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

                                    FORM 10-Q

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

               For the quarterly period ended September 30, 2003

                                       OR

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

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

                         

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

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



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

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


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

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

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

Indicate the number of shares  outstanding  of each of the  issuers'  classes of
common stock,  as of the latest  practicable  date. As of October 31, 2003, each
registrant had the following shares of common stock outstanding:

                         

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


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

                                       1


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




Glossary of Terms


Safe Harbor For Forward-Looking Statements


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

        Florida Progress Corporation

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

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

        Statements of Income
        Balance Sheets
        Statements of Cash Flows

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


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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures


PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K


Signatures




                                       2


                                GLOSSARY OF TERMS


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

                         

       TERM                                                   DEFINITION

AFUDC                                     Allowance for funds used during construction
the Agreement                             Stipulation and Settlement Agreement
APB No. 28                                Accounting Principles Board Opinion No. 28, "Interim Financial Reporting"
ARO                                       Asset retirement obligation
Bcf                                       Billion cubic feet
the Code                                  Internal Revenue Code
Colona                                    Colona Synfuel Limited Partnership, L.L.L.P.
the Company or Florida Progress           Florida Progress Corporation
CPI                                       Consumer Price Index
CR3                                       Progress Energy Florida Inc.'s nuclear generating plant, Crystal River Unit No. 3
DIG                                       Derivatives Implementation Group
DOE                                       United States Department of Energy
Dt                                        Dekatherm
EITF                                      Emerging Issues Task Force
EPA                                       United States Environmental Protection Agency
FASB                                      Financial Accounting Standards Board
FDEP                                      Florida Department of Environmental Protection
Federal Circuit                           United States Circuit Court of Appeals
FERC                                      Federal Energy Regulatory Commission
FIN No. 46                                FASB Interpretation No. 46, "Consolidation of Variable Interest Entities - An
                                          Interpretation of ARB No. 51"
Florida Progress or FPC                   Florida Progress Corporation
FPSC                                      Florida Public Service Commission
Funding Corp.                             Florida Progress Funding Corporation
GAAP                                      Accounting principles generally accepted in the United States of America
IRS                                       Internal Revenue Service
ISO                                       Independent System Operator
MACT                                      Maximum Available Control Technology
MGP                                       Manufactured Gas Plant
MW                                        Megawatts
NRC                                       United States Nuclear Regulatory Commission
NSP                                       Northern States Power
PEF or the utility                        Progress Energy Florida, Inc., formerly referred to as Florida Power Corporation
PFA                                       IRS Prefiling Agreement
the Plan                                  Revenue Sharing Incentive Plan
PLRs                                      Private Letter Rulings
Preferred Securities                      7.10% Cumulative Quarterly Income Preferred Securities, Series A, of FPC Capital
                                          I, fully and unconditionally guaranteed by Florida Progress
Progress Capital                          Progress Capital Holdings, Inc.
Progress Energy or the Parent             Progress Energy, Inc.
Progress Fuels                            Progress Fuels Corporation
Progress Rail                             Progress Rail Services Corporation
Progress Telecom                          Progress Telecommunications Corporation
PVI                                       Progress Ventures, Inc., formerly referred to as Energy Ventures
PUHCA                                     Public Utility Holding Company Act of 1935, as amended
PWR                                       Pressurized water reactor
RAFT                                      Railcar Asset Financing Trust
Rail                                      Rail Services
RTO                                       Regional Transmission Organization
SEC                                       United States Securities and Exchange Commission
Section 29                                Section 29 of the Internal Revenue Code
Service Company                           Progress Energy Service Company, LLC

                                       3


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




                                       4



SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

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

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

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

Examples of factors that you should consider with respect to any forward-looking
statements made throughout  this document  include,  but are not limited to, the
following:  the impact of fluid and  complex  government  laws and  regulations,
including those relating to the environment;  the impact of recent events in the
energy markets that have  increased the level of public and regulatory  scrutiny
in the energy industry and in the capital markets;  the impact of the settlement
of PEF's rate case;  deregulation or restructuring in the electric industry that
may result in  increased  competition  and  unrecovered  (stranded)  costs;  the
uncertainty   regarding   the  timing,   creation  and   structure  of  regional
transmission  organizations;  weather  conditions  that  directly  influence the
demand  for  electricity;   recurring   seasonal   fluctuations  in  demand  for
electricity;  fluctuations  in the price of  energy  commodities  and  purchased
power;  successful  maintenance  and operation of PEF's energy  commodities  and
purchased power;  economic  fluctuations and the  corresponding  impact on PEF's
commercial  and  industrial  customers;   the  inherent  risks  associated  with
operating nuclear facilities,  including environmental,  health,  regulatory and
financial  risks;  the  impact  of  any  terrorist  acts  generally  and  on our
generating  facilities  and other  properties;  the  ability  to access  capital
markets on favorable  terms;  the impact that  increases in leverage may have on
the  Company and PEF;  the  ability of the  Company  and PEF to  maintain  their
current credit  ratings;  the impact of derivative  contracts used in the normal
course of  business;  the  outcome  of the  IRS's  audit  and  inquiry  into the
availability  and use of Section 29 tax credits by synthetic  fuel producers and
the  Company's  continued  ability to use Section 29 tax credits  related to its
coal and  synthetic  fuels  businesses;  the  continued  depressed  state of the
telecommunications  industry and the Company's ability to realize future returns
from  Progress   Telecommunications   Corporation;   the  Company's  ability  to
successfully  integrate  newly acquired assets or properties into its operations
as quickly or as profitably as expected;  and unanticipated changes in operating
expenses  and capital  expenditures.  Most of these risks  similarly  impact the
Company's subsidiaries, including PEF.

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


                                       5


                          PART I. FINANCIAL INFORMATION


Item 1.  FINANCIAL STATEMENTS

                          Florida Progress Corporation
                    CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                               September 30, 2003

                         

CONSOLIDATED STATEMENTS of INCOME
(Unaudited)
                                                             Three Months Ended             Nine Months Ended
                                                               September 30,                  September 30,
- ------------------------------------------------------------------------------------------------------------------
(In thousands)                                              2003           2002           2003             2002
- ------------------------------------------------------------------------------------------------------------------
Operating Revenues
   Utility                                             $   904,115    $   863,637    $ 2,399,079      $ 2,316,001
   Diversified business                                    470,872        358,823      1,289,911        1,047,953
- ------------------------------------------------------------------------------------------------------------------
      Total Operating Revenues                           1,374,987      1,222,460      3,688,990        3,363,954
- ------------------------------------------------------------------------------------------------------------------
Operating Expenses
Utility
   Fuel used in electric generation                        255,071        229,366        657,463          623,472
   Purchased power                                         156,414        145,743        426,824          387,473
   Operation and maintenance                               163,528        146,814        458,261          433,441
   Depreciation and amortization                            82,160         73,427        240,956          218,004
   Taxes other than on income                               62,567         61,186        179,986          175,119
Diversified business
    Cost of sales                                          405,198        336,025      1,126,210          991,448
    Depreciation and amortization                           25,243         15,152         65,376           47,741
    Impairment of long-lived assets                              -        214,617              -          214,617
    Other                                                   29,987         43,379         89,709           84,402
- ------------------------------------------------------------------------------------------------------------------
        Total Operating Expenses                         1,180,168      1,265,709      3,244,785        3,175,717
- ------------------------------------------------------------------------------------------------------------------
Operating Income (Loss)                                    194,819        (43,249)       444,205          188,237
- ------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
   Interest income                                             819          1,744          2,505            5,619
   Other, net                                                5,747         (3,171)          (250)         (12,645)
- ------------------------------------------------------------------------------------------------------------------
        Total Other Income (Expense)                         6,566         (1,427)         2,255           (7,026)
- ------------------------------------------------------------------------------------------------------------------
Interest Charges
   Interest charges                                         28,921         45,773         123,613         141,083
   Allowance for borrowed funds used during                 (2,251)          (899)         (5,777)         (1,932)
      construction
- ------------------------------------------------------------------------------------------------------------------
        Total Interest Charges, Net                         26,670         44,874        117,836          139,151
- ------------------------------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations before
   Income Taxes                                            174,715        (89,550)       328,624           42,060
Income Tax Benefit                                            (299)       (32,529)       (37,049)         (67,049)
- ------------------------------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations               $   175,014    $   (57,021)   $   365,673      $   109,109
Discontinued Operations, Net of Tax:
   Income from discontinued operations                           -          5,120              -            5,120
- ------------------------------------------------------------------------------------------------------------------
Net Income (Loss)                                      $   175,014    $   (51,901)   $   365,673      $   114,229
- ------------------------------------------------------------------------------------------------------------------


See Notes to Interim Financial Statements.

                                       6


                         

Florida Progress Corporation
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)                                                              September 30,        December 31,
Assets                                                                           2003                2002
- ---------------------------------------------------------------------------------------------------------------
Utility Plant
  Utility plant in service                                                 $  7,793,068          $ 7,477,025
  Accumulated depreciation                                                   (3,983,759)          (4,123,947)
- ---------------------------------------------------------------------------------------------------------------
        Utility plant in service, net                                         3,809,309            3,353,078
  Held for future use                                                             7,921                7,921
  Construction work in progress                                                 561,666              426,641
  Nuclear fuel, net of amortization                                              72,231               40,260
- ---------------------------------------------------------------------------------------------------------------
        Total Utility Plant, Net                                              4,451,127            3,827,900
- ---------------------------------------------------------------------------------------------------------------
Current Assets
  Cash and cash equivalents                                                      16,305               33,601
  Accounts receivable                                                           472,456              385,431
  Unbilled accounts receivable                                                   63,167               60,481
  Receivables from affiliated companies                                          33,191               42,418
  Deferred income taxes                                                          41,561               26,209
  Inventory                                                                     445,405              492,273
  Deferred fuel cost                                                            192,150               37,503
  Prepayments and other current assets                                          183,647               93,802
- ---------------------------------------------------------------------------------------------------------------
        Total Current Assets                                                  1,447,882            1,171,718
- ---------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
  Regulatory assets                                                             118,201              130,114
  Unamortized debt expense                                                       30,985               23,363
  Nuclear decommissioning trust funds                                           403,703              373,551
  Diversified business property, net                                            817,823              699,493
  Miscellaneous other property and investments                                   81,173               83,222
  Prepaid pension cost                                                          225,325              226,413
  Other assets and deferred debits                                              174,799               90,716
- ---------------------------------------------------------------------------------------------------------------

        Total Deferred Debits and Other Assets                                1,852,009            1,626,872
- ---------------------------------------------------------------------------------------------------------------

        Total Assets                                                       $  7,751,018          $ 6,626,490
- ---------------------------------------------------------------------------------------------------------------
Capitalization and Liabilities
- ---------------------------------------------------------------------------------------------------------------
Capitalization
- ---------------------------------------------------------------------------------------------------------------
  Common stock                                                             $  1,784,026          $ 1,628,951
  Retained earnings                                                             760,614              598,191
  Accumulated other comprehensive loss                                          (11,140)             (15,737)
- ---------------------------------------------------------------------------------------------------------------
        Total Common Stock Equity                                             2,533,500            2,211,405
- ---------------------------------------------------------------------------------------------------------------
  Preferred stock of subsidiaries - not subject to mandatory redemption          33,497               33,497
  Unsecured note with parent                                                    500,000              500,000
  Long-term debt, net                                                         2,146,515            1,710,363
- ---------------------------------------------------------------------------------------------------------------
        Total Capitalization                                                  5,213,512            4,455,265
- ---------------------------------------------------------------------------------------------------------------
Current Liabilities
  Current portion of long-term debt                                              68,008              275,397
  Accounts payable                                                              356,127              348,842
  Payables to affiliated companies                                               82,614              102,619
  Notes payable to affiliated companies                                         703,397              379,677
  Taxes accrued                                                                  76,516               28,486
  Interest accrued                                                               28,933               68,120
  Short-term obligations                                                              -              257,100
  Customer deposits                                                             129,228              121,998
  Other current liabilities                                                     224,093              138,678
- ---------------------------------------------------------------------------------------------------------------
        Total Current Liabilities                                             1,668,916            1,720,917
- ---------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
  Accumulated deferred investment tax credits                                    43,381               47,914
  Regulatory liabilities                                                        159,357               61,004
  Asset retirement obligations                                                  322,992                    -
  Other liabilities and deferred credits                                        342,860              341,390
- ---------------------------------------------------------------------------------------------------------------
        Total Deferred Credits and Other Liabilities                            868,590              450,308
- ---------------------------------------------------------------------------------------------------------------

Commitments and Contingencies (Note 14)
- ---------------------------------------------------------------------------------------------------------------
         Total Capitalization and Liabilities                              $  7,751,018          $ 6,626,490
- ---------------------------------------------------------------------------------------------------------------


See Notes to Interim Financial Statements.

                                       7



                         

Florida Progress Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                                                                                        Nine Months Ended
                                                                                          September 30,
(In thousands)                                                                         2003          2002
- ---------------------------------------------------------------------------------------------------------------
Operating Activities
Net income                                                                            $ 365,673     $ 114,229
Adjustments to reconcile net income to net cash provided by operating activities:
      Income from discontinued operations                                                     -        (5,120)
      Impairment of long-lived assets                                                         -       214,617
      Depreciation and amortization                                                     311,274       283,993
      Deferred income taxes and investment tax credits, net                            (134,020)     (171,769)
      Deferred fuel credit                                                             (154,647)      (14,693)
      Net increase in accounts receivable                                               (84,410)      (60,646)
      Net (increase) decrease in affiliate accounts receivable                           13,543       (46,334)
      Net (increase) decrease in inventories                                             43,585       (28,368)
      Net (increase) decrease in prepayments and other current assets                     1,698       (11,062)
      Net increase in accounts payable                                                   24,314        22,407
      Net decrease in affiliate accounts payable                                        (18,306)      (14,066)
      Net increase in income taxes, net                                                  88,352       112,456
      Net increase in other current liabilities                                          53,165        18,542
      Other                                                                              24,664        52,989
- ---------------------------------------------------------------------------------------------------------------
         Net Cash Provided by Operating Activities                                      534,885       467,175
- ---------------------------------------------------------------------------------------------------------------
Investing Activities
Gross utility property additions                                                       (412,181)     (316,479)
Diversified business property additions                                                (306,145)     (101,499)
Nuclear fuel additions                                                                  (50,374)             -
Net contributions to nuclear decommissioning fund                                             -        12,206
Acquisition, net of cash acquired                                                             -       (17,355)
Other                                                                                   (10,627)         4,292
- ---------------------------------------------------------------------------------------------------------------
          Net Cash Used in Investing Activities                                        (779,327)     (418,835)
- ---------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt                                                638,756       236,242
Net increase (decrease) in short-term obligations                                      (258,149)       90,350
Retirement of long-term debt                                                           (429,940)     (338,632)
Net increase in intercompany notes                                                      323,719       177,815
Equity contributions from parent                                                        155,088        73,916
Dividends paid to parent                                                               (203,273)     (253,186)
Other                                                                                       945          (487)
- ---------------------------------------------------------------------------------------------------------------
           Net Cash Provided by (Used in) Financing Activities                          227,146       (13,982)
- ---------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                                    (17,296)       34,358
- ---------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of the Period                                     33,601         5,201
- ---------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period                                        $  16,305     $  39,559
- ---------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the year - interest (net of amount capitalized)                      $ 137,704     $ 132,219
                            income taxes (net of refunds)                             $  10,358     $  51,582


See Notes to Interim Financial Statements.

                                       8


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



                         

STATEMENTS of INCOME
(Unaudited)
                                                             Three Months Ended               Nine Months Ended
                                                                September 30,                   September 30,
- -------------------------------------------------------------------------------------------------------------------------
(In thousands)                                             2003              2002            2003              2002
- -------------------------------------------------------------------------------------------------------------------------

Operating Revenues - Utility                            $ 904,115         $ 863,637     $ 2,399,079       $ 2,316,001

Operating Expenses
   Fuel used in electric generation                       255,071           229,366         657,463           623,472
   Purchased power                                        156,414           145,743         426,824           387,473
   Operation and maintenance                              163,528           146,814         458,261           433,441
   Depreciation and amortization                           82,160            73,427         240,956           218,004
   Taxes other than on income                              62,567            61,186         179,986           175,119
- -------------------------------------------------------------------------------------------------------------------------
        Total Operating Expenses                          719,740           656,536       1,963,490         1,837,509
- -------------------------------------------------------------------------------------------------------------------------
Operating Income                                          184,375           207,101         435,589           478,492
- -------------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
   Interest income                                             85               297             219             1,574
   Other, net                                                 501            (1,454)          1,397            (3,529)
- -------------------------------------------------------------------------------------------------------------------------
        Total Other Income (Expense)                          586            (1,157)          1,616            (1,955)
- -------------------------------------------------------------------------------------------------------------------------
Interest Charges
   Interest charges                                        10,291            26,663          68,245            84,026
   Allowance for borrowed funds used during                (2,251)             (899)         (5,777)           (1,932)
construction
- -------------------------------------------------------------------------------------------------------------------------
        Total Interest Charges, Net                         8,040            25,764          62,468            82,094
- -------------------------------------------------------------------------------------------------------------------------
Income before Income Taxes                                176,921           180,180         374,737           394,443
Income Tax Expense                                         62,202            56,028         127,146           135,038
- -------------------------------------------------------------------------------------------------------------------------

Net Income                                              $ 114,719         $ 124,152     $   247,591       $   259,405

Dividends on Preferred Stock                                  378               378           1,134             1,134
- -------------------------------------------------------------------------------------------------------------------------
Earnings for Common Stock                               $ 114,341         $ 123,774     $   246,457       $   258,271
- -------------------------------------------------------------------------------------------------------------------------


See Notes to Interim Financial Statements.

                                       9



                         

Florida Power Corporation
d/b/a Progress Energy Florida, Inc.
BALANCE SHEETS
(Unaudited)
(In thousands)                                                  September 30,        December 31,
Assets                                                              2003                2002
- ---------------------------------------------------------------------------------------------------
Utility Plant
  Utility plant in service                                      $ 7,793,068          $ 7,477,025
  Accumulated depreciation                                       (3,983,759)          (4,123,947)
- ---------------------------------------------------------------------------------------------------
        Utility plant in service, net                             3,809,309            3,353,078
  Held for future use                                                 7,921                7,921
  Construction work in progress                                     561,666              426,641
  Nuclear fuel, net of amortization                                  72,231               40,260
- ---------------------------------------------------------------------------------------------------
        Total Utility Plant, Net                                  4,451,127            3,827,900
- ---------------------------------------------------------------------------------------------------
Current Assets
  Cash and cash equivalents                                          14,813               15,636
  Accounts receivable                                               233,322              186,630
  Unbilled accounts receivable                                       63,167               60,481
  Receivables from affiliated companies                              10,045               44,976
  Deferred income taxes                                              41,561               26,209
  Inventory                                                         229,002              235,043
  Deferred fuel cost                                                192,150               37,503
  Prepayments and other current assets                                3,674                5,339
- ---------------------------------------------------------------------------------------------------
        Total Current Assets                                        787,734              611,817
- ---------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
  Regulatory assets                                                 118,201              130,114
  Unamortized debt expense                                           22,359               14,503
  Nuclear decommissioning trust funds                               403,703              373,551
  Miscellaneous other property and investments                       38,987               39,298
  Prepaid pension cost                                              221,884              222,543
  Other assets and deferred debits                                    4,243                6,517
- ---------------------------------------------------------------------------------------------------
        Total Deferred Debits and Other Assets                      809,377              786,526
- ---------------------------------------------------------------------------------------------------
        Total Assets                                            $ 6,048,238          $ 5,226,243
- ---------------------------------------------------------------------------------------------------
Capitalization and Liabilities
- ---------------------------------------------------------------------------------------------------
Capitalization
- ---------------------------------------------------------------------------------------------------
  Common stock                                                  $ 1,081,256          $ 1,081,257
  Retained earnings                                               1,012,979              969,795
  Accumulated other comprehensive loss                               (2,446)              (2,684)
- ---------------------------------------------------------------------------------------------------
        Total Common Stock Equity                                 2,091,789            2,048,368
- ---------------------------------------------------------------------------------------------------
  Preferred stock - not subject to mandatory redemption              33,497               33,497
  Long-term debt, net                                             1,705,659            1,244,411
- ---------------------------------------------------------------------------------------------------
        Total Capitalization                                      3,830,945            3,326,276
- ---------------------------------------------------------------------------------------------------
Current Liabilities
  Current portion of long-term debt                                  42,550              216,921
  Accounts payable                                                  169,567              147,978
  Payables to affiliated companies                                   63,327               88,661
  Notes payable to affiliated companies                             476,669              237,425
  Taxes accrued                                                      76,236               24,472
  Interest accrued                                                   20,607               55,675
  Short-term obligations                                                  -              257,100
  Customer deposits                                                 129,228              121,998
  Accrued taxes other than income                                    74,770                9,046
  Other current liabilities                                          44,081               46,277
- ---------------------------------------------------------------------------------------------------
        Total Current Liabilities                                 1,097,035            1,205,553
- ---------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
  Accumulated deferred income taxes                                 358,338              361,133
  Accumulated deferred investment tax credits                        42,905               47,423
  Regulatory liabilities                                            159,357               61,004
  Asset retirement obligations                                      315,077                    -
  Other liabilities and deferred credits                            244,581              224,854
- ---------------------------------------------------------------------------------------------------
        Total Deferred Credits and Other Liabilities              1,120,258              694,414
- ---------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 14)
- ---------------------------------------------------------------------------------------------------
         Total Capitalization and Liabilities                   $ 6,048,238          $ 5,226,243
- ---------------------------------------------------------------------------------------------------


See Notes to Interim Financial Statements.



                         

Florida Power Corporation
d/b/a Progress Energy Florida, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
                                                                                       Nine Months Ended
                                                                                         September 30,
(In thousands)                                                                         2003         2002
- --------------------------------------------------------------------------------------------------------------
Operating Activities
Net income                                                                            $ 247,591    $ 259,405
Adjustments to reconcile net income to net cash provided by operating activities:
     Depreciation and amortization                                                      246,102      236,520
     Deferred income taxes and investment tax credits, net                              (29,846)     (13,555)
     Deferred fuel credit                                                              (154,647)     (14,693)
     Net increase in accounts receivable                                                (49,378)     (42,036)
     Net (increase) decrease in affiliate accounts receivable                            34,931      (20,180)
     Net (increase) decrease in inventories                                               6,041      (15,971)
     Net (increase) decrease in prepayments and other current assets                      1,665       (4,627)
     Net increase in accounts payable                                                    21,589        8,261
     Net decrease in affiliate accounts payable                                         (25,334)    (122,291)
     Net increase in income taxes, net                                                   51,764       26,361
     Net increase in other current liabilities                                           53,574       35,380
     Other                                                                               12,890       12,711
- --------------------------------------------------------------------------------------------------------------
         Net Cash Provided by Operating Activities                                      416,942      345,285
- --------------------------------------------------------------------------------------------------------------
Investing Activities
Gross utility property additions                                                       (412,181)    (316,479)
Nuclear fuel additions                                                                  (50,374)            -
Net contributions to nuclear decommissioning fund                                             -       12,206
Other                                                                                      (638)        (280)
- --------------------------------------------------------------------------------------------------------------
          Net Cash Used in Investing Activities                                        (463,193)    (304,553)
- --------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt                                                638,756      236,242
Net increase (decrease) in short-term obligations                                      (258,149)      90,350
Retirement of long-term debt                                                           (371,825)    (276,459)
Net increase in intercompany notes                                                      239,244      192,180
Dividends paid to parent                                                               (203,273)    (253,186)
Dividends paid on preferred stock                                                        (1,134)      (1,134)
Other                                                                                     1,809            -
- --------------------------------------------------------------------------------------------------------------
           Net Cash Provided by (Used in) Financing Activities                           45,428      (12,007)
- --------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                                       (823)      28,725
- --------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of the Period                                     15,636            -
- --------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period                                        $  14,813    $  28,725
- --------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the year - interest (net of amount capitalized)                      $  78,219    $  99,729
                            income taxes (net of refunds)                             $ 105,228    $ 116,991

See Notes to Interim Financial Statements.


                                       11




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


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A. Organization

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

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

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

     B. Basis of Presentation

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

     In accordance  with the provisions of Accounting  Principles  Board Opinion
     (APB) No. 28, "Interim  Financial  Reporting,"  GAAP requires  companies to
     apply a levelized  effective tax rate to interim periods that is consistent
     with  the  estimated  annual  effective  tax  rate.  The  intra-period  tax
     allocation, which will have no impact on total year net income, resulted in
     a tax benefit of $2.7  million  and a tax expense of $60.2  million for the
     three months ended  September 30, 2003 and 2002,  respectively  in order to
     maintain  an  effective  tax  rate  consistent  with the  estimated  annual
     effective  tax rate.  The  levelization  resulted in a tax benefit of $17.6
     million  and a tax  expense  of  $82.0  million  in the nine  months  ended
     September 30, 2003 and 2002, respectively.

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

     In preparing financial  statements that conform with GAAP,  management must
     make estimates and assumptions  that affect the reported  amounts of assets
     and  liabilities,  disclosure of contingent  assets and  liabilities at the
     date of the  financial  statements  and  amounts of revenues  and  expenses
     reflected  during the reporting  period.  Actual  results could differ from
     those  estimates.  Certain  reclassifications  for 2002  have  been made to
     conform to the 2003 presentation.

2.   ACQUISITION OF NATURAL GAS RESERVES

     During  the first  quarter  of 2003,  Progress  Fuels  entered  into  three
     independent transactions to acquire approximately 162 natural gas-producing
     wells with proven  reserves of  approximately  180 billion cubic feet (Bcf)
     from Republic Energy,  Inc. and two other  privately-owned  companies,  all
     headquartered  in Texas.  The primary assets in the  acquisition  have been
     contributed  to  Progress  Fuels  North  Texas Gas,  L.P.,  a  wholly-owned
     subsidiary of Progress Fuels.  The cash purchase price for the transactions
     totaled $148 million.

                                       12


3.   DIVESTITURES

     A. Mesa Hydrocarbons, Inc. Divestiture

     In September  2003,  the Finance  Committee as  authorized by the Company's
     Board of Directors  adopted a resolution  approving the sale of certain gas
     producing  properties  owned  by Mesa  Hydrocarbons,  LLC,  a  wholly-owned
     subsidiary of Progress  Fuels  Corporation,  which is included in the Fuels
     segment.  The $79.7  million  book  value of the assets to be sold has been
     grouped as assets held for sale and are included in other current assets on
     the accompanying  Consolidated Balance Sheets as of September 30, 2003. The
     primary  components  of  assets  held for sale are oil and gas  leases  and
     wells.

     On October 1, 2003,  the Company  completed the sale of these  assets.  Net
     proceeds of approximately  $97 million was used to reduce debt. The Company
     will record this transaction in the fourth quarter of 2003.

     B. Railcar Ltd. Divestiture

     In  December  2002,  the  Progress  Energy  Board of  Directors  adopted  a
     resolution  authorizing  the sale of the  majority of the assets of Railcar
     Ltd.,  a leasing  subsidiary  included  in the Rail  Services  segment.  An
     estimated  impairment  on assets held for sale was  recognized  in December
     2002 for the  write-down  of the  assets to be sold to fair  value less the
     costs to sell.

     The assets of Railcar  Ltd.  have been  grouped as assets held for sale and
     are included in other current assets on the Consolidated  Balance Sheets as
     of September  30, 2003.  The assets are recorded at $33.1 million and $23.6
     million as of September 30, 2003 and December 31, 2002, respectively.

     On  March  12,  2003,  the  Company  signed  a letter  of  intent  with The
     Andersons,  Inc. to sell the majority of Railcar Ltd.  assets. A definitive
     purchase  agreement  was  signed  on  November  6,  2003  with the  buyers,
     including Cap Acquire LLC. A  significant  portion of the proceeds from the
     sale will be used by Progress  Energy to pay off certain  Railcar  Ltd. off
     balance sheet lease  obligations  for railcars that will be  transferred to
     the buyers as part of the sales transaction. The transaction is targeted to
     close in 2003,  but is  subject  to various  closing  conditions  including
     financing and due diligence.

4.   FINANCIAL INFORMATION BY BUSINESS SEGMENT

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

     PEF is engaged in the generation,  transmission,  distribution  and sale of
     electric energy primarily in portions of Florida. These electric operations
     are subject to the rules and regulations of the FERC, the FPSC and the U.S.
     Nuclear Regulatory Commission (NRC).

     Fuels' operations,  which are located in the United States, include natural
     gas drilling and production,  coal mining and terminals, and the production
     of synthetic fuels.  Fuels sells coal to Progress  Ventures,  Inc. (PVI), a
     subsidiary  of Progress  Energy.  These related party sales are included in
     the revenues  that follow and are $48.7  million and $41.8  million for the
     three months ended  September 30, 2003 and 2002,  respectively,  and $124.4
     million and $153.7 million for the nine months ended September 30, 2003 and
     2002, respectively.

     Rail  operations  include  railcar repair,  rail parts  reconditioning  and
     sales,  railcar leasing  (primarily  through  Railcar Ltd.) and sales,  and
     scrap  metal   recycling.   These   activities   include   maintenance  and
     reconditioning  of  salvageable  scrap  components of railcars,  locomotive
     repair and right-of-way maintenance.  Rail's primary operations are located
     in the United States, with limited operations in Mexico and Canada.

     Other  primarily  includes the  operations  of Progress  Telecommunications
     Corporation   (Progress   Telecom),   the   Company's    telecommunications
     subsidiary;  the Company's investment in FPC Capital Trust, which holds the
     Preferred Securities;  and the holding company, Florida Progress.  Progress
     Telecom markets wholesale fiber-optic based capacity service in the Eastern
     United States and also markets wireless  structure  attachments to wireless
     communication companies and governmental entities.

     Intersegment  sales and transfers  consist primarily of coal sales from the
     Fuels  segment to PEF. The price that Fuels  charges PEF is based on market
     rates  for coal  procurement  and for  water-borne  transportation  under a
     methodology approved by the FPSC.

                                       13



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

                         


     (In thousands)                              PEF         Fuels          Rail          Other       Consolidated
     ---------------------------------------------------------------------------------------------------------------
     Three Months Ended September 30, 2003:
       Revenues                                  904,115       254,901     208,795            7,176      1,374,987
       Intersegment  revenues                          -        87,054         951          (88,005)             -
          Total revenues                         904,115       341,955     209,746          (80,829)     1,374,987
       Segment profit                            114,341        59,674         706              293        175,014
     ===============================================================================================================

                                                 PEF         Fuels          Rail          Other       Consolidated
     ---------------------------------------------------------------------------------------------------------------
     Three Months Ended September 30, 2002:
       Revenues                                  863,637       171,959     179,712            7,152      1,222,460
       Intersegment  revenues                          -        91,078       1,282          (92,360)             -
          Total revenues                         863,637       263,037     180,994          (85,208)     1,222,460
          Segment profit (loss)                  123,774        30,178        (579)        (210,394)       (57,021)
     ===============================================================================================================

     (In thousands)                             PEF          Fuels         Rail          Other        Consolidated
     ---------------------------------------------------------------------------------------------------------------
     Nine Months Ended September 30, 2003:
       Revenues                                2,399,079       669,253     600,013           20,645      3,688,990
       Intersegment  revenues                          -       256,114       1,282         (257,396)             -
          Total revenues                       2,399,079       925,367     601,295         (236,751)     3,688,990
       Segment profit (loss)                     246,457       111,468        (498)           8,246        365,673
       Total segment assets                    6,048,238       915,419     595,104          192,257      7,751,018
     ===============================================================================================================

                                                PEF          Fuels         Rail          Other        Consolidated
     ---------------------------------------------------------------------------------------------------------------
     Nine Months Ended September 30, 2002:
       Revenues                                2,316,001       492,597     529,818           25,538      3,363,954
       Intersegment  revenues                          -       235,704       2,632         (238,336)             -
          Total revenues                       2,316,001       728,301     532,450         (212,798)     3,363,954
          Segment profit (loss)                  258,271        93,215       1,667         (244,044)       109,109
       Total segment assets                    5,079,718       843,422     579,947           79,944      6,583,031
     ===============================================================================================================


5.   IMPACT OF NEW ACCOUNTING STANDARDS

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

     For  purposes  of the pro  forma  disclosures  required  by SFAS  No.  148,
     "Accounting for  Stock-Based  Compensation - Transition and Disclosure - an
     Amendment of FASB  Statement No. 123," the estimated fair value of Progress
     Energy's  stock  options is amortized to expense over the options'  vesting
     period.  The  Company's  information  related  to the pro  forma  impact on
     earnings assuming stock options were expensed for the three and nine months
     ended September 30, 2003 and 2002 is as follows:

                                       14



                         

     (in thousands)
                                                                 Three Months Ended                Nine Months Ended
                                                                   September 30,                     September 30,
                                                           --------------------------------------------------------------
     FLORIDA PROGRESS CORPORATION                              2003             2002           2003           2002
                                                           --------------  ----------------------------- ----------------
     Net income (loss), as reported                            $ 175,014      $ (51,901)     $ 365,673     $ 114,229
     Deduct:  Total stock option expense determined under
       fair value method for all awards, net of related tax
       effects                                                       997            865          1,690         1,369
                                                           --------------  ----------------------------- ----------------
     Pro forma net income (loss)                               $ 174,017      $ (52,766)     $ 363,983     $ 112,860
                                                           ==============  ============================= ================

                                                                 Three Months Ended                Nine Months Ended
                                                                   September 30,                     September 30,
                                                           --------------------------------------------------------------
     PROGRESS ENERGY FLORIDA, INC.                             2003             2002           2003           2002
                                                           --------------  ----------------------------- ----------------
     Earnings for common stock, as reported                    $ 114,341      $ 123,774      $ 246,457     $ 258,271
     Deduct:  Total stock option expense determined under
       fair value method for all awards, net of related tax
       effects                                                       525            596          1,160         1,058
                                                           --------------  ----------------------------- ----------------
     Pro forma earnings for common stock                       $ 113,816      $ 123,178      $ 245,297     $ 257,213
                                                           ==============  ============================= ================


     During 2003, the Financial  Accounting  Standards Board (FASB) has approved
     certain decisions in conjunction with its stock-based compensation project.
     Some of the  key  decisions  reached  by the  FASB  were  that  stock-based
     compensation should be recognized in the income statement as an expense and
     that the expense should be measured as of the grant date at fair value. The
     FASB continues to deliberate additional issues in this project and plans to
     issue an exposure draft early 2004.

     Derivative Instruments and Hedging Activities
     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
     Derivative  Instruments and Hedging  Activities."  The statement amends and
     clarifies SFAS No. 133 on accounting for derivative instruments,  including
     certain derivative instruments embedded in other contracts, and for hedging
     activities.  The new guidance  incorporates  decisions  made as part of the
     Derivatives  Implementation  Group  (DIG)  process,  as well  as  decisions
     regarding  implementation  issues raised in relation to the  application of
     the  definition  of a derivative.  SFAS No. 149 is generally  effective for
     contracts entered into or modified after June 30, 2003. Interpretations and
     implementation issues with regard to SFAS No. 149 continue to evolve. Based
     on its analysis and  understanding  to date, and  considering  the types of
     contracts  historically  entered into, the Company does not anticipate that
     this statement will have a significant  impact on its results of operations
     or financial position.

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

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

     The FPC  Capital  I  Preferred  Securities,  as  discussed  in Note 8, were
     reported as debt prior to July 1, 2003. Therefore, the adoption of SFAS No.
     150 did not have a material  impact on the Company's  results of operations
     or financial position as of and for the periods ended September 30, 2003.

                                       15


     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  and  determining   whether  such  entities  should  be
     consolidated.  FIN No. 46 requires an enterprise to  consolidate a variable
     interest  entity when the enterprise (a) absorbs a majority of the variable
     interest entity's expected losses,  (b) receives a majority of the entity's
     expected residual returns,  or both, as a result of ownership,  contractual
     or other financial interests in the entity.  Prior to the effective date of
     FIN No. 46, entities were generally  consolidated by an enterprise that had
     control through ownership of a majority voting interest in the entity.  FIN
     No. 46  applies  immediately  to  variable  interest  entities  created  or
     obtained after January 31, 2003.  During the first nine months of 2003, the
     Company did not  participate  in the  creation of, or obtain a new variable
     interest in, any variable  interest  entity.  On October 9, 2003,  the FASB
     issued Staff Position No. FIN 46-6, which allowed for the optional deferral
     of the  effective  date of FIN No. 46 from July 1, 2003 until  December 31,
     2003, for interests held by a public company in variable  interest entities
     created prior to February 1, 2003.  Because the Company expects  additional
     transitional  guidance to be issued, it has deferred its  implementation of
     FIN No. 46 until December 31, 2003.

     The Company has entered into  arrangements  with several variable  interest
     entities through its Railcar,  Ltd. subsidiary.  These arrangements include
     six  synthetic  leases with a master trust,  a servicing  contract with the
     Railcar  Asset  Financing  Trust (RAFT),  and a receivables  securitization
     transaction with a commercial paper conduit. Because the Company expects to
     divest of its interests in all these  arrangements in 2003, the adoption of
     FIN No. 46 related to these  variable  interests  is not expected to have a
     significant  effect on the  Company's  financial  position  or  results  of
     operations.  If the  Company  does not divest of its  interests  in 2003 as
     expected,  under the current  guidance the Company  would  consolidate  the
     master  trust  and  record  an  increase  in both  total  assets  and total
     liabilities of approximately  $25.8 million.  As of September 30, 2003, the
     maximum  cash  obligations  under  all  three of these  arrangements  total
     approximately $39.2 million. Management believes this maximum loss exposure
     is significantly reduced based on the current fair values of the underlying
     assets of the entities.

     Upon  adoption of FIN No. 46 as currently  issued,  the Company  expects to
     deconsolidate   the  FPC   Capital  I  Trust  (the   Trust),   which  holds
     FPC-obligated mandatorily redeemable preferred securities (see Note 8). The
     Trust is a variable  interest  entity,  but the  Company  does not absorb a
     majority of the Trust's  expected  losses and  therefore is not its primary
     beneficiary.  In connection with the planned deconsolidation as of December
     31, 2003, the Company expects to record an additional  equity investment in
     the Trust of approximately $9.3 million and an increase in outstanding debt
     of approximately $9.3 million. See Note 8 for a discussion of the Company's
     guarantees with the Trust.

     The Company also has interests in several other variable  interest entities
     created  before  January 31, 2003,  for which the Company  would not be the
     primary  beneficiary  based on the  current  guidance.  These  arrangements
     include  equity  investments  in  approximately  six limited  partnerships,
     limited  liability  corporations  and venture capital funds.  The aggregate
     maximum  loss  exposure as of September  30, 2003 under these  arrangements
     totals  approximately  $11.6  million.  The  creditors  of  these  variable
     interest entities do not have recourse to the general credit of the Company
     in excess of the aggregate maximum loss exposure.

     EITF Issue No. 03-04, "Accounting for `Cash Balance' Pension Plans"
     In May  2003,  the  EITF  reached  consensus  in EITF  Issue  No.  03-04 to
     specifically address the accounting for certain cash balance pension plans.
     The consensus reached in EITF Issue No. 03-04 requires certain cash balance
     pension  plans to be  accounted  for as  defined  benefit  plans.  For cash
     balance plans  described in the consensus,  the consensus also requires the
     use of the  traditional  unit credit  method for purposes of measuring  the
     benefit  obligation  and annual cost of  benefits  earned as opposed to the
     projected unit credit method.  The Company has  historically  accounted for
     its cash balance plans as defined  benefit plans;  however,  the Company is
     required  to adopt the  measurement  provisions  of EITF  03-04 at its cash
     balance plans' next  measurement date of December 31, 2003. Any differences
     in the measurement of the obligations as a result of applying the consensus
     will be reported as a component  of actuarial  gain or loss.  The effect of
     this standard on the Company is dependent on other factors that also affect
     the  determination  of  actuarial  gains  and  losses  and  the  subsequent
     amortization of such gains and losses. However, the Company does not expect
     the  adoption  of EITF  03-04 to have a material  effect on its  results of
     operations or financial position.

                                       16



6.   ASSET RETIREMENT OBLIGATIONS

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

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

     Funds set aside in PEF's nuclear decommissioning trust fund for the nuclear
     decommissioning  liability totaled $403.7 million at September 30, 2003 and
     $373.6  million at December  31,  2002.  In  accordance  with SFAS No. 143,
     unrealized gains and losses on the nuclear  decommissioning  trust fund are
     now   included  in   regulatory   liabilities   rather   than   accumulated
     depreciation.  The balance of this regulatory liability as of September 30,
     2003 was $78.1 million for PEF.

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

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

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

     PEF has previously  recognized removal costs as a component of depreciation
     in accordance  with  regulatory  treatment.  As of September 30, 2003,  the
     portion of such costs not  representing  AROs under SFAS No. 143 was $955.8
     million.  This  amount  is  included  in  accumulated  depreciation  on the
     accompanying  Balance Sheets.  PEF has collected amounts for non-irradiated
     areas at nuclear facilities,  which do not represent AROs. These amounts as
     of  September  30,  2003  totaled  $61.5  million,  which  is  included  in
     accumulated depreciation on the accompanying Balance Sheets. PEF previously
     collected amounts for dismantlement of its fossil generation  plants. As of
     September 30, 2003, this amounted to $142.4  million,  which is included in
     accumulated   depreciation  on  the  accompanying   Balance  Sheets.   This
     collection was suspended pursuant to the rate case settlement  discussed in
     Note 9.

                                       17


     On January 23, 2003, the Staff of the FPSC issued a notice of proposed rule
     development to adopt provisions  relating to accounting for AROs under SFAS
     No. 143.  Accompanying  the notice was a draft rule  presented by the Staff
     which adopts the  provisions of SFAS No. 143 along with the  requirement to
     record the difference between amounts prescribed by the FPSC and those used
     in the  application  of SFAS No.  143 as  regulatory  assets or  regulatory
     liabilities,  which was accepted by all parties. Therefore, the adoption of
     the statements had no impact on the income of PEF due to the  establishment
     of a regulatory  liability pursuant to SFAS No. 71. The Commission approved
     this draft rule and a final order was issued in the third quarter of 2003.

7.   GOODWILL AND OTHER INTANGIBLE ASSETS

     Effective January 1, 2002, the Company adopted SFAS No. 142,  "Goodwill and
     Other  Intangible  Assets."  This  statement  clarifies  the  criteria  for
     recording of other intangible  assets  separately from goodwill.  Effective
     January 1, 2002,  goodwill was no longer subject to  amortization  over its
     estimated useful life.  Instead,  goodwill is subject to at least an annual
     assessment  for  impairment by applying a two-step  fair-value  based test.
     This assessment could result in periodic  impairment  charges.  The Company
     completed the first step of the initial  transitional  goodwill  impairment
     test,  which  indicated that the Company's  goodwill was not impaired as of
     January 1, 2002.

     The  Company's  carrying  amount of  goodwill  at  September  30,  2003 and
     December 31, 2002, was $9.9 million and $11.1 million, respectively, in the
     Fuels segment.  The Company has $9.0 million of net intangible assets as of
     September 30, 2003 and no significant  intangible assets as of December 31,
     2002. The $9.0 million relates to a $9.2 million contract  acquired as part
     of the  Westchester Gas Company  acquisition  (for which the purchase price
     allocation  was  finalized  during  the  first  quarter  of  2003)  net  of
     amortization  to date.  PEF has no  significant  intangible  assets  and no
     goodwill as of September 30, 2003 and December 31, 2002.

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

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

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

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

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

     These  Preferred  Securities  are  classified as long-term  debt on Florida
     Progress' Consolidated Balance Sheets. Upon adoption of the current FIN No.
     46 standard, the Company anticipates deconsolidating the Trust which is not
     expected to have a material effect on the consolidated  financial position,
     results of operations or liquidity (see Note 5).

                                       18


9.   REGULATORY MATTERS

     A. Retail Rate Matters

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

     The Plan establishes annual revenue caps and sharing  thresholds.  The Plan
     provides that all retail base revenues between an established threshold and
     cap will be shared - a 2/3 share to be refunded to PEF's retail  customers,
     and a 1/3 share to be received by PEF's shareholders.  All retail base rate
     revenues above the retail base rate revenue caps  established for each year
     will be refunded 100% to retail  customers on an annual  basis.  The retail
     base rate revenue sharing threshold amounts for 2003 are $1.333 billion and
     will increase $37 million each year thereafter. The retail base revenue cap
     for 2003 is  $1.393  billion  and  will  increase  $37  million  each  year
     thereafter.  As of  December  31,  2002,  $4.7  million was accrued and was
     refunded to customers in March 2003.  On February 24, 2003,  the parties to
     the Agreement  filed a motion seeking an order from the FPSC to enforce the
     Agreement. In this motion, the parties disputed PEF's calculation of retail
     revenue  subject  to  refund  and  contended  that  the  refund  should  be
     approximately  $23 million.  On July 9, 2003,  the FPSC ruled that PEF must
     provide an  additional  refund of $18.4  million  to its  retail  customers
     related to the 2002 revenue sharing  calculation.  PEF recorded this refund
     in the  second  quarter  of 2003 as a  charge  against  electric  operating
     revenue and refunded  this amount by October 31, 2003.  For the nine months
     ended  September  30,  2003,  PEF  recorded an  additional  accrual of $5.4
     million related to estimated 2003 revenue sharing.

     On March 4, 2003,  the FPSC  approved  PEF's  petition to increase its fuel
     factors  due to  continuing  increases  in oil and  natural  gas  commodity
     prices. New rates became effective on March 28, 2003.

     On September 12, 2003,  PEF announced that it had asked the FPSC to approve
     a cost  adjustment in its annual fuel filing,  primarily  related to rising
     costs of fuel that will increase retail customer bills beginning January 1,
     2004.  The total  amount of the fuel  adjustment  requested  above  current
     levels was $322  million.  A decision from the FPSC is expected on November
     12, 2003.

     B. Regional Transmission Organizations

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

     The Company has actively  participated in the RTO formation in Florida. The
     three peninsular Florida investor-owned  utilities,  PEF, Florida Power and
     Light Company and Tampa Electric Company (the Applicants) have proposed the
     formation of GridFlorida,  a single ISO  (Independent  System Operator) for
     peninsular  Florida.  Participation  is  expected  from  many of the  other
     transmission  owners in the state of Florida.  The GridFlorida  proposal is
     pending before both the FERC and the FPSC. In December 2001, the FPSC found
     the Applicants were prudent in proactively  forming GridFlorida but ordered
     the  Applicants  to modify  the  proposal  in  several  material  respects,

                                       19


     including a change to status as a not-for-profit ISO. The Commission's most
     recent  order in September  2002 ordered  further  state  proceedings.  The
     issues to be addressed as  modifications  include but are not limited to 1)
     pricing/rate  structure;  2)  elimination  of pancaking  revenues;  3) cost
     recovery of incremental  costs; 4) demarcation dates for new facilities and
     long-term transmission  contracts;  5) market design. The Florida Office of
     Public Counsel  appealed the September  order to the Florida  Supreme Court
     and in October 2002 the FPSC abated its proceedings  pending the outcome of
     the appeal.  On June 2, 2003 the Florida Supreme Court dismissed the appeal
     without  prejudice on the ground that certain  portions of the Commission's
     order constituted  non-final action.  The dismissal is without prejudice to
     any party to challenge the Commission's order after all portions are final.
     A technical  conference  for the state of Florida was conducted by the FERC
     on September 15, 2003. At September 30, 2003, the Company had an immaterial
     amount  invested in  GridFlorida.  It is unknown  when the FERC or the FPSC
     will take final action with regard to the status of GridFlorida or what the
     impact of further proceedings will have on the Company's or PEF's earnings,
     revenues or prices.

10.  COMPREHENSIVE INCOME

     Comprehensive  income for  Florida  Progress  for the three and nine months
     ended   September  30,  2003  was  $181.7   million  and  $370.3   million,
     respectively.  Florida  Progress  comprehensive  loss for the three  months
     September 30, 2002 was $58.4 and  comprehensive  income for the nine months
     ended September 30, 2002 was $108.0 million.  Comprehensive  income for PEF
     for the three and nine months ended  September 30, 2003 was $114.7  million
     and  $247.8  million,  respectively.  PEF did not have  any  items of other
     comprehensive income for the three or nine months ended September 30, 2002.
     Items of other comprehensive  income consisted primarily of changes in fair
     value of  derivatives  used to hedge cash  flows  related  to  interest  on
     long-term  debt  and  gas  sales,  and  to  foreign  currency   translation
     adjustments.

11.  FINANCING ACTIVITIES

     On February 21,  2003,  PEF issued $425  million of First  Mortgage  Bonds,
     4.80%  Series Due March 1, 2013 and $225 million of First  Mortgage  Bonds,
     5.90% Series,  Due March 1, 2033.  Proceeds from this issuance were used to
     repay the balance of its  outstanding  commercial  paper,  to refinance its
     secured and unsecured indebtedness, including $70 million of First Mortgage
     Bonds 6.125% Series Due March 1, 2003, and to redeem on March 24, 2003, the
     $150 million aggregate  outstanding  balance of its 8% First Mortgage Bonds
     Due 2022 at 103.75% of the principal amount of such bonds.

     On April 1,  2003,  PEF  entered  into a new $200  million  364-day  credit
     agreement and a new $200 million three-year credit agreement  replacing its
     prior credit  facilities (which had been a $90 million 364-day facility and
     a $200 million five-year facility). The new PEF credit facilities contain a
     defined  maximum  total debt to total capital ratio of 65%; as of September
     30,  2003 the  calculated  ratio,  as  defined,  was 51.3%.  The new credit
     facilities also contain a requirement that the ratio of EBITDA,  as defined
     in the  facilities,  to  interest  expense  to be at  least  3 to 1;  as of
     September 30, 2003 the calculated ratio, as defined, was 8.1 to 1.

     On July 1, 2003, $110 million of PEF's First Mortgage  Bonds,  6.0% Series,
     Due July 1, 2003 and $35 million of PEF's medium-term  notes, 6.62% Series,
     matured.

     The Company received  proceeds of approximately $97 million in October 2003
     for the sale of its Mesa gas properties located in Colorado.  Proceeds will
     primarily be used to reduce short-term debt.

     On October 31, 2003,  PEF announced  the  redemption of $100 million of its
     First  Mortgage  Bonds,  7% Series,  Due 2023 at  103.19% of the  principal
     amount of such  bonds.  PEF intends to redeem the bonds on December 1, 2003
     with commercial paper proceeds.

12.  RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS

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

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

                                       20


     The Company uses interest rate derivative instruments to adjust the fixed
     and variable rate debt components of its debt portfolio and to hedge
     interest rates with regard to future fixed rate debt issuances. Treasury
     rate lock agreements were terminated in conjunction with the pricing of the
     PEF First Mortgage Bonds in February 2003. The loss on the agreements was
     deferred and is being amortized over the life of the bonds as these
     agreements had been designated as cash flow hedges for accounting purposes.
     The amount of this loss was not material.

     Progress Fuels Corporation  periodically enters into derivative instruments
     to hedge its  exposure to price  fluctuations  on natural gas sales.  As of
     September  30, 2003,  Progress  Fuels  Corporation  has executed  cash flow
     hedges on  approximately  12.6 Bcf of natural  gas sales  through  December
     2004.  These  instruments  did not have a material  impact on the Company's
     consolidated financial position or results of operations.

13.  OTHER INCOME AND OTHER EXPENSE

     Other  income and expense  includes  interest  income and other  income and
     expense items as discussed  below. The components of other, net as shown on
     the  accompanying  Consolidated  Statements  of  Income  for three and nine
     months ended September 30, 2003 and 2002 are as follows:

                         


     (in thousands)                                        Three Months Ended                Nine Months Ended
                                                             September 30,                     September 30,
                                                      -----------------------------     ----------------------------
                                                          2003             2002             2003           2002
                                                      ------------     ------------     -----------    -------------
     Other income
     Net energy brokered for resale gain (loss)           $  (435)        $  1,470        $   (548)       $   1,775
     Nonregulated energy and delivery services              3,553            3,060          10,456            9,953
     income
     AFUDC equity                                           2,714              362           6,764              777
     Other                                                      -               49               -              (33)
                                                      ------------     ------------     -----------    -------------
         Total other income - PEF and Florida             $ 5,832         $  4,941        $ 16,672        $  12,472
              Progress                                ------------     ------------     -----------    -------------

     Other expense
     Nonregulated energy and delivery services
     expenses                                             $ 2,617         $  2,022        $  8,318        $   6,138
     Donations                                              2,396            2,033           6,449            6,481
     Other                                                    318            2,340             508            3,382
                                                      ------------     ------------     -----------    -------------
        Total other expense - PEF                         $ 5,331         $  6,395        $ 15,275        $  16,001
     Other expense - Florida Progress(a)                   (5,246)           1,717           1,647            9,116
                                                      ------------     ------------     -----------    -------------
        Total other expense - PEF and Florida             $    85         $  8,112        $ 16,922        $  25,117
             Progress                                 ------------     ------------     -----------    -------------
     Other, net                                           $ 5,747         $ (3,171)       $   (250)       $ (12,645)
                                                      ============     ============     ===========    =============
     (a) 2003 includes reduction of approximately $6 million in the FPC
         contractual environmental liability as discussed in Note 14.


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

14.  COMMITMENTS AND CONTINGENCIES

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

     A. Guarantees

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

                                       21


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

     (in millions)
     Guarantees issued on behalf of the Company and affiliates
          Standby letters of credit                                  $  35.3
          Surety bonds                                                  47.3
          Other guarantees                                              30.6
     Guarantees issued on behalf of third parties
          Other guarantees                                              16.4
                                                               ----------------
        Total                                                        $ 129.6
                                                               ================

     Standby Letters of Credit
     The Company has issued standby letters of credit to financial  institutions
     for the benefit of third parties that have  extended  credit to the Company
     and certain  subsidiaries.  Of the total standby  letters of credit issued,
     PEF has issued commitments  totaling $11.1 million.  Letters of credit have
     decreased  approximately  $7.2  million  over the first nine  months of the
     year. These letters of credit have been issued primarily for the purpose of
     supporting payments of trade payables, securing performance under contracts
     and lease  obligations  and self insurance for workers  compensation.  If a
     subsidiary  does not pay  amounts  when due under a covered  contract,  the
     counterparty   may  present   its  claim  for  payment  to  the   financial
     institution,  which will in turn  request  payment  from the  Company.  Any
     amounts  owed  by  the   Company's   subsidiaries   are  reflected  in  the
     accompanying Consolidated Balance Sheets.

     Surety Bonds
     At September 30, 2003,  the Company had $47.3  million in surety bonds,  of
     which PEF accounted for $4.2 million, purchased primarily for purposes such
     as providing workers compensation coverage and obtaining licenses,  permits
     and  rights-of-way.  To the extent  liabilities are incurred as a result of
     the activities  covered by the surety bonds,  such liabilities are included
     in the accompanying Consolidated Balance Sheets.

     Other Guarantees
     The Company has total other guarantees  outstanding of approximately  $47.0
     million related primarily to prompt performance payments, lease obligations
     and other payments subject to contingencies. Approximately $25.5 million in
     additional guarantees were issued during 2003.

     Guarantees Issued by Progress Energy
     Progress  Energy  has  issued   approximately  $7.5  million  of  financial
     guarantees on behalf of Progress Rail Services  Corporation for obligations
     related to the purchase and sale of railcar  parts,  equipment and services
     which are not included in the table above. In addition, Progress Energy has
     issued  approximately  $26.5  million of  guarantees  on behalf of Progress
     Fuels and its subsidiaries for obligations  under coal trading  operations.
     All of these guarantees were issued during 2003.

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

     B. Insurance

     PEF is insured against public liability for a nuclear  incident.  Under the
     current  provisions of the Price Anderson Act,  which limits  liability for
     accidents at nuclear power plants,  PEF, as owner of a nuclear unit, can be
     assessed a portion of any  third-party  liability  claims  arising  from an
     accident at any commercial nuclear power plant in the United States. In the
     event that public  liability claims from an insured nuclear incident exceed
     $300  million  (currently  available  through  commercial  insurers),  each
     company would be subject to pro rata assessments for each reactor owned per
     occurrence.  Effective August 20, 2003, the retroactive premium assessments
     increased to $100.6  million per reactor from the previous  amount of $88.1
     million.  The total  limit  available  to cover  nuclear  liability  losses
     increased  as  well  from  $9.6  billion  to  $10.8  billion.   The  annual
     retroactive premium limit of $10 million per reactor owned did not change.

     C. Claims and Uncertainties

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

                                       22


     Hazardous and Solid Waste Management

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

     PEF As of September  30, 2003,  PEF has accrued  $23.6 million for probable
     and  estimable  costs  related  to  various  environmental  sites.  Of this
     accrual,  $16.6 million is for costs associated with the  investigation and
     remediation of transmission and  distribution  substations and transformers
     which are more fully discussed below. The remaining $7.0 million is related
     to two former MGP sites and 10 other active sites  associated with PEF that
     have  required  or  are   anticipated  to  require   investigation   and/or
     remediation  costs. PEF does not believe that it can provide an estimate of
     the reasonably  possible total  remediation  costs beyond what is currently
     accrued.

     In 2002,  PEF accrued  approximately  $3.4  million for  investigation  and
     remediation costs associated with transmission and distribution substations
     and transformers and received approval from the FPSC for annual recovery of
     these  environmental  costs through the Environmental  Cost Recovery Clause
     (ECRC). In September 2003, PEF also accrued an additional $15.1 million for
     similar  environmental  costs as a result of increased  sites and estimated
     costs per site.  PEF plans to seek  approval from the FPSC to recover these
     costs through the ECRC. As more  activity  occurs at these sites,  PEF will
     assess the need to adjust the accruals.

     These accruals have been recorded on an  undiscounted  basis.  PEF measures
     its  liability  for these sites based on available  evidence  including its
     experience in investigating and remediating environmentally impaired sites.
     This  process  often  includes   assessing  and   developing   cost-sharing
     arrangements with other potentially  responsible  parties.  Presently,  PEF
     cannot  determine the total costs that may be incurred in  connection  with
     the remediation of all sites.

     Florida   Progress  In  2001,   Progress   Fuels  sold  its  Inland  Marine
     Transportation  business to AEP Resources,  Inc. Progress Fuels established
     an accrual to address  indemnities  and  retained  environmental  liability
     associated  with  the  transaction.   Progress  Fuels  estimates  that  its
     contractual liability to AEP Resources,  Inc. associated with Inland Marine
     Transportation  is $3.5 million at September  30, 2003 and has accrued such
     amount.  The previous accrual of $9.9 million was reduced based on a change
     in estimate.  This accrual has been  determined on an  undiscounted  basis.
     Progress  Fuels measures its liability for this site based on estimable and
     probable  remediation  scenarios.  The  Company  believes  that  it is  not
     reasonably  probable that additional  costs will be incurred related to the
     environmental  indemnification  provision  beyond the amount  accrued.  The
     Company cannot predict the outcome of this matter.

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

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

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

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

                                       23


     Air Quality

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

     The EPA is  conducting  an  enforcement  initiative  related to a number of
     coal-fired   utility  power  plants  in  an  effort  to  determine  whether
     modifications  at  those  facilities  were  subject  to New  Source  Review
     requirements or New Source  Performance  Standards under the Clean Air Act.
     PEF was asked to provide  information to the EPA as part of this initiative
     and  cooperated in providing the  requested  information.  During the first
     quarter of 2003, PEF received a supplemental  information  request from the
     EPA and  responded to it in the second  quarter.  The EPA  initiated  civil
     enforcement  actions against other  unaffiliated  utilities as part of this
     initiative. Some of these actions resulted in settlement agreements calling
     for expenditures  ranging from $1.0 billion to $1.4 billion. A utility that
     was not subject to a civil enforcement action settled its New Source Review
     issues with the EPA for $300  million.  These  settlement  agreements  have
     generally  called for  expenditures  to be made over extended time periods,
     and some of the  companies  may seek  recovery of the related  cost through
     rate  adjustments  or similar  mechanisms.  The Company  cannot predict the
     outcome of the EPA's initiative or its impact, if any, on the Company.

     Other Environmental Matters

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

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

     Other Contingencies

     1) Franchise Litigation

     Four  cities,  with  a  total  of  approximately  31,000  customers,   have
     litigation  pending  against PEF in various  circuit courts in Florida.  As
     discussed below, three other cities,  with a total of approximately  30,000
     customers,  have  subsequently  settled their  lawsuits with PEF and signed
     new,  30-year  franchise  agreements.  The lawsuits  principally seek (1) a
     declaratory  judgment  that the  cities  have the right to  purchase  PEF's
     electric distribution system located within the municipal boundaries of the
     cities,  (2) a  declaratory  judgment  that the  value of the  distribution
     system must be determined  through  arbitration,  and (3) injunctive relief
     requiring PEF to continue to collect from PEF's  customers and remit to the
     cities,  franchise fees during the pending  litigation,  and as long as PEF
     continues to occupy the cities'  rights-of-way to provide electric service,
     notwithstanding the expiration of the franchise  ordinances under which PEF
     had agreed to collect such fees.  Five circuit  courts have entered  orders
     requiring  arbitration  to establish the purchase  price of PEF's  electric
     distribution  system within five cities.  Two appellate  courts have upheld
     those circuit court decisions and authorized  cities to determine the value
     of  PEF's   electric   distribution   system  within  the  cities   through
     arbitration.  Arbitration in one of the cases (the City of Casselberry) was
     held in August 2002. Following arbitration,  the parties entered settlement
     discussions,  and on July 28, 2003 the City approved a settlement agreement
     and a new, 30-year  franchise  agreement with PEF. The settlement  resolves
     all  pending  litigation  with that City.  A second  arbitration  (with the

                                       24


     13,000-customer  City of Winter Park) was completed in February 2003.  That
     arbitration  panel  issued an award on May 29,  2003  setting  the value of
     PEF's  distribution  system within the City of Winter Park at approximately
     $31.5 million,  not including separation and reintegration and construction
     work in progress, which could add several million dollars to the award. The
     panel also awarded PEF  approximately  $10.7 million in stranded  costs. On
     September  9, 2003,  Winter  Park  voters  passed a  referendum  that would
     authorize  the City to issue  bonds of up to  approximately  $50 million to
     acquire  PEF's  electric   distribution   system.  The  City  has  not  yet
     definitively  decided whether it will acquire the system, but has indicated
     that it will seek  wholesale  power  supply  bids and bids to  operate  and
     maintain the distribution system. At this time, whether and when there will
     be  further  proceedings  regarding  the  City of  Winter  Park  cannot  be
     determined.  A third arbitration (with the 2,500-customer Town of Belleair)
     was completed on June 16, 2003. On September 2, 2003, the arbitration panel
     issued an award in that case setting the value of the electric distribution
     system within the Town at  approximately  $6.3  million.  The panel further
     required the Town to pay to PEF its requested  $690,000 in  separation  and
     reintegration  costs and $1.528 million in stranded costs. The Town has not
     yet decided  whether it will  attempt to acquire the system.  At this time,
     whether and when there will be further  proceedings  regarding  the Town of
     Belleair   cannot   be   determined.   A  fourth   arbitration   (with  the
     13,000-customer  City of  Apopka)  has been  scheduled  for  January  2004.
     Arbitration in the remaining city's litigation (the  1,500-customer City of
     Edgewood) has not yet been scheduled.

     As part of the above  litigation,  two  appellate  courts have also reached
     opposite  conclusions  regarding  whether PEF must continue to collect from
     its  customers and remit to the cities  "franchise  fees" under the expired
     franchise  ordinances.  PEF has filed an appeal  with the  Florida  Supreme
     Court to resolve the conflict between the two appellate courts. The Florida
     Supreme  Court held oral argument in one of the appeals on August 27, 2003.
     Subsequently,  the Court  requested  briefing from the parties in the other
     appeal.  Briefing  likely will be completed  in the second  appeal in early
     November. PEF cannot predict the outcome of these matters at this time.

     2) DOE Litigation

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

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

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

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

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

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

     PEF is currently  storing spent nuclear fuel onsite in spent fuel pools. If
     PEF does  not  seek  renewal  of the  Crystal  River  Nuclear  Plant  (CR3)
     operating  license,  CR3 will have sufficient storage capacity in place for
     fuel consumed  through the end of the expiration of the license in 2016. If
     PEF extends the CR3 operating license, dry storage may be necessary.

                                       25


     3) Easement Litigation

     In  December  1998,  PEF was served  with a class  action  lawsuit  seeking
     damages,  declaratory and injunctive relief for the alleged improper use of
     electric transmission easements.  The plaintiffs contend that the licensing
     of   fiber-optic    telecommunications    lines   to   third   parties   or
     telecommunications  companies  for other than PEF's  internal use along the
     electric  transmission line  right-of-way  exceeds the authority granted in
     the easements.  In 1999, plaintiffs amended their complaint to add Progress
     Telecom  as a  defendant  and  adding  counts  for  unjust  enrichment  and
     constructive   trust.  In  January  2000,  the  trial  court  conditionally
     certified the class statewide. In mediation held in March 2000, the parties
     reached a tentative  settlement of this claim.  In January 2001,  the trial
     court preliminarily  approved the amended settlement  agreement,  certified
     the settlement  class and approved the class notice.  In November 2001, the
     trial  court  issued  a  final  order  approving  the  settlement.  Several
     objectors to the settlement  appealed the order to the First District Court
     of Appeal.  On February 12,  2003,  the  appellate  court issued an opinion
     upholding the trial court's subject matter  jurisdiction over the case, but
     reversing the trial court's order approving the mandatory  settlement class
     for purposes of declaratory  and  injunctive  relief.  The appellate  court
     remanded the case to the trial court for further  proceedings.  The Company
     filed a motion to seek  discretionary  review  before the  Florida  Supreme
     Court. Other parties filed similar motions as well as motions for rehearing
     before the First  District  Court of  Appeal.  Subsequent  to filing  these
     motions,  the Company and the appellants reached a settlement resolving the
     appellants'  dispute.  The settlement  was contingent  upon the trial court
     approving a mandatory class  settlement  consistent with the First District
     Court of  Appeal's  February  12, 2003  opinion.  On May 29, 2003 the trial
     court entered an Amended Final Judgment again approving the mandatory class
     settlement,  consistent with the First District Court of Appeals'  February
     12, 2003 opinion.  No appeals have been taken from that  judgment,  and the
     time to appeal has expired. On July 1, 2003, PEF, the class representatives
     and the appellants filed a joint withdrawal of all pending motions with the
     First  District  Court of  Appeal.  The  First  District  Court  of  Appeal
     acknowledged  the withdrawal of all pending motions and issued a mandate on
     July 14, 2003. Under the terms of the mandatory class settlement,  PEF made
     settlement  payments  to class  members  in  August  2003.  The  settlement
     payments  did not have a  material  adverse  effect  upon  PEF's  financial
     condition or results of operations.

     4) Synthetic Fuel Tax Credits

     The  Company,  through  its  subsidiaries,   produces  a  coal-based  solid
     synthetic  fuel.  The  production and sale of the synthetic fuel from these
     facilities  qualifies  for tax  credits  under  Section 29 of the  Internal
     Revenue Code (Section 29) if certain requirements are satisfied,  including
     a requirement  that the synthetic  fuel differs  significantly  in chemical
     composition  from  the  coal  used to  produce  such  synthetic  fuel.  Any
     synthetic  fuel  tax  credit  amounts  not  utilized  are  carried  forward
     indefinitely.  All of Progress  Energy's  synthetic  fuel  facilities  have
     received  private letter rulings (PLRs) from the Internal  Revenue  Service
     (IRS) with respect to their  synthetic fuel  operations.  These tax credits
     are subject to review by the IRS,  and if Progress  Energy fails to prevail
     through the  administrative or legal process,  there could be a significant
     tax  liability  owed  for  previously  taken  Section  29  credits,  with a
     significant impact on earnings and cash flows. Additionally, the ability to
     use tax credits  currently  being carried  forward  could be denied.  Total
     Section  29  credits  generated  to date at FPC  are  approximately  $699.8
     million,  of which  $296.9  million  have been used and $402.9  million are
     being carried  forward as of September 30, 2003. The current Section 29 tax
     credit program expires at the end of 2007.

     One synthetic fuel entity,  Colona Synfuel  Limited  Partnership,  L.L.L.P.
     (Colona),  from which the Company has been allocated  approximately  $280.4
     million in tax credits to date,  is being  audited by the IRS. The audit of
     Colona was expected.  The Company is audited regularly in the normal course
     of business, as are most similarly situated companies.

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

                                       26


     In June 2003,  the Company was informed that IRS field  auditors had raised
     questions   regarding  the  chemical  change   associated  with  coal-based
     synthetic fuel  manufactured at its Colona facility and the testing process
     by  which  the  chemical  change  is  verified.  (The  questions  arose  in
     connection  with  the  Company's  participation  in the PFA  program.)  The
     chemical  change and the associated  testing process were described as part
     of the PLR request for Colona. Based on that application,  the IRS ruled in
     Colona's  PLR that the  synthetic  fuel  produced  at  Colona  undergoes  a
     significant  chemical  change  and thus  qualifies  for tax  credits  under
     Section 29.

     In October 2003,  the National  Office of the IRS informed the Company that
     it had rejected the IRS field auditors'  challenges  regarding  whether the
     synthetic fuel produced at the Company's  Colona facility was the result of
     a significant  chemical change.  The National office had concluded that the
     experts, engaged by Colona who test the synthetic fuel for chemical change,
     use reasonable scientific methods to reach their conclusions.  Accordingly,
     the  National  Office will not take any adverse  action on the PLR that has
     been issued for the Colona facility.

     A written decision  memorializing the National Office's  conclusions should
     be  available  within  the next two  months.  At that  time,  the IRS field
     auditors  will have the right to ask for  reconsideration  of the  National
     Office's decision.

     Although  this  ruling  applies  only to the Colona  facility,  the Company
     believes that the National Office's  reasoning should be equally applicable
     to the other Progress  Energy  facilities,  given that the Company  applies
     essentially  the same  chemical  process  and  uses  the  same  independent
     laboratories to confirm chemical change in the synthetic fuel  manufactured
     at each of its  other  facilities.  However,  the IRS has not yet  formally
     informed the Company as to its position on the Company's other facilities.

     Although this is a significant event, the audits of the Colona facility and
     the Company's  other  facilities  are not yet  completed.  Progress  Energy
     continues to believe that it operates its facilities in conformity with its
     PLRs and Section 29. Accordingly, the Company has no current plans to alter
     its synthetic fuel production schedule as a result of these matters.

     In  addition,  the Company has  retained an advisor to assist in selling an
     interest in one or more synthetic  fuel  entities.  The Company is pursuing
     the sale of a portion of its  synthetic  fuel  production  capacity that is
     underutilized  due to limits on the amount of credits that can be generated
     and  utilized  by the  Company.  The  Company  would  expect  to  retain an
     ownership  interest and to operate any sold facility for a management  fee.
     The final outcome and timing of the Company's  efforts to sell interests in
     synthetic fuel facilities is uncertain and while the Company cannot predict
     the outcome of this matter,  the outcome is not expected to have a material
     effect on the  consolidated  financial  position,  cash flows or results of
     operations.

     5) Other Legal Matters

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

16.  SUBSEQUENT EVENT

     On  November  3,  2003,  Progress  Telecom   Corporation  (PTC),   Progress
     Telecommunications  Corporation  (PTC  Communications),  and Caronet,  Inc.
     (Caronet),  all  of  which  are  indirectly  wholly-owned  subsidiaries  of
     Progress Energy, agreed to enter into a Contribution  Agreement (Agreement)
     with EPIK Communications, Inc. (EPIK). EPIK is a wholly-owned subsidiary of
     Odyssey  Telecorp,  Inc.  (Odyssey).  The Company plans to account for this
     transaction as a business combination.

     Under terms of the Agreement, on November 4, 2003, PTC was converted into a
     limited liability company and renamed Progress Telecom,  LLC (PTC LLC). The
     Agreement  provides  that  PTC   Communications,   Caronet  and  EPIK  will
     contribute   substantially   all  of  their  assets  and  transfer  certain
     liabilities  to PTC LLC in exchange  for  membership  interests in PTC LLC.
     Following  the   contribution   of  their   respective   net  assets,   PTC
     Communications  will  hold a 55  percent  membership  interest  in PTC LLC;
     Caronet will hold a 5 percent membership interest;  and EPIK will hold a 40
     percent  membership  interest.  After the contribution of net assets to PTC
     LLC,  the stock of Caronet will be sold to an affiliate of Odyssey for cash
     and  Caronet  will  then  become an  indirect  wholly-owned  subsidiary  of
     Odyssey.  Following  consummation of the transactions  described above, PTC
     Communications  will hold a 55 percent  ownership  interest in PTC LLC, and
     Odyssey will hold a 45 percent  ownership  interest in PTC LLC through EPIK
     and Caronet.  The Company anticipates closing the transaction by the end of
     the year;  however,  the closing of all of these transactions is subject to
     certain conditions precedent,  including receipt of applicable governmental
     and regulatory permits and approvals.

                                       27


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

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

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

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

OPERATING RESULTS

Florida Progress' segment profit,  which is equivalent to income from continuing
operations,  for the three months ended  September  30, 2003 and 2002 was $175.0
million and a loss of $57.0 million, respectively.  Segment profits for the nine
months ended  September 30, 2003 and 2002 was $365.7 million and $109.1 million,
respectively.

The Company's segments  contributed  segment profits or losses for the three and
nine months ended September 30, 2003 and 2002 as follows:

                         

- --------------------------------------------------------------------------------------------------------
(in millions)                          Three Months Ended September 30,  Nine Months Ended September 30,
- --------------------------------------------------------------------------------------------------------
Business Segment                              2003          2002              2003             2002
- --------------------------------------------------------------------------------------------------------
PEF                                        $ 114.3      $  123.8           $ 246.5          $ 258.3
Fuels                                         59.7          30.2             111.5             93.2
Rail                                           0.7          (0.6)              (.5)             1.7
Other                                          0.3        (210.4)              8.2           (244.1)
                                           -------       -------           -------          -------
    Segment profit/(loss)                  $ 175.0      $ (57.0)           $ 365.7          $ 109.1
- --------------------------------------------------------------------------------------------------------


PROGRESS ENERGY FLORIDA

PEF  contributed  segment  profits of $114.3  million and $123.8  million in the
three months ended September 30, 2003 and 2002, respectively, and $246.5 million
and  $258.3  million  in the nine  months  ended  September  30,  2003 and 2002,
respectively.  The decrease in profits for the three months ended  September 30,
2003 when compared to 2002 is primarily due to increased  pension expense and an
unfavorable  impact of the tax benefit  reallocation  from Corporate,  partially
offset by favorable interest charges.  Weather had a slight negative impact, but
was offset by customer growth and usage.  The decrease in profits when comparing
the nine month periods  results  primarily  from the net impact of the 2002 rate
settlement and higher pension expense,  partially offset by a slightly favorable
weather  impact,  improved  customer  growth  and usage and  favorable  interest
charges.

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


                                       29


PEF's electric  revenues for the three and nine months ended  September 30, 2003
and 2002 and the amount and percentage change by customer class are as follows:

                         

- ---------------------------------------------------------------------------------------------------------------------
                                 Three Months Ended September 30,            Nine Months Ended September 30,
(in millions of $)
- ------------------------------------------------------------------------------------------------------------------
                               2003      Change     % Change    2002       2003     Change    % Change    2002
Customer Class
- ------------------------------------------------------------------------------------------------------------------
Residential                    $ 501.8      $32.0    6.8%        $469.8  $ 1,300.3     $55.6    4.5%    $ 1,244.7
Commercial                       214.3       14.8    7.4%         199.5      556.7       7.0    1.3%        549.7
Industrial                        56.9        4.3    8.2%          52.6      160.4       2.7    1.7%        157.7
Governmental                      49.3        4.2    9.3%          45.1      133.1       4.6    3.6%        128.5
Retroactive rate refund              -          -      -              -          -      35.0     -         (35.0)
Revenue sharing/rate
 refund                            4.1        4.1      -              -     (23.9)    (23.9)     -              -
                            ----------------------            -------------------------------           ----------
    Total retail revenues        826.4       59.4    7.7%         767.0    2,126.6      81.0    4.0%      2,045.6
Wholesale                         51.8      (6.1)   (10.5%)        57.9      172.9       6.8    4.1%        166.1
Unbilled                         (3.9)     (12.3)      -            8.4        2.7    (17.5)     -           20.2
Miscellaneous                     29.8      (0.5)   (1.7%)         30.3       96.9      12.8   15.2%         84.1
                            ----------------------            -------------------------------           ----------
    Total electric revenues     $904.1      $40.5    4.7%        $863.6  $ 2,399.1     $83.1    3.6%    $ 2,316.0
- ------------------------------------------------------------------------------------------------------------------


PEF's electric  energy sales for the three and nine ended September 30, 2003 and
2002 and the amount and percentage change by customer class are as follows:

                         

- ------------------------------------------------------------------------------------------------------------------
                                   Three Months Ended September 30,           Nine Months Ended September 30,
(in thousands of mWh)
- ------------------------------------------------------------------------------------------------------------------
                               2003      Change     % Change    2002       2003     Change    % Change    2002
Customer Class
- ------------------------------------------------------------------------------------------------------------------
Residential                      5,739        236    4.3%         5,503     14,996       918    6.5%       14,078
Commercial                       3,334        127    4.0%         3,207      8,727       208    2.4%        8,519
Industrial                       1,028         45    4.6%           983      2,951        92    3.2%        2,859
Governmental                       805         46    6.1%           759      2,204       109    5.2%        2,095
                            ----------------------            -------------------------------           ----------
    Total   retail   energy     10,906        454    4.3%        10,452     28,878     1,327    4.8%       27,551
sales
Wholesale                        1,006       (14)   (1.4%)        1,020      3,172       196    6.6%        2,976
Unbilled                         (112)      (326)      -            214        441     (248)     -            689
                            ----------------------            -------------------------------           ----------
    Total mWh sales             11,800        114    1.0%        11,686     32,491     1,275    4.1%       31,216
- ------------------------------------------------------------------------------------------------------------------


Three months ended  September 30, 2003 compared to three months ended  September
30, 2002

Retail  revenues,  excluding  fuel revenues of $370.0 million and $332.1 million
for the three months ended September 30, 2003 and 2002, respectively,  increased
$21.5  million as a result of favorable  customer  growth,  partially  offset by
lower customer usage. Fuel revenues,  which are offset by fuel expenses and thus
have no earnings impact,  increased  compared to the prior year primarily due to
increased generation and higher fuel prices.

Operations and maintenance (O&M) costs increased $16.7 million, when compared to
the $146.8 million  incurred  during the three months ended  September 30, 2002.
This  increase  is  primarily  related to  increased  pension  expense and other
benefit costs.

Depreciation and amortization  increased $8.7 million when compared to the $73.4
million  incurred during the three months ended September 30, 2002 primarily due
to additional depreciable assets placed in service.

Interest charges decreased $17.7 million when compared to $25.8 million incurred
in the three  months ended  September  2002  primarily  due to the reversal of a
regulatory  liability for accrued  interest  related to previously  resolved tax
matters.

Income tax  expense  increased  $6.2  million  when  compared  to $56.0  million
incurred  during three months ended  September 30, 2002 primarily from the $10.1
million  lower  tax  benefit  reallocation,  in  accordance  with an SEC  order,
partially offset by lower pretax income.

                                       29


Nine months ended September 30, 2003 compared to nine months ended September 30,
2002

Retail  revenues,  excluding  fuel  revenues  of $1,123.7  million and  $1,046.0
million for the nine months ending  September  30, 2003 and 2002,  respectively,
increased  primarily  due to the impact of the $35.0  million  retroactive  rate
refund  that  was  recognized  in  2002 as  part  of the  settlement  agreement,
continued customer growth and usage and favorable weather.  Partially offsetting
these  gains  were the  impact of the 9.25%  rate  reduction,  the 2002  revenue
sharing refund which was resolved in 2003, and the 2003 revenue sharing accrual,
all of which are discussed  previously.  The average number of customers for the
nine months ended September 30, 2003 increased by  approximately  35,200 or 2.4%
in 2003 as compared to the same period in 2002.

O&M costs increased  $24.8 million when compared to the $433.4 million  incurred
during the nine months  ended  September  30, 2002  primarily  due to  increased
pension expenses and other benefit costs.

Depreciation  and  amortization  increased  $23.0  million when  compared to the
$218.0  million  incurred  during  the nine  months  ended  September  30,  2002
primarily due to increased assets placed into service, which accounted for $12.1
million of the increase,  and the  amortization  of a purchased  power contract.
This  purchased  power was  completely  amortized as of September 30, 2003.  The
amortization  of the  purchased  power  contract  is  recovered  through  a cost
recovery clause and therefore has no impact on earnings.

Interest  charges  decreased  $19.6  million when  compared to the $82.1 million
incurred  during the nine months ended  September 30, 2002  primarily due to the
reversal of a regulatory  liability for accrued  interest  related to previously
resolved tax matters.

Income tax expense  decreased  $7.9 million when compared to the $135.0  million
incurred during the nine months ended September 30, 2002. Fluctuations in income
tax expense result from the tax benefit reallocation and lower pretax income.

FUELS

The Fuels segment,  which includes coal and synthetic fuel  operations,  natural
gas operations  and other fuel related  operations,  earned  segment  profits of
$59.7 million and $30.2 million in the three months ended September 30, 2003 and
2002,  respectively,  and $111.5  million and $93.2  million for the nine months
ended  September 30, 2003 and 2002,  respectively.  The increase in earnings was
due primarily to increased gas  production and a favorable  synthetic  fuels tax
credit true up from 2002.

The Fuels segment produced 1.8 million and 1.7 million tons of synthetic fuel in
the three months ended September 30, 2003 and 2002, respectively,  that resulted
in tax credits of $57.5 million and $44.8 million, respectively.  Synthetic fuel
production in the nine months ended  September 30, 2003 and 2002 was 4.4 million
tons and 5.3 million tons,  respectively,  which generated tax credits of $126.6
million and $144.5 million, respectively. These tax credits more than offset the
pre-tax credit operating losses of the synthetic fuels operations.

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

Gas operations  generated profits of $11.1 million and $2.5 million in the three
and nine months ended September 30, 2003, respectively, and of $25.8 million and
$3.7  million  in  the  three  and  nine  months  ended   September   30,  2003,
respectively.  The increase in production  resulting  from the  acquisitions  of
Westchester  Gas in 2002 and North Texas Gas in the first  quarter of 2003 drove
increased revenue and earnings.  The Mesa operations were sold effective October
1, 2003. The following  summarizes the gas production and revenues for the three
and nine months ended September 30, 2003 and 2002 by production facility.

                         

- ----------------------------------------------------------------------------------------------------
             Gas Production       Three Months Ended September 30,   Nine Months Ended September 30,
- ----------------------------------------------------------------------------------------------------
(in millions of cubic feet)              2003             2002           2003             2002
- ----------------------------------------------------------------------------------------------------
  Mesa                                    1.3             1.6             4.4             4.2
  Westchester Gas                         3.3             1.9             9.1             2.4
  North Texas Gas                         3.0              -              4.6              -
                                  ------------------------------------------------------------------
     Total gas production                 7.6             3.5            18.1             6.6
- ----------------------------------------------------------------------------------------------------



                                       30


                         

- -----------------------------------------------------------------------------------------------------
                Gas Sales        Three Months Ended September 30,    Nine Months Ended September 30,
- -----------------------------------------------------------------------------------------------------
(in millions)                         2003         2002                   2003            2002
- -----------------------------------------------------------------------------------------------------
  Mesa                              $  4.0       $  3.7                 $ 12.8          $ 10.3
  Westchester Gas                     16.4          5.8                   45.0             7.4
  North Texas Gas                     14.0            -                   24.4               -
  Other                                1.8          1.6                    4.4             2.4
                                 --------------------------------------------------------------------
     Total gas sales                $ 36.2       $ 11.1                 $ 86.6          $ 20.1
- -----------------------------------------------------------------------------------------------------


Coal fuel  operations  and  other  operations  within  the  Fuels  segment  have
immaterial impacts on comparative earnings.

RAIL

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

Progress  Rail  contributed  segment  profit of $0.7  million for both the three
months ended  September 30, 2003 and 2002,  respectively,  and a segment loss of
$0.5  million  and  segment  profit of $3.0  million for the for the nine months
ended  September 30, 2003 and 2002,  respectively.  As a result of an SEC order,
Rail incurred  additional Service Company  allocations the three and nine months
ended  September  30, 2003,  respectively,  when compared to the same periods in
2002.  These  increased  costs  were  partially  offset by  improvements  in the
recycling business and reduced operating costs.

An SEC order  approving the merger of FPC required the Company to divest Rail by
November 30, 2003. The Company is pursuing alternatives,  but does not expect to
find the right  divestiture  opportunity  by that date.  Therefore,  the Company
sought,  and in October 2003,  was granted  approval of, a three year  extension
from the SEC.

OTHER

The  Other  group,  which  includes  telecommunications,   holding  company  and
financing  expenses,  generated  a profit of $0.3  million  and a loss of $210.4
million for the three months ended  September  30, 2003 and 2002,  respectively,
and a profit of $8.2  million  and a loss of $244.0  million for the nine months
ended September 30, 2003 and 2002, respectively.  The improvement in the quarter
is due  primarily  to the  recognition  of a $144.0 asset  impairment  and other
charges in the telecommunications business in September 2002 and an intra-period
income  tax  allocation  adjustment  which  GAAP  requires  in  order to apply a
levelized  effective  tax rate to interim  periods that is  consistent  with the
estimated  annual rate.  The  intra-period  tax  allocation,  which will have no
impact on total year net income, resulted in a tax benefit of $2.7 million and a
tax expense of $60.2  million for the three months ended  September 30, 2003 and
2002, respectively.  The levelization resulted in a tax benefit of $17.6 million
and tax expense of $82.0 million in the nine months ended September 30, 2003 and
2002, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Statements of Cash Flows and Financing Activities

Cash  provided by  operating  activities  increased  $67.7  million for the nine
months  ended  September  30,  2003,  when  compared  to the nine  months  ended
September  30, 2002.  The increase in operating  cash flow was due  primarily to
changes in working capital.

Net cash used in  investing  activities  increased  $360.5  million for the nine
months  ended  September  30,  2003,  when  compared  to the nine  months  ended
September 30, 2002. The increase is primarily due to  construction  expenditures
associated with PEF's Hines II generating  unit,  nuclear fuel purchases and the
acquisition of gas reserves by Progress Fuels (See Note 2).

On February 21, 2003,  PEF issued $425 million of First  Mortgage  Bonds,  4.80%
Series Due March 1, 2013 and $225 million of First Mortgage Bonds, 5.90% Series,
Due March 1, 2033. Proceeds from this issuance were used to repay the balance of
its  outstanding  commercial  paper,  to  refinance  its secured  and  unsecured
indebtedness,  including $70 million of First Mortgage Bonds,  6.125% Series and
to redeem on March 24, 2003, the $150 million aggregate  outstanding  balance of
its 8% First Mortgage Bonds due 2022 at 103.75% of the principal  amount of such
bonds.

                                       31


On April 1, 2003, PEF entered into a new $200 million  364-day credit  agreement
and a new $200 million  three-year credit agreement,  replacing its prior credit
facilities  (which had been a $90 million  364-day  facility  and a $200 million
five-year  facility).  The new PEF credit  facilities  contain a defined maximum
total  debt to  total  capital  ratio  of 65%;  as of  September  30,  2003  the
calculated ratio, as defined,  was 51.3%. The new credit facilities also contain
a  requirement  that the ratio of  EBITDA,  as  defined  in the  facilities,  to
interest  expense to be at least 3 to 1; as of September 30, 2003 the calculated
ratio, as defined, was 8.1 to 1.

On July 1, 2003, $110 million of PEF's First Mortgage Bonds, 6.0% Series and $35
million of medium-term notes, 6.62% Series, matured.

On August 29, 2003,  Standard & Poor's Ratings  Services (S&P) announced that it
was lowering its  corporate  credit rating on Progress  Energy,  PEF and Florida
Progress  to BBB from BBB+.  The outlook of the  Companies'  ratings was changed
from  negative to stable.  The  Companies do not expect these  changes to have a
material impact on their respective access to capital or financial results.

On October 31, 2003,  PEF announced the  redemption of $100 million of its First
Mortgage Bonds, 7% Series,  Due 2023 at 103.19% of the principal  amount of such
bonds.  PEF  intends to redeem the bonds on December  1, 2003,  with  commercial
paper proceeds.

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

Future Commitments

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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Item 4. CONTROLS AND PROCEDURES

Florida Progress Corporation

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

Progress Energy Florida, Inc.

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

                                       32


                           PART II. OTHER INFORMATION

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

                         

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

     3(ii)           Bylaws of Florida Progress Corporation, amended as of X
                     September 19, 2003

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

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

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

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



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

    Florida Progress Corporation

                         

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

     9, 12             Yes                July 23, 2003              July 23, 2003
       5                No               August 29, 2003           September 2, 2003
     9, 12             Yes               October 22, 2003           October 22, 2003

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

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

     9, 12             Yes                July 23, 2003              July 23, 2003
       5                No               August 29, 2003           September 2, 2003
     9, 12             Yes               October 22, 2003           October 22, 2003



                                       33

                                   SIGNATURES


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                            FLORIDA PROGRESS CORPORATION
                                            FLORIDA POWER CORPORATION
                                            (Registrants)




Date:  November 12, 2003                    By:  /s/Peter M. Scott III
                                                 ---------------------
                                            Peter M. Scott III
                                            Executive Vice President and
                                            Chief Financial Officer





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