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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