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

                                   FORM 10-K/A
                                (Amendment No. 1)
    (Mark One)
      [ X ]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2002
                                       OR

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

              For the transition period from       to      .
                                             -----    -----
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                       Exact name of registrant as specified in its charter,
Commission             state of incorporation, address of principal executive         I.R.S. Employer
File Number                        offices, and telephone number                   Identification Number

   1-3382                          Carolina Power & Light Company                       56-0165465
                               d/b/a Progress Energy Carolinas, Inc.
                                    410 South Wilmington Street
                                 Raleigh, North Carolina 27601-1748
                                     Telephone: (919) 546-6111
                               State of Incorporation: North Carolina
</TABLE>

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
         Carolina Power & Light Company:     None


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           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
         Carolina Power & Light Company:     $100 par value Preferred Stock, Cumulative
                                             $100 par value Serial Preferred Stock, Cumulative
</TABLE>

Indicate by check mark  whether the  registrant  (1) has filed all reports 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 if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in PART III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act).  Yes     No  X .
                                       ----    ---

As of June 30, 2002, the aggregate market value of the common equity of Carolina
Power & Light Company held by non-affiliates  was $0. All of the common stock of
Carolina Power & Light Company is owned by Progress Energy, Inc.

As of August 8, 2003, the  registrant  had the following  shares of common stock
outstanding:

        Registrant                         Description                Shares
        ----------                         -----------                ------
Carolina Power & Light Company   Common Stock (Without Par Value)   159,608,055



                                       1
<PAGE>

                                Explanatory Note

This  amendment on Form 10-K/A amends  Carolina Power & Light  Company's  annual
report on Form 10-K for the fiscal year ended  December 31,  2002,  as initially
filed with the  Securities  and Exchange  Commission  on March 21, 2003,  and is
being filed to reflect certain  revisions to the December 31, 2002  consolidated
statement  of cash  flows.  Carolina  Power  & Light  Company  has  revised  its
statement  of cash  flows  for the  year  ended  December  31,  2002 in order to
reclassify the proceeds from the transfer of assets to Progress Ventures,  Inc.,
a subsidiary of Progress  Energy,  Inc., from Operating  Activities to Investing
Activities.   The  proceeds  totaled   approximately  $243.7  million  and  were
reclassified  from  net  (increase)   decrease  in  accounts  receivable  within
Operating  Activities to proceeds  from transfer of assets to affiliates  within
Investing  Activities on the accompanying  consolidated  statement of cash flows
for the year ended December 31, 2002. Cash and cash equivalents remain unchanged
by this classification for all periods presented.  Such  reclassification has no
impact on  Carolina  Power & Light  Company's  financial  position or results of
operations  as of or for the year ended  December 31,  2002.  There have been no
other revisions to Carolina Power & Light Company's  consolidated  statements of
income and  comprehensive  income,  consolidated  balance  sheets,  consolidated
statements of cash flows, consolidated schedules of capitalization, consolidated
statements of retained earnings,  consolidated  quarterly  financial data or the
footnotes thereto.  This  reclassification  does not impact historical financial
data originally filed by its parent company, Progress Energy, Inc.

The following Item of the Original Filing is revised by this filing:

Item 8.      Consolidated Financial Statements and Supplementary Data



                                       2
<PAGE>

                   SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

The matters discussed  throughout this Form 10-K/A 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.

Any forward-looking statement speaks only as of the date on which such statement
is  made,   and  CP&L  does  not   undertake   any   obligation  to  update  any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made.

Examples of factors that you should consider with respect to any forward-looking
statements made throughout  this document  include,  but are not limited to, the
following:  the impact of fluid and  complex  government  laws and  regulations,
including those relating to the environment;  the impact of recent events in the
energy markets that have  increased the level of public and regulatory  scrutiny
in the energy industry and in the capital markets; deregulation or restructuring
in  the  electric  industry  that  may  result  in  increased   competition  and
unrecovered (stranded) costs; the uncertainty regarding the timing, creation and
structure  of  regional  transmission  organizations;  weather  conditions  that
directly  influence  the demand  for  electricity  and  natural  gas;  recurring
seasonal fluctuations in demand for electricity and natural gas; fluctuations in
the price of energy commodities and purchased power;  economic  fluctuations and
the corresponding impact on the Company's  commercial and industrial  customers;
the impact on the  facilities and the businesses of the Company from a terrorist
attack; the inherent risks associated with the operation of nuclear  facilities,
including environmental,  health, regulatory and financial risks; the ability to
successfully  access  capital  markets  on  favorable  terms;  the  impact  that
increases  in leverage  may have on the  Company;  the ability of the Company to
maintain its current credit ratings;  the impact of derivative contracts used in
the normal course of business by the Company;  the continued  depressed state of
the  telecommunications  industry and the  Company's  ability to realize  future
returns from Caronet,  Inc.;  the Company's  ability to  successfully  integrate
newly acquired  assets,  properties or businesses into its operations as quickly
or as profitably as expected;  and unanticipated  changes in operating  expenses
and capital  expenditures.  Many of these risks  similarly  impact the Company's
subsidiaries.

These and other risk factors are detailed from time to time in the Company's SEC
reports.  Many,  but not all of the factors that may impact  actual  results are
discussed in the "Risk Factors"  sections of CP&L's Form 10-K for the year ended
December 31, 2002. You should carefully read the "Risk Factors" sections of such
report.  All such factors are difficult to predict,  contain  uncertainties that
may materially affect actual results, and may be beyond the control of CP&L. 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
CP&L.

                                       3
<PAGE>



ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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The following consolidated financial statements, supplementary data and
consolidated financial statement schedules are included herein:

Carolina Power & Light Company                                                                  Page
Independent Auditors' Report                                                                      5

Consolidated Financial Statements - Carolina Power & Light Company:

Consolidated Statements of Income and Comprehensive Income for the Years Ended
   December 31, 2002, 2001, and 2000                                                              6
Consolidated Balance Sheets as of December 31, 2002 and 2001                                      7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001
   and 2000                                                                                       8
Consolidated Schedules of Capitalization as of December 31, 2002 and 2001                         9
Consolidated Statements of Retained Earnings for the Years Ended December 31, 2002, 2001
   and 2000                                                                                       9
Consolidated Quarterly Financial Data (Unaudited)                                                 9

Notes to Consolidated Financial Statements                                                       10

Independent Auditors' Report on Consolidated Financial Statement Schedule - Carolina Power &
   Light Company                                                                                 35

Consolidated Financial Statement Schedules for the Years Ended December 31,
   2002, 2001 and 2000:

Schedule II-Valuation and Qualifying Accounts - Carolina Power & Light Company                   36
</TABLE>

All other  schedules  have been  omitted as not  applicable  or not  required or
because the  information  required  to be shown is included in the  Consolidated
Financial  Statements or the accompanying  Notes to the  Consolidated  Financial
Statements.


                                       4
<PAGE>


INDEPENDENT AUDITORS' REPORT


TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF CAROLINA POWER & LIGHT COMPANY:

We have audited the  accompanying  consolidated  balance sheets and schedules of
capitalization of Carolina Power & Light Company and its subsidiaries  (CP&L) as
of December 31, 2002 and 2001, and the related consolidated statements of income
and  comprehensive  income,  retained  earnings,  and cash flows for each of the
three years in the period ended December 31, 2002.  These  financial  statements
are the responsibility of CP&L's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects, the financial position of CP&L at December 31, 2002 and 2001,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2002, in conformity with accounting  principles
generally accepted in the United States of America.


/s/ DELOITTE & TOUCHE LLP
Raleigh, North Carolina
February 12, 2003


                                       5

<PAGE>

CAROLINA POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS of INCOME and COMPREHENSIVE INCOME
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                                                                            Years ended December 31,
(In thousands)                                                         2002            2001            2000
---------------------------------------------------------------------------------------------------------------
Operating Revenues
   Electric                                                        $ 3,538,957     $ 3,343,720     $ 3,308,215
   Natural gas                                                               -               -         147,448
   Diversified business                                                 14,863          16,441          72,783
---------------------------------------------------------------------------------------------------------------
      Total Operating Revenues                                       3,553,820       3,360,161       3,528,446
---------------------------------------------------------------------------------------------------------------
Operating Expenses
   Fuel used in electric generation                                    761,379         647,263         627,463
   Purchased power                                                     347,420         353,551         325,366
   Gas purchased for resale                                                  -               -         103,734
   Operation and maintenance                                           792,660         701,703         741,466
   Depreciation and amortization                                       523,846         521,910         708,249
   Taxes other than on income                                          157,568         149,719         148,037
   Diversified business                                                115,733           9,985         135,258
---------------------------------------------------------------------------------------------------------------
        Total Operating Expenses                                     2,698,606       2,384,131       2,789,573
---------------------------------------------------------------------------------------------------------------
Operating Income                                                       855,214         976,030         738,873
---------------------------------------------------------------------------------------------------------------
Other Income (Expense)
   Interest income                                                       6,868          13,728          17,420
   Gain on sale of investment                                                -               -         200,000
   Impairment of investment                                            (25,011)       (156,712)              -
   Other, net                                                           12,757          (4,155)         17,089
---------------------------------------------------------------------------------------------------------------
        Total Other Income (Expense)                                   (5,386)        (147,139)        234,509
---------------------------------------------------------------------------------------------------------------
Interest Charges
   Interest charges                                                    217,010         257,141         240,620
   Allowance for borrowed funds used during construction                (5,474)        (15,714)        (18,537)
---------------------------------------------------------------------------------------------------------------
        Total Interest Charges, Net                                    211,536         241,427         222,083
---------------------------------------------------------------------------------------------------------------
Income before Income Taxes                                             638,292         587,464         751,299
Income Tax Expense                                                     207,360         223,233         290,271
---------------------------------------------------------------------------------------------------------------
Net Income                                                             430,932         364,231         461,028
Preferred Stock Dividend Requirement                                     2,964           2,964           2,966
---------------------------------------------------------------------------------------------------------------
Earnings for Common Stock                                          $   427,968     $   361,267     $   458,062
---------------------------------------------------------------------------------------------------------------

Comprehensive Income, Net of Tax:
   Net Income                                                      $   430,932     $   364,231     $   461,028
   SFAS No. 133 transition adjustment (net of tax of $474)                   -            (738)              -
   Change in net unrealized losses on cash flow hedges (net of
       tax of $9,080 and $7,565, respectively)                         (14,144)        (11,784)              -
   Reclassification adjustment for amounts included in net
       income (net of tax of $7,583 and $3,515, respectively)           11,811           5,476               -
   Minimum pension liability adjustment (net of tax of $47,317)        (73,390)              -               -
---------------------------------------------------------------------------------------------------------------
Comprehensive Income                                               $   355,209     $   357,185     $   461,028
---------------------------------------------------------------------------------------------------------------
</TABLE>


See Carolina Power & Light Company Notes to Consolidated Financial Statements.

                                       6
<PAGE>

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CAROLINA POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)                                                                    December 31,
Assets                                                                  2002                       2001
----------------------------------------------------------------------------------------------------------------
Utility Plant
  Utility plant in service                                             $ 12,675,761                $ 12,024,291
  Accumulated depreciation                                               (6,356,933)                 (5,952,206)
----------------------------------------------------------------------------------------------------------------
        Utility plant in service, net                                     6,318,828                   6,072,085
  Held for future use                                                         7,188                       7,105
  Construction work in progress                                             325,695                     711,129
  Nuclear fuel, net of amortization                                         176,622                     200,332
----------------------------------------------------------------------------------------------------------------
        Total Utility Plant, Net                                          6,828,333                   6,990,651
----------------------------------------------------------------------------------------------------------------
Current Assets
  Cash and cash equivalents                                                  18,284                      21,250
  Accounts receivable                                                       301,178                     302,781
  Unbilled accounts receivable                                              151,352                     136,514
  Receivables from affiliated companies                                      36,870                      26,182
  Notes receivable from affiliated companies                                 49,772                         998
  Taxes receivable                                                            5,890                      17,543
  Inventory                                                                 342,886                     372,725
  Deferred fuel cost                                                        146,015                     131,505
  Prepayments and other current assets                                       94,658                      78,056
----------------------------------------------------------------------------------------------------------------
        Total Current Assets                                              1,146,905                   1,087,554
----------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
  Regulatory assets                                                         252,083                     277,550
  Nuclear decommissioning trust funds                                       423,293                     416,721
  Diversified business property, net                                          9,435                     111,802
  Miscellaneous other property and investments                              209,657                     224,101
  Other assets and deferred debits                                          104,978                     150,306
----------------------------------------------------------------------------------------------------------------

        Total Deferred Debits and Other Assets                              999,446                   1,180,480
----------------------------------------------------------------------------------------------------------------

           Total Assets                                                $  8,974,684                $  9,258,685
----------------------------------------------------------------------------------------------------------------

Capitalization and Liabilities
----------------------------------------------------------------------------------------------------------------
Capitalization (see consolidated schedules of capitalization)
----------------------------------------------------------------------------------------------------------------
  Common stock                                                         $  3,089,115                $  3,095,456
  Preferred stock - not subject to mandatory redemption                      59,334                      59,334
  Long-term debt, net                                                     3,048,466                   2,698,318
----------------------------------------------------------------------------------------------------------------
        Total Capitalization                                              6,196,915                   5,853,108
----------------------------------------------------------------------------------------------------------------
Current Liabilities
  Current portion of long-term debt                                               -                     600,000
  Accounts payable                                                          259,217                     300,829
  Payables to affiliated companies                                           98,572                     106,114
  Notes payable to affiliated companies                                           -                      47,913
  Interest accrued                                                           58,791                      61,124
  Short-term obligations                                                    437,750                     260,535
  Current portion of accumulated deferred income taxes                       66,088                      67,975
  Other current liabilities                                                  93,171                     140,670
----------------------------------------------------------------------------------------------------------------
        Total Current Liabilities                                         1,013,589                   1,585,160
----------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
  Accumulated deferred income taxes                                       1,179,689                   1,316,823
  Accumulated deferred investment tax credits                               158,308                     170,302
  Regulatory liabilities                                                      7,774                       7,494
  Other liabilities and deferred credits                                    418,409                     325,798
----------------------------------------------------------------------------------------------------------------
        Total Deferred Credits and Other Liabilities                      1,764,180                   1,820,417
----------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 18)
----------------------------------------------------------------------------------------------------------------
            Total Capitalization and Liabilities                       $  8,974,684                $  9,258,685
----------------------------------------------------------------------------------------------------------------
See Carolina Power & Light Company Notes to Consolidated Financial Statements.
</TABLE>

                                       7
<PAGE>
<TABLE>
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CAROLINA POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS of CASH FLOWS
                                                                                           Years ended December 31,
(In thousands)                                                                         2002           2001            2000
---------------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income                                                                          $   430,932    $   364,231       $   461,028
Adjustments to reconcile net income to net cash provided by operating activities:
      Impairment of long-lived assets and investments                                   126,262        156,712                 -
      Depreciation and amortization                                                     631,401        616,206           803,211
      Deferred income taxes                                                             (81,916)      (149,895)          (83,554)
      Investment tax credit                                                             (11,994)       (14,928)           (4,511)
      Gain on sale of assets                                                                  -              -          (200,000)
      Deferred fuel credit                                                              (14,510)       (11,652)          (40,763)
      Net (increase) decrease in accounts receivable                                    (21,426)       304,106          (185,640)
      Net (increase) decrease in inventories                                              9,998       (139,854)           (3,699)
      Net (increase) decrease in prepayments and other current assets                   (14,953)        21,679            87,575
      Net increase (decrease) in accounts payable                                        20,490       (261,606)          314,267
      Net increase (decrease) in other current liabilities                               (2,332)        52,704           146,802
      Other                                                                              51,801         47,140            26,019
---------------------------------------------------------------------------------------------------------------------------------
         Net Cash Provided by Operating Activities                                    1,123,753        984,843         1,320,735
---------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Gross property additions                                                               (624,202)      (823,952)         (821,991)
Nuclear fuel additions                                                                  (80,515)       (72,576)          (59,752)
Proceeds from assets transferred to affiliate                                           243,719              -                 -
Proceeds from sale of assets                                                                  -              -           200,000
Contributions to nuclear decommissioning trust                                          (30,708)       (30,678)          (30,727)
Diversified business property additions                                                 (11,836)       (13,500)          (56,489)
Investments in non-utility activities                                                   (17,053)       (32,674)         (111,516)
---------------------------------------------------------------------------------------------------------------------------------
         Net Cash Used in Investing Activities                                         (520,595)      (973,380)         (880,475)
---------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt                                                542,290        296,124           783,052
Net increase (decrease) in short-term obligations                                       177,215       (225,762)          123,697
Net increase (decrease) in intercompany notes                                           (96,687)       187,560          (275,628)
Retirement of long-term debt                                                           (806,809)      (134,611)         (695,163)
Equity contribution from parent                                                               -        115,000                 -
Dividends paid to parent                                                               (396,680)      (255,630)                -
Dividends paid on preferred stock                                                        (2,964)        (2,964)           (2,966)
Dividends paid on common stock                                                                -              -          (432,325)
Other                                                                                   (22,489)             -            21,027
---------------------------------------------------------------------------------------------------------------------------------
         Net Cash Used in Financing Activities                                         (606,124)       (20,283)         (478,306)
---------------------------------------------------------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents                                                (2,966)        (8,820)          (38,046)
---------------------------------------------------------------------------------------------------------------------------------
Decrease in Cash from Stock Distribution (See Note 1A)                                        -              -           (11,755)
Cash and Cash Equivalents at Beginning of Year                                           21,250         30,070            79,871
---------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year                                            $    18,284    $    21,250       $    30,070
---------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the year - interest (net of amount capitalized)                    $   208,283    $   230,828       $   205,250
                            income taxes (net of refunds)                           $   319,973    $   395,433       $   434,908
Noncash Investing and Financing Activities
o    On June 28,  2000,  Caronet,  Inc.,  a  wholly  owned  subsidiary  of CP&L,
     contributed  net assets in the amount of $93 million in exchange  for a 35%
     ownership interest (15% voting interest) in a newly formed company.
o    On July 1, 2000, CP&L  distributed  its ownership  interest in the stock of
     North Carolina Natural Gas Corporation, Strategic Resource Solutions Corp.,
     Monroe Power Company and Progress Ventures,  Inc. to Progress Energy,  Inc.
     This  resulted in a noncash  dividend to its parent of  approximately  $556
     million (See Note 1A).
o    In  January  2001,  CP&L  transferred  certain  assets,  through  a noncash
     dividend to parent in the amount of $19 million, to Progress Energy Service
     Company, LLC.
o    In February 2002, CP&L  transferred  the Rowan plant to Progress  Ventures,
     Inc. and established an intercompany receivable. The property and inventory
     transferred  totaled  approximately  $244  million.  In  April  2002,  CP&L
     received  cash  proceeds  in  settlement  of  the  intercompany  receivable
     totaling  approximately  $244 million.  This amount is reported in proceeds
     from assets transferred to affiliates in the investing activities section.
See Carolina Power & Light Company Notes to Consolidated Financial Statements.
</TABLE>

                                       8
<PAGE>
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CAROLINA POWER & LIGHT COMPANY
CONSOLIDATED SCHEDULES of CAPITALIZATION

                                                                                                   December 31,
 (In thousands except share data)                                                          2002                  2001
      -------------------------------------------------------------------------------------------------------------------
      Common Stock Equity
      Common stock without par value, authorized 200,000,000 shares,
           159,608,055 shares issued and outstanding at December 31                       $ 1,929,515        $ 1,904,246
      Unearned ESOP common stock                                                             (101,560)          (114,385)
      Accumulated other comprehensive loss                                                    (82,769)            (7,046)
      Retained earnings                                                                     1,343,929          1,312,641
      -------------------------------------------------------------------------------------------------------------------
              Total Common Stock Equity                                                   $ 3,089,115        $ 3,095,456
      -------------------------------------------------------------------------------------------------------------------
      Preferred Stock - not subject to mandatory redemption
      Authorized - 300,000 shares, cumulative, $100 par value Preferred
           Stock; 20,000,000 shares, cumulative, $100 par value Serial
            Preferred Stock
               $5.00 Preferred - 236,997 shares (redemption price $110.00)                $    24,349        $    24,349
               $4.20 Serial Preferred - 100,000 shares outstanding
                   redemption price $102.00)                                                   10,000             10,000
               $5.44 Serial Preferred -249,850 shares (redemption price
                   $101.00)                                                                    24,985             24,985
      -------------------------------------------------------------------------------------------------------------------
             Total Preferred Stock                                                        $    59,334        $    59,334
      -------------------------------------------------------------------------------------------------------------------
      Long-Term Debt (maturities and weighted-average interest rates as
           of December 31, 2002)
      First mortgage bonds, maturing 2004-2023                              6.92%         $ 1,550,000        $ 1,800,000
      Pollution control obligations, maturing 2010-2024                     1.86%             707,800            707,800
      Unsecured notes, maturing 2012                                        6.50%             500,000                  -
      Extendible notes, maturing 2002                                            -                  -            500,000
      Medium-term notes, maturing 2008                                      6.65%             300,000            300,000
      Miscellaneous notes                                                   6.44%               6,910              7,234
      Unamortized premium and discount, net                                                   (16,244)           (16,716)
      Current portion of long-term debt                                                             -           (600,000)
      -------------------------------------------------------------------------------------------------------------------
           Total Long-Term Debt, Net                                                        3,048,466          2,698,318
      -------------------------------------------------------------------------------------------------------------------
              Total Capitalization                                                        $ 6,196,915        $ 5,853,108
      -------------------------------------------------------------------------------------------------------------------
</TABLE>

CONSOLIDATED STATEMENTS of RETAINED EARNINGS
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                                                                            Years ended December 31
(In thousands)                                                      2002            2001              2000
--------------------------------------------------------------------------------------------------------------
Retained Earnings at Beginning of Year                          $ 1,312,641     $ 1,226,144      $ 1,807,345
Net income                                                          430,932         364,231          461,028
Preferred stock dividends at stated rates                            (2,964)         (2,964)          (2,966)
Common stock dividends                                             (396,680)       (274,770)      (1,039,263)
--------------------------------------------------------------------------------------------------------------
Retained Earnings at End of Year                                $ 1,343,929     $ 1,312,641      $ 1,226,144
--------------------------------------------------------------------------------------------------------------

    CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)

(In thousands)                                 First Quarter    Second Quarter     Third Quarter     Fourth Quarter
-----------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2002
Operating revenues                                 $ 814,871         $ 838,092      $ 1,049,484          $ 851,373
Operating income                                     193,185           210,022          240,051            211,956
Net income                                            85,119           131,152           94,139            120,522
-----------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2001
Operating revenues                                 $ 826,603         $ 783,379      $   976,891          $ 773,288
Operating income                                     231,641           184,390          322,477            237,522
Net income (loss)                                    120,845            84,879          167,874            (9,367)
</TABLE>

o    In the opinion of management,  all adjustments  necessary to fairly present
     amounts shown for interim periods have been made. Results of operations for
     an interim period may not give a true indication of results for the year.
o    Fourth  quarter  2001  includes  impairment  and other  charges  related to
     Interpath  Communications,  Inc. of $156.7 million ($107.2  million,  after
     tax) (See Note 5).
o    Third  quarter  2002  includes  impairment  and other  charges  related  to
     Caronet, Inc. and Interpath  Communications,  Inc. of $133.3 million ($87.4
     million, after tax) (See Note 5).
See Carolina Power & Light Company Notes to Consolidated Financial Statements.

                                       9
<PAGE>

CAROLINA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Organization and Summary of Significant Accounting Policies

     A. Organization

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

     On July 1, 2000, CP&L  distributed  its ownership  interest in the stock of
     North Carolina Natural Gas Corporation (NCNG), Strategic Resource Solutions
     Corp.  (SRS),  Monroe Power Company  (Monroe Power) and Progress  Ventures,
     Inc.  (PVI)  to the  Company.  As a  result,  those  companies  are  direct
     subsidiaries  of Progress  Energy and are not included in CP&L's results of
     operations and financial position subsequent to July 1, 2000.

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

     B. Basis of Presentation

     The  consolidated  financial  statements  are prepared in  accordance  with
     accounting  principles  generally  accepted in the United States of America
     (GAAP)  and  include  the   activities  of  CP&L  and  its   majority-owned
     subsidiaries.  Significant intercompany balances and transactions have been
     eliminated in  consolidation  except as permitted by Statement of Financial
     Accounting  Standards (SFAS) No. 71, "Accounting for the Effects of Certain
     Types of Regulation,"  which provides that profits on intercompany sales to
     regulated  affiliates  are not  eliminated if the sales price is reasonable
     and the future  recovery of the sales price through the ratemaking  process
     is probable.

     The accounting records are maintained in accordance with uniform systems of
     accounts prescribed by the Federal Energy Regulatory Commission (FERC), the
     North  Carolina   Utilities   Commission  (NCUC)  and  the  Public  Service
     Commission of South Carolina (SCPSC).

     Unconsolidated  investments  in  companies  over  which  CP&L does not have
     control,  but has the  ability to exercise  influence  over  operating  and
     financial policies (generally, 20% - 50% voting interest) are accounted for
     under the  equity  method  of  accounting.  Other  investments  are  stated
     principally  at cost.  These  equity  and  cost  investments,  which  total
     approximately  $95.0  million and $114.3  million at December  31, 2002 and
     2001, respectively,  are included as miscellaneous property and investments
     in the Consolidated  Balance Sheets.  The primary component of this balance
     is CP&L's  investments  in  affordable  housing of $63.4  million and $54.3
     million as of  December  31, 2002 and 2001,  respectively.  Included in the
     December  31, 2001  investment  balance is CP&L's  investment  in Interpath
     Communications, Inc. of $27.0 million (See Note 5).

     Certain amounts for 2001 and 2000 have been  reclassified to conform to the
     2002 presentation.

     C. Use of Estimates and Assumptions

     In  preparing  consolidated  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  consolidated  financial  statements  and
     amounts of revenues and expenses  reflected  during the  reporting  period.
     Actual results could differ from those estimates.


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<PAGE>

     D. Utility Plant

     Utility  plant in service  is stated at  historical  cost less  accumulated
     depreciation.  CP&L capitalizes all  construction-related  direct labor and
     material costs of units of property as well as indirect construction costs.
     The costs of renewals and betterments are also capitalized. Maintenance and
     repairs of property,  and  replacements and renewals of items determined to
     be less than  units of  property,  are  charged to  maintenance  expense as
     incurred. The cost of units of property replaced,  renewed or retired, plus
     removal  or  disposal  costs,  less  salvage,  is  charged  to  accumulated
     depreciation. Generally, electric utility plant, other than nuclear fuel is
     pledged as collateral for the first mortgage bonds of CP&L (See Note 6).

     The balances of utility  plant in service at December 31 are listed  below,
     with a range of depreciable lives for each:

     (in thousands)                                2002               2001
                                             ---------------    --------------

     Production plant  (7-33 years)             $ 7,629,539       $ 7,301,225
     Transmission plant  (30-75 years)            1,128,097         1,092,024
     Distribution plant  (12-50 years)            3,344,662         3,063,753
     General plant and other (8-75 years)           573,463           567,289
                                             ---------------    --------------
     Utility plant in service                  $ 12,675,761      $ 12,024,291
                                             ===============    ==============

     Allowance  for  funds  used  during  construction  (AFUDC)  represents  the
     estimated  debt and equity costs of capital funds  necessary to finance the
     construction  of new regulated  assets.  As  prescribed  in the  regulatory
     uniform systems of accounts, AFUDC is charged to the cost of the plant. The
     equity funds  portion of AFUDC is credited to other income and the borrowed
     funds  portion is  credited  to interest  charges.  Regulatory  authorities
     consider AFUDC an appropriate  charge for inclusion in the rates charged to
     customers by the utilities over the service life of the property. The total
     equity  funds  portion of AFUDC was $6.4  million,  $8.8  million and $14.5
     million in 2002, 2001 and 2000, respectively.  The composite AFUDC rate for
     CP&L's  electric  utility  plant was 6.2% in both 2002 and 2001 and 8.2% in
     2000.

     E. Depreciation and Amortization - Utility Plant

     For financial reporting purposes, substantially all depreciation of utility
     plant other than nuclear fuel is computed on the straight-line method based
     on the  estimated  remaining  useful  life of the  property,  adjusted  for
     estimated net salvage.  Depreciation provisions,  including decommissioning
     costs (See Note 1G) and  excluding  accelerated  cost  recovery  of nuclear
     generating assets, as a percent of average depreciable  property other than
     nuclear fuel, were approximately 3.8% in 2002, 2001 and 2000.  Depreciation
     and  decommissioning  provisions,   including  accelerated  cost  recovery,
     totaled $504.5 million, $504.9 million and $688.8 million in 2002, 2001 and
     2000, respectively.

     With  approval  from the  NCUC and the  SCPSC,  CP&L  accelerated  the cost
     recovery of its nuclear generating assets beginning January 1, 2000. During
     2002,  the NCUC and the SCPSC  approved  modifications  to  CP&L's  ongoing
     accelerated  cost  recovery  of its  nuclear  generating  assets  including
     extension  of the  recovery  period.  Cumulative  accelerated  depreciation
     ranging  from $530 million to $750 million will be recorded by December 31,
     2009. The accelerated  cost recovery of these assets resulted in additional
     depreciation  expense of  approximately  $53 million,  $75 million and $275
     million  in  2002,   2001  and  2000,   respectively.   Total   accelerated
     depreciation  recorded  through  December 31, 2002 was $326 million for the
     North  Carolina  jurisdiction  and  $77  million  for  the  South  Carolina
     jurisdiction (See Note 9B).

     Amortization  of nuclear fuel costs,  including  disposal costs  associated
     with  obligations  to the U.S.  Department  of Energy  (DOE),  is  computed
     primarily on the  units-of-production  method and charged to fuel  expense.
     Costs  related  to  obligations  to the  DOE for  the  decommissioning  and
     decontamination of enrichment  facilities are also charged to fuel expense.
     The total of these costs for the years ended  December 31,  2002,  2001 and
     2000 were $109.1 million, $101.0 million and $112.1 million, respectively.


                                       11
<PAGE>

     F. Diversified Business Property

     Diversified   business   property  is  stated  at  cost  less   accumulated
     depreciation.  If CP&L recognizes an impairment of an asset, the fair value
     becomes  its new cost  basis.  The costs of renewals  and  betterments  are
     capitalized.  The cost of repairs and  maintenance is charged to expense as
     incurred. Depreciation is computed on a straight-line basis.

     The following is a summary of diversified  business property as of December
     31, with ranges of depreciable lives:

     (in thousands)                                      2002          2001
                                                     -----------  ------------

     Telecommunications equipment (5 - 20 years)        $  1,687     $  94,164
     Other equipment (3 - 10 years)                        8,363        11,657
     Construction work in progress                           497        21,622
     Accumulated depreciation                             (1,112)      (15,641)
                                                     -----------  ------------
     Diversified business property, net                 $  9,435     $ 111,802
                                                     ===========  ============

     The decrease from 2001 to 2002 is  attributable  to an impairment of assets
     discussed in Note 5.  Diversified  business  depreciation  expense was $3.6
     million,   $6.4  million  and  $3.2   million  in  2002,   2001  and  2000,
     respectively.

     G. Decommissioning and Dismantlement Provisions

     In CP&L's  retail  jurisdictions,  provisions  for nuclear  decommissioning
     costs  are  approved  by  the  NCUC  and  the  SCPSC,   and  are  based  on
     site-specific   estimates  that  include  the  costs  for  removal  of  all
     radioactive   and  other   structures   at  the  site.   In  the  wholesale
     jurisdictions,   the  provisions  for  nuclear  decommissioning  costs  are
     approved by FERC.  Decommissioning  cost provisions,  which are included in
     depreciation and amortization expense, were $30.7 million in 2002, 2001 and
     2000.

     Accumulated  decommissioning  costs,  which  are  included  in  accumulated
     depreciation,  were $611.3  million and $604.8 million at December 31, 2002
     and 2001, respectively. These costs include amounts retained internally and
     amounts funded in externally managed decommissioning trusts. Trust earnings
     increase the trust balance with a corresponding increase in the accumulated
     decommissioning  balance.  These  balances are adjusted for net  unrealized
     gains and losses related to changes in the fair value of trust assets.

     CP&L's most recent  site-specific  estimates of decommissioning  costs were
     developed  in 1998,  using  1998  cost  factors,  and are  based on  prompt
     dismantlement  decommissioning,  which  reflects the cost of removal of all
     radioactive and other  structures  currently at the site, with such removal
     occurring shortly after operating license expiration.  These estimates,  in
     1998 dollars,  are $281.5  million for Robinson Unit No. 2, $299.6  million
     for  Brunswick  Unit No. 1,  $298.7  million for  Brunswick  Unit No. 2 and
     $328.1  million for the Harris  Plant.  The estimates are 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 estimates exclude
     the portion  attributable to North Carolina Eastern  Municipal Power Agency
     (Power  Agency),  which  holds  an  undivided  ownership  interest  in  the
     Brunswick and Harris nuclear generating facilities.  Operating licenses for
     CP&L's nuclear units expire in the years 2010 for Robinson Unit No. 2, 2016
     for Brunswick  Unit No. 1, 2014 for  Brunswick  Unit No. 2 and 2026 for the
     Harris Plant.  An application  to extend the Robinson  license 20 years was
     submitted in 2002 and a similar  application  will be made for Brunswick in
     December  2004.  An  extension  will also be sought for the  Harris  Plant,
     tentatively in 2009.

     Management believes that the decommissioning  costs that have been and will
     be recovered  through  rates will be sufficient to provide for the costs of
     decommissioning.

     The Financial  Accounting  Standards  Board (FASB) has issued SFAS No. 143,
     "Accounting  for  Asset  Retirement  Obligations,"  that  will  impact  the
     accounting for decommissioning and dismantlement provisions (See Note 1P).


                                       12
<PAGE>

     H. Excise Taxes

     CP&L, as an agent for a state or local government,  collects from customers
     certain  excise  taxes  levied  by the state or local  government  upon the
     customer. CP&L accounts for excise taxes on a gross basis. Excise taxes are
     included in CP&L's base rates.  For the years ended December 31, 2002, 2001
     and 2000, gross receipts tax and other excise taxes of approximately  $79.3
     million,  $76.8 million and $75.1  million,  respectively,  are included in
     taxes  other than on income on the  Consolidated  Statements  of Income and
     Comprehensive  Income.  These  approximate  amounts  are also  included  in
     electric operating revenues.

     I. Inventory

     CP&L accounts for inventory using the average-cost  method.  As of December
     31, inventory was comprised of:

     (in thousands)                      2002                 2001
                                  ---------------     --------------
     Fuel                               $ 117,946          $ 137,236
     Materials and supplies               224,940            235,489
                                  ---------------     --------------
     Total inventory                    $ 342,886          $ 372,725
                                  ===============     ==============

     J. Other Policies

     CP&L  recognizes  electric  utility  revenue  as  service  is  rendered  to
     customers.  Operating  revenues include unbilled  electric utility revenues
     earned  when  service has been  delivered  but not billed by the end of the
     accounting period.  Revenues related to design and construction of wireless
     infrastructure   are  recognized  upon  completion  of  services  for  each
     completed phase of design and construction.

     Fuel expense  includes fuel costs or recoveries  that are deferred  through
     fuel clauses established by CP&L's regulators.  These clauses allow CP&L to
     recover fuel costs and portions of purchased power costs through surcharges
     on customer rates.

     CP&L maintains an allowance for doubtful accounts receivable, which totaled
     approximately  $11.3  million and $12.2  million at  December  31, 2002 and
     2001, respectively.

     Long-term debt premiums,  discounts and issuance expenses for the utilities
     are  amortized  over the life of the related  debt using the  straight-line
     method. Any expenses or call premiums  associated with the reacquisition of
     debt  obligations by the utilities are amortized over the remaining life of
     the original debt using the straight-line method consistent with ratemaking
     treatment.

     CP&L considers all highly liquid  investments  with original  maturities of
     three months or less to be cash equivalents.

     CP&L  participates in a money pool  arrangement  with other Progress Energy
     subsidiaries to better manage cash and working capital requirements.  Under
     this  arrangement,  subsidiaries  with  surplus  short-term  funds  provide
     short-term loans to participating affiliates (See Note 4).

     The Company follows the guidance in SFAS No. 87, "Employers' Accounting for
     Pensions," to account for its defined benefit retirement plans. In addition
     to pension  benefits,  the Company provides other  postretirement  benefits
     which are  accounted  for under SFAS No. 106,  "Employers'  Accounting  for
     Postretirement  Benefits  Other  Than  Pensions."  See Note 13 for  related
     disclosures for these plans.

     K. Impairment of Long-Lived Assets and Investments

     CP&L  reviews  the  recoverability  of  long-lived  and  intangible  assets
     whenever  indicators  exist.  Examples of these indicators  include current
     period  losses,  combined  with a  history  of losses  or a  projection  of
     continuing  losses,  or a  significant  decrease  in the market  price of a
     long-lived  asset group.  If an indicator  exists,  then the asset group is
     tested for  recoverability  by comparing  the carrying  value to the sum of
     undiscounted  expected future cash flows directly attributable to the asset
     group.  If the asset group is not  recoverable  through  undiscounted  cash
     flows, then an impairment loss is recognized for the difference between the
     carrying  value and the fair value of the asset group.  The  accounting for
     impairment  of  assets  is  based  on SFAS  No.  144,  "Accounting  for the
     Impairment  or Disposal of  Long-Lived  Assets,"  which was adopted by CP&L
     effective  January  1,  2002.  Prior  to the  adoption  of  this  standard,
     impairments  were  accounted  for under SFAS No. 121,  "Accounting  for the
     Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed
     Of," which was  superceded  by SFAS No. 144. See Note 5 for  discussion  of
     impairment evaluations performed and charges taken.

                                       13
<PAGE>

     L. Income Taxes

     Progress Energy and its affiliates  file a consolidated  federal income tax
     return. The consolidated income tax of Progress Energy is allocated to CP&L
     in accordance with the Inter-company Income Tax Allocation  Agreement.  The
     agreement  provides an  allocation  that  recognizes  positive and negative
     corporate taxable income. The agreement provides for an equitable method of
     apportioning the carry over of uncompensated tax benefits.  Progress Energy
     Holding  Company tax benefits not related to acquisition  interest  expense
     are allocated to profitable subsidiaries,  beginning in 2002, in accordance
     with a PUHCA  order.  Income taxes are provided as if CP&L filed a separate
     return.

     Deferred income taxes have been provided for temporary  differences.  These
     occur when there are differences  between the book and tax carrying amounts
     of assets and  liabilities.  Investment  tax credits  related to  regulated
     operations  have been deferred and are being  amortized  over the estimated
     service life of the related properties (See Note 14).

     M. Derivatives

     Effective  January 1, 2001,  CP&L  adopted  SFAS No. 133,  "Accounting  for
     Derivative Instruments and Hedging Activities," as amended by SFAS No. 138.
     SFAS No. 133, as amended,  establishes  accounting and reporting  standards
     for  derivative  instruments,   including  certain  derivative  instruments
     embedded  in other  contracts,  and for  hedging  activities.  SFAS No. 133
     requires that an entity  recognize all derivatives as assets or liabilities
     in the balance sheet and measure those  instruments at fair value. See Note
     10 for  information  regarding  risk  management  activities and derivative
     transactions.

     In connection  with the January 2003 FASB Emerging Issues Task Force (EITF)
     meeting, the FASB was requested to reconsider an interpretation of SFAS No.
     133.  The   interpretation,   which  is   contained   in  the   Derivatives
     Implementation  Group's C11  guidance,  relates to the pricing of contracts
     that include broad market indices.  In particular,  that guidance discusses
     whether the pricing in a contract that contains broad market indices (e.g.,
     CPI) could  qualify as a normal  purchase or sale (the  normal  purchase or
     sale term is a defined accounting term, and may not, in all cases, indicate
     whether the contract would be "normal" from an operating entity viewpoint).
     CP&L  is  currently  reevaluating  which  contracts,   if  any,  that  have
     previously  been  designated  as normal  purchases  or sales  would now not
     qualify for this exception.  CP&L is currently  evaluating the effects that
     this guidance will have on its results of operation and financial position.

     N. Environmental

     The Company accrues environmental remediation liabilities when the criteria
     for SFAS No. 5, "Accounting for Contingencies," has been met. Environmental
     expenditures  are  expensed as incurred or  capitalized  depending on their
     future economic benefit.  Expenditures that relate to an existing condition
     caused by past  operations  and that have no future  economic  benefits are
     expensed.  Accruals for  estimated  losses from  environmental  remediation
     obligations  generally  are  recognized  no later  than  completion  of the
     remedial  feasibility  study.  Such  accruals  are  adjusted as  additional
     information develops or circumstances  change. Costs of future expenditures
     for  environmental  remediation  obligations  are not  discounted  to their
     present value.  Recoveries of  environmental  remediation  costs from other
     parties are  recognized  when their  receipt is deemed  probable  (See Note
     18D).

     O. Cost-Based Regulation

     CP&L's regulated operations are subject to SFAS No. 71, "Accounting for the
     Effects of Certain  Types of  Regulation."  SFAS No. 71 allows a  regulated
     company to record costs that have been or are expected to be allowed in the
     ratemaking process in a period different from the period in which the costs
     would be charged to expense by a nonregulated enterprise. Accordingly, CP&L
     records assets and  liabilities  that result from the regulated  ratemaking
     process that would not be recorded  under GAAP for  nonregulated  entities.
     These regulatory  assets and liabilities  represent  expenses  deferred for
     future  recovery from  customers or obligations to be refunded to customers
     and are  primarily  classified  in the  accompanying  Consolidated  Balance
     Sheets as regulatory assets and regulatory liabilities (See Note 9A).

     P. Impact of New Accounting Standards

     SFAS No. 143, "Accounting for Asset Retirement Obligations" The FASB issued
     SFAS No. 143, "Accounting for Asset Retirement  Obligations," in July 2001.
     This  statement  provides   accounting  and  disclosure   requirements  for
     retirement  obligations  associated with long-lived assets and is effective
     January  1,  2003.  This  statement  requires  that  the  present  value of
     retirement  costs for which  CP&L has a legal  obligation  be  recorded  as

                                       14
<PAGE>

     liabilities  with  an  equivalent  amount  added  to  the  asset  cost  and
     depreciated over an appropriate period. The liability is then accreted over
     time by  applying  an  interest  method  of  allocation  to the  liability.
     Cumulative  accretion and accumulated  depreciation  will be recognized for
     the time period from the date the liability  would have been recognized had
     the provisions of this statement been in effect, to the date of adoption of
     this Statement.  The cumulative  effect of  implementing  this Statement is
     recognized  as a change  in  accounting  principle.  The  adoption  of this
     statement  will have no impact on CP&L's net  income,  as the  effects  are
     expected  to be  offset  by the  establishment  of  regulatory  assets  and
     liabilities pursuant to SFAS No. 71.

     CP&L's  review   identified  legal   retirement   obligations  for  nuclear
     decommissioning of radiated plant. CP&L will record liabilities pursuant to
     SFAS No. 143 beginning in 2003. CP&L used an expected cash flow approach to
     measure the obligations.  The pro forma amounts for nuclear decommissioning
     of radiated  plant as if SFAS No. 143 had been  applied  during all periods
     are $879.7  million  and  $830.5  million at  December  31,  2002 and 2001,
     respectively.

     Nuclear  decommissioning  has  previously-recorded   liabilities.   Amounts
     recorded for nuclear  decommissioning of radiated plant were $491.3 million
     and $460.9 million at December 31, 2002 and 2001, respectively.

     Pro forma net income has not been  presented  for the years ended  December
     31, 2002,  2001 and 2000 because the pro forma  application of SFAS No. 143
     to prior  periods  would  result  in pro forma net  income  not  materially
     different  from the  actual  amounts  reported  for  those  periods  in the
     accompanying Consolidated Statements of Income and Comprehensive Income.

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

     CP&L has previously recognized removal costs as a component of depreciation
     in accordance with regulatory treatment. To the extent these amounts do not
     represent SFAS No. 143 legal retirement obligations, they will be disclosed
     as regulatory liabilities upon adoption of the standard.

     SFAS No. 145,  "Rescission of FASB Statements No. 4, 44, and 64,  Amendment
     of FASB  Statement No. 13, and Technical  Corrections"  In April 2002,  the
     FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
     Amendment of FASB Statement No. 13, and Technical  Corrections." This newly
     issued  statement  rescinds  SFAS No. 4,  "Reporting  Gains and Losses from
     Extinguishment  of Debt  (an  amendment  of APB  Opinion  No.  30),"  which
     required  all  gains  and  losses  from  the  extinguishment  of debt to be
     aggregated and, if material,  classified as an  extraordinary  item, net of
     related  income tax  effect.  As a result,  the  criteria  set forth by APB
     Opinion 30 will now be used to classify those gains and losses. Any gain or
     loss on  extinguishment  will be recorded in the most appropriate line item
     to which it relates within net income before extraordinary items. For CP&L,
     any expenses or call premiums  associated  with the  reacquisition  of debt
     obligations  are  amortized  over the  remaining  life of the original debt
     using the straight-line method consistent with ratemaking  treatment.  SFAS
     No. 145 also amends SFAS No. 13 to require that certain lease modifications
     that have  economic  effects  similar  to  sale-leaseback  transactions  be
     accounted  for  in the  same  manner  as  sale-leaseback  transactions.  In
     addition,  SFAS No. 145 amends other existing authoritative  pronouncements
     to make various technical  corrections,  clarify meanings or describe their
     applicability under changed  conditions.  For the provisions related to the
     rescission of SFAS No. 4, SFAS No. 145 is effective  for CP&L  beginning in
     fiscal year 2004.  The  remaining  provisions of SFAS No. 145 are effective
     for CP&L in fiscal year 2003. CP&L is currently  evaluating the effects, if
     any,  that  this  statement  will have on its  results  of  operations  and
     financial position.

     SFAS No. 148,  "Accounting  for  Stock-Based  Compensation - Transition and
     Disclosure" In December 2002, the FASB issued SFAS No. 148, "Accounting for
     Stock-Based  Compensation  - Transition  and  Disclosure -- an Amendment of
     FASB Statement No. 123," and provided alternative methods of transition for
     a  voluntary  change  to the  fair-value  based  method of  accounting  for
     stock-based employee compensation.  In addition,  this statement amends the
     disclosure  requirements  of SFAS  No.  123,  "Accounting  for  Stock-Based
     Compensation," to require prominent  disclosures in both annual and interim
     financial  statements  about  the  method  of  accounting  for  stock-based
     employee  compensation  and the  effect  of the  method  used  on  reported
     results.  This statement  requires that  companies  having a year-end after
     December 15, 2002 follow the  prescribed  format and provide the additional
     disclosures  in their  annual  reports.  CP&L applies the  recognition  and
     measurement  principles of APB Opinion No. 25, "Accounting for Stock Issued
     to   Employees"   as  allowed  by  SFAS  Nos.  123  and  148,  and  related
     interpretations  in accounting for its  stock-based  compensation  plans as
     described in Note 12.

                                       15
<PAGE>

     The following table illustrates the effect on CP&L's net income if CP&L had
     applied the fair value recognition  provisions of SFAS No. 123 to the stock
     option plan. The stock option plan was not in effect in 2000.
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     (in thousands)                                                2002       2001         2000
                                                               ----------  ---------  ---------
     Net income, as reported                                    $ 430,932  $ 364,231  $ 461,028
     Deduct:  Total stock option expense determined under fair
       value method for all awards, net of related tax effects      4,704      1,200          -
                                                               ----------  ---------  ---------
     Pro forma net income                                       $ 426,228  $ 363,031  $ 461,028
                                                               ==========  =========  =========
</TABLE>

     FIN  No.  45,  "Guarantor's  Accounting  and  Disclosure  Requirements  for
     Guarantees,  Including  Indirect  Guarantees of  Indebtedness of Others" In
     November  2002,  the  FASB  issued   Interpretation  No.  45,  "Guarantor's
     Accounting and Disclosure  Requirements for Guarantees,  Including Indirect
     Guarantees of Indebtedness of Others - an Interpretation of FASB Statements
     No. 5, 57 and 107 and  Rescission of FASB  Interpretation  No. 34" (FIN No.
     45).  This  interpretation  clarifies  the  disclosures  to  be  made  by a
     guarantor in its interim and annual financial  statements about obligations
     under  certain  guarantees  that it has issued.  It also  clarifies  that a
     guarantor is required to recognize, at the inception of certain guarantees,
     a liability for the fair value of the obligation  undertaken in issuing the
     guarantee.  The initial recognition and initial  measurement  provisions of
     this  interpretation  are  applicable on a prospective  basis to guarantees
     issued or modified after December 31, 2002. The disclosure requirements are
     effective for  financial  statements  of interim or annual  periods  ending
     after December 15, 2002. The applicable  disclosures required by FIN No. 45
     have been made in Note 18B. CP&L is currently  evaluating  the effects,  if
     any, that this  interpretation  will have on its results of operations  and
     financial position.

     FIN No. 46,  "Consolidation of Variable Interest Entities" In January 2003,
     the FASB issued  Interpretation No. 46, "Consolidation of Variable Interest
     Entities  -  an   Interpretation   of  ARB  No.  51"  (FIN  No.  46).  This
     interpretation  provides guidance related to identifying  variable interest
     entities  (previously  known as  special  purpose  entities  or  SPEs)  and
     determining   whether  such  entities  should  be   consolidated.   Certain
     disclosures  are  required  when  FIN No.  46  becomes  effective  if it is
     reasonably possible that a company will consolidate or disclose information
     about a variable interest entity when it initially applies FIN No. 46. This
     interpretation  must be applied  immediately to variable  interest entities
     created or obtained  after January 31, 2003.  For those  variable  interest
     entities created or obtained on or before January 31, 2003, CP&L must apply
     the  provisions  of FIN  No.  46 in the  third  quarter  of  2003.  CP&L is
     currently evaluating what effects, if any, this interpretation will have on
     its results of operations and financial position.

     EITF Issue 02-03,  "Accounting for Contracts Involved in Energy Trading and
     Risk Management Activities" In June 2002, the EITF reached a consensus on a
     portion  of Issue  02-03,  "Accounting  for  Contracts  Involved  in Energy
     Trading and Risk  Management  Activities."  EITF Issue 02-03  requires  all
     gains and losses (realized or unrealized) on energy trading contracts to be
     shown net in the income statement. CP&L's policy already required the gains
     and losses to be recorded  on a net basis.  The net of the gains and losses
     are recorded in other,  net on the  Consolidated  Statements  of Income and
     Comprehensive Income. CP&L does not recognize a dealer profit or unrealized
     gain or loss at the inception of a derivative unless the fair value of that
     instrument,  in its  entirety,  is  evidenced  by quoted  market  prices or
     current market transactions.

2.   Divestitures

     In September 2000, Caronet,  Inc.  (Caronet),  a wholly owned subsidiary of
     CP&L, sold its 10% limited partnership  interest in BellSouth Carolinas PCS
     for $200 million. The sale resulted in an after-tax gain of $121.1 million.

3.   Financial Information by Business Segment

     As described in Note 1A, on July 1, 2000,  CP&L  distributed  its ownership
     interest  in the stock of NCNG,  SRS,  Monroe  Power  and PVHI to  Progress
     Energy.  As a result,  those companies are direct  subsidiaries of Progress
     Energy and are not included in CP&L's  results of operations  and financial
     position subsequent to July 1, 2000.

     Through June 30,  2000,  the business  segments,  operations  and assets of
     Progress Energy and CP&L were substantially the same. Subsequent to July 1,
     2000, CP&L's operations consisted primarily of the CP&L Electric segment.

     The financial information for the CP&L Electric segment for the years ended
     December 31, 2002, 2001 and 2000 is as follows:

                                       16
<PAGE>
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                               Year Ended           Year Ended          Year Ended
     (In thousands)                        December 31, 2002    December 31, 2001    December 31, 2000
     --------------------------------------------------------------------------------------------------

     Revenues                                     $ 3,538,957          $ 3,343,720         $ 3,308,215
     Depreciation and amortization                    523,846              521,910             698,633
     Net interest charges                             211,536              241,427             221,856
     Income taxes                                     237,362              264,078             227,705
     Net income                                       513,115              468,328             373,764
     Total segment assets                           8,659,297            8,884,385           8,840,736
     Capital and investment                           624,202              823,952             821,991
        expenditures
     ==================================================================================================
</TABLE>


     The  primary  differences  between the CP&L  Electric  segment and the CP&L
     consolidated financial information relate to other non-electric  operations
     and  elimination  entries.  CP&L's  non-electric  operations  had  combined
     revenue of $14.9  million in 2002 and assets of $315.4  million at December
     31,  2002.  Included  in the  2002  operations  of  the  telecommunications
     subsidiary,  Caronet,  is an impairment of assets and  investments of $87.4
     million,  after-tax (See Note 5A). Excluding this impairment,  the earnings
     of CP&L's non-electric operations are negligible.

4.   Related Party Transactions

     CP&L  participates in an internal money pool,  operated by Progress Energy,
     to more effectively utilize cash resources and to reduce outside short-term
     borrowings.  Short-term borrowing needs are met first by available funds of
     the money pool  participants.  Borrowing  companies  pay interest at a rate
     designed  to  approximate  the  cost  of  outside  short-term   borrowings.
     Subsidiaries  which  invest in the  money  pool  earn  interest  on a basis
     proportionate to their average monthly  investment.  The interest rate used
     to calculate  earnings  approximates  external interest rates. Funds may be
     withdrawn  from or repaid to the pool at any time without prior notice.  At
     December 31, 2002,  CP&L had $49.8 million of amounts  receivable  from the
     money pool that are included in notes receivable from affiliated  companies
     on the  Consolidated  Balance Sheets.  At December 31, 2001, CP&L had $47.9
     million of amounts  payable  to the money pool that are  included  in notes
     payable to affiliated  companies on the  Consolidated  Balance Sheets.  The
     weighted-average  interest rates  associated  with such money pool balances
     were 2.18% and 4.47% at  December  31,  2002 and 2001,  respectively.  CP&L
     recorded $0.3 million and $1.6 million of interest  income and $1.6 million
     and $1.7 million of interest expense related to the money pool for 2002 and
     2001,  respectively.  Amounts  recorded  for  interest  income and interest
     expense related to the money pool for 2000 were not significant.

     During 2000, the Company formed Progress Energy Service Company, LLC (PESC)
     to  provide  specialized   services,  at  cost,  to  the  Company  and  its
     subsidiaries,  as approved by the U.S.  Securities and Exchange  Commission
     (SEC).  CP&L has an  agreement  with PESC under which  services,  including
     purchasing,   accounting,   treasury,  tax,  marketing,   legal  and  human
     resources, are rendered to CP&L at cost. Amounts billed to CP&L by PESC for
     these  services  during  2002,  2001 and 2000  amounted to $260.5  million,
     $173.9  million and $52.4 million,  respectively.  At December 31, 2002 and
     2001,   CP&L  had  net  payables  of  $63.2  million  and  $46.0   million,
     respectively, to PESC that are included in payables to affiliated companies
     on the  Consolidated  Balance  Sheets.  Subsidiaries  of CP&L  had  amounts
     payable to PESC of $0.5 million at December 31, 2002 and amounts receivable
     from PESC of $13.7 million at December 31, 2001. During 2002, the Office of
     Public Utility  Regulation within the SEC completed an audit examination of
     the Company's books and records. This examination is a standard process for
     all PUHCA registrants.  Based on the review, the method for allocating PESC
     costs to the Company and its affiliates  will change in 2003. CP&L does not
     anticipate  the  reallocation  of costs will have a material  impact on the
     results of operations.

     During the years ended  December  31, 2002,  2001 and 2000,  gas sales from
     NCNG to CP&L  amounted to $18.2  million,  $14.7  million and $5.9 million,
     respectively.

     In August 2002, CP&L transferred  reservation  payments for the manufacture
     of two combustion  turbines to Florida Power at CP&L's original cost of $20
     million.

     For the year ended  December  31,  2001 and the period from July 1, 2000 to
     December 31, 2000, the Consolidated  Statements of Income and Comprehensive
     Income  contain  interest  income  received from NCNG in the amount of $4.8
     million  and  $4.1  million,  respectively,  related  to a  note  that  was

                                       17
<PAGE>

     outstanding between the two companies.  Prior to July 1, 2000, the interest
     income  received from NCNG was eliminated in  consolidation.  There were no
     balances outstanding on the note at December 31, 2002 and 2001.

     At December 31, 2001,  CP&L had a payable to Progress  Energy in the amount
     of $40.2  million  related to a short-term  cash  advance.  This amount was
     repaid during February 2002. The remaining receivables from and payables to
     affiliated  companies at December 31, 2002 and 2001 represent  intercompany
     amounts generated through CP&L's normal course of operations.

5.   Impairments of Long-Lived Assets and Investments

     Effective  January 1, 2002, CP&L adopted SFAS No. 144,  "Accounting for the
     Impairment  or  Disposal  of  Long-Lived  Assets."  SFAS No.  144  provides
     guidance for the  accounting  and  reporting of  impairment  or disposal of
     long-lived assets. The statement  supersedes SFAS No. 121,  "Accounting for
     the  Impairment  of  Long-Lived  Assets  and for  Long-Lived  Assets  to be
     Disposed Of." In 2002 and 2001, CP&L recorded  pre-tax asset and investment
     impairments   of   approximately   $133.3   million  and  $156.7   million,
     respectively. There were no impairments recorded in 2000.

     A. Long-Lived Assets

     Due to  the  decline  of  the  telecommunications  industry  and  continued
     operating losses,  CP&L initiated an independent  valuation study to assess
     the  recoverability  of  Caronet's   long-lived   assets.   Based  on  this
     assessment,  CP&L recorded asset impairments of $101.2 million on a pre-tax
     basis and other  charges  of $7.1  million  on a  pre-tax  basis  primarily
     related  to  inventory  adjustments  in the third  quarter  of 2002.  These
     amounts are included in diversified  business  expenses on the Consolidated
     Statements of Income and Comprehensive Income. This write-down  constitutes
     a significant reduction in the book value of these long-lived assets.

     The long-lived asset impairments  include an impairment of property,  plant
     and  equipment,  construction  work in process and intangible  assets.  The
     impairment  charge  represents  the  difference  between the fair value and
     carrying amount of these long-lived  assets. The fair value of these assets
     was determined  using a valuation study heavily  weighted on the discounted
     cash  flow  methodology,   while  using  market  approaches  as  supporting
     information.

     B. Investments

     CP&L continually  reviews its investments to determine whether a decline in
     fair value below the cost basis is other than temporary. Effective June 28,
     2000,  Caronet  entered  into an  agreement  with Bain  Capital  whereby it
     contributed  the  net  assets  used  in its  application  service  provider
     business to a newly formed company,  named Interpath  Communications,  Inc.
     (Interpath), in exchange for a 35% ownership interest (15% voting interest)
     in Interpath.  CP&L obtained a valuation  study to assess its investment in
     Interpath based on current valuations in the technology sector during 2001.
     As a result, CP&L recorded investment impairments for  other-than-temporary
     declines in the fair value of its  investment in Interpath.  The investment
     write-down  was  $156.7  million  on a  pre-tax  basis  for the year  ended
     December  31,  2001.  In May 2002,  Interpath  merged  with a third  party.
     Pursuant to the terms of the merger  agreement and due to additional  funds
     being  contributed  by  Bain  Capital,  CP&L's  ownership  was  diluted  to
     approximately  19% of Interpath  (7% voting  interest).  As a result,  CP&L
     reviewed  the  Interpath  investment  for  impairment  and  wrote  off  the
     remaining  amount of its  cost-basis  investment in Interpath,  recording a
     pre-tax  impairment  of $25.0  million in the third quarter of 2002. In the
     fourth quarter of 2002, CP&L sold its remaining interest in Interpath for a
     nominal amount.

                                       18
<PAGE>


6.   Debt and Credit Facilities

     A. Lines of Credit

     At December 31, 2002,  CP&L had  committed  lines of credit  totaling  $570
     million,  all of which are used to support its commercial paper borrowings.
     CP&L is required  to pay minimal  annual  commitment  fees to maintain  its
     credit facilities.  The following table summarizes CP&L's credit facilities
     used to support the issuance of commercial paper:

     (in millions)
                                                          -----------------
                         Description                           Total
     ----------------------------------------------------------------------

     364-Day (expiring 7/30/03)                                 $   285
     3-Year (expiring 7/31/05)                                      285
                                                          -----------------
                                                                $   570
                                                          =================

     There were no loans  outstanding  under these  facilities  at December  31,
     2002.

     As of  December  31,  2002 and 2001,  CP&L had  $437.8  million  and $260.5
     million, respectively, of outstanding commercial paper and other short term
     debt classified as short term obligations.  The  weighted-average  interest
     rates of such  short-term  obligations  at December  31, 2002 and 2001 were
     1.74% and 3.07%, respectively. CP&L no longer reclassifies commercial paper
     to long term  debt.  Certain  amounts  for 2001 have been  reclassified  to
     conform to 2002  presentation,  with no effect on  previously  reported net
     income or common stock equity.

     The combined aggregate maturities of long-term debt for 2004, 2005 and 2007
     are   approximately   $300   million,   $307  million  and  $200   million,
     respectively. There are no maturities of debt scheduled for 2003 or 2006.

     B. Covenants and Default Provisions

     Financial Covenants
     CP&L's credit line contains  various terms and conditions that could affect
     CP&L's  ability to borrow under these  facilities.  These include a maximum
     debt to total  capital  ratio,  a  material  adverse  change  clause  and a
     cross-default provision.

     CP&L's  credit line requires a maximum total debt to total capital ratio of
     65%. Indebtedness as defined by the bank agreement includes certain letters
     of credit and guarantees which are not recorded on the Consolidated Balance
     Sheets.  As of December 31, 2002,  CP&L's total debt to total capital ratio
     was 52.7%.

     Material Adverse Change Clause
     The credit  facility of CP&L includes a provision under which lenders could
     refuse to advance  funds in the event of a material  adverse  change in the
     borrower's financial condition.

     Default Provisions
     CP&L's  credit  lines  include  cross-default  provisions  for  defaults of
     indebtedness in excess of $10 million. CP&L's cross-default provisions only
     apply  to  defaults  of   indebtedness   by  CP&L  and  its   subsidiaries,
     respectively,  and not to other affiliates of CP&L. In addition, the credit
     lines  of the  Company  include  a  similar  provision.  Progress  Energy's
     cross-default provisions only apply to defaults of indebtedness by Progress
     Energy and its significant subsidiaries, which includes CP&L.

     The lenders may accelerate payment of any outstanding debt if cross-default
     provisions  are  triggered.  Any such  acceleration  would cause a material
     adverse change in the respective  company's  financial  condition.  Certain
     agreements  underlying  CP&L's  indebtedness  also limit CP&L's  ability to
     incur  additional  liens or engage in certain  types of sale and  leaseback
     transactions.

     Other Restrictions
     CP&L's mortgage indenture provides that so long as any first mortgage bonds
     are outstanding,  cash dividends and  distributions on CP&L's common stock,
     and  purchases of CP&L's  common  stock,  are  restricted  to aggregate net
     income available for CP&L,  since December 31, 1948, plus $3 million,  less
     the amount of all  preferred  stock  dividends and  distributions,  and all
     common stock purchases, since December 31, 1948. At December 31, 2002, none
     of CP&L's retained  earnings of $1.3 billion was restricted.

     Refer to Note 11 for  additional  dividend  restrictions  related to CP&L's
     Articles of Incorporation.

                                       19
<PAGE>

     C. Secured Obligations

     CP&L's  first  mortgage  bonds are  secured  by their  respective  mortgage
     indentures.  CP&L's mortgage  constitutes a first lien on substantially all
     of its fixed  properties,  subject to certain  permitted  encumbrances  and
     exceptions.  The CP&L  mortgage  also  constitutes  a lien on  subsequently
     acquired  property.  At December  31,  2002,  CP&L had  approximately  $2.3
     billion in first  mortgage  bonds  outstanding  including  those related to
     pollution  control  obligations.  The CP&L mortgage  allows the issuance of
     additional mortgage bonds upon the satisfaction of certain conditions.

     D. Hedging Activities

     CP&L uses interest rate  derivatives  to adjust the fixed and variable rate
     components of its debt  portfolio and to hedge cash flow risk of fixed rate
     debt to be issued in the future.  See  discussion  of risk  management  and
     derivative transactions at Note 10.

7.  Leases

     CP&L leases  office  buildings,  computer  equipment,  vehicles,  and other
     property  and  equipment  with various  terms and  expiration  dates.  Rent
     expense (under  operating  leases) totaled $9.5 million,  $21.7 million and
     $13.8 million for 2002, 2001 and 2000, respectively.

     Assets recorded under capital leases consist of:

     (in thousands)                                 2002            2001
                                                    ----            ----
     Buildings                                   $ 27,633        $ 27,626
     Less:  Accumulated amortization               (9,329)         (8,752)
                                              ------------     -----------
                                                 $ 18,304        $ 18,874
                                              ============     ===========

     Minimum annual rental payments,  excluding executory costs such as property
     taxes, insurance and maintenance,  under long-term  noncancelable leases as
     of December 31, 2002 are:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                          Capital           Operating
     (in thousands)                                       Leases             Leases
                                                          ------             ------
     2003                                                 $  2,189           $  9,557
     2004                                                    2,189              7,695
     2005                                                    2,189              6,302
     2006                                                    2,189              3,835
     2007                                                    2,189              3,829
     Thereafter                                             20,274             13,142
                                                        -------------     --------------
                                                          $ 31,219           $ 44,360
                                                                          ==============
     Less amount representing imputed interest             (12,214)
                                                        -------------
     Present value of net minimum lease payments
         under capital leases                             $ 19,005
                                                        =============
</TABLE>

     CP&L is the lessor of electric poles and  streetlights.  Rents received are
     contingent  upon usage and totaled $28.4  million,  $30.9 million and $23.3
     million for 2002, 2001 and 2000, respectively.

8.   Fair Value of Financial Instruments

     The  carrying   amounts  of  cash  and  cash   equivalents  and  short-term
     obligations  approximate  fair value due to the short  maturities  of these
     instruments.  At  December  31,  2002 and 2001,  there  were  miscellaneous
     investments  consisting  primarily of  investments  in  company-owned  life
     insurance  and other  benefit plan assets with  carrying  amounts  totaling
     approximately  $54.2 million and $50.0 million,  respectively,  included in
     miscellaneous other property and investments.  The carrying amount of these
     investments  approximates  fair value due to the short  maturity of certain
     instruments.  Other  instruments  are presented at fair value in accordance
     with GAAP. The carrying amount of CP&L's long-term debt,  including current
     maturities,  was $3.1  billion at  December  31,  2002 and $3.3  billion at
     December 31, 2001.  The estimated fair value of this debt, as obtained from
     quoted market prices for the same or similar  issues,  was $3.3 billion and
     $3.4 billion at December 31, 2002 and 2001, respectively.

                                       20
<PAGE>

     External  funds have been  established as a mechanism to fund certain costs
     of nuclear  decommissioning  (See Note 1G).  These nuclear  decommissioning
     trust funds are  invested in stocks,  bonds and cash  equivalents.  Nuclear
     decommissioning  trust funds are presented at amounts that approximate fair
     value.  Fair value is obtained  from quoted  market  prices for the same or
     similar investments.

9.   Regulatory Matters

     A. Regulatory Assets and Liabilities

     As a regulated  entity,  CP&L is subject to the  provisions of SFAS No. 71,
     "Accounting for the Effects of Certain Types of  Regulation."  Accordingly,
     CP&L records certain assets and  liabilities  resulting from the effects of
     the  ratemaking  process,  which  would  not be  recorded  under  GAAP  for
     nonregulated entities.  CP&L's ability to continue to meet the criteria for
     application  of SFAS No. 71 may be  affected  in the future by  competitive
     forces and  restructuring  in the electric utility  industry.  In the event
     that  SFAS No.  71 no  longer  applied  to a  separable  portion  of CP&L's
     operations,  related  regulatory assets and liabilities would be eliminated
     unless  an  appropriate   regulatory   recovery   mechanism  was  provided.
     Additionally,  these factors could result in an impairment of utility plant
     assets  as  determined  pursuant  to  SFAS  No.  144,  "Accounting  for the
     Impairment or Disposal of Long-Lived Assets" (See Note 5).

     At December  31, 2002 and 2001,  the balances of CP&L's  regulatory  assets
     (liabilities) were as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     (in thousands)                                                2002            2001
                                                                   ----            ----
     Deferred fuel (included in current assets)               $ 146,015           $ 131,505
                                                           -----------------    --------------

     Income taxes recoverable through future rates              197,402             208,702
     Harris Plant deferred costs                                 16,888              32,476
     Loss on reacquired debt                                     13,223               5,801
     Deferred DOE enrichment facilities-related costs            24,570              30,571
                                                           -----------------    --------------
          Total long-term regulatory assets                     252,083             277,550
                                                           -----------------    --------------
     Emission allowance gains                                    (7,774)             (7,494)
                                                           -----------------    --------------
              Net regulatory assets                           $ 390,324           $ 401,561
                                                           =================    ==============
</TABLE>

     Except for portions of deferred fuel,  all regulatory  assets earn a return
     or the cash has not yet been expended, in which case, the assets are offset
     by liabilities that do not incur a carrying cost.

     B. Retail Rate Matters

     The NCUC and SCPSC approved proposals to accelerate cost recovery of CP&L's
     nuclear generating assets beginning January 1, 2000, and continuing through
     2004. On June 14, 2002,  the NCUC approved  modification  of CP&L's ongoing
     accelerated  cost  recovery of its  nuclear  generating  assets.  Effective
     January  1,  2003,  the  NCUC  will no  longer  require  a  minimum  annual
     depreciation.  The  aggregate  minimum and maximum  amounts of  accelerated
     depreciation,  $415 million and $585 million  respectively,  are  unchanged
     from the original NCUC order.  The date by which the minimum amount must be
     depreciated  was extended  from  December 31, 2004 to December 31, 2009. On
     October 29, 2002, the SCPSC approved similar  modifications.  The order was
     effective  November 1, 2002, and the aggregate  minimum and maximum of $115
     million and $165 million  established for accelerated  cost recovery by the
     SCPSC is unchanged.  The accelerated cost recovery of these assets resulted
     in  additional  depreciation  expense of  approximately  $53  million,  $75
     million and $275 million in 2002, 2001 and 2000,  respectively.  Recovering
     the costs of its nuclear  generating  assets on an  accelerated  basis will
     better  position  CP&L  for the  uncertainties  associated  with  potential
     restructuring  of  the  electric  utility   industry.   Total   accelerated
     depreciation  recorded  through  December 31, 2002 was $326 million for the
     North  Carolina  jurisdiction  and  $77  million  for  the  South  Carolina
     jurisdiction.

     On May 30, 2001, the NCUC issued an order allowing CP&L to offset a portion
     of its annual accelerated cost recovery of nuclear generating assets by the
     amount of sulfur  dioxide (SO2)  emission  allowance  expense.  CP&L offset
     accelerated  depreciation  expense against  emission  allowance  expense by
     approximately  $5.8  million  in  2002.  CP&L  did not  offset  accelerated
     depreciation  expense against emission  allowance  expense in 2001. CP&L is
     allowed to recover  emission  allowance  expense  through  the fuel  clause
     adjustment in its South Carolina retail jurisdiction.

                                       21
<PAGE>

     In conjunction with the acquisition of NCNG, CP&L agreed to cap base retail
     electric rates in North Carolina and South Carolina  through December 2004.
     The cap on base retail  electric  rates in South  Carolina  was extended to
     December 2005 in  conjunction  with  regulatory  approval to form a holding
     company.  In North  Carolina,  legislation  enacted  pursuant  to the North
     Carolina  Clean Air Act in June of 2002 freezes  CP&L's base rates for five
     years,  subject to certain conditions.  See Note 18D for further discussion
     of this matter.

     In conjunction with the Company's merger with Florida Progress Corporation,
     CP&L  reached a  settlement  with the Public  Staff of the NCUC in which it
     agreed to reduce  rates to all of its non-real  time  pricing  customers by
     $3.0 million in 2002,  $4.5 million in 2003,  $6.0 million in 2004 and $6.0
     million in 2005.  CP&L also agreed to write off and forego  recovery of $10
     million of  unrecovered  fuel costs in each of its 2000 NCUC and SCPSC fuel
     cost recovery proceedings.

10.  Risk Management Activities and Derivatives Transactions

     Under its risk  management  policy,  CP&L 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.  CP&L  minimizes  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 CP&L.

     A. Commodity Contracts - General

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

     B. Commodity Derivatives - Economic Hedges and Trading

     Nonhedging  derivatives,   primarily  electricity  forward  contracts,  are
     entered into for trading purposes and 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.
     CP&L manages open positions with strict policies that limit its exposure to
     market  risk  and  require  daily  reporting  to  management  of  potential
     financial exposures. Gains and losses from such contracts were not material
     during  2002,  2001 or 2000,  and CP&L  did not have  material  outstanding
     positions in such contracts at December 31, 2002 or 2001.

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

     CP&L  manages  its  interest  rate  exposure  in  part by  maintaining  its
     variable-rate and fixed-rate  exposures within defined limits. In addition,
     CP&L also enters into financial derivative instruments  including,  but not
     limited to,  interest rate swaps and lock agreements to manage and mitigate
     interest rate risk exposure.

     CP&L uses 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.  At December 31, 2002, CP&L held no interest rate cash flow
     hedges.  As of December 31, 2002,  $0.8 million of net  after-tax  deferred
     losses in accumulated  other  comprehensive  income,  related to terminated
     hedges,  will be  reclassified to earnings during the next 12 months as the
     hedged  interest  payments  occur. At December 31, 2001, CP&L held interest
     rate cash flow hedges with notional  amounts  totaling $500.0 million and a
     total fair value of $18.5 million liability position.

     CP&L uses fair value  hedging  strategies  to manage its  exposure to fixed
     interest rates on long-term  debt. At December 31, 2002 and 2001,  CP&L had
     no open interest rate fair value hedges.

     The notional  amounts of interest rate derivatives are not exchanged and do
     not  represent  exposure  to  credit  loss.  In the event of  default  by a
     counterparty,  the risk in these  transactions is the cost of replacing the
     agreements at current market rates.

11.  Capitalization

     As of December 31, 2002,  CP&L was  authorized  to issue up to  200,000,000
     shares of common stock.  All shares issued and  outstanding are held by the
     Company, effective with the share exchange on June 19, 2000 (See Note 1A).

     There are various provisions  limiting the use of retained earnings for the
     payment of dividends under certain circumstances.  As of December 31, 2002,
     there were no significant restrictions on the use of retained earnings.

                                       22
<PAGE>

     CP&L's  Articles of  Incorporation  provide  that cash  dividends on common
     stock  shall be limited to 75% of net income  available  for  dividends  if
     common stock equity falls below 25% of total capitalization,  and to 50% if
     common stock equity  falls below 20%. On December 31, 2002,  CP&L's  common
     stock equity was approximately 46.6% of total capitalization.

     Refer to Note 6 for  additional  dividend  restrictions  related  to CP&L's
     mortgage.

12.  Stock-Based Compensation Plans

     CP&L  accounts  for   stock-based   compensation  in  accordance  with  the
     provisions of Accounting  Principles Board Opinion No. 25,  "Accounting for
     Stock Issued to Employees," and related  interpretations as permitted under
     SFAS No. 123, "Accounting for Stock-Based Compensation."

     A. Employee Stock Ownership Plan

     Progress  Energy  sponsors the  Progress  Energy  401(k)  Savings and Stock
     Ownership   Plan   (401(k))   for   which   substantially   all   full-time
     non-bargaining   unit  employees  and  certain   part-time   non-bargaining
     employees  within  participating  subsidiaries  are  eligible.  CP&L  is  a
     participating  subsidiary  of the 401(k),  which has matching and incentive
     goal features,  encourages  systematic  savings by employees and provides a
     method  of  acquiring  Progress  Energy  common  stock  and  other  diverse
     investments. The 401(k), as amended in 1989, is an Employee Stock Ownership
     Plan  (ESOP)  that can enter into  acquisition  loans to  acquire  Progress
     Energy common stock to satisfy 401(k) common stock needs.  Qualification as
     an ESOP did not change the level of benefits  received by  employees  under
     the 401(k). Common stock acquired with the proceeds of an ESOP loan is held
     by the 401(k) Trustee in a suspense  account.  The common stock is released
     from the suspense account and made available for allocation to participants
     as the ESOP loan is repaid.  Such  allocations  are used to partially  meet
     common  stock  needs  related to Progress  Energy  matching  and  incentive
     contributions and/or reinvested dividends.

     There were  4,616,400  and 5,199,388  ESOP suspense  shares at December 31,
     2002 and 2001, respectively, with a fair value of $200.1 million and $234.1
     million, respectively. CP&L's matching and incentive goal compensation cost
     under the 401(k) is determined based on matching  percentages and incentive
     goal attainment as defined in the plan. Such compensation cost is allocated
     to participants' accounts in the form of Progress Energy common stock, with
     the number of shares determined by dividing compensation cost by the common
     stock market value at the time of allocation. The 401(k) common stock share
     needs are met with open market  purchases,  with shares  released  from the
     ESOP suspense  account and with newly issued  shares.  CP&L's  matching and
     incentive cost met with shares  released from the suspense  account totaled
     approximately $13.3 million,  $12.7 million and $14.7 million for the years
     ended December 31, 2002, 2001 and 2000, respectively.  CP&L has a long-term
     note  receivable  from the 401(k) Trustee related to the purchase of common
     stock from CP&L in 1989 (now Progress Energy common stock).  The balance of
     the  note   receivable   from  the  401(k)   Trustee  is  included  in  the
     determination  of unearned  ESOP common stock,  which reduces  common stock
     equity.  Interest  income  on the note  receivable  is not  recognized  for
     financial statement purposes.

     B. Stock Option Agreements

     Pursuant to Progress  Energy's 1997 Equity  Incentive  Plan and 2002 Equity
     Incentive  Plan,  as amended  and  restated as of July 10,  2002,  Progress
     Energy may grant  options to purchase  shares of common stock to directors,
     officers and eligible  employees.  During 2002 and 2001,  approximately 2.9
     million  and 2.4  million  common  stock  options  were  granted.  Of these
     amounts, approximately 1.2 million and 1.0 million were granted to officers
     and  eligible  employees  of  CP&L  in  2002  and  2001,  respectively.  No
     compensation  expense was  recognized  under the  provisions  of Accounting
     Principles   Board  Opinion  No.  25,   "Accounting  for  Stock  Issued  to
     Employees,"  and  related  interpretations.  For  purposes of the pro forma
     disclosures  required  by SFAS No.  123,  the  estimated  fair value of the
     options is amortized to expense over the  options'  vesting  period.  Under
     SFAS No. 148,  compensation  expense  would have been $7.9 million and $2.0
     million in 2002 and 2001, respectively.

     C. Other Stock-Based Compensation Plans

     Progress  Energy has  additional  compensation  plans for  officers and key
     employees that are  stock-based in whole or in part.  CP&L  participates in
     these plans. The two primary active stock-based  compensation  programs are
     the  Performance  Share  Sub-Plan  (PSSP) and the  Restricted  Stock Awards
     program (RSA), both of which were established pursuant to Progress Energy's
     1997  Equity  Incentive  Plan  and were  continued  under  the 2002  Equity
     Incentive Plan, as amended and restated as of July 10, 2002.

     Under  the  terms of the  PSSP,  officers  and key  employees  are  granted
     performance  shares  on  an  annual  basis  that  vest  over  a  three-year
     consecutive  period.  Each performance  share has a value that is equal to,
     and changes with, the value of a share of Progress  Energy's  common stock,
     and dividend equivalents are accrued on, and reinvested in, the performance

                                       23
<PAGE>

     shares.  The PSSP has two equally weighted  performance  measures,  both of
     which are based on Progress Energy's results as compared to a peer group of
     utilities. Compensation expense is recognized over the vesting period based
     on the expected ultimate cash payout and is reduced by any forfeitures.

     The RSA allows the Company to grant  shares of  restricted  common stock to
     officers and key employees of the Company.  The restricted shares generally
     vest  on  a  graded  vesting  schedule  over  a  minimum  of  three  years.
     Compensation  expense,  which is based on the fair value of common stock at
     the grant date, is recognized  over the  applicable  vesting  period and is
     reduced by any forfeitures.

     The total amount expensed by CP&L for other stock-based  compensation plans
     was $6.9  million,  $5.9 million and $9.8  million in 2002,  2001 and 2000,
     respectively.

13.  Postretirement Benefit Plans

     CP&L and some of its subsidiaries have a  non-contributory  defined benefit
     retirement  (pension) plan for substantially all eligible  employees.  CP&L
     also  has a  supplementary  defined  benefit  pension  plan  that  provides
     benefits to higher-level employees.

     The components of net periodic pension cost are:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     (in thousands)                                         2002            2001            2000
                                                         ----------      ----------      ----------
     Expected return on plan assets                      $ (72,876)      $ (71,955)      $ (76,508)
     Service cost                                           19,343          16,960          18,804
     Interest cost                                          50,717          46,729          49,821
     Amortization of transition obligation                      97             116             121
     Amortization of prior service (benefit) cost              195          (1,230)         (1,282)
     Amortization of actuarial (gain) loss                     440          (4,352)         (5,607)
                                                         ----------      ----------      ----------
          Net periodic pension benefit                   $  (2,084)      $ (13,732)      $ (14,651)
                                                         ==========      ==========      ==========
</TABLE>

     In addition  to the net  periodic  benefit  reflected  above,  in 2000 CP&L
     recorded   a  charge  of   approximately   $14.1   million  to  adjust  its
     supplementary  defined  benefit  pension plan. The effect of the adjustment
     for this  plan is  reflected  in the  actuarial  loss  line in the  pension
     obligation reconciliation below.

     Prior  service costs and benefits are  amortized on a  straight-line  basis
     over the average remaining service period of active participants. Actuarial
     gains and losses in excess of 10% of the greater of the pension  obligation
     or the  market-related  value of  assets  are  amortized  over the  average
     remaining service period of active participants.

     Reconciliations  of the changes in the plan's benefit  obligations  and the
     plan's funded status are:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

       (in thousands)                                                       2002             2001
                                                                        -----------      -----------
       Projected benefit obligation at  January 1                       $  681,989        $ 638,067
           Interest cost                                                    50,717           46,729
           Service cost                                                     19,343           16,960
           Benefit payments                                                (46,059)         (43,636)
           Actuarial loss                                                   96,929            5,621
           Transfers                                                          (635)               -
           Plan amendments                                                       -           18,248
                                                                        -----------      -----------
       Projected benefit obligation at December 31                      $  802,284        $ 681,989
       Fair value of plan assets at December 31                            574,367          716,799
                                                                        -----------      -----------
       Funded status                                                    $ (227,917)       $  34,810
       Unrecognized transition obligation                                      241              338
       Unrecognized prior service cost                                       3,928            4,123
       Unrecognized actuarial (gain) loss                                  237,864          (28,416)
       Minimum pension liability adjustment                               (124,867)               -
                                                                        -----------      -----------
       Prepaid (accrued) pension cost at December 31, net               $ (110,751)       $  10,855
                                                                        ===========      ===========
</TABLE>
                                       24
<PAGE>

     The  accrued  pension  cost at  December  31,  2002 is  included  in  other
     liabilities and deferred credits in the accompanying  Consolidated  Balance
     Sheets.  The net prepaid pension cost of $10.9 million at December 31, 2001
     is  included in the  accompanying  Consolidated  Balance  Sheets as prepaid
     pension  cost of $25.7  million,  which is  included  in other  assets  and
     deferred  debits,  and  accrued  benefit  cost of $14.8  million,  which is
     included in other  liabilities  and deferred  credits.  The defined benefit
     plans with  accumulated  benefit  obligations  in excess of plan assets had
     projected benefit obligations  totaling $802.3 million and $16.0 million at
     December  31,  2002 and 2001,  respectively.  Those  plans had  accumulated
     benefit   obligations   totaling   $685.1   million   and  $15.4   million,
     respectively, plan assets totaling $574.4 million at December 31, 2002, and
     no plan assets at December 31, 2001.

     Due to a  combination  of  decreases in the fair value of plan assets and a
     decrease in the  discount  rate used to measure the pension  obligation,  a
     minimum  pension  liability  adjustment  of $124.9  million was recorded at
     December 31, 2002. This adjustment  resulted in a charge of $4.2 million to
     intangible  assets,  included in other  assets and  deferred  debits in the
     accompanying  Consolidated  Balance Sheets,  and a pre-tax charge of $120.7
     million to  accumulated  other  comprehensive  loss,  a component of common
     stock equity.

     Reconciliations of the fair value of pension plan assets are:

     (in thousands)                                      2002           2001
                                                      ----------     ----------
     Fair value of plan assets at January 1           $ 716,799      $ 777,435
     Actual return on plan assets                       (96,915)       (18,160)
     Benefit payments                                   (46,059)       (43,636)
     Employer contributions                               1,177          1,160
     Transfers                                             (635)             -
                                                      ----------     ----------
     Fair value of plan assets at December 31         $ 574,367      $ 716,799
                                                      ==========     ==========

     The  weighted-average  discount rate used to measure the pension obligation
     was 6.6% in 2002 and 7.5% in 2001.  The assumed  rate of increase in future
     compensation  used to measure the pension  obligation  was 4.0% in 2002 and
     2001. The expected  long-term rate of return on pension plan assets used in
     determining the net periodic pension cost was 9.25% in 2002, 2001 and 2000.

     In addition to pension benefits,  CP&L and some of its subsidiaries provide
     contributory  postretirement benefits (OPEB), including certain health care
     and life  insurance  benefits,  for retired  employees  who meet  specified
     criteria.

     The components of net periodic OPEB cost are:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     (in thousands)                                   2002             2001             2000
                                                   ---------       ---------        ---------
     Expected return on plan assets                $ (3,532)       $ (3,676)        $ (3,852)

     Service cost                                     6,301           7,374            8,868
     Interest cost                                   14,308          14,191           13,677
     Amortization of prior service cost                   -               -               54
     Amortization of transition obligation            2,708           4,298            5,551
     Amortization of actuarial gain                    (851)           (531)            (779)
                                                   ---------       ---------        ---------
         Net periodic OPEB cost                    $ 18,934        $ 21,656         $ 23,519
                                                   =========       =========        =========
</TABLE>

     Prior  service costs and benefits are  amortized on a  straight-line  basis
     over the average remaining service period of active participants. Actuarial
     gains and losses in excess of 10% of the greater of the OPEB  obligation or
     the market-related value of assets are amortized over the average remaining
     service period of active participants.

     Reconciliations  of the changes in the plan's benefit  obligations  and the
     plan's funded status are:

                                       25
<PAGE>

     (in thousands)                                   2002            2001
                                                   -----------      -----------
     OPEB obligation at  January 1                 $  192,088       $  187,563
         Interest cost                                 14,308           14,191
         Service cost                                   6,301            7,374
         Benefit payments                              (9,003)          (7,137)
         Actuarial loss                                30,222           19,242
         Transfers                                       (179)               -
         Plan amendment                                     -          (29,145)
                                                   -----------      -----------
     OPEB obligation at December 31                $  233,737       $  192,088
     Fair value of plan assets at December 31          32,890           38,182
                                                   -----------      -----------
     Funded status                                 $ (200,847)      $ (153,906)
     Unrecognized transition obligation                25,555           28,263
     Unrecognized actuarial (gain) loss                38,434           (1,284)
                                                   -----------      -----------
     Accrued OPEB cost at December 31              $ (136,858)      $ (126,927)
                                                   ===========      ===========

     The accrued OPEB cost is included in other liabilities and deferred credits
     in the  accompanying  Consolidated  Balance  Sheets.  The plan amendment in
     2001,   which  resulted  in  a  15.5%  reduction  in  the  OPEB  liability,
     implemented  a cap on  CP&L's  contributions  toward  future  medical  cost
     increases.

     Reconciliations of the fair value of OPEB plan assets are:

     (in thousands)                                  2002                 2001
                                                    ---------          ---------
     Fair value of plan assets at January 1         $ 38,182           $ 39,048
     Actual return on plan assets                     (5,292)              (866)
     Employer contributions                            9,003              7,137
     Benefits paid                                    (9,003)            (7,137)
                                                    ---------          ---------
     Fair value of plan assets at December 31       $ 32,890           $ 38,182
                                                    =========          =========

     The assumptions used to measure the OPEB obligation are:

                                                           2002           2001
                                                         --------       --------
     Weighted-average discount rate                       6.60%          7.50%
     Initial medical cost trend rate for
        pre-Medicare benefits                             7.50%          7.50%
     Initial medical cost trend rate for
        post-Medicare benefits                            7.50%          7.50%
     Ultimate medical cost trend rate                     5.25%          5.00%
     Year ultimate medical cost trend rate is achieved    2009            2008

     The expected weighted-average  long-term rate of return on plan assets used
     in determining the net periodic OPEB cost was 9.25% in 2002, 2001 and 2000.
     The medical  cost trend rates were assumed to decrease  gradually  from the
     initial rates to the ultimate rates.  Assuming a 1% increase in the medical
     cost trend rates, the aggregate of the service and interest cost components
     of the net periodic OPEB cost for 2002 would increase by $3.2 million,  and
     the OPEB obligation at December 31, 2002,  would increase by $23.1 million.
     Assuming a 1% decrease in the medical  cost trend rates,  the  aggregate of
     the service and interest cost  components of the net periodic OPEB cost for
     2002 would decrease by $2.8 million and the OPEB obligation at December 31,
     2002, would decrease by $21.0 million.

14.  Income Taxes

     Deferred income taxes are provided for temporary  differences  between book
     and tax bases of assets and liabilities.  Investment tax credits related to
     regulated  operations  are  amortized  over the service life of the related
     property.  A regulatory  asset or  liability  has been  recognized  for the
     impact of tax  expenses  or  benefits  that are  recovered  or  refunded in
     different periods by the utilities pursuant to rate orders.

                                       26
<PAGE>

     Net accumulated deferred income tax liabilities at December 31 are:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     (in thousands)                                       2002            2001
                                                        ------------    ------------
     Accelerated depreciation and property
        cost differences                                $ 1,313,604     $ 1,359,083
     Minimum pension liability                              (47,317)              -
     Deferred costs, net                                     (9,771)         42,688
     Income tax credit carryforward                         (10,384)           (640)
     Valuation allowance                                      8,167           3,767
     Miscellaneous other temporary differences, net          (8,522)        (20,100)
                                                        ------------    ------------
     Net accumulated deferred income tax liability      $ 1,245,777     $ 1,384,798
                                                        ============    ============
</TABLE>

     Total  deferred  income tax  liabilities  were  $1.952  billion  and $2.046
     billion at December 31, 2002 and 2001, respectively.  Total deferred income
     tax assets  were $706  million and $661  million at  December  31, 2002 and
     2001, respectively. The net of deferred income tax liabilities and deferred
     income tax assets is included on the Consolidated  Balance Sheets under the
     captions other current  liabilities and accumulated  deferred income taxes.

     CP&L had a valuation  allowance  of $3.8  million at December  31, 2001 and
     established additional valuation allowances of $4.4 million during 2002 due
     to the  uncertainty of realizing  certain future state income tax benefits.
     CP&L  believes  that it is more  likely than not that the results of future
     operations  will  generate  sufficient  taxable  income  to  allow  for the
     utilization of the remaining deferred tax assets.

     Reconciliations  of  CP&L's  effective  income  tax  rate to the  statutory
     federal income tax rate are:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                            2002              2001              2000
                                                        -------------     -------------     -------------
     Effective income tax rate                               32.5%            38.0%             38.6%
     State income taxes, net of federal benefit              (3.1)            (3.2)             (4.5)
     Investment tax credit amortization                       1.9              2.5               3.7
     Progress Energy tax benefit allocation (Note 1L)         5.0                -                 -
     Other differences, net                                  (1.3)            (2.3)             (2.8)
                                                        -------------     -------------     -------------
     Statutory federal income tax rate                       35.0%            35.0%             35.0%
                                                        =============     =============     =============
</TABLE>

     The provisions for income tax expense are comprised of:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     (in thousands)                             2002              2001              2000
                                            -------------     -------------     -------------
     Income tax expense (credit):
     Current   - federal                      $ 265,231         $ 348,921        $ 328,982
                 state                           36,039            39,135           62,228
     Deferred -  federal                        (75,784)         (140,486)         (71,929)
                 state                           (6,132)           (9,409)         (11,625)
     Investment tax credit                      (11,994)          (14,928)         (17,385)
                                            -------------     -------------     -------------
            Total income tax expense          $ 207,360         $ 223,233        $ 290,271
                                            =============     =============     =============
</TABLE>

15.  Joint Ownership of Generating Facilities

     CP&L  holds  undivided   ownership   interests  in  certain  jointly  owned
     generating  facilities.  CP&L  is  entitled  to  shares  of the  generating
     capability  and  output of each unit  equal to their  respective  ownership
     interests.  CP&L also pays its ownership  share of additional  construction
     costs,  fuel inventory  purchases and operating  expenses.  CP&L's share of
     expenses for the jointly owned  facilities  is included in the  appropriate
     expense category.

     CP&L's ownership  interest in the  jointly-owned  generating  facilities is
     listed below with related information as of December 31, 2002 and 2001:

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

     2002
     (dollars in thousands)
                                        Company                                                         Construction
                          Megawatt     Ownership       Plant       Accumulated        Accumulated          Work in
       Facility           Capability    Interest     Investment    Depreciation      Decommissioning      Progress
       --------           ----------    --------     ----------    ------------      ---------------      --------

     Mayo Plant              745         83.83%      $  464,202     $  239,971        $      -            $ 14,089
     Harris Plant            900         83.83%       3,159,946      1,432,245          95,643               6,117
     Brunswick Plant        1,683        81.67%       1,476,534        867,530         339,521              26,436
     Roxboro Unit No. 4      700         87.06%         316,491        138,408               -               8,079

     2001
                                        Company                                                         Construction
                          Megawatt     Ownership       Plant       Accumulated        Accumulated          Work in
       Facility           Capability    Interest     Investment    Depreciation      Decommissioning      Progress
       --------           ----------    --------     ----------    ------------      ---------------      --------

     Mayo Plant              745         83.83%      $  460,026     $  230,630        $      -            $  7,116
     Harris Plant            860         83.83%       3,154,183      1,321,694          93,637              14,416
     Brunswick Plant        1,631        81.67%       1,427,842        828,480         339,945              41,455
     Roxboro Unit No. 4      700         87.06%         309,032        126,007               -               7,881
</TABLE>

     In the tables above, plant investment and accumulated  depreciation are not
     reduced by the regulatory disallowances related to the Harris Plant.

16.  Other Income and Other Expense

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

     (in thousands)                                                2002          2001          2000
                                                                   ----          ----          ----
     Other income
     Net financial trading gain (loss)                          $  (1,942)     $  3,262      $ 15,603
     Net energy purchased for resale gain                           1,248         3,074         2,132
     Nonregulated energy and delivery services income              11,816        11,528        23,996
     Investment gains                                              22,218         2,500         6,722
     AFUDC equity                                                   6,432         8,764        14,502
     Other                                                         19,891        12,963        11,594
                                                             ------------- ------------- -------------
         Total other income                                     $  59,663      $ 42,091      $ 74,549
                                                             ------------- ------------- -------------

     Other expense
     Nonregulated energy and delivery services expenses            13,625        21,352        23,554
     Donations                                                      7,594        11,045         9,219
     Investment losses                                             14,389         4,365         6,672
     Other                                                         11,298         9,484        18,015
                                                             ------------- ------------- -------------
        Total other expense                                     $  46,906      $ 46,246      $ 57,460
                                                             ------------- ------------- -------------
     Other, net                                                 $  12,757      $ (4,155)     $ 17,089
                                                             ============= ============= =============
</TABLE>

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

17.  Accumulated Other Comprehensive Loss

     Components of accumulated other comprehensive loss are as follows:

     (in thousands)                                       2002           2001

     Loss on cash flow hedges                        $  (9,379)      $  (7,046)
     Minimum pension liability adjustments             (73,390)              -
                                                     -----------     -----------
     Total accumulated other comprehensive loss      $ (82,769)      $  (7,046)
                                                     ===========     ===========

                                       28
<PAGE>

18.  Commitments and Contingencies

     A. Fuel and Purchased Power

     Pursuant to the terms of the 1981 Power Coordination Agreement, as amended,
     between CP&L and Power  Agency,  CP&L is obligated to purchase a percentage
     of Power Agency's ownership capacity of, and energy from, the Harris Plant.
     In 1993,  CP&L and Power Agency  entered  into an agreement to  restructure
     portions of their  contracts  covering  power  supplies  and  interests  in
     jointly owned units. Under the terms of the 1993 agreement,  CP&L increased
     the amount of capacity and energy  purchased from Power Agency's  ownership
     interest in the Harris Plant, and the buyback period was extended six years
     through 2007. The estimated  minimum annual  payments for these  purchases,
     which  reflect  capacity  costs,  total  approximately  $32 million.  These
     contractual  purchases  totaled  $35.9  million,  $33.3  million  and $33.9
     million for 2002,  2001 and 2000,  respectively.  In 1987, the NCUC ordered
     CP&L to reflect the  recovery of the  capacity  portion of these costs on a
     levelized basis over the original 15-year buyback period, thereby deferring
     for future recovery the difference between such costs and amounts collected
     through rates.  In 1988, the SCPSC ordered  similar  treatment,  but with a
     10-year  levelization  period.  At  December  31,  2002 and 2001,  CP&L had
     deferred purchased capacity costs,  including carrying costs accrued on the
     deferred  balances,  of $16.9  million  and  $32.5  million,  respectively.
     Increased  purchases  (which are not being  deferred  for future  recovery)
     resulting  from the 1993  agreement  with Power  Agency were  approximately
     $32.2  million,  $28.6 million and $26.0  million for 2002,  2001 and 2000,
     respectively.

     CP&L has a  long-term  agreement  for the  purchase  of power  and  related
     transmission  services from Indiana Michigan Power Company's  Rockport Unit
     No. 2 (Rockport).  The agreement provides for the purchase of 250 megawatts
     of  capacity  through  2009  with  estimated  minimum  annual  payments  of
     approximately  $31 million,  representing  capital-related  capacity costs.
     Total  purchases  (including  transmission  use charges) under the Rockport
     agreement  amounted to $58.6  million,  $62.8 million and $61.0 million for
     2002, 2001 and 2000, respectively.

     Effective  June 1,  2001,  CP&L  executed  a  long-term  agreement  for the
     purchase of power from Skygen  Energy  LLC's  Broad River  facility  (Broad
     River).  The  agreement  provides  for the  purchase of  approximately  500
     megawatts of capacity  through 2021 with an original minimum annual payment
     of  approximately  $16  million,  primarily  representing   capital-related
     capacity costs. A separate  long-term  agreement for additional  power from
     Broad  River  commenced  June 1,  2002.  This  agreement  provided  for the
     additional purchase of approximately 300 megawatts of capacity through 2022
     with an  original  minimum  annual  payment of  approximately  $16  million
     representing  capital-related  capacity  costs.  Total  purchases under the
     Broad River agreements  amounted to $37.7 million and $21.2 million in 2002
     and 2001, respectively.

     CP&L has various pay-for-performance purchased power contracts with certain
     cogenerators  (qualifying  facilities) for  approximately  300 megawatts of
     capacity  expiring at various  times through 2009.  These  purchased  power
     contracts generally provide for capacity and energy payments.  Payments for
     both capacity and energy are  contingent  upon the  qualifying  facilities'
     ability to  generate.  Payments  made under  these  contracts  were  $144.5
     million in 2002, $145.1 million in 2001 and $168.4 million in 2000.

     CP&L has entered into various  long-term  contracts  for coal,  gas and oil
     requirements  of  its  generating   plants.   Total  payments  under  these
     commitments were $694.0 million, $675.2 million and $558.9 million in 2002,
     2001 and 2000, respectively. Estimated annual payments for firm commitments
     of fuel  purchases  and  transportation  costs  under these  contracts  are
     approximately  $499.7  million,  $434.0  million,  $351.1  million,  $312.1
     million and $199.0 million for 2003 through 2007, respectively.


                                       29
<PAGE>



     B. Guarantees

     As a part of normal business, CP&L enters into various agreements providing
     financial or  performance  assessments to third  parties.  Such  agreements
     include,  for  example,  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 December  31, 2002 and 2001,  outstanding  guarantees  consisted  of the
     following:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

     (in millions)                      December 31, 2002            December 31, 2001
                                       --------------------         ---------------------
     Standby letters of credit                $ 4.7                        $ 4.9
     Surety bonds                               0.6                          2.0
                                       --------------------         ---------------------
        Total                                 $ 5.3                        $ 6.9
                                       ====================         =====================
</TABLE>

     Standby Letters of Credit
     CP&L has issued standby letters of credit to financial institutions for the
     benefit of third  parties  that have  extended  credit to CP&L and  certain
     subsidiaries.  These  letters of credit have been issued  primarily for the
     purpose of  supporting  payments of trade  payables,  securing  performance
     under contracts and interest payments on outstanding debt obligations. If a
     subsidiary  does not pay  amounts  when due under a covered  contract,  the
     counterparty   may  present   its  claim  for  payment  to  the   financial
     institution, which will in turn request payment from CP&L. Any amounts owed
     by its subsidiaries are reflected in the Consolidated Balance Sheets.

     Surety Bonds
     At December  31,  2002,  CP&L had $0.6  million in surety  bonds  purchased
     primarily for purposes such as providing worker  compensation  coverage and
     obtaining  licenses,  permits and rights-of-way.  To the extent liabilities
     are incurred,  as a result of the  activities  covered by the surety bonds,
     such liabilities are included in the Consolidated Balance Sheets.

     As of December 31, 2002,  management does not believe conditions are likely
     for performance under these agreements.

     C. Insurance

     CP&L 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, CP&L is
     insured  for $500  million at each of its  nuclear  plants.  In addition to
     primary   coverage,   NEIL   also   provides   decontamination,   premature
     decommissioning  and excess property  insurance with limits of $2.0 billion
     on the Brunswick and Harris Plants and $1.1 billion on the Robinson Plant.

     Insurance coverage against incremental costs of replacement power resulting
     from  prolonged  accidental  outages  at nuclear  generating  units is also
     provided through membership in NEIL. CP&L is insured thereunder,  following
     a twelve-week deductible period, for 52 weeks in the amount of $3.5 million
     per week at each of the nuclear units.  An additional 110 weeks of coverage
     is  provided at 80% of the above  weekly  amount.  For the  current  policy
     period,  CP&L is  subject to  retrospective  premium  assessments  of up to
     approximately  $24.1  million with respect to the primary  coverage,  $25.7
     million with  respect to the  decontamination,  decommissioning  and excess
     property coverage, and $17.4 million for the incremental  replacement power
     costs coverage,  in the event covered losses at insured  facilities  exceed
     premiums,  reserves,  reinsurance  and other NEIL  resources.  Pursuant  to
     regulations of the Nuclear  Regulatory  Commission  (NRC),  CP&L's property
     damage insurance  policies provide that all proceeds from such insurance be
     applied,  first, to place the plant in a safe and stable condition after an
     accident and, second, to decontaminate, before any proceeds can be used for
     decommissioning,  plant repair or  restoration.  CP&L is responsible to the
     extent losses may exceed limits of the coverage described above.

     CP&L is insured against public liability for a nuclear incident up to $9.55
     billion per occurrence.  Under the current provisions of the Price Anderson
     Act, which limits liability for accidents at nuclear power plants, CP&L, as
     an owner of nuclear units, can be assessed for a portion of any third-party
     liability  claims arising from an accident at any commercial  nuclear power
     plant in the United States.  In the event that public liability claims from
     an insured  nuclear  incident  exceed  $300  million  (currently  available
     through commercial insurers), CP&L would be subject to pro rata assessments
     of up to $88.1  million for each reactor owned per  occurrence.  Payment of
     such assessments  would be made over time as necessary to limit the payment
     in any one year to no more than $10 million per reactor owned.  Congress is
     expected  to  approve  revisions  to the  Price  Anderson  Act in the first
     quarter of 2003,  that will include  increased  limits and  assessments per
     reactor owned. The final outcome of this matter cannot be predicted at this
     time.

                                       30
<PAGE>

     There have been recent  revisions made to the nuclear  property and nuclear
     liability insurance policies regarding the maximum recoveries available for
     multiple  terrorism  occurrences.  Under the NEIL  policies,  if there were
     multiple  terrorism  losses  occurring within one year after the first loss
     from terrorism,  NEIL would make available one industry  aggregate limit of
     $3.2  billion,  along  with  any  amounts  it  recovers  from  reinsurance,
     government  indemnity or other sources up to the limits for each  claimant.
     If  terrorism  losses  occurred  beyond the one-year  period,  a new set of
     limits and resources would apply. For nuclear  liability claims arising out
     of terrorist acts, the primary level available through commercial  insurers
     is now subject to an industry  aggregate limit of $300 million.  The second
     level of coverage  obtained  through the assessments  discussed above would
     continue  to apply to losses  exceeding  $300  million  and  would  provide
     coverage in excess of any  diminished  primary  limits due to the terrorist
     acts aggregate.

     CP&L self-insures its transmission and distribution  lines against loss due
     to storm damage and other natural disasters.

     D. Claims and Uncertainties

     1. CP&L is  subject  to  federal,  state and local  regulations  addressing
     hazardous  and solid  waste  management,  air and water  quality  and other
     environmental matters.

     Hazardous and Solid Waste Management

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

     There are 12 former MGP sites and 14 other sites  associated with CP&L that
     have  required  or  are   anticipated  to  require   investigation   and/or
     remediation  costs.  CP&L  received  insurance  proceeds  to address  costs
     associated with CP&L environmental  liabilities  related to its involvement
     with MGP sites. All eligible  expenses related to these are charged against
     a specific  fund  containing  these  proceeds.  As of  December  31,  2002,
     approximately  $8.0 million remains in this centralized fund with a related
     accrual  of  $8.0  million   recorded  for  the   associated   expenses  of
     environmental  issues.  As  CP&L's  share of costs  for  investigating  and
     remediating  these sites become known, the fund is assessed to determine if
     additional  accruals  will be  required.  CP&L does not believe that it can
     provide an estimate of the  reasonably  possible  total  remediation  costs
     beyond what remains in the environmental  insurance  recovery fund. This is
     due to the fact that the sites are at different  stages:  investigation has
     not begun at 15 sites,  investigation  has begun but remediation  cannot be
     estimated  at seven  sites and four  sites  have  begun  remediation.  CP&L
     measures  its  liability  for  these  sites  based  on  available  evidence
     including its experience in investigating  and remediating  environmentally
     impaired  sites.  The  process  often  involves  assessing  and  developing
     cost-sharing  arrangements with other potentially responsible parties. Once
     the  environmental  insurance  recovery fund is depleted,  CP&L will accrue
     costs for the sites to the extent its  liability  is probable and the costs
     can be reasonably  estimated.  Presently,  CP&L cannot  determine the total
     costs that may be incurred in connection with the remediation of all sites.
     According to current information,  these future costs at the CP&L sites are
     not  expected to be material to CP&L's  financial  condition  or results of
     operations.  A rollforward  of the balance in this fund is not provided due
     to the immateriality of this activity in the periods presented.

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

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

                                       31
<PAGE>

     Air Quality

     There has been and may be further  proposed federal  legislation  requiring
     reductions in air emissions for nitrogen  oxides,  sulfur  dioxide,  carbon
     dioxide and mercury. Some of these proposals establish nation-wide caps and
     emission   rates  over  an   extended   period  of  time.   This   national
     multi-pollutant approach to air pollution control could involve significant
     capital  costs which could be  material  to CP&L's  consolidated  financial
     position or results of operations.  Some companies may seek recovery of the
     related  cost  through  rate  adjustments  or similar  mechanisms.  Control
     equipment  that  will be  installed  on North  Carolina  fossil  generating
     facilities as part of the North Carolina  legislation  discussed  below may
     address some of the issues outlined above. However, CP&L cannot predict the
     outcome of this matter.

     The EPA is  conducting  an  enforcement  initiative  related to a number of
     coal-fired   utility  power  plants  in  an  effort  to  determine  whether
     modifications  at  those  facilities  were  subject  to New  Source  Review
     requirements or New Source  Performance  Standards under the Clean Air Act.
     CP&L was asked to provide information to the EPA as part of this initiative
     and  cooperated in providing 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,  ranging  from $1.0 billion to $1.4  billion.  A
     utility that was not subject to a civil enforcement  action settled its New
     Source  Review  issues  with the EPA for  $300  million.  These  settlement
     agreements have generally  called for expenditures to be made over extended
     time  periods,  and some of the  companies may seek recovery of the related
     cost through rate  adjustments or similar  mechanisms.  CP&L cannot predict
     the outcome of this matter.

     In 1998, the EPA published a final rule  addressing the regional  transport
     of ozone.  This rule is commonly  known as the NOx SIP Call. The EPA's rule
     requires 23  jurisdictions,  including North  Carolina,  South Carolina and
     Georgia,  to further reduce  nitrogen oxide  emissions in order to attain a
     pre-set  state NOx  emission  levels  by May 31,  2004.  CP&L is  currently
     installing controls necessary to comply with the rule. Capital expenditures
     needed to meet  these  measures  in North and South  Carolina  could  reach
     approximately  $370  million,  which has not been  adjusted for  inflation.
     Increased  operation and maintenance costs relating to the NOx SIP Call are
     not  expected  to be  material  to CP&L's  results of  operations.  Further
     controls are  anticipated  as  electricity  demand  increases.  CP&L cannot
     predict the outcome of this matter.

     In  July  1997,  the  EPA  issued  final  regulations  establishing  a  new
     eight-hour  ozone  standard.  In October  1999,  the  District  of Columbia
     Circuit  Court of Appeals  ruled against the EPA with regard to the federal
     eight-hour ozone standard.  The U.S. Supreme Court has upheld, in part, the
     District of Columbia  Circuit  Court of Appeals  decision.  Designation  of
     areas that do not attain the standard is proceeding, and further litigation
     and  rulemaking on this and other aspects of the standard are  anticipated.
     North  Carolina  adopted  the  federal  eight-hour  ozone  standard  and is
     proceeding with the implementation  process. North Carolina has promulgated
     final  regulations,  which  will  require  CP&L to install  nitrogen  oxide
     controls under the State's eight-hour standard. The costs of those controls
     are included in the $370 million  cost  estimate set forth above.  However,
     further  technical  analysis and rulemaking may result in a requirement for
     additional  controls at some units. CP&L cannot predict the outcome of this
     matter.

     The EPA published a final rule approving petitions under Section 126 of the
     Clean Air Act. This rule as originally promulgated required certain sources
     to make  reductions in nitrogen  oxide  emissions by May 1, 2003. The final
     rule  also  includes  a set  of  regulations  that  affect  nitrogen  oxide
     emissions  from  sources  included  in the  petitions.  The North  Carolina
     coal-fired  electric  generating  plants are  included in these  petitions.
     Acceptable  state  plans  under the NOx SIP Call can be approved in lieu of
     the final rules the EPA approved as part of the 126 petitions.  CP&L, other
     utilities,  trade organizations and other states participated in litigation
     challenging  the EPA's  action.  On May 15, 2001,  the District of Columbia
     Circuit  Court of Appeals  ruled in favor of the EPA,  which  will  require
     North  Carolina to make  reductions in nitrogen  oxide  emissions by May 1,
     2003.  However,  the  Court in its May 15th  decision  rejected  the  EPA's
     methodology  for  estimating  the  future  growth  factors  the EPA used in
     calculating the emissions  limits for utilities.  In August 2001, the Court
     granted a request by CP&L and other  utilities to delay the  implementation
     of the 126 Rule for electric generating units pending resolution by the EPA
     of the  growth  factor  issue.  The  Court's  order  tolls  the  three-year
     compliance  period  (originally  set to end on May 1,  2003)  for  electric
     generating units as of May 15, 2001. On April 30, 2002, the EPA published a
     final rule  harmonizing  the dates for the Section 126 Rule and the NOx SIP
     Call. In addition,  the EPA  determined in this rule that the future growth
     factor estimation methodology was appropriate.  The new compliance date for
     all affected sources is now May 31, 2004,  rather than May 1, 2003. The EPA
     has approved  North  Carolina's NOx SIP Call rule and has indicated it will
     rescind  the  Section  126 rule in a future  rule  making.  CP&L  expects a
     favorable outcome of this matter.

     On June 20, 2002,  legislation was enacted in North Carolina  requiring the
     state's  electric  utilities to reduce the emissions of nitrogen  oxide and
     sulfur dioxide from coal-fired power plants. CP&L expects its capital costs
     to meet these emission targets will be approximately  $813 million by 2013.
     CP&L currently has approximately 5,100 MW of coal-fired generation in North

                                       32
<PAGE>

     Carolina that is affected by this legislation. The legislation requires the
     emissions reductions to be completed in phases by 2013, and applies to each
     utility's  total system  rather than setting  requirements  for  individual
     power plants.  The  legislation  also freezes the utilities' base rates for
     five years unless there are extraordinary  events beyond the control of the
     utilities or unless the utilities  persistently earn a return substantially
     in excess of the rate of return  established  and found  reasonable  by the
     NCUC in the utilities'  last general rate case.  Further,  the  legislation
     allows the  utilities to recover from their retail  customers the projected
     capital costs during the first seven years of the 10-year compliance period
     beginning on January 1, 2003.  The  utilities  must recover at least 70% of
     their  projected  capital  costs during the five-year  rate freeze  period.
     Pursuant to the new law,  CP&L entered into an agreement  with the state of
     North Carolina to transfer to the state all future emissions  allowances it
     generates from  over-complying  with the new federal  emission  limits when
     these units are completed. The new law also requires the state to undertake
     a study of mercury and carbon  dioxide  emissions in North  Carolina.  CP&L
     cannot  predict the future  regulatory  interpretation,  implementation  or
     impact of this new law.

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

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

     2. CP&L,  like other electric  power  companies in North  Carolina,  pays a
     franchise  tax  levied  by the state  pursuant  to North  Carolina  General
     Statutes ss. 105-116,  a state-level  annual franchise tax (State Franchise
     Tax). Part of the revenue  generated by the State Franchise Tax is required
     by North Carolina  General  Statutes ss.  105-116.1(b) to be distributed to
     North Carolina cities in which CP&L maintains facilities. CP&L has paid and
     continues to pay the State  Franchise  Tax to the state when such taxes are
     due. However, pursuant to an Executive Order issued on February 5, 2002, by
     the  Governor  of  North  Carolina,   the  Secretary  of  Revenue  withheld
     distributions of State Franchise Tax revenues to cities for two quarters of
     fiscal year 2001-2002 in an effort to balance the state's budget.

     In response to the state's  failure to distribute  the State  Franchise Tax
     proceeds,  certain  cities  in  which  CP&L  maintains  facilities  adopted
     municipal  franchise  tax  ordinances  purporting to impose on CP&L a local
     franchise  tax. The local taxes are intended to be collected for as long as
     the state  withholds  distribution of the State Franchise Tax proceeds from
     the  cities.  The first local tax  payments  were due August 15,  2002.  On
     August 2, 2002,  CP&L filed a lawsuit  against the cities seeking to enjoin
     the enforcement of the local taxes and to have the local ordinances  struck
     down because the ordinances are beyond the cities' statutory  authority and
     violate provisions of the North Carolina and United States Constitutions.

     On September  14, 2002,  the Governor of North  Carolina  signed into law a
     provision  that prevents  cities and counties from levying local  franchise
     taxes on electric  utilities.  This new legislation  makes the lawsuit CP&L
     filed in August  against  certain cities that were seeking to enforce local
     franchise  tax  ordinances  moot.  As a  result  of the  enactment  of this
     legislation,  the parties  have agreed to an Order of Dismissal by Consent,
     which has been  signed  by the  judge and filed  with the Clerk of Court in
     Caswell County.

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

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

                                       33
<PAGE>

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

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

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

     CP&L also  continues to monitor  legislation  that has been  introduced  in
     Congress which might provide some limited  relief.  CP&L cannot predict the
     outcome of this matter.

     With certain modifications and additional approval by the NRC, CP&L's spent
     nuclear fuel storage facilities will be sufficient to provide storage space
     for spent  fuel  generated  on its system  through  the  expiration  of the
     current  operating  licenses  for  all of  its  nuclear  generating  units.
     Subsequent  to  the  expiration  of  these  licenses,  dry  storage  may be
     necessary.  CP&L obtained NRC approval to use  additional  storage space at
     the Harris Plant in December 2000.

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


                                       34
<PAGE>


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholder of Carolina Power & Light Company:

We have audited the consolidated  balance sheets and schedules of capitalization
of Carolina Power & Light Company and its subsidiaries (CP&L) as of December 31,
2002  and  2001,  and  the  related   consolidated   statements  of  income  and
comprehensive  income,  retained earnings,  and cash flows for each of the three
years in the period ended  December 31, 2002 and have issued our report  thereon
dated February 12, 2003 such  consolidated  financial  statements and report are
included herein. Our audits also included the consolidated  financial  statement
schedule  of CP&L  listed  in  Item 8.  This  consolidated  financial  statement
schedule is the  responsibility of CP&L's  management.  Our responsibility is to
express  an opinion  based on our  audits.  In our  opinion,  such  consolidated
financial statement schedule, when considered in relation to the basic financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.


/s/ DELOITTE & TOUCHE LLP
Raleigh, North Carolina
February 12, 2003


                                       35
<PAGE>


                         CAROLINA POWER & LIGHT COMPANY
                     Schedule II - Valuation and Qualifying
                    Accounts For the Years Ended December 31,
                               2002, 2001 and 2000

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

                               Balance at        Additions                                                 Balance at
                               Beginning        Charged to           Other                                   End of
         Description           of Period          Expense          Additions           Deductions            Period
---------------------------------------------------------------------------------------------------------------------------

Year Ended
   December 31, 2002

  Uncollectible accounts     $ 12,246,049       $  8,203,215         $      -         $  (9,156,225)   (a)   $ 11,293,039


Year Ended
   December 31, 2001

  Uncollectible accounts     $ 16,976,093       $  3,921,255        $    -            $  (8,651,299)   (a)   $ 12,246,049


Year Ended
   December 31, 2000

  Uncollectible accounts     $ 16,809,765       $ 12,450,000        $    -            $ (12,283,672)   (b)   $ 16,976,093

</TABLE>

(a)  Represents write-off of uncollectible accounts, net of recoveries.
(b)  Represents transfer of uncollectible account balances for SRS, NCNG, Monroe
     Power and PVI to Progress  Energy on July 1, 2000 of  $2,846,873 as well as
     write-off of uncollectible accounts, net of recoveries of $9,436,799.


                                       36
<PAGE>



ITEM 14.   CONTROLS AND PROCEDURES

Carolina Power & Light Company

Within the 90 days prior to the filing date of this report,  CP&L carried out an
evaluation,  under the supervision and with the participation of its management,
including  CP&L's chief executive  officer and chief financial  officer,  of the
effectiveness  of the design and  operation  of CP&L's  disclosure  controls and
procedures  pursuant to Rule 13a-14 under the  Securities  Exchange Act of 1934.
Based upon that evaluation,  CP&L's chief executive  officer and chief financial
officer  concluded that its disclosure  controls and procedures are effective in
timely  alerting them to material  information  relating to CP&L  (including its
consolidated subsidiaries) required to be included in its periodic SEC filings.

Since the date of the  evaluation,  there  have been no  significant  changes in
CP&L's  internal  controls or in other factors that could  significantly  affect
these controls.


                                       37
<PAGE>






                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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.


                                  CAROLINA POWER & LIGHT COMPANY
Date: August 11, 2003             (Registrant)

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

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







                                       38
<PAGE>

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, William Cavanaugh III, certify that:

1.   I have reviewed this annual report on Form 10-K/A of Carolina Power & Light
     Company;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;
     b)  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         annual report (the "Evaluation Date"); and
     c)  presented in this annual report our conclusions about the effectiveness
         of the disclosure controls and procedures based on our evaluation as of
         the Evaluation Date;

5.   The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors:

     a)  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and
     b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officer and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.



Date: August 11, 2003                      /s/ William Cavanaugh III
                                           -------------------------
                                           William Cavanaugh III
                                           Chairman and Chief Executive Officer

                                       39
<PAGE>

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, Peter M. Scott III, certify that:

1.   I have reviewed this annual report on Form 10-K/A of Carolina Power & Light
     Company;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;
     b)  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         annual report (the "Evaluation Date"); and
     c)  presented in this annual report our conclusions about the effectiveness
         of the disclosure controls and procedures based on our evaluation as of
         the Evaluation Date;

5.   The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors:

     a)  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and
     b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officer and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.



Date: August 11, 2003                      /s/ Peter M. Scott III
                                           ----------------------
                                           Peter M. Scott III
                                           Executive Vice President and
                                           Chief Financial Officer






                                       40

<PAGE>

                                                                    EXHIBIT 23.1


INDEPENDENT AUDITORS' CONSENT




We consent to the incorporation by reference in  Post-Effective  Amendment No. 1
to  Registration   Statement  No.  333-58800  and  Registration   Statement  No.
333-103973,  each on Form S-3 of Carolina  Power & Light  Company of our reports
dated  February  12,  2003,  appearing  in this Annual  Report on Form 10-K/A of
Carolina Power & Light Company for the year ended December 31, 2002.






/s/ Deloitte & Touche LLP
Raleigh, North Carolina
August 11, 2003


                                       41
<PAGE>

                                                                      Exhibit 99


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

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

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

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


/s/ William Cavanaugh III
-----------------------------
William Cavanaugh III
Chairman and Chief Executive Officer
August 11, 2003


                                       42
<PAGE>

                                                                      Exhibit 99

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

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

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

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


/s/ Peter M. Scott III
-----------------------------
Peter M. Scott III
Executive Vice President and
Chief Financial Officer
August 11, 2003


                                       43