  133.  The  objective  for
     holding these  instruments is to hedge  exposure to market risk  associated
     with fluctuations in the price of natural gas for the Company's  forecasted
     sales.  In the  normal  course  of  business,  Progress  Fuels  through  an
     affiliate,  Progress  Ventures,  Inc.  (PVI),  enters natural gas cash flow
     hedging  instruments,  which PVI  offsets  with third  party  transactions.
     Progress Fuels accounts for such contracts as if it were  transacted with a
     third party and records the contract using  mark-to-market  accounting.  At
     March  31,  2005,   Progress  Fuels  is  hedging  exposures  to  the  price
     variability of natural gas through December 2006.

     The total fair value of these  instruments  at March 31, 2005 and  December
     31,  2004  was  a  $26  million  and  a  $9  million  liability   position,
     respectively. The ineffective portion of commodity cash flow hedges was not
     material for the three months  ending March 31, 2005 and 2004. At March 31,
     2004,  there were $17 million of after-tax  deferred  losses in accumulated
     other  comprehensive  income  (OCI) of which $16  million is expected to be
     reclassified   to  earnings  during  the  next  12  months  as  the  hedged
     transactions occur. Due to the volatility of the commodities  markets,  the
     value  in OCI is  subject  to  change  prior to its  reclassification  into
     earnings.

     B. Interest Rate Derivatives - Fair Value or Cash Flow Hedges

     The  Company  and PEF  manage  their  interest  rate  exposures  in part by
     maintaining  variable-rate and fixed rate-exposures  within defined limits.
     In  addition,  the  Company  and PEF also enter into  financial  derivative
     instruments,  including,  but not limited to,  interest rate swaps and lock
     agreements to manage and mitigate interest rate risk exposure.

     The  Company and PEF use cash flow  hedging  strategies  to hedge  variable
     interest rates on long-term debt and to hedge interest rates with regard to
     future fixed-rate debt issuances. The Company and PEF held no interest rate
     cash flow hedges at March 31, 2005 and December 31, 2004.

     The Company and PEF use fair value hedging strategies to manage exposure to
     fixed interest rates on long-term  debt. At March 31, 2005 and December 31,
     2004, the Company and PEF had no open interest rate fair value hedges.

9.   SEVERANCE COSTS

     On February 28, 2005,  as part of a previously  announced  cost  management
     initiative,  Progress Energy approved a workforce  restructuring,  which is
     expected to be completed in September of 2005. In addition to the workforce
     restructuring, the cost management initiative includes a voluntary enhanced
     retirement program. In connection with the cost management initiative,  the
     Company and PEF expect to incur estimated  pre-tax charges of approximately
     $115  million.  In  addition,  the Company and PEF expect to incur  certain
     incremental  costs other than  severance  and  postretirement  benefits for
     recruiting,  training  and staff  augmentation  activities  that  cannot be
     quantified at this time.

     The Company  recorded  $15 million of expense  during the first  quarter of
     2005 for the  estimated  severance  benefits  to be paid as a result of the
     approximate  number of positions to be eliminated  under the  restructuring
     and due to the  implementation of an automated meter reading  initiative at
     PEF.  This amount  includes  approximately  $4 million of  severance  costs
     allocated from Progress Energy Service Company.  These amounts will be paid
     over time and are  subject  to  revision  in future  quarters  based on the
     impact of the voluntary enhanced retirement program. The severance expenses
     are primarily  included in operations and maintenance (O&M) expenses on the
     Consolidated Statements of Income.

                                       18
<PAGE>


     The activity in the severance liability is as follows:

     -----------------------------------------------------
     (in millions)                         FPC        PEF
     -----------------------------------------------------
     Balance as of January 1, 2005        $  1       $  -
     Severance Costs Accrued                11         10
     Payments                                -          -
     -----------------------------------------------------
     Balance as of March 31, 2005         $ 12       $ 10
     -----------------------------------------------------

     The Company has estimated  that an additional  $105 million  charge will be
     recognized  in  the  second  quarter  of  2005  and  relates  primarily  to
     postretirement  benefits  that  will be paid  over  time to those  eligible
     employees who elected to participate in the voluntary  enhanced  retirement
     program.  The elections  indicate that 692 of the Company's  employees have
     elected to participate in the voluntary enhanced retirement program,  which
     includes 680 PEF employees.  The cost management  initiative  charges could
     change  significantly  primarily  due to the  demographics  of the specific
     employees  who  elected   enhanced   retirement   and  its  impact  on  the
     postretirement benefit actuarial studies.

10.  FINANCIAL INFORMATION BY BUSINESS SEGMENT

     The Company's  principal  business segment is PEF, a utility engaged in the
     generation,  purchase,  transmission,  distribution and sale of electricity
     primarily in Florida.  The other reportable  business segments are Progress
     Fuels' Energy & Related  Services and Synthetic Fuels. The Energy & Related
     Services  segment  includes coal  operations,  natural gas  production  and
     sales,  river  terminal  services  and  off-shore  marine   transportation.
     Synthetic  Fuels'  operations  include the production and sale of synthetic
     fuel as  defined  under the  Internal  Revenue  Code and the  operation  of
     synthetic  fuel  facilities  for  outside  parties.  See  Note 13 for  more
     information.   The  Other   category   consists   primarily   of   Progress
     Telecommunications Corp (PTC), the Company's telecommunications subsidiary,
     and  the  holding  company,  Florida  Progress  Corporation.   PTC  markets
     wholesale  fiber-optic  based capacity service in the Eastern United States
     and also markets wireless structure  attachments to wireless  communication
     companies and governmental entities. The Company allocates a portion of its
     operating expenses to business segments.

     Prior to 2005,  Rail  Services  was  reported  as a  separate  segment.  In
     connection  with the  divestiture  of  Progress  Rail  (see  Note  3),  the
     operations of Rail Services were reclassified to discontinued operations in
     the first  quarter of 2005 and  therefore  are not  included in the results
     from  continuing  operations  during the  periods  reported.  In  addition,
     Synthetic Fuel  activities  were reported in the Energy & Related  Services
     segment prior to 2005 and now are  considered a reportable  segment.  These
     reportable  segment changes reflect the current  reporting  structure.  For
     comparative  purposes,  the prior year results have been  restated to align
     with the current presentation.

     The Company's  segments are based on  differences in products and services,
     and therefore no additional  disclosures  are presented.  All  intersegment
     transactions  are at cost except for coal sales from the Energy and Related
     Services  segment to PEF. The price  Progress Fuels charges PEF is based on
     market rates for coal  procurement.  Rail  transportation  is also based on
     market rates plus a return allowed by the FPSC on equity in  transportation
     equipment  utilized in transporting coal to PEF. The allowed rate of return
     is currently 12%. In accordance  with SFAS No. 71, profits on  intercompany
     sales between Energy and Related Services and PEF are not eliminated if the
     sales price is  reasonable  and the future  recovery of sales price through
     the ratemaking  process is probable.  The profits for the periods presented
     were not  significant.  No  single  customer  accounted  for 10% or more of
     unaffiliated revenues.

     The following summarizes the revenues and segment profits or losses for the
     reportable  business  segments.  The  combined  segment  profits and losses
     represents Florida Progress' total income from continuing operations.

                                       19
<PAGE>


<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
    -----------------------------------------------------------------------------------------------------
    (in millions)                                  Energy and
                                          PEF        Related      Synthetic      Other     Consolidated
                                                    Services        Fuels
    -----------------------------------------------------------------------------------------------------
    Three Months Ended March 31, 2005:
      Revenues                           $   848     $    182       $  166     $    19        $ 1,215
      Intersegment  revenues                   -          261            -        (261)            -
         Total revenues                      848          443          166        (242)         1,215
         Segment profit (loss)           $    43     $     10       $    -     $    (8)       $    45
    -----------------------------------------------------------------------------------------------------
                                                    Energy and
    (in millions)                         PEF         Related     Synthetic      Other     Consolidated
                                                     Services       Fuels
    -----------------------------------------------------------------------------------------------------
    Three Months Ended March 31, 2004:
      Revenues                           $   784     $    128       $  143     $    14        $ 1,069
      Intersegment  revenues                   -          239            4        (243)             -
         Total revenues                      784          367          147        (229)         1,069
      Segment profit (loss)              $    49     $     10       $   26     $   (38)       $    47
    -----------------------------------------------------------------------------------------------------
</TABLE>

11.  OTHER INCOME AND OTHER EXPENSE

     Other  income and expense  includes  interest  income and other  income and
     expense items as discussed  below. The components of other, net as shown on
     the  accompanying  Consolidated  Statements of Income for three ended March
     31, 2005 and 2004, are as follows:

    ----------------------------------------------------------------------------
                                                             Three Months Ended
                                                                  March 31,
      (in millions)                                         2005        2004
    ----------------------------------------------------------------------------
      Other income
      Nonregulated energy and delivery services income      $  4        $  4
      AFUDC equity                                             3           1
      Other                                                    2           -
    ----------------------------------------------------------------------------
          Total other income - PEF                          $  9        $  5
      Other income - Florida Progress                          1           2
    ----------------------------------------------------------------------------
          Total other income - PEF and Florida Progress     $ 10        $  7
    ----------------------------------------------------------------------------

            Other expense
      Nonregulated energy and delivery services expenses    $  3        $  2
      Donations                                                3           4
    ----------------------------------------------------------------------------
         Total other expense - PEF                          $  6        $  6
      Loss from equity investments                             5           4
      Other expense - Florida Progress                         -           1
    ----------------------------------------------------------------------------
         Total other expense - PEF and Florida Progress     $ 11        $ 11
    ----------------------------------------------------------------------------
      Other, net                                            $ (1)       $ (4)
    ----------------------------------------------------------------------------

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

12.  ENVIRONMENTAL MATTERS

     The Company and PEF are  subject to  federal,  state and local  regulations
     addressing hazardous and solid waste management,  air and water quality and
     other  environmental  matters.  See Note 20 of the Company's and PEF's 2004
     Annual Report on Form 10-K for a more  detailed,  historical  discussion of
     these federal, state, and local regulations.

     HAZARDOUS AND SOLID WASTE MANAGEMENT

     The provisions of the Comprehensive  Environmental  Response,  Compensation
     and  Liability  Act of 1980,  as amended,  authorize the EPA to require the
     cleanup of hazardous waste sites.  This statute imposes  retroactive  joint
     and several liabilities. Some states, including Florida, have similar types
     of legislation. The Company and PEF are periodically notified by regulators
     such as the  EPA  and  various  state  agencies  of  their  involvement  or
     potential  involvement  in sites,  other than MGP sites,  that may  require
     investigation and/or remediation. The Company and PEF are also currently in
     the  process  of  assessing   potential   costs  and   exposures  at  other
     environmentally impaired sites. For all sites the assessments are developed
     and  analyzed,  the Company and PEF will accrue  costs for the sites to the
     extent the costs are probable and can be reasonably estimated.

                                       20
<PAGE>

     Various  organic  materials  associated with the production of manufactured
     gas,  generally  referred to as coal tar, are  regulated  under federal and
     state laws.  The  principal  regulatory  agency that is  responsible  for a
     specific former  manufactured gas plant (MGP) site depends largely upon the
     state in which the site is  located.  There are  several MGP sites to which
     the  Company,  through PEF, has some  connection.  In this regard,  PEF and
     other  potentially   responsible  parties  (PRPs),  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 Florida,  a risk-based  corrective  action (RBCA,  known as Global RBCA)
     rule was  developed  by the FDEP  and  adopted  at the  February  2,  2005,
     Environmental  Review  Commission  hearing.  Risk-based  corrective  action
     generally  means that the corrective  action  prescribed  for  contaminated
     sites  can  correlate  to the level of human  health  risk  imposed  by the
     contamination at the property.  The Global RBCA rule expands the use of the
     risk-based  corrective  action to all contaminated  sites in the state that
     are not currently in one of the state's waste cleanup  programs and has the
     potential  for making  future  cleanups in Florida more costly to complete.
     The effective  date of the Global RBCA rule was April 17, 2005. The Company
     and PEF are in the process of assessing the impact of this rule.

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

     PEF

     As of March 31, 2005 and December 31, 2004, PEF's accruals for probable and
     estimable costs related to various  environmental sites, which are included
     in other  liabilities and deferred  credits and are expected to be paid out
     over many years, were:

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
     ----------------------------------------------------------------------------------------------
     (in millions)                                            March 31, 2005     December 31, 2004
     ----------------------------------------------------------------------------------------------
     Remediation of distribution and substation transformers         $ 25              $ 27
     MGP and other sites                                               18                18
     ----------------------------------------------------------------------------------------------
     Total accrual for environmental sites                           $ 43              $ 45
     ----------------------------------------------------------------------------------------------
</TABLE>

     PEF has received  approval  from the FPSC for recovery of costs  associated
     with the remediation of distribution  and substation  transformers  through
     the  Environmental  Cost Recovery Clause (ECRC).  Under agreements with the
     Florida  Department  of  Environmental  Protection  (FDEP),  PEF  is in the
     process of examining  distribution  transformer  sites and substation sites
     for potential  equipment integrity issues that could result in the need for
     mineral  oil  impacted  soil  remediation.  PEF has  reviewed  a number  of
     distribution  transformer  sites and substation  sites. PEF expects to have
     completed its review of distribution  transformer sites by the end of 2007.
     Should further sites be identified,  PEF believes that any estimated  costs
     would also be recovered  through the ECRC. For the three months ended March
     31,  2005,  PEF made no  additional  accruals  and spent  approximately  $2
     million  related to the  remediation  of  transformers.  PEF has recorded a
     regulatory asset for the probable recovery of these costs through the ECRC.

     The  amounts for MGP and other  sites,  in the table  above,  relate to two
     former MGP sites and other sites  associated with PEF that have required or
     are anticipated to require  investigation and/or remediation.  In 2004, PEF
     received  approximately $12 million in insurance claim settlement  proceeds
     and recorded a related accrual for associated  environmental  expenses,  as
     these  insurance  proceeds  are  restricted  for  use in  addressing  costs
     associated with environmental liabilities.  PEF made no additional accruals
     or material  expenditures and received no insurance  proceeds for the three
     months ended March 31, 2005.

     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 PRPs.  Because the extent of environmental  impact,
     allocation among PRPs for all sites,  remediation alternatives (which could
     involve  either  minimal or significant  efforts),  and  concurrence of the
     regulatory  authorities  have  not  yet  advanced  to  the  stage  where  a
     reasonable  estimate of the remediation costs can be made, at this time PEF
     is unable to provide an estimate of its obligation to remediate these sites
     beyond what is currently  accrued.  As more activity occurs at these sites,
     PEF will assess the need to adjust the  accruals.  It is  anticipated  that
     sufficient  information  will become available in 2005 to make a reasonable
     estimate of PEF's obligation for one of the MGP sites.

                                       21
<PAGE>

     Florida Progress Corporation

     In 2001, FPC established an accrual to address  indemnities and retained an
     environmental  liability  associated  with  the sale of its  Inland  Marine
     Transportation  business.  In 2003,  the  accrual was reduced to $4 million
     based on a change in estimate.  As of March 31, 2005 and December 31, 2004,
     the remaining  accrual balance was  approximately $3 million.  Expenditures
     related to this  liability  were not  material to the  Company's  financial
     condition  for the three  months  ended March 31,  2005.  FPC  measures its
     liability for these exposures  based on estimable and probable  remediation
     scenarios.

     Certain  historical  sites  are  being  addressed  voluntarily  by FPC.  An
     immaterial accrual has been established to address  investigation  expenses
     related to these sites.  At this time,  the Company  cannot  determine  the
     total costs that may be incurred in connection with these sites.

     Progress Rail

     On March 24,  2005,  the Company  closed on the sale of its  Progress  Rail
     subsidiary.  In connection  with the sale, the Company  incurred  indemnity
     obligations related to certain pre-closing  liabilities,  including certain
     environmental matters (see discussion under Guarantees in Note 13A).

     AIR QUALITY

     The Company and PEF are subject to various  current and  proposed  federal,
     state, and local environmental  compliance laws and regulations,  which may
     result  in  increased  planned  capital   expenditures  and  operating  and
     maintenance  costs.  Significant  updates to these laws and regulations and
     related  impacts  to the  Company  and PEF since  December  31,  2004,  are
     discussed  below.  Additionally,  Congress is considering  legislation that
     would require  reductions in air emissions of NOx, SO2,  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
     that could be material to the  Company's and PEF's  consolidated  financial
     position  or results of  operations.  However,  the  Company and PEF cannot
     predict the outcome of the matter.

     The EPA is  conducting  an  enforcement  initiative  related to a number of
     coal-fired  utility power plants in an effort to determine  whether changes
     at those  facilities were subject to New Source Review  requirements or New
     Source Performance Standards under the Clean Air Act. The Company was asked
     to provide information to the EPA as part of this initiative and cooperated
     in supplying the requested information. 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  by these  unaffiliated  utilities in excess of $1.0  billion.
     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 and PEF cannot predict the outcome of this matter.

     On March 10,  2005,  the EPA issued  the final  Clean Air  Interstate  Rule
     (CAIR).  The EPA's rule  requires 28 states and the  District of  Columbia,
     including North Carolina,  South Carolina,  Georgia and Florida,  to reduce
     NOx and SO2  emissions  in  order to  attain  state  NOx and SO2  emissions
     levels. The Company is reviewing the final rule. Installation of additional
     air quality controls is likely to be needed to meet the CAIR  requirements.
     The Company is in the process of determining  compliance plans and the cost
     to comply with the rule.  The air quality  controls  already  installed for
     compliance  with the NOx SIP Call and  currently  planned by the Company to
     comply with the  Smokestacks Act will reduce the costs required to meet the
     CAIR requirements for the Company's North Carolina units.

     On March 15, 2005,  the EPA finalized two separate but related  rules:  the
     Clean Air Mercury Rule (CAMR) that sets  emissions  limits to be met in two
     phases and encourages a cap and trade approach to achieving those caps, and
     a  de-listing  rule that  eliminated  any  requirement  to pursue a maximum
     achievable   control   technology  (MACT)  approach  for  limiting  mercury
     emissions  from  coal-fired  power  plants.  NOx and SO2 controls  also are
     effective in reducing mercury emissions,  however, according to the EPA the
     second  phase cap  reflects a level of  mercury  emissions  reduction  that
     exceeds  the  level  that  would be  achieved  solely  as a  co-benefit  of
     controlling  NOx and SO2 under  CAIR.  The  Company  is in the  process  of
     determining  compliance  plans  and  the  cost to  comply  with  the  CAMR.
     Installation  of additional air quality  controls is likely to be needed to
     meet the CAMR's requirements.  The de-listing rule has been challenged by a
     number of  parties;  the  resolution  of the  challenges  could  impact the
     Company's final compliance plans and costs.

                                       22
<PAGE>

     In  conjunction  with the proposed  mercury  rule,  the EPA proposed a MACT
     standard to regulate nickel  emissions from residual  oil-fired  units. The
     EPA withdrew the proposed nickel rule in March 2005.

     PEF is filing a petition through the ECRC program for recovery of costs for
     development and implementation of an integrated strategy to comply with the
     CAIR and CAMR. PEF is developing an integrated  compliance strategy for the
     CAIR and CAMR rules  because NOx and SO2  controls  also are  effective  in
     reducing  mercury  emissions.  PEF  estimates  the  program  costs  for the
     remainder  of  2005  to  be   approximately   $2  million  for  preliminary
     engineering activities and strategy development work necessary to determine
     the Company's integrated  compliance strategy.  PEF projects  approximately
     $62 million in program costs for 2006. These costs may increase or decrease
     depending  upon the results of the  engineering  and  strategy  development
     work.  Among  other  things,  subsequent  rule  interpretations,  equipment
     availability,  or the unexpected  acceleration  of the initial NOx or other
     compliance dates could require  acceleration of some projects and therefore
     result  in  additional  costs  in 2005  and  2006.  PEF  expects  to  incur
     significant additional capital and O&M costs to achieve compliance with the
     CAIR and CAMR through  2015 and beyond.  The timing and extent of the costs
     for future projects will depend upon the final compliance strategy.

     WATER QUALITY

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

     Based on changes to the estimated time frame of  expenditures,  the Company
     has revised the  estimated  time period for  expenditures  to meet  Section
     316(b)  requirements  of the Clean Water Act. PEF currently  estimates that
     from 2005 through 2010 the range of expenditures  will be approximately $65
     million to $85 million.

     OTHER ENVIRONMENTAL MATTERS

     The Kyoto  Protocol  was  adopted in 1997 by the United  Nations to address
     global  climate  change by reducing  emissions of carbon  dioxide and other
     greenhouse  gases.  The treaty went into effect on February 16,  2005.  The
     United   States  has  not  adopted  the  Kyoto   Protocol,   and  the  Bush
     administration has stated it favors voluntary programs.  A number of carbon
     dioxide  emissions  control  proposals  have  been  advanced  in  Congress.
     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  consolidated  financial  position  or results of  operations  if
     associated  costs  of  control  or  limitation  cannot  be  recovered  from
     customers. The Company favors the voluntary program approach recommended by
     the  Bush   administration  and  continually   evaluates  options  for  the
     reduction,  avoidance and sequestration of greenhouse gases.  However,  the
     Company and PEF cannot predict the outcome of this matter.

     Progress  Energy has  announced  its plan to issue a report on the Progress
     Energy's  activities  associated  with  current  and  future  environmental
     requirements.  The report will  include a discussion  of the  environmental
     requirements  that the Company and PEF currently face and expect to face in
     the future with respect to its air emissions.  The report is expected to be
     issued by March 31, 2006.

13.  COMMITMENTS AND CONTINGENCIES

     Contingencies and significant changes to the commitments  discussed in Note
     21 of the Company's 2004 Annual Report on Form 10-K are described below.

     A. Guarantees

     As a part of normal business,  Florida  Progress and certain  subsidiaries,
     including PEF and Progress Fuels, enter into various  agreements  providing
     financial or performance assurances to third parties, which are outside the
     scope of FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
     Requirements for Guarantees,  Including Indirect Guarantees of Indebtedness
     of Others"  (FIN No.  45).  Such  agreements  include  guarantees,  standby
     letters of credit and surety  bonds.  These  agreements  are  entered  into
     primarily to support or enhance the  creditworthiness  otherwise attributed
     to a subsidiary on a stand-alone basis,  thereby facilitating the extension
     of sufficient  credit to accomplish the subsidiaries'  intended  commercial
     purposes.  At March 31, 2005,  management  does not believe  conditions are
     likely for significant  performance under these  agreements.  To the extent
     liabilities  are  incurred  as a result of the  activities  covered  by the
     guarantees,  such liabilities are included in the accompanying Consolidated
     Balance Sheets.

                                       23
<PAGE>

     At March 31, 2005, the Company had issued  guarantees and  indemnifications
     of  certain  legal,  tax and  environmental  matters  to third  parties  in
     connection  with sales of businesses  and for timely payment of obligations
     in support of its non-wholly  owned synthetic fuel  operations.  Related to
     the sales of  businesses,  the  notice  period  extends  until 2012 for the
     majority of matters  provided for in the  indemnification  provisions.  For
     matters  which the  Company  has  received  timely  notice,  the  Company's
     indemnity  obligations  may  extend  beyond  the  notice  period.   Certain
     environmental  indemnifications  related  to the  sale  of  synthetic  fuel
     operations  have no  limitations  as to time or  maximum  potential  future
     payments.  Other guarantees and indemnifications  have an estimated maximum
     exposure of approximately $111 million.  At March 31, 2005, the Company has
     recorded   liabilities  related  to  guarantees  and   indemnifications  to
     third-parties  of $22 million.  Management does not believe  conditions are
     likely for significant  performance under these agreements in excess of the
     recorded liabilities.

     Securities of Affiliated Trust

     The Company has guaranteed certain payments of an affiliated  company,  FPC
     Capital I (the Trust).  Due to the nature of the  relationship  between the
     Trust and Florida Progress Funding Corporation,  the Company has guaranteed
     the  payment  of  all  distributions  related  to the  Trust's  outstanding
     mandatorily  redeemable preferred securities.  At March 31, 2005, the Trust
     had  outstanding  12 million  shares of the  securities  with a liquidation
     value of $300 million.

     B. Insurance

     PEF is a  member  of  Nuclear  Electric  Insurance  Limited  (NEIL),  which
     provides primary and excess  insurance  coverage against property damage to
     members' nuclear generating  facilities.  Under the primary program, PEF is
     insured for $500 million at its nuclear plant,  CR3. In addition to primary
     coverage, NEIL also provides decontamination, premature decommissioning and
     excess property insurance with a limit of $1.75 billion.

     C. Other Commitments

     As discussed in Note 21B of the  Company's  annual  report on Form 10-K for
     the  year  ended   December  31,  2004,  the  Company  has  certain  future
     commitments  related  to four  synthetic  fuel  facilities  purchased  that
     provide for contingent payments (royalties).  The Company has exercised its
     right in the  related  agreements  to  escrow  those  payments  if  certain
     conditions in the agreements were met. The Company  previously  accrued and
     retained 2004 and 2003 royalty  payments of  approximately  $20 million and
     $22 million, respectively. In May 2005, these funds were placed into escrow
     upon establishment of the necessary escrow accounts.

     D. Other Contingencies

     1. Franchise Litigation

     Three  cities,  with  a  total  of  approximately  18,000  customers,  have
     litigation  pending  against PEF in various  circuit courts in Florida.  As
     previously  reported,  three other  cities,  with a total of  approximately
     30,000  customers,  have  subsequently  settled their lawsuits with PEF and
     signed new, 30-year franchise agreements. The lawsuits principally seek (1)
     a  declaratory  judgment  that the cities have the right to purchase  PEF's
     electric distribution system located within the municipal boundaries of the
     cities,  (2) a  declaratory  judgment  that the  value of the  distribution
     system must be determined  through  arbitration,  and (3) injunctive relief
     requiring PEF to continue to collect from PEF's  customers and remit to the
     cities,  franchise  fees  during  the  pending  litigation,  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.  The  circuit  courts in those cases 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  the cities to
     determine the value of PEF's electric distribution system within the cities
     through arbitration.

     Arbitration  in one of the cases (with the  13,000-customer  City of Winter
     Park) was  completed in February  2003.  That  arbitration  panel issued an
     award in May 2003 setting the value of PEF's distribution system within the
     City of Winter Park (the City) at approximately $32 million,  not including
     separation and reintegration and construction work in progress, which could
     add  several  million  dollars to the award.  The panel  also  awarded  PEF
     approximately $11 million in stranded costs, which, according to the award,
     decrease  over  time.  In  September  2003,  Winter  Park  voters  passed a
     referendum  that  would  authorize  the  City  to  issue  bonds  of  up  to

                                       24
<PAGE>

     approximately  $50 million to acquire PEF's electric  distribution  system.
     While the City has not yet definitively decided whether it will acquire the
     system,  on April 26, 2004, the City  Commission  voted to proceed with the
     acquisition.  The City sought and received  wholesale power supply bids and
     on June 24, 2004,  executed a wholesale power supply contract with PEF with
     a five-year term option from the date service begins and a renewal  option.
     On May 12,  2004,  the City  solicited  bids to operate  and  maintain  the
     distribution  system and awarded a contract in January  2005.  The City has
     indicated  that its goal is to begin  electric  operations in June 2005. On
     February 10, 2005,  PEF filed a petition  with the Florida  Public  Service
     Commission  (FPSC) to relieve the Company of its  statutory  obligation  to
     serve  customers  in Winter Park on June 1, 2005,  or at such time when the
     City is able to provide retail  service.  On April 19, 2005, the FPSC voted
     to approve  PEF's  petition.  At this time,  whether and when there will be
     further proceedings regarding the City of Winter Park cannot be determined.

     Arbitration with the 2,500-customer  Town of Belleair was completed in June
     2003. In September 2003, the arbitration panel issued an award in that case
     setting the value of the electric  distribution  system  within the Town at
     approximately $6 million. The panel further required the Town to pay to PEF
     its  requested  $1 million in  separation  and  reintegration  costs and $2
     million in stranded  costs.  The Town has not yet  decided  whether it will
     attempt to acquire the system;  however,  on January 18, 2005,  it issued a
     request  for  proposals  for  wholesale  power  supply and to  operate  and
     maintain the  distribution  system.  In March 2005,  PEF submitted a bid to
     supply  wholesale  power to the  Town.  The  Town  received  several  other
     proposals for wholesale power and distribution  services. In February 2005,
     the Town  Commission  also voted to put the issue of whether to acquire the
     distribution  system to a voter referendum on or before October 2, 2005. At
     this time, whether and when there will be further proceedings regarding the
     Town of Belleair cannot be determined.

     Arbitration in the remaining city's litigation (the  1,500-customer City of
     Edgewood)  has not yet been  scheduled.  On February 17, 2005,  the parties
     filed a joint  motion to stay the  litigation  for a 90-day  period  during
     which the parties will discuss  potential  settlement.  In April,  the City
     Council voted to proceed with arbitration.  At this time,  whether and when
     there will be further proceedings  regarding the City of Edgewood cannot be
     determined.

     A fourth  city  (the  7,000-customer  City of  Maitland)  is  contemplating
     municipalization  and has indicated its intent to proceed with  arbitration
     to determine  the value of PEF's  electric  distribution  system within the
     City.  Maitland's  franchise expires in August 2005. At this time,  whether
     and when there will be further  proceedings  regarding the City of Maitland
     cannot be determined.

     As part of the above  litigation,  two appellate  courts  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 filed an appeal with the Florida Supreme Court to
     resolve the conflict between the two appellate courts. On October 28, 2004,
     the  Court  issued  a  decision  holding  that PEF  must  collect  from its
     customers and remit to the cities  franchise fees during the interim period
     when the city  exercises  its purchase  option or executes a new  franchise
     agreement.  The Court's  decision  should not have a material impact on the
     Company.

     2. DOE Litigation

     Pursuant to the Nuclear Waste Policy Act of 1982, the  predecessors  to PEF
     entered into contracts 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.

     DOE failed to begin  taking  spent  nuclear  fuel by January 31,  1998.  In
     January 2004, PEF filed a complaint with the United States Court of Federal
     Claims  against  the DOE,  claiming  that  the DOE  breached  the  Standard
     Contract for Disposal of Spent  Nuclear Fuel (SNF) by failing to accept SNF
     from PEF  facilities  on or before  January 31, 1998.  Damages due to DOE's
     breach will likely exceed $100 million.  Approximately  60 cases  involving
     the  Government's  actions in connection with SNF are currently  pending in
     the Court of Federal Claims.

     DOE and the PEF  parties  have agreed to a stay of the  lawsuit,  including
     discovery.  The parties agreed to, and the trial court  entered,  a stay of
     proceedings,  in  order  to  allow  for  possible  efficiencies  due to the
     resolution of legal and factual issues in  previously-filed  cases in which
     similar  claims are being  pursued by other  plaintiffs.  These  issues may
     include,  among others,  so-called "rate issues," or the minimum  mandatory
     schedule for the  acceptance of SNF and high level waste (HLW) by which the
     Government  was  contractually  obligated to accept  contract  holders' SNF
     and/or HLW, and issues regarding recovery of damages under a partial breach

                                       25
<PAGE>

     of  contract  theory  that will be  alleged to occur in the  future.  These
     issues are  expected to be  presented  in the trials that are  scheduled to
     occur by April  2005.  Resolution  of these  issues  in other  cases  could
     facilitate  agreements by the parties in the PEF lawsuit,  or at a minimum,
     inform  the Court of  decisions  reached  by other  courts  if they  remain
     contested  and  require  resolution  in this  case.  The  trial  court  has
     continued this stay until June 24, 2005.

     With certain  modifications and additional  approval by the NRC,  including
     the  installation  of onsite dry storage  facilities at PEF's nuclear unit,
     Crystal River Unit No. 3 (CR3), PEF's spent nuclear fuel storage facilities
     will be  sufficient to provide  storage  space for spent fuel  generated on
     PEF's system through the expiration of the operating license for CR3.

     In July 2002,  Congress  passed an override  resolution to Nevada's veto of
     DOE's  proposal to locate a permanent  underground  nuclear  waste  storage
     facility at Yucca Mountain,  Nevada.  In January 2003, the State of Nevada,
     Clark County, Nevada and the City of Las Vegas petitioned the U.S. Court of
     Appeals  for  the   District   of  Columbia   Circuit  for  review  of  the
     Congressional override resolution. These same parties also challenged EPA's
     radiation standards for Yucca Mountain. On July 9, 2004, the Court rejected
     the challenge to the  constitutionality  of the resolution  approving Yucca
     Mountain,  but ruled that the EPA was wrong to set a 10,000-year compliance
     period in the radiation protection standard. EPA is currently reworking the
     standard but has not stated when the work will be complete.  DOE originally
     planned to submit a license  application  to the NRC to construct the Yucca
     Mountain  facility  by the end of 2004.  However,  in  November  2004,  DOE
     announced  it would not submit the license  application  until  mid-2005 or
     later.  Also in November  2004,  Congressional  negotiators  approved  $577
     million for fiscal year 2005 for the Yucca Mountain project,  approximately
     $300  million  less than  requested  by DOE but  approximately  the same as
     approved in 2004. The DOE has acknowledged  that a working  repository will
     not be  operational  until  sometime  after  2010,  but  the  DOE  has  not
     identified  a new target  date.  PEF  cannot  predict  the  outcome of this
     matter.

     3. Advanced Separation Technologies (AST)

     In 1996,  Florida  Progress  sold its 80% interest in AST to Calgon  Carbon
     Corporation  (Calgon)  for net  proceeds of $56  million in cash.  In 1998,
     Calgon  filed a lawsuit  against  Florida  Progress  and the other  selling
     shareholder  and amended it in April 1998,  alleging  misstatement of AST's
     1996 revenues, assets and liabilities,  seeking damages and granting Calgon
     the right to rescind  the sale.  The  lawsuit  also  accused the sellers of
     failing to  disclose  flaws in AST's  manufacturing  process  and a lack of
     quality control.

     All parties  filed motions for summary  judgment in July 2001.  The summary
     judgment motions of Calgon and the other selling shareholder were denied in
     April 2002. The summary  judgment motion of Florida  Progress was withdrawn
     pending a legal  challenge  to portions  of the report of Calgon's  expert,
     Arthur  Andersen,  which  had been  used to  oppose  summary  judgment.  In
     September 2003, the United States  District Court for the Western  District
     of  Pennsylvania  issued final orders  excluding  from evidence in the case
     that portion of Arthur  Andersen's  damage analysis based on the discounted
     cash flow  methodology  of  valuation.  The Court  did not  exclude  Arthur
     Andersen's use of the guideline publicly traded company  methodology in its
     damage  analysis.  Florida  Progress  filed a renewed  motion  for  summary
     judgment in October 2003, which is pending. Because the motion has now been
     outstanding  for over a year,  a ruling on the  motion is  expected  at any
     time.

     Florida  Progress  believes  that the  aggregate  total  of all  legitimate
     warranty  claims by customers of AST for which it is probable  that Florida
     Progress will be responsible  for under the Stock  Purchase  Agreement with
     Calgon is approximately $3 million, and accordingly,  accrued $3 million in
     the third quarter of 1999 as an estimate of probable loss.

     The Company cannot predict the outcome of this matter,  but will vigorously
     defend against the allegations.

     4. Synthetic Fuel Tax Credits

     At December 31, 2003,  Florida Progress,  through its  subsidiaries,  was a
     majority-owner  in three  entities and a minority  owner in three  entities
     that own  facilities  that  produce  synthetic  fuel as  defined  under the
     Internal  Revenue Code (Code).  In June 2004,  Progress  Fuels sold, in two
     transactions,  a  combined  49.8  percent  partnership  interest  in Colona
     Synfuel  Limited  Partnership,  LLLP  (Colona),  one of its majority  owned
     synthetic fuel  operations.  The Company is now a minority owner in Colona,
     but continues to consolidate Colona in accordance with FASB  Interpretation
     No.  46R.  Florida  Progress,  through  its  subsidiaries,  is  currently a
     majority  owner in two synthetic fuel entities and a minority owner in four
     synthetic fuel entities,  including Colona.  The production and sale of the
     synthetic  fuel from  these  facilities  qualifies  for tax  credits  under
     Section 29 of the Code (Section 29) if certain  requirements are satisfied,
     including a requirement  that the synthetic fuel differs  significantly  in

                                       26
<PAGE>

     chemical  composition from the coal used to produce such synthetic fuel and
     that the fuel  was  produced  from a  facility  that was  placed-in-service
     before July 1, 1998.  The amount of Section 29 tax credits that the Company
     is  allowed to claim in any  calendar  year is limited by the amount of the
     Company's  regular federal income tax liability.  Synthetic fuel tax credit
     amounts  allowed but not  utilized  are  carried  forward  indefinitely  as
     deferred   alternative   minimum  tax  credits.   All   majority-owned  and
     minority-owned  entities  received  private  letter rulings (PLRs) from the
     Internal  Revenue  Service  (IRS)  with  respect  to their  synthetic  fuel
     operations.  However, these PLR's do not address the placed-in-service date
     determinations.  The PLRs do not limit the  production  on which  synthetic
     fuel credits may be claimed. Total Section 29 credits generated to date are
     approximately  $951 million,  of which $436 million has been used to offset
     regular  federal  income tax  liability  and $497 million are being carried
     forward as deferred  alternative minimum tax credits.  Also $18 million has
     not been  recognized  due to the  decrease in tax  liability  from the 2004
     hurricane  damage and loss on sale of Progress Rail. The current Section 29
     tax credit program expires at the end of 2007.

     The  sale of  Progress  Rail in 2005  resulted  in a  capital  loss for tax
     purposes.  Capital losses that are not offset with capital gains  generated
     in 2005 will be  carried  back to reduce  the  regular  federal  income tax
     liability  in 2004.  The  estimated  impact  of the  sale  will  result  in
     approximately  $11  million in tax  credits no longer  being  realized  and
     reflected as a deferred tax asset.

     On November  2, 2004,  PEF filed a petition  with the FPSC to recover  $252
     million of storm costs plus interest from customers over a two-year  period
     (see Note 4).  Based on the  reasonable  expectation  at December 31, 2004,
     that the FPSC will grant the  requested  recovery of the storm  costs,  the
     Company's loss from the casualty was reduced. Therefore, the Company's 2004
     tax  liability  was greater  than  originally  anticipated,  along with its
     ability to record Section 29 tax credits from its synthetic fuel facilities
     in 2004.

     The Company believes its right to recover storm costs is well  established,
     however, the Company cannot predict the outcome of this matter. If the FPSC
     should deny PEF's  petition for the recovery of storm costs in 2005,  there
     could be a material impact on the amount of 2005 synthetic fuels production
     and results of operations.

     IRS PROCEEDINGS

     In September 2002, all of Florida Progress'  majority-owned  synthetic fuel
     entities at that time,  including Colona, and two of the Company's minority
     owned  synthetic  fuel entities  were  accepted  into the IRS's  Pre-Filing
     Agreement  (PFA) program.  The PFA program allows  taxpayers to voluntarily
     accelerate  the IRS exam  process in order to seek  resolution  of specific
     issues.

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

     In July 2004,  Progress  Energy was  notified  that the IRS field  auditors
     anticipate taking an adverse position regarding the placed-in-service  date
     of the Company's  four Earthco  synthetic fuel  facilities.  Due to the IRS
     auditors'  position,  the IRS has decided to exercise its right to withdraw
     from the PFA program with Progress  Energy.  With the IRS's withdrawal from
     the PFA program,  the review of he Company's Earthco  facilities is back on
     the normal procedural audit path of the Company's tax returns.

     On October 29,  2004,  Progress  Energy  received  the IRS field  auditors'
     preliminary  report  concluding  that the Earthco  facilities  had not been
     placed in service before July 1, 1998,  and that the tax credits  generated
     by those facilities  should be disallowed.  The Company  disagrees with the
     field  audit  team's  factual   findings  and  believes  that  the  Earthco
     facilities  were placed in service  before July 1, 1998.  The Company  also
     believes that the report applies an inappropriate legal standard concerning
     what  constitutes  "placed in service." The Company  intends to contest the
     field  auditors'  findings  and  their  proposed  disallowance  of the  tax
     credits.

     Because of the  disagreement  between the Company and the field auditors as
     to the proper  legal  standard to apply,  the Company  believes  that it is
     appropriate  and helpful to have this issue reviewed by the National Office
     of the IRS,  just as the  National  Office  reviewed  the issues  involving
     chemical  change.  Therefore,  the Company is asking the National office to
     clarify the legal standard and has initiated this process with the National

                                       27
<PAGE>

     Office.   The  Company  believes  that  the  appeals   process,   including
     proceedings  before  the  National  Office,  could  take up to two years to
     complete,  however,  it cannot  control the actual timing of resolution and
     cannot predict the outcome of this matter.

     Through March 31, 2005, based on its ownership percentage,  the Company has
     used or carried  forward $570  million of tax credits  generated by Earthco
     facilities.  If these credits were disallowed,  Florida  Progress' one time
     exposure for cash tax payments would be $67 million  (excluding  interest),
     and  earnings  and  equity  would be  reduced  by $570  million,  excluding
     interest.

     The  Company   believes  that  it  is  complying  with  all  the  necessary
     requirements to be allowed such credits under Section 29, and,  although it
     cannot  provide  certainty,  it  believes  that it will  prevail  in  these
     matters.  Accordingly,  while the Company has adjusted its  synthetic  fuel
     production  for 2004 in response to the effects of the hurricane  damage on
     its 2004 tax liability, it has no current plans to alter its synthetic fuel
     production schedule for future years as a result of the IRS field auditors'
     report. However, should the Company fail to prevail in these matters, there
     could be a  material  liability  for  previously  used or  carried  forward
     Section 29 tax credits, with a material adverse impact on earnings and cash
     flows.

     As discussed in Note 8D of the Company's annual report on Form 10-K for the
     year ended December 31, 2004, PEF implemented changes in its capitalization
     policies for its Energy Delivery  business unit effective  January 1, 2005.
     As a result of the  changes  in  accounting  estimates  for the  outage and
     emergency work and indirect costs, a lesser  proportion of PEF's costs will
     be capitalized on a prospective  basis.  The Company has requested a method
     change from the IRS. If the IRS does not grant the Company's  request,  the
     Company  cannot predict how the IRS would suggest that the method change be
     applied.  However,  the  application  of the method  change to past periods
     could be reflected in a cumulative  adjustment  to taxable  income in 2005,
     which likely would have a material impact on income from synthetic fuel tax
     credits.

     PROPOSED ACCOUNTING RULES FOR UNCERTAIN TAX POSITIONS

     In July 2004, the FASB stated that it plans to issue an exposure draft of a
     proposed  interpretation  of SFAS No. 109,  "Accounting  for Income Taxes,"
     that would address the accounting for uncertain tax positions. The FASB has
     indicated that the interpretation would require that uncertain tax benefits
     be probable  of being  sustained  in order to record  such  benefits in the
     financial  statements.  The exposure  draft is expected to be issued in the
     second  quarter of 2005.  The Company  cannot predict what actions the FASB
     will take or how any such actions  might  ultimately  affect the  Company's
     financial position or results of operations,  but such changes could have a
     material  impact on the Company's  evaluation and recognition of Section 29
     tax credits.

     PERMANENT SUBCOMMITTEE

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

     IMPACT OF CRUDE OIL PRICES

     Although  the  Internal  Revenue  Code  Section  29 tax  credit  program is
     expected to continue through 2007,  recent  unprecedented  increases in the
     price of oil could  limit the  amount of those  credits or  eliminate  them
     entirely for one or more of the years following  2004. This  possibility is
     due to a provision of Section 29 that provides that if the average wellhead
     price  per  barrel  for  unregulated  domestic  crude oil for the year (the
     Annual  Average  Price)  exceeds a certain  threshold  value (the Threshold
     Price),  the amount of Section 29 tax  credits  are  reduced for that year.
     Also,  if the Annual  Average  Price  increases  high enough (the Phase Out
     Price),  the Section 29 tax credits are eliminated for that year. For 2004,
     the  Threshold  Price was  $51.35  per  barrel  and the Phase Out Price was
     $64.47 per barrel. The Threshold Price and the Phase Out Price are adjusted
     annually for inflation.

     If the Annual Average Price falls between the Threshold Price and the Phase
     Out Price  for a year,  the  amount by which  Section  29 tax  credits  are
     reduced  will  depend  on where  the  Average  Annual  Price  falls in that
     continuum.  For example,  for 2004,  if the Annual  Average  Price had been
     $57.91 per barrel,  there would have been a 50%  reduction in the amount of
     Section 29 tax credits for that year.

                                       28
<PAGE>

     The Secretary of the Treasury  calculates the Annual Average Price based on
     the  Domestic  Crude Oil First  Purchases  Prices  published  by the Energy
     Information  Agency (EIA).  Because the EIA publishes its  information on a
     three month lag, the Secretary of the Treasury  finalizes its  calculations
     three  months after the year in question  ends.  Thus,  the Annual  Average
     Price for calendar year 2004 was published on April 6, 2005, and the Annual
     Average  Price  for  2004 did not  reach  the  Threshold  Price  for  2004.
     Consequently,  the amount of the Company's  2004 Section 29 tax credits was
     not adversely affected by oil prices.

     The Company estimates that the 2005 Threshold Prices will be approximately
     $52 and the Phase Out price will be approximately $65, based on an
     estimated 2005 inflation adjustment. The monthly Domestic Crude Oil First
     Purchases price published by the EIA has recently been $5 to $6 lower than
     the corresponding monthly New York Mercantile Exchange (NYMEX) settlement
     price for light, sweet crude oil. Through April 30, 2005, the average NYMEX
     settlement prices for light, sweet crude oil were $50.55. The Company
     estimates that NYMEX settlement prices would have to average approximately
     $63 for the remainder of 2005 for the Threshold Price to be reached.

     The Company  cannot predict with any certainty the Annual Average Price for
     2005 or beyond.  Therefore, it cannot predict whether the price of oil will
     have a material  effect on it synthetic fuel business after 2004.  However,
     if during 2005 through 2007, oil prices remain at historically  high levels
     or  increase,  the  Company's  synthetic  fuel  business  may be  adversely
     affected for those years and,  depending on the magnitude of such increases
     in oil  prices,  the adverse  affect for those years could be material  and
     could have an impact on the Company's  results of operations  and synthetic
     fuel production plans.

     In  response  to the  historically  high oil  prices  to date in 2005,  the
     Company has adjusted its planned production schedule for its synthetic fuel
     facilities  by shifting  some of its  production  planned for April and May
     2005 to the second half of 2005. If oil prices rise and stay at levels high
     enough to cause a phase out of tax credits,  the Company may reduce planned
     production  or  suspend  production  at some or all of its  synthetic  fuel
     facilities.

     SALE OF PARTNERSHIP INTEREST

     In June 2004, the Company,  through its subsidiary  Progress Fuels, sold in
     two  transactions a combined 49.8%  partnership  interest in Colona Synfuel
     Limited   Partnership,   LLLP,  one  of  its  synthetic  fuel   facilities.
     Substantially all proceeds from the sales will be received over time, which
     is  typical  of such  sales in the  industry.  Gain from the sales  will be
     recognized  on a cost  recovery  basis as the  facility  produces and sells
     synthetic  fuel  and when  there  is  persuasive  evidence  that the  sales
     proceeds have become fixed or determinable and collectability is reasonably
     assured.  Based on projected  production and tax credit levels, the Company
     anticipates  receiving total gross proceeds of approximately $24 million in
     2005,  approximately $31 million in 2006, approximately $32 million in 2007
     and  approximately  $8 million  through  the second  quarter of 2008.  Gain
     recognition  is dependent on the synthetic fuel  production  qualifying for
     Section  29 tax  credits  and the value of such tax  credits  as  discussed
     above.  Until the gain  recognition  criteria  are met,  gains from selling
     interests  in Colona will be  deferred.  It is possible  that gains will be
     deferred  in the first,  second  and/or  third  quarters of each year until
     there is  persuasive  evidence  that no tax credit phase out will occur for
     the applicable  calendar year. This could result in shifting  earnings from
     earlier  quarters to later  quarters in a calendar  year. In the event that
     the  synthetic  fuel tax  credits  from the Colona  facility  are  reduced,
     including  an increase  in the price of oil that could  limit or  eliminate
     synthetic fuel tax credits,  the amount of proceeds  realized from the sale
     could be significantly impacted.

     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 and disclosures
     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 or
     results of operation.

                                       29
<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 and the Risk
Factors  section of the Florida  Progress and  Progress  Energy  Florida  annual
report on Form 10-K for the year-ended December 31, 2004.

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 2004 Form
10-K. See Note 12 for a discussion of environmental matters.

OPERATING RESULTS

The  Company's  segments  contributed  segment  profits  or losses for the three
months ended March 31, 2005 and 2004 as follows:

---------------------------------------------------------------------
(in millions)                           Three Months Ended March 31,
Business Segment                           2005               2004
-------------------------------------------------------------------
PEF                                        $ 43               $ 49
Energy and Related Services                  10                 10
Synthetic Fuels                               -                 26
Other                                        (8)               (38)
-------------------------------------------------------------------
    Income from continuing operations        45                 47
-------------------------------------------------------------------
Discontinued operations, net of tax         (27)                 8
-------------------------------------------------------------------
    Net income                             $ 18               $ 55
-------------------------------------------------------------------

Prior to 2005, Rail Services was reported as a separate  segment.  In connection
with the  divestiture  of  Progress  Rail (see Note 3), the  operations  of Rail
Services were  reclassified to  discontinued  operations in the first quarter of
2005 and therefore are no longer a reportable  segment.  In addition,  Synthetic
Fuel  activities  were  reported in the Fuels  segment prior to 2005 and now are
considered a reportable  segment.  These reportable  segment changes reflect the
current reporting structure.  For comparative  purposes,  the prior year results
have been restated to align with the current presentation.

COST MANAGEMENT INITIATIVE

On  February  28,  2005,  as  part of a  previously  announced  cost  management
initiative, Progress Energy approved a workforce restructuring which is expected
to  be  completed  in   September  of  2005.   In  addition  to  the   workforce
restructuring,  the cost  management  initiative  includes a voluntary  enhanced
retirement  program.  In connection  with the cost  management  initiative,  the
Company and PEF expect to incur estimated pre-tax charges of approximately  $115
million.  In addition,  the Company and PEF expect to incur certain  incremental
costs other than severance and postretirement benefits for recruiting,  training
and staff augmentation activities that cannot be quantified at this time.

The Company recorded $15 million of expense during the first quarter of 2005 for
the  estimated  severance  benefits  to be paid as a result  of the  approximate
number of  positions to be  eliminated  under the  restructuring  and due to the
implementation  of an automated  meter  reading  initiative  at PEF. This amount
includes  approximately  $4 million of severance  costs  allocated from Progress
Energy Service Company.  These amounts will be paid over time and are subject to
revision  in  future  quarters  based on the  impact of the  voluntary  enhanced
retirement program.  The severance expenses are primarily included in operations
and maintenance (O&M) expense on the Consolidated Statements of Income.


                                       30
<PAGE>



The  Company  has  estimated  that an  additional  $105  million  charge will be
recognized in the second quarter of 2005 and relates primarily to postretirement
benefits that will be paid over time to those eligible  employees who elected to
participate in the voluntary enhanced retirement program. The elections indicate
that 692 of the Company's employees have elected to participate in the voluntary
enhanced  retirement  program,  which  includes  680  PEF  employees.  The  cost
management  initiative charges could change  significantly  primarily due to the
demographics of the specific  employees who elected enhanced  retirement and its
impact on the postretirement benefit actuarial studies.

PROGRESS ENERGY FLORIDA

PEF  contributed  segment  profits of $43  million  and $49 million in the three
months ended March 31, 2005 and 2004, respectively.  The decrease in profits for
the three months ended March 31, 2005 when  compared to 2004 is primarily due to
the  impact of milder  weather,  weaker  industrial  sales and higher O&M costs,
partially offset by higher wholesale sales and increased customer growth.

PEF's electric  revenues for the three months ended March 31, 2005 and 2004, and
the amount and percentage change by customer class are as follows:

---------------------------------------------------------------------
(in millions of $)                Three Months Ended March 31,
Customer Class                 2005     Change   % Change       2004
---------------------------------------------------------------------
Residential                  $  431       $ 29      7.2        $ 402
Commercial                      201         20     11.0          181
Industrial                       63          -       -            63
Governmental                     53          7     15.2           46
Retail revenue sharing           (2)         2     50.0           (4)
-----------------------------------------------             ---------
    Total retail revenues       746         58      8.4          688
Wholesale                        73          6      9.0           67
Unbilled                         (5)         1       -            (6)
Miscellaneous                    34         (1)     2.9           35
-----------------------------------------------             ---------
    Total electric revenues  $  848       $ 64      8.2        $ 784
-----------------------------------------------             ---------
Less:
-----------------------------------------------             ---------
 Pass-through revenues         (501)       (54)   (12.1)        (447)
-----------------------------------------------             ---------
Revenues excluding pass-
  through revenues           $  347         10      3.0        $ 337
---------------------------------------------------------------------

PEF's electric  energy sales for the three months ended March 31, 2005 and 2004,
and the amount and percentage change by customer class are as follows:

-------------------------------------------------------------------
(in millions of kWh)             Three Months Ended March 31,
Customer Class                2005    Change   % Change       2004
-------------------------------------------------------------------
Residential                  4,347        56      1.3        4,291
Commercial                   2,571        80      3.2        2,491
Industrial                     940       (83)    (8.1)       1,023
Governmental                   709        37      5.5          672
---------------------------------------------             ---------
    Total   retail   energy  8,567        90      1.1        8,477
sales
Wholesale                    1,338        15      1.1        1,323
Unbilled                      (103)       32       -          (135)
---------------------------------------------             ---------
    Total kWh sales          9,802       137      1.4        9,665
-------------------------------------------------------------------

Revenues

PEF's revenues,  excluding  recoverable fuel and other pass-through  revenues of
$501  million  and $447  million for the three  months  ended March 31, 2005 and
2004,  respectively,  increased $10 million.  The increase in revenues is due to
favorable  customer growth and increased  wholesale revenues of $7 million each.
Favorable  customer  growth was driven by a 35,000  increase  in average  retail
customers compared to prior year. Wholesale revenue favorability is attributable
primarily to new contracts  entered into since March 31, 2004.  These  increases
were  partially  offset by the impacts of milder  weather and weaker  industrial
sales of $3 million each.


                                       31
<PAGE>



Expenses

Fuel and Purchased Power

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

Fuel and purchased  power  expenses were $433 million for the three months ended
March 31, 2005, which represents a $43 million increase  compared to prior year.
This  increase  is due to  increases  in fuel used in  electric  generation  and
purchased  power expenses of $33 million and $10 million,  respectively.  Higher
system requirements and increased fuel costs in the current year account for $41
million of the increase in fuel used in electric  generation.  This increase was
partially  offset by a decrease  in  deferred  fuel  expense as recovery of fuel
expenses in the prior year (that were  previously  deferred) was greater than in
the current year. In December  2004,  the FPSC approved PEF's request for a cost
recovery  adjustment in its annual  filing due to the rising cost of fuel.  Fuel
recovery rates  increased  effective  January 1, 2005. The increase in purchased
power  expense was  primarily  due to higher  prices of purchases in the current
year as a result of increased fuel costs.

Operations and Maintenance (O&M)

O&M costs were $189 million for the three  months  ended March 31,  2005,  which
represents  an  increase  of $29  million,  when  compared  to the $160  million
incurred during the three months ended March 31, 2004. Severance expense related
to the cost  management  initiative  increased  O&M costs by $14 million  during
2005. In addition, PEF recorded a workers compensation  adjustment of $8 million
during 2005 as a result of an annual actuarial study. O&M expense also increased
$8 million  related to the change in Energy  Delivery  capitalization  practice.
Please see discussion of change in Energy  Delivery  capitalization  practice in
Note 8D of the Florida  Progress  annual  report on Form 10-K for the year ended
December 31, 2004.

Taxes Other than on Income

Taxes other than on income were $67 million for the three months ended March 31,
2005,  which  represents an increase of $5 million  compared to prior year. This
increase is due to increases in franchise and gross receipts taxes of $2 million
and $1 million, respectively, related to an increase in revenues and an increase
in property taxes of $1 million due to property additions.

ENERGY AND RELATED SERVICES

The  Energy  and  Related  Services'  segment  operations  include  natural  gas
production,  coal extraction and terminal  operations.  The following summarizes
Energy and Related  Services'  segment  profits for the three months ended March
31, 2005 and 2004:

------------------------------------------------------
(in millions)                           2005     2004
------------------------------------------------------
  Gas production                        $ 12     $ 13
  Coal fuel and other operations          (2)      (3)
------------------------------------------------------
     Segment Profits                    $ 10     $ 10
------------------------------------------------------

Natural Gas Operations

Natural gas operations  generated profits of $12 million and $13 million for the
three  months ended March 31, 2005 and 2004,  respectively.  The decrease in gas
earnings  compared  to prior year is  attributable  to reduced  production  as a
result of the sale of gas assets in 2004 offset  partially by higher natural gas
prices. In December 2004, the Company sold certain gas-producing  properties and
related  assets owned by Winchester  Production  Company,  Ltd., a subsidiary of
Progress Fuels (North Texas gas  operations).  The following  summarizes the gas
production, revenues and gross margins for the three months ended March 31, 2005
and 2004 by production facility:

                                       32
<PAGE>


------------------------------------------------------------
                                            2005       2004
------------------------------------------------------------
      Production in Bcf equivalent
East Texas/LA gas operations                 5.4        4.0
North Texas gas operations                     -        2.7
------------------------------------------------------------
     Total Production                        5.4        6.7
------------------------------------------------------------

          Revenues in millions
East Texas/LA gas operations                $ 33       $ 22
North Texas gas operations                     -         13
------------------------------------------------------------
     Total Production                       $ 33       $ 35
------------------------------------------------------------

              Gross Margin
In millions of $                            $ 28       $ 27
As a % of revenues                           85%        77%
------------------------------------------------------------

Coal Fuel and Other Operations

Coal fuel and other  operations  generated  segment losses of $2 million for the
three months ended March 31, 2005 compared to losses of $3 million for the three
months  ended  March 31,  2004.  The  decrease  in losses of $1  million  is due
primarily  to  increased  revenues  as a result  of  higher  coal  prices.  This
favorability  was  partially  offset by higher coal mining  costs (due to rising
prices of fuel and steel),  a workers  compensation  accrual  adjustment  booked
during 2005 and reduced  rates  related to the  waterborne  coal  transportation
settlement  in 2004.  In  addition,  results  were  unfavorably  impacted by the
severance  expense of $1 million  pre-tax  recorded in 2005  related to the cost
management initiative.

SYNTHETIC FUEL

The synthetic fuel operations  generated  segment losses of less than $1 million
for the three  months  ended March 31, 2005  compared to segment  profits of $26
million for the three months ended March 31, 2004.  The  production  and sale of
synthetic  fuel  generate  operating  losses,  but qualify for tax credits under
Section  29 of the Code,  which  typically  more than  offset the effect of such
losses. See Note 13 to the Interim Financial Statements.

The  operations  resulted in the  following for the three months ended March 31,
2005 and 2004:

------------------------------------------------------------------
(in millions)                                    2005        2004
------------------------------------------------------------------
Tons sold                                         1.1         1.9
------------------------------------------------------------------

Operating losses, excluding tax credits         $ (20)      $ (24)
Tax credits generated, net                         20          50
------------------------------------------------------------------
    Segment profits                             $   -       $  26
------------------------------------------------------------------

Synthetic fuels' earnings were negatively impacted by lower sales, forfeiture of
tax credits as a result of the sale of Progress Rail and decreased margins.  The
decrease in sales quarter over quarter is primarily  attributable to an internal
change in the quarterly  production  schedule in 2005 compared to 2004. The sale
of Progress  Rail  resulted in a capital loss for tax  purposes,  therefore  $11
million of previously  recorded tax credits were  forfeited  during the quarter.
See Note 13 for further discussion.

In response to the historically high oil prices to date in 2005, the Company has
adjusted  its  planned  production  schedule  for its  synthetic  fuel  plant by
shifting  some of its  production  planned  for April and May 2005 to the second
half of 2005. If oil prices rise and stay at levels high enough to cause a phase
out of tax  credits,  the  Company  may  reduce  planned  production  or suspend
production at some or all of its synthetic fuel facilities.

OTHER

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

Other segment profits increased $30 million for the three months ended March 31,
2005  compared  to the same  period in the prior  year.  This  increase  was due
primarily to the impact of tax  levelization  adjustments  booked each  quarter.
GAAP  requires  companies  to apply a  levelized  effective  tax rate to interim
periods that is consistent with the estimated annual effective tax rate.  Income

                                       33
<PAGE>

tax expense  was  increased  by $6 million and $33 million for the three  months
ended March 31, 2005 and 2004,  respectively,  in order to maintain an effective
tax rate consistent with the estimated  annual rate. The tax credits  associated
with the  Company's  synthetic  fuel  operations  primarily  drive the  required
levelization  amount.  Fluctuations in estimated annual earnings and tax credits
can also cause  large  swings in the  effective  tax rate for  interim  periods.
Therefore,  this adjustment  will vary each quarter,  but will have no effect on
net income for the year.

DISCONTINUED OPERATIONS

On March 24, 2005, the Company completed the sale of Progress Rail to One Equity
Partners LLC a private  equity firm unit of J.P.  Morgan Chase & Company.  Gross
cash proceeds from the sale are estimated to be $433 million, consisting of $405
million base proceeds plus an estimated  working  capital  adjustment.  Proceeds
from the sale were used to reduce debt. The  accompanying  consolidated  interim
financial  statements  have been  restated  for all  periods  presented  for the
discontinued operations of Progress Rail. See Note 3 for additional discussion.

Rail  discontinued  operations  resulted  in losses of $27 million for the three
months  ended  March 31,  2005  compared  to profits of $8 million for the three
months  ended March 31, 2004.  Earnings for 2005 include an estimated  after-tax
loss on the sale of $32 million. The Company anticipates adjustments to the loss
on the divestiture during the second quarter of 2005 related to employee benefit
settlements  and the  finalization  of  working  capital  adjustments  and other
operating estimates.  The remaining unfavorability in earnings compared to prior
year is attributable  primarily to increased  transaction  costs associated with
the sale.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows from Operations

The Company's net cash provided by operating  activities was $61 million for the
three months ended March 31, 2005, compared to $149 million for the three months
ended March 31, 2004.  The decrease in operating  cash flow was due primarily to
decreased  net  income,   increased  working  capital   requirements  and  storm
restoration expenditures at PEF, as explained below.

PEF's net cash  provided by operating  activities  was $65 million for the three
months ended March 31, 2005, compared to $202 million for the three months ended
March 31,  2004.  The  decrease  in  operating  cash flow was due  primarily  to
approximately  $62 million in storm  restoration  expenditures and a $57 million
increase in working capital requirements, largely driven by timing of income tax
payments.

Investing Activities

The Company's net cash provided by investing activities was $206 million for the
three months ended March 31, 2005, compared to cash used in investing activities
of $77 million for the three months ended March 31, 2004. The increase is due to
proceeds of $405 million from the sale of Progress Rail (See Note 3).

PEF's net cash  used in  investing  activities  was $163  million  for the three
months ended March 31, 2005, compared to $121 million for the three months ended
March 31, 2004.  The increase in cash used in investing  activities is primarily
due to nuclear fuel additions related to a planned outage later in 2005.

Financing Activities

In January 2005, PEF used proceeds from the issuance of commercial  paper to pay
off $170 million of revolving  credit  agreement (RCA) loans.  PEF  subsequently
used money pool borrowings to reduce commercial paper  outstanding.  In February
2005, PEF used proceeds from money pool borrowings to pay off $55 million of RCA
loans.


                                       34
<PAGE>



On March 28, 2005, PEF entered into a new $450 million RCA with a syndication of
financial  institutions.  The RCA will be used to provide  liquidity support for
PEF's issuances of commercial  paper and other short-term  obligations.  The RCA
will expire on March 28,  2010.  The new $450  million RCA  replaced  PEF's $200
million  three-year RCA and $200 million 364-day RCA, which were each terminated
effective March 28, 2005. Fees and interest rates under the $450 million RCA are
to be  determined  based upon the  credit  rating of PEF's  long-term  unsecured
senior  non-credit  enhanced  debt,  currently  rated as A3 by Moody's  Investor
Services  (Moody's)  and BBB by Standard  and Poor's  (S&P).  The RCA includes a
defined  maximum  total  debt to  capital  ratio of 65%.  The RCA also  contains
various   cross-default   and  other   acceleration   provisions,   including  a
cross-default  provision for defaults of  indebtedness in excess of $35 million.
The RCA does not include a material adverse change representation for borrowings
or a financial covenant for interest coverage,  which had been provisions in the
terminated agreements.

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

Future Liquidity and Capital Resources

On April 29, 2005, PEF made its initial filing with the FPSC seeking annual base
revenue  increase of $206 million (See Note 4). Hearings for this proceeding are
expected to occur during the third quarter of 2005. A final ruling from the FPSC
is expected in December 2005 with new rates in effect January 2006.

PEF's  petition for  recovery of $252  million of storm costs is  scheduled  for
final order July 5, 2005. PEF has filed for a two-year recovery of storm costs.

On May 4,  2005,  a bill was  approved  by the  Florida  Legislature  that would
authorize the FPSC to consider allowing the state's investor-owned  utilities to
issue bonds that are secured by  surcharges  on utility  customer  bills.  These
bonds would be issued for  recovery of storm  damage  costs and  potentially  to
restore depleted storm reserves. The amount of funds established for recovery is
subject  to the review and  approval  of the FPSC.  The bill will now be sent to
Governor Bush for his consideration. The Governor has indicated that he supports
the bill. The Company cannot predict the outcome of this matter.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

The Company and PEF's off-balance sheet arrangements and contractual obligations
are described below.

Guarantees

At March 31, 2005,  the Company had issued  guarantees and  indemnifications  of
certain legal, tax and environmental matters to third parties in connection with
sales of  businesses  and for timely  payment of  obligations  in support of its
non-wholly owned synthetic fuel operations.  Related to the sales of businesses,
the notice period extends until 2012 for the majority of matters provided for in
the  indemnification  provisions.  For matters  which the  Company has  received
timely notice, the Company's indemnity  obligations may extend beyond the notice
period. Certain environmental  indemnifications related to the sale of synthetic
fuel  operations  have no  limitations  as to time or maximum  potential  future
payments.  Other  guarantees  and  indemnifications  have an  estimated  maximum
exposure of  approximately  $111  million.  At March 31,  2005,  the Company has
recorded liabilities related to guarantees and indemnifications to third-parties
of  $22  million.   Management  does  not  believe  conditions  are  likely  for
significant  performance  under  these  agreements  in  excess  of the  recorded
liabilities.

Market Risk and Derivatives

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.


                                       35
<PAGE>



The Company and PEF may use a variety of instruments,  including swaps,  options
and forward  contracts,  to manage exposure to fluctuations in commodity  prices
and interest rates. See Note 8 for a discussion of market risk and derivatives.

Contractual Obligations

As of March 31, 2005, the Company's and PEF's  contractual  cash obligations and
other commercial  commitments have not changed materially from what was reported
in the 2004 Annual Report on Form 10-K.

NEW ACCOUNTING STANDARDS

See Note 2 to the  Financial  Statements  for a  discussion  of the  anticipated
impact of new accounting standards.


                                       36
<PAGE>




Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Item 4. CONTROLS AND PROCEDURES

Florida Progress Corporation

Pursuant to the Securities Exchange Act of 1934, Florida Progress carried out an
evaluation,  and with the  participation  of its management,  including  Florida
Progress'  Chief  Executive  Officer  and  Chief  Financial   Officer,   of  the
effectiveness  of Florida  Progress'  disclosure  controls  and  procedures  (as
defined under the  Securities  Exchange Act of 1934) as of the end of the period
covered by this report.  Based upon that  evaluation,  Florida  Progress'  Chief
Executive  Officer and Chief  Financial  Officer  concluded  that its disclosure
controls and procedures are effective to ensure that information  required to be
disclosed by Florida Progress  (including its consolidated  subsidiaries) in the
reports that it files or submits under the Exchange Act, is recorded, processed,
summarized  and reported,  within the time periods  specified in the SEC's rules
and forms,  and that such information is accumulated and communicated to Florida
Progress' management,  including the Chief Executive Officer and Chief Financial
Officer,   as  appropriate,   to  allow  timely  decisions   regarding  required
disclosure.

There has been no change in Florida  Progress'  internal  control over financial
reporting during the quarter ended March 31, 2005, that has materially affected,
or is reasonably likely to materially affect, Florida Progress' internal control
over financial reporting.


Progress Energy Florida, Inc.

Pursuant to the Securities  Exchange Act of 1934, PEF carried out an evaluation,
and with the  participation  of its management,  including PEF's Chief Executive
Officer and Chief Financial  Officer,  of the  effectiveness of PEF's disclosure
controls and procedures  (as defined under the Securities  Exchange Act of 1934)
as of the end of the period covered by this report.  Based upon that evaluation,
PEF's Chief  Executive  Officer and Chief Financial  Officer  concluded that its
disclosure  controls and  procedures  are  effective to ensure that  information
required to be disclosed  by PEF in the reports  that it files or submits  under
the Exchange Act, is recorded,  processed,  summarized and reported,  within the
time periods  specified in the SEC's rules and forms,  and that such information
is  accumulated  and  communicated  to PEF's  management,  including  the  Chief
Executive Officer and Chief Financial Officer,  as appropriate,  to allow timely
decisions regarding required disclosure.

There has been no change in PEF's  internal  control  over  financial  reporting
during the quarter ended March 31, 2005,  that has  materially  affected,  or is
reasonably  likely to materially  affect,  PEF's internal control over financial
reporting.



                                       37
<PAGE>



                           PART II. OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

Legal aspects of certain matters are set forth in Part I, Item 1. See Note 13 to
the Company's Consolidated Interim Financial Statements.

Item 6.  EXHIBITS

(a) Exhibits:

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
    Exhibit                                                              Florida Progress        Progress Energy
     Number                          Description                           Corporation            Florida, Inc.

     31(a)        Certifications pursuant to Section 302 of the                 X                       X
                  Sarbanes-Oxley Action of 2002 - Chairman 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>






                                       38
<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:  May 6, 2005                   By:  /s/ Geoffrey Chatas
                                          -------------------
                                     Geoffrey Chatas
                                     Executive Vice President and
                                     Chief Financial Officer





                                     By:  /s/Robert H. Bazemore, Jr.
                                          --------------------------
                                     Robert H. Bazemore, Jr.
                                     Controller and Chief Accounting Officer -
                                     Florida Progress Energy Corporation
                                     Controller - Florida Power Corporation




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