10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2006

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR

15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______.

Commission File Number	Exact name of registrants as specified in their charters, states of incorporation, addresses of principal executive offices, and telephone numbers	I.R.S. Employer Identification Number
1-15929	Progress Energy, Inc. 410 South Wilmington Street Raleigh, North Carolina 27601-1748 Telephone: (919) 546-6111 State of Incorporation: North Carolina	56-2155481
1-3382	Carolina Power & Light Company d/b/a Progress Energy Carolinas, Inc. 410 South Wilmington Street Raleigh, North Carolina 27601-1748 Telephone: (919) 546-6111 State of Incorporation: North Carolina	56-0165465
1-3274	Florida Power Corporation d/b/a Progress Energy Florida, Inc. 100 Central Avenue St. Petersburg, Florida 33701 Telephone (727) 820-5151 State of Incorporation: Florida	59-0247770

NONE

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether each registrant (1) has 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 registrants were required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

1

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.:

Progress Energy, Inc. (Progress Energy)	Large accelerated filer	x	Accelerated filer	o	Non-accelerated filer	o
Carolina Power & Light Company (PEC)	Large accelerated filer	o	Accelerated filer	o	Non-accelerated filer	x
Florida Power Corporation (PEF)	Large accelerated filer	o	Accelerated filer	o	Non-accelerated filer	x

Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Progress Energy	Yes	o	No	x
PEC	Yes	o	No	x
PEF	Yes	o	No	x

Indicate the number of shares outstanding of each registrants’ classes of common stock, as of the latest practicable date. At April 30, 2006, each registrant had the following shares of common stock outstanding:

Registrant	Description	Shares
Progress Energy	Common Stock (Without Par Value)	252,970,295
PEC	Common Stock (Without Par Value)	159,608,055 (all of which were held directly by Progress Energy, Inc.)
PEF	Common Stock (Without par value)	100 (all of which were held indirectly by Progress Energy, Inc.)

This combined Form 10-Q is filed separately by three registrants: Progress Energy, PEC and PEF (collectively, the Progress Registrants). Information contained herein relating to any 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 registrants. 

PEF meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.

2

PROGRESS ENERGY, INC., PROGRESS ENERGY CAROLINAS, INC.

AND PROGRESS ENERGY FLORIDA, INC.

FORM 10-Q - For the Quarter Ended March 31, 2006

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Unaudited Interim Financial Statements:

Progress Energy, Inc. (Progress Energy)

Carolina Power & Light Company

d/b/a Progress Energy Carolinas, Inc. (PEC)

Florida Power Corporation

d/b/a Progress Energy Florida, Inc. (PEF)

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Item 4. Controls and Procedures

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 6. Exhibits

Signatures

3

GLOSSARY OF TERMS

We use the words “Progress Energy,” “our,” “we” or “us” with respect to certain information to indicate that such information relates to Progress Energy, Inc. and its subsidiaries on a consolidated basis. When appropriate, the parent holding company or the subsidiaries of Progress Energy are specifically identified on an unconsolidated basis as we discuss their various business activities.

The following abbreviations or acronyms are used by the Progress Registrants:

TERM	DEFINITION
2005 Form 10-K	Progress Registrants’ annual report on Form 10-K for the fiscal year ended December 31, 2005
401(k)	Progress Energy 401(k) Savings and Stock Ownership Plan
AFUDC	Allowance for funds used during construction
AHI	Affordable housing investment
APB	Accounting Principles Board
APB No. 25	Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”
APB No. 28	Accounting Principles Board Opinion No. 28, “Interim Financial Reporting”
ARO	Asset retirement obligation
Annual Average Price	Average wellhead price per barrel for unregulated domestic crude oil for the year
BART	Best Available Retrofit Technology
Base Rate Settlement	Settlement reached with the FPSC on September 7, 2005 on PEF’s base rate proceeding
Bcf	Billion cubic feet
Broad River	Broad River LLC’s Broad River Facility
Brunswick	Brunswick Nuclear Plant
Btu	British thermal unit
CAIR	Clean Air Interstate Rule
CAMR	Clean Air Mercury Rule
CAVR	Clean Air Visibility Rule
CERCLA or Superfund	Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended
Clean Smokestacks Act	North Carolina Clean Smokestacks Act, enacted in June 2002
Coal	Coal terminals and marketing operations that blend and transload coal as part of the transportation network for coal delivery
Coal and Synthetic Fuel	Business segment primarily engaged in synthetic fuel production and sales operations, the operation of synthetic fuel facilities for third parties and coal terminal services
the Code	Internal Revenue Code
CO2	Carbon dioxide
COL	Combined license
Colona	Colona Synfuel Limited Partnership, LLLP
Corporate	Collectively, the Parent, PESC and consolidation entities
Corporate and Other	Corporate and Other segment includes Corporate as well as other nonregulated business areas
CR3	Crystal River Unit No. 3 Nuclear Plant
CVO	Contingent value obligation
DeSoto	DeSoto County Generating Co., LLC
DIG Issue C20	FASB Derivatives Implementation Group Issue C20, “Interpretation of the Meaning of Not Clearly and Closely Related in Paragraph 10(b) regarding Contracts with a Price Adjustment Feature”
Dixie Fuels	Dixie Fuels Limited
DOE	United States Department of Energy
Earthco	Four wholly owned coal-based solid synthetic fuel limited liability companies
ECRC	Environmental Cost Recovery Clause

4

EIA	Energy Information Agency
EIP	Progress Energy 2002 Equity Incentive Plan
EITF	Emerging Issues Task Force
EITF 03-1	Emerging Issues Task Force No. 03-1, “The Meaning of Other-Than-Temporary Impairments and Its Application to Certain Investments”
EITF 03-4	Emerging Issues Task Force No. 03-4, “Determining the Classification and Benefit Attribution Method for a ‘Cash Balance’ Pension Plan”
EITF 04-5	Emerging Issues Task Force No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights”
EMCs	Electric Membership Cooperatives
Energy Delivery	Distribution operations of the Utilities
EPA	Environmental Protection Agency
EPACT	Energy Policy Act of 2005
ESOP	Employee Stock Ownership Plan
FASB	Financial Accounting Standards Board
FDEP	Florida Department of Environmental Protection
FERC	Federal Energy Regulatory Commission
FGT	Florida Gas Transmission Company
FIN 45	FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”
FIN 46R	FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51”
FIN 47	FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations - an Interpretation of FASB Statement No. 143”
Florida Global Case	U.S. Global LLC v. Progress Energy, Inc. et al
Florida Progress or FPC	Florida Progress Corporation, one of our wholly owned subsidiaries
FPSC	Florida Public Service Commission
Funding Corp.	Florida Progress Funding Corporation, a wholly owned subsidiary of Florida Progress
GAAP	Accounting principles generally accepted in the United States of America
Georgia Power	Georgia Power Company, a subsidiary of Southern Company
Georgia Region	Reporting unit consisting of our Effingham, Monroe, Walton and Washington nonregulated generation plants in service
GITS	Georgia Integrated Transmission System
Global	U.S. Global LLC
Gulfstream	Gulfstream Gas System, L.L.C.
Harris	Shearon Harris Nuclear Plant
IBEW	International Brotherhood of Electrical Workers
IRS	Internal Revenue Service
Jackson	Jackson Electric Membership Corporation
kV	Kilovolt
kVA	Kilovolt-ampere
kW	Kilowatt
kWh	Kilowatt-hour
Level 3	Level 3 Communications, Inc.
LIBOR	London Inter Bank Offering Rate
MACT	Maximum Achievable Control Technology
MDC	Maximum Dependable Capability
Medicare Act	Medicare Prescription Drug, Improvement and Modernization Act of 2003
MGP	Manufactured gas plant
MW	Megawatt
MWh	Megawatt-hour
Moody’s	Moody’s Investors Service, Inc.
NAAQS	National Ambient Air Quality Standards
NCNG	North Carolina Natural Gas Corporation

5

NSR	New Source Review requirement by EPA
NCUC	North Carolina Utilities Commission
NEIL	Nuclear Electric Insurance Limited
North Carolina Global Case	Progress Synfuel Holdings, Inc. et al. v. U.S. Global, LLC
the Notes Guarantee	Florida Progress’ full and unconditional guarantee of the Subordinated Notes
NOx	Nitrogen Oxide
NOx SIP Call	EPA rule which requires 22 states including North and South Carolina (but excluding Florida) to further reduce nitrogen oxide emissions.
NRC	United States Nuclear Regulatory Commission
Nuclear Waste Act	Nuclear Waste Policy Act of 1982
NYMEX	New York Mercantile Exchange
OCI	Other comprehensive income as defined by GAAP
O&M	Operation and maintenance expense
OPEB	Postretirement benefits other than pensions
P11	Intercession City Unit P11
the Parent	Progress Energy, Inc. holding company on an unconsolidated basis
PEC	Progress Energy Carolinas, Inc., formerly referred to as Carolina Power & Light Company
PEF	Progress Energy Florida, Inc., formerly referred to as Florida Power Corporation
PESC	Progress Energy Service Company, LLC
the Phase-out Price	Price per barrel of unregulated domestic crude oil at which Section 29/45K tax credits are fully eliminated
Power Agency	North Carolina Eastern Municipal Power Agency
Preferred Securities	7.10% Cumulative Quarterly Income Preferred Securities due 2039, Series A issued by the Trust
Preferred Securities Guarantee	Florida Progress’ guarantee of all distributions related to the Preferred Securities
Progress Energy	Progress Energy, Inc. and subsidiaries on a consolidated basis
Progress Registrants	The individual reporting registrants within the Progress Energy consolidated group. Collectively, Progress Energy, Inc., PEC and PEF
Progress Fuels	Progress Fuels Corporation, formerly Electric Fuels Corporation
Progress Rail	Progress Rail Services Corporation
Progress Ventures	Business segment primarily engaged in nonregulated energy generation, energy marketing activities and natural gas drilling and production
PRP	Potentially responsible party, as defined in CERCLA
PSSP	Performance Share Sub-Plan
PTC	Progress Telecommunications Corporation
PT LLC	Progress Telecom, LLC
PUHCA	Public Utility Holding Company Act of 1935, as amended
PURPA	Public Utilities Regulatory Policies Act of 1978
PVI	Progress Energy Ventures, Inc. (formerly referred to as Progress Ventures, Inc.)
PWC	Public Works Commission of the City of Fayetteville, North Carolina
PWR	Pressurized water reactor
QF	Qualifying facility
RCA	Revolving credit agreement
Rockport	Indiana Michigan Power Company’s Rockport Unit No. 2
Robinson	Robinson Nuclear Plant
ROE	Return on equity
Rowan	Rowan County Power, Inc., LLC
RSA	Restricted stock awards program
RTO	Regional transmission organization
SCPSC	Public Service Commission of South Carolina
Scrubber	A device that neutralizes sulfur compounds formed during coal combustion
SEC	United States Securities and Exchange Commission

6

Section 29	Section 29 of the Internal Revenue Service Code
Section 29/45K	General business tax credits earned after December 31, 2005 for synthetic fuel production activities in accordance with Section 29
Section 45K	General business tax credit
(See Note/s “#”)	For all sections, this is a cross-reference to the Combined Notes to the Unaudited Interim Financial Statements contained in PART I, Item 1
S&P	Standard & Poor’s Rating Services
SFAS	Statement of Financial Accounting Standards
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. 87	Statement of Financial Accounting Standards No. 87, “Employers’ Accounting for Pensions”
SFAS No. 109	Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”
SFAS No. 115	Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities”
SFAS No. 123	Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”
SFAS No. 123R	Statement of Financial Accounting Standards No. 123R, “Share-Based Payment”
SFAS No. 131	Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information”
SFAS No. 133	Statement of Financial Accounting Standards No. 133, “Accounting for Derivative and Hedging Activities”
SFAS No. 138	Statement of Financial Accounting Standards No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities - An Amendment of FASB Statement No. 133”
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. 144	Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”
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”
SNG	Southern Natural Gas Company
SO2	Sulfur dioxide
SPC	Southern Power Company, a subsidiary of Southern Company
SRS	Strategic Resource Solutions Corp.
Subordinated Notes	7.10% Junior Subordinated Deferrable Interest Notes due 2039 issued by Funding Corp.
Tax Agreement	Intercompany Income Tax Allocation Agreement
the Threshold Price	Price per barrel of unregulated domestic crude oil at which Section 29/45K tax credits begin to be reduced
the Trust	FPC Capital I, a wholly owned subsidiary of Florida Progress
the Utilities	Collectively, PEC and PEF
Winchester Production	Winchester Production Company, Ltd., an indirectly owned subsidiary of Progress Fuels Corporation

7

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

In this combined report, each of the Progress Registrants makes 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, examples of forward-looking statements discussed in this Form 10-Q include, but are not limited to, statements made in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” including, but not limited to, statements under the sub-heading RESULTS OF OPERATIONS about trends and uncertainties, LIQUIDITY AND CAPITAL RESOURCES about operating cash flows, future liquidity requirements and estimated capital expenditures and OTHER MATTERS about our synthetic fuel facilities and environmental matters.

Any forward-looking statement is based on information current as of the date of this report and speaks only as of the date on which such statement is made, and the Progress Registrants 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 laws and regulations, including those relating to the environment and the recently enacted Energy Policy Act of 2005; the financial resources and capital needed to comply with environmental laws and our ability to recover eligible costs under cost recovery clauses; deregulation or restructuring in the electric industry that may result in increased competition and unrecovered or stranded costs; weather conditions that directly influence the production, delivery and demand for electricity; the ability to recover through the regulatory process costs associated with future significant weather events; recurring seasonal fluctuations in demand for electricity; fluctuations in the price of energy commodities and purchased power; economic fluctuations and the corresponding impact on our commercial and industrial customers; the ability of our subsidiaries to pay upstream dividends or distributions to the Parent; the impact on our facilities and businesses from a terrorist attack; the inherent risks associated with the operation of nuclear facilities, including environmental, health, regulatory and financial risks; the anticipated future need for additional baseload generation in our regulated service territories and the accompanying regulatory and financial risks; the ability to successfully access capital markets on favorable terms; the Progress Registrants’ ability to maintain their current credit ratings and the impact on the Progress Registrants’ financial condition and ability to meet their cash and other financial obligations in the event their credit ratings are downgraded below investment grade; the impact that increases in leverage may have on each of the Progress Registrants; the impact of derivative contracts used in the normal course of business; the investment performance of our pension and benefit plans; the Progress Registrants’ ability to control costs, including pension and benefit expense, and achieve our cost-management targets for 2007; our continued ability to use Internal Revenue Code Section 29/45K (Section 29/45K) tax credits related to our coal-based solid synthetic fuel businesses; the impact that future crude oil prices may have on the value of our Section 29/45K tax credits; our ability to manage the risks involved with the operation of nonregulated plants, including dependence on third parties and related counter-party risks, and a lack of operating history of such plants; the ability to manage the risks associated with our energy marketing operations, including potential impairment charges caused by adverse changes in market or business conditions; the outcome of any ongoing or future litigation or similar disputes and the impact of any such outcome or related settlements; and unanticipated changes in operating expenses and capital expenditures. Many of these risks similarly impact our nonreporting subsidiaries.

These and other risk factors are disclosed in the Progress Registrants’ periodic filings with the United States Securities and Exchange Commission (SEC). Many, but not all, of the factors that may impact actual results are discussed in the Risk Factors section of the Progress Registrants’ annual report on Form 10-K for the fiscal year ended December 31, 2005 (2005 Form 10-K), which was filed with the SEC on March 10, 2006 and are updated for material changes, if any, in PART II, Item 1A of this Form 10-Q. All such factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control. New factors emerge from time to time, and it is not possible for us to predict all such factors, nor can we assess the effect of each such factor on the Progress Registrants.

8

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PROGRESS ENERGY, INC.

 CONSOLIDATED INTERIM FINANCIAL STATEMENTS

March 31, 2006

UNAUDITED CONSOLIDATED STATEMENTS of INCOME
(in millions except per share data)
Three Months Ended March 31	2006			2005
Operating revenues
Electric	$	1,985		$	1,783
Diversified business		448			370
Total operating revenues		2,433			2,153
Operating expenses
Utility
Fuel used in electric generation		690			550
Purchased power		229			198
Operation and maintenance		416			406
Depreciation and amortization		228			208
Taxes other than on income		119			117
Other		(2	)		-
Diversified business
Cost of sales		405			365
Depreciation and amortization		36			32
Impairment of goodwill		64			-
Gain on the sale of assets		(7	)		(4	)
Other		23			29
Total operating expenses		2,201			1,901
Operating income		232			252
Other income (expense)
Interest income		17			4
Other, net		(2	)		1
Total other income		15			5
Interest charges
Net interest charges		182			165
Allowance for borrowed funds used during construction		(2	)		(3	)
Total interest charges, net		180			162
Income from continuing operations before income tax and minority interest		67			95
Income tax expense (benefit)		13			(1	)
Income from continuing operations before minority interest		54			96
Minority interest in subsidiaries’ (income) loss, net of tax		(7	)		8
Income from continuing operations		47			104
Discontinued operations, net of tax		(2	)		(11	)
Net income	$	45		$	93
Average common shares outstanding - basic		249			244
Basic earnings per common share
Income from continuing operations	$	0.19		$	0.43
Discontinued operations, net of tax		(0.01	)		(0.05	)
Net income	$	0.18		$	0.38
Diluted earnings per common share
Income from continuing operations	$	0.19		$	0.43
Discontinued operations, net of tax		(0.01	)		(0.05	)
Net income	$	0.18		$	0.38
Dividends declared per common share	$	0.605		$	0.590

See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.

9

PROGRESS ENERGY, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS
(in millions)	March 31, 2006			December 31, 2005
ASSETS
Utility plant
Utility plant in service	$	23,035		$	22,940
Accumulated depreciation		(9,713	)		(9,602	)
Utility plant in service, net		13,322			13,338
Held for future use		12			12
Construction work in progress		964			813
Nuclear fuel, net of amortization		272			279
Total utility plant, net		14,570			14,442
Current assets
Cash and cash equivalents		263			606
Short-term investments		217			191
Receivables, net		1,014			1,099
Inventory		908			859
Deferred fuel cost		474			602
Deferred income taxes		2			50
Assets of discontinued operations		86			225
Prepayments and other current assets		242			209
Total current assets		3,206			3,841
Deferred debits and other assets
Regulatory assets		852			854
Nuclear decommissioning trust funds		1,175			1,133
Diversified business property, net		1,792			1,798
Miscellaneous other property and investments		482			476
Goodwill		3,655			3,719
Intangibles, net		295			302
Other assets and deferred debits		461			477
Total deferred debits and other assets		8,712			8,759
Total assets	$	26,488		$	27,042
CAPITALIZATION AND LIABILITIES
Common stock equity
Common stock without par value, 500 million shares authorized, 253 and 252 million shares issued and outstanding, respectively	$	5,614		$	5,571
Unearned ESOP shares (2 million and 3 million shares, respectively)		(54	)		(63	)
Accumulated other comprehensive loss		(90	)		(104	)
Retained earnings		2,527			2,634
Total common stock equity		7,997			8,038
Preferred stock of subsidiaries - not subject to mandatory redemption		93			93
Minority interest		58			43
Long-term debt, affiliate		270			270
Long-term debt, net		10,178			10,176
Total capitalization		18,596			18,620
Current liabilities
Current portion of long-term debt		109			513
Accounts payable		542			676
Interest accrued		164			208
Dividends declared		153			152
Short-term obligations		254			175
Customer deposits		207			200
Liabilities of discontinued operations		33			87
Other current liabilities		743			871
Total current liabilities		2,205			2,882
Deferred credits and other liabilities
Noncurrent income tax liabilities		265			296
Accumulated deferred investment tax credits		160			163
Regulatory liabilities		2,568			2,527
Asset retirement obligations		1,261			1,249
Accrued pension and other benefits		893			870
Other liabilities and deferred credits		540			435
Total deferred credits and other liabilities		5,687			5,540
Commitments and contingencies (Note 13)
Total capitalization and liabilities	$	26,488		$	27,042

See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.

10

PROGRESS ENERGY, INC.

UNAUDITED CONSOLIDATED STATEMENTS of CASH FLOWS
(in millions)
Three Months Ended March 31	2006			2005
Operating activities
Net income	$	45		$	93
Adjustments to reconcile net income to net cash provided by operating activities
Discontinued operations, net of tax		2			11
Impairment of goodwill		64			-
Depreciation and amortization		294			268
Deferred income taxes		35			13
Investment tax credit		(3	)		(3	)
Tax levelization		16			3
Deferred fuel cost		134			19
Other adjustments to net income		72			50
Cash provided (used) by changes in operating assets and liabilities:
Receivables		154			-
Inventories		(58	)		(45	)
Prepayments and other current assets		(5	)		13
Accounts payable		(109	)		46
Other current liabilities		(180	)		(156	)
Regulatory assets and liabilities		(2	)		(57	)
Other operating activities		41			(23	)
Net cash provided by operating activities		500			232
Investing activities
Gross utility property additions		(304	)		(267	)
Diversified business property additions		(47	)		(40	)
Nuclear fuel additions		(52	)		(64	)
Proceeds from sales of discontinued operations and other assets, net of cash divested		103			398
Purchases of available-for-sale securities and other investments		(538	)		(2,012	)
Proceeds from sales of available-for-sale securities and other investments		522			1,853
Other investing activities		(11	)		(12	)
Net cash used in investing activities		(327	)		(144	)
Financing activities
Issuance of common stock		28			60
Proceeds from issuance of long-term debt, net		397			495
Net increase in short-term indebtedness		79			7
Retirement of long-term debt		(801	)		(216	)
Dividends paid on common stock		(151	)		(145	)
Other financing activities		(60	)		(38	)
Net cash (used in) provided by financing activities		(508	)		163
Cash used by discontinued operations
Operating activities		(5	)		(18	)
Investing activities		(3	)		(9	)
Financing activities		-			-
Net (decrease) increase in cash and cash equivalents		(343	)		224
Cash and cash equivalents at beginning of period		606			56
Cash and cash equivalents at end of period	$	263		$	280

See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.

11

CAROLINA POWER & LIGHT COMPANY

d/b/a PROGRESS ENERGY CAROLINAS, INC.

CONSOLIDATED INTERIM FINANCIAL STATEMENTS

March 31, 2006

UNAUDITED CONSOLIDATED STATEMENTS of INCOME
(in millions)
Three Months Ended March 31	2006			2005
Operating revenues	$	978		$	935
Operating expenses
Fuel used in electric generation		296			248
Purchased power		64			67
Operation and maintenance		256			224
Depreciation and amortization		126			129
Taxes other than on income		46			46
Other		1			-
Total operating expenses		789			714
Operating income		189			221
Other income (expense)
Interest income		7			2
Other, net		(1	)		1
Total other income		6			3
Interest charges
Interest charges		57			52
Allowance for borrowed funds used during construction		(1	)		(1	)
Total interest charges, net		56			51
Income before income tax		139			173
Income tax expense		53			57
Net income		86			116
Preferred stock dividend requirement		1			1
Earnings for common stock	$	85		$	115

See Notes to PEC Consolidated Interim Financial Statements.

12

CAROLINA POWER & LIGHT COMPANY

d/b/a PROGRESS ENERGY CAROLINAS, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS
(in millions)	March 31, 2006			December 31, 2005
ASSETS
Utility plant
Utility plant in service	$	14,041		$	13,994
Accumulated depreciation		(6,182	)		(6,120	)
Utility plant in service, net		7,859			7,874
Held for future use		3			3
Construction work in progress		483			399
Nuclear fuel, net of amortization		201			203
Total utility plant, net		8,546			8,479
Current assets
Cash and cash equivalents		105			125
Short-term investments		136			191
Receivables, net		440			518
Receivables from affiliated companies		19			24
Inventory		458			451
Deferred fuel cost		243			261
Prepayments and other current assets		25			20
Total current assets		1,426			1,590
Deferred debits and other assets
Regulatory assets		410			421
Nuclear decommissioning trust funds		664			640
Miscellaneous other property and investments		193			188
Other assets and deferred debits		179			184
Total deferred debits and other assets		1,446			1,433
Total assets	$	11,418		$	11,502
CAPITALIZATION AND LIABILITIES
Common stock equity
Common stock without par value	$	1,996		$	1,981
Unearned ESOP common stock		(54	)		(63	)
Accumulated other comprehensive loss		(119	)		(120	)
Retained earnings		1,320			1,320
Total common stock equity		3,143			3,118
Preferred stock - not subject to mandatory redemption		59			59
Long-term debt, net		3,667			3,667
Total capitalization		6,869			6,844
Current liabilities
Accounts payable		212			247
Payables to affiliated companies		62			73
Notes payable to affiliated companies		10			11
Interest accrued		62			73
Short-term obligations		52			73
Customer deposits		54			52
Taxes accrued		8			100
Other current liabilities		256			255
Total current liabilities		716			884
Deferred credits and other liabilities
Noncurrent income tax liabilities		803			814
Accumulated deferred investment tax credits		131			133
Regulatory liabilities		1,241			1,196
Asset retirement obligations		964			949
Accrued pension and other benefits		526			511
Other liabilities and deferred credits		168			171
Total deferred credits and other liabilities		3,833			3,774
Commitments and contingencies (Note 13)
Total capitalization and liabilities	$	11,418		$	11,502

See Notes to PEC Consolidated Interim Financial Statements.

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CAROLINA POWER & LIGHT COMPANY

d/b/a PROGRESS ENERGY CAROLINAS, INC.

UNAUDITED CONSOLIDATED STATEMENTS of CASH FLOWS
(in millions)
Three Months Ended March 31	2006			2005
Operating activities
Net income	$	86		$	116
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		147			149
Deferred income taxes		26			30
Investment tax credit		(2	)		(2	)
Deferred fuel cost (credit)		24			(17	)
Other adjustments to net income		44			21
Cash provided (used) by changes in operating assets and liabilities
Receivables		79			(1	)
Receivables from affiliated companies		12			(7	)
Inventories		(15	)		(22	)
Prepayments and other current assets		2			5
Accounts payable		(6	)		27
Payables to affiliated companies		(13	)		(23	)
Other current liabilities		(136	)		2
Other operating activities		(11	)		(16	)
Net cash provided by operating activities		237			262
Investing activities
Gross utility property additions		(151	)		(142	)
Nuclear fuel additions		(46	)		(30	)
Purchases of available-for-sale securities and other investments		(238	)		(861	)
Proceeds from sales of available-for-sale securities and other investments		285			798
Other investing activities		-			(4	)
Net cash used in investing activities		(150	)		(239	)
Financing activities
Proceeds from issuance of long-term debt, net		-			495
Net decrease in short-term indebtedness		(21	)		(113	)
Changes in advances from affiliates		(1	)		(93	)
Dividends paid to parent		(85	)		(146	)
Dividends paid on preferred stock		(1	)		(1	)
Other financing activities		1			-
Net cash (used in) provided by financing activities		(107	)		142
Net (decrease) increase in cash and cash equivalents		(20	)		165
Cash and cash equivalents at beginning of period		125			18
Cash and cash equivalents at end of period	$	105		$	183

See Notes to PEC Consolidated Interim Financial Statements.

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FLORIDA POWER CORPORATION

d/b/a PROGRESS ENERGY FLORIDA, INC.

INTERIM FINANCIAL STATEMENTS

March 31, 2006

UNAUDITED STATEMENTS of INCOME
(in millions)
Three Months Ended March 31	2006			2005
Operating revenues	$	1,007		$	848
Operating expenses
Fuel used in electric generation		394			302
Purchased power		165			131
Operation and maintenance		166			189
Depreciation and amortization		95			70
Taxes other than on income		73			67
Other		(3	)		-
Total operating expenses		890			759
Operating income		117			89
Other income (expense)
Interest income		5			-
Other, net		(1	)		3
Total other income		4			3
Interest charges
Interest charges		40			34
Allowance for borrowed funds used during construction		(1	)		(2	)
Total interest charges, net		39			32
Income before income taxes		82			60
Income tax expense		29			16
Net income		53			44
Preferred stock dividend requirement		1			1
Earnings for common stock	$	52		$	43

See Notes to PEF Interim Financial Statements.

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FLORIDA POWER CORPORATION

d/b/a PROGRESS ENERGY FLORIDA, INC.

UNAUDITED BALANCE SHEETS
(in millions)	March 31, 2006			December 31, 2005
ASSETS
Utility plant
Utility plant in service	$	8,810		$	8,756
Accumulated depreciation		(3,482	)		(3,434	)
Utility plant in service, net		5,328			5,322
Held for future use		9			9
Construction work in progress		481			414
Nuclear fuel, net of amortization		71			76
Total utility plant, net		5,889			5,821
Current assets
Cash and cash equivalents		133			218
Short-term investments		55			-
Receivables, net		288			331
Receivables from affiliated companies		11			11
Deferred income taxes		-			12
Inventory		376			311
Deferred fuel cost		231			341
Prepayments and other current assets		109			100
Total current assets		1,203			1,324
Deferred debits and other assets
Regulatory assets		358			351
Debt issuance costs		22			22
Nuclear decommissioning trust funds		511			493
Miscellaneous other property and investments		46			47
Prepaid pension costs		204			200
Other assets and deferred debits		62			60
Total deferred debits and other assets		1,203			1,173
Total assets	$	8,295		$	8,318
CAPITALIZATION AND LIABILITIES
Common stock equity
Common stock without par value	$	1,098		$	1,097
Retained earnings		1,492			1,498
Total common stock equity		2,590			2,595
Preferred stock - not subject to mandatory redemption		34			34
Long-term debt, net		2,555			2,554
Total capitalization		5,179			5,183
Current liabilities
Current portion of long-term debt		48			48
Accounts payable		207			237
Payables to affiliated companies		73			101
Notes payable to affiliated companies		-			13
Short-term obligations		102			102
Customer deposits		153			148
Interest accrued		31			42
Other current liabilities		118			101
Total current liabilities		732			792
Deferred credits and other liabilities
Noncurrent income tax liabilities		424			433
Accumulated deferred investment tax credits		28			30
Regulatory liabilities		1,192			1,189
Asset retirement obligations		287			290
Accrued pension and other benefits		261			257
Other liabilities and deferred credits		192			144
Total deferred credits and other liabilities		2,384			2,343
Commitments and contingencies (Note 13)
Total capitalization and liabilities	$	8,295		$	8,318

See Notes to PEF Interim Financial Statements.

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FLORIDA POWER CORPORATION

d/b/a PROGRESS ENERGY FLORIDA, INC.

UNAUDITED STATEMENTS of CASH FLOWS
(in millions)
Three Months Ended March 31	2006			2005
Operating activities
Net income	$	53		$	44
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		101			79
Deferred income taxes and investment tax credits, net		19			13
Deferred fuel cost		110			36
Other adjustments to net income		10			22
Cash provided (used) by changes in operating assets and liabilities:
Receivables		40			22
Receivables from affiliated companies		4			10
Inventories		(66	)		(22	)
Prepayments and other current assets		4			-
Accounts payable		(29	)		(1	)
Payables to affiliated companies		(28	)		5
Other current liabilities		(19	)		(79	)
Regulatory assets and liabilities		(2	)		(57	)
Other operating activities		16			(3	)
Net cash provided by operating activities		213			69
Investing activities
Gross utility property additions		(162	)		(132	)
Nuclear fuel additions		(6	)		(34	)
Purchases of available-for-sale securities and other investments		(126	)		(68	)
Proceeds from sales of available-for-sale securities and other investments		71			68
Other investing activities		(3	)		(1	)
Net cash used in investing activities		(226	)		(167	)
Financing activities
Net decrease in short-term indebtedness		-			(140	)
Retirement of long-term debt		-			(55	)
Changes in advances from affiliates		(13	)		301
Dividends paid to parent		(58	)		-
Dividends paid on preferred stock		(1	)		(1	)
Other financing activities		-			(1	)
Net cash (used in) provided by financing activities		(72	)		104
Net (decrease) increase in cash and cash equivalents		(85	)		6
Cash and cash equivalents at beginning of period		218			12
Cash and cash equivalents at end of period	$	133		$	18

See Notes to PEF Interim Financial Statements.

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PROGRESS ENERGY, INC.

CAROLINA POWER & LIGHT COMPANY d/b/a/ PROGRESS ENERGY CAROLINAS, INC.

FLORIDA POWER CORPORATION d/b/a PROGRESS ENERGY FLORIDA, INC.

COMBINED NOTES TO INTERIM FINANCIAL STATEMENTS

INDEX TO APPLICABLE NOTES TO FINANCIAL STATEMENTS BY REGISTRANT

Each of the following combined notes to the interim financial statements of the Progress Registrants are applicable to Progress Energy, Inc. but not to each of PEC and PEF. The following table sets forth which notes are applicable to each of PEC and PEF.

Registrant	Applicable Notes
PEC	1, 2, 4 through 9, and 11 through 13
PEF	1, 2, 4 through 9, and 11 through 13

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PROGRESS ENERGY, INC.

CAROLINA POWER & LIGHT COMPANY d/b/a/ PROGRESS ENERGY CAROLINAS, INC.

FLORIDA POWER CORPORATION d/b/a PROGRESS ENERGY FLORIDA, INC.

COMBINED NOTES TO INTERIM FINANCIAL STATEMENTS

In this report, Progress Energy [which includes Progress Energy, Inc. holding company (the Parent) and its regulated and nonregulated subsidiaries on a consolidated basis] is at times referred to as “we,” “us” or “our.” When discussing Progress Energy’s financial information, it necessarily includes the results of Carolina Power & Light Company d/b/a/ Progress Energy Carolinas, Inc. (PEC) and Florida Power Corporation d/b/a/ Progress Energy Florida, Inc. (PEF) (collectively, the Utilities). The term “Progress Registrants” refers to each of the three separate registrants: Progress Energy, PEC and PEF. The information in these combined notes relates to each of the Progress Registrants as noted in the Index to the Combined Notes. However, neither of the Utilities makes any representation as to information related solely to Progress Energy or the subsidiaries of Progress Energy other than itself.

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Organization

The Parent is a holding company headquartered in Raleigh, N.C. and is subject to the regulatory provisions of the Federal Energy Regulatory Commission (FERC).

Our reportable segments are: PEC, PEF, Progress Ventures, and Coal and Synthetic Fuels. Our PEC and PEF segments are primarily engaged in the generation, transmission, distribution and sale of electricity. Our Progress Ventures segment is primarily engaged in nonregulated electric generation, energy marketing activities and natural gas drilling and production. Our Coal and Synthetic Fuels segment is primarily engaged in the production and sale of coal-based solid synthetic fuel as defined under the Internal Revenue Code (the Code), the operation of synthetic fuel facilities for third parties, and coal terminal services. Through our other business units, we engage in other nonregulated business areas, which are included in our Corporate and Other segment (Corporate and Other).

PEC and PEF are public service corporations. PEC’s service territory covers portions of North Carolina and South Carolina and PEF’s covers portions of Florida. PEC’s subsidiaries are involved in insignificant nonregulated business activities. PEC is subject to the regulatory provisions of the North Carolina Utilities Commission (NCUC) and the Public Service Commission of South Carolina (SCPSC); PEF is subject to the regulatory provisions of the Florida Public Service Commission (FPSC). Both Utilities are also subject to regulation by the United States Nuclear Regulatory Commission (NRC) and the FERC.

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 annual financial statements. The December 31, 2005 condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. Because the accompanying interim financial statements do not include all of the information and footnotes required by GAAP for annual financial statements, they should be read in conjunction with the audited financial statements and notes thereto included in the Progress Registrants’ annual report on Form 10-K for the fiscal year ended December 31, 2005 (2005 Form 10-K).

In accordance with the provisions of Accounting Principles Board (APB) Opinion No. 28, “Interim Financial Reporting” (APB No. 28), GAAP requires companies to apply a levelized effective tax rate to interim periods that is consistent with the estimated annual effective tax rate. The intra-period tax allocation, which will have no impact on total year net income, maintains an effective tax rate consistent with the estimated annual effective tax rate. The fluctuations in the effective tax rate for interim periods are primarily due to the recognition of synthetic fuel tax credits and seasonal fluctuations in energy sales and earnings from the Utilities. Income tax expense was increased for the Progress Registrants for the three months ended March 31, 2006 and 2005, as follows:

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	Three Months Ended March 31,
(in millions)	2006		2005
Progress Energy	$	16	$	3
PEC		2		-
PEF		-		-

The Utilities collect from customers certain excise taxes levied by the state or local government upon the customers. The Utilities account for excise taxes on a gross basis. The amount of gross receipts tax, franchise taxes and other excise taxes included in electric revenues and taxes other than on income in the statements of income are as follows:

	Three Months Ended March 31,
(in millions)	2006		2005
Progress Energy	$	65	$	57
PEC		22		22
PEF		43		35

The amounts included in these financial statements are unaudited but, in the opinion of management, reflect all normal recurring adjustments necessary to fairly present the Progress Registrants’ 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 nuclear-fueled units, 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 amounts for 2005 have been reclassified to conform to the 2006 presentation.

C. Consolidation of Variable Interest Entities

We consolidate all voting interest entities in which we own a majority voting interest and all variable interest entities for which we are the primary beneficiary in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 46R, “Consolidation of Variable Interest Entities - An Interpretation of ARB No. 51” (FIN 46R).

Progress Energy

In addition to the variable interests listed below for PEC and PEF, we have interests through other subsidiaries in several variable interest entities for which we are not the primary beneficiary. These arrangements include investments in five limited liability partnerships and limited liability corporations. At March 31, 2006, the aggregate additional maximum loss exposure that we could be required to record in our income statement as a result of these arrangements was approximately $8 million, which represents our net remaining investment in the entities. The creditors of these variable interest entities do not have recourse to our general credit in excess of the aggregate maximum loss exposure.

PEC

PEC is the primary beneficiary of and consolidates two limited partnerships that qualify for federal affordable housing and historic tax credits under Section 42 of the Code. At March 31, 2006, the total assets of the two entities were $38 million, the majority of which are collateral for the entities’ obligations and are included in miscellaneous other property and investments in the Consolidated Balance Sheets.

PEC has an interest in and consolidates a limited partnership that invests in 17 low-income housing partnerships that qualify for federal and state tax credits. PEC also has an interest in one power plant resulting from long-term power purchase contracts. PEC has requested the necessary information to determine if the 17 partnerships and the power plant owner are variable interest entities or to identify the primary beneficiaries; all entities from which the necessary

20

financial information was requested declined to provide the information to PEC and accordingly, PEC has applied the information scope exception in FIN No. 46R, paragraph 4(g), to the 17 partnerships and the power plant. PEC believes that if it is determined to be the primary beneficiary of these entities, the effect of consolidating the entities would result in increases to total assets, long-term debt and other liabilities, but would have an insignificant or no impact on PEC’s common stock equity, net earnings or cash flows.

PEC also has interests in several other variable interest entities for which PEC is not the primary beneficiary. These arrangements include investments in approximately 21 limited liability partnerships, limited liability corporations and venture capital funds and two building leases with special-purpose entities. At March 31, 2006, the aggregate maximum loss exposure that PEC could be required to record on its income statement as a result of these arrangements totals approximately $22 million, which primarily represents its net remaining investment in these entities. The creditors of these variable interest entities do not have recourse to the general credit of PEC in excess of the aggregate maximum loss exposure. See Note 2 of the 2005 Form 10-K for additional information.

PEF

PEF has interests in three variable interest entities for which PEF is not the primary beneficiary. These arrangements include investments in one limited liability corporation, one venture capital fund and one building lease with a special-purpose entity. At March 31, 2006, the aggregate maximum loss exposure that PEF could be required to record in its income statement as a result of these arrangements was approximately $1 million. The creditors of these variable interest entities do not have recourse to the general credit of PEF in excess of the aggregate maximum loss exposure.

2. NEW ACCOUNTING STANDARDS

FASB EXPOSURE DRAFT ON ACCOUNTING FOR UNCERTAIN TAX POSITIONS, AN INTERPRETATION OF SFAS NO. 109, “ACCOUNTING FOR INCOME TAXES”

On July 14, 2005, the FASB issued an exposure draft of a proposed interpretation of SFAS No. 109, “Accounting for Income Taxes” (SFAS No. 109), that would address the accounting for uncertain tax positions. The proposed interpretation would require that uncertain tax benefits be probable of being sustained in order to record such benefits in the financial statements. We currently account for uncertain tax benefits in accordance with SFAS No. 5, “Accounting for Contingencies” (SFAS No. 5). Under SFAS No. 5, contingent losses are recorded when it is probable that the tax position will not be sustained and the amount of the disallowance can be reasonably estimated. During subsequent deliberations in November 2005, the FASB voted to tentatively adopt a more-likely-than-not criterion that the uncertain tax position will be sustained rather than the original probable criterion. As originally drafted, the proposed interpretation would apply to all uncertain tax positions. On January 11, 2006, the FASB voted to delay the effective date of the final interpretation until the first annual period beginning after December 15, 2006, which for us would be January 1, 2007. The FASB has publicly stated that it expects to issue the final interpretation in the second quarter of 2006. We have not yet determined how the proposed interpretation or the final interpretation would impact our various income tax positions.

3. DIVESTITURES

A. Progress Telecom, LLC

On March 20, 2006, we completed the sale of Progress Telecom, LLC (PT LLC) to Level 3 Communications, Inc. (Level 3). We received gross proceeds comprised of cash of $69 million and approximately 20 million shares of Level 3 common stock valued at an estimated $66 million on the date of the sale. Our net proceeds from the sale of approximately $70 million, after consideration of minority interest, were used to reduce debt. Prior to the sale, we had a 51% interest in PT LLC. See Note 11 for a discussion of the subsequent sale of the Level 3 stock.

Based on the gross proceeds associated with the sale and after consideration of minority interest, we recorded an estimated after-tax gain on disposal of $24 million during the three months ended March 31, 2006.

The accompanying consolidated financial statements have been restated for all periods presented to reflect the operations of PT LLC as discontinued operations. Interest expense has been allocated to discontinued operations

21

based on the net assets of PT LLC, assuming a uniform debt-to-equity ratio across our operations. Interest expense allocated for the three months ended March 31, 2006 and 2005 was less than $1 million. We ceased recording depreciation upon classification of the assets as discontinued operations in January 2006. After-tax depreciation expense recorded by PT LLC during the three months ended March 31, 2006 and 2005 was $1 million and $2 million, respectively. Results of discontinued operations for the three months ended March 31 were as follows:

(in millions)	2006			2005
Revenues	$	18		$	18
Earnings before income taxes and minority interest		1			-
Income tax expense		4			-
Minority interest		3			-
Net loss from discontinued operations		(6	)		-
Estimated gain on disposal of discontinued operations, including income tax expense of $13 and minority interest of $36		24			- -
Earnings from discontinued operations	$	18		$	-

In connection with the sale, PEC and PEF provided indemnification against costs associated with certain asset performances to Level 3. See general discussion of guarantees at Note 13A. The ultimate resolution of these matters could result in adjustments to the gain on sale in future periods.

B. Progress Rail Divestiture

On March 24, 2005, we completed the sale of Progress Rail Services Corporation (Progress Rail) to One Equity Partners LLC, a private equity firm unit of J.P. Morgan Chase & Co. Gross cash proceeds from the sale were approximately $429 million, consisting of $405 million base proceeds plus a working capital adjustment. Proceeds from the sale were used to reduce debt.

Based on the gross proceeds associated with the sale, we recorded an estimated after-tax loss on disposal of $17 million during the three months ended March 31, 2005. During the remainder of 2005, we recorded an additional loss of $8 million after finalizing the working capital adjustment and other operating estimates.

The accompanying consolidated interim financial statements for the three months ended March 31, 2005 reflect the operations of Progress Rail as discontinued operations. Interest expense has been allocated to discontinued operations based on the net assets of Progress Rail, assuming a uniform debt-to-equity ratio across our operations. Interest expense allocated for the three months ended March 31, 2005 was $4 million. We ceased recording depreciation upon classification of the assets as discontinued operations in February 2005. After-tax depreciation expense during the three months ended March 31, 2005 was $3 million. Results of discontinued operations for the three months ended March 31, 2005 were as follows:

(in millions)
Revenues	$	358
Earnings before income taxes		8
Income tax expense		3
Net earnings from discontinued operations		5
Loss on disposal of discontinued operations, including income tax benefit of $14		(17	)
Loss from discontinued operations	$	(12	)

In connection with the sale, Progress Fuels Corporation (Progress Fuels) and Progress Energy provided guarantees and indemnifications of certain legal, tax and environmental matters to One Equity Partners, LLC. See general discussion of guarantees at Note 13A. The ultimate resolution of these matters could result in adjustments to the loss on sale in future periods.

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C. Coal Mines Divestiture

On November 14, 2005, our board of directors approved a plan to divest five subsidiaries of Progress Fuels engaged in the coal mining business. On April 6, 2006, we signed an agreement to sell certain net assets of the coal mining business to Alpha Natural Resources, LLC for gross proceeds of $23 million plus an estimated $4 million working capital adjustment. The sale closed on May 1, 2006. As a result, during the three months ended March 31, 2006, we recorded an estimated after-tax loss of $15 million on the expected sale of these assets. The remaining coal mining operations are expected to be sold by the end of 2006. The accompanying consolidated financial statements have been restated for all periods presented to reflect the coal mining operations as discontinued operations. Interest expense has been allocated to discontinued operations based on the net assets of the coal mines, assuming a uniform debt-to-equity ratio across our operations. Interest expense allocated was $1 million for the three months ended March 31, 2006 and 2005. We ceased recording depreciation expense upon classification of the coal mining operations as discontinued operations in November 2005. After-tax depreciation expense during the three months ended March 31, 2005 was $2 million. Results of discontinued operations for the three months ended March 31 were as follows:

(in millions)	2006			2005
Revenues	$	35		$	50
(Loss) earnings before income taxes		(7	)		1
Income tax benefit		2			-
Net (loss) earnings from discontinued operations		(5	)		1
Estimated loss on disposal of discontinued operations, including income tax benefit of $9		(15	)		-
(Loss) earnings from discontinued operations	$	(20	)	$	1

D.  Net Assets of Discontinued Operations

Included in net assets of discontinued operations are the assets and liabilities of the coal mining operations at March 31, 2006 and PT LLC and the coal mining operations at December 31, 2005. The major balance sheet classes included in assets and liabilities of discontinued operations in the Consolidated Balance Sheet were as follows:

(in millions)	March 31, 2006		December 31, 2005
Accounts receivable	$	6	$	18
Inventory		6		13
Other current assets		2		5
Total property, plant and equipment, net		51		155
Total other assets		21		34
Assets of discontinued operations	$	86	$	225
Accounts payable	$	2	$	12
Accrued expenses		8		20
Long-term liabilities		23		55
Liabilities of discontinued operations	$	33	$	87

4. REGULATORY MATTERS

A. PEC Retail Rate Matters

FUEL COST RECOVERY

On May 3, 2006, PEC filed with the SCPSC for an increase in the fuel rate charged to its South Carolina customers. PEC is asking the SCPSC to approve a $27 million, or 5.4 percent, increase in rates. PEC requested the increase for underrecovered fuel costs associated with a settlement from the 2005 fuel case and to meet future expected fuel costs. If approved, the increase would take effect July 1, 2006 and would increase residential electric bills by $3.55 per 1,000 kWhs for fuel cost recovery. We cannot predict the outcome of this matter.

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B. PEF Retail Rate Matters

STORM COST RECOVERY

On June 1, 2005, the governor of Florida signed into law a bill that allows utilities to petition the FPSC to use securitized bonds to recover storm-related costs. PEF has decided not to pursue the issuance of securitized bonds either to recover its 2004 storm-related costs or to replenish its storm reserve fund. On April 25, 2006, PEF entered into a settlement agreement with the interveners in its storm cost recovery docket that would allow PEF to extend its current two-year storm surcharge, which equals approximately $3.61 on the average residential monthly customer bill of 1,000 kWhs, for an additional 12-month period. The extension would replenish the existing storm reserve by an estimated additional $130 million. In the event future storms cause the reserve to be depleted, the settlement would further allow PEF to automatically collect from customers 80% of any future depletion of the storm reserve pending the FPSC’s ultimate review and determination of the actual costs incurred and recoverable by PEF. The parties have sought the FPSC’s approval of the settlement. In addition, PEF’s base rates provide $6 million annually for storm reserve replenishment. The FPSC has the right to review PEF’s storm costs for prudence and has the authority to determine the manner and timing of recovery. We cannot predict the outcome of this matter.

C. Other Matters

REGIONAL TRANSMISSION ORGANIZATION

PEF was one of three major investor-owned Florida utilities that formed a regional transmission organization (RTO), GridFlorida, in 2000. A cost-benefit study conducted during 2005 concluded that the GridFlorida RTO was not cost effective for jurisdictional customers and shifted benefits to nonjurisdictional customers. In light of these findings, the GridFlorida applicants filed a motion to withdraw the GridFlorida compliance filing and filed a petition to close the docketed proceeding on January 27, 2006. At a hearing held on April 18, 2006, the FPSC approved the request to close the docketed proceeding. The closing of the docketed proceeding did not impact PEF’s results of operations as PEF has fully recovered its GridFlorida startup costs from retail ratepayers.

5. EQUITY AND COMPREHENSIVE INCOME

A. Earnings Per Common Share

A reconciliation of our weighted-average number of common shares outstanding for basic and dilutive earnings per share purposes follows:

	Three Months Ended March 31,
(in millions)	2006		2005
Weighted-average common shares - basic		249		244
Restricted stock awards		-		1
Weighted-average shares - fully dilutive		249		245

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B. Comprehensive Income

Progress Energy

	Three Months Ended March 31,
(in millions)	2006			2005
Net income	$	45		$	93
Other comprehensive (loss) income
Reclassification adjustments included in net income
Change in cash flow hedges (net of tax (benefit) expense of ($2) and $1, respectively)		(4	)		2
Foreign currency translation adjustments included in discontinued operations		−			(6	)
Minimum pension liability adjustment included in discontinued operations (net of tax expense of $1)		−			1
Changes in net unrealized gains on cash flow hedges (net of tax expense of $7 and $5, respectively)		13			6
Other (net of tax expense of $2 and $−, respectively)		5			2
Other comprehensive income		14			5
Comprehensive income	$	59		$	98

PEC

	Three Months Ended March 31,
(in millions)	2006		2005
Net income	$	86	$	116
Other comprehensive income:
Changes in net unrealized gains on cash flow hedges (net of tax expense of $1)		-		2
Other		1		-
Other comprehensive income		1		2
Comprehensive income	$	87	$	118

PEF

Comprehensive income and net income for PEF for the three months ended March 31, 2006 and 2005 were $53 million and $44 million, respectively.

C. Common Stock

At December 31, 2005, we had 500 million shares of common stock authorized under our charter, of which approximately 252 million were outstanding. For the three months ended March 31, 2006 and 2005, respectively, we issued approximately 0.7 million shares and 1.4 million shares of common stock resulting in approximately $28 million and $60 million in proceeds, net of purchases of restricted shares. Included in these amounts were approximately 0.3 million shares and 1.3 million shares for net proceeds of approximately $14 million and $58 million, respectively, to meet the requirements of the Progress Energy 401(k) Savings and Stock Ownership Plan (401(k)) and the Investor Plus Stock Purchase Plan. At December 31, 2005, we had approximately 58 million unissued shares of common stock reserved, primarily to satisfy the requirements of our stock plans. In 2002, the board of directors authorized meeting the requirements of the 401(k) and the Investor Plus Stock Purchase Plan with original issue shares.

D. Stock-Based Compensation

As discussed in Note 10 of the 2005 Form 10-K, we adopted SFAS No. 123R, “Share-Based Payment” (SFAS No. 123R), as of July 1, 2005, using the required modified prospective method. Under that method we began recording

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compensation expense as of July 1, 2005. Previously, entities could elect to continue accounting for such awards at their grant date intrinsic value under APB Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25), and we made that election. The intrinsic value method resulted in our recording no compensation expense for stock options granted to employees.

Progress Energy

The following table illustrates the effect on our net income and earnings per share if the fair value method had been applied to all outstanding and nonvested awards during the three months ended March 31, 2005:

(in millions except per share data)
Net income, as reported	$	93
Deduct: Total stock option expense determined under fair value method for all awards, net of related tax effects		1
Pro forma net income	$	92
Earnings per share
Basic - as reported	$	0.38
Basic - pro forma	$	0.38
Diluted - as reported	$	0.38
Diluted - pro forma	$	0.38

PEC

PEC participates in Progress Energy’s stock option and other stock-based compensation plans. The information below should be read in conjunction with the plan descriptions and other pertinent information disclosed in Note 10 of the 2005 Form 10-K. The following table illustrates the effect on PEC’s net income if the fair value method had been applied to all outstanding and nonvested awards during the three months ended March 31, 2005:

(in millions except per share data)
Net income, as reported	$	116
Deduct: Total stock option expense determined under fair value method for all awards, net of related tax effects		1
Pro forma net income	$	115

PEF

PEF participates in Progress Energy’s stock option and other stock-based compensation plans. The information below should be read in conjunction with the plan descriptions and other pertinent information disclosed in Note 10 of the 2005 Form 10-K. The following table illustrates the effect on PEF’s net income if the fair value method had been applied to all outstanding and nonvested awards during the three months ended March 31, 2005:

(in millions except per share data)
Net income, as reported	$	44
Deduct: Total stock option expense determined under fair value method for all awards, net of related tax effects		-
Pro forma net income	$	44

6. GOODWILL

As discussed in Note 8 of the 2005 Form 10-K, we perform annual goodwill impairment tests in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142).

For our Progress Ventures segment, the goodwill impairment tests are performed at the reporting unit level of our

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Effingham, Monroe, Walton and Washington nonregulated generation plants (Georgia Region), which is one level below the Progress Ventures segment. As a result of our evaluation of certain business opportunities that may impact the future cash flows of our Georgia Region operations, we performed an interim goodwill impairment test during the first quarter of 2006. As a result of this test, for the three months ended March 31, 2006, we recognized a pre-tax goodwill impairment loss of $64 million. We estimated the fair value of that reporting unit using the expected present value of future cash flows.

Under SFAS No. 142, all goodwill is assigned to our reporting units that are expected to benefit from the synergies of the business combination. The changes in the carrying amount of goodwill, by reportable segment, were as follows:

(in millions)	PEC		PEF		Progress Ventures			Total
Balance at January 1, 2005	$	1,922	$	1,733	$	64		$	3,719
Balance at December 31, 2005		1,922		1,733		64			3,719
Impairment		-		-		(64	)		(64	)
Balance at March 31, 2006	$	1,922	$	1,733	$	-		$	3,655

7. DEBT AND CREDIT FACILITIES AND FINANCING ACTIVITIES

Changes to Progress Energy’s, PEC’s and PEF’s debt and credit facilities and financing activities since December 31, 2005, are described below.

On January 13, 2006, Progress Energy issued $300 million of 5.625% Senior Notes due 2016 and $100 million of Series A Floating Rate Senior Notes due 2010. These senior notes are unsecured. Interest on the Floating Rate Senior Notes will be based on three-month London Inter Bank Offering Rate (LIBOR) plus 45 basis points and will be reset quarterly. We used the net proceeds from the sale of these senior notes and a combination of available cash and commercial paper proceeds to retire the $800 million aggregate principal amount of our 6.75% Senior Notes on March 1, 2006. Prior to the application of proceeds as described above, we invested the net proceeds in short-term, interest-bearing, investment-grade securities.

Progress Energy entered into a new $800 million 364-day credit agreement on November 21, 2005, which was restricted for the retirement of $800 million of 6.75% Senior Notes due March 1, 2006. On March 1, 2006, we retired $800 million of our 6.75% Senior Notes, thus effectively terminating the 364-day credit agreement.

On March 31, 2006, Progress Energy filed a shelf registration statement with the SEC to provide unlimited financing capacity. The registration statement became effective upon filing with the SEC and will allow Progress Energy to issue various securities, including Senior Debt Securities, Junior Subordinated Debentures, Common Stock, Preferred Stock, Stock Purchase Contracts, Stock Purchase Units, and Trust Preferred Securities and Guarantees. The board of directors has authorized the issuance and sale of up to $1 billion aggregate principal amount of various securities off this new shelf registration statement, in addition to the $679 million of various securities which were not sold from our prior shelf registration statement. Therefore, effective March 31, 2006, Progress Energy has the authority to issue and sell up to $1.679 billion aggregate principal amount of various securities.

On May 3, 2006, Progress Energy restructured its existing $1.13 billion five-year revolving credit agreement (RCA) with a syndication of financial institutions. The new RCA is scheduled to expire on May 3, 2011, and is replacing an existing $1.13 billion five-year facility, which was terminated effective May 3, 2006. The Progress Energy RCA will continue to be used to provide liquidity support for Progress Energy’s issuances of commercial paper and other short-term obligations. The new RCA still includes a defined maximum total debt to capital ratio of 68 percent and contains various cross-default and other acceleration provisions. However, the new RCA no longer includes a material adverse change representation for borrowings or a financial covenant for interest coverage. Fees and interest rates under the RCA will continue to be determined based upon the credit rating of Progress Energy’s long-term unsecured senior noncredit-enhanced debt, currently rated as Baa2 by Moody’s and BBB- by S&P.

On May 3, 2006, PEC’s five-year $450 million credit facility was amended to take advantage of favorable market conditions and reduce the pricing associated with the facility. Fees and interest rates under the RCA will continue to

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be determined based upon the credit rating of PEC’s long-term unsecured senior noncredit-enhanced debt, currently rated as Baa1 by Moody’s and BBB- by S&P. The amended PEC RCA is still scheduled to expire on June 28, 2010.

On May 3, 2006, PEF’s five-year $450 million credit facility was amended to take advantage of favorable market conditions and reduce the pricing associated with the facility. Fees and interest rates under the RCA will continue to be determined based upon the credit rating of PEF’s long-term unsecured senior noncredit-enhanced debt, currently rated as Baa1 by Moody’s and BBB- by S&P. The amended PEF RCA is still scheduled to expire on March 28, 2010.

8. BENEFIT PLANS

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

Progress Energy

	Pension Benefits						Other Postretirement Benefits
(in millions)	2006			2005			2006			2005
Service cost	$	12		$	15		$	2		$	3
Interest cost		29			29			9			8
Expected return on plan assets		(36	)		(37	)		(1	)		(1	)
Amortization of actuarial loss		9			6			2			1
Other amortization, net		-			1			-			-
Net periodic cost		14			14			12			11
Additional cost / (benefit) recognition (a)		(3	)		(4	)		1			1
Net periodic cost recognized	$	11		$	10		$	13		$	12

^(a) Relates to the acquisition of Florida Progress. See Note 16B to the 2005 Form 10-K.

PEC

	Pension Benefits						Other Postretirement Benefits
(in millions)	2006			2005			2006			2005
Service cost	$	6		$	7		$	1		$	2
Interest cost		13			13			5			4
Expected return on plan assets		(15	)		(16	)		(1	)		(1	)
Amortization of actuarial loss		3			1			1			-
Other amortization, net		-			1			-			-
Net periodic cost	$	7		$	6		$	6		$	5

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PEF

	Pension Benefits						Other Postretirement Benefits
(in millions)	2006			2005			2006		2005
Service cost	$	4		$	6		$	1	$	1
Interest cost		12			11			3		3
Expected return on plan assets		(19	)		(18	)		-		-
Amortization of actuarial loss		2			-			-		-
Other amortization, net		-			-			1		1
Net periodic cost (benefit)	$	(1	)	$	(1	)	$	5	$	5

9. RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS

We are exposed to various risks related to changes in market conditions. We have a Risk Management Committee comprised of senior executives from various functional areas. The Risk Management Committee is responsible for administering risk management policies and monitoring compliance with those policies by all subsidiaries. Under our risk policy, we may use a variety of instruments, including swaps, options and forward contracts, to manage exposure to fluctuations in commodity prices and interest rates. Such instruments contain credit risk for nonperformance by the counterparty. We minimize such risk by performing credit reviews using, among other things, publicly available credit ratings of such counterparties. Potential nonperformance by counterparties is not expected to have a material effect on our financial position or results of operations. Additionally, in the normal course of business, some of our affiliates may enter into hedge transactions with one another. See Note 18 to the 2005 Form 10-K.

A. Commodity Derivatives

GENERAL

Most of our commodity contracts are not derivatives pursuant to SFAS No. 133, “Accounting for Derivative and Hedging Activities” (SFAS No. 133), or qualify as normal purchases or sales pursuant to SFAS No. 133. Therefore, such contracts are not recorded at fair value.

In 2003, PEC recorded a $38 million pre-tax ($23 million after-tax) fair value loss transition adjustment pursuant to the provisions of FASB Derivatives Implementation Group Issue C20, “Interpretation of the Meaning of Not Clearly and Closely Related in Paragraph 10(b) regarding Contracts with a Price Adjustment Feature” (DIG Issue C20). The related liability is being amortized to earnings over the term of the related contract (See Note 11). At March 31, 2006 and December 31, 2005, the remaining liability was $18 million and $19 million, respectively.

ECONOMIC DERIVATIVES

Derivative products, primarily electricity and natural gas contracts, may be entered into from time to time for economic hedging purposes. While management believes the economic hedges mitigate exposures to fluctuations in commodity prices, these instruments are not designated as hedges for accounting purposes and are monitored consistent with trading positions. We manage open positions according to established policies and guidelines that limit our exposure to market risk and require daily reporting to management of financial exposures. Gains and losses from such contracts were not material to our or the Utilities’ results of operations for the three months ended March 31, 2006 and 2005. PEC did not have material outstanding positions in such contracts at March 31, 2006 and December 31, 2005. We and PEF did not have material outstanding positions in such contracts at March 31, 2006 and December 31, 2005, other than those receiving regulatory accounting treatment at PEF, as discussed below.

PEF has derivative instruments related to its exposure to price fluctuations on fuel oil and natural gas purchases. These instruments receive regulatory accounting treatment. Unrealized gains and losses are recorded in regulatory liabilities and regulatory assets, respectively, until the contracts are settled. Once settled, any realized gains or losses are passed through the fuel clause. At March 31, 2006, the fair values of these instruments were a $79 million short-term derivative asset position included in other current assets, a $56 million long-term derivative asset position included in other assets and deferred debits, a $4 million short-term derivative liability position included in other current liabilities and a $1 million long-term derivative liability position included in other liabilities and deferred

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credits. At December 31, 2005, the fair values of the instruments were a $77 million short-term derivative asset position included in other current assets, a $45 million long-term derivative asset position included in other assets and deferred debits and a $6 million long-term derivative liability position included in other liabilities and deferred credits.

CASH FLOW HEDGES

Our subsidiaries designate a portion of commodity derivative instruments as cash flow hedges under SFAS No. 133. The objective for holding these instruments is to hedge exposure to market risk associated with fluctuations in the price of natural gas and power for our forecasted purchases and sales. Realized gains and losses are recorded net in operating revenues or operating expenses, as appropriate. The ineffective portion of commodity cash flow hedges for the three months ended March 31, 2006 and 2005, was not material to our or the Utilities’ results of operations.

The fair values of our commodity cash flow hedges at March 31, 2006 and December 31, 2005, were as follows:

	March 31, 2006						December 31, 2005
(in millions)	Progress Energy		PEC		PEF		Progress Energy		PEC		PEF
Fair value of assets	$	144	$	3	$	-	$	170	$	7	$	-
Fair value of liabilities		(21)		-		-		(58)		(4)		-
Fair value, net	$	123	$	3	$	-	$	112	$	3	$	-

The following table presents selected information related to our commodity cash flow hedges at March 31, 2006:

	Maximum Term(a)						Accumulated Other Comprehensive Income/(Loss), net of tax(b)						Portion Expected to be Reclassified to Earnings during the Next 12 Months(c)
(term in years/ millions of dollars)	Progress Energy		PEC		PEF		Progress Energy		PEC		PEF		Progress Energy		PEC		PEF
Commodity cash flow hedges		9		Less than 1		-	$	77	$	2	$	-	$	(3)	$	2	$	-

^(a) The majority of hedges in fair value asset positions are currently classified as long-term.

^(b) Includes amounts related to de-designated hedges.

^(c) Due to the volatility of the commodities markets, the value in accumulated other comprehensive income/(loss) (OCI) is subject to change prior to its reclassification into earnings.

At December 31, 2005, we had $69 million of after-tax deferred income and PEC had $2 million in after-tax deferred income recorded in accumulated other comprehensive loss related to commodity cash flow hedges. PEF had no amount recorded in accumulated other comprehensive loss related to commodity cash flow hedges.

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

We use cash flow hedging strategies to reduce exposure to changes in cash flow due to fluctuating interest rates. We use fair value hedging strategies to reduce exposure to changes in fair value due to interest rate changes. The notional amounts of interest rate derivatives are not exchanged and do not represent exposure to credit loss. In the event of default by the counterparty, the risk in these transactions is the cost of replacing the agreements at current market rates.

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The fair values of interest rate hedges at March 31, 2006 and December 31, 2005, were as follows:

	March 31, 2006						December 31, 2005
(in millions)	Progress Energy		PEC		PEF		Progress Energy		PEC		PEF
Interest rate cash flow hedges	$	-	$	-	$	-	$	1	$	-	$	-
Interest rate fair value hedges	$	(4)	$	-	$	-	$	(2)	$	-	$	-

CASH FLOW HEDGES

Gains and losses from cash flow hedges are recorded in OCI and amounts reclassified to earnings are included in net interest charges as the hedged transactions occur. Amounts in OCI related to terminated hedges are reclassified to earnings as the interest expense is recorded. The ineffective portion of interest rate cash flow hedges for the three months ended March 31, 2006 and 2005, was not material to our or the Utilities’ results of operations.

At December 31, 2005, we had $13 million of after-tax deferred loss and PEC had $5 million in after-tax deferred loss recorded in accumulated other comprehensive loss related to interest rate cash flow hedges. PEF had no amount recorded in accumulated other comprehensive loss related to interest rate cash flow hedges. These balances were not materially different at March 31, 2006.

At December 31, 2005, we had $100 million notional of interest rate cash flow hedges, which were settled during the three months ended March 31, 2006. The Utilities had no open interest rate cash flow hedges at December 31, 2005.

FAIR VALUE HEDGES

For interest rate fair value hedges, the change in the fair value of the hedging derivative is recorded in net interest charges and is offset by the change in the fair value of the hedged item. At March 31, 2006 and December 31, 2005, we had $150 million notional of interest rate fair value hedges and the Utilities had no open interest rate fair value hedges.

10. FINANCIAL INFORMATION BY BUSINESS SEGMENT

Our reportable segments are: PEC, PEF, Progress Ventures, and Coal and Synthetic Fuels.

Our PEC and PEF business segments are primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina, South Carolina and Florida. These electric operations also distribute and sell electricity to other utilities, primarily on the east coast of the United States.

Our Progress Ventures segment is primarily engaged in nonregulated electric generation, energy marketing activities and natural gas drilling and production.

Our Coal and Synthetic Fuels segment is primarily engaged in the production and sale of coal-based solid synthetic fuel (as defined under the Code), the operation of synthetic fuel facilities for third parties, and coal terminal services.

In addition to the reportable operating segments, the Corporate and Other segment includes the operations of the Parent and Progress Energy Service Company, LLC (PESC) as well as other nonregulated business areas. These nonregulated business areas do not separately meet the disclosure requirements of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (SFAS No. 131). The profit or loss of the identified segments plus the profit or loss of Corporate and Other represents our total income from continuing operations.

Prior to 2006, PT LLC was included within the Corporate and Other segment. In connection with its divestiture (See Note 3A), the operations of PT LLC were reclassified to discontinued operations in the first quarter of 2006 and therefore are not included in the results from continuing operations during the periods reported. During the fourth quarter of 2005, we reclassified our coal mining operations as discontinued operations (See Note 3C). Income and assets of discontinued operations are not included in the table presented below. For comparative purposes, the prior year results have been restated to conform to the current segment presentation. The following information is for the three months ended March 31:

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											Income (loss)
	Revenues										from
(in millions)	Unaffiliated		Intersegment			Total			Severance Charges		Continuing Operations			Assets
2006
PEC	$	978	$	-		$	978		$	-	$	85		$	11,418
PEF		1,007		-			1,007			-		52			8,295
Progress Ventures		226		-			226			-		(35	)		2,235
Coal and Synthetic Fuels		222		75			297			-		14			453
Corporate and Other		-		89			89			-		(69	)		17,738
Eliminations		-		(164	)		(164	)		-		-			(13,737	)
Totals	$	2,433	$	-		$	2,433		$	-	$	47		$	26,402
2005
PEC	$	935	$	-		$	935		$	14	$	115
PEF		848		-			848			14		43
Progress Ventures		97		-			97			1		7
Coal and Synthetic Fuels		273		84			357			2		(4	)
Corporate and Other		-		100			100			-		(57	)
Eliminations		-		(184	)		(184	)		-		-
Totals	$	2,153	$	-		$	2,153		$	31	$	104

 The severance charges incurred in 2005 resulted from a cost-management initiative that was approved in February 2005 and concluded in December 2005.

11. OTHER INCOME AND OTHER EXPENSE

Other income and expense includes interest income and other income and expense items as discussed below. Nonregulated energy and delivery services include power protection services and mass market programs such as surge protection, appliance services and area light sales, and delivery, transmission and substation work for other utilities. Allowance for funds used during construction (AFUDC) equity represents the estimated equity costs of capital funds necessary to finance the construction of new regulated assets. Contingent value obligations (CVOs) unrealized loss is due to changes in the fair market value of the liability. See Note 15 to the 2005 Form 10-K for more information on CVOs. The components of other, net as shown on the accompanying Statements of Income were as follows:

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Progress Energy

	Three Months Ended March 31,
(in millions)	2006			2005
Other income
Nonregulated energy and delivery services income	$	8		$	6
DIG Issue C20 amortization (see Note 9)		1			1
Gain on sale of Level 3 stock (a)		25			-
Investment gains		2			2
Income from equity investments		-			2
AFUDC equity		3			3
Other		5			6
Total other income	$	44		$	20
Other expense
Nonregulated energy and delivery services expenses	$	6		$	5
Donations		7			5
Loss from equity investments		2			5
CVOs unrealized loss		25			-
Other		6			4
Total other expense	$	46		$	19
Other, net - Progress Energy	$	(2	)	$	1

(a)   Other income includes a $25 million gain from the sale of approximately 15 million shares of Level 3 stock received as part of the sale of our interest in PT LLC (See Note 3A). This gain is prior to the consideration of minority interest.

PEC

	Three Months Ended March 31,
(in millions)	2006			2005
Other income
Nonregulated energy and delivery services income	$	2		$	2
DIG Issue C20 amortization (see Note 9)		1			1
AFUDC equity		1			-
Other		3			3
Total other income	$	7		$	6
Other expense
Nonregulated energy and delivery services expenses	$	1		$	2
Donations		3			2
Other		4			1
Total other expense	$	8		$	5
Other, net - PEC	$	(1	)	$	1

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PEF

	Three Months Ended March 31,
(in millions)	2006			2005
Other income
Nonregulated energy and delivery services income	$	6		$	4
Investment gains		1			1
AFUDC equity		2			3
Other		-			1
Total other income	$	9		$	9
Other expense
Nonregulated energy and delivery services expenses	$	5		$	3
Donations		3			3
Other		2			-
Total other expense	$	10		$	6
Other, net - PEF	$	(1	)	$	3

12. ENVIRONMENTAL MATTERS

We are subject to federal, state and local regulations addressing hazardous and solid waste management, air and water quality and other environmental matters. See Note 22 to the 2005 Form 10-K.

A.  Hazardous and Solid Waste Management

The provisions of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (CERCLA), authorize the Environmental Protection Agency (EPA) to require the cleanup of hazardous waste sites. This statute imposes retroactive joint and several liabilities. Some states, including North Carolina, South Carolina and Florida, have similar types of statutes. We are periodically notified by regulators, including the EPA and various state agencies, of our involvement or potential involvement in sites that may require investigation and/or remediation. There are presently several sites with respect to which we have been notified of our potential liability by the EPA, the state of North Carolina or the state of Florida, as described below in greater detail. Various organic materials associated with the production of manufactured gas, generally referred to as coal tar, are regulated under federal and state laws. PEC and PEF are each potentially responsible parties (PRPs) at several manufactured gas plant (MGP) sites. We are also currently in the process of assessing potential costs and exposures at other sites. A discussion of sites by legal entity follows below.

We record accruals for probable and estimable costs related to environmental sites on an undiscounted basis. We measure our liability for these sites based on available evidence including our experience in investigating and remediating environmentally impaired sites. The process often involves assessing and developing cost-sharing arrangements with other PRPs. For all sites, as assessments are developed and analyzed, we will accrue costs for the sites to the extent our liability is probable and the costs can be reasonably estimated. Because the extent of environmental impact, allocation among PRPs for all sites, remediation alternatives (which could involve either minimal or significant efforts), and concurrence of the regulatory authorities have not yet reached the stage where a reasonable estimate of the remediation costs can be made, we cannot determine the total costs that may be incurred in connection with the remediation of all sites at this time. It is probable that current estimates will change and additional losses, which could be material, may be incurred in the future.

PEC and PEF filed claims with general liability insurance carriers to recover costs arising from actual or potential environmental liabilities for remediation of certain sites. No material claims are currently pending. We may file further claims with respect to sites for which claims were not previously presented.

Progress Energy

In addition to the Utilities’ sites, discussed under “PEC” and “PEF” below, our environmental sites include the following related to our nonregulated operations.

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In 2001, we, through our Progress Fuels subsidiary, established an accrual to address indemnities and retained an environmental liability associated with the sale of our Inland Marine Transportation business. In 2003, the accrual was reduced to $4 million based on a change in estimate. At March 31, 2006 and December 31, 2005, the remaining accrual balance was approximately $3 million. Expenditures related to this liability were not material during the three months ended March 31, 2006 and 2005.

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

PEC

There are currently eight former MGP sites and a number of other sites associated with PEC that have required or are anticipated to require investigation and/or remediation.

In September 2005, the EPA advised PEC that it had been identified as a PRP at the Carolina Transformer site located in Fayetteville, N.C. The EPA offered PEC and a number of other PRPs the opportunity to share the reimbursement of approximately $36 million to the EPA for past expenditures in addressing conditions at the site. An agreement among PRPs has not been reached; consequently, it is not possible at this time to reasonably estimate the amount of PEC’s share of the obligation for remediation of the Carolina Transformer site. PEC may file claims with respect to this site. The outcome of this matter cannot be predicted.

During the fourth quarter of 2004, the EPA advised PEC that it had been identified as a PRP at the Ward Transformer site located in Raleigh, N.C. The EPA offered PEC and a number of other PRPs the opportunity to negotiate cleanup of the site and reimbursement to the EPA for EPA’s past expenditures in addressing conditions at the site. In September 2005, PEC and several other PRPs signed a settlement agreement, which requires the participating PRPs to remediate the site. In 2005, PEC accrued approximately $3 million for its portion of the EPA’s estimated remediation costs and the EPA's past costs. For the quarter ended March 31, 2006, based upon additional assessment work performed at the site, PEC recorded an additional $9 million accrual for its portion of the estimated additional remediation costs. Actual experience may differ from current estimates and it is possible that estimates will continue to change in the future. PEC may file claims with respect to this site. The outcome of this matter cannot be predicted.

In March 2006, based upon newly available data for several of PEC’s MGP sites, which had individual site remediation costs ranging from approximately $2 million to $4 million, a remediation liability of approximately $12 million was estimated and recorded for the minimum total remediation cost for all of PEC’s remaining MGP sites. However, the maximum amount of the range for all the sites cannot be determined at this time as one of the remaining sites is significantly larger than the sites for which we have historical experience.

At March 31, 2006 and December 31, 2005, PEC’s accruals for probable and estimable costs related to various environmental sites, which are included in other liabilities and deferred credits and are expected to be paid out over one to five years, were $25 million and $7 million, respectively. The amounts include insurance fund proceeds that PEC received to address costs associated with environmental liabilities related to its involvement with some sites. All eligible expenses related to these sites are charged against a specific fund containing these proceeds. For the three months ended March 31, 2006, PEC spent approximately $3 million, accrued approximately $21 million, and received no insurance proceeds related to environmental remediation. For the three months ended March 31, 2005, PEC made no additional accruals, spent approximately $2 million and received no insurance proceeds. PEC is planning to propose to the NCUC to defer and amortize these costs, net of insurance proceeds, over a period of years. We cannot predict the outcome of this matter.

On March 30, 2005, the North Carolina Division of Water Quality renewed a PEC permit for the continued use of coal combustion products generated at any of its coal-fired plants located in the state. Following review of the permit conditions, which could significantly restrict the reuse of coal ash and result in higher ash management costs, the permit was adjudicated. The outcome of this matter cannot be predicted.

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PEF

At March 31, 2006 and December 31, 2005, PEF’s accruals for probable and estimable costs related to various environmental sites, which were included in other liabilities and deferred credits and are expected to be paid out over one to 15 years, were:

(in millions)	March 31, 2006		December 31, 2005
Remediation of distribution and substation transformers	$	57	$	20
MGP and other sites		18		18
Total accrual for environmental sites	$	75	$	38

PEF has received approval from the FPSC for recovery of costs associated with the remediation of distribution and substation transformers through the Environmental Cost Recovery Clause (ECRC). Under agreements with the Florida Department of Environmental Protection (FDEP), PEF is in the process of examining distribution transformer sites and substation sites for mineral oil-impacted soil remediation caused by equipment integrity issues. PEF has reviewed a number of distribution transformer sites and all substation sites. Based on changes to the estimated time frame for review of distribution transformer sites, PEF currently expects to have completed its review by the end of 2008. Should further sites be identified, PEF believes that any estimated costs would also be recovered through the ECRC. For the three months ended March 31, 2006, PEF accrued approximately $38 million due to additional sites expected to require remediation and spent approximately $1 million related to the remediation of transformers. For the three months ended March 31, 2005, PEF made no additional accruals and spent approximately $2 million related to the remediation of transformers. PEF records a regulatory asset for the probable recovery of these costs through the ECRC.

The amounts for MGP and other sites, in the table above, relate to two former MGP sites and other sites associated with PEF that have required or are anticipated to require investigation and/or remediation. The amounts include approximately $12 million in insurance claim settlement proceeds received in 2004, which are restricted for use in addressing costs associated with environmental liabilities. For the three months ended March 31, 2006 and 2005, PEF made no additional accruals or material expenditures and received no insurance proceeds.

B.  Air Quality

We are subject to various current and proposed federal, state and local environmental compliance laws and regulations, which would likely result in increased planned capital expenditures and O&M expenses. Significant updates to these laws and regulations and related impacts to us since December 31, 2005, are discussed below. Additionally, Congress is considering legislation that would require additional reductions in air emissions of nitrogen oxide (NOx), sulfur dioxide (SO₂), carbon dioxide (CO₂) and mercury. Some of these proposals establish nationwide caps and emission rates over an extended period of time. This national multipollutant approach to air pollution control could involve significant capital costs that could be material to our financial position or results of operations. Control equipment that will be installed on North Carolina coal-fired generating facilities as part of the Clean Smokestacks Act, enacted in 2002 and discussed below, may address some of the issues outlined above as they relate to PEC. However, the outcome of the matter cannot be predicted.

NEW SOURCE REVIEW (NSR)

The EPA is conducting an enforcement initiative related to a number of coal-fired utility power plants in an effort to determine whether changes at those facilities were subject to NSR requirements or New Source Performance Standards under the Clean Air Act. We were asked to provide information to the EPA as part of this initiative and cooperated in supplying the requested information. The EPA initiated civil enforcement actions against unaffiliated utilities as part of this initiative. Some of these actions resulted in settlement agreements calling for expenditures by these unaffiliated utilities in excess of $1.0 billion. These settlement agreements have generally called for expenditures to be made over extended time periods, and some of the companies may seek recovery of the related costs through rate adjustments or similar mechanisms.

On March 17, 2006, the Court of Appeals for the District of Columbia Circuit set aside the EPA’s 2003 New Source Review equipment replacement rule. The rule would have provided a more uniform definition of routine equipment

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replacement. The court had earlier set aside a provision in the NSR rule, which had exempted the installation of pollution control projects from review. These projects are now subject to NSR requirements, adding time and cost to the installation process.

NOX SIP CALL RULE UNDER SECTION 110 OF THE CLEAN AIR ACT (NOX SIP CALL)

The NOx SIP Call is an EPA rule that requires 22 states, including North Carolina, South Carolina and Georgia, to further reduce nitrogen oxide emissions. The NOx SIP Call is not applicable to Florida. Total capital costs to meet the requirements of the final rule under the NOx SIP Call in North Carolina and South Carolina could reach approximately $355 million at PEC, of which approximately $341 million has been incurred through March 31, 2006. This amount also includes the cost to install NOx controls under North Carolina’s and South Carolina’s programs to comply with the federal eight-hour ozone standard. However, further technical analysis and rulemaking may result in requirements for additional controls at some units. Increased O&M expenses relating to the NOx SIP Call are not expected to be material to our or PEC’s results of operations.

Parties unrelated to us have undertaken efforts to have Georgia excluded from the rule and its requirements. Georgia has not yet submitted a state implementation plan to comply with the NOx SIP Call. The outcome of this matter and the impact to our nonregulated operations in Georgia cannot be predicted.

CLEAN SMOKESTACKS ACT

In June 2002, the Clean Smokestacks Act was enacted in North Carolina requiring the state's electric utilities to reduce the emissions of NOx and SO₂ from their North Carolina coal-fired power plants in phases by 2013. PEC currently has approximately 5,100 MW of coal-fired generation capacity in North Carolina that is affected by the Clean Smokestacks Act. To meet SO₂ emission targets, PEC plans to install devices that neutralize sulfur compounds formed during coal combustion (scrubbers) on some of its coal-fired units. These devices combine the sulfur in gaseous emissions with other chemicals to form inert compounds, such as gypsum, that are then removed. In March 2006, PEC filed its annual estimate with the NCUC of the total capital expenditures to meet emission targets for NOx and SO₂ from coal-fired plants under the Clean Smokestacks Act of approximately $1.1 billion to $1.4 billion by the end of 2013, of which approximately $351 million has been spent through March 31, 2006. The increase in estimated total capital expenditures from the original estimate of $813 million is primarily due to the higher cost and revised quantities of construction materials, such as concrete and steel, refinement of cost and scope estimates for the current projects, and increases in the estimated inflation factor applied to future project costs. We are evaluating various design, technology, and new generation options that could materially reduce expenditures required by the Clean Smokestacks Act.

Two of the coal-fired generation plants impacted by the Clean Smokestacks Act are jointly owned. The joint owners pay their ownership share of construction costs. In 2005, PEC entered into a contract with the joint owner of certain facilities at the Mayo and Roxboro plants to limit their aggregate costs associated with capital expenditures to comply with the Clean Smokestacks Act to approximately $38 million and recognized a related liability. At March 31, 2006 and December 31, 2005, the amount of the liability was $16 million based upon the current estimates for Clean Smokestacks Act compliance. As capital cost projections change, it is reasonably possible that additional losses, which could be material, may be incurred in the future.

The Clean Smokestacks Act also freezes the state’s utilities' base rates for five years, which ends in 2007, unless there are extraordinary events beyond the control of the utilities or unless the utilities persistently earn a return substantially in excess of the rate of return established and found reasonable by the NCUC in the utilities' last general rate case. The Clean Smokestacks Act requires PEC to amortize $569 million, representing 70 percent of the original cost estimate of $813 million, during the five-year rate freeze period. PEC recognized amortization of $22 million and $27 million for the three months ended March 31 2006 and 2005, respectively, and has recognized $417 million in cumulative amortization through March 31, 2006. The remaining amortization requirement of $152 million will be recorded over the 21-month period ending December 31, 2007. The Clean Smokestacks Act permits PEC the flexibility to vary the amortization schedule for recording of the compliance costs from none up to $174 million per year. The NCUC will hold a hearing prior to December 31, 2007, to determine cost recovery amounts for 2008 and future periods.

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Pursuant to the Clean Smokestacks Act, PEC entered into an agreement with the state of North Carolina to transfer to the state certain NOx and SO₂ emissions allowances that result from compliance with the collective NOx and SO₂ emissions limitations set out in the Clean Smokestacks Act. The Clean Smokestacks Act also required the state to undertake a study of mercury and CO₂ emissions in North Carolina. O&M expenses will significantly increase due to the additional personnel, materials and general maintenance associated with the equipment. O&M expenses are recoverable through base rates, rather than as part of this program. The future regulatory interpretation, implementation or impact of the Clean Smokestacks Act cannot be predicted.

CLEAN AIR INTERSTATE RULE, MERCURY RULE AND CLEAN AIR VISIBILITY RULE

On March 10, 2005, the EPA issued the final Clean Air Interstate Rule (CAIR). The EPA’s rule requires 28 states, including North Carolina, South Carolina, Georgia and Florida, and the District of Columbia to reduce NOx and SO₂ emissions in order to reduce levels of fine particulate matter and impacts to visibility. The CAIR sets emission limits to be met in two phases beginning in 2009 and 2015, respectively, for NOx and beginning in 2010 and 2015, respectively, for SO₂.

PEF has joined a coalition of Florida utilities that has filed a challenge to the CAIR as it applies to Florida. A petition for reconsideration and stay and a petition for judicial review of the CAIR were filed on July 11, 2005. On October 27, 2005, the DC Circuit Court issued an order granting the motion for stay of the proceedings. On December 2, 2005, the EPA announced a reconsideration of four aspects of the CAIR, including its applicability to Florida. On March 16, 2006, the EPA denied all pending reconsiderations, allowing the challenge to proceed. While we consider it unlikely that this challenge would eliminate the compliance requirements of the CAIR, it could potentially reduce or delay our costs to comply with the CAIR. The outcome of this matter cannot be predicted.

On March 15, 2005, the EPA finalized two separate but related rules: the Clean Air Mercury Rule (CAMR) that sets emissions limits to be met in two phases beginning in 2010 and 2018, respectively, and encourages a cap and trade approach to achieving those caps, and a de-listing rule that eliminated any requirement to pursue a maximum achievable control technology (MACT) approach for limiting mercury emissions from coal-fired power plants. NOx and SO₂ controls also are effective in reducing mercury emissions. However, according to the EPA the second phase cap reflects a level of mercury emissions reduction that exceeds the level that would be achieved solely as a co-benefit of controlling NOx and SO₂ under CAIR. States are required to adopt mercury rules implementing the CAMR by November 11, 2006, which must be reviewed and approved by the EPA. As of May 1, 2006, of the three states in which the Utilities operate, only North Carolina had formally proposed a mercury regulation. North Carolina's proposed rule would adopt the federal cap-and-trade approach and would require the addition of mercury controls on certain of PEC's North Carolina units that do not have scrubbers by 2023. Formal rulemaking in South Carolina and Florida is expected to occur in the late spring and summer of 2006. The outcome of this matter cannot be predicted.

The de-listing rule has been challenged by a number of parties; the resolution of the challenges could impact our final compliance plans and costs. On October 21, 2005, the EPA announced a reconsideration of the CAMR. The outcome of this matter cannot be predicted.

On June 15, 2005, the EPA issued the final Clean Air Visibility Rule (CAVR). The EPA’s rule requires states to identify facilities, including power plants, built between August 1962 and August 1977 with the potential to produce emissions that affect visibility in 156 specially protected areas. To help restore visibility in those areas, states must require the identified facilities to install Best Available Retrofit Technology (BART) to control their emissions. Depending on the approach taken by the states, the reductions associated with BART would begin to take effect in 2014. CAVR included the EPA’s determination that compliance with the NOx and SO₂ requirements of CAIR may be used by states as a BART substitute. We expect that our compliance plans to comply with the CAIR and CAMR will fulfill BART obligations, but the states could require the installation of additional air quality controls if they do not achieve reasonable progress on improving visibility. PEC’s BART-eligible units are Asheville Unit No. 1 and No. 2, Roxboro Unit No. 1, No. 2 and No. 3, and Sutton Unit No. 3. PEF’s BART-eligible units are Anclote Unit No. 1, Bartow Unit No. 3, and Crystal River Unit No. 1 and No. 2. The outcome of this matter cannot be predicted.

On an ongoing basis, we review our compliance plans and the cost to comply with the CAIR and CAMR. Installation of additional air quality controls is needed to meet the CAIR and the CAMR requirements.

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The air quality controls needed to meet compliance with the NOx SIP Call and Clean Smokestacks Act will reduce the costs to meet the CAIR requirements for our North Carolina units at PEC. We currently estimate the total additional compliance costs related to CAIR for PEC could be in a range of approximately $100 million to $200 million. We will continue to review these estimates as compliance plans are further developed. The timing and extent of the costs for future projects will depend upon the final compliance strategy.

We expect PEF to incur significant additional capital and O&M expenses to achieve compliance with the CAIR and CAMR through 2018. PEF is developing an integrated compliance strategy for the CAIR and CAMR rules because NOx and SO2 controls are effective in reducing mercury emissions. We currently estimate the total compliance costs for PEF based on various compliance plan alternatives could be as much as approximately $1.4 billion, of which approximately $4 million has been incurred through March 31, 2006. We will continue to review these estimates as compliance plans are further developed. The timing and extent of the costs for future projects will depend upon the final compliance strategy. We are evaluating various design, technology, and new generation options that could materially reduce PEF’s costs required by the CAIR and CAMR.

On October 14, 2005, the FPSC approved PEF’s petition for the recovery of costs associated with the development and implementation of an integrated strategy to comply with the CAIR and CAMR through the ECRC. On March 31, 2006, PEF filed a proposed compliance plan with the FPSC to meet these federal environmental rules. The proposed compliance plan includes approximately $740 million of estimated capital costs expected to be spent through 2016, to plan, design, build and install pollution control equipment at our Anclote and Crystal River plants. We expect this matter to be addressed during the FPSC hearings in November 2006, but cannot predict whether this proposed compliance plan will be approved by the FPSC. These costs may increase or decrease depending upon the results of the engineering and strategy development work and FPSC approval of the final compliance plan. Subsequent rule interpretations, equipment availability, or the unexpected acceleration of the initial NOx or other compliance dates, among other things, could require acceleration of some projects and therefore result in additional costs in 2006.

NORTH CAROLINA ATTORNEY GENERAL PETITION UNDER SECTION 126 OF THE CLEAN AIR ACT

In March 2004, the North Carolina Attorney General filed a petition with the EPA, under Section 126 of the Clean Air Act, asking the federal government to force coal-fired power plants in 13 other states, including South Carolina, to reduce their NOx and SO₂ emissions. The state of North Carolina contends these out-of-state emissions interfere with North Carolina’s ability to meet national air quality standards for ozone and particulate matter. On March 16, 2006, the EPA issued a final response denying the petition. The EPA's rationale for denial is that compliance with CAIR will reduce the emissions from surrounding states sufficiently to address North Carolina's concerns.

NATIONAL AMBIENT AIR QUALITY STANDARDS (NAAQS)

On December 21, 2005, the EPA announced proposed changes to the NAAQS for particulate matter. The EPA proposed to lower the 24-hour standard for particulate matter less than 2.5 microns in diameter from 65 micrograms per cubic meter to 35 micrograms per cubic meter. In addition, the EPA proposed to establish a new 24-hour standard of 70 micrograms per cubic meter for particulate matter that is between 2.5 and 10 microns in diameter. The EPA also proposed to eliminate the current standards for particulate matter less than 10 microns in diameter. The EPA is scheduled to finalize the standards by September 27, 2006. The changes could ultimately result in increased costs for installation of additional pollution controls at facilities operated by PEC and PEF. The outcome of this matter cannot be predicted.

C.  Water Quality

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

Section 316(b) of the Clean Water Act requires assessment of the environmental effect of withdrawal of water at our facilities. We are conducting studies and currently estimate that total compliance costs through 2010 to meet Section 316(b) requirements of the Clean Water Act will be approximately $70 million to $95 million, of which an

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immaterial amount has been incurred through March 31, 2006. The range includes approximately $5 million to $10 million at PEC and approximately $65 million to $85 million at PEF.

The majority of compliance costs associated with water quality requirements for PEF are eligible for consideration for recovery through the ECRC. The outcome of future petitions for recovery through the ECRC cannot be predicted.

D.  Other Environmental Matters

GLOBAL CLIMATE CHANGE

The Kyoto Protocol was adopted in 1997 by the United Nations to address global climate change by reducing emissions of CO₂ and other greenhouse gases. The treaty went into effect on February 16, 2005. The United States has not adopted the Kyoto Protocol, and the Bush administration has stated it favors voluntary programs. There are proposals to address global climate change that would regulate CO₂ and other greenhouse gases. Reductions in CO₂ emissions to the levels specified by the Kyoto Protocol and some additional proposals could be materially adverse to our financial position or results of operations if associated costs of control or limitation cannot be recovered from customers. We have articulated principles that we believe should be incorporated into any global climate change policy. While the outcome of this matter cannot be predicted, we are taking voluntary action on this important issue as part of our commitment to environmental stewardship and responsible corporate citizenship.

In a decision issued July 15, 2005, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit denied petitions for review filed by several states, cities and organizations seeking the regulation by the EPA of CO₂ emissions under the Clean Air Act. In a 2-1 decision, the court held that the EPA administrator properly exercised his discretion in denying the request for regulation. Officials from five states and the District of Columbia asked the full U.S. Court of Appeals for the D.C. Circuit to review the decision made by the three-judge panel. On December 2, 2005, the U.S. Court of Appeals denied the request for rehearing. On March 2, 2006, the petitioners filed a petition for writ of certiorari with the U.S. Supreme Court, seeking a review of the U.S. Court of Appeals decision. The outcome of this matter cannot be predicted.

In 2005, we initiated a study to assess the impact of constraints on CO₂ and other air emissions and on March 27, 2006, we issued our report to shareholders for an assessment of global climate change and air quality risks and actions. While we participate in the development of a national climate change policy framework, we will continue to actively engage others in our region to develop consensus-based solutions, as we did with the Clean Smokestacks Act.

13. COMMITMENTS AND CONTINGENCIES

Contingencies and significant changes to the commitments discussed in Note 23 to the 2005 Form 10-K are described below.

A. Guarantees

As a part of normal business, we enter into various agreements providing future financial or performance assurances to third parties, which are outside the scope of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN No. 45). Such agreements include guarantees, standby letters of credit and surety bonds. At March 31, 2006, we do not believe conditions are likely for significant performance under these guarantees. To the extent liabilities are incurred as a result of the activities covered by the guarantees, such liabilities are included in the accompanying Balance Sheets.

At March 31, 2006, we have issued guarantees and indemnifications of certain asset performance, legal, tax and environmental matters to third parties, including indemnifications made in connection with sales of businesses, and for timely payment of obligations in support of our nonwholly owned synthetic fuel operations. Related to the sales of businesses, the latest notice period extends until 2012 for the majority of legal, tax and environmental matters provided for in the indemnification provisions. Indemnifications for the performance of assets extend to 2016. For matters for which we receive timely notice, our indemnity obligations may extend beyond the notice period. Certain environmental indemnifications have no limitations as to time or maximum potential future payments. In 2005, PEC entered into a contract with the joint owner of certain facilities at the Mayo and Roxboro plants to limit their aggregate costs associated with capital expenditures to comply with the Clean Smokestacks Act and recognized a

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liability related to this indemnification (See Note 12B). PEC’s maximum exposure cannot be determined. At March 31, 2006, the maximum exposure for guarantees and indemnifications for which a maximum exposure is determinable was $201 million, including $32 million at PEF. At March 31, 2006 and December 31, 2005, we have recorded liabilities related to guarantees and indemnifications to third parties of approximately $49 million and $41 million, respectively. These amounts include $16 million for PEC at March 31, 2006 and December 31, 2005, respectively, and $8 million for PEF at March 31, 2006. PEF had no liabilities related to guarantees and indemnifications to third parties at December 31, 2005. As current estimates change, it is possible that additional losses related to guarantees and indemnifications to third parties, which could be material, may be recorded in the future.

In addition, the Parent has issued $300 million of guarantees of certain payments of two wholly owned indirect subsidiaries. See Note 14 for additional information.

B. Other Commitments and Contingencies

1. Spent Nuclear Fuel Matters

Pursuant to the Nuclear Waste Policy Act of 1982, the predecessors to the Utilities entered into contracts with the United States 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.

The DOE failed to begin taking spent nuclear fuel by January 31, 1998. In January 2004, the Utilities filed a complaint in the United States Court of Federal Claims against the DOE, claiming that the DOE breached the Standard Contract for Disposal of Spent Nuclear Fuel by failing to accept spent nuclear fuel from our various facilities on or before January 31, 1998. Our damages due to the DOE’s breach will be significant, but have yet to be determined. Approximately 60 cases involving the government’s actions in connection with spent nuclear fuel are currently pending in the Court of Federal Claims.

The DOE and the Utilities have agreed to a stay of the lawsuit, including discovery. The parties agreed to, and the trial court entered, a stay of proceedings, in order to allow for possible efficiencies due to the resolution of legal and factual issues in previously filed cases in which similar claims are being pursued by other plaintiffs. These issues may include, among others, so-called “rate issues,” or the minimum mandatory schedule for the acceptance of spent nuclear fuel and high-level waste by which the government was contractually obligated to accept contract holders’ spent nuclear fuel and/or high-level waste, and issues regarding recovery of damages under a partial breach of contract theory that will be alleged to occur in the future. These issues have been or are expected to be presented in the trials or appeals that are currently scheduled to occur during 2006 and 2007. Resolution of these issues in other cases could facilitate agreements by the parties in the Utilities’ lawsuit, or at a minimum, inform the court of decisions reached by other courts if they remain contested and require resolution in this case. In July 2005, the parties jointly requested a continuance of the stay through December 15, 2005, which the trial court granted. Subsequently, the trial court continued the stay until March 17, 2006. The trial court lifted the stay on March 22, 2006 and discovery has commenced. The trial court’s scheduling order, issued on March 23, 2006, included an anticipated trial date in late 2007.

In July 2002, Congress passed an override resolution to Nevada’s veto of the DOE’s proposal to locate a permanent underground nuclear waste storage facility at Yucca Mountain, Nev. In January 2003, the state of Nevada; Clark County, Nev.; and Las Vegas petitioned the U.S. Court of Appeals for the District of Columbia Circuit for review of the Congressional override resolution. These same parties also challenged the EPA’s radiation standards for Yucca Mountain. On July 9, 2004, the Court rejected the challenge to the constitutionality of the resolution approving Yucca Mountain, but ruled that the EPA was wrong to set a 10,000-year compliance period in the radiation protection standard. In August 2005, the EPA issued new proposed standards. The proposed standards include a 1,000,000-year compliance period in the radiation protection standard. Comments were due November 21, 2005, and are being reviewed by the EPA. The EPA plans to issue a new safety standard for the repository by 2007. The DOE originally planned to submit a license application to the NRC to construct the Yucca Mountain facility by the end of 2004. However, in November 2004, the DOE announced it would not submit the license application until mid-2005 or later. The DOE did not submit the license application in 2005 and recently reported that the license application will not be submitted until after September 2007. Congress approved $450 million for fiscal year 2006 for the Yucca Mountain project, approximately $201 million less than requested by the DOE. The DOE has acknowledged that a working

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repository will not be operational until sometime after 2010. The DOE has not identified a new target date for placing the repository in service, but they have stated that they expect it to be open by 2020. The Utilities cannot predict the outcome of this matter.

With certain modifications and additional approval by the NRC, including the installation of onsite dry storage facilities at Robinson Nuclear Plant (Robinson) and Brunswick Nuclear Plant, (Brunswick), PEC’s spent nuclear fuel storage facilities will be sufficient to provide storage space for spent fuel generated on PEC’s system through the expiration of the operating licenses for all of PEC’s nuclear generating units.

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

2. Synthetic Fuel Matters

On May 15, 2005, the original owners of the Earthco synthetic fuel facilities filed suit in New York state court alleging breach of contract against the Progress Fuels subsidiaries that purchased the Earthco facilities (Progress Fuels Subsidiaries). The plaintiffs also named us as a defendant.

The plaintiffs’ position in the lawsuit is that periodic payments otherwise due to them under the sales arrangement with the Progress Fuels Subsidiaries are, contrary to the sales agreement, being escrowed pending the outcome of the Internal Revenue Service (IRS) audit of the Earthco facilities. The Progress Fuels Subsidiaries believe that the parties’ agreements allow for the payments to be escrowed in such event and also allow for the use of such escrowed amounts to satisfy any potential disallowance of tax credits that arises out of such an event. Currently, the escrowed amount in question is $97 million, which reflects periodic payments that would have been paid to the plaintiffs beginning April 30, 2003 through March 31, 2006. This amount will increase as future periodic payments are made to the escrow which would otherwise have been payable to the plaintiffs. So long as the case is pending, we intend to vigorously defend against the plaintiffs' position, but cannot predict the outcome of this matter. Although the case is still pending, in light of the successful outcome of the IRS audit of the Earthco facilities, we have contacted the plaintiffs to discuss terms under which we would release escrowed money and the plaintiffs would dismiss the lawsuit.

We have also escrowed $39 million that otherwise would have been paid to U.S. Global LLC (Global) through March 31, 2006. These funds are being escrowed on the same basis as the funds that were escrowed for the original owners of the Earthco facilities. We have sent communication to Global regarding the negotiation of terms under which the funds might be released given the successful resolution of the IRS audit of the Earthco facilities.

A number of our subsidiaries and affiliates are parties to two lawsuits arising out of an Asset Purchase Agreement dated as of October 19, 1999, by and among Global, Earthco, certain affiliates of Earthco (collectively the Earthco Sellers), EFC Synfuel LLC (which is owned indirectly by Progress Energy, Inc.) and certain of its affiliates, including Solid Energy LLC, Solid Fuel LLC, Ceredo Synfuel LLC, Gulf Coast Synfuel LLC (currently named Sandy River Synfuel LLC) (collectively the Progress Affiliates), as amended by an amendment to Purchase Agreement as of August 23, 2000 (the Asset Purchase Agreement). Global has asserted that (1) pursuant to the Asset Purchase Agreement it is entitled to an interest in two synthetic fuel facilities currently owned by the Progress Affiliates and an option to purchase additional interests in the two synthetic fuel facilities, (2) that it is entitled to damages because Progress Affiliates prohibited it from procuring purchasers for the synthetic fuel facilities, and (3) that it is entitled to immediate payment of tonnage fees held in escrow (this claim is identical to the position taken by Earthco as described above).

The first suit, U.S. Global, LLC v. Progress Energy, Inc. et al., asserts the above claims in a case filed in the Circuit Court for Broward County, Florida, in March 2003 (the Florida Global Case), and requests an unspecified amount of compensatory damages, as well as declaratory relief. The Progress Affiliates have answered the Complaint by generally denying all of Global’s substantive allegations and asserting numerous substantial affirmative defenses. The case is at issue, but neither party has requested a trial. The parties are currently engaged in discovery in the Florida Global Case.

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The second suit, Progress Synfuel Holdings, Inc. et al. v. U.S. Global, LLC, was filed by the Progress Affiliates in the Superior Court for Wake County, North Carolina, seeking declaratory relief consistent with our interpretation of the asset Purchase Agreement (the North Carolina Global Case). Global was served with the North Carolina Global Case on April 17, 2003.

On May 15, 2003, Global moved to dismiss the North Carolina Global Case for lack of personal jurisdiction over Global. In the alternative, Global requested that the court decline to exercise its discretion to hear the Progress Affiliates’ declaratory judgment action. On August 7, 2003, the Wake County Superior court denied Global’s motion to dismiss, but stayed the North Carolina Global Case, pending the outcome of the Florida Global Case. The Progress Affiliates appealed the Superior court’s order staying the case. By order dated September 7, 2004, the North Carolina Court of Appeals dismissed the Progress Affiliates’ appeal.

We cannot predict the outcome of these matters, but will vigorously defend against the allegations.

3. Other Litigation Matters

We and our subsidiaries are involved in various litigation matters in the ordinary course of business, some of which involve substantial amounts. Where appropriate, we have made accruals and disclosures in accordance with SFAS No. 5 to provide for such matters. In the opinion of management, the final disposition of pending litigation would not have a material adverse effect on our consolidated results of operations or financial position.

14. CONDENSED CONSOLIDATING STATEMENTS

As discussed in Note 24 to the 2005 Form 10-K, we have guaranteed certain payments of two wholly owned indirect subsidiaries, FPC Capital I (the Trust) and Florida Progress Funding Corporation (Funding Corp.) since September 2005. Our guarantees are joint and several, full and unconditional and are in addition to the joint and several, full and unconditional guarantees previously issued to the Trust and Funding Corp. by Florida Progress Corporation (Florida Progress). Our subsidiaries have provisions restricting the payment of dividends to the Parent in certain limited circumstances and as disclosed in Note 12B to the 2005 Form 10-K, there were no restrictions on PEC’s or PEF’s retained earnings.

The Trust is a special-purpose entity and was deconsolidated in 2003 in accordance with the provisions of FIN No. 46. The deconsolidation was not material to our financial statements. Separate financial statements and other disclosures concerning the Trust have not been presented because we believe that such information is not material to investors.

Presented below are the condensed consolidating Statements of Income, Balance Sheets and Cash Flows as required by Rule 3-10 of Regulation S-X. In these condensed consolidating statements, the Parent column includes the financial results of the parent holding company only. The Subsidiary Guarantor column includes the financial results of Florida Progress. The Other column includes the consolidated financial results of all other non-guarantor subsidiaries and elimination entries for all intercompany transactions. All applicable corporate expenses have been allocated appropriately among the guarantor and non-guarantor subsidiaries. The financial information may not necessarily be indicative of results of operations or financial position had the Subsidiary Guarantor or other non-guarantor subsidiaries operated as independent entities.

43

Condensed Consolidating Statement of Income Three Months Ended March 31, 2006
(in millions)	Parent			Subsidiary Guarantor			Other			Progress Energy, Inc.
Operating revenues
Electric	$	−		$	1,007		$	978		$	1,985
Diversified business		−			282			166			448
Total operating revenues		−			1,289			1,144			2,433
Operating expenses
Utility
Fuel used in electric generation		−			394			296			690
Purchased power		−			165			64			229
Operation and maintenance		4			166			246			416
Depreciation and amortization		−			95			133			228
Taxes other than on income		−			73			46			119
Other		−			(3	)		1			(2	)
Diversified business
Cost of sales		−			256			149			405
Depreciation and amortization		−			18			18			36
Impairment of goodwill		−			−			64			64
Other		−			7			9			16
Total operating expenses		4			1,171			1,026			2,201
Other (expense) income, net		(10	)		29			(4	)		15
Interest charges, net		77			52			51			180
(Loss) income from continuing operations before income tax and minority interest		(91	)		95			63			67
Income tax (benefit) expense		(33	)		27			19			13
Equity in earnings of consolidated subsidiaries		103			−			(103	)		−
Minority interest in subsidiaries’ income, net of tax		−			(7	)		−			(7	)
Income (loss) from continuing operations		45			61			(59	)		47
Discontinued operations, net of tax		−			(1	)		(1	)		(2	)
Net income (loss)	$	45		$	60		$	(60	)	$	45

Condensed Consolidating Statement of Income Three Months Ended March 31, 2005
(in millions)	Parent			Subsidiary Guarantor			Other			Progress Energy, Inc.
Operating revenues
Electric	$	−		$	848		$	935		$	1,783
Diversified business		−			299			71			370
Total operating revenues		−			1,147			1,006			2,153
Operating expenses
Utility
Fuel used in electric generation		−			302			248			550
Purchased power		−			131			67			198
Operation and maintenance		4			189			213			406
Depreciation and amortization		−			70			138			208
Taxes other than on income		4			67			46			117
Diversified business
Cost of sales		−			281			84			365
Depreciation and amortization		−			16			16			32
Other		−			16			9			25
Total operating expenses		8			1,072			821			1,901
Other income (expense), net		18			(1	)		(12	)		5
Interest charges, net		79			44			39			162
(Loss) income from continuing operations before income tax and minority interest		(69	)		30			134			95
Income tax (benefit) expense		(19	)		(6	)		24			(1	)
Equity in earnings of consolidated subsidiaries		143			−			(143	)		−
Minority interest in subsidiaries’ loss, net of tax		−			8			−			8
Income (loss) from continuing operations		93			44			(33	)		104
Discontinued operations, net of tax		−			(26	)		15			(11	)
Net income (loss)	$	93		$	18		$	(18	)	$	93

44

Condensed Consolidating Balance Sheet March 31, 2006
(in millions)	Parent		Subsidiary Guarantor		Other			Progress Energy, Inc.
Utility plant, net	$	−	$	5,889	$	8,681		$	14,570
Current assets
Cash and cash equivalents		4		152		107			263
Short-term investments		−		81		136			217
Notes receivables from affiliated companies		332		60		(392	)		−
Deferred fuel cost		−		231		243			474
Assets of discontinued operations		−		85		1			86
Other current assets		59		1,098		1,009			2,166
Total current assets		395		1,707		1,104			3,206
Deferred debits and other assets
Investment in consolidated subsidiaries		11,596		−		(11,596	)		−
Goodwill		−		2		3,653			3,655
Other assets and deferred debits		260		2,063		2,734			5,057
Total deferred debits and other assets		11,856		2,065		(5,209	)		8,712
Total assets	$	12,251	$	9,661	$	4,576		$	26,488
Capitalization
Common stock equity	$	7,997	$	3,076	$	(3,076	)	$	7,997
Preferred stock of subsidiaries - not subject to mandatory redemption		−		34		59			93
Minority interest		−		53		5			58
Long-term debt, affiliate		−		440		(170	)		270
Long-term debt, net		3,874		2,636		3,668			10,178
Total capitalization		11,871		6,239		486			18,596
Current liabilities
Current portion of long-term debt		−		109		−			109
Notes payable to affiliated companies		−		188		(188	)		−
Short-term obligations		100		102		52			254
Liabilities of discontinued operations		−		33		−			33
Other current liabilities		231		844		734			1,809
Total current liabilities		331		1,276		598			2,205
Deferred credits and other liabilities
Noncurrent income tax liabilities		−		9		256			265
Regulatory liabilities		−		1,192		1,376			2,568
Accrued pension and other benefits		12		311		570			893
Other liabilities and deferred credits		37		634		1,290			1,961
Total deferred credits and other liabilities		49		2,146		3,492			5,687
Total capitalization and liabilities	$	12,251	$	9,661	$	4,576		$	26,488

45

Condensed Consolidating Balance Sheet December 31, 2005
(in millions)	Parent		Subsidiary Guarantor		Other			Progress Energy, Inc.
Utility plant, net	$	−	$	5,821	$	8,621		$	14,442
Current assets
Cash and cash equivalents		239		241		126			606
Short-term investments		−		−		191			191
Notes receivables from affiliated companies		467		−		(467	)		−
Deferred fuel cost		−		341		261			602
Assets of discontinued operations		−		223		2			225
Other current assets		22		1,057		1,138			2,217
Total current assets		728		1,862		1,251			3,841
Deferred debits and other assets
Investment in consolidated subsidiaries		11,594		−		(11,594	)		−
Goodwill		−		2		3,717			3,719
Other assets and deferred debits		259		2,072		2,709			5,040
Total deferred debits and other assets		11,853		2,074		(5,168	)		8,759
Total assets	$	12,581	$	9,757	$	4,704		$	27,042
Capitalization
Common stock equity	$	8,038	$	3,039	$	(3,039	)	$	8,038
Preferred stock of subsidiaries - not subject to mandatory redemption		−		34		59			93
Minority interest		−		38		5			43
Long-term debt, affiliate		−		440		(170	)		270
Long-term debt, net		3,873		2,636		3,667			10,176
Total capitalization		11,911		6,187		522			18,620
Current liabilities
Current portion of long-term debt		404		109		−			513
Notes payable to affiliated companies		−		315		(315	)		−
Short-term obligations		−		102		73			175
Liabilities of discontinued operations		−		87		−			87
Other current liabilities		245		843		1,019			2,107
Total current liabilities		649		1,456		777			2,882
Deferred credits and other liabilities
Noncurrent income tax liabilities		−		62		234			296
Regulatory liabilities		−		1,189		1,338			2,527
Accrued pension and other benefits		12		307		551			870
Other liabilities and deferred credits		9		556		1,282			1,847
Total deferred credits and other liabilities		21		2,114		3,405			5,540
Total capitalization and liabilities	$	12,581	$	9,757	$	4,704		$	27,042

46

Condensed Consolidating Statement of Cash Flows Three Months Ended March 31, 2006
(in millions)	Parent			Subsidiary Guarantor			Other			Progress Energy, Inc.
Net cash provided by operating activities	$	64		$	362		$	74		$	500
Investing activities
Gross utility property additions		−			(153	)		(151	)		(304	)
Diversified business property additions		−			(47	)		−			(47	)
Nuclear fuel additions		−			(6	)		(46	)		(52	)
Proceeds from sales of discontinued operations and other assets, net of cash divested		−			98			5			103
Purchases of available-for-sale securities and other investments		(163	)		(126	)		(249	)		(538	)
Proceeds from sales of available-for-sale securities and other investments		163			71			288			522
Changes in advances to affiliates		135			(66	)		(69	)		−
Other investing activities		(3	)		(3	)		(5	)		(11	)
Net cash provided by (used in) investing activities		132			(232	)		(227	)		(327	)
Financing activities
Issuance of common stock		28			−			−			28
Proceeds from issuance of long-term debt		397			−			−			397
Net increase (decrease) in short-term indebtedness		100			−			(21	)		79
Retirement of long-term debt		(800	)		(1	)		−			(801	)
Dividends paid on common stock		(151	)		−			−			(151	)
Dividends paid to parent		−			(59	)		59			−
Changes in advances from affiliates		−			(127	)		127			−
Other financing activities		(5	)		(24	)		(31	)		(60	)
Net cash (used in) provided by financing activities		(431	)		(211	)		134			(508	)
Cash used by discontinued operations
Operating activities		−			(5	)		−			(5	)
Investing activities		−			(3	)		−			(3	)
Financing activities		−			−			−			−
Net decrease in cash and cash equivalents		(235	)		(89	)		(19	)		(343	)
Cash and cash equivalents at beginning of period		239			241			126			606
Cash and cash equivalents at end of period	$	4		$	152		$	107		$	263

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Condensed Consolidating Statement of Cash Flows Three Months Ended March 31, 2005
(in millions)	Parent			Subsidiary Guarantor			Other			Progress Energy, Inc.
Net cash provided by operating activities	$	62		$	41		$	129		$	232
Investing activities
Gross utility property additions		−			(132	)		(135	)		(267	)
Diversified business property additions		−			(24	)		(16	)		(40	)
Nuclear fuel additions		−			(34	)		(30	)		(64	)
Proceeds from sales of discontinued operations and other assets, net of cash divested		−			397			1			398
Purchases of available-for-sale securities and other investments		(1,075	)		(68	)		(869	)		(2,012	)
Proceeds from sales of available-for-sale securities and other investments		981			68			804			1,853
Changes in advances to affiliates		(281	)		5			276			−
Proceeds from repayment of long-term affiliate debt		369			−			(369	)		−
Other investing activities		(7	)		(4	)		(1	)		(12	)
Net cash (used in) provided by investing activities		(13	)		208			(339	)		(144	)
Financing activities
Issuance of common stock		60			−			−			60
Proceeds from issuance of long-term debt		−			−			495			495
Net increase (decrease) in short-term indebtedness		260			(140	)		(113	)		7
Retirement of long-term debt		(160	)		(56	)		−			(216	)
Retirement of long-term affiliate debt		−			(369	)		369			−
Dividends paid on common stock		(145	)		−			−			(145	)
Changes in advances from affiliates		−			330			(330	)		−
Other financing activities		(4	)		17			(51	)		(38	)
Net cash provided by (used in) financing activities		11			(218	)		370			163
Cash used by discontinued operations
Operating activities		−			(18	)		−			(18	)
Investing activities		−			(9	)		−			(9	)
Financing activities		−			−			−			−
Net increase in cash and cash equivalents		60			4			160			224
Cash and cash equivalents at beginning of period		5			24			27			56
Cash and cash equivalents at end of period	$	65		$	28		$	187		$	280

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15. SUBSEQUENT EVENT

On May 2, 2006, our board of directors approved a plan to divest of our DeSoto County Generating Co., LLC (DeSoto) and Rowan County Power, LLC (Rowan) subsidiaries. DeSoto and Rowan are subsidiaries of Progress Energy Ventures, Inc. DeSoto owns a 320 MW dual-fuel combustion turbine electric generation facility in DeSoto County, Florida and Rowan owns a 925 MW dual-fuel combined cycle and combustion turbine electric generation facility in Rowan County, North Carolina. On May 8, 2006, we entered into definitive agreements to sell DeSoto and Rowan, including certain existing power supply contracts, to Southern Power Company, a subsidiary of Southern Company, for a total purchase price of approximately $405 million. We expect to use the proceeds from the sale to reduce debt.

The sale of DeSoto is expected to close during the second quarter of 2006 and the sale of Rowan is expected to close during the third quarter of 2006. Both sales are subject to state and federal regulatory approvals and customary closing conditions. In addition, the agreement for the sale of Rowan provides Southern Company with an option to terminate the agreement through June 15, 2006 without penalty. We expect to report DeSoto and Rowan as discontinued operations in the second quarter of 2006 and anticipate recording an estimated after-tax loss on the expected sale of approximately $70 million. The carrying amounts for the assets and liabilities of the discontinued operations disposal group included in the Consolidated Balance Sheet were as follows:

(in millions)	March 31, 2006		December 31, 2006
Total current assets	$	13	$	13
Total property, plant and equipment, net		477		480
Total other assets		25		25
Total current liabilities		1		1
Total long-term liabilities		20		19
Total capitalization		494		498

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

The following combined Management’s Discussion and Analysis is separately filed by Progress Energy, Inc. (Progress Energy), Carolina Power & Light Company d/b/a Progress Energy Carolinas, Inc. (PEC) and Florida Power Corporation d/b/a Progress Energy Florida, Inc. (PEF). Information contained herein relating to PEC and PEF individually is filed by such company on its own behalf. As used in this report, Progress Energy [which includes Progress Energy, Inc. holding company (the Parent) and its regulated and nonregulated subsidiaries on a consolidated basis] is at times referred to as “we”, “our” or “us.” When discussing Progress Energy’s financial information, it necessarily includes the results of PEC and PEF (collectively, the Utilities). The term “Progress Registrants” refers to each of the three separate registrants: Progress Energy, PEC and PEF.

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” and Item 1A, “Risk Factors” of the 2005 Form 10-K for a discussion of the factors that may impact any such forward-looking statements made herein.

Amounts reported in the interim statements of income 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 2005 Form 10-K.

RESULTS OF OPERATIONS

Our reportable business segments and their primary operations include:

·      PEC - primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina;

·      PEF - primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Florida;

·      Progress Ventures - primarily engaged in nonregulated electric generation operations and energy marketing activities mainly in Georgia, North Carolina and Florida, as well as natural gas drilling and production in Texas and Louisiana; and

·      Coal and Synthetic Fuels - primarily engaged in the production and sale of coal-based solid synthetic fuels, the operation of synthetic fuel facilities for third parties in Kentucky and West Virginia, and coal terminal services.

The Corporate and Other segment includes businesses which do not meet the requirements for separate segment reporting disclosure. These businesses are engaged in other nonregulated business areas including holding company operations and Progress Energy Service Company, LLC (PESC) operations.

In 2005, we changed our reportable segments due to changes in the operations of certain businesses and the reclassification of our coal mining business as discontinued operations. In addition, with our sale of our share of Progress Telecom, LLC (PT LLC) in the first quarter of 2006, we reclassified PT LLC’s operations as discontinued operations. These reportable segment changes reflect the current reporting structure. For comparative purposes, prior year results have been restated to conform to the current presentation.

In this section, earnings and the factors affecting earnings for the three months ended March 31, 2006 are compared to the same periods in 2005. The discussion begins with a summarized overview of our consolidated earnings, which is followed by a more detailed discussion and analysis by business segment.

OVERVIEW

For the quarter ended March 31, 2006, our net income was $45 million, or $0.18 per share, compared to net income of $93 million, or $0.38 per share, for the same period in 2005. The decrease in net income as compared to

50

prior year was due primarily to:

·   Impairment of goodwill related to our nonregulated plants in Georgia.

·   Unrealized losses recorded on contingent value obligations.

·   Additional outage expenses at PEC.

·   Additional estimated environmental remediation expenses at PEC.

·   Unfavorable retail sales at PEC, primarily due to weather.

·   The impact of tax levelization.

·   Lower tax credits due to lower synthetic fuel production and higher oil prices.

·   Increased interest expense.

Partially offsetting these items were:

 ·   Prior year severance expenses related to the 2005 cost-managment initiative.

·   Gain on sale of Level 3 stock acquired as part of the divestiture of PT LLC.

·   Increased wholesale excess generation margin at PEC.

·   The impact of restructuring a long-term coal supply contract.

Our segments contributed the following profits or losses for the three months ended March 31, 2006 and 2005:

	Three Months Ended March 31,
(in millions)	2006			2005
Business Segment
PEC	$	85		$	115
PEF		52			43
Progress Ventures		(35	)		7
Coal and synthetic fuels		14			(4	)
Total segment profit		116			161
Corporate and Other		(69	)		(57	)
Income from continuing operations		47			104
Discontinued operations, net of tax		(2	)		(11	)
Net income	$	45		$	93

PROGRESS ENERGY CAROLINAS

PEC contributed segment profits of $85 million and $115 million for the three months ended March 31, 2006 and 2005, respectively. Results for 2006 were impacted by higher O&M expenses related to outages at nuclear facilities, additional estimated environmental remediation expenses, unfavorable weather and unfavorable retail customer growth and usage. These were partially offset by nonrecurring severance expenses in 2005 and favorable wholesale sales.

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Revenues

PEC’s revenues for the three months ended March 31, 2006 and 2005, and the percentage change by customer class were as follows:

(in millions)	Three Months Ended March 31,
Customer Class	2006			Change			% Change			2005
Residential	$	376		$	2			0.5		$	374
Commercial		226			11			5.1			215
Industrial		163			14			9.4			149
Governmental		20			1			5.3			19
Total retail revenues		785			28			3.7			757
Wholesale		192			18			10.3			174
Unbilled		(27	)		(8	)					(19	)
Miscellaneous		28			5			21.7			23
Total electric revenues		978			43			4.6			935
Less: Fuel revenues		(317	)		(46	)					(271	)
Revenues excluding fuel	$	661		$	(3	)		(0.5	)	$	664

PEC’s energy sales for the three months ended March 31, 2006 and 2005, and the amount and percentage change by customer class were as follows:

(in millions of kWh)	Three Months Ended March 31,
Customer Class	2006			Change			% Change			2005
Residential		4,417			(255	)		(5.5	)		4,672
Commercial		3,052			(28	)		(0.9	)		3,080
Industrial		2,933			2			0.1			2,931
Governmental		320			(7	)		(2.1	)		327
Total retail energy sales		10,722			(288	)		(2.6	)		11,010
Wholesale		3,958			20			0.5			3,938
Unbilled		(378	)		(75	)					(303	)
Total kWh sales		14,302			(343	)		(2.3	)		14,645

PEC’s revenues, excluding fuel revenues of $317 million and $271 million for the three months ended March 31, 2006 and 2005, respectively, decreased $3 million. The decrease in revenues is attributable primarily to unfavorable weather and unfavorable retail growth and usage, partially offset by increased wholesale revenues less fuel. The impact of weather was $15 million unfavorable with heating degree days 9 percent below prior year. Unfavorable retail growth and usage of $4 million was driven by a decline in the average usage per retail customer partially offset by an approximate increase in the average number of customers of 30,000 as of March 31, 2006, compared to March 31, 2005. The increase in wholesale revenues less fuel of $20 million was driven primarily by the impact of increased capacity under contract, higher excess generation sales due to favorable market conditions in the Pennsylvania-New Jersey-Maryland region and gains on forward sales of excess generation. The favorable increases in wholesale revenues less fuel were partially offset by the impact of unfavorable weather.

Expenses

Fuel and Purchased Power

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

Fuel and purchased power expenses were $360 million for the three months ended March 31, 2006, which represents

52

a $45 million increase compared to the same period in the prior year. Fuel used in electric generation increased $48 million to $296 million compared to the prior year. This increase is due to a $41 million increase in deferred fuel expense due to an increase in the fuel recovery rates for North Carolina and South Carolina. In addition, fuel used in generation increased $7 million due primarily to higher fuel costs which are being driven by rising coal, oil and natural gas prices partially offset by lower system requirements and a change in generation mix primarily due to lower gas and oil generation. Current year purchased power costs were $3 million lower than the three months ended March 31, 2005, primarily due to lower system requirements in the first quarter of 2006 partially offset by price increases.

Operation and Maintenance

O&M expenses were $256 million for the three months ended March 31, 2006, which represents a $32 million increase compared to the same period in 2005. O&M expenses increased $21 million due to outages at nuclear facilities and $21 million due to recording additional estimated environmental remediation expenses (See Note 12A). These were partially offset by $14 million of severance expense recorded in the prior year related to the 2005 cost-management initiative.

Depreciation and Amortization

Depreciation and amortization expense was $126 million for the three months ended March 31, 2006, which represents a $3 million decrease compared to the same period in 2005. Depreciation expense decreased $5 million due to lower Clean Smokestacks Act amortization, partially offset by the impact of changes in the depreciable base.

Total Other Income

Total other income of $6 million increased $3 million compared to the three months ended March 31, 2005 primarily due to a $5 million increase in interest income driven by cash equivalents and short-term investments.

Total Interest Charges, net

Interest expense increased $5 million for the three months ended March 31, 2006, as compared to the same period in the prior year. This fluctuation is due primarily to the net impact of 2005 long-term debt issuances and redemptions.

Income Tax Expense

Income tax expense decreased $4 million for the three months ended March 31, 2006, as compared to the same period in the prior year, primarily due to the impact of lower earnings compared to prior year, partially offset by increases as discussed below. GAAP requires companies to apply a levelized effective tax rate to interim periods that is consistent with the estimated annual effective tax rate. PEC’s income tax expense was increased by $2 million for the three months ended March 31, 2006 compared to no change for the three months ended March 31, 2005, in order to maintain an effective tax rate consistent with the estimated annual rate. Fluctuations in estimated annual earnings and the timing of various permanent and temporary deductions can also cause fluctuations in the effective tax rate for interim periods. Therefore, this adjustment will vary each quarter, but will have no effect on net income for the year. Income tax expense also increased due to the allocation of $6 million of the Parent’s tax benefit not related to acquisition interest expense in 2005 that is no longer allocated in 2006 and the $3 million impact of a 2005 tax credit related to state audit settlements. See Corporate and Other below for additional information on the change in the tax benefit allocation in 2006.

PROGRESS ENERGY FLORIDA

PEF contributed segment profits of $52 million and $43 million for the three months ended March 31, 2006 and 2005, respectively. The increase in profits for the three months ended March 31, 2006, when compared to 2005, was primarily due to lower O&M expenses, which includes nonrecurring severance expenses in 2005, and customer growth partially offset by higher interest expense. 

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Revenues

PEF’s revenues for the three months ended March 31, 2006 and 2005, and the amount and percentage change by customer class were as follows:

(in millions)	Three Months Ended March 31,
Customer Class	2006			Change			% Change			2005
Residential	$	506		$	75			17.4		$	431
Commercial		245			44			21.9			201
Industrial		83			20			31.7			63
Governmental		66			13			24.5			53
Retail revenue sharing		1			3						(2	)
Total retail revenues		901			155			20.8			746
Wholesale		69			(4	)		(5.5	)		73
Unbilled		1			6						(5	)
Miscellaneous		36			2			5.9			34
Total electric revenues		1,007			159			18.8			848
Less: Fuel and other pass-through revenues		(654	)		(153	)					(501	)
Revenues excluding fuel and pass-through revenues	$	353		$	6			1.7		$	347

PEF’s electric energy sales for the three months ended March 31, 2006 and 2005, and the amount and percentage change by customer class are as follows:

(in millions of kWh)	Three Months Ended March 31,
Customer Class	2006			Change			% Change			2005
Residential		4,311			(36	)		(0.8	)		4,347
Commercial		2,550			(21	)		(0.8	)		2,571
Industrial		1,006			66			7.0			940
Governmental		721			12			1.7			709
Total retail energy sales		8,588			21			0.2			8,567
Wholesale		1,007			(331	)		(24.7	)		1,338
Unbilled		(150	)		(47	)					(103	)
Total kWh sales		9,445			(357	)		(3.6	)		9,802

PEF’s revenues, excluding recoverable fuel and other pass-through revenues of $654 million and $501 million for the three months ended March 31, 2006 and 2005, respectively, increased $6 million. The increase in revenues is primarily due to favorable growth and usage of $3 million driven by an approximate average net increase in the number of customers of 31,000 as of March 31, 2006, compared to March 31, 2005, even though Winter Park customers were transferred from retail sales to wholesale sales in June of 2005. The increase in revenues is also due to a $3 million reduction in the provision for rate refund, increased industrial sales and favorable weather. These increases were partially offset by a $3 million decrease in wholesale revenues due to the expiration of certain contracts in 2005 partially offset by new contracts in 2005 and 2006, including the addition of Winter Park, and higher demand charges.

Expenses

Fuel and Purchased Power

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

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PEF’s fuel and purchased power expenses were $559 million for the three months ended March 31, 2006, which represents a $126 million increase compared to prior year. This increase is due to increases in fuel used in electric generation and purchased power expenses of $92 million and $34 million, respectively. Increased fuel costs in the current year account for $24 million of the increase in fuel used in electric generation. Increased deferred fuel expense of $68 million represents the remaining increase. Deferred fuel expenses increased due to an increase in fuel recovery rates on January 1, 2006. The increase in purchased power expense was primarily due to higher prices of purchases in the current year as a result of increased fuel costs.

Operation and Maintenance

O&M expenses were $166 million for the three months ended March 31, 2006, which represents a decrease of $23 million, when compared to the $189 million incurred during the three months ended March 31, 2005. O&M expenses decreased $14 million due to severance expense recorded in the prior year related to the 2005 cost-management initiative and $5 million related to a decreased workers’ compensation benefit accrual adjustment compared to the prior year and $5 million related to lower ECRC costs. ECRC costs are pass-through expenses and have no impact on earnings.

Depreciation and Amortization

Depreciation and amortization expense increased $25 million to $95 million for the three months ended March 31, 2006. The increase is primarily due to the amortization of $27 million in storm costs which began in August 2005. Storm cost amortization is a pass-through expense and has no impact on earnings.

Taxes other than on Income

Taxes other than on income increased $6 million to $73 million compared to the three months ended March 31, 2005. The increase is primarily due to higher gross receipts taxes and franchise taxes due to higher revenues partially offset by lower payroll and property taxes. Gross receipts taxes and franchise taxes are pass-through expenses and have no impact on earnings.

Total Interest Charges, net

Interest expense increased $7 million for the three months ended March 31, 2006, as compared to the same period in the prior year. This fluctuation is due primarily to the impact of long-term debt balances on interest expense. The higher long-term debt balances are primarily due to under-recovered storm and fuel costs. Interest costs associated with these items are recovered separately pursuant to fuel and storm recovery rate orders.

Income Tax Expense

Income tax expense increased $13 million for the three months ended March 31, 2006, as compared to the same period in the prior year, primarily due to higher earnings compared to prior year. In addition, income tax expense increased due to the allocation of $3 million of the Parent’s tax benefit not related to acquisition interest expense in 2005 that is no longer allocated in 2006. See Corporate and Other below for additional information on the change in the tax benefit allocation in 2006.

DIVERSIFIED BUSINESSES

Our diversified businesses consist of the Progress Ventures segment and the Coal and Synthetic Fuels segment. These businesses are explained in more detail below.

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PROGRESS VENTURES

The Progress Ventures segment is primarily engaged in nonregulated electric generation operations, energy marketing activities and natural gas drilling and production.

Progress Ventures generated losses of $35 million for the three months ended March 31, 2006 compared to profits of $7 million in the prior year. The decrease in earnings compared to prior year is due primarily to recognizing the $64 million pre-tax impairment ($39 million after-tax) on goodwill described below, increased mark-to-market losses on gas and power hedges due to market volatility, lower electricity contract margins and additional corporate overhead allocations. Although electric revenues increased during the quarter due to new full-requirements contracts and additional system requirements, electricity contract margins decreased primarily due to higher fuel and power prices. These factors were partially offset by increased gas production at our Texas and Louisiana facilities and higher gas prices. Although commodity price volatility impacted both the nonregulated electric generation and natural gas operations, the Progress Ventures segment earnings were not significantly impacted by this volatility due to the hedged nature of our portfolio.

The following summarizes the quarterly gas production in Bcf equivalent, revenues, gross margin and segment profits (losses) for Progress Ventures:

	Three Months Ended March 31,
($ in millions)	2006			2005
Gas production in Bcf equivalent		7			5
Electric revenues	$	157		$	65
Gas revenues		69			33
Total revenues	$	226		$	98
Gross margin
In millions of $	$	63		$	48
As a % of revenues		28	%		49	%
Segment profits (losses)	$	(35	)	$	7

In accordance with accounting standards for goodwill, we monitor the carrying value of our goodwill associated with our Progress Ventures operations. The Progress Ventures electric generation operations are divided into three regions where it has generation plants: South Florida, North Carolina and Georgia. As part of our evaluation of certain business opportunities that may impact the future cash flows of our Georgia Region operations discussed under RECENT DEVELOPMENTS below, we performed an interim goodwill impairment test during the first quarter of 2006. As a result of this test, we recognized a pre-tax goodwill impairment loss of $64 million, the entire amount of goodwill assigned to Progress Ventures (See Note 6).

In accordance with accounting standards for long-lived assets, we monitor the carrying value of our long-lived assets associated with our Progress Ventures operations. Our analyses have continued to support the carrying value of the approximate $1.4 billion of long-lived and intangible assets at March 31, 2006. In May 2006, as discussed under RECENT DEVELOPMENTS below, we entered into transactions to sell the Rowan and DeSoto facilities and we anticipate recording an estimated loss on the sale in the second quarter of 2006. Future adverse changes in market conditions or changes in business conditions, including the manner in which the remaining long-lived assets are deployed, could require future impairment evaluations of the $940 million of remaining long-lived and intangible assets, which could result in an impairment charge.

RECENT DEVELOPMENTS

As part of our strategy to reduce Progress Venture’s risk profile and continue our efforts to reduce holding company debt through selected asset sales, we recently entered into the following transactions.

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During March and April 2006, we entered into three tolling agreements for the sale of approximately 1,039 MW of combustion turbine capacity and associated energy to Georgia Power Company (Georgia Power), a subsidiary of Southern Company. The three separate tolling agreements were executed by our Progress Ventures subsidiaries Washington County Power, LLC (302 MW), Walton County Power, LLC (436 MW) and MPC Generating, LLC (301 MW). The term of each of the agreements is from June 1, 2009 until May 31, 2024. Under the tolling agreements, we will receive payments for capacity, variable operating and maintenance costs, and startup costs. Georgia Power will deliver fuel (gas or oil as applicable) and receive electrical energy delivered onto the Georgia Integrated Transmission System (GITS) at each plant’s transmission interconnection. In conjunction with the tolling agreements, the Parent has incurred certain guaranty obligations on behalf of its subsidiaries with an initial amount of $23 million at March 31, 2006.

The foregoing capacity supported Progress Ventures’ obligations under its agreements with 16 Georgia Electric Membership Cooperatives (EMCs). Progress Ventures plans to satisfy those obligations in the future through a tolling agreement for the purchase of approximately 621 MW of combined cycle capacity from Southern Power Company (SPC), a subsidiary of Southern Company. The tolling agreement, which was executed in April 2006, begins on January 1, 2009 and terminates on December 31, 2015. Contractual access to this combined cycle resource will help support Progress Ventures’ obligations under its EMC agreements. Under the tolling agreement, we will pay SPC for capacity, variable operating and maintenance costs, and start up costs. We will also deliver fuel (gas or oil as applicable) to the combined cycle facility and receive electrical energy delivered onto the GITS. In conjunction with the SPC tolling agreement, the Parent may incur certain future guaranty obligations on behalf of its subsidiaries with an initial amount of $31 million.

On May 8, 2006, we entered into definitive agreements to sell our DeSoto County Generating Co., LLC (DeSoto) and Rowan County Power, LLC (Rowan) subsidiaries, including certain existing power supply contracts, to SPC for a total purchase price of approximately $405 million in cash, subject to adjustments as provided in the purchase agreements. DeSoto owns a 320 MW dual-fuel combustion turbine electric generation facility in DeSoto County, Florida. The sale of DeSoto is expected to close during the second quarter of 2006. Rowan owns a 925 MW dual-fuel combined cycle and combustion turbine electric generation facility in Rowan County, North Carolina. The sale of Rowan is expected to close during the third quarter of 2006. The closings of both the DeSoto and Rowan transactions are subject to state and federal regulatory approvals and customary closing conditions. In addition, the agreement for the sale of Rowan provides Southern Company with an option to terminate the agreement through June 15, 2006 without penalty.

We expect to report the operations of DeSoto and Rowan as discontinued operations in the second quarter of 2006 and anticipate recording an estimated after-tax loss on the expected sale of approximately $70 million in the second quarter of 2006 (See Note 15).

COAL AND SYNTHETIC FUELS

The Coal and Synthetic Fuels’ segment includes synthetic fuels operations and coal terminal operations. The following summarizes Coal and Synthetic Fuels’ segment profits:

	Three Months Ended March 31,
(in millions)	2006			2005
Synthetic fuel operations	$	3		$	(1	)
Coal terminals and marketing		18			8
Corporate overhead and other operations		(7	)		(11	)
Segment profits (losses)	$	14		$	(4	)

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SYNTHETIC FUEL OPERATIONS

The production and sale of synthetic fuels generate operating losses, but qualify for tax credits under Section 29/45K, which more than offset the effect of such losses. Our synthetic fuel operations resulted in the following for the three months ended March 31:

(in millions)	2006			2005
Tons sold		1.2			2.0
After-tax losses, excluding tax credits	$	(26	)	$	(38	)
Tax credits generated		35			54
Tax credit inflation adjustment		10			-
Tax credits reserved due to potential phase-out		(16	)		-
Tax credits reversed		-			(17	)
Net profit (loss)	$	3		$	(1	)

Prior to 2006, our synthetic fuel production levels and the amount of tax credits we could claim each year were a function of our projected consolidated regular federal income tax liability. With the redesignation of Section 29 tax credits as Section 45K general business credits, that limitation was removed effective January 1, 2006.

Synthetic fuels’ earnings for the three months ended March 31, 2006, as compared to the same period in the prior year, were positively impacted by the reversal of $17 million of tax credits in the first quarter of 2005 due to the loss on sale of Progress Rail, the recording of an $10 million inflation adjustment to 2005 tax credits and lower 2006 production which resulted in lower pre-tax losses. These were partially offset by the recording of fewer tax credits in 2006 due to lower production and recording a $16 million tax credit reserve at March 31, 2006 due to high oil prices which increased the potential for a phase-out of tax credits in 2006. 

See OTHER MATTERS below for additional information on the impact of oil prices on Section 29/45K tax credits, the results of our interim impairment review and a discussion of uncertainties surrounding our synthetic fuel production in 2006 and 2007.

COAL TERMINALS AND MARKETING

Coal terminals and marketing (Coal) operations blend and transload coal as part of the trucking, rail and barge network for coal delivery. This business also has an operating fee agreement with our synthetic fuel operations for procuring and processing of coal and the transloading and marketing of synthetic fuels. As a result of the relationship with the synthetic fuels operations, fluctuations in Coal’s annual earnings are typically related to production volumes at our synthetic fuel plants. Coal operations contributed earnings of $18 million and $8 million for the three months ended March 31, 2006 and 2005, respectively. During the first quarter of 2006 one of Coal’s supply contracts was restructured resulting in a payment of $103 million to Coal. These proceeds covered long-term coal supply commitments from 2005 through 2007 and will be recognized over the life of the contract as coal is received and the related inventory is utilized, effectively reducing the cost of future purchases. For the three months ended March 31, 2006, Coal recognized an $11 million pre-tax reduction in expense related to the restructured coal supply contract for 2005 coal commitments that were not delivered; future recognition of the proceeds is not expected to materially impact net income. In addition to the $11 million of reduced expenses noted above, Coal’s results were impacted by a $3 million pre-tax gain on the sale of Dixie Fuels Limited (Dixie Fuels) partially offset by lower revenues related to lower production at our synthetic fuels plants and higher cost of sales due to higher coal prices.

On March 1, 2006, we sold our 65 percent interest in Dixie Fuels to Kirby Corporation who owned the remaining 35 percent interest. Dixie Fuels operated four barge and tugboat units under long-term contracts with PEF and an outside party. The estimated $16 million cash purchase price will be finalized based on post-closing working capital adjustments. Proceeds from the sale will be used to reduce debt.

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CORPORATE OVERHEAD AND OTHER OPERATIONS

Corporate overhead and other operations recorded after-tax expenses of $7 million and $11 million for the three months ended March 31, 2006 and 2005, respectively. The decrease in after-tax expenses for 2006 is primarily due to additional corporate overhead allocations to Progress Ventures and severance expense recorded in the prior year related to the 2005 cost-management initiative.

CORPORATE AND OTHER

The Corporate and Other segment consists of the operations of the Parent, PESC and other consolidating and non-operating entities. Corporate and Other also includes other nonregulated business areas. Corporate and Other income (expense) is summarized below:

	Three Months Ended March 31,
(in millions)	2006			2005
Other interest expense	$	(76	)	$	(71	)
Contingent value obligations		(25	)		-
Tax levelization		(14	)		(3	)
Tax reallocation		-			(9	)
Other income tax benefit		30			29
Other		16			(3	)
Corporate and Other after-tax expense	$	(69	)	$	(57	)

Other interest expense, which includes elimination entries, increased $5 million to $76 million for the three months ended March 31, 2006 compared to $71 million for the three months ended March 31, 2005. Interest expense increased primarily due to a decrease in the elimination of intercompany interest expense resulting from lower intercompany debt balances. This was partially offset by having no revolving credit agreement (RCA) balances outstanding or related interest during the three months ended March 31, 2006 compared to $2 million of interest expense related to outstanding RCA balances during the three months ended March 31, 2005.

Progress Energy issued 98.6 million contingent value obligations (CVOs) in connection with the 2000 acquisition of Florida Progress. Each CVO represents the right of the holder to receive contingent payments based on the performance of four synthetic fuel facilities owned by Progress Energy. The payments, if any, are based on the net after-tax cash flows the facilities generate. At March 31, 2006 and 2005, the CVOs had fair market values of approximately $33 million and $13 million, respectively. Progress Energy recorded unrealized losses of $25 million for the three months ended March 31, 2006 and an immaterial unrealized gain for the three months ended March 31, 2005, to record the changes in fair value of the CVOs, which had average unit prices of $0.33 and $0.13 at March 31, 2006 and 2005, respectively.

GAAP requires companies to apply a levelized effective tax rate to interim periods that is consistent with the estimated annual effective tax rate. Income tax expense was increased by $14 million and $3 million for the three months ended March 31, 2006 and 2005, respectively, in order to maintain an effective rate consistent with the estimated annual rate. The tax credits associated with our synthetic fuel operations and seasonal fluctuations in our annual earnings primarily drive the fluctuations in the effective tax rate for interim periods. The tax levelization adjustment will vary each quarter, but it will have no effect on net income for the year.

For the three months ended March 31, 2006, income tax expense was not increased by the allocation of the Parent’s income tax benefits not related to acquisition interest expense to profitable subsidiaries. Due to the repeal of the Public Utility Holding Company Act of 1935, as amended (PUHCA) we will no longer allocate the Parent income tax benefits not related to acquisition interest expense to profitable subsidiaries beginning in 2006. Since 2002, Parent income tax benefits not related to acquisition interest expense were allocated to profitable subsidiaries, in accordance with a PUHCA order. For the three months ended March 31, 2005, income tax expense was increased by $9 million due to the allocation of the Parent’s income tax benefit.

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Other increased $19 million primarily due to the $13 million gain, net of minority interest, on the sale of Level 3 Communications, Inc. (Level 3) stock subsequent to the sale of PT LLC (See Notes 3A and 11). In addition, expenses in 2005 included $4 million for South Carolina corporate license related to the South Carolina audit settlement.

DISCONTINUED OPERATIONS

PROGRESS TELECOM LLC

On March 20, 2006, we completed the sale of Progress Telecom, LLC (PT LLC) to Level 3. We received gross proceeds comprised of cash of $69 million and approximately 20 million shares of Level 3 common stock valued at an estimated $66 million on the date of the sale. Our net proceeds from the sale of $70 million, after consideration of minority interest, were used to reduce debt. Prior to the sale, we had a 51% interest in PT LLC (See Note 3A).

Based on the gross proceeds associated with the sale and after consideration of minority interest, we recorded an estimated after-tax gain on disposal of $24 million during the three months ended March 31, 2006. Discontinued PT LLC operations had earnings of $18 million for the three months ended March 31, 2006 and less than a million for the same period in 2005.

COAL MINING OPERATIONS

On November 14, 2005, our board of directors approved a plan to divest of five subsidiaries of Progress Fuels engaged in the coal mining business. On April 6, 2006, we signed an agreement to sell certain net assets of the coal mining business to Alpha Natural Resources, LLC for gross proceeds of $23 million plus a working capital adjustment. The sale closed on May 1, 2006. As a result, during the three months ended March 31, 2006 we recorded an estimated after-tax loss of $15 million for the sale of these assets. The remaining coal mining operations are expected to be sold by the end of 2006 (See Note 3C).

Discontinued coal mining operations incurred a net loss of $20 million for the three months ended March 31, 2006 and net income of $1 million for the three months ended March 31, 2005.

PROGRESS RAIL

On March 24, 2005, we completed the sale of Progress Rail to One Equity Partners LLC, a private equity firm unit of J.P. Morgan Chase & Co. Gross cash proceeds from the sale were approximately $429 million, consisting of $405 million base proceeds plus a working capital adjustment. Proceeds from the sale were used to reduce debt (See Note 3B).

Rail discontinued operations resulted in losses of $12 million for the three months ended March 31, 2005. Results for the three months ended March 31, 2006 do not include any income or loss from operations as the sale closed in the first quarter of 2005.

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

Progress Energy, Inc. is a holding company and, as such, has no operations of its own. Our primary cash needs at the Parent level are our common stock dividend and interest and principal payments on our $3.9 billion of senior unsecured debt. Our ability to meet these needs is dependent on the earnings and cash flows of the Utilities and our nonregulated subsidiaries, and the ability of our subsidiaries to pay dividends or repay funds to us.

Our other significant cash requirements arise primarily from the capital-intensive nature of the Utilities’ operations and expenditures for our diversified businesses, primarily those of the Progress Ventures segment.

We rely upon our operating cash flow, primarily generated by the Utilities, commercial paper and bank facilities, and our ability to access the long-term debt and equity capital markets for sources of liquidity.

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The majority of our operating costs are related to the Utilities. Such costs are recovered from customers in accordance with various rate plans. We are allowed to recover certain fuel, purchased power and other costs incurred by PEC and PEF through their respective recovery clauses. The types of costs recovered through clauses vary by jurisdiction. Fuel price volatility can lead to over- or under-recovery of fuel costs, as changes in fuel prices are not immediately reflected in fuel surcharges due to regulatory lag in setting the surcharges. As a result, fuel price volatility can be both a source of and a use of liquidity resources, depending on what phase of the cycle of price volatility we are experiencing. Changes in the Utilities’ fuel and purchased power costs may affect the timing of cash flows, but not materially affect net income.

Cash from operations, asset sales and limited ongoing equity sales from our Investor Plus Stock Purchase Plan and employee benefit and stock option plans are expected to fund capital expenditures and common stock dividends for 2006. We expect to use excess cash proceeds, if any, to reduce debt. To the extent necessary, short-term and long-term debt may also be used as a source of liquidity.

We believe our internal and external liquidity resources will be sufficient to fund our current business plans. Risk factors associated with credit facilities and credit ratings are discussed in the “Risk Factors” section of our 2005 Form 10-K.

The following discussion of our liquidity and capital resources is on a consolidated basis.

CASH FLOWS FROM OPERATIONS

Net cash provided by operating activities increased by $268 million for the three months ended March 31, 2006, when compared to the corresponding period in the prior year. The increase in operating cash flow was primarily due to a $115 million increase in the recovery of fuel costs at the Utilities, a $154 million increase from the change in accounts receivable, approximately $103 million of proceeds received from the restructuring of a long-term coal supply contract, and $62 million of storm restoration costs incurred in the prior year at PEF. These impacts were partially offset by a $155 million decrease from the change in accounts payable, primarily driven by the timing of purchases and payments to vendors at the Utilities, and reduced purchases at our nonregulated operations. In 2005, the Utilities requested and received approval from their respective state commissions for rate increases for fuel cost recovery, including amounts for previous under-recoveries. PEF also received approval from the FPSC authorizing PEF to recover $245 million over a two-year period, including interest, of the costs it incurred and previously deferred related to PEF’s restoration of power to customers associated with the four hurricanes in 2004. See Note 4 for additional information.

INVESTING ACTIVITIES

Net cash used in investing activities increased by $183 million for the three months ended March 31, 2006, when compared to the corresponding period in the prior year. This is due primarily to a $295 million decrease in proceeds from sales of discontinued operations and other assets for 2006 when compared to the corresponding period in the prior year.

Excluding proceeds from sales of discontinued operations and other assets, cash used in investing activities decreased approximately $112 million in 2006 when compared with 2005. The decrease is due primarily to a $143 million decrease in net purchases of available-for-sale securities and other investments, partially offset by $32 million in additional capital expenditures for property and nuclear fuel additions. Available-for-sale securities and other investments include marketable debt securities and investments held in nuclear decommissioning and benefit investment trusts. The increase in property additions is primarily due to higher spending at the Hines 4 facility and distribution projects at PEF, partially offset by lower spending at the Hines 3 facility.

During the three months ended March 31, 2006, proceeds from sales of discontinued operations and other assets primarily included $70 million in cash proceeds from the sale of PT LLC (See Note 3A) and approximately $15 million in net cash proceeds from the sale of Dixie Fuels, net of cash divested. During the same period in 2005, proceeds from sales of discontinued operations and other assets primarily included $393 million in proceeds from the sale of Progress Rail in March 2005, net of cash divested (See Note 3B).

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FINANCING ACTIVITIES

Net cash used in financing activities was $508 million for the three months ended March 31, 2006, compared to net cash provided by financing activities of $163 million for the three months ended March 31, 2005, for a net decrease of $671 million. The change in cash used in financing activities was due primarily to the March 1, 2006 maturity of $800 million 6.75% senior unsecured notes. These notes were paid with net proceeds from the sale of $400 million in senior notes, as discussed below, and a combination of cash and commercial paper proceeds.

On January 13, 2006, Progress Energy issued $300 million of 5.625% Senior Notes due 2016 and $100 million of Series A Floating Rate Senior Notes due 2010. These senior notes are unsecured. Interest on the Floating Rate Senior Notes will be based on three-month London Inter Bank Offering Rate (LIBOR) plus 45 basis points and will be reset quarterly. We used the net proceeds from the sale of these senior notes and a combination of available cash and commercial paper proceeds to retire the $800 million aggregate principal amount of our 6.75% Senior Notes on March 1, 2006. Pending the application of proceeds as described above, we invested the net proceeds in short-term, interest-bearing, investment-grade securities.

Progress Energy entered into a new $800 million 364-day credit agreement on November 21, 2005, which was restricted for the retirement of $800 million of 6.75% Senior Notes due March 1, 2006. On March 1, 2006, we retired $800 million of our 6.75% Senior Notes, thus effectively terminating the 364-day credit agreement.

On March 31, 2006, Progress Energy filed a shelf registration statement with the SEC to provide unlimited financing capacity. The registration statement became effective upon filing with the SEC and will allow Progress Energy to issue various securities, including Senior Debt Securities, Junior Subordinated Debentures, Common Stock, Preferred Stock, Stock Purchase Contracts, Stock Purchase Units, and Trust Preferred Securities and Guarantees. The Board of Directors has authorized the issuance and sale of up to $1 billion aggregate principal amount of various securities off the new shelf registration statement, in addition to $679 million of various securities, which were not sold from our prior shelf registration statement. Therefore, effective March 31, 2006, Progress Energy has the authority to issue and sell up to $1.679 billion aggregate principal amount of various securities.

On May 3, 2006, Progress Energy restructured its existing $1.13 billion five-year revolving credit agreement (RCA) with a syndication of financial institutions. The new RCA is scheduled to expire on May 3, 2011, and is replacing an existing $1.13 billion five-year facility, which was terminated effective May 3, 2006. The Progress Energy RCA will continue to be used to provide liquidity support for Progress Energy’s issuances of commercial paper and other short-term obligations. The new RCA still includes a defined maximum total debt to capital ratio of 68 percent and contains various cross-default and other acceleration provisions. However, the new RCA no longer includes a material adverse change representation for borrowings or a financial covenant for interest coverage. Fees and interest rates under the RCA will continue to be determined based upon the credit rating of Progress Energy’s long-term unsecured senior noncredit-enhanced debt, currently rated as Baa2 by Moody’s and BBB- by S&P.

On May 3, 2006, PEC’s five-year $450 million credit facility was amended to take advantage of favorable market conditions and reduce the pricing associated with the facility. Fees and interest rates under the RCA will continue to be determined based upon the credit rating of PEC’s long-term unsecured senior noncredit-enhanced debt, currently rated as Baa1 by Moody’s and BBB- by S&P. The amended PEC RCA is still scheduled to expire on June 28, 2010.

On May 3, 2006, PEF’s five-year $450 million credit facility was amended to take advantage of favorable market conditions and reduce the pricing associated with the facility. Fees and interest rates under the RCA will continue to be determined based upon the credit rating of PEF’s long-term unsecured senior noncredit-enhanced debt, currently rated as Baa1 by Moody’s and BBB- by S&P. The amended PEF RCA is still scheduled to expire on March 28, 2010.

For the three months ended March 31, 2006 and 2005, we issued approximately 0.7 million shares and 1.4 million shares, respectively, resulting in approximately $28 million and $60 million in proceeds from our Investor Plus Stock Purchase Plan and our employee benefit and stock option plans, net of purchases of restricted shares. For the fiscal year 2006, we expect to realize approximately $100 million aggregate amount from the sale of stock through these plans.

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FUTURE LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2006, there were no material changes in our “Capital Expenditures,” “Other Cash Needs,” “Credit Facilities,” or “Credit Rating Matters” as compared to those discussed under LIQUIDITY AND CAPITAL RESOURCES in Item 7 of the 2005 Form 10-K, other than as described above under “Financing Activities.”

The amount and timing of future sales of our debt and equity securities will depend on market conditions, operating cash flow, asset sales and our specific needs. We may from time to time sell securities beyond the amount needed to meet our immediate 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 general corporate purposes.

As of March 31, 2006, the current portion of our long-term debt was $109 million, which we expect to fund with cash from operations, proceeds from sales of assets and/or commercial paper borrowings. See Notes 3 and 15 for additional information on asset sales.

The following regulatory matters may impact our future liquidity and financing activities: PEC’s fuel cost recovery as discussed in Note 4, PEF’s recovery of storm costs as discussed in Note 4, and PEF’s ECRC filings for recovery of environmental costs as discussed in Note 12.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

Our off-balance sheet arrangements and contractual obligations are described below.

GUARANTEES

As a part of normal business, we enter into various agreements providing future financial or performance assurances to third parties that are outside the scope of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN No. 45). These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to Progress Energy or our subsidiaries on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish the subsidiaries’ intended commercial purposes. Our guarantees include performance obligations under power supply agreements, tolling agreements, transmission agreements, gas agreements, fuel procurement agreements and trading operations. Our guarantees also include standby letters of credit, surety bonds and guarantees in support of nuclear decommissioning. At March 31, 2006, we have issued $1.80 billion of guarantees for future financial or performance assurance. Included in this amount is $300 million of Parent-issued guarantees of certain payments of two wholly owned indirect subsidiaries (See Note 14). We do not believe conditions are likely for significant performance under the guarantees of performance issued by or on behalf of affiliates.

The majority of contracts supported by the guarantees contain provisions that trigger guarantee obligations based on downgrade events to below investment grade (below BBB- or Baa3) by S&P or Moody’s, ratings triggers, monthly netting of exposure and/or payments and offset provisions in the event of a default. At March 31, 2006, no guarantee obligations had been triggered. If the guarantee obligations were triggered, the approximate amount of liquidity requirements to support ongoing operations within a 90-day period, associated with guarantees for Progress Energy’s nonregulated portfolio and power supply agreements, was $558 million. While we believe that we would be able to meet this obligation with cash or letters of credit, if we cannot, our financial condition, liquidity and results of operations will be materially and adversely impacted.

At March 31, 2006, we have issued guarantees and indemnifications of certain asset performance, legal, tax and environmental matters to third parties, including indemnifications made in connection with sales of businesses, and for timely payment of obligations in support of our nonwholly owned synthetic fuel operations. Related to the sales of businesses, the latest notice period extends until 2012 for the majority of legal, tax and environmental matters provided for in the indemnification provisions. Indemnifications for the performance of assets extend to 2016. For matters for which we receive timely notice, our indemnity obligations may extend beyond the notice period. Certain environmental indemnifications have no limitations as to time or maximum potential future payments. In 2005, PEC entered into a contract with the joint owner of certain facilities at the Mayo and Roxboro plants to limit their aggregate costs associated with capital expenditures to comply with the Clean Smokestacks Act and recognized a

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liability related to this indemnification (See Note 12B). PEC’s maximum exposure cannot be determined. At March 31, 2006, the maximum exposure for guarantees and indemnifications for which a maximum exposure is determinable was $201 million, including $32 million at PEF. At March 31, 2006 and December 31, 2005, we have recorded liabilities related to guarantees and indemnifications to third parties of approximately $49 million and $41 million, respectively. These amounts include $16 million for PEC at March 31, 2006 and December 31, 2005, respectively, and $8 million for PEF at March 31, 2006. PEF had no liabilities related to guarantees and indemnifications to third parties at December 31, 2005. As current estimates change, it is possible that additional losses related to guarantees and indemnifications to third parties, which could be material, may be recorded in the future.

MARKET RISK AND DERIVATIVES

Under our risk management policy, we may use a variety of instruments, including swaps, options and forward contracts, to manage exposure to fluctuations in commodity prices and interest rates. See Note 9 and Item 3, “Quantitative and Qualitative Disclosures about Market Risk” of this Form 10-Q, for a discussion of market risk and derivatives.

CONTRACTUAL OBLIGATIONS

As of March 31, 2006, our contractual cash obligations and other commercial commitments have not changed materially from what was reported in the 2005 Form 10-K.

OTHER MATTERS

SYNTHETIC FUELS TAX CREDITS

We have substantial operations associated with the production of coal-based solid synthetic fuels as defined under Section 29 of the Code (Section 29). The production and sale of these products qualifies for federal income tax credits so long as 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 and that the fuel was produced from a facility that was placed in service before July 1, 1998. Qualifying synthetic fuel facilities entitle their owners to federal income tax credits based on the barrel of oil equivalent of the synthetic fuel produced and sold by these plants. The tax credits associated with synthetic fuels in a particular year may be phased out if Annual Average market prices for crude oil exceed certain prices as discussed below. Synthetic fuel is generally not economical to produce absent the credits. The current synthetic fuel tax credit program expires at the end of 2007. These operations are subject to numerous risks.

Legislation enacted in 2005 redesignated the Section 29 tax credit as a general business credit under Section 45K of the Code (Section 45K) effective January 1, 2006. The previous amount of Section 29 tax credits that we were allowed to claim in any calendar year through December 31, 2005, was limited by the amount of our regular federal income tax liability. Section 29 tax credit amounts allowed but not utilized are currently carried forward indefinitely as deferred alternative minimum tax credits. The redesignation of Section 29 tax credits as a Section 45K general business credit removes the regular federal income tax liability limit on synthetic fuel production and subjects the credits to a 20-year carry forward period. This provision would allow us to produce synthetic fuel to a higher level than we have historically produced, should we choose to do so.

Total Section 29/45K credits generated through March 31, 2006 (including those generated by Florida Progress prior to our acquisition), were approximately $1.8 billion, of which $868 million has been used to offset regular federal income tax liability, $901 million is being carried forward as deferred tax credits and $16 million has been reserved due to the potential phase-out of tax credits due to high oil prices, as described below.

IMPACT OF CRUDE OIL PRICES

Although the Section 29/45K tax credit program is expected to continue through 2007, recent market conditions, world events and catastrophic weather events have increased the volatility and level of oil prices that could limit the amount of those credits or eliminate them entirely for 2006 and 2007. This possibility is due to a provision of

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Section 29 that provides that if the average wellhead price per barrel for unregulated domestic crude oil for the year (the Annual Average Price) exceeds a certain threshold price (the Threshold Price), the amount of Section 29/45K tax credits is reduced for that year. Also, if the Annual Average Price increases high enough (the Phase-out Price), the Section 29/45K tax credits are eliminated for that year. The Threshold Price and the Phase-out Price are adjusted annually for inflation.

If the Annual Average Price falls between the Threshold Price and the Phase-out Price for a year, the amount by which Section 29/45K tax credits are reduced will depend on where the Annual Average Price falls in that continuum. For example, for 2005, the Threshold Price was $53.20 per barrel and the Phase-out Price was $66.78 per barrel. If the Annual Average Price had been $59.99 per barrel, there would have been a 50 percent reduction in the amount of Section 29 tax credits for that year.

The Department of the Treasury calculates the Annual Average Price based on the Domestic Crude Oil First Purchases Prices published by the Energy Information Agency (EIA). Because the EIA publishes its information on a three-month lag, the secretary of the Treasury finalizes the calculations three months after the year in question ends. The Annual Average Price for calendar year 2005 was published on April 11, 2006. Based on the Annual Average Price of $50.26, there was no phase-out of our synthetic fuel tax credits in 2005.

We estimate that the 2006 Threshold Price will be approximately $55 per barrel and the Phase-out Price will be approximately $69 per barrel, based on an estimated inflation adjustment for 2006. The monthly Domestic Crude Oil First Purchases Price published by the EIA has recently averaged approximately $6 lower than the corresponding monthly New York Mercantile Exchange (NYMEX) settlement price for light sweet crude oil. Through March 31, 2006, the average NYMEX settlement price for light sweet crude oil was $62 per barrel, and as of March 31, 2006, the average NYMEX futures price for light sweet crude oil for the remainder of calendar year 2006 was $69 per barrel. This results in a weighted-average annual price for light sweet crude oil of approximately $67 per barrel for calendar year 2006. Based upon the estimated 2006 Threshold Price and Phase-out Price, if oil prices for 2006 averaged this weighted price of approximately $67 per barrel for the entire year in 2006, we currently estimate that the synthetic fuel tax credit amount for 2006 would be reduced by approximately 47 percent. Therefore, we recorded approximately 53 percent of the value of the $35 million in tax credits generated during the first quarter of 2006 and reserved approximately $16 million of these credits. The final calculations of any reductions in the value of the tax credits will not be determined until the end of 2006 when final oil prices are known. Additional fluctuations in oil prices may cause quarterly adjustments to our results of operations and the amount of tax credits we record or reserve, either positive or negative, depending on current and futures oil prices at the end of the quarter, which impact the estimated weighted average annual price of oil for 2006.

In November 2005, the U.S. Senate passed Senate Bill 2020, the Tax Relief Act of 2005, which includes proposed modifications to the Section 29/45K synthetic fuel tax credit program. This legislation would provide synthetic fuel producers with additional certainty around future synthetic fuel production decisions. The proposed modifications include amendments of the phase-out calculation and the annual inflation adjustment for the value of the synthetic fuel tax credits. Under Senate Bill 2020, the Annual Average Price, Threshold Price and the Phase-out Price for 2006 and 2007 would be based on the calculated amounts for the previous calendar year. In addition, the annual inflation adjustment for the synthetic fuel tax credits for 2005, 2006 and 2007 would be eliminated. The U.S. House version of the Tax Reconciliation bill does not include these same provisions. The differences in the Senate and House versions of the bill will be reconciled in conference.

As noted above, the 2005 Annual Average Price did not cause a phase-out of the synthetic fuel tax credits related to synthetic fuel production in 2005. Therefore, if the provisions of Senate Bill 2020 regarding changes to the Section 29/45K synthetic fuel tax credit program were enacted into law, there would be no phase-out of these tax credits in calendar year 2006. However, we cannot predict with any certainty the price of oil for 2006 or 2007 and, therefore, we cannot predict what impact, if any, this proposed legislation would have on the value of tax credits in 2007.

Our future synthetic fuel production levels for 2006 and 2007 remain uncertain because we cannot predict with any certainty the Annual Average Price of oil for 2006 or 2007. If the March 31, 2006 average futures price level of $69 per barrel oil does not change during the remainder of 2006, and the provisions of Senate Bill 2020 regarding changes to the Section 29/45K synthetic fuel tax credit program are not enacted into law, it is unlikely that we will produce significant amounts of synthetic fuel during 2006 and could potentially reverse previously recorded credits associated with any 2006 synthetic fuel production. This could have a material adverse impact on our results of

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operations. We will continue to monitor the level of oil prices and retain the ability to adjust production based on future oil price levels.

Due to the previously discussed significant uncertainty surrounding our synthetic fuel production in 2006 and 2007, we evaluated our synthetic fuel and other related operating long-lived assets for impairment during the first quarter of 2006. We determined that no impairment of these assets was required. However, an increase in oil prices, the failure of the proposed tax legislation to be enacted into law, or a decrease in future synthetic fuel production and cash flows could require additional impairment evaluations in the future, which could result in a future impairment of some or all of the $103 million of assets used in our synthetic fuel operations. The majority of these assets will be fully depreciated by the end of 2007, the scheduled end of the synthetic fuel tax credit program. The outcome of this matter cannot be determined.

PERMANENT SUBCOMMITTEE

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

SALE OF PARTNERSHIP INTEREST

In June 2004, through our subsidiary Progress Fuels, we sold in two transactions a combined 49.8 percent partnership interest in Colona, one of our synthetic fuel facilities. Substantially all proceeds from the sales will be received over time, which is typical of such sales in the industry. Gains from the sales will be recognized on a cost recovery basis as the facility produces and sells synthetic fuel and when there is persuasive evidence that the sales proceeds have become fixed or determinable and collectability is reasonably assured. Gain recognition is dependent on the synthetic fuel production qualifying for Section 29/45K tax credits and the value of such tax credits as discussed above. Until the gain recognition criteria are met, gains from selling interests in Colona will be deferred. It is possible that gains will be deferred in the first, second and/or third quarters of each year until there is persuasive evidence that no tax credit phase-out will occur for the applicable calendar year. This could result in shifting earnings from earlier quarters to later quarters in a calendar year. In the event that the synthetic fuel tax credits from the Colona facility are reduced, including an increase in the price of oil that could limit or eliminate synthetic fuel tax credits, the amount of proceeds realized from the sale could be significantly impacted. As of March 31, 2006, a pre-tax gain on monetization of $3 million has been deferred. Based on the current level of oil prices, we cannot predict whether this gain will be recorded this year.

See Note 13B for additional discussion related to our synthetic fuel operations.

REGULATORY ENVIRONMENT

The Utilities’ operations in North Carolina, South Carolina and Florida are regulated by the NCUC, SCPSC and the FPSC, respectively. The electric businesses are also subject to regulation by the FERC, the NRC and other federal and state agencies common to the utility industry. In addition, until February 8, 2006, we were subject to SEC regulation as a registered holding company under the Public Utility Holding Company Act of 1935, as amended (PUHCA). Subsequent to the repeal of PUHCA, we became subject to additional regulation by the FERC. As a result of regulation, many of our fundamental business decisions, as well as the rate of return the Utilities are permitted to earn, are subject to the approval of these governmental agencies.

On May 5, 2006, the Florida state legislature passed a comprehensive energy bill. If signed by the governor, the legislation would create a new energy council tasked with developing a statewide energy policy, provide incentives to renewable energy sources and would foster the construction of new nuclear power plants, including streamlining the siting of nuclear power plants and related transmission facilities, exempting new nuclear plants from the FPSC bid rule and requiring the FPSC to issue rules authorizing alternative cost-recovery mechanisms for pre-construction costs and construction cost financing.

Due to the damage to electric utility facilities suffered during recent hurricanes, the FPSC and the Florida state

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legislature are continuing to review proposals that seek to minimize future damage and resulting customer outages. Several bills have been introduced in the legislature that would, among other things, promote the placement of electric facilities underground and impose more stringent utility infrastructure construction standards. While these bills did not pass in the current legislative session, similar rulemaking proceedings and workshops regarding changes in construction standards have been initiated by the FPSC. If enacted, these rules could materially increase PEF’s costs. We cannot predict the outcome of this matter.

On April 26, 2006, PEC submitted a license renewal application with the FERC seeking a 50-year license for its Tillery and Blewett hydroelectric generating plants. The license for these plants currently expires in April 2008 and the requested renewal will allow the plants to continue operations until 2058. The remaining phase of the application process will take approximately two years and includes review by the FERC and solicitation of public comment.

APPLICATIONS FOR NUCLEAR POWER PLANT LICENSES

We have announced that we are pursuing development of Combined License (COL) applications, which is not a commitment to build a nuclear plant but is a necessary step to keep open the option of building a potential plant or plants. On January 23, 2006, we announced that PEC had selected the Shearon Harris Nuclear Plant (Harris) site to evaluate for possible future nuclear expansion and we announced the selection of the Westinghouse Electric AP1000 reactor design as the technology upon which to base any potential application submission. We currently expect to file the application for the COL for PEC’s Harris site in late September or early October 2007. We expect to file the application for the COL for an as-yet unspecified site in Florida in late second quarter 2008. We plan to announce the selection of the Florida site in the second quarter of 2006. If we receive approval from the NRC, and if the decision to build is made, construction could begin as early as 2010, and a new plant could be in service around 2016. We estimate that it will take approximately 36 months for the NRC to review the COL applications and grant approval.

A new nuclear plant may be eligible for the federal production tax credits and risk insurance provided by the Energy Policy Act of 2005 (EPACT). EPACT provides an annual tax credit of 1.8 cents/kWh for nuclear facilities for the first eight years of operation. The credit is limited to the first 6,000 MW of new nuclear generation in the United States and has an annual cap of $125 million per 1,000 MW of national MW capacity limitation allocated to the unit. In April 2006, the IRS provided interim guidance that the 6,000 MW of production tax credits generally will be allocated to new nuclear facilities which filed license applications with the NRC by December 31, 2008 and which were placed in service before January 1, 2021.

There is no guarantee that the interim guidance will be incorporated into the final regulations governing the allocation of production tax credits. Other utilities have announced plans to pursue new nuclear plants, and there is no guarantee that any nuclear plant constructed by us would qualify for these additional incentives.

ENVIRONMENTAL MATTERS

We are subject to federal, state and local regulations addressing air and water quality, hazardous and solid waste management and other environmental matters. We currently estimate total compliance costs for the Utilities, related to environmental laws and regulations addressing air and water quality, which will primarily be for capital expenditures, could be in excess of $1.0 billion each at PEC and PEF, respectively, through 2018, which is the latest compliance target date for current air and water quality regulations. These costs are eligible for regulatory recovery through either base rates or pass-through clauses. These environmental matters are discussed in further detail in Note 12. This discussion identifies specific environmental issues, the status of the issues, accruals associated with issue resolutions and our associated exposures. We accrue costs to the extent they are probable and can be reasonably estimated. It is probable that current estimates will change and additional losses, which could be material, may be incurred in the future.

NEW ACCOUNTING STANDARDS

See Note 2 for a discussion of the impact of new accounting standards.

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PEC

The information required by this item is incorporated herein by reference to the following portions of Progress Energy’s Management’s Discussion and Analysis of Financial Condition and Results of Operations, insofar as they relate to PEC: RESULTS OF OPERATIONS; LIQUIDITY AND CAPITAL RESOURCES and OTHER MATTERS.

The following Management’s Discussion and Analysis and the information incorporated herein by reference contain 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 and Item 1A, “Risk Factors” in the 2005 Form 10-K for a discussion of the factors that may impact any such forward-looking statements made herein.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities decreased $25 million for the three months ended March 31, 2006, when compared to the corresponding period in the prior year. The decrease in operating cash flow was primarily due to approximately $174 million resulting from tax payments and timing of purchases and payments to vendors, largely offset by an $80 million increase related to the change in accounts receivable and a $41 million increase in the recovery of fuel costs. In 2005, PEC requested and received approval from the North Carolina and South Carolina state commissions for rate increases for fuel cost recovery, including amounts for previous under-recoveries.

Cash used in investing activities decreased $89 million for the three months ended March 31, 2006, when compared to the corresponding period in the prior year primarily due to net proceeds from available-for-sale securities and other investments for the period in 2006 versus net purchases for the period in 2005, partially offset by an increase in nuclear fuel additions related to nuclear facility outages. Available-for-sale securities and other investments include marketable debt securities and investments held in nuclear decommissioning trusts.

See Progress Energy’s Management’s Discussion and Analysis of Financial Condition and Results of Operations, “LIQUIDITY AND CAPITAL RESOURCES”, for a discussion of PEC’s financing activities.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

As of March 31, 2006, PEC’s off-balance sheet arrangements and contractual obligations have not changed materially from what was reported in PEC’s 2005 Form 10-K.

MARKET RISK AND DERIVATIVES

Under its risk management policy, PEC may use a variety of instruments, including swaps, options and forward contracts, to manage exposure to fluctuations in commodity prices and interest rates. See Note 9 and Item 3, “Quantitative and Qualitative Disclosures about Market Risk” of this Form 10-Q, for a discussion of market risk and derivatives.

CONTRACTUAL OBLIGATIONS

As of March 31, 2006, PEC’s contractual cash obligations and other commercial commitments have not changed materially from what was reported in PEC’s 2005 annual report on Form 10-K.

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PEF

The information required by this item is incorporated herein by reference to the following portions of Progress Energy’s Management’s Discussion and Analysis of Financial Condition and Results of Operations, insofar as they relate to PEF: RESULTS OF OPERATIONS; LIQUIDITY AND CAPITAL RESOURCES and OTHER MATTERS.

The following Management’s Discussion and Analysis and the information incorporated herein by reference contain 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 and Item 1A, “Risk Factors” in the 2005 Form 10-K for a discussion of the factors that may impact any such forward-looking statements made herein.

LIQUIDITY AND CAPITAL RESOURCES

PEF’s net cash provided by operating activities increased by $144 million for the three months ended March 31, 2006, when compared to the corresponding period in the prior year. The increase was due primarily to a $74 million increase in the recovery of fuel costs, $62 million of storm restoration costs incurred in the prior year, and $40 million related to lower tax payments. In 2005, PEF requested and received approval from the FPSC for rate increases for fuel cost recovery, including amounts for previous under-recoveries. PEF also received approval from the FPSC authorizing PEF to recover $245 million over a two-year period, including interest, of the costs it incurred and previously deferred related to PEF’s restoration of power to customers associated with the four hurricanes in 2004. See Note 4 for additional information. These impacts were partially offset by a $72 million decrease from increased inventory levels, primarily coal, and timing of purchases and payments to vendors.

Cash used in investing activities increased $59 million for the three months ended March 31, 2006, when compared to the corresponding period in the prior year. The increase in cash used in investing activities is primarily due to a $55 million increase in net purchases of short-term investments included in available-for-sale securities and other investments and $30 million of property additions primarily related to higher spending at the Hines 4 facility and distribution projects, partially offset by lower spending at the Hines 3 facility and a $28 million decrease in nuclear fuel additions. Available-for-sale securities and other investments include marketable debt securities and investments held in nuclear decommissioning trusts.

See Progress Energy’s Management’s Discussion and Analysis of Financial Condition and Results of Operations, LIQUIDITY AND CAPITAL RESOURCES, for a discussion of PEF’s financing activities.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk 

We are exposed to various risks related to changes in market conditions. We have a Risk Management Committee comprised of senior executives from various functional areas. The Risk Management Committee is responsible for administering risk management policies and monitoring compliance with those policies by all subsidiaries. Under our risk policy, we may use a variety of instruments, including swaps, options and forward contracts, to manage exposure to fluctuations in commodity prices and interest rates. Such instruments contain credit risk for nonperformance by the counterparty. We minimize such risk by performing credit reviews using, among other things, publicly available credit ratings of such counterparties. Potential nonperformance by counterparties is not expected to have a material effect on our financial position or results of operations. Additionally, in the normal course of business, some of our affiliates may enter into hedge transactions with one another (See Note 9).

Certain market risks are inherent in our financial instruments, which arise from transactions entered into in the normal course of business. Our primary exposures are changes in interest rates with respect to our long-term debt and commercial paper, fluctuations in the return on marketable securities with respect to our nuclear decommissioning trust funds, changes in the market value of CVOs, and changes in energy-related commodity prices.

PROGRESS ENERGY, INC.

Other than described below, the various risks that we are exposed to have not materially changed since December 31, 2005.

INTEREST RATE RISK

Our exposure to changes in interest rates from fixed rate and variable rate long-term debt at March 31, 2006, has changed from December 31, 2005. The total notional amount of fixed rate long-term debt at March 31, 2006, was $9.240 billion, with an average interest rate of 6.30% and fair market value of $9.455 billion. The total notional amount of variable rate long-term debt at March 31, 2006, was $1.411 billion, with an average interest rate of 3.89% and fair market value of $1.411 billion.

In addition to our variable rate long-term debt, we typically have commercial paper and/or loans outstanding under our RCA facilities, which are also exposed to floating interest rates. At March 31, 2006, approximately 16.7 percent of consolidated debt, including interest rate swaps, was in floating rate mode compared to 12.8 percent at the end of 2005.

From time to time, we use interest rate derivative instruments to adjust the mix between fixed and floating rate debt in our debt portfolio, to mitigate our exposure to interest rate fluctuations associated with certain debt instruments, and to hedge interest rates with regard to future fixed rate debt issuances.

The notional amounts of interest rate derivatives are not exchanged and do not represent exposure to credit loss. In the event of default by a counterparty, the risk in the transaction is the cost of replacing the agreements at current market rates. We only enter into interest rate derivative agreements with banks with credit ratings of single A or better.

We use a number of models and methods to determine interest rate risk exposure and fair value of derivative positions. For reporting purposes, fair values and exposures of derivative positions are determined as of the end of the reporting period using the Bloomberg Financial Markets system.

In accordance with SFAS No. 133, interest rate derivatives that qualify as hedges are separated into one of two categories, cash flow hedges or fair value hedges. Cash flow hedges are used to reduce exposure to changes in cash flow due to fluctuating interest rates. Fair value hedges are used to reduce exposure to changes in fair value due to interest rate changes.

The following tables summarize the terms, fair market values and exposures of our interest rate derivative instruments.

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CASH FLOW HEDGES

During the three months ended March 31, 2006, we settled the previous $100 million of forward starting swaps in conjunction with our issuance of $300 million of 5.625% Senior Notes due 2016. Under terms of these swap agreements, we paid a fixed rate and received a floating rate based on 3-month London Inter Bank Offering Rate (LIBOR). The Utilities had no open interest rate cash flow hedges at March 31, 2006 and December 31, 2005.

Cash Flow Hedges (dollars in millions)
Progress Energy, Inc.	Notional Amount	Pay	Receive(a)	Fair Value	Exposure(b)
Risk hedged at March 31, 2006:	None
Risk hedged at December 31, 2005:
Anticipated 10-year debt issue(c)	$100	4.87%	3-month LIBOR	$1	$(2)

^(a)   3-month LIBOR rate was 4.54% as of December 31, 2005.

^(b)   Exposure indicates change in value due to 25 basis point unfavorable shift in interest rates.

^(c)   Anticipated 10-year debt issue hedges terminated on March 1, 2006 with required mandatory cash settlement.

FAIR VALUE HEDGES

At March 31, 2006 and December 31, 2005, we had $150 million notional of fixed rate debt swapped to floating rate debt. Under terms of these swap agreements, we will receive a fixed rate and pay a floating rate based on 3-month LIBOR. At March 31, 2006 and December 31, 2005, the Utilities had no open interest rate fair value hedges.

Fair Value Hedges (dollars in millions)
Progress Energy, Inc.	Notional Amount	Receive	Pay(b)	Fair Value	Exposure (c)
Risk hedged at March 31, 2006
5.85% Notes due 10/30/2008	$100	4.10%	3-month LIBOR	$(3)	$(1)
7.10% Notes due 3/1/2011	50	4.65%	3-month LIBOR	(1)	-
Total	$150	4.28%(a)		$(4)	$(1)
Risk hedged at December 31, 2005
5.85% Notes due 10/30/2008	$100	4.10%	3-month LIBOR	$(2)	$(1)
7.10% Notes due 3/1/2011	50	4.65%	3-month LIBOR	-	-
Total	$150	4.28%(a)		$(2)	$(1)

^(a) Weighted average interest rate.

^(b) 3-month LIBOR rate was 5.00% at March 31, 2006 and 4.54% as of December 31, 2005.

^(c) Exposure indicates change in value due to 25 basis point unfavorable shift in interest rates.

MARKETABLE SECURITIES PRICE RISK

At March 31, 2006 and December 31, 2005, the fair value of our nuclear decommissioning trust funds was $1.175 billion and $1.133 billion, respectively, including $664 million and $640 million, respectively, for PEC and $511 million and $493 million, respectively, for PEF. The accounting for nuclear decommissioning recognizes that the Utilities’ regulated electric rates provide for recovery of these costs net of any trust fund earnings, and, therefore, fluctuations in trust fund marketable security returns do not affect earnings.

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CONTINGENT VALUE OBLIGATIONS MARKET VALUE RISK

CVOs are recorded at fair value, and unrealized gains and losses from changes in fair value are recognized in earnings. At March 31, 2006 and December 31, 2005, the fair value of CVOs was $33 million and $7 million, respectively. At March 31, 2006, a hypothetical 10 percent change in the market price would not have had a material effect on our financial position, results of operations or cash flows.

COMMODITY PRICE RISK

We are exposed to the effects of market fluctuations in the price of natural gas, coal, fuel oil, electricity and other energy-related products marketed and purchased as a result of our ownership of energy-related assets. Our exposure to these fluctuations is significantly limited by the cost-based regulation of the Utilities. Each state commission allows electric utilities to recover certain of these costs through various cost recovery clauses to the extent the respective commission determines that such costs are prudent. Therefore, while there may be a delay in the timing between when these costs are incurred and when these costs are recovered from the ratepayers, changes from year to year have no material impact on operating results. In addition, many of our long-term power sales contracts shift substantially all fuel responsibility to the purchaser. We also have oil price risk exposure related to synthetic fuel tax credits as discussed in the OTHER MATTERS section of Item 2.

We perform sensitivity analyses to estimate our exposure to the market risk of our commodity positions. Our exposure to commodity price risk has not changed materially since December 31, 2005. A hypothetical 10 percent increase or decrease in quoted market prices in the near term on our derivative commodity instruments would not have had a material effect on our financial position, results of operations or cash flows at March 31, 2006.

See Note 9 for additional information with regard to our commodity contracts and use of derivative financial instruments.

GENERAL

Most of our commodity contracts are not derivatives pursuant to SFAS No. 133, “Accounting for Derivative and Hedging Activities” (SFAS No. 133), or qualify as normal purchases or sales pursuant to SFAS No. 133. Therefore, such contracts are not recorded at fair value.

ECONOMIC DERIVATIVES

Derivative products, primarily electricity and natural gas contracts, may be entered into from time to time for economic hedging purposes. While management believes the economic hedges mitigate exposures to fluctuations in commodity prices, these instruments are not designated as hedges for accounting purposes and are monitored consistent with trading positions. We manage open positions according to established policies and guidelines that limit our exposure to market risk and require daily reporting to management of financial exposures. Gains and losses from such contracts were not material to our or the Utilities’ results of operations for the three months ended March 31, 2006 and 2005. PEC did not have material outstanding positions in such contracts at March 31, 2006 and December 31, 2005. We and PEF did not have material outstanding positions in such contracts at March 31, 2006 and December 31, 2005, other than those receiving regulatory accounting treatment at PEF, as discussed below.

PEF has derivative instruments related to its exposure to price fluctuations on fuel oil and natural gas purchases. These instruments receive regulatory accounting treatment. Unrealized gains and losses are recorded in regulatory liabilities and regulatory assets, respectively, until the contracts are settled. Once settled, any realized gains or losses are passed through the fuel clause. At March 31, 2006, the fair values of these instruments were a $79 million short-term derivative asset position included in other current assets, a $56 million long-term derivative asset position included in other assets and deferred debits, a $4 million short-term derivative liability position included in other current liabilities and a $1 million long-term derivative liability position included in other liabilities and deferred credits. At December 31, 2005, the fair values of the instruments were a $77 million short-term derivative asset position included in other current assets, a $45 million long-term derivative asset position included in other assets and deferred debits and a $6 million long-term derivative liability position included in other liabilities and deferred credits.

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CASH FLOW HEDGES

Our subsidiaries designate a portion of commodity derivative instruments as cash flow hedges under SFAS No. 133. The objective for holding these instruments is to hedge exposure to market risk associated with fluctuations in the price of natural gas and power for our forecasted purchases and sales.

The fair values of our commodity cash flow hedges at March 31, 2006 and December 31, 2005, were as follows:

	March 31, 2006					December 31, 2005
(in millions)	Progress Energy			PEC		Progress Energy			PEC
Fair value of assets	$	144		$	3	$	170		$	7
Fair value of liabilities		(21	)		-		(58	)		(4	)
Fair value, net	$	123		$	3	$	112		$	3

PEC

The information required by this item is incorporated herein by reference to the “Quantitative and Qualitative Disclosures about Market Risk” discussed above insofar as it relates to PEC.

PEC has certain market risks inherent in its financial instruments, which arise from transactions entered into in the normal course of business. PEC’s primary exposures are changes in interest rates with respect to long-term debt and commercial paper, fluctuations in the return on marketable securities with respect to its nuclear decommissioning trust funds, and changes in energy related commodity prices. Other than as discussed above, PEC’s exposure to these risks has not materially changed since December 31, 2005.

PEF

Other than as discussed above, 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).

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Item 4: Controls and Procedures

Progress Energy, Inc.

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

There has been no change in our internal control over financial reporting during the quarter ended March 31, 2006, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PEC

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

There has been no change in PEC’s internal control over financial reporting during the quarter ended March 31, 2006, that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

PEF

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

There has been no change in PEF’s internal control over financial reporting during the quarter ended March 31, 2006, that has materially affected, or is reasonably likely to materially affect, PEF’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Legal aspects of certain matters are set forth in PART I, Item 1 (See Note 13B).

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors of the 2005 Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our 2005 Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There have been no material changes to the risk factors as set forth in the 2005 Form 10-K.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds 

(a)  RESTRICTED STOCK AWARDS

(a)   Securities Delivered. On January 3, 2006 and March 14, 2006, 6,500 and 100,100 restricted shares, respectively, of our common stock were granted to certain key employees pursuant to the terms of the Progress Energy 2002 Equity Incentive Plan (EIP), which was approved by the Progress Energy’s shareholders on May 8, 2002. Section 9 of the EIP provides for the granting of Restricted Stock by the Organization and Compensation Committee of the Board of Directors, (the Committee) to key employees, including our Affiliates or any successor, and to our outside directors. The shares of common stock delivered pursuant to the EIP were acquired in market transactions directly for the accounts of the recipients and do not represent newly issued shares of Progress Energy.

(b)   Underwriters and Other Purchasers. No underwriters were used in connection with the delivery of our common stock described above. The shares were delivered to certain key employees. The EIP defines "key employee" as an officer or other employee of Progress Energy who is selected for participation in the EIP.

(c)   Consideration. The shares of our common stock were delivered to provide an incentive to the employee recipients to exert their utmost efforts on Progress Energy’s behalf and thus enhance our performance while aligning the employee's interest with those of our shareholders.

 

(d)   Exemption from Registration Claimed. The common shares described in this Item were delivered on the basis of an exemption from registration under Section 4(2) of the Securities Act of 1933. Receipt of the shares of our common stock required no investment decision on the part of the recipients.

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(c) ISSUER PURCHASES OF EQUITY SECURITIES FOR FIRST QUARTER OF 2006

Period	(a) Total Number of Shares (or Units) Purchased (1)	(b) Average Price Paid Per Share (or Unit)	(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (1)	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1)
January 1 - January 31	42,000 (2)	$43.03	N/A	N/A
February 1- February 28	-	N/A	N/A	N/A
March 1 - March 31	100,100 (3)	$44.56	N/A	N/A
Total	142,100	$44.11	N/A	N/A

(1) As of March 31, 2006, Progress Energy does not have any publicly announced plans or programs to purchase shares of its common stock.

(2) The plan administrator purchased 35,500 shares of our common stock at an average price of $43.07 in open-market transactions to meet share delivery obligations under the 401(k). Open-market transactions were executed to purchase 6,500 shares of our common stock at an average price of $42.79 in connection with restricted stock awards that were granted to certain key employees pursuant to the terms of the EIP.

(3) Open-market transactions were executed to purchase 100,100 shares of our common stock at an average price of $44.56 in connection with restricted stock awards that were granted to certain key employees pursuant to the terms of the EIP.

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Item 6. Exhibits

(a) Exhibits

Exhibit Number	Description	Progress Energy	PEC	PEF
10(a)	Amended Management Incentive Compensation Plan of Progress Energy, Inc., as amended January 1, 2006	X	X	X
10(b)	Progress Energy, Inc., Amended and Restated Management Deferred Compensation Plan, adopted as of January 1, 2000 (As Revised and Restated effective April 1, 2005)	X	X	X
10(c)	$1,130,000,000 5-Year Credit Agreement, dated as of May 3, 2006, among Progress Energy, Inc., Certain Lenders, Citibank, N.A. as Administrative Agent and SunTrust Bank as Issuing Bank	X
10(d)	Amendment dated May 3, 2006 to 5-1/4-Year $450,000,000 Credit Agreement, dated March 28, 2005, among PEC, Certain Lenders and Wachovia Bank, N.A. as Administrative Agent		X
10(e)	Amendment dated May 3, 2006 to 5-Year $450,000,000 Credit Agreement, dated March 28, 2005, between PEF, Certain Lenders and Bank of America, N.A. as Administrative Agent			X
10(f)	Benefits Agreement, dated May 12, 2006, between PEC and Don K. Davis		X
31(a)	302 Certifications of Chief Executive Officer	X
31(b)	302 Certifications of Chief Financial Officer	X
31(c)	302 Certifications of Chief Executive Officer		X
31(d)	302 Certifications of Chief Financial Officer		X
31(e)	302 Certifications of Chief Executive Officer			X
31(f)	302 Certifications of Chief Financial Officer			X
32(a)	906 Certifications of Chief Executive Officer	X
32(b)	906 Certifications of Chief Financial Officer	X
32(c)	906 Certifications of Chief Executive Officer		X

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32(d)	906 Certifications of Chief Financial Officer	X
32(e)	906 Certifications of Chief Executive Officer		X
32(f)	906 Certifications of Chief Financial Officer		X

78

SIGNATURES

Pursuant to 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.

	PROGRESS ENERGY, INC.
	CAROLINA POWER & LIGHT COMPANY
	FLORIDA POWER CORPORATION
Date: May 9, 2006	(Registrants)
	By: /s/ Peter M. Scott III
	Peter M. Scott III
	Executive Vice President and Chief Financial Officer
	By: /s/ Jeffrey M. Stone
	Jeffrey M. Stone
	Chief Accounting Officer and Controller
	Progress Energy, Inc.
	Chief Accounting Officer
	Carolina Power & Light Company
	Florida Power Corporation

EX-10.A

Exhibit 10(a)

AMENDED MANAGEMENT INCENTIVE COMPENSATION PLAN

OF

PROGRESS ENERGY, INC.

AS AMENDED JANUARY 1, 2006

TABLE OF CONTENTS

		Page
ARTICLE I	PURPOSE	1
ARTICLE II	DEFINITIONS	1
ARTICLE III	ADMINISTRATION	7
ARTICLE IV	PARTICIPATION	8
ARTICLE V	AWARDS	9
ARTICLE VI	DISTRIBUTION AND DEFERRAL OF AWARDS	11
ARTICLE VII	TERMINATION OF EMPLOYMENT	17
ARTICLE VIII	MISCELLANEOUS	18

ARTICLE I

PURPOSE

The purpose of the Management Incentive Compensation Plan (the “Plan”) of Progress Energy, Inc. is to promote the financial interests of the Company, including its growth, by (i) attracting and retaining executive officers and other management-level employees who can have a significant positive impact on the success of the Company; (ii) motivating such personnel to help the Company achieve annual incentive, performance and safety goals; (iii) motivating such personnel to improve their own as well as their business unit/work group’s performance through the effective implementation of human resource strategic initiatives; and (iv) providing annual cash incentive compensation opportunities that are competitive with those of other major corporations.

The Sponsor amends and restates the Plan effective January 1, 2005.

ARTICLE II

DEFINITIONS

The following definitions are applicable to the Plan:

1.“Achievement Factor”: The sum of the Weighted Achievement Percentages determined for each of the Performance Measures for the Year.

2.“Award”: The benefit payable to a Participant hereunder based upon achievement of the Performance Measures.

3.“Affiliated Entity”: Any corporation or other entity that is required to be aggregated with the Sponsor pursuant to Sections 414(b), (c), (m), or (o) of the Internal Revenue Code of 1986, as amended (the “Code”), but only to the extent required.

4.“Board”: The Board of Directors of the Sponsor.

5.“Cause”: means:

(a)   embezzlement or theft from the Company, or other acts of dishonesty, disloyalty or otherwise injurious to the Company;

(b)   disclosing without authorization proprietary or confidential information of the Company;

(c)   committing any act of negligence or malfeasance causing injury to the Company;

(d)   conviction of a crime amounting to a felony under the laws of the United States or any of the several states;

(e)   any violation of the Company’s Code of Ethics; or

(f)   unacceptable job performance which has been substantiated in accordance with the normal practices and procedures of the Company.

6.“Change of Control”: The earliest of the following dates:

(a)   the date any person or group of persons (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934), excluding employee benefit plans of the Sponsor, becomes, directly or indirectly, the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Securities Act of 1934) of securities of the Sponsor representing twenty-five percent (25%) or more of the combined voting power of the Sponsor’s then outstanding securities (excluding the acquisition of securities of the Sponsor by an entity at least eighty percent (80%) of the outstanding voting securities of which are, directly or indirectly, beneficially owned by the Sponsor); or

(b)   the date of consummation of a tender offer for the ownership of more than fifty percent (50%) of the Sponsor’s then outstanding voting securities; or

(c)   the date of consummation of a merger, share exchange or consolidation of the Sponsor with any other corporation or entity regardless of which entity is the survivor, other than a merger, share exchange or consolidation which would result in the voting securities of the Sponsor outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving or acquiring entity) more than sixty percent (60%) of the combined voting power of the voting securities of the Sponsor or such surviving or acquiring entity outstanding immediately after such merger or consolidation; or

(d)   the date, when as a result of a tender offer or exchange offer for the purchase of securities of the Sponsor (other than such an offer by the Sponsor for its own securities), or as a result of a proxy contest, merger, share exchange, consolidation or sale of assets, or as a result of any combination of the foregoing, individuals who are Continuing Directors cease for any reason to constitute at least two-thirds (2/3) of the members of the Board; or

(e)   the date the shareholders of the Sponsor approve a plan of complete liquidation or winding-up of the Sponsor or an agreement for the sale or disposition by the Sponsor of all or substantially all of the Sponsor’s assets; or

(f)   the date of any event which the Board determines should constitute a Change of Control.

A Change of Control shall not be deemed to have occurred until a majority of the members of the Board receive written certification from the Compensation Committee that one of the events set forth in this Section 6 has occurred. Any determination that an event described in this Section 6 has occurred shall, if made in good faith on the basis of information available at that time, be conclusive and binding on the Compensation Committee, the Sponsor, each Affiliated Entity, the Participant and their Beneficiaries for all purposes of the Plan.

7.“Company”: The Sponsor and each Affiliated Entity.

8.“Compensation Committee”: The Organization and Compensation Committee of the Board of Directors of the Sponsor.

9.“Continuing Director”: The members of the Board as of the Effective Date; provided, however, that any person becoming a director subsequent to such date whose election or nomination for election was supported by seventy-five percent (75%) or more of the directors who then comprised Continuing Directors shall be considered to be a Continuing Director.

10.“Date of Retirement”: The first day of the calendar month immediately following the Participant’s Retirement.

11.“Designated Beneficiary”: The beneficiary designated by the Participant, pursuant to procedures established by the Human Resources Department of the Company, to receive amounts due to the Participant or to exercise any rights of the Participant to the extent permitted hereunder in the event of the Participant’s death. If the Participant does not make an effective designation, then the Designated Beneficiary will be deemed to be the Participant's estate.

12.“EBITDA”: The earnings of the Participating Employer before interest, taxes, depreciation, and amortization as determined from time to time by the Compensation Committee.

13.“ECIP Goals” The goals set forth to receive a payment under the Employee Cash Incentive Plan of each department or business unit of the Company.

14.“Effective Date”: The Effective Date of this Plan, as amended, is January 1, 2005.

15.“EPS”: The on-going earnings per share of the Sponsor’s Common Stock for a Year as determined by the Compensation Committee from time to time.

16.“Legal Entity EBITDA”: The EBITDA of the Participating Employer which employs the Participant.

17.“Participant”: An employee of a Participating Employer who is selected pursuant to Article IV hereof to be eligible to receive an Award under the Plan.

18.“Participating Employer”: Each Affiliated Entity that, with the consent of the Compensation Committee, adopts the Plan and is included in Exhibit C, as in effect from time to time.

19.“Performance Measures”: The EPS, Legal Entity EBITDA and ECIP Goals.

20.“Performance Unit”: A unit or credit, linked to the value of the Sponsor’s Common Stock under the terms set forth in Article VI hereof.

21.“Plan”: The Management Incentive Compensation Plan of Progress Energy, Inc. as contained herein, and as it may be amended from time to time.

22.“Retirement”: A Participant’s termination of employment from the Companyon or after attaining (i) age 65 with 5 years of service, (ii) age 55 with 15 years of service, (iii) 35 years of service, or (iv) age 50 with 5 years of service as of March 31, 2005, and where the Participant elects during the period beginning March 15, 2005, and ending April 15, 2005, to retire no later than December 1, 2005, pursuant to the terms of the Voluntary Enhanced Retirement Program (a “VERP Participant”). Notwithstanding any other provision of the Plan to the contrary, a VERP Participant may elect on or before December 31, 2005, to (a) commence payment of the Plan Deferral Account as of (i) April 1, 2006, (ii) April 1, 2007, or (iii) April 1, 2011 (each a “Payment Commencement Date”) and (b) provide for the payment of the Plan Deferral Account in the form of (i) a lump sum or (ii) annual installments over a period extending from two years to ten years following the Payment Commencement Date. In the event no other payment election is made by the VERP Participant prior to January 1, 2006, the VERP Participant shall be deemed to have elected for payment of the Plan Deferral Account to be made in accordance with the deferral election submitted by the VERP Participant; provided, that if the VERP Participant is a “key employee” as defined in Section 416(i) of the Code (but determined without regard to the 50 employee limit on the number of officers treated as key employees), the Payment Commencement Date shall not be earlier than six months after the date of Retirement of the VERP Participant (or, if earlier, the date of death of the Participant). A VERP Participant may not make any election with respect to the payment of the Plan Deferral Account after December 31, 2005.

23.“Salary”: The compensation paid by the Company to a Participant in a relevant Year, consisting of regular or base compensation, such compensation being understood not to include bonuses, if any, or incentive compensation, if any. Provided, that such compensation shall not be reduced by any cash deferrals of said compensation made under any other plans or programs maintained by such Company.

24.“Senior Management Committee”: The Senior Management Committee of the Company.

25.“Sponsor”: Progress Energy, Inc., a North Carolina corporation, or any successor to it in the ownership of substantially all of its assets.

26.“Target Award Opportunity”: The target for an Award under this Plan as set forth in Section 1 of Article V hereof.

27.“Unforeseeable Emergency”: A severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, or a dependent (as defined in Section 152(a) of the Code) of the Participant, loss of the Participant’s property due to casualty, or other unforeseeable circumstances arising as a result of events beyond the control of the Participant.

28.“Weighted Achievement Percentage”: The percentage determined by multiplying the relative percentage weight assigned to each of the Performance Measures applicable to the Participant for the Year by the payout percentage corresponding to the level of achievement of the Performance Measure as determined for each department or business unit for the Year.

29.“Year”: A calendar year.

ARTICLE III

ADMINISTRATION

The Plan shall be administered by the Chief Executive Officer of the Sponsor. Except as otherwise provided herein, the Chief Executive Officer of the Sponsor shall have sole and complete authority to (i) select the Participants; (ii) establish and adjust (either before or during the Year) the performance criteria necessary for a Participant to attain an Award for the Year; (iii) adjust and approve Awards; (iv) establish from time to time regulations for the administration of the Plan; and (v) interpret the Plan and make all determinations deemed necessary or advisable for the administration of the Plan, all subject to its express provisions. Notwithstanding the foregoing, the Compensation Committee shall (a) approve the applicable threshold, target and outstanding levels of performance for a Performance Measure for the Year; (b) approve the performance criteria and Awards for all Participants who are members of the Senior Management Committee; (c) determine the total payout under the Plan up to a maximum of four percent (4%) of the Sponsor’s after-tax income for a relevant Year; and (d) certify to the Board that a Change of Control has occurred as provided in Section 5 of Article II.

A majority of the Compensation Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the members of the Committee without a meeting, shall be the acts of such Committee.

ARTICLE IV

PARTICIPATION

The Chief Executive Officer of the Sponsor shall select from time to time the Participants in the Plan for each Year from those employees of each Company who, in his opinion, have the capacity for contributing in a substantial measure to the successful performance of the Company that Year. No employee shall at any time have a right to be selected as a Participant in the Plan for any Year nor, having been selected as a Participant for one Year, have the right to be selected as a Participant in any other Year.

ARTICLE V

AWARDS

1.Target Award Opportunities. The following table sets forth Target Award Opportunities, expressed as a percentage of Salary, for various levels of participation in the Plan:

Participation	Target Award Opportunities
Chief Executive Officer of Sponsor*	85%
Chief Operating Officer of Sponsor*	70%
Presidents*/Executive Vice Presidents*	55%
Senior Vice Presidents*	45%
Department Heads	35%
Other Participants: Key Managers Other Managers	25% 20%

*Senior Management Committee level positions.

The Target Award Opportunity for the Chief Executive Officer of the Sponsor shall be 85%; however, the Compensation Committee of the Board shall be authorized to change that amount from year to year, or to award an amount of compensation based on other considerations, in its complete discretion.

2.Award Components. Awards under the Plan to which Participants are eligible shall depend upon the achievement of the Performance Measures for the Year. Prior to the beginning of each Year, or as soon as practical thereafter, the Chief Executive Officer of the Sponsor will establish and the Compensation Committee will approve the Performance Measures for the Year, their relative percentage weight, and the performance criteria necessary for attainment of various performance levels. Attached hereto as Exhibit A are the relative percentage weights for each of the Performance Measures for each level of participation as of the Effective Date, which may be changed from time to time by the Compensation Committee.

3.Performance Levels. The Compensation Committee may establish three levels of performance related to a Performance Measure: outstanding, target, and threshold. In such case, the payout percentages to be applied to each Participant’s Target Award Opportunity are as follows:

Performance LevelPayout Percentage

     Outstanding                          200%

     Target  100%

          Threshold50%

Payout percentages shall be adjusted for performance between the designated performance levels, provided, however, that performance which falls below the “Threshold” performance level results in a payout percentage of zero.

4.Determination of Award Amount. The Chief Executive Officer of the Sponsor shall determine the amount of the Award, if any, earned by each Participant for the Year; provided, that the Compensation Committee shall approve the amount of the Award for a Participant who is a member of the Senior Management Committee. The amount of an Award earned by the Participant shall be determined by multiplying the Salary times the Target Award Opportunity times the Achievement Factor applicable to the Participant for the Year. The amount of the Award of a Participant is subject to further adjustment as provided in Section 6 of this Article V.

5.New Participants. Any Award that is earned during the initial Year of participation shall be pro rated based on the length of time served in the qualifying job.

6.Adjustment of Award Amount. The Chief Executive Officer of the Sponsor, in his sole discretion, may adjust the Award payable to a Participant for the Year based upon management’s determination of the performance goals and core skill achievement of the Participant, the succession planning leadership rating of the Participant and any other applicable performance criteria.

7.Example. Attached as Exhibit B and incorporated by reference is an example of the process by which an Award is granted hereunder. Said exhibit is intended solely as an example and in no way modifies the provisions of this Article V.

ARTICLE VI

DISTRIBUTION AND DEFERRAL OF AWARDS

1.Distribution of Awards. Unless a Participant elects to defer an Award pursuant to the remaining provisions of this Article VI, Awards under the Plan earned during any Year shall be paid in cash by March 15 of the succeedingYear.

2.Deferral Election. A Participant may elect to defer the Plan Award he or she has earned for any Year by completing and submitting a deferral election in a form acceptable to the Vice President, Human Resources, by the later of (i) the last day of the preceding Year (or such other time as permitted by Section 409A of the Code and the regulations thereunder), or (ii) the thirtieth (30th) day after first becoming eligible to participate in the deferral election provisions of the Plan. Such election shall apply to the Participant’s Award, if any, otherwise to be paid after the Year during which it was earned. A Participant’s deferral election may apply to 100%, 75%, 50%, or 25% of the Plan Award; provided, however, that in no event shall the amount deferred be less than $1,000.

The election to defer shall be irrevocable as to the Award earned during the particular Year.

3.Period of Deferral. At the time of a Participant’s deferral election, a Participant must also select a distribution date and form of distribution. Subject to Section 6, the distribution date may be: (a) any date that is at least five (5) years subsequent to the date the Plan Award would otherwise be payable, but not later than the second anniversary of the Participant’s Date of Retirement; or (b) any date that is within two years following the Participant’s Date of Retirement. Subject to Section 6, the form of distribution may be either (i) a lump sum or (ii) equal installments over a period extending from two years to ten years, as elected by the Participant. A Participant may not subsequently change the distribution date and form of distribution designated in the initial deferral election.

4.Performance Units. All Awards which are deferred under the Plan shall be recorded in the form of Performance Units. Each Performance Unit is generally equivalent to a share of the Sponsor’s Common Stock. In converting the cash award to Performance Units, the number of Performance Units granted shall be determined by dividing the amount of the Award by 85% of the average value of the opening and closing price of a share of the Sponsor’s Common Stock on the last trading day of the month preceding the date of the Award. The Performance Units attributable to the 15% discount from the average value of the Sponsor’s Common Stock shall be referred to as the “Incentive Performance Units.” The Incentive Performance Units and any adjustments or earnings attributable to those Performance Units shall be forfeited by the Participant if he or she terminates employment either voluntarily or involuntarily other than for death or Retirement prior to five years from March 15 of the Year in which payment would have been made if the Award had not been deferred; provided, however, that if before such date the employment of the Participant is terminated by the Company without Cause following a Change in Control, the Incentive Performance Units shall not be forfeited but shall be payable to the Participant in accordance with Section 8 of this Article VI.

5.Plan Accounts. A Plan Deferral Account will be established on behalf of each Participant, and the number of Performance Units awarded to a Participant shall be recorded in each Participant’s Plan Deferral Account as of the first of the month coincident with or next following the month in which a deferral becomes effective. The number of Performance Units recorded in a Participant’s Plan Deferral Account shall be adjusted to reflect any splits or other adjustments in the Sponsor’s Common Stock, the payment of any cash dividends paid on the Sponsor’s Common Stock and the payment of Awards under this Plan to the Participant. To the extent that any cash dividends have been paid on the Sponsor’s Common Stock, the number of Performance Units shall be adjusted to reflect the number of Performance Units that would have been acquired if the same dividend had been paid on the number of Performance Units recorded in the Participant’s Plan Deferral Account on the dividend record date. For purposes of determining the number of Performance Units acquired with such dividend, the average of the opening and closing price of the Sponsor’s Common Stock on the payment date of the Sponsor’s Common Stock dividend shall be used.

Each Participant shall receive an annual statement of the balance of his Plan Deferral Account, which shall include the Incentive Performance Units and associated earnings and adjustments that are subject to being forfeited as provided above.

6.Payment of Deferred Plan Awards. Subject to Section 4 related to forfeiture of Incentive Performance Units, Deferred Plan Awards shall be paid in cash by each Company on the deferred distribution date specified by the Participant in accordance with Section 3, or as soon as practicable thereafter. To convert the Performance Units in a Participant’s Plan Deferral Account to a cash payment amount, Performance Units shall be multiplied by the average of the opening and closing price of the Sponsor’s Common Stock on the last trading day preceding the applicable distribution date specified by the Participant for the Deferred Plan Award. Except as otherwise provided, deferred amounts will be paid either in a single lump-sum payment or in up to ten (10) annual payments as elected by the Participant at the time of the deferral election.

In the event that a Participant elects to receive the deferred Plan Award in equal annual payments, the amount of the Award to be received in each year shall be determined as follows:

(a)To determine the amount of the initial annual payment, the number of Performance Units in the Participant’s Plan Deferral Account will be divided by the total number of annual payments to be received, and the result will be multiplied by the average of the opening and closing price of the Sponsor’s Common Stock on the last trading day preceding the due date of the initial payment.

(b)To determine the amount of each successive annual payment, the Plan Deferral Account balance will be divided by the number of annual payments remaining, and the result will be multiplied by the average of the opening and closing price of the Sponsor’s Common Stock on the last trading day preceding the due date of the annual payment.

7.Termination of Employment/Effect on Deferral Election. If the employment of a Participant terminates prior to the last day of a Year for which a Plan Award is determined, then any deferral election made with respect to such Plan Award for such Year shall not become effective and any Plan Award to which the Participant is otherwise entitled shall be paid as soon as practicable after the end of the Year during which it was earned, in accordance with paragraph 1 of this Article VI.

8.Termination of Employment/Payment of Deferral. Notwithstanding the foregoing, if a Participant terminates employment by reason other than death or Retirement, full payment of all amounts due to the Participant shall be made on the first day of the month following the date of termination, or as soon as practical thereafter. However, if the Participant is a “key employee” as defined in Section 416(i) of the Code (but determined without regard to the 50 employee limit on the number of officers treated as key employees), payment shall not be made before six months after the date of separation from service for any reason including Retirement (or, if earlier, the date of death of the Participant). Incentive Performance Units shall be subject to forfeiture to the extent provided in Section 4.

9.Payments Due to Unforeseeable Emergency. In the event of an Unforeseeable Emergency, a Participant may apply to receive a distribution earlier than initially elected. The Chief Executive Officer of Sponsor or his designee may, in his sole discretion, either approve or deny the request. The determination made by the Chief Executive Officer of Sponsor will be final and binding on all parties. If the request is granted, the amounts distributed will not exceed the amounts necessary to alleviate the Unforeseeable Emergency plus amounts necessary to pay taxes reasonably anticipated as result of the distribution, after taking into account the extent to which the Unforeseeable Emergency may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent such liquidation would not itself cause severe financial hardship). Incentive Performance Units shall not be subject to early distribution under this Section 9 until five years from March 15 of the Year in which payment would have been made if the Award had not been deferred.

10.Death of a Participant. If the death of a Participant occurs before a full distribution of the Participant’s Plan Deferral Account is made, payment shall be made to the Designated Beneficiary of the Participant in accordance with the schedule specified in the Participant’s Deferral Election form. Said payment shall be made as soon as practical following notification that death has occurred.

11.Non-Assignability of Interests. The interests herein and the right to receive distributions under this Article VI may not be anticipated, alienated, sold, transferred, assigned, pledged, encumbered, or subjected to any charge or legal process, and if any attempt is made to do so, or a Participant becomes bankrupt, the interests of the Participant under this Article VI may be terminated by the Chief Executive Officer of Sponsor, which, in his sole discretion, may cause the same to be held or applied for the benefit of one or more of the dependents of such Participant or make any other disposition of such interests that he deems appropriate.

12.Unfunded Deferrals. Nothing in this Plan, including this Article VI, shall be interpreted or construed to require the Sponsor or any Company in any manner to fund any obligation to the Participants, terminated Participants or beneficiaries hereunder. Nothing contained in this Plan nor any action taken hereunder shall create, or be construed to create, a trust of any kind, or a fiduciary relationship between the Sponsor or any Company and the Participants, terminated Participants, beneficiaries, or any other persons. Any funds which may be accumulated in order to meet any obligation under this Plan shall for all purposes continue to be a part of the general assets of the Sponsor or Company; provided, however, that the Sponsor or Company may establish a trust to hold funds intended to provide benefits hereunder to the extent the assets of such trust become subject to the claims of the general creditors of the Sponsor or Company in the event of bankruptcy or insolvency of the Sponsor or Company. To the extent that any Participant, terminated Participant, or beneficiary acquires a right to receive payments from the Sponsor or Company under this Plan, such rights shall be no greater than the rights of any unsecured general creditor of the Sponsor or Company.

13.Change of Control. In the case of a Change of Control, the Company shall, subject to the restrictions in this Section 13 and Section 12 of Article VI, irrevocably set aside funds in one or more such grantor trusts in an amount that is sufficient to pay each Participant employed by such Company (or Designated Beneficiary) the net present value as of the date on which the Change of Control occurs, of the benefits to which Participants (or their Designated Beneficiaries) would be entitled pursuant to the terms of the Plan if the value of their Plan Deferral Account would be paid in a lump sum upon the Change of Control.

ARTICLE VII

TERMINATION OF EMPLOYMENT

Except as otherwise provided in this Article VII, a Participant must be actively employed by a Company on the next January 1 immediately following the Year for which a Plan Award is earned in order to be entitled to payment of the full amount of any Award for that Year. In the event the active employment of a Participant shall terminate or be terminated for any reason before the next January 1 immediately following the Year for which a Plan Award is earned, such Participant shall receive his or her Award for the year, if any, in an amount that the Chief Executive Officer of the Sponsor deems appropriate. Notwithstanding the foregoing provisions of this Article VII, in the event the employment of the Participant is terminated by the Company without Cause following a Change in Control, the Award of the Participant for the Year in which the termination occurs shall equal the amount of the Award which would have been earned for the Year if the Participant had remained in the employment of the Company until the next January 1, pro rated to reflect the portion of the Year completed by the Participant as an employee; provided, however, that such Award shall not be less than the Target Award Opportunity of the Participant for the Year, pro rated to reflect the portion of the Year completed by the Participant as an employee.

ARTICLE VIII

MISCELLANEOUS

1.Assignments and Transfers. The rights and interests of a Participant under the Plan may not be assigned, encumbered or transferred except, in the event of the death of a Participant, by will or the laws of descent and distribution.

2.Employee Rights Under the Plan. No Company employee or other person shall have any claim or right to be granted an Award under the Plan or any other incentive bonus or similar plan of the Sponsor or any Company. Neither the Plan, participation in the Plan nor any action taken hereunder shall be construed as giving any employee any right to be retained in the employ of the Sponsor or any Company.

3.Withholding. The Sponsor or Company (as applicable) shall have the right to deduct from all amounts paid in cash any taxes required by law to be withheld with respect to such cash payments.

4.Amendment or Termination. The Compensation Committee may in its sole discretion amend, suspend or terminate the Plan or any portion thereof at any time; provided, that in the event of a Change of Control, no such action shall take effect prior to the January 1 next following the Year in which occurs the Change of Control. No action to amend, suspend or terminate the Plan shall affect the right of a Participant to the payment of a Plan Award earned prior to the effective date of such action, or permit the acceleration of the time or schedule of any payment of amounts deferred under the Plan (except as provided in regulations under Section 409A of the Code).

5.Governing Law. This Plan shall be construed and governed in accordance with the laws of the state of North Carolina.

6.Entire Agreement. This document (including the Exhibits attached hereto) sets forth the entire Plan.

EXHIBIT A

MICP Relative Performance Weightings

POSITION	COMPANY EPS	LEGAL ENTITY EBITDA	ECIP GOALS
SMC - CEO	100%	-	-
SMC - COO	40%	50%	10%
SMC - Presidents	40%	50%	10%
SMC - Service Company CEO	90%	-	10%
SMC - Non Service Company	30%	60%	10%
SMC - Service Company	90%	-	10%
Non Service Company Department Heads and Managers	25%	50%	25%
Service Company Department Heads and Managers	75%	-	25%

Note: This structure may be modified based upon a recommendation by the CEO and approval by the Committee.

EXHIBIT B

Management Incentive Example
(Assumes preliminary PDP and Succession Planning rates are complete)
	Achievement Level	Achievement Percentage	Weighting (see Pro Rate %)	Achievement Factor
Step 1:Calculate achievement factor for members of a department
PGN EPS	Target	100%	25.0%	25.0%
Legal entity EBITDA	Outstanding	200%	50.0%	100.0%
ECIP goals	At least 7	100%	25.0%	25.0%
	Total achievement factor			150.0% Would be calculated for each BU
Step 2:Apply achievement factor to target levels
	Target %	Achievement Factor	Initial Payout %
Department Head	35.0%	150.0%	52.5%
Section Manager	25.0%	150.0%	37.5%
Unit Manager	20.0%	150.0%	30.0%
Step 3:Determine dollars eligible by department:
	Salary	Target %	Initial Payout %	Calculated Award
John Doe, Department Head	200,000	35.0%	52.5%	105,000
Jane Doe, Section Manager	100,000	25.0%	37.5%	37,500
John Smith, Section Manager	120,000	25.0%	37.5%	45,000
Jane Smith, Unit Manager	80,000	20.0%	30.0%	24,000
John Jones, Unit Manager	75,000	20.0%	30.0%	22,500
Jane Jones, Unit Manager	90,000	20.0%	30.0%	27,000
				261,000
Step 4:Provide each group executive a list of their departments and calculated award totals. Allow them to redistribute dollars based on organization performance within group.
Step 5:Allocate dollars by group and department:
	Salary	Target %	Initial Payout %	Calculated Award	Discretionary Adjustment	Actual Award	Award %
John Doe	200,000	35%	52.5%	105,000	(12,600)	92,400	46.2%
Jane Doe	100,000	25%	37.5%	37,500	5,000	42,500	42.5%
John Smith	120,000	25%	37.5%	45,000	(3,000)	42,000	35%
Jane Smith	80,000	20%	30.0%	24,000	-	24,000	30%
John Jones	75,000	20%	30.0%	22,500	5,000	27,500	36.7%
Jane Jones	90,000	20%	30.0%	27,000	(10,400)	16,600	18.4%
				261,000		245,000
		Per group executive, department total to spend is $245,000
		(Step 4)
General notes:
The departmental sheets would still be rolled into group level sheets and reviewed by level as in prior years (all dh’s together, 25% participants, 20% participants) Discretion based on PDP (core skills and performance goals) and succession planning ratings Discretionary percentage should reflect a range of +/- TBD% of payout % for group Steps 1 & 2 (MICP) fund determination) based on legal entities. Steps 3-5 (MICP allocation) utilize reporting organization/group.

EXHIBIT C

Progress Energy Carolinas, Inc.

Progress Energy Service Company, LLC

Progress Energy Florida, Inc.

Progress Energy Ventures, Inc.

Progress Fuels Corporation (corporate employees)

DESIGNATION OF BENEFICIARY

MANAGEMENT INCENTIVE COMPENSATION PLAN

OF

PROGRESS ENERGY, INC.

As provided in the Management Incentive Compensation Planof Progress Energy, Inc., I hereby designate the following person as my beneficiary in the event of my death before a full distribution of my Deferral Account is made.

PRIMARY BENEFICIARY:

_______________________________

_______________________________

_______________________________

CONTINGENT BENEFICIARY:

_______________________________

_______________________________

_______________________________

Any and all prior designations of one or more beneficiaries by me under the Management Incentive Compensation Plan of Progress Energy, Inc. are hereby revoked and superseded by this designation. I understand that the primary and contingent beneficiaries named above may be changed or revoked by me at any time by filing a new designation with the Sponsor’s Human Resources Department.

DATE:__________________

SIGNATURE OF PARTICIPANT:_________________________________

The Participant named above executed this document in our presence on the date set forth above

WITNESS:         WITNESS:

EX-10.B

Exhibit 10(b)

PROGRESS ENERGY, INC.

AMENDED AND RESTATED

MANAGEMENT DEFERRED COMPENSATION PLAN

Adopted as of January 1, 2000

(As Revised and Restated effective April 1, 2005)

TABLE OF CONTENTS

                   Page

PREAMBLE                   1

ARTICLE IDEFINITIONS               2

1.1 Account Balance                 2

1.2 Additional Deferral Election                                                                2

1.3 Affiliated Company             2

1.4 Board               2

1.5 Board Committee                 2

1.6 Change of Control                    ;       2

1.7 Change of Form Election                                                           4

1.8 Change-of-Investment Election                         4

1.9 Code                                                                                  5

1.10          Committee                  5

1.11          Company                                                             ;                                               5

1.12          Company Incentive Plans                                                                                                                                                            5

1.13          Continuing Directors                                                                                                                                                                    5

1.14          Deemed Investment Return                                5

1.15          Deferral Election                  6

1.16          Deferrals                    6

1.17          Effective Date                                                                                                                                                                          ;      6

1.18          Eligible Employee                                                                                                                                                                        & #160; 6

1.19          Employee Stock Incentive Plan                                                                                                                                                   6

1.20          Enrollment Form                                                                                                                                                                          ;   6

1.21          ERISA                                                                                                                                                           0;                                  6

1.22          Incentive Matching Allocations                                                                                                                                                 7

1.23          Investment Election                                                                                                                                                                      7

1.24         Matching Allocation                  &# 160;   7

1.25         Net Salary                                                                                                7

1.26         Participant                                                                                                                                                          0;                             7

1.27         Participant Accounts                                                                                                                                                                    7

1.28         Participant Company Account                7

1.29         Participant Deferral Account                ;    8

1.30         Participant Matchable Deferral                8

1.31         Payment Commencement               8

1.32         Phantom Investment Fund                                             8

1.33         Phantom Funds Account              9

1.34         Phantom Investment Subaccount           9

1.35         Phantom Stock Unit        9

1.36         Plan                   9

1.37         Plan Year                                                                                                                                                                          ;                 9

1.38         Plan Year Accounts                                                                                                                                                                       9

1.39         Progress Energy 401(k) Savings & Stock Ownership Plan                                                                                                      10

1.40         Retirement Date                                                                                                                                                                          ;     10

1.41         Salary                                                                                                                                                          
60;                                    11

1.42         SMC Participant                                                                                                                                                                        0;     11

1.43         Sponsor                                                                                                                &# 160;                                                                          11

1.44         SSERP                                                                                                                                                           0;                                   11

1.45         Valuation Date                                                                                                                                                                          ;       11

1.46         Value                                                                                                                                                           0;                                     11

1.47         Years of Service                                                                                                                                                                        &# 160;     12

ARTICLE II           PARTICIPATION                 13

2.1           Eligibility                                13

2.2Commencement of Participation               13

2.3Annual Participation Agreement              13

2.4Election of Phantom Investment Subaccounts            14

ARTICLE III          DEFERRAL ELECTIONS                15

3.1 Participant Deferred Salary Elections                 15

3.2 Matching Allocations                           & #160;               16

3.3 Incentive Matching Allocations                                                                                                                                                  17

ARTICLE IV           ACCOUNTS                          18

4.1 Maintenance of Accounts                                                        18

4.2 Separate Plan Year Accounts              
60;    18

4.3 Phantom Investment Subaccounts                                           18

4.4 Administration of Deferral Accounts                 18

4.5 Administration of Company Accounts                                                                                                                                       19

4.6 Change of Phantom Investment Subaccounts and Phantom Stock Units                                                                             21

4.7 Transferred Accounts                                                                                                                                                                    21

ARTICLE V VESTING                     23

5.1 Vesting          0;                            23

ARTICLE VIDISTRIBUTIONS                                                                                                    0;        24

6.1 Distribution Elections                                                      24

6.2 Change-of-Form Elections and Additional Deferral Elections                                                                                                25

6.3 Payment                                                       25

6.4 Unforeseeable Emergency             26

6.5 Termination of Employment                            ;     27

6.6 Taxes       
60;           28

6.7 Acceleration of Payment                28

ARTICLE VII         DEATH BENEFITS               29

7.1 Designation of Beneficiaries                ;      29

7.2 Death Benefit              29

ARTICLE VIII        CLAIMS              ;            30

8.1 Claims Procedure                  30

8.2 Claims Review Procedure                          30

ARTICLE IX          ADMINISTRATION                                                    31

9.1            Committee                                         31

9.2            Authority                    31

ARTICLE X AMENDMENT AND TERMINATION OF THE PLAN                    33

10.1Amendment of the Plan                 33

10.2Termination of the Plan                                                                                                                                                                33

10.3No Impairment of Benefits                                                        33

ARTICLE XI FUNDING AND CLAIM STATUS                                                                          34

11.1 General Provisions                                                                                                                                                                       34

ARTICLE XIIEFFECT ON EMPLOYMENT OR ENGAGEMENT                                                                                                                 36

12.1 General                                                                                                              ;                                                                              36

ARTICLE XIII         GOVERNING LAW                                                                                                                                                                       37

13.1           General                                                                                                                                                          &# 160;                                 37

EXHIBIT A                                                                                                                                                               ;                                              38

PREAMBLE

The Progress Energy, Inc. Management Deferred Compensation Plan (the “Plan”) was originally adopted by Carolina Power & Light Company effective as of January 1, 2000, and was transferred to Progress Energy, Inc. (the “Sponsor”) effective August 1, 2000. The Plan is unfunded and will benefit only a select group of management or highly compensated employees within the meaning of Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

ARTICLE I

ARTICLE I

DEFINITIONS

1.1   Account Balance

The value in terms of a dollar amount of a Participant’s Deferral Account or Company Account, as the case may be, as of the last Valuation Date.

1.2   Additional Deferral Election

The election by a Participant under Section 6.2 to defer distribution from a Plan Year Account.

1.3   Affiliated Company

Any corporation or other entity that is required to be aggregated with the Sponsor pursuant to Sections 414(b), (c), (m), or (o) of the Code.

1.4   Board

The Board of Directors of the Sponsor.

1.5   Board Committee

The Organization and Compensation Committee of the Board.

1.6   Change of Control

The earliest of the following dates:

(a)   the date any person or group of persons (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934), excluding employee benefit plans of the Sponsor, becomes, directly or indirectly, the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Securities Act of 1934) of securities of the Sponsor representing twenty-five percent (25%) or more of the combined voting power of the Sponsor’s then outstanding securities (excluding the acquisition of securities of the Sponsor by an entity at least eighty percent (80%) of the outstanding voting securities of which are, directly or indirectly, beneficially owned by the Sponsor); or

(b)   the date of consummation of a tender offer for the ownership of more than fifty percent (50%) of the Sponsor’s then outstanding voting securities; or

(c)   the date of consummation of a merger, share exchange or consolidation of the Sponsor with any other corporation or entity regardless of which entity is the survivor, other than a merger, share exchange or consolidation which would result in the voting securities of the Sponsor outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving or acquiring entity) more than sixty percent (60%) of the combined voting power of the voting securities of the Sponsor or such surviving or acquiring entity outstanding immediately after such merger or consolidation; or

(d)   the date, when as a result of a tender offer or exchange offer for the purchase of securities of the Sponsor (other than such an offer by the Sponsor for its own securities), or as a result of a proxy contest, merger, share exchange, consolidation or sale of assets, or as a result of any combination of the foregoing, individuals who are Continuing Directors cease for any reason to constitute at least two-thirds (2/3) of the members of the Board; or

(e)   the date the shareholders of the Company approve a plan of complete liquidation or winding-up of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

(f)   the date of any event which the Board determines should constitute a Change-of-Control.

A Change-of-Control shall not be deemed to have occurred until a majority of the members of the Board receive written certification from the Board Committee that one of the events set forth in this Section 1.6 has occurred. Any determination that an event described in this Section 1.6 has occurred shall, if made in good faith on the basis of information available at that time, be conclusive and binding on the Board Committee, the Company, the Participants and their beneficiaries for all purposes of the Plan.

1.7   Change of Form Election

The election by a Participant under Section 6.2 to change the form of distribution of a Plan Year Account.

1.8   Change-of-Investment Election

The election by a Participant under Section 4.6 to change a Phantom Subaccount for the Participant Deferral Account or Company Account.

1.9   Code

The Internal Revenue Code of 1986, as amended, or any successor statute.

1.10   Committee

The Administrative Committee described in Section 9.1 for administering the Plan.

1.11   Company

Progress Energy, Inc. or any successor to it in the ownership of substantially all of its assets and each Affiliated Company that, with the consent of the Board Committee, adopts the Plan and is included in Exhibit A, as in effect from time to time.

1.12   Company Incentive Plans

The Sponsor’s Management Incentive Compensation Plan, or any Company sales incentive plans, marketing incentive plans, and any other cash incentive plans as determined by the Committee.

1.13   Continuing Directors

The members of the Board at the Effective Date; provided, however, that any person becoming a director subsequent to such whose election or nomination for election was supported by 75% or more of the directors who then comprised Continuing Directors shall be considered to be a Continuing Director.

1.14   Deemed Investment Return

The amounts that are credited (or charged) from time to time to each Participant’s Deferral Account and Company Account to reflect deemed investment gains and losses of Phantom Investment Subaccounts.

1.15   Deferral Election

An election to defer Salary pursuant to Section 3.1.

1.16   Deferrals

The deferrals of Salary of a Participant pursuant to Section 3.1.

1.17   Effective Date

January 1, 2000.

1.18   Eligible Employee

An employee of the Company (a) who is eligible to participate in the Sponsor’s Management Incentive Compensation Plan, or (b) who is eligible to participate in any other eligible Company Incentive Plan and is determined by the Committee to be eligible to be a Participant; and who is not excluded from participation pursuant to Section 2.1(b).

1.19   Employee Stock Incentive Plan

The Employee Stock Incentive Plan as adopted by the Board and any successor to such plan which provides additional matching allocations under the Progress Energy 401(k) Savings & Stock Ownership Plan.

1.20   Enrollment Form

The enrollment form prepared by the Company which a Participant must execute to have Deferrals with respect to a Plan Year.

1.21   ERISA

The Employee Retirement Income Security Act of 1974, as amended.

1.22   Incentive Matching Allocations

The additional match allocation which is to be allocated to a Participant's Company Account in accordance with Section 3.3.

1.23   Investment Election

The election by a Participant under Sections 2.4 and 4.6 of the Phantom Investment Subaccounts in which the Participant’s Deferral Accounts and Company Accounts will be allocated.

1.24   Matching Allocation

A match allocation to a Participant's Company Account of a Participant’s Matchable Deferrals in accordance with Section 3.2.

1.25   Net Salary

The Salary of a Participant projected to be payable (assuming no deferral elections under the Plan or the Progress Energy 401(k) Savings & Stock Ownership Plan) with respect to a Plan Year reduced by the projected Deferrals of a Participant for the Plan Year under the Plan.

1.26   Participant

An Eligible Employee participating in the Plan pursuant to ARTICLE II.

1.27   Participant Accounts

The aggregate of a Participant’s Deferral Account and Participant’s Company Accounts.

1.28   Participant Company Account

The notational bookkeeping account maintained under Sections 4.1 and 4.5 to record Matching Allocations and Incentive Matching Allocations on behalf of a Participant and the Deemed Investment Return thereon pursuant to the provisions of the Plan.

1.29   Participant Deferral Account

The notational bookkeeping account maintained under Section 4.1 of the Plan to record Deferrals of a Participant and the Deemed Investment Return thereon pursuant to the provisions of the Plan.

1.30   Participant Matchable Deferral

6% of the amount of Deferrals of a Participant for a Plan Year but no greater than 6% of (A-B) where A is the compensation limit under Section 401(a)(17) of the Code for the Plan Year and B is the Net Salary of a Participant for the Plan Year (with any negative differences equating to $0 for purposes of this calculation); provided, however, that the Participant Matchable Deferrals for an SMC Participant for a Plan Year shall be an amount equal to 6% of (C - D) where C is the projected Salary of a Participant for the Plan Year and D is the compensation limit under Section 401(a)(17) of the Code for the Plan Year. Participant Matchable Deferrals for a Plan Year shall be determined for each payroll period during the Plan Year based on projected Matchable Deferrals for the entire Plan Year.

1.31   Payment Commencement

The date payments are to commence with respect to a Plan Year Account in accordance with Section 6.1.

1.32   Phantom Investment Fund

A deemed investment option for purposes of the Plan, each of which shall be the same as those investment options generally available to all participants in the Progress Energy 401(k) Savings & Stock Ownership Plan, or as otherwise selected by the Committee.

1.33   Phantom Funds Account

Notational bookkeeping accounts maintained under the Plan at the direction of the Committee representing allocations of Participants of Phantom Investment Subaccounts in a Phantom Investment Fund.

1.34   Phantom Investment Subaccount

A notational bookkeeping account maintained under the Plan at the direction of the Committee representing a deemed investment in one or more Phantom Investment Funds as directed by the Participant under Sections 2.4 and 4.6.

1.35   Phantom Stock Unit

A hypothetical share of common stock of the Sponsor or its parent company, as applicable.

1.36   Plan

The Progress Energy, Inc. Management Deferred Compensation Plan as set forth herein and as amended from time to time.

1.37   Plan Year

The twelve (12) consecutive month periods beginning January 1 and ending the following December 31 commencing with the Effective Date.

1.38   Plan Year Accounts

The separate Participant Deferral Account and Participant Company Account maintained under the Plan pursuant to Section 4.2 with respect to a Participant for each Plan Year a Participant has Deferrals.

1.39   Progress Energy 401(k) Savings & Stock Ownership Plan

The Progress Energy 401(k) Savings & Stock Ownership Plan of the Company adopted by the Board, as amended from time to time, and any successor to such plan.

1.40   Retirement Date

The date a Participant retires from the Company on or after attaining (i) age 65 with 5 years of service, (ii) age 55 with 15 years of service, (iii) 35 years of service, (iv) eligibility for retirement under the SSERP if covered under such plan, or (v) age 50 with 5 years of service as of March 31, 2005, and where the Participant elects during the period beginning March 15, 2005, and ending April 15, 2005, to retire no later than December 1, 2005, pursuant to the terms of the Voluntary Enhanced Retirement Program (a “VERP Participant”). Notwithstanding any other provision of the Plan to the contrary, a VERP Participant may elect on or before December 31, 2005, to (a) commence payment of the Plan Year Accounts as of (i) April 1, 2006, (ii) April 1, 2007, or (iii) April 1, 2011 (each a “Payment Commencement Date”) and (b) provide for the payment of such Plan Year Accounts in the form of (i) a lump sum or (ii) annual installments over a period extending from two years to ten years following the Payment Commencement Date. In the event no other payment election is made by the VERP Participant prior to January 1, 2006, the VERP Participant shall be deemed to have elected for payment of the Plan Year Accounts to be made in accordance with the Enrollment Form submitted by the VERP Participant; provided, that if the VERP Participant is a “key employee” as defined in Section 416(i) of the Code (but determined without regard to the 50 employee limit on the number of officers treated as key employees), the Payment Commencement Date shall not be earlier than six months after the date of Retirement of the VERP Participant (or, if earlier, the date of death of the Participant). A VERP Participant may not make any election with respect to the payment of the Plan Year Accounts after December 31, 2005.

1.41   Salary

The amount of an Eligible Employee's regular annual base salary, payable from time to time by the Company prior to a Deferral Election under the Plan and prior to any deferral election under the Progress Energy 401(k) Savings & Stock Ownership Plan.

1.42   SMC Participant

A senior executive officer of the Company who is a member of the “Senior Management Committee” of the Sponsor.

1.43   Sponsor

Progress Energy, Inc. and its successors in interest.

1.44   SSERP

The Supplemental Senior Executive Retirement Plan of the Company.

1.45   Valuation Date

The last day of each calendar month and such other dates as selected by the Committee, in its sole discretion.

1.46   Value

The value of an account maintained under the Plan based on the fair market value of notational investments of Phantom Investment Subaccounts and Phantom Stock Units, as the case may be, as of the last Valuation Date. For purposes of calculating Value as of the end of a Plan Year, accrued but unallocated Incentive Matching Allocations shall be taken into consideration with respect to Participant Company Accounts.

1.47   Years of Service

Years of service of a Participant as calculated under the Progress Energy 401(k) Savings & Stock Ownership Plan.

ARTICLE II

PARTICIPATION

2.1   Eligibility

(a)Participation in the Plan shall be limited to Eligible Employees.

(b)The Committee, in its sole discretion, may at any time limit the participation of an Eligible Employee in the Plan so as to assure that the Plan will not be subject to the provisions of parts 2, 3 and 4 of Title I of ERISA.

2.2   Commencement of Participation

Each Eligible Employee on the Effective Date may elect to become a Participant as of the Effective Date by completing and submitting an Enrollment Form to the Sponsor’s designated agent by November 30, 1999. An employee of the Company first becoming an Eligible Employee after January 1, 2000, may elect to become a Participant effective as of thirty days after first becoming an Eligible Employee by completing and submitting an Enrollment Form to the Sponsor’s designated agent within such thirty-day period. An Eligible Employee who is not a Participant may elect to become a Participant as of the first day of a Plan Year commencing after December 31, 2000, by completing and submitting an Enrollment Form to the Sponsor’s designated agent by November 30prior to the first day of the Plan Year as of which participation is to commence.

2.3   Annual Participation Agreement

Each Participant shall complete a new Enrollment Form with respect to a Plan Year by November 30 prior to the commencement of the Plan Year. If the Participant does not complete such form and submit it to the Sponsor’s designated agent by November 30, the Participant will have no Deferrals for the following Plan Year.

2.4   Election of Phantom Investment Subaccounts

Each Participant shall elect on his Enrollment Form the allocation of his Plan Year Participant Deferral Account among the Phantom Investment Subaccounts.

ARTICLE III

DEFERRAL ELECTIONS

3.1   Participant Deferred Salary Elections

(a)A Participant completing an Enrollment Form in accordance with Sections 2.2 or 2.3 may make an election, pursuant to this Section 3.1, to defer his or her Salary (a “Deferral Election”) in accordance with the Plan. A Deferral Election shall apply only to the Participant’s Salary for the Plan Year specified in the Enrollment Form.

(b)The amount of Salary that may be deferred by a Participant shall be based on their target incentive level under the Sponsor’s Management Incentive Compensation Plan (“MICP”); or, for Participants in Company Incentive Plans other than the MICP, their target incentive level assuming that they participated in the MICP. Deferral Elections shall be made on the Enrollment Form for the applicable Plan Year pursuant to the following limitations:

(i)A Participant who is (or would be) eligible for a bonus at the 20% of salary target incentive level (the “Target”) for the

 PlanYear under the MICP may defer up to 15% of Salary.

(ii)A Participant who is (or would be) eligible for a bonus at the 25% of salary Target for the Plan Year under the MICP may defer

up to 25% of Salary.

(iii)A Participant who is (or would be) eligible for a bonus at the 35% or more of salary Target under the MICP may defer up to

 50% of Salary.

All Deferrals shall be in increments of 5% of Salary. The minimum projected Deferrals for a Plan Year for a Participant who commences Deferrals after the beginning of a Plan Year in accordance with Section 2.2 shall be $1,000.

(c)A Deferral Election once made with respect to a Plan Year, cannot be changed or revoked. In the case of a new Participant, the Deferral Election will apply only to amounts that are both paid after the election is made and earned for services performed after the election is made. The amount of Salary that is deferred pursuant to a Deferral Election will reduce the Participant Salary proportionately throughout the applicable Plan Year or, in the case of a new Participant, throughout the portion of the Plan Year to which the Deferral Election is applicable.

(d)A dollar amount equal to the Salary deferred pursuant to this Section 3.1 (“Deferrals”) at each applicable payroll date shall be credited to the Participant’s Deferral Account within ten business days following the applicable payroll date.

3.2   Matching Allocations

A Participant who has made a Deferral Election with respect to a Plan Year and has Participant Matchable Deferrals for such Plan Year shall receive a credit to his Participant Company Account of a Matching Allocation for such Plan Year. The Matching Allocation with respect to a Plan Year shall equal 50% of the Participant Matchable Deferrals. Matching Allocations shall be credited to the Participant Company Account within ten business days following the applicable payroll date, based on a pro-rata portion of projected Matchable Deferrals for the Plan Year applicable to each payroll period during the Plan Year.

3.3   Incentive Matching Allocations

Participants with Matchable Deferrals for a Plan Year shall receive a credit to their Participant Company Account for the Plan Year of an Incentive Matching Allocation if an “Incentive Matching Allocation” is provided under the Progress Energy 401(k) Savings & Stock Ownership Plan for the Plan Year. The Incentive Matching Allocation shall equal that percentage of the Participant Matchable Deferrals for the Plan Year equal to the “Incentive Matching Allocation” (stated as a percentage) provided (or that would have been provided if the Participant participated) under the Progress Energy 401(k) Savings & Stock Ownership Plan for such Plan Year. Incentive Matching Allocations with respect to a Plan Year, if any, shall be credited to a Participant’s Company Account in accordance with Section 4.5 pursuant to rules and procedures adopted by the Committee approximately coincident with the credit under the Progress Energy 401(k) Savings & Stock Ownership Plan of “Incentive Matching Allocations” following the end of a Plan Year; provided, however, no such allocation shall be made if a Participant is not employed at the end of the applicable Plan Year, unless the Participant retired, died, or became disabled during the Plan Year.

ARTICLE IV

ACCOUNTS

4.1   Maintenance of Accounts

The Committee shall maintain a Participant Deferral Account and a Participant Company Account for each Participant. There shall be credited to a Participant's Deferral Account all Deferrals by a Participant under the Plan and there shall be credited to a Participant's Company Account all Matching Allocations and Incentive Matching Allocations with respect to a Participant under the Plan in accordance with Sections 3.2 and 3.3.

4.2   Separate Plan Year Accounts

The Committee shall maintain a separate Participant Deferral Account and Participant Company Account for each Plan Year a Participant has Deferrals (separately a “Plan Year Deferral Account” and a “Plan Year Company Account” and together the “Plan Year Account”).

4.3   Phantom Investment Subaccounts

The Committee shall maintain separate Phantom Investment Subaccounts representing deemed investments in Phantom Investment Funds as directed by the Participant. Phantom Investment Subaccounts shall be valued as of each Valuation Date based on the notional investments of each such account, pursuant to rules and procedures adopted by the Committee.

4.4   Administration of Deferral Accounts

(a)A Participant's Deferral Accounts shall be comprised in total, of units in Phantom Investment Subaccounts.

(b)Participants shall allocate their Deferrals among Phantom Investment Subaccounts pursuant to elections under Section 2.4.

(c)The Value of that portion of a Participant’s Deferral Account allocated to a Phantom Investment Subaccount shall be changed on each Valuation Date to reflect the new Value of the Phantom Investment Subaccount.

(d)The interest of a Participant’s Deferral Account in a Phantom Investment Subaccount shall be stated in a unit value or dollar amount, as determined by the Committee.

4.5   Administration of Company Accounts

(a)A Participant’s Company Account shall be comprised of Phantom Investment Fund units which shall be recorded in Phantom Investment Subaccounts. All Matching Allocations and Incentive Matching Allocations shall be recorded in Phantom Investment Subaccounts and shall be deemed invested in Phantom Stock Units, units of other Phantom Investment Funds, or a combination of Phantom Stock Units and other Phantom Investment Funds as determined by the Committee in its sole discretion. To the extent the Matching Allocations and Incentive Matching Allocations are initially deemed to be invested in Phantom Stock Units, the number of Phantom Stock Units will be determined on the date of each allocation under the Plan based on the closing price of a share of common stock of the Sponsor on the New York Stock Exchange on the date of each allocation. To the extent the Matching Allocations and Incentive Matching Allocations are initially deemed to be invested in one or more Phantom Investment Funds (other than Phantom Stock Units), the number of units in these Phantom Investment Funds will be determined on the date of each allocation under the Plan, using the closing price of the units of the underlying investment fund on which the Phantom Investment fund is based, on the date of each allocation.

(b)The number of Phantom Stock Units allocated to a Participant’s Company Account shall be adjusted periodically to reflect the deemed reinvestment of dividends on Sponsor common stock in additional Phantom Stock Units.

(c)In the event there is any change in the common stock of the Sponsor, through merger, consolidation, reorganization, recapitalization (other than pursuant to bankruptcy proceedings), stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, dividend in kind or other like change in capital structure (an “Adjustment Event”), the number of Phantom Stock Units subject to the Plan shall be adjusted by the Committee in its sole judgment so as to give appropriate effect to such Adjustment Event. Any fractional units resulting from such adjustment may be eliminated. Each successive Adjustment Event shall result in the consideration by the Committee of whether any adjustment to the number of Phantom Stock Units subject to the Plan is necessary in the Committee’s judgment. Issuance of common stock or securities convertible into common stock for value will not be deemed to be an Adjustment Event unless otherwise expressly determined by the Committee.

4.6   Change of Phantom Investment Subaccounts and Phantom Stock Units

(a)A Participant may elect to reallocate the value of his Phantom Investment Subaccounts comprising his Deferral Accounts among other Phantom Investment Subaccounts and change the allocation of future Deferrals among Phantom Investment Subaccounts once per calendar month, pursuant to uniform rules and procedures adopted by the Committee.

(b)A Participant may elect to reallocate Phantom Investment Subaccounts comprising his Company Account, once per calendar month, pursuant to uniform rules adopted by the Committee.

4.7   Transferred Accounts

(a)Effective as of the Effective Date, the Value of a SMC Participant’s Company Account shall include the value of such Participant’s deferral account as of such date (being a “Transferred Account”) under the Carolina Power & Light Executive Deferred Compensation Plan, but only to the extent the Participant acknowledges in writing he has no further interest in the Executive Deferred Compensation Plan.

(b)Effective on the Effective Date, the Value of any Participant’s Company Account shall include the value of such Participant’s additional benefits (currently recorded as phantom Company stock units) granted under Article VIII.2. (also being a “Transferred Account”) under the Company’s Deferred Compensation Plan for Key Management Employees, but only to the extent the Participant acknowledges in writing that he has no further interest in these benefits in the Company’s Deferred Compensation Plan for key Management Employees.

(c)The total value of the Transferred Accounts as described in this Section 4.7 shall be deemed a vested Company Account for all purposes of the Plan.

ARTICLE V

VESTING

5.1   Vesting

A Participant’s Deferral Accounts shall be 100% vested at all times. A Participant’s Company Accounts shall vest in accordance with the following schedule:

Years of Service	Percent of Vesting
Less than 1	0
1 or more	100%

ARTICLE VI

DISTRIBUTIONS

6.1   Distribution Elections

A Participant when making a Deferral Election pursuant to an Enrollment Form with respect to a Plan Year shall elect on such Enrollment Form (a) to defer the payment of his Plan Year Accounts with respect to such Plan Year, in accordance with the Plan until (i) the April 1 following the date that is five years from the last day of such Plan Year, (ii) the April 1 following the Participant’s Retirement or (iii) the April 1 following the first anniversary of the Participant’s Retirement (each a “Payment Commencement Date”) and (b) to provide for the payment of such Plan Year Account in the form of (i) a lump sum or (ii) approximately equal installments over a period extending from two years to ten years (by paying a fraction of the account balance each year during such period), as elected by the Participant. Except as otherwise provided in this ARTICLE VI, such elections may not be changed or revoked. Notwithstanding the foregoing, if the Participant is a “key employee” as defined in Section 416(i) of the Code (but determined without regard to the 50 employee limit on the number of officers treated as key employees), payment of amounts deferred after December 31, 2004, shall not be made pursuant to an election under Section 6.1(a)(ii) above before six months after the date of separation from service for any reason including Retirement (or, if earlier, the date of death of the Participant). For this purpose, an amount will be considered deferred after December 31, 2004, if it is not earned and vested on such date, and shall include the Matching Allocation, Incentive Matching Allocation and Deemed Investment Return with respect to such Deferrals.

6.2   Change-of-Form Elections and Additional Deferral Elections

(a)Any Participant who has made elections under Section 6.1 with respect to amounts deferred before January 1, 2005, may change such elections pursuant to this Section 6.2(a) as in effect prior to January 1, 2005, unless such provisions are materially modified after October 3, 2004. For this purpose, an amount is considered deferred before January 1, 2005, if the amount is earned and vested before such date. Such Participant may elect at least one year prior to the Payment Commencement Date with respect to such Plan Year Accounts a new Payment Commencement Date that either is five years from the then current Payment Commencement Date or otherwise is permitted under Section 6.1(a)(ii) or (iii). Only one such Additional Deferral Election will be permitted with respect to Plan Year Accounts relating to a particular Plan Year. In addition, the Participant may elect to change the form of distribution to any of the forms permitted under Section 6.1(b) by completing a Change-of-Form Elections with respect to Plan Year Accounts at least one year prior to the applicable Payment Commencement Date for such accounts.

(b)Any elections made under Section 6.1 with respect to amounts deferred after December 31, 2004, shall be irrevocable.

6.3   Payment

Upon occurrence of an event specified in the Participant’s distribution election under Section 6.1 (a “Distribution Event”) with respect to Plan Year Accounts, as modified by any applicable subsequent Additional Deferral Election under Section 6.2, the Account Balance of a Participant’s Plan Year Accounts shall be paid by the Company to the Participant in the form elected under Section 6.1. Such payments shall commence as soon as practicable and in no event more than 30 days following the occurrence of the Distribution Event.

6.4   Unforeseeable Emergency

In case of an unforeseeable emergency, a Participant may request the Committee, on a form to be provided by the Committee or its delegate, that payment of the vested portion of Participant Accounts be made earlier than the date provided under the Plan.

An “unforeseeable emergency” shall mean a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s spouse or a dependent (as defined in Section 152(a) of the Code) of the Participant, loss of the Participant’s property due to casualty, or other unforeseeable circumstances arising as a result of events beyond the control of the Participant.

The Committee shall consider any requests for payment under this Section 6.4 on a uniform and nondiscriminatory basis and in accordance with the standards of interpretation described in Section 409A of the Code and the regulations thereunder. If the request is granted, the amounts distributed will not exceed the amounts necessary to alleviate the unforeseeable emergency plus amounts necessary to pay taxes reasonably anticipated as result of the distribution, after taking into account the extent to which the unforeseeable emergency may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent such liquidation would not itself cause severe financial hardship).

In the event of a hardship determination by the Committee, the Company shall pay out in a lump sum to the Participant such portion of the Participant Accounts as determined by the Committee and Deferrals by the Participant for the Plan Year in which the hardship distribution is made will cease.

6.5   Termination of Employment

In the event of the termination of the employment of a Participant with the Company and any parent, subsidiary or affiliate for any reason, prior to the Retirement or death of the Participant, the vested portion of the Participant Accounts of such Participant shall be paid in a lump sum to such Participant based on the Value of such accounts as of the Valuation Date coincident with or immediately preceding the date of distribution. Such payment shall be made as soon as administratively practicable following the Participant’s termination date as determined under the Company’s normal administrative practices. The nonvested portion of a terminated Participant’s Company Account shall be forfeited by the Participant. In the event of the termination of employment of a SMC Participant for whom no Deferral Election was made for a Plan Year, any Matching Allocation, Incentive Matching Allocation and Deemed Investment Return allocated to such Participant shall be distributed to the Participant following termination of employment in accordance with this Section 6.5. In the event of the Retirement of a Participant prior to the Payment Commencement Date elected by the Participant under Section 6.1(a)(i) with respect to a Plan Year Account, distribution of such account shall commence no later than April 1 following the first anniversary of the Participant’s Retirement. Notwithstanding the foregoing, if the Participant is a “key employee” as defined in Section 416(i) of the Code (but determined without regard to the 50 employee limit on the number of officers treated as key employees), payment of amounts deferred after December 31, 2004, shall not be made before six months after the date of separation from service for any reason including Retirement (or, if earlier, the date of death of the Participant). For this purpose, an amount will be considered deferred after December 31, 2004, if it is not earned and vested on such date, and shall include the Matching Allocation, Incentive Matching Allocation and Deemed Investment Return with respect to such Deferrals.

6.6   Taxes

The Company shall deduct from all payments under the Plan federal, state and local income and employment taxes, as required by applicable law. Deferrals will be taken into account for purposes of any tax or withholding obligation under the Federal Insurance Contributions Act and Federal Unemployment Tax Act in the year of the Deferrals, as required by Sections 3121(v) and 3306(r) of the Code and the regulations thereunder. Amounts required to be withheld in the year of the Deferrals pursuant to Sections 3121(v) and 3306(r) shall be withheld out of current wages or other compensation paid by the Company to the Participant.

6.7   Acceleration of Payment

The acceleration of the time or schedule of any payment due under the Plan is prohibited except as provided in regulations and administrative guidance provided under Section 409A of the Code. It is not an acceleration of the time or schedule of payment if the Company waives or accelerates the vesting requirements applicable to a benefit under the Plan.

ARTICLE VI

DEATH BENEFITS

7.1   Designation of Beneficiaries

The Participant’s beneficiary under this Plan entitled to receive benefits under the Plan in the event of the Participant’s death shall be designated by the Participant on a form provided by the Committee. In the absence of such designation or in the event the designated beneficiary has predeceased the Participant, the beneficiary shall be deemed the estate of the Participant.

7.2   Death Benefit

In the event of the death of a Participant prior to the payout of his Participant Accounts, the Value of the remaining portion of the Participant Accounts shall be paid by the Company in a lump sum to the Participant’s beneficiary (as defined under Section 7.1) based on the Value of such accounts on the Valuation Date immediately following the date of death. Payment shall be made as soon as administratively practicable following such Valuation Date pursuant to rules and procedures adopted by the Committee.

ARTICLE VIII

CLAIMS

8.1   Claims Procedure

If any Participant or his or her beneficiary has a claim for benefits which is not being paid, such claimant may file with the Committee a written claim setting forth the amount and nature of the claim, supporting facts, and the claimant’s address. The Committee shall notify each claimant of its decision in writing by registered or certified mail within sixty (60) days after its receipt of a claim or, under special circumstances, within ninety (90) days after its receipt of a claim. If a claim is denied, the written notice of denial shall set forth the reasons for such denial, refer to pertinent Plan provisions on which the denial is based, describe any additional material or information necessary for the claimant to realize the claim, and explain the claims review procedure under the Plan.

8.2   Claims Review Procedure

A claimant whose claim has been denied, or such claimant’s duly authorized representative, may file, within sixty (60) days after notice of such denial is received by the claimant, a written request for review of such claim by the Committee. If a request is so filed, the Committee shall review the claim and notify the claimant in writing of its decision within sixty (60) days after receipt of such request. In special circumstances, the Committee may extend for up to sixty (60) additional days the deadline for its decision. The notice of the final decision of the Committee shall include the reasons for its decision and specific references to the Plan provisions on which the decision is based. The decision of the Committee shall be final and binding on all parties.

ARTICLE IX

ADMINISTRATION

9.1   Committee

The Administrative Committee consisting of not less than three (3) or more than seven (7) persons appointed by the Board Committee or its delegate to administer the Plan.

9.2   Authority

(a)The Committee shall have the exclusive right to interpret the Plan to the maximum extent permitted by law, to prescribe, amend and rescind rules and regulations relating to it, and to make all other determinations necessary or advisable for the administration of the Plan, including the determination under Section 9.2(b) herein. The decisions, actions and records of the Committee shall be conclusive and binding upon the Company and all persons having or claiming to have any right or interest in or under the Plan

(b)The Committee may delegate to one or more agents, or to the Company such administrative duties as it may deem advisable. The Committee may employ such legal or other counsel and consultants as it may deem desirable for the administration of the Plan and may rely upon any opinion or determination received from counsel or consultant.

(c)No member of the Committee shall be directly or indirectly responsible or otherwise liable for any action taken or any failure to take action as a member of the Committee, except for such action, default, exercise or failure to exercise resulting from such member’s gross negligence or willful misconduct. No member of the Committee shall be liable in any way for the acts or defaults of any other member of the Committee, or any of its advisors, agents or representatives.

(d)The Company shall indemnify and hold harmless each member of the Committee against any and all expenses and liabilities arising out of his or her own activities relating to the Committee, except for expenses and liabilities arising out of a member’s gross negligence or willful misconduct.

(e)The Company shall furnish to the Committee all information the Committee may deem appropriate for the exercise of its powers and duties in the administration of the Plan. The Committee shall be entitled to rely on any information provided by the Company without any investigation thereof.

(f)No member of the Committee may act, vote or otherwise influence a decision of such Committee relating to his or her benefits, if any, under the Plan.

ARTICLE X

AMENDMENT AND TERMINATION OF THE PLAN

10.1   Amendment of the Plan

The Plan may be wholly or partially amended or otherwise modified at any time by the Board or the Board Committee consistent with the requirements of Section 409A of the Code.

10.2   Termination of the Plan

The Plan may be terminated at any time by written action of the Board or the Board Committee or by the Committee as provided under the Plan; provided, that termination of the Plan shall not affect the distribution of the Participant Accounts (except as otherwise permitted under Section 409A of the Code). Notwithstanding the foregoing, the Plan may be terminated and Participant Accounts distributed to Participants within twelve months of a “change in control” as defined for purposes of Section 409A of the Code.

10.3   No Impairment of Benefits

Notwithstanding the provisions of Sections 10.1 and 10.2, no amendment to or termination of the Plan shall impair any rights to benefits which theretofore accrued hereunder; provided, however, the payout of all Plan benefits on termination of the Plan, if permitted pursuant to Section 10.2, or a change of any Phantom Investment Funds or creation of a substitute for Phantom Investment Funds as a result of a Plan amendment or action of the Committee shall not constitute an impairment of any rights or benefits.

ARTICLE XI

FUNDING AND CLAIM STATUS

11.1   General Provisions

(a)The Company shall make no provision for the funding of any Participant Accounts payable hereunder that (i) would cause the Plan to be a funded plan for purposes of Section 404(a)(5) of the Code or for purposes of Title I of ERISA, or (ii) would cause the Plan to be other than an “unfunded and unsecured promise to pay money or other property in the future” under Treasury Regulations § 1.83-3(e); and, except in the case of a Change of Control of the Sponsor, the Company shall have no obligation to make any arrangements for the accumulation of funds to pay any amounts under this Plan. Subject to the restrictions of this Section 11.1(a), the Company, in its sole discretion, may establish one or more grantor trusts described in Treasury Regulations § 1.677(a)-1(d) to accumulate funds to pay amounts under this Plan, provided that the assets of such trust(s) shall be required to be used to satisfy the claims of the Company’s general creditors in the event of the Company’s bankruptcy or insolvency.

(b)In the case of a Change of Control, the Company shall, subject to the restrictions in this paragraph and in Section 11.1(a), irrevocably set aside funds in one or more such grantor trusts in an amount that is sufficient to pay each Participant employed by such Company (or beneficiary) the net present value as of the date on which the Change of Control occurs, of the benefits to which Participants (or their beneficiaries) would be entitled pursuant to the terms of the Plan if the Value of their Participant Account would be paid in a lump sum upon the Change of Control.

(c)In the event that the Company shall decide to establish an advance accrual reserve on its books against the future expense of payments from any Participant, such reserve shall not under any circumstances be deemed to be an asset of this Plan but, at all times, shall remain a part of the general assets of the Company, subject to claims of the Company’s creditors.

(d)Participants, their legal representatives and their beneficiaries shall have no right to anticipate, alienate, sell, assign, transfer, pledge or encumber their interests in the Plan, nor shall such interests be subject to attachment, garnishment, levy or execution by or on behalf of creditors of the Participants or of their beneficiaries.

(e)Participants shall have no right, title, or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create a trust of any kind, or a fiduciary relationship between the Company and any Participant, beneficiary, legal representative or any other person. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder with respect to a Participant shall be paid from the general funds of the Company employing such Participant.

ARTICLE XII

EFFECT ON EMPLOYMENT OR ENGAGEMENT

12.1   General

Nothing contained in the Plan shall affect, or be construed as affecting, the terms of employment or engagement of any Participant except to the extent specifically provided herein. Nothing contained in the Plan shall impose, or be construed as imposing, an obligation on the Company to continue the employment or engagement of any Participant.

ARTICLE XIII

GOVERNING LAW

13.1   General

The Plan and all actions taken in connection with the Plan shall be governed by and construed in accordance with the laws of the State of North Carolina without reference to principles of conflict of laws, except as superseded by applicable federal law.

* * *

EXHIBIT A

Progress Energy Carolinas, Inc.

Progress Energy Service Company, LLC

Progress Energy Ventures, Inc.

Progress Energy Florida, Inc.

Progress Fuels Corporation (corporate employees only)

EX-10.C

Exhibit 10(c)

[CONFORMED COPY]

CREDIT AGREEMENT

Dated as of May 3, 2006

Among

PROGRESS ENERGY, INC.

(Borrower)

and

THE BANKS LISTED ON THE SIGNATURE PAGES HEREOF

(Banks)

and

CITIBANK, N.A.

(Administrative Agent)

and

SUNTRUST BANK

(Issuing Bank)

CITIGROUP GLOBAL MARKETS, INC. and J.P. MORGAN SECURITIES INC.

(Joint Lead Arrangers)

JPMORGAN CHASE BANK, N.A.

(Syndication Agent)

2

TABLE OF CONTENTS

Section           0;             Page

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.01. Certain Defined Terms.                 1 

SECTION 1.02. Computation of Time Periods.              ;   12

SECTION 1.03. Accounting Terms.                      12

ARTICLE II

AMOUNTS AND TERMS OF THE ADVANCES

SECTION 2.01. The Advances.                  12

SECTION 2.02. Making the Advances.                13

SECTION 2.03. Fees                          14

SECTION 2.04. Reduction and Increase of the Commitments.                                                                                                                                                         15

SECTION 2.05. Repayment of Advances.                                                                                                                                                         ;                                   16

SECTION 2.06. Interest on Advances.                                                                                                                                                                                                 16

SECTION 2.07. Additional Interest on Eurodollar Rate Advances.                                                                                                                                                17

SECTION 2.08. Interest Rate Determination.                                                                                                                                                        &# 160;                             17

SECTION 2.09. Voluntary Conversion of Advances.                                                                                                                                                                        18

SECTION 2.10. Prepayments of Advances.                                                                                                                                                       
60;                               19

SECTION 2.11. Increased Costs.                                                                                                                                                          ;                                                 19

SECTION 2.12. Illegality.                                                                                                                                                          0;                                                             20

SECTION 2.13. Payments and Computations.                                                                                                                                                         0;                          21

SECTION 2.14. Sharing of Payments, Etc.                                                                                                                                                         0;                                22

SECTION 2.15. Extension of Termination Date.                                                                                                                                                      
60;                         22

SECTION 2.16. Letters of Credit.                                                                                                                                                           ;                                               23

ARTICLE III

CONDITIONS OF LENDING

SECTION 3.01. Conditions Precedent to Closing.                                                                                                                                                                        & #160;    28

SECTION 3.02. Conditions Precedent to Each Borrowing and to the Issuance of Letters of Credit.                                                                                        29

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

SECTION 4.01. Representations and Warranties of the Borrower.                                                                                                                                                 29

ARTICLE V

COVENANTS OF THE COMPANY

SECTION 5.01. Affirmative Covenants.                                                                                                                                                         ;                                      31

SECTION 5.02. Negative Covenants.                                                                                                                                                           ;                                        34

ARTICLE VI

EVENTS OF DEFAULT

SECTION 6.01. Events of Default.                                                                                                                                                          0;                                              35

ARTICLE VII

THE ADMINISTRATIVE AGENT AND THE ISSUING BANKS

SECTION 7.01. Authorization and Action.                                                                                                                                                       &# 160;                                  37

SECTION 7.02. The Administrative Agent’s Reliance, Etc.                                                                                                                                                    &# 160;         38

SECTION 7.03. The Administrative Agent and its Affiliates.                                                                                                                                                      ;      38

SECTION 7.04. Lender Credit Decision.                                                                                                                                                          ;                                      39

SECTION 7.05. Indemnification.                                                                                                                                                                        ;                                     39

SECTION 7.06. Successor Administrative Agent.                                                                                                                                                      &# 160;                       39

SECTION 7.07. Appointment and Resignation of Issuing Banks.                                                                                                                                                   40

ARTICLE VIII

MISCELLANEOUS

SECTION 8.01. Amendments, Etc.                                                                                                                                                          ;                                               40

SECTION 8.02. Notices, Etc.                                                                                                                                                            ;                                                       41

SECTION 8.03. No Waiver; Remedies.                                                                                                                                                         0;                                        41

SECTION 8.04. Costs, Expenses, Taxes and Indemnification.                                                                                                                                                     
60;    41

SECTION 8.05. Right of Set-off.                                                                                                                                                          & #160;                                                 44

SECTION 8.06. Binding Effect.                                                                                                                                                          &# 160;                                                   45

SECTION 8.07. Assignments and Participations.                                                                                                                                                      &# 160;                        45

SECTION 8.08. Waiver of Consequential Damages.                                                                                                                                                       &# 160;                  49

SECTION 8.09. USA PATRIOT Act Notice.                                                                                                                                                        &# 160;                               49

SECTION 8.10. Tax Disclosure.                                                                                                                                                          0;                                                    49

SECTION 8.11. Governing Law.                                                                                                                                                         & #160;                                                   49

SECTION 8.12. WAIVER OF JURY TRIAL.                                                                                                                                                                                          50

SECTION 8.13. Execution in Counterparts.                                                                                                                                                       & #160;                                  50

SECTION 8.14. Severability.                                                                                                                                                         &# 160;                                                         50

SECTION 8.15. Headings.                                                                                                                                                                                                                        50

SECTION 8.16. Entire Agreement.                                                                                                                                                           ;                                               50

SCHEDULES

I-List of Commitments and Applicable Lending Offices

II-Adopted Letters of Credit

EXHIBITS

A-1-Form of Notice of Borrowing

A-2-Form of Notice of Conversion

B                 -Form of Assignment and Acceptance

C-1-Form of Opinion of General Counsel to Progress Energy Service Company, LLC

C-2-Form of Opinion of Special Counsel for the Borrower

C-3-Form of Opinion of General Counsel to the Borrower upon Extension of the Termination Date

C-4-Form of Opinion of Special Counsel for the Borrower upon Extension of the Termination Date

D                -Form of Opinion of Counsel for the Administrative Agent

E    -Form of Request for Extension of Termination Date

F                -Form of Compliance Certificate

CREDIT AGREEMENT

Dated as of May 3, 2006

This CREDIT AGREEMENT (this “Agreement”) is made by PROGRESS ENERGY, INC., a North Carolina corporation (the “Borrower”), the banks listed on the signature pages hereof (the “Banks”), CITIBANK, N.A. (“Citibank”), as administrative agent (the “Administrative Agent”) for the Lenders (as hereinafter defined) and SUNTRUST BANK, as the initial Issuing Bank.

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.01. Certain Defined Terms.

As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

“Additional Commitment Lender” has the meaning assigned to that term in Section 2.15(b).

“Additional Lender” shall have the meaning assigned such term in Section 2.04(b).

“Administrative Agent” has the meaning specified in the introductory paragraph of this Agreement.

“Advance” means an advance by a Lender to the Borrower as part of a Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance, each of which shall be a “Type” of Advance.

“Affiliate” means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by, or is under common control with such Person or is a director or officer of such Person.

“Anniversary Date” has the meaning assigned to that term in Section 2.15(a).

“Applicable Lending Office” means, with respect to each Lender, (i) such Lender’s Domestic Lending Office in the case of a Base Rate Advance, or (ii) such Lender’s Eurodollar Lending Office, in the case of a Eurodollar Rate Advance.

“Applicable Margin” means for each Type of Advance at all times during which any Applicable Rating Level set forth below is in effect, the interest rate per annum set forth below next to such Applicable Rating Level:

Applicable Rating Level	Applicable Margin for Eurodollar Rate Advances	Applicable Margin for Base Rate Advances
1	0.230%	0%
2	0.270%	0%
3	0.350%	0%
4	.475%	0%
5	.575%	0%

provided, that

(i)the Applicable Margins for Eurodollar Rate Advances set forth above for each Applicable Rating Level shall increase at any time the aggregate principal amount of Outstanding Credits is greater than 50% of the aggregate Commitments by 0.050% at Levels 1 and 2, by 0.100 at Levels 3 and 4 and by 0.125% at Level 5,

(ii)the Applicable Margins set forth above for each Applicable Rating Level shall increase upon the occurrence and during the continuance of any Event of Default by 2.0%, and

(iii)any change in the Applicable Margin resulting from a change in the Applicable Rating Level shall become effective upon the date of announcement of a change in the Moody’s Rating or the S&P Rating that results in a change in the Applicable Rating Level.

“Applicable Rating Level” at any time shall be determined in accordance with the then-applicable S&P Rating and the then-applicable Moody’s Rating as follows:

S&P Rating/Moody’s Rating	Applicable Rating Level
A_ or higher or A3 or higher	1
BBB+ or Baa1	2
BBB or Baa2	3
BBB_ or Baa3	4
lower than Level 4 or unrated	5

In the event that the S&P Rating and the Moody’s Rating are not at the same Applicable Rating Level but differ by only one Applicable Rating Level, then the higher of the two ratings shall determine the Applicable Rating Level, unless the S&P Rating is below BBB- or the Moody’s Rating is below Baa3. In the event that the S&P Rating and the Moody’s Rating differ by more than one Applicable Rating Level or the S & P Rating is below BBB- or the Moody’s Rating is below Baa3, then the Applicable Rating Level immediately below the higher of the two ratings shall be the Applicable Rating Level. The Applicable Rating Level shall be redetermined on the date of announcement of a change in the S&P Rating or the Moody’s Rating.

“Arrangers” means Citigroup Global Markets, Inc. and J.P. Morgan Securities Inc.

“Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of Exhibit B hereto.

“Banks” has the meaning specified in the introductory paragraph of this Agreement.

“Base Rate” means, for any Interest Period or any other period, a fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall at all times be equal to the higher from time to time of:

(i)the rate of interest announced publicly by Citibank in New York, New York, from time to time, as Citibank’s base rate; and

(ii)1/2 of one percent per annum above the Federal Funds Rate in effect from time to time.

“Base Rate Advance” means an Advance that bears interest as provided in Section 2.06(a).

“Borrower” has the meaning specified in the introductory paragraph of this Agreement.

“Borrowing” means a borrowing consisting of simultaneous Advances of the same Type made by each of the Lenders pursuant to Section 2.01 or Converted pursuant to Section 2.08 or 2.09.

“Business Day” means a day of the year on which banks are not required or authorized to close at the principal office of any Lender and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market.

“Change of Control” means the occurrence, after the date of this Agreement, of any Person or “group” (within the meaning of Rule 13(d) or 14(d) of the Securities and Exchange Commission under the Exchange Act), directly or indirectly, acquiring beneficial ownership of or control over securities of the Borrower (or other securities convertible into such securities) representing 30% or more of the combined voting power of all securities of the Borrower entitled to vote in the election of directors.

“Citibank” has the meaning specified in the introductory paragraph of this Agreement.

“Commitment” has the meaning specified in Section 2.01.

“Commitment Increase” shall have the meaning assigned such term in Section 2.04(b).

“Commitment Increase Approvals” means any governmental approval, resolution of the Board of Directors of the Borrower or resolution of the Board of Directors of any Subsidiary not obtained by or on behalf of the Borrower or such Subsidiary, as applicable, and in full force and effect on the date hereof, which governmental approval or resolution is required to be obtained in order to authorize the Commitment Increase and the performance by the Borrower and the Subsidiaries of their respective obligations under this Agreement after giving effect to the Commitment Increase.

“Consolidated” refers to the consolidation of the accounts of the Borrower and its Subsidiaries in accordance with GAAP.

“Convert”, “Conversion” and “Converted” each refers to a conversion of Advances of one Type into Advances of another Type, or the selection of a new, or the renewal of the same, Interest Period for Eurodollar Rate Advances, pursuant to Section 2.08(g) or 2.09.

“CP&L” means the Carolina Power and Light Company.

“Current Termination Date” has the meaning assigned to that term in Section 2.15(a).

“Declining Lender” has the meaning assigned to that term in Section 2.15(a).

“Domestic Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Domestic Lending Office” opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent.

“Eligible Assignee” means (i) any other Lender or any Affiliate of a Lender meeting the criteria set forth in clause (ii) hereof and (ii) (A) any other commercial bank organized under the laws of the United States, or any State thereof, and having a combined capital and surplus of at least $250,000,000 (as established in its most recent report of condition to its primary regulator), (B) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof, and having a combined capital and surplus of at least $250,000,000 (as established in its most recent report of condition to its primary regulator), (C) a commercial bank organized under the laws of any other country that is a member of the OECD, or has concluded special lending arrangements with the International Monetary Fund associated with its General Arrangements to Borrow, or the Cayman Islands, or a political subdivision of any such country, and having a combined capital and surplus of at least $250,000,000 (as established in its most recent report of condition to its primary regulator); provided that such bank is acting through a branch or agency located in the United States or in the country in which it is organized or another country that is described in this clause (C), (D) the central bank of any country that is a member of the OECD, or (E) a finance company, insurance company or other financial institution or fund (whether a corporation, partnership or other entity) that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business, whose outstanding unsecured indebtedness is rated AA- or better by S&P or Aa3 or better by Moody’s (or an equivalent rating by another nationally-recognized credit rating agency of similar standing if neither of such corporations is then in the business of rating unsecured indebtedness) or, in the case of an Affiliate of a Lender only, whose obligations are fully guaranteed by a finance company, insurance company or other financial institution or fund whose outstanding unsecured indebtedness has such a rating.

“Environmental Laws” means any federal, state or local laws, ordinances or codes, rules, orders, or regulations relating to pollution or protection of the environment, including, without limitation, laws relating to hazardous substances, laws relating to reclamation of land and waterways and laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollution, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.

“Eurocurrency Liabilities” has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.

“Eurodollar Lending Office” means, with respect to each Lender, the office of such Lender specified as its “Eurodollar Lending Office” opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent.

“Eurodollar Rate”means, for the Interest Period for each Eurodollar Rate Advance made as part of the same Borrowing, an interest rate per annum equal to (i) the rate appearing on Page 3750 of the Telerate Service (or such other page or service as may replace such Page 3750 for the purpose of displaying London Interbank Offered Rates of prime banks in the London interbank market) as of 11:00 a.m. (London time) on the day that is two Business Days prior to the first day of such Interest Period, as the London Interbank Offered Rate for Dollar deposits for a period comparable to such Interest Period or (ii) if no quotation is given on Page 3750 of the Telerate Service (or such other page or service as may replace such Page 3750 for the purpose of displaying London Interbank Offered Rates of prime banks in the London interbank market), the rate (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) at which Dollar deposits are offered to the principal London offices of Citibank in immediately available funds for a period comparable to such Interest Period as of 11:00 a.m. (London time) on the day that is two Business Days prior to the first day of such Interest Period.

“Eurodollar Rate Advance” means an Advance that bears interest as provided in Section 2.06(b).

“Eurodollar Rate Reserve Percentage” of any Lender for the Interest Period for any Eurodollar Rate Advance means the reserve percentage applicable during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period.

“Events of Default” has the meaning assigned to that term in Section 6.01.

“Exchange Act” means the Securities Exchange Act of 1934, and the regulations promulgated thereunder, in each case as amended and in effect from time to time.

“Existing Credit Facility” means the Credit Agreement, dated as of August 5, 2004, as amended, among Borrower, the lenders and issuing banks party thereto and Citibank, N.A., as administrative agent.

“Extending Commitment Lender” has the meaning assigned to that term in Section 2.15(b).

“Extension of Credit” means (i) the making of an Advance or (ii) the issuance of a Letter of Credit or the amendment of any Letter of Credit having the effect of extending the stated termination date thereof or increasing the maximum amount to be drawn thereunder.

“Facility Fee Percentage” means, at all times during which any Applicable Rating Level set forth below is in effect, the rate per annum set forth below next to such Applicable Rating Level:

Applicable Rating Level	Facility Fee Percentage
1	0.070%
2	0.080%
3	0.100%
4	0.125%
5	0.175%

provided, that a change in the Facility Fee Percentage resulting from a change in the Applicable Rating Level shall become effective upon the date of announcement of a change in the Moody’s Rating or the S&P Rating that results in a change in the Applicable Rating Level.

“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

“First Mortgage Bonds” means those bonds issued from time to time by CP&L pursuant to the Mortgage.

“Florida Power” means Florida Power Corporation.

“Florida Power Mortgage” means the Indenture, dated as of January 1, 1944, between Florida Power, Guaranty Trust Company of New York and the Florida National Bank of Jacksonville, as modified, amended or supplemented from time to time.

“Florida Power Mortgage Bonds” means those bonds issued from time to time by Florida Power pursuant to the Florida Power Mortgage.

“FPC” means Florida Progress Corporation.

“GAAP” means generally accepted accounting principles, including principles of consolidation, consistent with those applied in the preparation of the financial statements referred to in Section 4.01(e).

“Guaranty” of any Person means any obligation, contingent or otherwise, of such Person (i) to pay any Liability of any other Person or to otherwise protect, or having the practical effect of protecting, the holder of any such Liability against loss (whether such obligation arises by virtue of such Person being a partner of a partnership or participant in a joint venture or by agreement to pay, to keep well, to purchase assets, goods, securities or services or to take or pay, or otherwise) or (ii) incurred in connection with the issuance by a third Person of a Guaranty of any Liability of any other Person (whether such obligation arises by agreement to reimburse or indemnify such third Person or otherwise). The word “Guarantee” when used as a verb has the correlative meaning.

“Hostile Acquisition” shall mean any Target Acquisition (as defined below) involving a tender offer or proxy contest that has not been recommended or approved by the board of directors (or similar governing body) of the Person that is the subject of such Target Acquisition prior to the first public announcement or disclosure relating to such Target Acquisition. As used in this definition, the term “Target Acquisition” shall mean any transaction, or any series of related transactions, by which any Person directly or indirectly (i) acquires any ongoing business or all or substantially all of the assets of any other Person or division thereof, whether through purchase of assets, merger or otherwise, (ii) acquires (in one transaction or as the most recent transaction in a series of transactions) control of at least a majority in ordinary voting power of the securities of any other such Person that have ordinary voting power for the election of directors or (iii) otherwise acquires control of more than a 50% ownership interest in any other such Person.

“ISP” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance).

“Increasing Lender” shall have the meaning assigned such term in Section 2.04(b).

“Indebtedness” of any Person means (i) any obligation of such Person for borrowed money, (ii) any obligation of such Person evidenced by a bond, debenture, note or other similar instrument, (iii) any obligation of such Person to pay the deferred purchase price of property or services, except a trade account payable that arises in the ordinary course of business but only if and so long as the same is payable on customary trade terms, (iv) any obligation of such Person as lessee under a capital lease, (v) any Mandatorily Redeemable Stock of such Person (the amount of such Mandatorily Redeemable Stock to be determined for this purpose as the higher of the liquidation preference and the amount payable upon redemption of such Mandatorily Redeemable Stock), (vi) any obligation of such Person to purchase securities or other property that arises out of or in connection with the sale of the same or substantially similar securities or property, (vii) any non-contingent obligation of such Person to reimburse any other Person in respect of amounts paid under a letter of credit or other Guaranty issued by such other Person to the extent that such reimbursement obligation remains outstanding after it becomes non-contingent, (viii) any Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) a mortgage, lien, pledge, charge or other encumbrance on any asset of such Person, (ix) any Liabilities in respect of unfunded vested benefits under plans covered by Title IV of ERISA, (x) any Synthetic Lease Obligations of such Person and (xi) any Indebtedness of others Guaranteed by such Person.

“Interest Period” means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Advance or the date of the Conversion of any Advance into such an Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months, as the Borrower may, in the Notice of Borrowing given by the Borrower to the Administrative Agent pursuant to Section 2.02, select; provided, however, that:

(i)the Borrower may not select any Interest Period that ends after the Termination Date;

(ii)Interest Periods commencing on the same date for Advances comprising the same Borrowing shall be of the same duration; and

(iii)whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day; provided that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day.

The Administrative Agent shall promptly advise each Lender by or telecopy transmission of each Interest Period so selected by the Borrower.

“Issuing Bank” shall mean SunTrust Bank, as issuer of Letters of Credit, and any other Lender or Affiliate thereof that agrees pursuant to Section 7.07 to act as an Issuing Bank hereunder.

“LC Commitment” shall mean, with respect to any Issuing Bank, the commitment of such Issuing Bank to issue Letters of Credit on the terms and conditions hereof in an aggregate stated amount not to exceed the amount agreed from time to time by such Issuing Bank and the Borrower pursuant to Section 7.07.

“LC Disbursement” shall mean a payment made by an Issuing Bank pursuant to a Letter of Credit.

“LC Documents” shall mean the Letters of Credit and all applications, agreements and instruments relating to the Letters of Credit.

“LC Exposure” shall mean, at any time, the sum of (i) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (ii) the aggregate amount of all LC Disbursements that have not been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Lender shall be its Pro Rata Share of the total LC Exposure at such time. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.

  “Lenders” means the Banks, each Additional Lender and each Eligible Assignee that shall become a party hereto pursuant to Section 8.07.

        “Letter of Credit” shall mean any letter of credit issued pursuant to Section 2.16 by an Issuing Bank for the account of the Borrower.

“Liability” of any Person means any indebtedness, liability or obligation of or binding upon, such Person or any of its assets, of any kind, nature or description, direct or indirect, absolute or contingent, due or not due, contractual or tortious, liquidated or unliquidated, whether arising under contract, applicable law, or otherwise, whether now existing or hereafter arising.

“Majority Lenders” means at any time Lenders holding more than 50% of the aggregate Outstanding Credits, or, if no Outstanding Credits are then outstanding, Lenders having more than 50% of the Commitments (provided that, for purposes hereof, neither the Borrower, nor any of its Affiliates, if a Lender, shall be included in (i) the Lenders holding such amount of the Advances or having such amount of the Commitments or (ii) determining the aggregate unpaid principal amount of the Advances or the total Commitments).

“Mandatorily Redeemable Stock” means, with respect to any Person, any share of such Person’s capital stock to the extent that it is (i) redeemable, payable or required to be purchased or otherwise retired or extinguished, or convertible into any Indebtedness or other Liability of such Person, (A) at a fixed or determinable date, whether by operation of a sinking fund or otherwise, (B) at the option of any Person other than such Person or (C) upon the occurrence of a condition not solely within the control of such Person, such as a redemption required to be made out of future earnings or (ii) convertible into Mandatorily Redeemable Stock.

“Moody’s” means Moody’s Investors Service, Inc., or any successor thereto.

“Moody’s Rating” means, on any date of determination, the debt rating most recently announced by Moody’s with respect to the Borrower’s long-term senior unsecured non-credit-enhanced debt.

“Mortgage” means the Mortgage and Deed of Trust, dated as of May 1, 1940, from CP&L to The Bank of New York (formerly Irving Trust Company) and to Frederick G. Herbst (W.T. Cunningham, successor), as modified, amended or supplemented from time to time.

“Multiemployer Plan” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA.

“Notice of Borrowing” has the meaning specified in Section 2.02(a).

“Notice of Conversion” has the meaning specified in Section 2.09.

“OECD” means the Organization for Economic Cooperation and Development.

“Outstanding Credits” means, on any date of determination, an amount equal to the sum of (i) the aggregate principal amount of all Advances outstanding on such date plus (ii) the LC Exposure on such date. The “Outstanding Credits” of any Lender means, on any date of determination, an amount equal to the sum of (A) the aggregate principal amount of all outstanding Advances made by such lender plus (B) such Lender’s LC Exposure on such date.

“Patriot Act” means the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001), as in effect from time to time.

“Person” means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a foreign state or political subdivision thereof or any agency of such state or subdivision.

“Plan” means an employee benefit plan (other than a Multiemployer Plan) maintained for employees of the Borrower or any of its Affiliates and covered by Title IV of ERISA.

“Pro Rata Share” shall mean, with respect to any Commitment of any Lender at any time, a percentage, the numerator of which shall be such Lender’s Commitment (or if the Commitments have been terminated or expired or the Outstanding Credits have been declared to be due and payable, the Outstanding Credits made by such Lender), and the denominator of which shall be the sum of the Commitments of all Lenders (or if the Commitments have been terminated or expired or the Outstanding Credits have been declared to be due and payable, the Outstanding Credits made by all Lenders).

“Progress Capital” means Progress Capital Holdings, Inc.

“Portfolio Transaction”means the sale of Florida Progress’s and CP&L’s portfolio of affordable housing investments.

“Reference Banks” means Citibank and JPMorgan Chase Bank, N.A.

“Register” has the meaning specified in Section 8.07(c).

“Responsible Officer” means the President, any Vice President, the Chief Financial Officer, the Treasurer, the Controller or any Assistant Treasurer of the Borrower the signatures of whom, in each case, have been certified to the Administrative Agent and each other Lender pursuant to Section 3.01(c), or in a certificate delivered to the Administrative Agent replacing or amending such certificate. Each Lender may conclusively rely on each certificate so delivered until it shall have received a copy of a certificate from the Secretary or an Assistant Secretary of the Borrower amending, canceling or replacing such certificate.

“S&P” means Standard & Poor’s Ratings Group or any successor thereto.

“S&P Rating” means, on any date of determination, the debt rating most recently announced by S&P with respect to the Borrower’s long-term senior unsecured non-credit-enhanced debt.

“Significant Subsidiary” means CP&L, Florida Power, Progress Capital and any other Subsidiary of the Borrower that at any time constitutes a “significant subsidiary”, as such term is defined in Regulation S-X of the Securities and Exchange Commission as in effect on the date hereof (17 C.F.R. Part 210).

“Solvent” means, with respect to any person as of a particular date, that on such date such person is able to pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed as the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“Subsidiary” means, with respect to any Person, any corporation or unincorporated entity of which more than 50% of the outstanding capital stock (or comparable interest) having ordinary voting power (irrespective of whether at the time capital stock (or comparable interest) of any other class or classes of such corporation or entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by said Person (whether directly or through one or more other Subsidiaries).

“Syndication Agent” means JPMorgan Chase Bank, N.A.

“Synthetic Lease” means a lease transaction under which the parties intend that (i) the lease will be treated as an “operating lease” by the lessee pursuant to Statement of Financial Accounting Standards No. 13, as amended, and (ii) the lessee will be entitled to various tax and other benefits ordinarily available to owners (as opposed to lessees) of like property.

“Synthetic Lease Obligations” means, with respect to any Person, the sum of (i) all remaining rental obligations of such Person as lessee under Synthetic Leases that are attributable to principal and, without duplication, and (ii) all rental and purchase price payment obligations of such Person under such Synthetic Leases assuming such Person exercises the option to purchase the lease property at the end of the lease term.

“Termination Date” means, with respect to any Lender, the earlier to occur of (i) May 3, 2011, subject to extension to a later date for such Lender pursuant to Section 2.15, and (ii) the date of termination in whole of the Commitments pursuant to Section 2.04 or 6.01.

“Termination Event” means (i) a Reportable Event described in Section 4043 of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the provision for 30-day notice to the Pension Benefit Guaranty Corporation under such regulations), or (ii) the withdrawal of the Borrower or any of its Affiliates from a Plan during a plan year in which it was a “substantial employer” as defined in Section 4001(a)(2) of ERISA, or (iii) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, or (iv) the institution of proceedings to terminate a Plan by the Pension Benefit Guaranty Corporation, or (v) any other event or condition that might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan.

“Total Capitalization” means the sum of the value of the common stock, retained earnings, and preferred and preference stock of the Borrower (in each case, determined in accordance with GAAP), plus Consolidated Indebtedness of the Borrower.

SECTION 1.02. Computation of Time Periods.

In this Agreement in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”.

SECTION 1.03. Accounting Terms.

All accounting terms not specifically defined herein shall be construed in accordance with GAAP.

ARTICLE II

AMOUNTS AND TERMS OF THE ADVANCES

SECTION 2.01. The Advances.

(a)Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Advances to the Borrower from time to time on any Business Day during the period from the date hereof to and including the day prior to the Termination Date, in an aggregate amount outstanding not to exceed at any time the amount set forth opposite such Lender’s name on Schedule I hereto or, if such Lender has entered into any Assignment and Acceptance, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(c), as such amount may be reduced pursuant to Section 2.04(a) (such Lender’s “Commitment”),and each Issuing Bank agrees to issue Letters of Credit for the account of the Borrower from time to time on any Business Day during the period from the date hereof until the tenth Business Day prior to the Termination Date in an aggregate amount not to exceed the amount of such Issuing Bank’s LC Commitment. Each Borrowing shall be in an aggregate amount not less than $10,000,000 or an integral multiple of $1,000,000 in excess thereof and shall consist of Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Until the day prior to the Termination Date, within the limits of each Lender’s Commitment, the Borrower may from time to time borrow, repay pursuant to Section 2.05 or prepay pursuant to Section 2.10(b) and reborrow under this Section 2.01. In no event shall the Borrower be entitled to request or receive any Extension of Credit that would cause the aggregate Outstanding Credits to exceed the Commitments.

(b)Any Lender may request that the Advances made by it be evidenced by one or more promissory notes. In such event, the Borrower shall prepare, execute and deliver to such Lender one or more promissory notes payable to the order of such Lender (or, if requested by such Lender, to such Lender and its assignees) and in a form approved by the Administrative Agent.

SECTION 2.02. Making the Advances.

(a)Each Borrowing shall be made on notice, given not later than 11:00 A.M. (New York City time) on the day of such proposed Borrowing, in the case of a Borrowing comprised of Base Rate Advances, or on the third Business Day prior to the date of the proposed Borrowing, in the case of a Borrowing comprised of Eurodollar Rate Advances, by the Borrower to the Administrative Agent, which shall give to each Lender prompt notice thereof by telecopier. Each such notice of a Borrowing (a “Notice of Borrowing”) shall be by telecopier, confirmed promptly in writing, in substantially the form of Exhibit A-1 hereto, specifying therein the requested (i) date of such Borrowing, (ii) Type of Advances comprising such Borrowing, (iii) aggregate amount of such Borrowing, and (iv) in the case of a Borrowing comprised of Eurodollar Rate Advances, the Interest Period for each such Advance. In the case of a proposed Borrowing comprised of Eurodollar Rate Advances, the Administrative Agent shall promptly notify each Lender of the applicable interest rate under Section 2.06(b). Each Lender shall, before 1:00 P.M. (New York City time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at its address referred to in Section 8.02, in same day funds, such Lender’s ratable portion of such Borrowing. After the Administrative Agent’s receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrower at the Administrative Agent’s aforesaid address.

(b)Each Notice of Borrowing shall be irrevocable and binding on the Borrower and, in respect of any Borrowing comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss or expense incurred by such Lender as a result of any failure by the Borrower to fulfill on or before the date specified for such Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (including loss of anticipated profits) or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date.

(c)Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing (in the case of a Eurodollar Borrowing) or the time of any Borrowing (in the case of a Base Rate Borrowing) date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender’s ratable portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with subsection (a) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent such Lender shall not have so made such ratable portion available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent (without duplication), forthwith on demand, such corresponding amount, together with interest thereon for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (x) in the case of the Borrower, the interest rate applicable at the time to Advances comprising such Borrowing and (y) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender’s Advance as part of such Borrowing for purposes of this Agreement.

(d)The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing.

(e)If, for any reason, a Borrowing is not made on the date specified in any Notice of Borrowing, the Administrative Agent hereby agrees to repay to each Lender the amount, if any, that such Lender has made available to the Administrative Agent as such Lender’s ratable portion of such Borrowing, together with interest thereon for each day from the date such amount is made available to the Administrative Agent until the date such amount is repaid to such Lender, at the Federal Funds Rate.

SECTION 2.03. Fees.

(a)The Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee on each Lender’s Commitment, irrespective of usage, (i) from the date hereof, in the case of each Bank, and (ii) from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender or the date on which it became an Additional Lender, in the case of each other Lender, until the Termination Date at the rate per annum equal to the Facility Fee Percentage from time to time in effect. Such fee shall be calculated on the basis of actual number of days elapsed in a year of 365 or 366 days. Such fee shall be payable quarterly in arrears on the last day of each March, June, September and December during the term of such Lender’s Commitment, and on the Termination Date.

(b)The Borrower agrees to pay to the Administrative Agent an agency fee in such amounts and payable at such times, as shall be agreed to between them in writing.

(c)The Borrower agrees to pay to the Administrative Agent for the account of each Lender a letter of credit fee at a rate per annum equal to the Applicable Margin for Eurodollar Rate Advances in effect from time to time on the average daily amount of each such Lender’s LC Exposure from the date hereof until the later to occur of the Termination Date and the date on which there is no amount remaining available to be drawn under any Letter of Credit. Such fee shall be calculated on the basis of actual number of days elapsed in a year of 360 days. Such fee shall be payable quarterly in arrears on the last day of each March, June, September and December and on the later to occur of the Termination Date and the date on which there is no amount remaining available to be drawn under any Letter of Credit.

(d)The Borrower agrees to pay to each Issuing Bank for its own account a fronting fee and such other customary fees and expenses relating to the issuance, amendment, and drawings under the Letters of Credit, in such amounts and payable at such times as shall be agreed between them in writing.

SECTION 2.04. Reduction and Increase of the Commitments.

(a)The Borrower shall have the right, upon at least three Business Days’ notice to the Administrative Agent, irrevocably to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders; provided that the aggregate amount of the Commitments of the Lenders shall not be reduced to an amount that is less than the aggregate principal amount of the Outstanding Credits; and provided, further, that each partial reduction of Commitments shall be in the aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof. Once terminated or reduced, the Commitments may not be reinstated.

(b)(i)At any time prior to the Termination Date, the Borrower may increase the aggregate amount of the Commitments to an amount not greater than $1,500,000,000 (any such increase, a “Commitment Increase”) by designating either one or more of the existing Lenders (each of which, in its sole discretion, may determine whether and to what degree to offer to participate in such Commitment Increase) or one or more other banks or other financial institutions reasonably acceptable to the Administrative Agent that at the time agree, in the case of any such bank or financial institution that is an existing Lender to increase its Commitment (an “Increasing Lender”) and, in the case of any other such bank or financial institution (an “Additional Lender”), to become a party to this Agreement. The sum of the increases in the Commitments of the Increasing Lenders pursuant to this subsection (b) plus the Commitments of the Additional Lenders upon giving effect to the Commitment Increase shall not in the aggregate exceed the amount of the Commitment Increase. The Borrower shall provide prompt notice of any proposed Commitment Increase pursuant to this Section 2.04(b) to the Administrative Agent, which shall promptly provide a copy of such notice to the Lenders.

(ii)Any Commitment Increase shall become effective upon the receipt by the Administrative Agent of (A) an agreement in form and substance satisfactory to the Administrative Agent signed by the Borrower, each Increasing Lender and each Additional Lender, setting forth the new Commitment of each such Lender and setting forth the agreement of each Additional Lender to become a party to this Agreement and to be bound by all the terms and provisions hereof binding upon each Lender, (B) certified copies of the Commitment Increase Approvals and such opinions of counsel for the Borrower with respect to the Commitment Increase as the Administrative Agent may reasonably request, and (C) a certificate (the statements contained in which shall be true) of a duly authorized officer of the Borrower stating that both before and after giving effect to such Commitment Increase (x) no Event of Default has occurred and is continuing, (y) all representations and warranties made by the Borrower in this Agreement are true and correct in all material respects, provided that all representations and warranties limited by materiality are, to the extent so limited, true and correct in all respects, and (z) all Commitment Increase Approvals have been obtained and are in full force and effect.

(iii)On the effective date of any Commitment Increase, the Borrower shall prepay the outstanding Borrowings (if any) in full, and shall simultaneously make new Borrowings hereunder in an amount equal to such prepayment, so that, after giving effect thereto, the Borrowings are held ratably by the Lenders in accordance with their respective Commitments (after giving effect to such Commitment Increase). Prepayments made under this paragraph (iii) shall not be subject to the notice requirements of Section 2.13. Promptly following the effective date of any Commitment Increase, the Administrative Agent shall deliver to each Lender and Issuing Bank a revised Schedule I setting forth the Commitment of each Lender after giving effect to such Commitment Increase, and such Schedule I shall replace the Schedule I in effect before such Commitment Increase.

SECTION 2.05. Repayment of Advances.

The Borrower shall repay the principal amount of each Advance made by each Lender on the Termination Date of such Lender, subject to Section 2.15 hereof.

SECTION 2.06. Interest on Advances.

The Borrower shall pay interest on the unpaid principal amount of each Advance made by each Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum:

(a)Base Rate Advances. If such Advance is a Base Rate Advance, a rate per annum equal at all times to the Base Rate in effect from time to time, plus the Applicable Margin, payable quarterly in arrears on the last day of each March, June, September and December and on the date such Base Rate Advance shall be paid in full; provided, however, that if and for so long as an Event of Default has occurred and is continuing, interest on the unpaid principal amount of each Base Rate Advance shall be payable on demand.

(b)Eurodollar Rate Advances. If such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of the Eurodollar Rate for such Interest Period, plus the Applicable Margin for such Eurodollar Rate Advance in effect from time to time, payable on the last day of such Interest Period and, if such Interest Period for such Advance has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period; provided, however, that if and for so long as an Event of Default has occurred and is continuing, interest on the unpaid amount of each Eurodollar Rate Advance shall be payable on demand.

SECTION 2.07. Additional Interest on Eurodollar Rate Advances.

The Borrower shall pay to each Lender additional interest on the unpaid principal amount of each Eurodollar Rate Advance of such Lender, from the date of such Advance until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurodollar Rate for the Interest Period for such Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Lender for such Interest Period, payable on each date on which interest is payable on such Advance. All claims for such additional interest shall be submitted by such Lender to the Borrower (with a copy to the Administrative Agent) as soon as is reasonably possible and in all events within 90 days after the first day of such Interest Period; provided, however, that if a claim is not submitted to the Borrower within such 90-day period, such Lender shall thereby waive its claim to such additional interest incurred during such 90-day period but not to any such additional interest incurred thereafter. A certificate as to the amount of such additional interest, submitted to the Borrower (with a copy to the Administrative Agent) by such Lender, shall be conclusive and binding for all purposes, absent manifest error.

SECTION 2.08. Interest Rate Determination.

(a)Each Reference Bank agrees to furnish to the Administrative Agent timely information for the purpose of determining the Eurodollar Rate. If any one or more of the Reference Banks shall not furnish such timely information to the Administrative Agent for determination of any such interest rate, the Administrative Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks.

(b)The Administrative Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Administrative Agent for purposes of Section 2.06(a) or (b), and the applicable rate, if any, furnished by each Reference Bank for determining the applicable interest rate under Section 2.06(b).

(c)If fewer than two Reference Banks furnish timely information to the Administrative Agent for determining the Eurodollar Rate for any Eurodollar Rate Advances,

(i)the Administrative Agent shall forthwith notify the Borrower and the Lenders that the interest rate cannot be determined for such Eurodollar Rate Advances,

(ii)each such Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance (or if such Advance is then a Base Rate Advance, will continue as a Base Rate Advance), and

(iii)the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist.

(d)If, with respect to any Eurodollar Rate Advances, the Majority Lenders notify the Administrative Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Majority Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Lenders, whereupon

(i)each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and

(ii)the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist.

(e)If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of “Interest Period” in Section 1.01, the Administrative Agent will forthwith so notify the Borrower and the Lenders and such Advances will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances.

(f)On the date on which the aggregate unpaid principal amount of Advances comprising any Borrowing shall be reduced, by prepayment or otherwise, to less than $20,000,000, such Advances shall, if they are Advances of a Type other than Base Rate Advances, automatically Convert into Base Rate Advances, and on and after such date the right of the Borrower to Convert such Advances into Advances of a Type other than Base Rate Advances shall terminate; provided, however, that if and so long as each such Advance shall be of the same Type and have the same Interest Period as Advances comprising another Borrowing or other Borrowings, and the aggregate unpaid principal amount of all such Advances shall equal or exceed $20,000,000, the Borrower shall have the right to continue all such Advances as, or to Convert all such Advances into, Advances of such Type having such Interest Period.

(g)If an Event of Default has occurred and is continuing, (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended.

SECTION 2.09. Voluntary Conversion of Advances.

The Borrower may, on any Business Day prior to the Termination Date, upon notice given to the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion, in the case of any proposed Conversion into Eurodollar Rate Advances, and on the date of the proposed Conversion, in the case of any proposed Conversion into Base Rate Advances, and subject to the provisions of Sections 2.08 and 2.12, Convert all Advances of one Type comprising the same Borrowing into Advances of another Type; provided, however, that any Conversion of any Eurodollar Rate Advances into Advances of another Type shall be made on, and only on, the last day of an Interest Period for such Eurodollar Rate Advances, except as otherwise provided in Section 2.12. Each such notice of a Conversion (a “Notice of Conversion”) shall be by telecopier, confirmed promptly in writing, in substantially the form of Exhibit A-2 hereto and shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the aggregate amount of, Type of, and Interest Periods applicable to, the Advances to be Converted, (iii) the Type of Advance to which such Advances (or portions thereof) are proposed to be Converted, and (iv) if such Conversion is into or with respect to Eurodollar Rate Advances, the duration of the Interest Period for each such Advance.

SECTION 2.10. Prepayments of Advances.

(a)The Borrower shall have no right to prepay any principal amount of any Advances other than as provided in subsection (b) below.

(b)The Borrower may, upon notice given to the Administrative Agent at least two Business Days prior to the proposed prepayment, in the case of any Eurodollar Rate Advance, and on the date of the proposed prepayment, in the case of any Base Rate Advance, and if such notice is given the Borrower shall, prepay the outstanding principal amounts of the Advances comprising the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the amount prepaid and, in the case of any Eurodollar Rate Advance, any amount payable pursuant to Section 8.04(b); provided, however, that (i) each partial prepayment shall be in an aggregate principal amount not less than $5,000,000 and in integral multiples of $1,000,000 in excess thereof and (ii) in the case of any such prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 8.04(b) on the date of such prepayment.

SECTION 2.11. Increased Costs.

(a)If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements, in the case of Eurodollar Rate Advances, included in the Eurodollar Rate Reserve Percentage), in or in the interpretation of any law or regulation, or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Advances or any increase in the cost to such Lender or any Issuing Bank of participating in or issuing any Letter of Credit, then the Borrower shall from time to time, upon demand by such Lender or such Issuing Bank (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender or such Issuing Bank additional amounts sufficient to reimburse such Lender or such Issuing Bank for such increased cost. All claims for increased cost shall be submitted by such Lender or such Issuing Bank to the Borrower (with a copy to the Administrative Agent) as soon as is reasonably possible and in all events within 90 days after such introduction, such change, or the beginning of such compliance, the occurrence of which resulted in such increased cost, and the Borrower shall make such payment within five Business Days after notice of such claim is received; provided, however, that if a claim is not submitted to the Borrower within such 90-day period, such Lender or such Issuing Bank shall thereby waive its claim to such increased cost incurred during such 90-day period but not to any such increased cost incurred thereafter. A certificate as to the amount of such increased cost, submitted to the Borrower (with a copy to the Administrative Agent) by such Lender or such Issuing Bank, shall be conclusive and binding for all purposes, absent manifest error.

(b)If any Lender or any Issuing Bank determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or such Issuing Bank or any corporation controlling such Lender or such Issuing Bank and that the amount of such capital is increased by or based upon the existence of such Lender’s commitment to lend or participate in Letters of Credit or the obligation of such Issuing Bank to issue Letters of Credit hereunder and other commitments of this type, then, upon demand by such Lender or such Issuing Bank (with a copy of such demand to the Administrative Agent), the Borrower shall immediately pay to the Administrative Agent for the account of such Lender or such Issuing Bank, from time to time as specified by such Lender or such Issuing Bank, additional amounts sufficient to compensate such Lender or Issuing Bank or such corporation in the light of such circumstances, to the extent that such Lender or such Issuing Bank reasonably determines such increase in capital to be allocable to the existence of such Lender’s commitment to lend or participate in Letters of Credit or the obligation of such Issuing Bank to issue Letters of Credit hereunder. All claims for such additional amounts shall be submitted by such Lender or such Issuing Bank (with a copy to the Administrative Agent) as soon as is reasonably possible and in all events within 90 days after such determination by such Lender or such Issuing Bank, and the Borrower shall make such payment within five Business Days after notice of such claim is received; provided, however, that if a claim is not submitted to the Borrower within such 90-day period, such Lender or such Issuing Bank shall thereby waive its claim to such additional amounts incurred during such 90-day period but not to any such additional amounts incurred thereafter. A certificate as to such amounts submitted to the Borrower and the Administrative Agent by such Lender or such Issuing Bank shall be conclusive and binding for all purposes, absent manifest error.

SECTION 2.12. Illegality.

Notwithstanding any other provision of this Agreement, if any Lender shall notify the Administrative Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances hereunder, (i) the obligation of the Lenders to make Eurodollar Rate Advances or to Convert Advances into Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, and (ii) the Borrower shall forthwith prepay in full all Eurodollar Rate Advances of all Lenders then outstanding, together with interest accrued thereon, unless the Borrower, within five Business Days of notice from the Administrative Agent, Converts all Eurodollar Rate Advances of all Lenders then outstanding into Advances of another Type in accordance with Section 2.09.

SECTION 2.13. Payments and Computations.

(a)The Borrower shall make each payment hereunder, without condition or deduction for any counterclaim, defense, recoupment or setoff, not later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars to the Administrative Agent at its address referred to in Section 8.02 in same day funds. The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or fees (other than pursuant to Section 2.02(c), 2.07, 2.11 or 2.15(b)) ratably to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Issuing Bank or to any Lender to such Issuing Bank or to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 8.07(d), from and after the effective date specified in such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves.

(b)All computations of interest based on the base rate referred to in clause (i) of the definition of Base Rate shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate or Federal Funds Rate or of fees payable hereunder shall be made by the Administrative Agent, and all computations of interest pursuant to Section 2.07 shall be made by a Lender on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent (or, in the case of Section 2.07, by a Lender) of an interest rate hereunder shall be conclusive and binding for all purposes.

(c)Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided, however, that if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.

(d)Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender, together with interest thereon for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent at the Federal Funds Rate.

SECTION 2.14. Sharing of Payments, Etc.

If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Advances made by it (other than pursuant to Section 2.02(c), 2.07 or 2.11) in excess of its ratable share of payments on account of the Extensions of Credit obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participation in the Extensions of Credit made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery, together with an amount equal to such Lender’s ratable share (according to the proportion of (i) the amount of such Lender’s required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.14 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.

SECTION 2.15. Extension of Termination Date.

(a)So long as no Event of Default shall have occurred and be continuing and the Termination Date shall not have occurred, then at least 30 days but not more than 60 days prior to each of the first and second anniversaries of the date hereof (each, an “Anniversary Date”), the Borrower may request that the Lenders, by written notice to the Administrative Agent (in substantially the form attached hereto as Exhibit E) with a copy to the Arrangers, consent to a one-year extension of the Termination Date. Each Lender shall, in its sole discretion, determine whether to consent to such request and shall notify the Administrative Agent of its determination at least 20 days prior to the applicable Anniversary Date. The failure to respond by any Lender within such time period shall be deemed a denial of such request. The Administrative Agent shall deliver a notice to the Borrower and the Lenders at least 15 days prior to such Anniversary Date of the identity of the Lenders that have consented to such extension and the Lenders that have declined such consent (the “Declining Lenders”). If Lenders holding in the aggregate 50% or less of the Commitments have consented to the requested extension, the Termination Date shall not be extended, and the Commitments of all Lenders shall terminate on the then current Termination Date (the “Current Termination Date”).

(b)If Lenders holding in the aggregate more than 50% of the Commitments have consented to the requested extension, subject to the conditions set forth in Section 2.15(c), the Termination Date shall be extended as to such consenting Lenders only (and not as to any Declining Lender) for a period of one year following the Current Termination Date. Unless assigned to another Lender as set forth below, the commitments of the Declining Lenders shall terminate on such Current Termination Date, all Advances of and other amounts payable to such Declining Lenders shall be repaid to them on such Current Termination Date, and such Declining Lenders shall have no further liability with respect to Letters of Credit as of such Current Termination Date. The Borrower shall have the right at any time on or before the applicable Anniversary Date to replace each Declining Lender with, and add as “Lenders” under this Agreement in place thereof, one or more Eligible Assignees (each, an “Additional Commitment Lender”) as provided in Section 8.07(g), each of which Additional Commitment Lenders shall have entered into an Assignment and Acceptance pursuant to which each such Additional Commitment Lender shall, effective as of such Anniversary Date, assume a Commitment (and, if any such Additional Commitment Lender is already a Lender, its Commitment shall be in addition to such Lender’s Commitment hereunder on such date) and accept as such Additional Lender’s Termination Date with respect to the Commitment so assumed the latest date to which the Termination Date has been extended pursuant to this Section 2.15.

(c)Any extension of the Termination Date pursuant to this Section 2.15 shall become effective upon the applicable Anniversary Date if the Borrower shall have delivered to the Administrative Agent and each Lender, on or prior to such Anniversary Date, (i) opinions of counsel to the Borrower substantially in the forms of Exhibits C-3 and C-4 attached hereto upon which each Lender, each Issuing Bank and the Administrative Agent may rely, together with any governmental order referred to therein attached thereto and (ii) a certificate of a duly authorized officer of the Borrower (the statements contained in which shall be true) to the effect that (x) the representations and warranties contained in Section 4.01 are correct on and as of such Anniversary Date before and after giving effect to the extension of the Termination Date, as though made on and as of such Anniversary Date, and (y) no event has occurred and is continuing, or would result from such extension of the Termination Date, that constitutes an Event of Default or that would constitute an Event of Default but for the requirement that notice be given or time elapse, or both.

(d)Upon the extension of any Termination Date in accordance with this Section 2.15, the Administrative Agent shall deliver to each Lender and Issuing Bank a revised Schedule I setting forth the Commitment of each Lender and Issuing Bank after giving effect to such extension, and such Schedule I shall replace the Schedule I in effect before the applicable Anniversary Date.

SECTION 2.16. Letters of Credit.

(a)From time to time and on any Business Day during the period from the date hereof to the tenth Business Day preceding the Termination Date, each Issuing Bank, in reliance upon the agreements of the other Lenders pursuant to subsection (d) of this Section 2.16, agrees to issue, at the request of the Borrower, Letters of Credit for the account of the Borrower on the terms and conditions hereinafter set forth; provided, that (i) each Letter of Credit shall expire on the earlier of (A) the date one year after the date of issuance of such Letter of Credit (or in the case of any renewal or extension thereof, one year after such renewal or extension) and (B) the date that is five Business Days prior to the Termination Date, provided that no Letter of Credit may expire after the Termination Date of any Declining Lender if, after giving effect to such issuance, the aggregate Commitments of the consenting Lenders (including any replacement Lenders) for the period following such Termination Date would be less than the available amount of the Letters of Credit expiring after such Termination Date; (ii) each Letter of Credit shall be in a stated amount of at least $25,000; and (iii) the Borrower may not request any Extension of Credit relating to a Letter of Credit if, after giving effect to such Extension of Credit, (X) the aggregate Outstanding Credits would exceed the Commitments or (Y) that portion of the LC Exposure arising from Letters of Credit issued by such Issuing Bank and from LC Disbursements made by such Issuing Bank would exceed the amount of such Issuing Bank’s LC Commitment. Upon each Extension of Credit relating to a Letter of Credit issued by any Issuing Bank, each Lender shall be deemed, and hereby irrevocably and unconditionally agrees, to purchase from such Issuing Bank without recourse a participation in such Letter of Credit equal to such Lender’s Pro Rata Share of the aggregate amount available to be drawn under such Letter of Credit. Each Letter of Credit shall utilize the Commitment of each Lender by an amount equal to the amount of such participation.

(b)To request an Extension of Credit relating to a Letter of Credit, the Borrower shall give an Issuing Bank and the Administrative Agent irrevocable written notice at least three Business Days prior to the requested date of such Extension of Credit specifying the date (which shall be a Business Day) on which such Extension of Credit is to occur, the expiration date of such Letter of Credit, the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. In addition to the satisfaction of the conditions in Section 3.02, such Extension of Credit will be subject to the further conditions that such Letter of Credit shall be in such form and contain such terms as such Issuing Bank shall approve and that the Borrower shall have executed and delivered any additional applications, agreements and instruments relating to such Extension of Credit as such Issuing Bank shall reasonably require; provided, that in the event of any conflict between such applications, agreements or instruments and this Agreement, the terms of this Agreement shall control.

(c)At least two Business Days prior to each Extension of Credit relating to a Letter of Credit, the applicable Issuing Bank will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received the notice related thereto and, if it has not, such Issuing Bank will provide the Administrative Agent with a copy thereof. Unless such Issuing Bank has received notice from the Administrative Agent on or before the Business Day immediately preceding the date on which such Issuing Bank is to make the requested Extension of Credit relating to such Letter of Credit directing such Issuing Bank not to make such Extension of Credit because such Extension of Credit is not then permitted hereunder because of the limitations set forth in subsection (a) of this Section 2.16, or that one or more conditions specified in Section 3.02 are not then satisfied, then, subject to the terms and conditions hereof, such Issuing Bank shall, on the requested date, make such Extension of Credit in accordance with such Issuing Bank’s usual and customary business practices.

(d)Each Issuing Bank shall examine all documents purporting to represent a demand for payment under a Letter of Credit promptly following its receipt thereof. Such Issuing Bank shall notify the Borrower and the Administrative Agent (i) of such demand for payment and (ii) whether such Issuing Bank has made or will make a LC Disbursement thereunder; provided, that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse such Issuing Bank and the Lenders with respect to such LC Disbursement. The Borrower shall be irrevocably and unconditionally obligated to reimburse such Issuing Bank for any LC Disbursements paid by such Issuing Bank in respect of such drawing, without presentment, demand or other formalities of any kind. Unless the Borrower shall have notified such Issuing Bank and the Administrative Agent prior to 11:00 A.M. on the Business Day immediately prior to the date on which such drawing is honored that the Borrower intends to reimburse such Issuing Bank for the amount of such drawing in funds other than from the proceeds of Advances, the Borrower shall be deemed to have timely given a Notice of Borrowing to the Administrative Agent requesting a Borrowing compromising Base Rate Advances on the date on which such drawing is honored in the amount payable to such Issuing Bank in respect of such LC Disbursement; provided, that for purposes solely of such Borrowing, the conditions precedents set forth in Section 3.02 hereof shall not be applicable. The Administrative Agent shall notify the Lenders of such Borrowing in accordance with Section 2.03(a), and each Lender shall make the proceeds of its Base Rate Advance included in such Borrowing available to the Administrative Agent for the account of such Issuing Bank in accordance with Section 2.03(a). The proceeds of such Borrowing shall be applied directly by the Administrative Agent to reimburse such Issuing Bank for such LC Disbursement.

(e)If for any reason a Borrowing may not be (as determined in the sole discretion of the Administrative Agent), or is not, made in accordance with the foregoing provisions and the Borrower has not otherwise reimbursed an Issuing Bank for an LC Disbursement, then each Lender shall be obligated to fund the participation that such Lender purchased pursuant to subsection (a) in an amount equal to its Pro Rata Share of such LC Disbursement on and as of the date on which such Borrowing should have occurred. Each Lender’s obligation to fund its participation shall be absolute and unconditional and shall not be affected by any circumstance, including without limitation (i) any setoff, counterclaim, recoupment, defense or other right that such Lender or any other Person may have against any Issuing Bank or any other Person for any reason whatsoever, (ii) the existence of an Event of Default or the termination of the Commitments, (iii) any adverse change in the condition (financial or otherwise) of the Borrower or any of its Subsidiaries, (iv) any breach of this Agreement by the Borrower or any other Lender, (v) any amendment, renewal or extension of any Letter of Credit or (vi) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. On the date that such participation is required to be funded, each Lender shall promptly transfer, in immediately available funds, the amount of its participation to the Administrative Agent for the account of such Issuing Bank. Whenever, at any time after such Issuing Bank has received from any such Lender the funds for its participation in a LC Disbursement, such Issuing Bank (or the Administrative Agent on its behalf) receives any payment on account thereof from the Borrower, the Administrative Agent or such Issuing Bank, as the case may be, will distribute to such Lender its Pro Rata Share of such payment; provided, that if such payment is required to be returned for any reason to the Borrower or to a trustee, receiver, liquidator, custodian or similar official in any bankruptcy proceeding, such Lender will return to the Administrative Agent or such Issuing Bank any portion thereof previously distributed by the Administrative Agent or such Issuing Bank to it.

(f)To the extent that any Lender shall fail to pay when due any amount required to be paid pursuant to subsection (d) of this Section 2.16, such Lender shall pay to the applicable Issuing Bank (through the Administrative Agent) interest on such amount from the date such amount became due and payable to the date such payment is made at a rate per annum equal to the Federal Funds Rate.

(g)If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Majority Lenders demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of each Issuing Bank and the Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid fees thereon; provided, that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or notice of any kind, upon the occurrence of any Event of Default described in subsection (e) of Section 6.01. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the obligations of the Borrower under this Agreement. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. The Borrower agrees to execute any documents and/or certificates to effectuate the intent of this subsection. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower’s risk and expense, such deposits shall not bear interest. Interest and profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse each Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time; or, if the maturity of the Advances has been accelerated, with the consent of the Majority Lenders, be applied to satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not so applied as aforesaid) shall be returned to the Borrower promptly after all Events of Default have been cured or waived.

(h)Promptly following the end of each fiscal quarter of the Borrower, each Issuing Bank shall deliver (through the Administrative Agent) to each Lender and the Borrower a report describing the Letters of Credit outstanding and the LC Exposure relating to such Issuing Bank at the end of such fiscal quarter. Upon the request of any Lender from time to time, each Issuing Bank shall deliver to such Lender any other information reasonably requested by such Lender with respect to each Letter of Credit then outstanding.

(i)The Borrower’s obligation to reimburse LC Disbursements hereunder shall be absolute, unconditional and irrevocable and shall be performed strictly in accordance with the terms of this Agreement under all circumstances whatsoever and irrespective of any of the following circumstances:

(i)any lack of validity or enforceability of any Letter of Credit or this Agreement;

(ii)the existence of any claim, set-off, defense or other right that the Borrower or any Subsidiary or Affiliate of the Borrower may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Person or entity for which any such beneficiary or transferee may be acting), any Lender (including any Issuing Bank) or any other Person, whether in connection with this Agreement or any Letter of Credit or any document related hereto or thereto or any unrelated transaction;

(iii)any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect;

(iv)payment by any Issuing Bank under a Letter of Credit against presentation of a draft or other document to such Issuing Bank that does not comply with the terms of such Letter of Credit;

(v)any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Subsection, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder; or

(vi)the existence of an Event of Default.

Neither the Administrative Agent, any Issuing Bank, any Lender nor any Affiliate of the foregoing Persons, nor any director, officer, employee, agent of any such Person or Affiliate shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to above), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided, that the foregoing shall not be construed to excuse any Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by such Issuing Bank’s failure to exercise care when determining whether drafts or other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree, that in the absence of gross negligence or willful misconduct on the part of such Issuing Bank (as finally determined by a court of competent jurisdiction), such Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented that appear on their face to be in substantial compliance with the terms of a Letter of Credit, such Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.

(j)Each Letter of Credit (1) if a standby Letter of Credit, shall be subject to the rules of the ISP, and (2) if a commercial Letter of Credit shall be subject to the Uniform Customs and Practices for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time, and, to the extent not inconsistent therewith, the governing law of this Agreement set forth in Section 8.09.

(k)Upon the satisfaction of the conditions precedent set forth in Sections 3.01 and 3.02, and without any further action on the part of the Borrower or the applicable Issuing Bank pursuant to Section 2.16(b) or (c), the letters of credit described in Schedule II shall be deemed to be Letters of Credit for all purposes under this Agreement.

ARTICLE III

CONDITIONS OF LENDING

SECTION 3.01. Conditions Precedent to Closing.

The obligation of each Lender to make its initial Advance and of each Issuing Bank to issue its initial Letter of Credit shall not become effective unless and until all fees due and payable by the Borrower in connection with this Agreement have been paid and the Administrative Agent shall have received the following:

(a)Promissory notes, in a form acceptable to the Administrative Agent, payable to the order of each Lender that has requested such a note.

(b)Copies of the resolutions of the Board of Directors of the Borrower approving this Agreement and all documents evidencing other necessary corporate action, certified by the Secretary or an Assistant Secretary of the Borrower to be true and correct, and in full force and effect on and as of the date hereof.

(c)A certificate of the Secretary or an Assistant Secretary of the Borrower, dated as of the date hereof, certifying the names and true signatures of the officers of the Borrower authorized to sign this Agreement and the other documents to be delivered hereunder.

(d)A certificate of a Responsible Officer of the Borrower, dated as of the date hereof, certifying (i) the accuracy of the representations and warranties contained herein and (ii) that no event has occurred and is continuing that constitutes an Event of Default or that would constitute an Event of Default but for the requirement that notice be given or time elapse, or both.

(e)Certified copies of all governmental approvals and authorizations required to be obtained in connection with the execution, delivery and performance by the Borrower of this Agreement.

(f)Certified copies of the Restated Charter and By-Laws of the Borrower.

(g)Favorable opinions of Frank A. Schiller, General Counsel of Progress Energy Service Company LLC, and of Hunton & Williams LLP, counsel for the Borrower, substantially in the forms of Exhibit C-1 and C-2, respectively, hereto and as to such other matters as any Issuing Bank or any Lender through the Administrative Agent may reasonably request.

(h)A favorable opinion of King & Spalding LLP, counsel for the Administrative Agent, substantially in the form of Exhibit D hereto.

(i)The commitments under the Existing Credit Facility shall have been terminated (and such termination may be conditioned on the satisfaction of the conditions precedent set forth in Section 3.02 and the deemed issuance of certain Letters of Credit pursuant to Section 2.16(k)) and all amounts outstanding and other amounts payable thereunder shall have been paid in full.

SECTION 3.02. Conditions Precedent to Each Borrowing and to the Issuance of Letters of Credit.

The obligation of each Lender to make an Advance on the occasion of each Borrowing (including the initial Borrowing) and of each Issuing Bank to make any Extension of Credit relating to a Letter of Credit shall be subject to the further conditions precedent that (a) in the case of the making of an Advance, the Administrative Agent shall have received the written confirmatory Notice of Borrowing with respect thereto, and (b) on the date of any Extension of Credit, the following statements shall be true (and the giving of the Notice of Borrowing or the giving of notice of a requested Letter of Credit pursuant to Section 2.16(b) and the acceptance by the Borrower of the proceeds of the Borrowing or the issuance of a requested Letter of Credit related thereto shall constitute a representation and warranty by the Borrower that on the date of such Borrowing or issuance of such Letter of Credit such statements are true):

(i)The representations and warranties contained in Section 4.01 (other than the last sentence of Section 4.01(e) and Section 4.01(f)) are correct on and as of the date of such Extension of Credit before and after giving effect to such Extension of Credit and to the application of the proceeds therefrom, as though made on and as of such date; and

(ii)No event has occurred and is continuing, or would result from such Extension of Credit or from the application of the proceeds therefrom that would constitute an Event of Default but for the requirement that notice be given or time elapse, or both;

and (c) the Administrative Agent shall have received such other approvals, opinions and documents as any Issuing Bank or any Lender through the Administrative Agent may reasonably request.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

SECTION 4.01. Representations and Warranties of the Borrower.

The Borrower represents and warrants as follows:

(a)Each of the Borrower and each Significant Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated and is duly qualified to do business in and is in good standing under the laws of each other jurisdiction where the nature of its business or the nature of property owned or used by it makes such qualification necessary (except where failure to so qualify would not have a material adverse affect on the financial condition, operations or properties of the Borrower and its Subsidiaries, taken as a whole).

(b)The execution, delivery and performance by the Borrower of this Agreement are within the Borrower’s corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (i) the Borrower’s charter or by-laws or (ii) any law or contractual restriction binding on or affecting the Borrower or its properties.

(c)No authorization or approval or other action by, and no notice to or filing with any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of this Agreement, other than a notification to the North Carolina Utilities Commission, which has been timely made.

(d)This Agreement has been duly executed and delivered by the Borrower and is, and any promissory note when delivered pursuant to Section 2.01(b) will be, the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms.

(e)The Consolidated balance sheets of the Borrower and its Subsidiaries as of December 31, 2005, and the related Consolidated statements of income and retained earnings of the Borrower and its Subsidiaries for the fiscal year then ended, copies of which have been furnished to each Lender and each Issuing Bank, fairly present the financial condition of the Borrower and its Subsidiaries as at such date and the results of the operations of the Borrower and its Subsidiaries for the period ended on such date, all in accordance with generally accepted accounting principles consistently applied. Since December 31, 2005, there has been no material adverse change in the financial condition, operations or properties of the Borrower and its Subsidiaries, taken as a whole.

(f)Except as described in the reports and registration statements that the Borrower, CP&L, FPC and Florida Power have filed with the Securities and Exchange Commission prior to the date of this Agreement, there is no pending or threatened action or proceeding affecting the Borrower or any Subsidiary before any court, governmental agency or arbitrator, that may materially adversely affect the financial condition, operations or properties of the Borrower and its Subsidiaries, taken as a whole.

(g)No proceeds of any Extension of Credit will be used to acquire any security in any transaction that is subject to Sections 13 and 14 of the Exchange Act.

(h)No proceeds of any Extension of Credit will be used in connection with any Hostile Acquisition.

(i)The Borrower is not engaged in the business of extending credit for the purpose of buying or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Advance will be used to buy or carry any margin stock or to extend credit to others for the purpose of buying or carrying any margin stock.

(j)Following application of the proceeds of each Extension of Credit, not more than 5% of the value of the assets (either of the Borrower only or of the Borrower and the Subsidiaries on a Consolidated basis) subject to the provisions of Section 5.02(a) or 5.02(e) will be margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System).

(k)No Termination Event has occurred or is reasonably expected to occur with respect to any Plan, which is reasonably likely to materially adversely affect the financial condition, operation or properties of the Borrower and its Subsidiaries, taken as a whole.

(l)The Borrower is not an “investment company” or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended.

(m)The Borrower is in substantial compliance with all applicable laws, rules, regulations and orders of any governmental authority, the noncompliance with which would materially and adversely affect the business or condition of the Borrower, such compliance to include, without limitation, substantial compliance with ERISA, Environmental Laws and paying before the same become delinquent all material taxes, assessments and governmental charges imposed upon it or upon its property, except to the extent compliance with any of the foregoing is then being contested in good faith by appropriate legal proceedings.

(n)The written information furnished by the Borrower to the Administrative Agent, the Issuing Banks and the Lenders in connection with this Agreement when taken together with reports filed by the Borrower with the Securities and Exchange Commission under Section 13 of the Exchange Act as of any date of determination, does not (and all such information furnished in the future by the Borrower to the Administrative Agent, the Issuing Banks and the Lenders, when taken together with such reports filed in the future by the Borrower will not) contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein not misleading in light of the circumstances under which made.

(o)The Borrower is Solvent.

ARTICLE V

COVENANTS OF THE COMPANY

SECTION 5.01. Affirmative Covenants.

So long as there shall be any Outstanding Credits, any amount payable by the Borrower hereunder shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower shall, unless the Majority Lenders shall otherwise consent in writing:

(a)Compliance with Laws, Etc. Except to the extent contested in good faith, comply, and cause each Subsidiary to comply, with all applicable laws, rules, regulations and orders (such compliance to include, without limitation, ERISA and applicable environmental laws and paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its property), the non-compliance with which would materially adversely affect the Borrower’s business or credit.

(b)Preservation of Corporate Existence, Etc. Except as provided in Section 5.02(d), preserve and maintain, and cause each Significant Subsidiary to preserve and maintain, its corporate existence, rights (charter and statutory) and franchises; provided, however, that Borrower may cause FPC to be merged into Borrower.

(c)Visitation Rights. At any reasonable time and from time to time, permit the Administrative Agent or any of the Lenders or any agents or representatives thereof to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower and any Subsidiary, and to discuss the affairs, finances and accounts of the Borrower and any Subsidiary with any of their respective officers or directors.

(d)Keeping of Books. Keep, and cause each Subsidiary to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower and such Subsidiary in accordance with GAAP.

(e)Maintenance of Properties, Etc. Maintain and preserve, and cause each Subsidiary to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted.

(f)Maintenance of Insurance. Maintain, and cause each Subsidiary to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates.

(g)Taxes. File, and cause each Subsidiary to file, all tax returns (federal, state and local) required to be filed and paid and pay all taxes shown thereon to be due, including interest and penalties except, in the case of taxes, to the extent the Borrower or such Subsidiary is contesting the same in good faith and by appropriate proceedings and has set aside adequate reserves for the payment thereof in accordance with generally accepted accounting principles.

(h)Material Obligations. Pay, and cause each Significant Subsidiary to pay, promptly as the same shall become due each material obligation of the Borrower or such Significant Subsidiary.

(i)Reporting Requirements. Furnish to each Issuing Bank and the Lenders:

(i)as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a Consolidated balance sheet of the Borrower and the Subsidiaries as at the end of such quarter and Consolidated statements of income and retained earnings of the Borrower and the Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified by the treasurer or the chief financial officer of the Borrower, together with a certificate of the treasurer or chief financial officer of the Borrower, setting forth in reasonable detail the calculation of the Borrower’s compliance with Section 5.01(j) and stating that no Event of Default and no event that, with the giving of notice or lapse of time or both, would constitute an Event of Default has occurred and is continuing, or if an Event of Default or such event has occurred and is continuing, a statement setting forth details of such Event of Default or event and the action that the Borrower has taken and proposes to take with respect thereto;

(ii)as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, a copy of the annual report for such year for the Borrower and the Subsidiaries, containing Consolidated financial statements for such year certified by Deloitte & Touche or other independent public accountants acceptable to the Majority Lenders, together with a certificate of the treasurer or chief financial officer of the Borrower, substantially in the form of Exhibit F hereto, setting forth in reasonable detail the calculation of the Borrower’s compliance with Section 5.01(j) and stating that no Event of Default and no event that, with the giving of notice or lapse of time or both, would constitute an Event of Default has occurred and is continuing, or if an Event of Default or such event has occurred and is continuing, a statement setting forth details of such Event of Default or event and the action that the Borrower has taken and proposes to take with respect thereto;

(iii)promptly after the sending or filing thereof, copies of all reports that the Borrower sends to any of its security holders and copies of all reports and registration statements that the Borrower or any Subsidiary files with the Securities and Exchange Commission or any national securities exchange, to the extent not delivered by the Borrower pursuant to clause (i) or (ii) of this Section 5.01(i);

(iv)immediately upon any Responsible Officer’s obtaining knowledge of the occurrence of any Event of Default or any event that, with the giving of notice or lapse of time, or both, would constitute an Event of Default, a statement of the chief financial officer or treasurer of the Borrower setting forth details of such Event of Default or event and the action that the Borrower proposes to take with respect thereto;

(v)immediately upon obtaining knowledge thereof, notice of any change in either the Moody’s Rating or the S&P Rating;

(vi)as soon as possible and in any event within five days after the commencement thereof or any adverse determination or development therein, notice of all actions, suits and proceedings that may adversely affect the Borrower’s ability to perform its obligations under this Agreement;

(vii)as soon as possible and in any event within five days after the occurrence of a Termination Event, notice of such Termination Event;

(viii)from time to time upon the reasonable request of any Lender or any Issuing Bank through the Administrative Agent, all information necessary for such Lender or Issuing Bank to comply with the Patriot Act; and

(ix)such other information respecting the condition or operations, financial or otherwise, of the Borrower or any Subsidiary as any Lender or any Issuing Bank through the Administrative Agent may from time to time reasonably request.

(j)Indebtedness to Total Capitalization. Maintain, at all times a ratio of Consolidated Indebtedness of the Borrower and its Subsidiaries to Total Capitalization of not more than .68:1.0.

(k)Use of Proceeds. Use the proceeds of each Advance solely for general corporate purposes (including, in each case, without limitation, as a commercial paper back-up). No proceeds of any Advance will be used to acquire any equity security of a class that is registered pursuant to Section 12 of the Exchange Act, or any security in any transaction that is subject to Sections 13 and 14 of the Exchange Act.

(l)Ownership of Subsidiaries. Own at all times, directly or indirectly and free and clear of all liens and encumbrances, 100% of the common stock of CP&L and Florida Power.

SECTION 5.02. Negative Covenants.

So long as there shall be any Outstanding Credits, any other amount payable by the Borrower hereunder shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower will not, without the written consent of the Majority Lenders:

(a)Liens, Etc. Create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any lien, security interest or other charge or encumbrance, or any other type of preferential arrangement, upon or with respect to any of its properties, whether now owned or hereafter acquired, or assign, or permit any Subsidiary to assign, any right to receive income, in each case to secure any Indebtedness of any Person, other than (i) liens, mortgages and security interests created by the Mortgage and the Florida Power Mortgage, (ii) liens and security interests against the fuel used by the Borrower in its power generating operations in favor of the suppliers thereof and (iii) liens, mortgages and security interests securing other Indebtedness of the Borrower and its Subsidiaries not exceeding $500,000,000 in the aggregate.

(b)Indebtedness. Create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any Indebtedness other than (i) Indebtedness hereunder, (ii) Indebtedness secured by liens and security interests permitted pursuant to clauses (ii) and (iii) of subsection 5.02(a), (iii) Indebtedness evidenced by the First Mortgage Bonds and the Florida Power Mortgage Bonds and (iv) unsecured Indebtedness, including guarantees issued in connection with the financing of pollution control facilities operated by CP&L, FPC or Florida Power, guarantees of Indebtedness incurred by any wholly-owned Subsidiary and guarantees of debt securities issued by any financing Subsidiary established to secure debt financing in the offshore markets.

(c)Lease Obligations. Create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any obligations for the payment of rental for any property under leases or agreements to lease having a term of one year or more that would cause the direct or contingent Consolidated liabilities of the Borrower and its Subsidiaries in respect of all such obligations payable in any calendar year to exceed 10% of the Consolidated operating revenues of the Borrower and its Subsidiaries for the immediately preceding calendar year.

(d)Mergers, Etc. Merge with or into or consolidate with or into, or acquire all or substantially all of the assets or securities of, any Person, unless, in each case, (i) immediately after giving effect thereto, no event shall occur and be continuing that constitutes an Event of Default or an event that with the giving of notice or lapse of time, or both, would constitute an Event of Default, and (ii) in the case of any such merger to which the Borrower is a party, such other Person is a utility company and the resulting or surviving corporation, if not the Borrower, (x) is organized and existing under the laws of the United States of America or any State thereof, (y) is a corporation satisfactory to the Majority Lenders, and (z) shall have expressly assumed, by an instrument satisfactory in form and substance to the Majority Lenders, the due and punctual payment of all amounts due under this Agreement and the performance of every covenant and undertaking of the Borrower contained in this Agreement.

(e)Sales, Etc. of Assets. Sell, lease, transfer or otherwise dispose of, or permit any Subsidiary to sell, lease, transfer or otherwise dispose of, any of its assets, other than the following sales: (i) sales of generating capacity to the wholesale customers of the Borrower and the Subsidiaries, (ii) sales of nuclear fuel, (iii) sales of accounts receivable, (iv) sales in connection with a transaction authorized by subsection (d) of this Section, (v) the Portfolio Transaction, (vi) sales of investments in securities with a maturity of less than one year, (vii) the sale of the 925 MW Rowan facility (or the equity interests of any Person the assets of which consist of the 925 MW Rowan facility), the 320 MW DeSoto facility (or the equity interests of any Person the assets of which consist of the 320 MW DeSoto facility), all coal mines and assets used in their operation and all river terminal facilities and assets used in their operation and (viii) other sales not exceeding $250,000,000 in the aggregate in any fiscal year of the Borrower.

(f)Margin Stock. Use any proceeds of any Advance to buy or carry margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System).

(g)Change in Nature of Business. Engage, or cause or permit CP&L or Florida Power to engage, in a material manner in businesses other than those in which they are engaged on the date hereof and businesses reasonably related thereto.

(h)Hostile Acquisitions. Use any proceeds of any Extension of Credit in connection with any Hostile Acquisition.

ARTICLE VI

EVENTS OF DEFAULT

SECTION 6.01. Events of Default.

If any of the following events (“Events of Default”) shall occur and be continuing:

(a)The Borrower shall fail to pay any principal of any Advance or LC Disbursement when due, or shall fail to pay any interest on the principal amount of any Advance or LC Disbursement or any fees or other amount payable hereunder within five Business Days after such interest or fees or other amount shall become due; or

(b)Any representation or warranty made by the Borrower herein or by the Borrower (or any of its officers) in any document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made or deemed made; or

(c)The Borrower shall fail to perform or observe any other term, covenant or agreement contained in Section 5.01(b), 5.01(i)(iv), 5.01(j), 5.01(l) or 5.02 on its part to be performed or observed; or the Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for 30 days after written notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender; or

(d)The Borrower or any Significant Subsidiary shall fail to pay any amount in respect of any Indebtedness in excess of $50,000,000 (but excluding Indebtedness hereunder) of the Borrower or such Significant Subsidiary (as the case may be), or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or any other default under any agreement or instrument relating to any such Indebtedness, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or

(e)The Borrower or any Significant Subsidiary shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or any Significant Subsidiary seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property; or the Borrower or any Significant Subsidiary shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or

(f)Any judgment or order for the payment of money in excess of $50,000,000 shall be rendered against the Borrower or any Significant Subsidiary and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

(g)Any Termination Event with respect to a Plan shall have occurred, and, 30 days after the occurrence thereof, (i) such Termination Event (if correctable) shall not have been corrected and (ii) the then present value of such Plan’s vested benefits exceeds the then current value of assets accumulated in such Plan by more than the amount of $20,000,000 (or in the case of a Termination Event involving the withdrawal of a “substantial employer” (as defined in Section 4001(a)(2) of ERISA), the withdrawing employer’s proportionate share of such excess shall exceed such amount); or

(h)The Borrower or any of its Affiliates as employer under a Multiemployer Plan shall have made a complete or partial withdrawal from such Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have notified such withdrawing employer that such employer has incurred a withdrawal liability in an annual amount exceeding $20,000,000; or

(i)A Change of Control shall occur;

then, and in any such event, the Administrative Agent shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, (i) declare the Commitments and the obligation of each Lender and each Issuing Bank to make Extensions of Credit to be terminated, whereupon the same shall forthwith terminate, (ii) declare the Outstanding Credits, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon such principal amount, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower, and (iii) exercise the remedies specified in Section 2.16(g); provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower or any Subsidiary under the Federal Bankruptcy Code, (A) the obligation of each Lender and each Issuing Bank to make Extensions of Credit shall automatically be terminated and (B) Outstanding Credits, all such interest and all such other amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower.

ARTICLE VII

THE ADMINISTRATIVE AGENT

AND THE ISSUING BANKS

SECTION 7.01. Authorization and Action.

(a)Each Issuing Bank and each Lender hereby appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably provided for by this Agreement (including, without limitation, enforcement or collection of the Advances), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon every Issuing Bank and all Lenders; provided, however, that the Administrative Agent shall not be required to take any action that exposes the Administrative Agent to personal liability or that is contrary to this Agreement or applicable law.

(b)Each Issuing Bank shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith until such time and except for so long as the Administrative Agent may agree at the request of the Majority Lenders to act for such Issuing Bank with respect thereto; provided, that such Issuing Bank shall have all the benefits and immunities (i) provided to the Administrative Agent in this Article VII with respect to any acts taken or omissions suffered by each Issuing Bank in connection with Letters of Credit issued by it or proposed to be issued by it and the application and agreements for letters of credit pertaining to the Letters of Credit as fully as if the term “Administrative Agent” as used in this Article VII included such Issuing Bank with respect to such acts or omissions and (ii) as additionally provided in this Agreement with respect to such Issuing Bank.

(c)In the event that Citibank or any of its Affiliates shall be or become an indenture trustee under the Trust Indenture Act of 1939 (as amended, the “Trust Indenture Act”) in respect of any securities issued or guaranteed by the Borrower, the parties hereto acknowledge and agree that any payment or property received in satisfaction of or in respect of any obligation of the Borrower hereunder by or on behalf of Citibank in its capacity as the Administrative Agent for the benefit of any Lender or Issuing Bank (other than Citibank or an Affiliate of Citibank) and that is applied in accordance with this Agreement shall be deemed to be exempt from the requirements of Section 311 of the Trust Indenture Act pursuant to Section 311(b)(3) of the Trust Indenture Act.

SECTION 7.02. The Administrative Agent’s Reliance, Etc.

Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by each or any of them under or in connection with this Agreement, except for their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Administrative Agent: (i) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (ii) makes no warranty or representation to any Issuing Bank or any Lender and shall not be responsible to any Issuing Bank or any Lender for any statements, warranties or representations made in or in connection with this Agreement; (iii) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Borrower or to inspect the property (including the books and records) of the Borrower; (iv) shall not be responsible to any Issuing Bank or any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; and (v) shall incur no liability under or in respect of this Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, telecopy or e-mail) believed by it to be genuine and signed or sent by the proper party or parties.

SECTION 7.03. The Administrative Agent and its Affiliates.

With respect to its Commitments and, the Advances made by it, the Administrative Agent shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not an Administrative Agent; and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated, include each Agent in its individual capacity, as applicable. The Administrative Agent and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, any Subsidiary and any Person who may do business with or own securities of the Borrower or any Subsidiary, all as if the Administrative Agent were not the Administrative Agent and without any duty to account therefor to the Lenders.

SECTION 7.04. Lender Credit Decision.

Each Issuing Bank and each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent, any other Issuing Bank or any other Lender (as applicable) and based on the financial statements referred to in Section 4.01(e) and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Issuing Bank and each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent, any other Issuing Bank or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.

SECTION 7.05. Indemnification.

The Lenders agree to indemnify the Administrative Agent (to the extent not reimbursed by the Borrower) and each Issuing Bank, ratably according to the respective principal amounts of the Outstanding Credits then held by each of them (or if there are no Outstanding Credits at the time, ratably according to the respective amounts of their Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Administrative Agent and such Issuing Bank in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent or such Issuing Bank (as the case may be) under this Agreement; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent’s or such Issuing Bank’s gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Administrative Agent or such Issuing Bank (as the case may be) promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by the Administrative Agent or such Issuing Bank (as the case may be) in connection with the preparation, execution, administration, or enforcement of, or legal advice in respect of rights or responsibility under, this Agreement, to the extent that the Administrative Agent or such Issuing Bank (as the case may be) is not reimbursed for such expenses by the Borrower.

SECTION 7.06. Successor Administrative Agent.

The Administrative Agent may resign at any time by giving written notice thereof to the Lenders, each Issuing Bank and the Borrower and may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent’s giving of notice of resignation or the Majority Lenders’ removal of the retiring Administrative Agent, the Administrative Agent may appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent’s resignation or removal hereunder as Administrative Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement.

SECTION 7.07. Appointment and Resignation of Issuing Banks.

The Borrower may, from time to time, appoint one or more Lenders (or Affiliates thereof) to act as additional Issuing Banks under this Agreement. Any such appointment shall be evidenced by a written agreement between the Borrower and any such Issuing Bank, setting forth such Issuing Bank’s agreement to act in such capacity, the LC Commitment of such Issuing Bank and information required for delivery of notices to such LC Issuing Bank pursuant to Section 8.02. Upon the delivery of a duly executed copy of such agreement to the Administrative Agent, such Issuing Bank shall become vested with all the rights, powers, privileges and duties of an “Issuing Bank” under this Agreement. In addition, any Issuing Bank may resign as an Issuing Bank under this Agreement, with the written consent of the Borrower and upon notice of such resignation to the Administrative Agent, at any time that no Letters of Credit issued by such Issuing Bank and no LC Disbursements payable to such Issuing Bank are outstanding. The Administrative Agent shall give prompt notice to each Lender of the appointment or resignation of any Issuing Bank pursuant to this Section 7.07.

ARTICLE VIII

MISCELLANEOUS

SECTION 8.01. Amendments, Etc.

No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders, in the case of any such amendment, waiver or consent of or in respect of this Agreement, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all of the Lenders, do any of the following: (i) waive any of the conditions specified in Section 3.01 or 3.02, (ii) increase the Commitment of any Lender or subject any Lender to any additional obligations, (iii) reduce, or waive the payment of, the principal of, or interest on, the Advances, reimbursement obligations in respect of LC Disbursements, or any fees or other amounts payable to the Lenders ratably hereunder, (iv) postpone any date fixed for any payment of principal of, or interest on, the Advances, reimbursement obligations in respect of LC Disbursements, or any fees or other amounts payable to the Lenders ratably hereunder, (v) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Advances, or the number of Lenders, which shall be required for the Lenders or any of them to take any action under this Agreement, or (vi) amend, waive, or in any way modify or suspend any provision requiring the pro rata application of payments or of Section 2.15 or of this Section 8.01; provided further, that no amendment, waiver or consent shall, unless in writing and signed by each Lender affected thereby, reduce, waive or postpone the date of payment of any amount payable to such Lender; and provided, further, that (A) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent and each Issuing Bank in addition to the Lenders required hereinabove to take such action, affect the rights or duties of such Administrative Agent or each Issuing Bank under this Agreement, (B) this Agreement may be amended and restated without the consent of any Lender, the Administrative Agent or any Issuing Bank if, upon giving effect to such amendment and restatement, such Lender, Administrative Agent or such Issuing Bank, as the case may be, shall no longer be a party to this Agreement (as so amended and restated) or have any Commitment or other obligation hereunder and shall have been paid in full all amounts payable hereunder to such Lender, the Administrative Agent or such Issuing Bank, as the case may be, and (C) any Issuing Bank may be appointed and may resign pursuant to Section 7.07, and the LC Commitment of any Issuing Bank may be increased or decreased pursuant to a written agreement between the Borrower and such Issuing Bank, a copy of which shall be delivered to the Administrative Agent, in each case, without the consent of any Lender.

SECTION 8.02. Notices, Etc.

All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telegraphic communication) and mailed, telecopied, e-mailed or delivered, if to the Borrower, at its address at 410 S. Wilmington Street, PEB 19A3, Raleigh, North Carolina 27601, Attention: Assistant Treasurer, Treasury Department, Facsimile no.: (919) 546-7826, e-mail: sherri.daughtridge@pgnmail.com; if to any Lender, at its Domestic Lending Office set forth opposite its name on Schedule I hereto; if to SunTrust Bank, as Issuing Bank, at its address at 25 Park Place, 16^th Floor, Atlanta, Georgia, 30303, Attention: International Operations, SunTrust Bank, Facsimile no.: (404) 588-8129; and if to the Administrative Agent, at its address at Two Penns Way, Suite 200, New Castle, Delaware 19720, Attention: Bank Loan Syndications, Facsimile no.: (212) 994-0161; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties or, in the case of any Lender, to the Administrative Agent, each Issuing Bank and the Borrower. All such notices and communications shall be effective when received by the addressee thereof.

SECTION 8.03. No Waiver; Remedies.

No failure on the part of any Lender, any Issuing Bank or the Administrative Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

SECTION 8.04. Costs, Expenses, Taxes and Indemnification.

(a)The Borrower agrees to pay on demand all costs and expenses of the Administrative Agent (and as described in clause (iv) below, the Lenders and each Issuing Bank) in connection with (i) the preparation, execution, negotiation, syndication and delivery of this Agreement and the other documents to be delivered hereunder, (ii) the first Borrowing under this Agreement, (iii) any modification, amendment or supplement to this Agreement and the other documents to be delivered hereunder and (iv) the enforcement of the rights and remedies of the Lenders, each Issuing Bank and the Administrative Agent under this Agreement and the other documents to be delivered hereunder (whether through negotiations or legal proceedings), all the above costs and expenses to include, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent, each Issuing Bank and each of the Lenders with respect thereto. In addition, the Borrower shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Agreement and the other documents to be delivered hereunder, and agrees to save the Administrative Agent, each Issuing Bank and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes.

(b)If (i) due to payments made by the Borrower due to the acceleration of the maturity of the Advances pursuant to Section 6.01 or due to any other reason, any Lender receives payments of principal of any Eurodollar Rate Advance based upon the Eurodollar Rate other than on the last day of the Interest Period for such Advance, or (ii) due to any Conversion of Eurodollar Advance other than on the last day of an Interest Period pursuant to Section 2.12, the Borrower shall, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. In addition, if the Borrower fails to prepay any Advance on the date for which notice of prepayment has been given, the Borrower shall, upon demand by any Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any losses, costs or expenses (including loss of anticipated profits) that it may reasonably incur as a result of such prepayment not having been made on the date specified by the Borrower for such prepayment.

(c)Any and all payments by the Borrower hereunder shall be made, in accordance with Section 2.13, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender, each Issuing Bank and the Administrative Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender, such Issuing Bank or the Administrative Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction of such Lender’s Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender, any Issuing Bank or the Administrative Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.04) such Lender, such Issuing Bank or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law.

(d)The Borrower will indemnify each Lender, each Issuing Bank and the Administrative Agent for the full amount of Taxes (including, without limitation, any Taxes imposed by any jurisdiction on amounts payable under this Section 8.04) paid by such Lender, such Issuing Bank or the Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Lender, such Issuing Bank or the Administrative Agent (as the case may be) makes written demand therefor.

(e)Prior to the date of the initial Borrowing or on the date of the Assignment and Acceptance pursuant to which it became a Lender, in the case of each Lender that becomes a Lender by virtue of entering into an Assignment and Acceptance, or on the date that any Eligible Assignee becomes an Additional Lender pursuant to Section 2.04(b) and from time to time thereafter if requested by the Borrower or the Administrative Agent, each Lender organized under the laws of a jurisdiction outside the United States shall provide the Administrative Agent and the Borrower with the forms prescribed by the Internal Revenue Service of the United States certifying that such Lender is exempt from United States withholding taxes with respect to all payments to be made to such Lender hereunder. If for any reason during the term of this Agreement, any Lender becomes unable to submit the forms referred to above or the information or representations contained therein are no longer accurate in any material respect, such Lender shall notify the Administrative Agent and the Borrower in writing to that effect. Unless the Borrower and the Administrative Agent have received forms or other documents satisfactory to them indicating that payments hereunder are not subject to United States withholding tax, the Borrower or the Administrative Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Lender organized under the laws of a jurisdiction outside the United States.

(f)Any Lender claiming any additional amounts payable pursuant to Section 8.04(c) or (d) shall use its reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) (i) to change the jurisdiction of its Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender and (ii) to otherwise minimize the amounts due, or to become due, under Sections 8.04(c) and (d).

(g)If the Borrower makes any additional payment to any Issuing Bank or any Lender pursuant to Sections 8.04(c) and (d) in respect of any Taxes, and such Issuing Bank or such Lender determines that it has received (i) a refund of such Taxes or (ii) a credit against or relief or remission for, or a reduction in the amount of, any tax or other governmental charge solely as a result of any deduction or credit for any Taxes with respect to which it has received payments under Sections 8.04(c) and (d), such Issuing Bank or such Lender shall, to the extent that it can do so without prejudice to the retention of such refund, credit, relief, remission or reduction, pay to the Borrower such amount as such Issuing Bank or such Lender shall have determined to be attributable to the deduction or withholding of such Taxes. If such Issuing Bank or such Lender later determines that it was not entitled to such refund, credit, relief, remission or reduction to the full extent of any payment made pursuant to the first sentence of this Section 8.04(g), the Borrower shall upon demand of such Issuing Bank or such Lender promptly repay the amount of such overpayment. Any determination made by such Issuing Bank or such Lender pursuant to this Section 8.04(g) shall in the absence of bad faith or manifest error be conclusive, and nothing in this Section 8.04(g) shall be construed as requiring any Issuing Bank or any Lender to conduct its business or to arrange or alter in any respect its tax or financial affairs so that it is entitled to receive such a refund, credit or reduction or as allowing any Person to inspect any records, including tax returns, of any Issuing Bank or any Lender.

(h)The Borrower hereby agrees to indemnify and hold harmless each Lender, each Issuing Bank, the Arrangers, the Syndication Agent, the Administrative Agent, counsel to the Administrative Agent and their respective officers, directors, partners, employees, Affiliates and advisors (each, an “Indemnified Person”) from and against any and all claims, damages, losses, liabilities, costs, or expenses (including reasonable attorney’s fees and expenses, whether or not such Indemnified Person is named as a party to any proceeding or is otherwise subjected to judicial or legal process arising from any such proceeding), joint and several, that may actuallybe incurred by or asserted or awarded against any Indemnified Person (including, without limitation, in connection with any investigation, litigation or proceeding or the preparation of a defense in connection therewith) in each case by reason of or in connection with the execution, delivery, or performance of this Agreement, or the use by the Borrower of the proceeds of any Extension of Credit (including any refusal by any Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), except to the extent that such claims, damages, losses, liabilities, costs, or expenses are determined in a final non-appealable judgment by a court of competent jurisdiction to have resulted solely from the gross negligence or willful misconduct of the party seeking indemnification. The Borrower also agrees not to assert any claim against any Indemnified Party on any theory of liability for special or punitive damages arising out of or otherwise relating to this Agreement, any of the transactions contemplated herein or the actual or proposed use of the proceeds of any Extension of Credit.

(i)Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 8.04 shall survive the payment in full of principal and interest hereunder and the termination of the Commitments.

SECTION 8.05. Right of Set-off.

Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare the Outstanding Credits due and payable pursuant to the provisions of Section 6.01, each Lender and each Issuing Bank are hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender or such Issuing Bank to or for the credit or the account of the Borrower now or hereafter existing under this Agreement, irrespective of whether or not such Lender or such Issuing Bank shall have made any demand under this Agreement and although such obligations may be unmatured. Each Lender and each Issuing Bank agree promptly to notify the Borrower after any such set-off and application made by such Lender or such Issuing Bank; provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender and each Issuing Bank under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender or such Issuing Bank may have.

SECTION 8.06. Binding Effect.

This Agreement shall become effective when it shall have been executed by the Borrower and the Administrative Agent and when the Administrative Agent shall have been notified by each Lender and each Issuing Bank that such Lender or such Issuing Bank has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent, each Issuing Bank and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of each Issuing Bank and each Lender.

SECTION 8.07. Assignments and Participations.

(a)Each Lender may, with the consent of the Administrative Agent, each Issuing Bank and the Borrower (each such consent not to be unreasonably withheld or delayed and, in the case of the Borrower, such consent shall not be required if an Event of Default has occurred and is continuing), assign to one or more banks or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Advances owing to it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement, (ii) the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than the lesser of (A) $10,000,000 and (B) all of such Lender’s rights and obligations and, if the preceding clause (A) is applicable, shall be an integral multiple of $1,000,000, (iii) each such assignment shall be to an Eligible Assignee, and (iv) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance and such parties (other than when Citibank is an assigning party) shall also deliver to the Administrative Agent a processing and recordation fee of $3,500. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto).

(b)By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01(e) and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender.

(c)The Administrative Agent shall maintain at its address referred to in Section 8.02 a copy of each Assignment and Acceptance (and copies of the related consents of the Borrower and the Administrative Agent to such assignment) delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the “Register”). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.

(d)Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit B hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower.

(e)Each Lender may assign to one or more banks or other entities any Advance made by it.

(f)Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Advances owing to it); provided, however, that (i) such Lender’s obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any promissory note held pursuant to Section 2.01(b) for all purposes of this Agreement, (iv) the Borrower, each Issuing Bank, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement and (v) the holder of any such participation, other than an Affiliate of such Lender, shall not be entitled to require such Lender to take or omit to take any action hereunder, except action (A) extending the time for payment of interest on, or the final maturity of any portion of the principal amount of, the Advances or (B) reducing the principal amount of or the rate of interest payable on the Advances. Without limiting the generality of the foregoing: (i) such participating banks or other entities shall be entitled to the cost protection provisions contained in Sections 2.07, 2.11 and 8.04(b) only if, and to the same extent, the Lender from which such participating banks or other entities acquired its participation would, at the time, be entitled to claim thereunder; and (ii) such participating banks or other entities shall also, to the fullest extent permitted by law, be entitled to exercise the rights of set-off contained in Section 8.05 as if such participating banks or other entities were Lenders hereunder.

(g)If (x) any Lender shall be a Declining Lender or (y) any Lender (or any bank, financial institution, or other entity to which such Lender has sold a participation) shall make any demand for payment under Section 2.11(b), then within the time period specified in Section 2.15(b) or within 30 days after any such demand (if, but only if, such demanded payment has been made by the Borrower) (as applicable), the Borrower may, with the approval of the Administrative Agent (which approval shall not be unreasonably withheld) demand that such Lender assign in accordance with this Section 8.07 to one or more Eligible Assignees designated by the Borrower all (but not less than all) of such Lender’s Commitment (if any) and the Advances owing to it no later than the applicable Anniversary Date or within the period ending on the later to occur of such 30th day and the last day of the longest of the then current Interest Periods for such Advances (as applicable), provided that (i) no Event of Default or event that, with the passage of time or the giving of notice, or both, would constitute an Event of Default shall then have occurred and be continuing, (ii) the Borrower shall have satisfied all its presently due obligations to such Lender under this Agreement, and (iii) if such Eligible Assignee designated by the Borrower is not an existing Lender on the date of such demand, the Borrower shall have delivered to the Administrative Agent an administrative fee of $3,500 and (iv) in the case of any assignment by a Declining Lender, such Declining Lender shall have consented to such assignment. If any such Eligible Assignee designated by the Borrower shall fail to consummate such assignment on terms acceptable to such Lender, or if the Borrower shall fail to designate any such Eligible Assignees for all or part of such Lender’s Commitment or Advances, then such demand by the Borrower shall become ineffective; it being understood for purposes of this subsection (g) that such assignment shall be conclusively deemed to be on terms acceptable to such Lender, and such Lender shall be compelled to consummate such assignment to an Eligible Assignee designated by the Borrower, if such Eligible Assignee (i) shall agree to such assignment by entering into an Assignment and Acceptance in substantially the form of Exhibit B hereto with such Lender and (ii) shall offer compensation to such Lender in an amount equal to all amounts then owing by the Borrower to such Lender hereunder made by the Borrower to such Lender, whether for principal, interest, fees, costs or expenses (other than the demanded payment referred to above and payable by the Borrower as a condition to the Borrower’s right to demand such assignment), or otherwise.

(h)Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any confidential information relating to the Borrower received by it from such Lender.

(i)Anything in this Section 8.07 to the contrary notwithstanding, any Lender may (i) assign and pledge all or any portion of its Commitment and the Advances owing to it to any Federal Reserve Bank (and its transferees) as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank; provided, that no such assignment shall release the assigning Lender from its obligations hereunder; or (ii) assign its Commitments, Advances and other rights and obligations hereunder to any of its Affiliates upon notice to, but without the consent of, the Borrower and the Administrative Agent.

(j)Notwithstanding anything to the contrary contained herein, any Lender (a “Granting Lender”) may grant to a special purpose funding vehicle (an “SPC”) of such Granting Lender identified as such in writing from time to time by the Granting Lender to the Administrative Agent, each Issuing Bank and the Borrower, the option to provide to the Borrower all or any part of any Advance that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any such SPC to make any Advance, (ii) if such SPC elects not to exercise such option or otherwise fails to provide all or any part of such Advance, the Granting Lender shall be obligated to make such Advance pursuant to the terms hereof and (iii) no SPC or Granting Lender shall be entitled to receive any greater amount pursuant to Section 2.07 or 2.11 than the Granting Lender would have been entitled to receive had the Granting Lender not otherwise granted such SPC the option to provide any Advance to the Borrower. The making of an Advance by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Advance were made by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement for which a Lender would otherwise be liable so long as, and to the extent that, the related Granting Lender provides such indemnity or makes such payment. In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against or join any other person in instituting against such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. Notwithstanding the foregoing, the Granting Lender unconditionally agrees to indemnify the Borrower, the Administrative Agent, each Issuing Bank and each Lender against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be incurred by or asserted against the Borrower, the Administrative Agent, such Issuing Bank or such Lender, as the case may be, in any way relating to or arising as a consequence of any such forbearance or delay in the initiation of any such proceeding against its SPC. Each party hereto hereby acknowledges and agrees that no SPC shall have the rights of a Lender hereunder, such rights being retained by the applicable Granting Lender. Accordingly, and without limiting the foregoing, each party hereby further acknowledges and agrees that no SPC shall have any voting rights hereunder and that the voting rights attributable to any Advance made by an SPC shall be exercised only by the relevant Granting Lender and that each Granting Lender shall serve as the administrative agent and attorney-in-fact for its SPC and shall on behalf of its SPC receive any and all payments made for the benefit of such SPC and take all actions hereunder to the extent, if any, such SPC shall have any rights hereunder. In addition, notwithstanding anything to the contrary contained in this Agreement any SPC may with notice to, but without the prior written consent of any other party hereto, assign all or a portion of its interest in any Advances to the Granting Lender. This Section may not be amended without the prior written consent of each Granting Lender, all or any part of whose Advance is being funded by an SPC at the time of such amendment.

SECTION 8.08. Waiver of Consequential Damages.

To the fullest extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnified Person, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Extension of Credit or the use of proceeds thereof. No Indemnified Person referred to in Section 8.04(h) shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.

SECTION 8.09. USA PATRIOT Act Notice.

Each Lender that is subject to the Patriot Act, each Issuing Bank and the Administration Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower pursuant to the requirements of the Patriot Act that it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender, such Issuing Bank or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Patriot Act.

SECTION 8.10. Tax Disclosure.

Notwithstanding any agreement between the parties hereto to the contrary, the Borrower (and each employee, representative, or other agent of the Borrower) may disclose to any and all other Persons, without limitation of any kind, the tax treatment and tax structure of this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided to the Borrower relating to such tax treatment and tax structure; provided, however, that such disclosure may not be made to the extent required to be kept confidential to comply with any applicable federal or state securities laws.

SECTION 8.11. Governing Law.

This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. The Borrower (i) irrevocably submits to the non-exclusive jurisdiction of any New York State court or Federal court sitting in New York City in any action arising out of this Agreement, (ii) agrees that all claims in such action may be decided in such court, (iii) waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum and (iv) consents to the service of process by mail. A final judgment in any such action shall be conclusive and may be enforced in other jurisdictions. Nothing herein shall affect the right of any party to serve legal process in any manner permitted by law or affect its right to bring any action in any other court.

SECTION 8.12. WAIVER OF JURY TRIAL.

THE BORROWER, THE ADMINISTRATIVE AGENT, EACH ISSUING BANK AND EACH LENDER EACH HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY AND LAWFULLY DO SO, ALL RIGHT TO TRIAL BY JURY AS TO ANY ISSUE RELATING TO THIS AGREEMENT IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER INSTRUMENT OR DOCUMENT DELIVERED HEREUNDER OR THEREUNDER.

SECTION 8.13. Execution in Counterparts.

This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

SECTION 8.14. Severability.

Any provision of this Agreement that is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or non-authorization without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction.

SECTION 8.15. Headings.

Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

SECTION 8.16. Entire Agreement.

This Agreement constitutes the entire contract between the parties relative to the subject matter hereof. Any previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement. Except as is expressly provided for herein, nothing in this Agreement, expressed or implied, is intended to confer upon any party other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

PROGRESS ENERGY, INC.

By /s/ Thomas R. Sullivan

      Thomas R. Sullivan

      Treasurer

SIGNATURE PAGE TO 2006 PROGRESS ENERGY CREDIT AGREEMENT

CITIBANK, N.A., as Administrative Agent

and Lender

By /s/ Stuart J. Glen

      Stuart J. Glen

      Director

SIGNATURE PAGE TO 2006 PROGRESS ENERGY CREDIT AGREEMENT

JPMORGAN CHASE BANK, N.A.

By /s/ Thomas L. Casey

      Thomas L. Casey

      Vice President

SIGNATURE PAGE TO 2006 PROGRESS ENERGY CREDIT AGREEMENT

SUNTRUST BANK,

as Initial Issuing Bank and Lender

By /s/ Kelley B. Brandenburg

      Kelley B. Brandenburg

      Vice President

SIGNATURE PAGE TO 2006 PROGRESS ENERGY CREDIT AGREEMENT

THE BANK OF TOKYO-MITSUBISHI

UFJ, LTD., NEW YORK BRANCH

By /s/ Linda Tam

      Linda Tam

      Authorized Signatory

SIGNATURE PAGE TO 2006 PROGRESS ENERGY CREDIT AGREEMENT

BARCLAYS BANK PLC

By /s/ Sydney G. Dennis

      Sydney G. Dennis

      Director

SIGNATURE PAGE TO 2006 PROGRESS ENERGY CREDIT AGREEMENT

BANK OF AMERICA, N.A.

By /s/ Gabriela Millhorn

      Gabriela Millhorn

      Senior Vice President

SIGNATURE PAGE TO 2006 PROGRESS ENERGY CREDIT AGREEMENT

THE ROYAL BANK OF SCOTLAND PLC

By /s/ Emily Freedman

      Emily Freedman

      Vice President

SIGNATURE PAGE TO 2006 PROGRESS ENERGY CREDIT AGREEMENT

WACHOVIA BANK, N.A.

By /s/ Lawrence N. Gross

      Lawrence N. Gross

      Assistant Vice President

SIGNATURE PAGE TO 2006 PROGRESS ENERGY CREDIT AGREEMENT

BNP PARIBAS

By /s/ Mark A. Renaud

      Mark A. Renaud

      Managing Director

By /s/ Prisca Owens

      Prisca Owens

      Director

SIGNATURE PAGE TO 2006 PROGRESS ENERGY CREDIT AGREEMENT

CALYON NEW YORK BRANCH

By /s/ Dennis Petito

      Dennis Petito

      Managing Director

By /s/ Michael Willis

      Michael Willis

      Vice President

SIGNATURE PAGE TO 2006 PROGRESS ENERGY CREDIT AGREEMENT

DEUTSCHE BANK AG

NEW YORK BRANCH

By /s/ Marcus Tarkington

      Marcus Tarkington

      Director

By /s/ Rainer Meier

      Rainer Meier

      Vice President

SIGNATURE PAGE TO 2006 PROGRESS ENERGY CREDIT AGREEMENT

LEHMAN BROTHERS BANK, FSB

By /s/ Gary T. Taylor

      Gary T. Taylor

      Senior Vice President

SIGNATURE PAGE TO 2006 PROGRESS ENERGY CREDIT AGREEMENT

UBS LOAN FINANCE LLC

By /s/ Richard L. Tavrow

      Richard L. Tavrow

      Director

By /s/ Iria R. Otsa

      Iria R. Otsa

      Associate Director

SIGNATURE PAGE TO 2006 PROGRESS ENERGY CREDIT AGREEMENT

WILLIAM STREET COMMITMENT CORPORATION

By /s/ Mark Walton

      Mark Walton

      Assistant Vice President

SIGNATURE PAGE TO 2006 PROGRESS ENERGY CREDIT AGREEMENT

THE BANK OF NEW YORK

By /s/ David Sunderwirth

      David Sunderwirth

      Vice President

SIGNATURE PAGE TO 2006 PROGRESS ENERGY CREDIT AGREEMENT

S-

MELLON BANK, N.A.

By /s/ Thomas J. Tarasovich, Jr.

      Thomas J. Tarasovich, Jr.

       Assistant Vice President

SIGNATURE PAGE TO 2006 PROGRESS ENERGY CREDIT AGREEMENT

SCHEDULE I

LIST OF COMMITMENTS AND APPLICABLE LENDING OFFICES

Name of Bank	Eurodollar Lending Office	Domestic Lending Office	Commitment
Citibank, N.A.	Two Penns Way, Ste. 200 New Castle, Delaware 19720 Attention: Bank Loan Syndications	Same as Eurodollar Lending Office	$141,000,000
JPMorgan Chase Bank, N.A.	1111 Fannin - 10 Houston, TX 77002 Attention: Kelly Collins, Account Manager Telephone: 713.750.2530 Telecopier: 713.427.6307 Email: kelly.collins@jpmchase.com	Same as Eurodollar Lending Office	$141,000,000
The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch	BTM Information Services, Inc. c/o The Bank of Tokyo-Mitsubishi, Ltd., NY Branch 1251 Avenue of the Americas, 12th Floor New York, NY 10020-1104 Attention: Rolando Uy, AVP, Loan Operations Dept. Telephone: 201.413.8570 Telecopier: 201.521.2304 Email: N/A	Same as Eurodollar Lending Office	$120,000,000
Barclays Bank PLC	200 Park Avenue New York, NY 10166 Attention:	Same as Eurodollar Lending Office	$100,000,000
Bank of America, N.A.	100 N. Tryon St. NC1-007-13-13 Charlotte, NC 28255 Attention: Jacqueline Archuleta	Same as Eurodollar Lending Office	$98,000,000
The Royal Bank of Scotland plc	101 Park Avenue New York, NY 10178 Attention: Li Yao Telephone: 212.401.1335 Telecopier: 212.401.1494 E-Mail: LiYao.Li@rbos.com	Same as Eurodollar Lending Office	$92,000,000
Wachovia Bank, N.A.	Wachovia Bank 3 Bishops Gate London EC2N-0000 GBR	201 South College Street Mail Code: CP-8, NC0680 Charlotte, NC 28288-0680 Attention: Brad Riggenbach Telephone: 704-715-8946 Telecopier: 704-383-0288/0835 E-Mail: bradley.rigge nbach@wachovia.com	$53,000,000
SunTrust Bank	SunTrust Bank Mail Code 1929 303 Peachtree Street, 10th Floor Atlanta, GA 30308 Attn: Tina Marie Edwards Telephone: 404-588-8660 Telecopier: 404-588-4402 Email: tinamarie.edwards@suntrust.com	Same as Eurodollar Lending Office	$50,000,000
BNP Paribas	787 Seventh Avenue New York, NY 10019	Same as Eurodollar Lending Office	$50,000,000
Calyon New York Branch	1301 Avenue of the Americas New York, NY 10019 Attention: David Gener	Same as Eurodollar Lending Office	$50,000,000
Deutsche Bank AG New York Branch	60 Wall Street, 11th Floor New York, NY 10005	Same as Eurodollar Lending Office	$50,000,000
Lehman Brothers Bank, FSB	745 7th Avenue, 16th Floor New York, NY 10005	Same as Eurodollar Lending Office	$50,000,000
UBS Loan Finance LLC	677 Washington Boulevard Stamford, CT 06901 Attention: Marie Haddad	Same as Eurodollar Lending Office	$50,000,000
William Street Commitment Corporation	85 Broad Street, 6th Floor New York, NY Attention: Philip F. Green	Same as Eurodollar Lending Office	$50,000,000
The Bank of New York	One Wall Street 19th Floor New York, NY 10286 Attention: Frank Su, Energy Division Telephone: 212.635.7532 Telecopier: 212.635.7552 Email: fsu@bankofny.com	Same as Eurodollar Lending Office	$25,000,000
Mellon Bank, N.A.	One Mellon Center 151-4530 Pittsburgh, PA 15258 Attention: Richard A. Matthews	Same as Eurodollar Lending Office	$10,000,000

SCHEDULE II

ADOPTED LETTERS OF CREDIT

ISSUING BANK: SUNTRUST BANK
BORROWER: PROGRESS ENERGY, INC.
Letter of Credit Reference	Letter of Credit Face Amount	Expiry Date
F840430	$16,300,000.00	1/31/2007
F840892	$395,000.00	2/25/2007
F840893	$80,000.00	1/12/2007
F841182	$1,350,000.00	5/1/2007
F841469	$250,000.00	6/24/2007
F841643	$500,000.00	7/31/2006
F841697	$1,000,000.00	7/31/2006
F841863	$1,250,000.00	9/1/2006
F841910	$1,800,000.00	9/15/2006
F841916	$1,800,000.00	9/15/2006
F842084	$175,000.00	10/31/2006
F842190	$50,000.00	11/21/2006
F842197	$750,000.00	11/13/2006
F842246	$100,000.00	11/8/2006
F842334	$2,800,000.00	11/8/2006
F842336	$3,072,930.00	11/8/2006
F843042	$318,000.00	11/8/2006
F843225	$175,000.00	11/8/2006
F844059	$575,966.00	11/1/2006
F844115	$378,978.00	12/1/2006
F848138	$11,325,000.00	10/1/2007
F848139	$11,287,500.00	10/1/2007
F848307	$16,350,000.00	10/1/2007

EXHIBIT A-1

Form of Notice of Borrowing

NOTICE OF BORROWING

[Date]

Citibank, N.A., as Administrative Agent

for the Lenders parties to the

Agreement referred to below

Two Penns Way, Suite 200

New Castle, Delaware 19720

Attention: Bank Loan Syndications

Ladies and Gentlemen:

The undersigned, Progress Energy, Inc., refers to the Credit Agreement, dated as of May 3, 2006 (the “Credit Agreement”, the terms defined therein being used herein as therein defined), among the undersigned, the Lenders thereunder, Citibank, N.A., as Administrative Agent for the Lenders, and the Issuing Banks thereunder, and hereby gives you notice pursuant to Section 2.02 of the Credit Agreement that the undersigned hereby requests a Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Borrowing (the “Proposed Borrowing”) as required by Section 2.02(a) of the Agreement:

(i)The Business Day of the Proposed Borrowing is , 20____.

(ii) The Type of Advances comprising the Proposed Borrowing is [Base Rate Advances][Eurodollar Rate Advances].

(iii)The aggregate amount of the Proposed Borrowing is  $.

(iv)The Interest Period for each Eurodollar Rate Advance that is an Advance made as part of the Proposed Borrowing is  months.

The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing:

(v)the representations and warranties contained in Section 4.01 (other than the last sentence of Section 4.01(e) and Section 4.01(f)) of the Credit Agreement are correct, before and after giving effect to the Proposed Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and (ii) no event has occurred and is continuing, or would result from such Proposed Borrowing or from the application of the proceeds therefrom, that constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both.

Very truly yours,

PROGRESS ENERGY, INC.

By

Name:

Title:

-

EXHIBIT A-2

Form of Notice of Conversion

NOTICE OF CONVERSION

[Date]

Citibank, N.A., as Administrative Agent

for the Lenders parties to the

Agreement referred to below

Two Penns Way, Suite 200

New Castle, Delaware 19720

Attention: Bank Loan Syndications

Ladies and Gentlemen:

The undersigned, Progress Energy, Inc., refers to the Credit Agreement, dated as of May 3, 2006 (the “Credit Agreement”, the terms defined therein being used herein as therein defined), among the undersigned, the Lenders thereunder, Citibank, N.A., as Administrative Agent for the Lenders, and SunTrust Bank, and the Issuing Banks thereunder, and hereby gives you notice pursuant to Section 2.09 of the Credit Agreement that the undersigned hereby requests a Conversion under the Credit Agreement, and in that connection sets forth the terms on which such Conversion (the “Proposed Conversion”) is requested to be made:

(i)The Business Day of the Proposed Conversion is ______________, 20____.

(ii)The Type of, and Interest Period applicable to, the Advances (or portions thereof) proposed to be Converted: ________________.

(iii)The Type of Advance to which such Advances (or portions thereof) are proposed to be Converted: ________________________.

(iv)Except in the case of a Conversion to Base Rate Advances, the initial Interest Period to be applicable to the Advances resulting from such Conversion: ______________________________.

(v)The aggregate amount of Advances (or portions thereof) proposed to be Converted is $.

The undersigned hereby certifies that, on the date hereof, and on the date of the Proposed Conversion, no event has occurred and is continuing, or would result from such Proposed Conversion, that constitutes an Event of Default.

Very truly yours,

PROGRESS ENERGY, INC.

By

Name:

Title:

EXHIBIT B

Form of Assignment and Acceptance

ASSIGNMENT AND ACCEPTANCE

Dated , 20___

Reference is made to the Credit Agreement, dated as of May 3, 2006 (as amended, modified and supplemented from time to time, the “Credit Agreement”, the terms defined therein being used herein as therein defined), among Progress Energy, Inc., the Lenders (as defined in the Credit Agreement) thereunder, Citibank, N.A., as Administrative Agent for the Lenders thereunder (the “Administrative Agent”) and the Issuing Banks thereunder.

(the “Assignor”) and  (the “Assignee”) agree as follows:

1.The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, that interest in and to all of the Assignor’s rights and obligations under the Credit Agreement as of the date hereof that represents the percentage interest specified on Schedule 1 of all outstanding rights and obligations under the Credit Agreement, including, without limitation, such interest in the Assignor’s Commitment (to the extent it has not been terminated), the Advances owing to the Assignor and, to the extent permitted by applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the transactions governed thereby, including but not limited to contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned hereby. After giving effect to such sale and assignment, the Assignee’s Commitment (if any) and the amount of the Advances owing to the Assignee will be as set forth in Section 2 of Schedule 1.

2.The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto.

3.The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.01(e) thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender; [and] (vi) specifies as its Domestic Lending Office (and address for notices) and Eurodollar Lending Office the offices set forth beneath its name on the signature pages hereof [and (vii) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee’s status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty].¹

4.Following the execution of this Assignment and Acceptance by the Assignor and the Assignee, it will be delivered to the Administrative Agent for acceptance and recording by the Administrative Agent. The effective date of this Assignment and Acceptance shall be the date of acceptance thereof by the Administrative Agent, unless otherwise specified on Schedule 1 hereto (the “Effective Date”).

5.Upon such acceptance and recording by the Administrative Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement.

6.Upon such acceptance and recording by the Administrative Agent, from and after the Effective Date, the Administrative Agent shall make all payments under the Credit Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and commitment fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Effective Date directly between themselves.

7.This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]

¹If the Assignee is organized under the laws of a jurisdiction outside the United States.

IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed by their respective officers thereunto duly authorized, as of the date first above written, such execution being made on Schedule 1 hereto.

[NAME OF ASSIGNOR][NAME OF ASSIGNEE]

By______________________By______________________

Name:          Name:

Title:            Title:

Domestic Lending Office (and

address for notices):

[Address]

Eurodollar Lending Office:

[Address]

Accepted this  day of , 20__

CITIBANK, N.A., as Administrative Agent

By_________________________

Name:

Title:

SUNTRUST BANK, as Issuing Bank

By_________________________

Name:

Title:

PROGRESS ENERGY, INC.²

By__________________________

Name:

Title:

²If required.

SCHEDULE 1

TO

ASSIGNMENT AND ACCEPTANCE

Dated , 20____

Section 1

Percentage Interest Assigned:%

Section 2

Assignee’s Commitment:$

Aggregate Outstanding Principal Amount of

Advances owing to Assignee:$

Section 3

Effective Date³

³ This date should be no earlier than the date of acceptance by the Administrative Agent.

EXHIBIT C-1

Form of Opinion of General Counsel to

Progress Energy Service Company, LLC

[DATE]

To each of the Lenders parties to the Credit

Agreement referred to below, Citibank, N.A.,

as Administrative Agent, and the Issuing

Banks thereunder

Re:Progress Energy, Inc.

Ladies and Gentlemen:

This opinion is furnished to you by me as General Counsel to Progress Energy Service Company, LLC pursuant to Section 3.01(g) of the Credit Agreement, dated as of May 3, 2006 (the “Credit Agreement”, the terms defined therein being used herein as therein defined), among Progress Energy, Inc. (the “Borrower”), certain lenders thereunder (the “Lenders”), Citibank, N.A., as Administrative Agent for the Lenders, and the Issuing Banks thereunder.

In connection with the preparation, execution and delivery of the Credit Agreement, I have examined:

(1)The Credit Agreement.

(2)The documents furnished by the Borrower pursuant to Section 3.01 of the Credit Agreement.

(3)The Amended and Restated Articles of Incorporation of the Borrower (the “Charter”).

(4)The By-Laws of the Borrower and all amendments thereto (the “By-Laws”).

I have also examined the originals, or copies of such other corporate records of the Borrower, certificates of public officials and of officers of the Borrower and agreements, instruments and other documents as I have deemed necessary as a basis for the opinions expressed below. As to questions of fact material to such opinions, I have, when relevant facts were not independently established by me, relied upon certificates of the Borrower or its officers or of public officials. I have assumed the authenticity of all documents submitted to me as originals, the conformity to originals of all documents submitted as certified or photostatic copies and the authenticity of signatures (other than those of the Borrower), and the due execution and delivery, pursuant to due authorization, of the Credit Agreement by the Lenders and the Administrative Agent and the validity and binding effect thereof on such parties. For purposes of my opinions expressed in paragraph 1 below as to existence and good standing, I have relied as of their respective dates on certificates of public officials, copies of which are attached hereto as Exhibit A. Whenever the phrase “to my knowledge” is used in this opinion it refers to my actual knowledge and the actual knowledge of the attorneys who work under my supervision and who were involved in the representation of the Borrower in connection with the transactions contemplated by the Credit Agreement.

I or attorneys working under my supervision are qualified to practice law in the States of North Carolina and Florida, and the opinions expressed herein are limited to the law of the States of North Carolina and Florida, the Federal law of the United States and, in reliance on a certificate issued by the Secretary of State of South Carolina and attached hereto as part of Exhibit A, the laws of the State of South Carolina for purposes of the first sentence of opinion paragraph 1 below.

Based upon the foregoing and upon such investigation as I have deemed necessary, I am of the following opinion:

1.Each of the Borrower and CP&L is a corporation duly organized, validly existing and in good standing under the laws of the State of North Carolina, and CP&L is duly qualified to do business and in good standing in the State of South Carolina. Each of Florida Power and FPC is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida. Progress Capital is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida. The Borrower has the corporate power and authority to enter into the transactions contemplated by the Credit Agreement.

2.The execution, delivery and performance of the Credit Agreement by the Borrower have been duly authorized by all necessary corporate action on the part of the Borrower and the Credit Agreement has been duly executed and delivered by the Borrower.

3.The execution, delivery and performance of the Credit Agreement by the Borrower will not (i) violate the Charter or the By-Laws or any law, rule or regulation applicable to the Borrower (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System) or (ii) result in a breach of, or constitute a default under, any judgment, decree or order binding on the Borrower, or any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound.

4.No authorization, approval or other action by, and no notice to or filing with any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of the Credit Agreement, other than a notification to the North Carolina Utilities Commission, which has been timely made, and a filing of certain financing orders previously issued by the U.S. Securities and Exchange Commission with the Federal Energy Regulatory Commission, which has been timely made.

5.To my knowledge, except as described in the reports and registration statements that the Borrower, CP&L, FPC and Florida Power have filed with the Securities and Exchange Commission, there are no pending or overtly threatened actions or proceedings against the Borrower or any of such Subsidiaries before any court, governmental agency or arbitrator, that may materially adversely affect the financial condition, operations or properties of the Borrower and its Subsidiaries, taken as a whole.

The opinions set forth above are subject to the qualification that no opinion is expressed herein as to the enforceability of the Credit Agreement or any other document.

The foregoing opinions are solely for your benefit and may not be relied upon by any other Person other than (i) any other Person that may become a Lender or Issuing Bank under the Credit Agreement after the date hereof and (ii) Hunton & Williams LLP and King & Spalding LLP, in connection with their respective opinions delivered on the date hereof under Section 3.01 of the Credit Agreement. This letter speaks only as of the date hereof and may not be relied on by any person with respect to any date after the date hereof. I do not undertake to advise you of any changes in the opinions expressed herein from matters that may hereafter arise or be brought to my attention.

Very truly yours,

EXHIBIT C-2

Form of Opinion of Special Counsel for the Borrower

[DATE]

To each of the Lenders parties to the Credit

Agreement referred to below, Citibank, N.A.,

as Administrative Agent, and the Issuing

 Banks thereunder

Re:Progress Energy, Inc.

Ladies and Gentlemen:

This opinion is furnished to you by us as counsel for Progress Energy, Inc. (the “Borrower”) pursuant to Section 3.01(g) of the Credit Agreement, dated as of May 3, 2006 (the “Credit Agreement”, the terms defined therein being used herein as therein defined), among Progress Energy, Inc., certain lenders thereunder (the “Lenders”), Citibank, N.A., as Administrative Agent for the Lenders, and the Issuing Banks thereunder.

In connection with the preparation, execution and delivery of the Credit Agreement, we have examined:

(1)The Credit Agreement.

(2)The documents furnished by the Borrower pursuant to Section 3.01 of the Credit Agreement.

(3)The opinion letter of even date herewith, addressed to you by Frank A. Schiller, counsel to the Borrower and delivered in connection with the transactions contemplated by the Credit Agreement (the “Company Opinion Letter”).

We have also examined the originals, or copies of such other corporate records of the Borrower, certificates of public officials and of officers of the Borrower and agreements, instruments and other documents as we have deemed necessary as a basis for the opinions expressed below. As to questions of fact material to such opinions, we have, when relevant facts were not independently established by us, relied upon certificates of the Borrower or its officers or of public officials. We have assumed the authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted as certified or photostatic copies and the authenticity of the originals (other than those of the Borrower), and the due execution and delivery, pursuant to due authorization, of the Credit Agreement by the Lenders and the Administrative Agent and the validity and binding effect thereof on such parties. Whenever the phrase “to our knowledge” is used in this opinion it refers to the actual knowledge of the attorneys of this firm involved in the representation of the Borrower without independent investigation.

We are qualified to practice law in the States of North Carolina, Florida and New York, and the opinions expressed herein are limited to the law of the States of North Carolina, Florida and New York and the federal law of the United States. To the extent that our opinions expressed herein depend upon opinions expressed in paragraphs 1 through 4 of the Company Opinion Letter, we have relied without independent investigation on the accuracy of the opinions expressed in the Company Opinion Letter, subject to the assumptions, qualifications and limitations set forth in the Company Opinion Letter.

Based upon the foregoing and upon such investigation as we have deemed necessary, we are of the opinion that the Credit Agreement constitutes the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms except as enforcement may be limited or otherwise affected by (a) bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting the rights of creditors generally and (b) principles of equity, whether considered at law or in equity.

The opinion set forth above is subject to the following qualifications:

(a)In addition to the application of equitable principles described above, courts have imposed an obligation on contracting parties to act reasonably and in good faith in the exercise of their contractual rights and remedies, and may also apply public policy considerations in limiting the right of parties seeking to obtain indemnification under circumstances where the conduct of such parties is determined to have constituted negligence.

(b)No opinion is expressed herein as to (i) Section 8.05 of the Credit Agreement, (ii) the enforceability of provisions purporting to grant to a party conclusive rights of determination, (iii) the availability of specific performance or other equitable remedies, (iv) the enforceability of rights to indemnity under federal or state securities laws or (v) the enforceability of waivers by parties of their respective rights and remedies under law.

(c)No opinion is expressed herein as to provisions, if any, in the Credit Agreement, which (A) purport to excuse, release or exculpate a party for liability for or indemnify a party against the consequences of its own acts, (B) purport to make void any act done in contravention thereof, (C) purport to authorize a party to make binding determinations in its sole discretion, (D) relate to the effects of laws which may be enacted in the future, (E) require waivers, consents or amendments to be made only in writing, (F) purport to waive rights of offset or to create rights of set off other than as provided by statute, or (G) purport to permit acceleration of indebtedness and the exercise of remedies by reason of the occurrence of an immaterial breach of the Credit Agreement or any related document. Further, we express no opinion as to the necessity for any Lender, by reason of such Lender’s particular circumstances, to qualify to transact business in the State of New York or as to any Lender’s liability for taxes in any jurisdiction.

The foregoing opinion is solely for your benefit and may not be relied upon by any other Person other than any other Person that may become a Lender or Issuing Bank under the Credit Agreement after the date hereof in accordance with the provisions thereof. This letter speaks only as of the date hereof and may not be relied on by any person with respect to any date after the date hereof. We do not undertake to advise you of any changes in the opinions expressed herein from matters that may hereafter arise or be brought to our attention.

Very truly yours,

EXHIBIT C-3

FORM OF OPINION OF GENERAL COUNSEL TO PROGRESS ENERGY

 SERVICE COMPANY, LLC UPON EXTENSION OF THE TERMINATION DATE

___________ ___, 20__

To each of the Lenders and Issuing Banks parties

to the Credit Agreement referred to below and

to Citibank, N.A., as Administrative Agent

Re: Progress Energy, Inc.

Ladies and Gentlemen:

This opinion is furnished to you by me as General Counsel to Progress Energy Service Company, LLC in connection with the extension of the Termination Date until ________ __, _____ under Section 2.15 (the “Extension”) of the Credit Agreement, dated as of May 3, 2006 (the “Credit Agreement”, the terms defined therein being used herein as therein defined), among Progress Energy, Inc. (the “Borrower”), certain lenders from time to time parties thereto (the “Lenders”), Citibank, N.A., as Administrative Agent for the Lenders, and the Issuing Banks thereunder.

In connection with the Extension, I have examined:

(1)The Credit Agreement.

(2)The documents furnished by the Borrower pursuant to Section 3.01 of the Credit Agreement.

(3)The Request for Extension of Termination Date and Certificate, dated _____, submitted by the Borrower in connection with the Extension.

(4)The Amended and Restated Articles of Incorporation of the Borrower (the “Charter”).

(5)The By-Laws of the Borrower and all amendments thereto (the “By-Laws”).

I have also examined the originals, or copies of such other corporate records of the Borrower, certificates of public officials and of officers of the Borrower and agreements, instruments and other documents as I have deemed necessary as a basis for the opinions expressed below. As to questions of fact material to such opinions, I have, when relevant facts were not independently established by me, relied upon certificates of the Borrower or its officers or of public officials. I have assumed the authenticity of all documents submitted to me as originals, the conformity to originals of all documents submitted as certified or photostatic copies and the authenticity of the signatures (other than those of the Borrower), and the due execution and delivery, pursuant to due authorization, of the Credit Agreement by the Lenders and the Administrative Agent and the validity and binding effect thereof on such parties. For purposes of my opinions expressed in paragraph 1 below as to existence and good standing, I have relied as of their respective dates on certificates of public officials, copies of which are attached hereto as Exhibit A. Whenever the phrase “to my knowledge” is used in this opinion it refers to the my actual knowledge and the actual knowledge of the attorneys who work under my supervision and who were involved in the representation of the Borrower in connection with the transactions contemplated by the Credit Agreement.

I or attorneys working under my supervision are qualified to practice law in the States of North Carolina and Florida, and the opinions expressed herein are limited to the law of the States of North Carolina and Florida, the Federal law of the United States and, in reliance on a certificate issued by the Secretary of State of South Carolina and attached hereto as part of Exhibit A, the laws of the State of South Carolina for purposes of the first sentence of opinion paragraph 1 below.

Based upon the foregoing and upon such investigation as I have deemed necessary, I am of the following opinion:

1.The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of North Carolina, and is duly qualified to do business and in good standing in the State of South Carolina.

2.The execution, delivery and performance by the Borrower of the Credit Agreement, after giving effect to the Extension, are within the Borrower’s corporate powers, have been duly authorized by all necessary corporate action, and do not violate (i) the Charter or the By-Laws or any law, rule or regulation applicable to the Borrower (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System) or (ii) result in breach of, or constitute a default under, any judgment, decree or order binding on the Borrower, or any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound. The Credit Agreement has been duly executed and delivered on behalf of the Borrower.

3.No authorization, approval or other action by, and no notice to or filing with any governmental authority or regulatory body is required for the due execution, delivery and performance, by the Borrower of the Credit Agreement, after giving effect to the Extension, other than a notification to the North Carolina Utilities Commission, which has been timely made, and a filing of certain financing orders previously issued by the U.S. Securities and Exchange Commission with the Federal Energy Regulatory Commission, which has been timely made.

4.To my knowledge, except as described in the reports and registration statements that the Borrower has filed with the Securities and Exchange Commission, there are no pending or overtly threatened actions or proceedings against the Borrower or any of the Subsidiaries before any court, governmental agency or arbitrator, that may materially adversely affect the financial condition, operations or properties of the Borrower and its Subsidiaries, taken as a whole.

The opinions set forth above are subject to the qualification that no opinion is expressed herein as to the enforceability of the Credit Agreement or any other document.

The foregoing opinions are solely for your benefit and may not be relied upon by any other Person other than any other Person that may become a Lender or Issuing Bank under the Credit Agreement after the date hereof and Hunton & Williams LLP, in connection with their opinion delivered on the date hereof under Section 2.15(c) of the Credit Agreement. This letter speaks only as of the date hereof and may not be relied on by any person with respect to any date after the date hereof. I do not undertake to advise you of any changes in the opinions expressed herein from matters that may hereafter arise or be brought to my attention.

Very truly yours,

EXHIBIT C-4

FORM OF OPINION OF SPECIAL COUNSEL TO THE BORROWER UPON

 EXTENSION OF THE TERMINATION DATE

___________ ___, 20__

To each of the Lenders and Issuing Banks parties to the Credit Agreement referred to below and to Citibank, N.A., as Administrative Agent

Re: Progress Energy, Inc.

Ladies and Gentlemen:

This opinion is furnished to you by us as counsel for Progress Energy, Inc. (the “Borrower”) in connection with the extension of the Termination Date until May [ ], 2012 under Section 2.15 (the “Extension”) of the Credit Agreement, dated as of May 3, 2006 (the “Credit Agreement”, the terms defined therein being used herein as therein defined), among Progress Energy, Inc., certain lenders from time to time parties thereto (the “Lenders”), Citibank, N.A., as Administrative Agent for the Lenders and the Issuing Banks thereunder.

In connection with the Extension, we have examined:

(1)The Credit Agreement.

(2)The documents furnished by the Borrower pursuant to Section 3.01 of the Credit Agreement.

(3)The Request for Extension of Termination Date and Certificate, dated _____, submitted by the Borrower in connection with the Extension.

(4)The opinion letter of even date herewith, addressed to you by __________, counsel to the Borrower and delivered in connection with the transactions contemplated by the Credit Agreement (the “Borrower Opinion Letter”).

We have also examined the originals, or copies of such other corporate records of the Borrower, certificates of public officials and of officers of the Borrower and agreements, instruments and other documents as we have deemed necessary as a basis for the opinions expressed below. As to questions of fact material to such opinions, we have, when relevant facts were not independently established by us, relied upon certificates of the Borrower or its officers or of public officials. We have assumed the authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted as certified or photostatic copies and the authenticity of the originals (other than those of the Borrower), and the due execution and delivery, pursuant to due authorization, of the Credit Agreement by the Lenders and the Administrative Agent and the validity and binding effect thereof on such parties. Whenever the phrase “to our knowledge” is used in this opinion it refers to the actual knowledge of the attorneys of this firm involved in the representation of the Borrower without independent investigation.

We are qualified to practice law in the States of North Carolina, Florida and New York, and the opinions expressed herein are limited to the law of the States of North Carolina, Florida and New York applicable to public utilities and the federal law of the United States. To the extent that our opinions expressed herein depend upon opinions expressed in paragraphs 1 through 4 of the Borrower Opinion Letter, we have relied without independent investigation on the accuracy of the opinions expressed in the Borrower Opinion Letter, subject to the assumptions, qualifications and limitations set forth in the Borrower Opinion Letter.

Based upon the foregoing and upon such investigation as we have deemed necessary, we are of the following opinion the Credit Agreement after giving effect to the Extension constitutes the valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms except as enforcement may be limited or otherwise affected by (a) bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting the rights of creditors generally and (b) principles of equity, whether considered at law or in equity.

The opinion set forth above is subject to the following qualifications:

(a)In addition to the application of equitable principles described above, courts have imposed an obligation on contracting parties to act reasonably and in good faith in the exercise of their contractual rights and remedies, and may also apply public policy considerations in limiting the right of parties seeking to obtain indemnification under circumstances where the conduct of such parties is determined to have constituted negligence.

(b)No opinion is expressed herein as to (i) Section 8.05 of the Credit Agreement, (ii) the enforceability of provisions purporting to grant to a party conclusive rights of determination, (iii) the availability of specific performance or other equitable remedies, (iv) the enforceability of rights to indemnity under federal or state securities laws or (v) the enforceability of waivers by parties of their respective rights and remedies under law.

(c)No opinion is expressed herein as to provisions, if any, in the Credit Agreement, which (A) purport to excuse, release or exculpate a party for liability for or indemnify a party against the consequences of its own acts, (B) purport to make void any act done in contravention thereof, (C) purport to authorize a party to make binding determinations in its sole discretion, (D) relate to the effects of laws which may be enacted in the future, (E) require waivers, consents or amendments to be made only in writing, (F) purport to waive rights of offset or to create rights of set off other than as provided by statute, or (G) purport to permit acceleration of indebtedness and the exercise of remedies by reason of the occurrence of an immaterial breach of the Credit Agreement or any related document. Further, we express no opinion as to the necessity for any Lender, by reason of such Lender’s particular circumstances, to qualify to transact business in the State of New York or as to any Lender’s liability for taxes in any jurisdiction.

The foregoing opinion is solely for your benefit and may not be relied upon by any other Person other than any other Person that may become a Lender or Issuing Bank under the Credit Agreement after the date hereof in accordance with the provisions thereof. This letter speaks only as of the date hereof and may not be relied on by any person with respect to any date after the date hereof. We do not undertake to advise you of any changes in the opinions expressed herein from matters that may hereafter arise or be brought to our attention.

Very truly yours,

EXHIBIT D

FORM OF OPINION OF COUNSEL

TO THE ADMINISTRATIVE AGENT

May 3, 2006

To Citibank, N.A. (“Citibank”), as Administrative Agent for the Lenders referred to below, and to each of the Lenders and Issuing Banks parties to the Credit Agreement referred to below

Re:Progress Energy, Inc.

Ladies and Gentlemen:

We have acted as counsel to the Administrative Agent in connection with the preparation, execution and delivery of the Credit Agreement, dated as of May 3, 2006 (the “Credit Agreement”, the terms defined therein being used herein as therein defined), among Progress Energy, Inc., certain Lenders from time to time parties thereto, Citibank, N.A., as Administrative Agent for the Lenders, and SunTrust Bank, as initial Issuing Bank thereunder.

In this connection, we have examined the following documents:

1.a counterpart of the Credit Agreement, executed by the parties thereto;

2.the documents furnished by or on behalf of the Borrower pursuant to subsections (b) through (g) of Section 3.01 of the Credit Agreement, including, without limitation, the opinion of Hunton & Williams LLP (the “Borrower Opinion”).

In our examination of the documents referred to above, we have assumed the authenticity of all such documents submitted to us as originals, the genuineness of all signatures, the due authority of the parties executing such documents and the conformity to the originals of all such documents submitted to us as copies. We have also assumed that you have independently evaluated, and are satisfied with, the creditworthiness of the Borrower and the business terms reflected in the Credit Agreement. We have relied, as to factual matters, on the documents we have examined. We note that we do not represent the Borrower and, accordingly, are not privy to the nature or character of its business. Accordingly, we have assumed that the borrower is subject only to statutes, rules, regulations, judgments, orders and other requirements of law general applicability to corporations doing business in the State of New York.

To the extent that our opinions expressed below involve conclusions as to matters governed by law other than the law of the State of New York, we have relied upon the Borrower Opinion and have assumed without independent investigation the correctness of the matters set forth therein, our opinions expressed below being subject to the assumptions, qualifications and limitations set forth in the Borrower Opinion.

Based upon and subject to the foregoing, and subject to the qualifications set forth below, we are of the opinion that the Credit Agreement is the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms.

Our opinion is subject to the following qualifications:

(a)The enforceability of the Borrower’s obligations under the Credit Agreement is subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar law affecting creditors’ rights generally.

(b)The enforceability of the Borrower’s obligations under the Credit Agreement is subject to the effect of general principles of equity, including (without limitation) concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law). Such principles of equity are of general application, and, in applying such principles, a court, among other things, might not allow a contracting party to exercise remedies in respect of a default deemed immaterial, or might decline to order an obligor to perform covenants.

(c)We note further that, in addition to the application of equitable principles described above, courts have imposed an obligation on contracting parties to act reasonably and in good faith in the exercise of their contractual rights and remedies, and may also apply public policy considerations in limiting the right of parties seeking to obtain indemnification under circumstances where the conduct of such parties is determined to have constituted negligence.

(d)We express no opinion herein as to (i) the enforceability of Section 8.05 of the Credit Agreement, (ii) the enforceability of provisions purporting to grant to a party conclusive rights of determination, (iii) the availability of specific performance or other equitable remedies, (iv) the enforceability of rights to indemnity under federal or state securities laws, or (v) the enforceability of waivers by parties of their respective rights and remedies under law.

(e)Our opinions expressed above are limited to the law of the State of New York, and we do not express any opinion herein concerning any other law.

The foregoing opinion is solely for your benefit and may not be relied upon by any other person or entity, other than any Person that may become a Lender or Issuing Bank after the date hereof.

Very truly yours,

EXHIBIT E

FORM OF REQUEST FOR EXTENSION OF

THE TERMINATION DATE

CREDIT AGREEMENT

dated as of May 3, 2006

___________________________________

PROGRESS ENERGY, INC.

(Borrower)

AND

THE BANKS LISTED ON THE SIGNATURE PAGES HEREOF

(Banks)

and

CITIBANK, N.A.

(Administrative Agent)

and

SUNTRUST BANK

(Issuing Bank)

Request for Extension of Termination Date

I, [______________], [_________________] of Progress Energy, Inc., do hereby request that the Termination Date of the Credit Agreement, dated as of May 3, 2006 (the “Credit Agreement”, the terms defined therein being used herein as therein defined), among Progress Energy, Inc., certain Lenders from time to time parties thereto, Citibank, N.A., as Administrative Agent for the Lenders, and the Issuing Banks thereunder, be extended for a one-year period (hereinafter the “Proposed Extension”) pursuant to Section 2.15 of the Credit Agreement and, in connection therewith, hereby certify as follows:

(i)as of the date hereof, the representations and warranties set forth in Section 4.01 (including without limitation those regarding any required approvals of or notices to governmental bodies) of the Credit Agreement are and will be as of the effective date of the Proposed Extension accurate both before and after giving effect to the Proposed Extension; and

(ii)as of the date hereof, no Event of Default has occurred, nor has any event occurred, that with the giving of notice or the passage of time or both, would constitute an Event of Default, in either case both before and after giving effect to the Proposed Extension.

Witness my hand this ______ day of _________, ____.

________________________

[________________]

EXHIBIT F

FORM OF COMPLIANCE CERTIFICATE

[Letterhead of Progress Energy, Inc.]

[Date]

To each of the Lenders and Issuing Banks parties to the Credit Agreement referred to below, Citibank, N.A., as Administrative Agent

Progress Energy, Inc.

Ladies and Gentlemen:

This compliance certificate is furnished to you pursuant to Section 5.01(i)(ii) of the Credit Agreement, dated as of May 3, 2006 (the “Credit Agreement”), among Progress Energy, Inc., a North Carolina corporation (the “Borrower”), the lenders parties thereto (the “Lenders”), Citibank, N.A. (“Citibank”), as administrative agent (the “Administrative Agent”) for the Lenders, and the letter of credit issuing banks parties thereto. Terms defined in the Credit Agreement are used herein as therein defined.

1.As of [_______], 20__, the ratio of Consolidated Indebtedness of the Borrower and its Subsidiaries to Total Capitalization was _____ to 1.0, calculated, in accordance with Section 5.01(j) of the Credit Agreement, as follows:

A.Indebtedness as of such date was $________, calculated as follows:

Current Indebtedness: [List all forms of current Debt]	Amount
__________________________________	$
__________________________________
__________________________________
__________________________________	__________
Total current Indebtedness	$__________
Long-term Indebtedness : [list all forms of long-term Indebtedness ]	Amount
__________________________________	$
__________________________________
__________________________________
__________________________________
Total long-term Indebtedness	$__________
Total Indebtedness (current Indebtedness plus long-term Indebtedness )	$__________

B.Total Capitalization as of such date was $_____, calculated as follows:

Consolidated Indebtedness	$
Preferred Stock	$
Common Stock	$
Retained Earnings	$__________

2.As of [_______], 20__, and as of the date hereof, no Event of Default and no event that, with the giving of notice or lapse of time or both, will constitute an Event of Default, has occurred and in continuing.

I hereby certify that the calculations set forth in paragraph 1 hereof were prepared in accordance with GAAP.

Very truly yours,

PROGRESS ENERGY, INC.

By______________________________________

Name:

Title:

EX-10.D

Exhibit 10(d)

[EXECUTION COPY]

AMENDMENT

Dated as of May 3, 2006

To the Lenders parties to the Credit Agreement

referred to below

Ladies and Gentlemen:

Reference is made to the Credit Agreement, dated as of March 28, 2005 (the “Credit Agreement”), among Carolina Power & Light Company d/b/a Progress Energy Carolinas, Inc. (the “Company”), the Lenders and Wachovia Bank, N.A., as Administrative Agent (the “Administrative Agent”). Capitalized terms used herein and not otherwise defined herein have the meanings given such terms in the Credit Agreement. The Company has requested, and the Lenders have agreed, that the Credit Agreement be amended as provided below.

Section 1. Amendments. The parties agree that, subject to the satisfaction of the conditions precedent to effectiveness set forth below, the Credit Agreement is, as of the date hereof, hereby amended as follows:

(a) The following definitions in Section 1.01 are amended and restated in their entirety to read as follows:

““Applicable Margin” means on any date, the rate per annum set forth below for the applicable Type of Advance, determined by reference to the ratings assigned to the Reference Securities:

Basis for Pricing	LEVEL 1 If the Reference Securities are rated at least A- by S&P or at least A3 by Moody’s	LEVEL 2 If the Reference Securities are rated lower than Level 1 but at least BBB+ by S&P or at least Baa1 by Moody’s	LEVEL 3 If the Reference Securities are rated lower than Level 2 but at least BBB by S&P or at least Baa2 by Moody’s	LEVEL 4 If the Reference Securities are rated lower than Level 3 but at least BBB- by S&P or at least Baa3 by Moody’s	LEVEL 5 If the Reference Securities are rated lower than Level 4 or unrated
Eurodollar Rate	0.230%	0.270%	0.350%	0.475%	0.575%
Base Rate	0.0%	0.0%	0.0%	0.0%	0.0%

The Applicable Margin will increase by 0.050% at Levels 1 and 2, by 0.100% at Levels 3 and 4 and by 0.125% at Level 5 at any time that more than 50% of the Commitments are utilized. The Applicable Margin will be redetermined on the date of any change in the rating assigned by S&P or Moody’s, as the case may be, to the Reference Securities. If and so long as an Event of Default shall have occurred and shall be continuing, the Applicable Margin will increase by 2.00%. If the ratings assigned to the Reference Securities by S&P and Moody’s are not comparable (i.e., a “split rating”), and (i) the ratings differential is one category, the higher of such two ratings shall control, unless one of the ratings is below BBB- or Baa3, or (ii) the ratings differential is two or more categories or one of the ratings is below BBB- or Baa3, the rating that is one below the higher of the two ratings shall control.”

““Termination Date” means, with respect to any Lender, the earlier to occur of (i) June 28, 2010, subject to extension to a later date for such Lender pursuant to Section 2.16, and (ii) the date of termination in whole of the Commitments pursuant to Section 2.04 or 6.01.”

(b) The following new definitions are inserted in Section 1.01 in appropriate alphabetic order:

““Additional Commitment Lender” has the meaning specified in Section 2.16(b).”

““Anniversary Date” has the meaning specified in Section 2.16(a).”

““Current Termination Date” has the meaning specified in Section 2.16(a).”

““Declining Lender” has the meaning specified in Section 2.16(a).”

(c) Section 2.03 is amended and restated in its entirety to read as follows:

“SECTION 2.03. Facility Fee.

The Company agrees to pay to the Administrative Agent for the account of each Lender a facility fee on each Lender’s Commitment, irrespective of usage, from the date hereof, in the case of each Bank, and from the effective date specified in the Assignment and Assumption pursuant to which it became a Lender, in the case of each other Lender, until the Termination Date, payable quarterly in arrears on the last day of each March, June, September and December during the term of such Lender’s Commitment and on the Termination Date, at a rate per annum determined by reference to the ratings assigned to the Reference Securities as set forth below:

Basis for Pricing	LEVEL 1 If the Reference Securities are rated at least A- by S&P or at least A3 by Moody’s	LEVEL 2 If the Reference Securities are rated lower than Level 1 but at least BBB+ by S&P or at least Baa1 by Moody’s	LEVEL 3 If the Reference Securities are rated lower than Level 2 but at least BBB by S&P or at least Baa2 by Moody’s	LEVEL 4 If the Reference Securities are rated lower than Level 3 but at least BBB- by S&P or at least Baa3 by Moody’s	LEVEL 5 If the Reference Securities are rated lower than Level 4 or unrated
Facility Fee	0.070%	0.080%	0.100%	0.125%	0.175%

The facility fee rate will be redetermined on the date of any change in the rating assigned by S&P or Moody’s, as the case may be, to the Reference Securities. If the ratings assigned to the Reference Securities by S&P and Moody’s are not comparable (i.e., a “split rating”), and (i) the ratings differential is one category, the higher of such two ratings shall control, unless one of the ratings is below BBB- or Baa3, or (ii) the ratings differential is two or more categories or one of the ratings is below BBB- or Baa3, the rating that is one below the higher of the two ratings shall control.”

(d) The third sentence of Section 2.14(a) is amended and restated in its entirety to read as follows:

“The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or fees (other than pursuant to Section 2.08, 2.12 or 2.16(b)) ratably to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement.”

(e) The following is added as a new Section 2.16:

“SECTION 2.16. Extension of Termination Date.

(a)So long as no Event of Default shall have occurred and be continuing and the Termination Date shall not have occurred, then at least 30 days but not more than 60 days prior to each of the second and third anniversaries of the date hereof (each, an “Anniversary Date”), the Company may request that the Lenders, by written notice to the Administrative Agent (in substantially the form attached hereto as Exhibit F) with a copy to the Arrangers, consent to a one-year extension of the Termination Date. Each Lender shall, in its sole discretion, determine whether to consent to such request and shall notify the Administrative Agent of its determination at least 20 days prior to the applicable Anniversary Date. The failure to respond by any Lender within such time period shall be deemed a denial of such request. The Administrative Agent shall deliver a notice to the Company and the Lenders at least 15 days prior to such Anniversary Date of the identity of the Lenders that have consented to such extension and the Lenders that have declined such consent (the “Declining Lenders”). If Lenders holding in the aggregate 50% or less of the Commitments have consented to the requested extension, the Termination Date shall not be extended, and the Commitments of all Lenders shall terminate on the then current Termination Date (the “Current Termination Date”).

(b)If Lenders holding in the aggregate more than 50% of the Commitments have consented to the requested extension, subject to the conditions set forth in Section 2.16(c), the Termination Date shall be extended as to such consenting Lenders only (and not as to any Declining Lender) for a period of one year following the Current Termination Date. Unless assigned to another Lender as set forth below, the commitments of the Declining Lenders shall terminate on such Current Termination Date, all Advances of and other amounts payable to such Declining Lenders shall be repaid to them on such Current Termination Date, and such Declining Lenders shall have no further liability as of such Current Termination Date. The Company shall have the right at any time on or before the applicable Anniversary Date to replace each Declining Lender with, and add as “Lenders” under this Agreement in place thereof, one or more Eligible Assignees (each, an “Additional Commitment Lender”) as provided in Section 8.07(f), each of which Additional Commitment Lenders shall have entered into an Assignment and Acceptance pursuant to which each such Additional Commitment Lender shall, effective as of such Anniversary Date, assume a Commitment (and, if any such Additional Commitment Lender is already a Lender, its Commitment shall be in addition to such Lender’s Commitment hereunder on such date) and accept as such Additional Lender’s Termination Date with respect to the Commitment so assumed the latest date to which the Termination Date has been extended pursuant to this Section 2.16.

(c)Any extension of the Termination Date pursuant to this Section 2.16 shall become effective upon the applicable Anniversary Date if the Company shall have delivered to the Administrative Agent and each Lender, on or prior to such Anniversary Date, (i) opinions of counsel to the Company substantially in the forms of Exhibits D-3 and D-4 attached hereto upon which each Lender and the Administrative Agent may rely, together with any governmental order referred to therein attached thereto and (ii) a certificate of a duly authorized officer of the Company (the statements contained in which shall be true) to the effect that (x) the representations and warranties contained in Section 4.01 are correct on and as of such Anniversary Date before and after giving effect to the extension of the Termination Date, as though made on and as of such Anniversary Date, and (y) no event has occurred and is continuing, or would result from such extension of the Termination Date, that constitutes an Event of Default or that would constitute an Event of Default but for the requirement that notice be given or time elapse, or both.

(d)Upon the extension of any Termination Date in accordance with this Section 2.16, the Administrative Agent shall deliver to each Lender a revised Schedule II setting forth the Commitment of each Lender after giving effect to such extension, and such Schedule II shall replace the Schedule II in effect before the applicable Anniversary Date.”

(f) The first sentence of Section 8.07(f) is amended and restated in its entirety to read as follows:

“If (x) any Lender shall be a Declining Lender, (y) any Lender or any Participant shall make any demand for payment under Section 2.12 or (z) the Company is required to pay any additional amount to any Lender or governmental authority for the account of any Lender pursuant to Section 8.04(c) or (d), then within the time period specified in Section 2.16(b) or within 30 days after such demand for any such payment (if, but only if, such demanded payment has been made by the Company) (as applicable), the Company may, at its sole expense and effort, upon notice to such Lender and with the approval of the Administrative Agent (which approval shall not be unreasonably withheld or delayed), demand that such Lender assign in accordance with and subject to the restrictions contained in, and consents required by, this Section 8.07 to one or more Eligible Assignees designated by the Company all (but not less than all) of such Lender’s Commitment (if any) and the Advances owing to it no later than the applicable Anniversary Date or within the period ending on the later to occur of such 30th day and the last day of the longest of the then current Interest Periods for such Advances (as applicable), provided that (i) no Default or Event of Default shall then have occurred and be continuing; (ii) the Company shall have paid to the Administrative Agent the assignment fee specified in Section 8.07(a); (iii) such Lender shall have received payment of an amount equal to the outstanding principal of its Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder (including any amounts under Section 8.04(b) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Company (in the case of all other amounts); (iv) in the case of any such assignment resulting from a claim for compensation under Section 2.12 or payments required to be made pursuant to Section 8.04(c) or (d), such assignment will result in a reduction in such compensation or payments thereafter; (v) in the case of any such assignment by a Declining Lender, such Declining Lender shall have consented to such assignment, and (vi) such assignment does not conflict with applicable laws.”

(g) Schedule II is amended and restated in its entirety to read as the attached Schedule I hereto.

(h)The attached Exhibit A-1 and Exhibit A-2 hereto are added as “Exhibit D-3” and “Exhibit D-4”, respectively, to the Credit Agreement.

(i)The attached Exhibit B hereto is added as “Exhibit F” to the Credit Agreement.

Section 2. Conditions to Effectiveness. Section 1 of this Amendment shall be effective as of the date hereof when and if (i) the Company and the Lenders shall have executed and delivered to the Administrative Agent executed counterparts of this Amendment, and (ii) the representations and warranties of the Company set forth in Section 3 below shall be true and correct on and as of such date of effectiveness as though made on and as of such date.

Section 3. Representations and Warranties.The Company represents and warrants that (i) the representations and warranties contained in Article IV of the Credit Agreement, as amended hereby (with each reference therein to “this Agreement”, “hereunder” and words of like import referring to the Credit Agreement being deemed to be a reference to this Amendment and the Credit Agreement, as amended hereby), are true and correct on and as of the date hereof as though made on and as of such date, and (ii) no event has occurred and is continuing, or would result from the execution and delivery of this Amendment, that constitutes an Event of Default.

Section 4. Effect on the Credit Agreement. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under the Credit Agreement, nor constitute a waiver of any provision of any of the Credit Agreement. Except as expressly amended above, the Credit Agreement is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. This Amendment shall be binding on the parties hereto and their respective successors and permitted assigns under the Credit Agreement.

Section 5. Costs, Expenses and Taxes. The Company agrees to pay on demand all costs and expenses of the Administrative Agent in connection with the preparation, execution and delivery of this Amendment and any other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto, and all costs and expenses (including, without limitation, counsel fees and expenses), if any, in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Amendment or such other instruments and documents. In addition, the Company agrees to pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Amendment and any other instruments and documents to be delivered hereunder, and agree jointly and severally to save the Lenders and the Administrative Agent harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes.

Section 6. Counterparts. This Amendment may be executed in any number of counterparts and by any combination of the parties hereto in separate counterparts, each of which counterparts shall constitute an original, and all of which taken together shall constitute one and the same instrument.

Section 7. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York.

[Remainder of page intentionally left blank]

If you consent and agree to the foregoing, please evidence such consent and agreement by executing and faxing one copy, and returning six counterparts, of this Amendment to King & Spalding LLP, 1185 Avenue of the Americas, New York, New York 10036, Attention: Colleen Stapleton (fax no. 212-556-2222) no later than 5:00 p.m., New York City time, on May 3, 2006.

Very truly yours,

CAROLINA POWER & LIGHT COMPANY d/b/a

     PROGRESS ENERGY CAROLINAS, INC.

By /s/ Thomas R. Sullivan

      Thomas R. Sullivan

      Treasurer

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS CAROLINAS CREDIT AGREEMENT

The undersigned hereby consent

and agree to the foregoing:

WACHOVIA BANK, N.A.,

as Administrative Agent and Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS CAROLINAS CREDIT AGREEMENT

3

THE ROYAL BANK OF SCOTLAND PLC,

as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS CAROLINAS CREDIT AGREEMENT

THE BANK OF NEW YORK, as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS CAROLINAS CREDIT AGREEMENT

CITIBANK, N.A., as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS CAROLINAS CREDIT AGREEMENT

MELLON BANK, N.A., as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS CAROLINAS CREDIT AGREEMENT

JPMORGAN CHASE BANK, N.A., as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS CAROLINAS CREDIT AGREEMENT

BANK OF AMERICA, N.A., as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS CAROLINAS CREDIT AGREEMENT

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,

NEW YORK BRANCH (as successor-by-merger

to UFJ BANK LIMITED), as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS CAROLINAS CREDIT AGREEMENT

SUNTRUST BANK, as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS CAROLINAS CREDIT AGREEMENT

BARCLAYS BANK PLC, as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS CAROLINAS CREDIT AGREEMENT

3

SCHEDULE I

SCHEDULE II

Commitments

Lender	Commitment	Domestic Lending Office	Eurodollar Lending Office
Wachovia Bank, N.A.	$ 82,500,000	201 South College Street Mail Code: CP-8, NC0680 Charlotte, NC 28288-0680 Attention: Brad Riggenbach Telephone: 704-715-8946 Telecopier: 704-383-0288/0835 E-Mail:bradley.riggenbach@wachovia.com	Same as Domestic Lending Office
The Royal Bank of Scotland plc	$ 77,000,000	101 Park Avenue New York, NY 10178 Attention: Li Yao Telephone: 212.401.1335 Telecopier: 212.401.1494 E-Mail: LiYao.Li@rbos.com	Same as Domestic Lending Office
Citibank, N.A.	$ 49,000,000	388 Greenwich Street New York, New York 10013 Attention: Stuart Glen Telephone: 212.816-8553 Telecopier: 212.816-8098 Email: stuart.j.glen@citigroup.com	Same as Domestic Lending Office
Bank of Tokyo- Mitsubishi Trust Company	$ 45,000,000	BTM Information Services, Inc. c/o The Bank of Tokyo-Mitsubishi, Ltd., NY Branch 1251 Avenue of the Americas, 12th Floor New York, NY 10020-1104 Attention: Rolando Uy, AVP, Loan Operations Dept. Telephone: 201.413.8570 Telecopier: 201.521.2304 Email: N/A	Same as Domestic Lending Office
The Bank of New York	$ 45,000,000	One Wall Street 19th Floor New York, NY 10286 Attention: Frank Su, Energy Division Telephone: 212.635.7532 Telecopier: 212.635.7552 Email: fsu@bankofny.com	Same as Domestic Lending Office
Mellon Bank, N.A.	$ 45,000,000	525 William Penn Place Room 153-1203 Pittsburgh, PA 15259-0003 Attention: Daria Armen, Loan Administrator Telephone: 412.234.1870 Telecopier: 412.209.6117 Email: N/A	Same as Domestic Lending Office
JPMorgan Chase Bank, N.A.	$ 44,000,000	1111 Fannin - 10 Houston, TX 77002 Attention: Kelly Collins, Account Manager Telephone: 713.750.2530 Telecopier: 713.427.6307 Email: kelly.collins@jpmchase.com	Same as Domestic Lending Office
Bank of America, N.A.	$ 22,000,000	901 Main Street, 14th Fl. Mail Code: TX1-492-14-12 Dallas, TX 75202-3714 Attention: Jacqueline R. Archuleta Telephone: 214.209.2135 Telecopier: 214.290.8372 Email: jacqueline.archuleta@bankofamerica.com	Same as Domestic Lending Office
Barclays Bank PLC	$ 20,500,000	Barclays Capital Services, LLC 200 Cedar Knolls Road Whippany, NJ 07981 Attention: Erik Hoffman Telephone: 973.576.3709 Telecopier: 973.576.3014 Email: erik.hoffman@barcap.com	Same as Domestic Lending Office
SunTrust Bank	$ 20,000,000	SunTrust Bank Mail Code 1929 303 Peachtree Street, 10th Floor Atlanta, GA 30308 Attn: Tina Marie Edwards Telephone: 404-588-8660 Telecopier: 404-588-4402 Email: tinamarie.edwards@suntrust.com	Same as Domestic Lending Office
Total:	$450,000,000

EXHIBIT A-1

EXHIBIT D-3

FORM OF OPINION OF GENERAL COUNSEL TO THE BORROWER UPON EXTENSION OF THE TERMINATION DATE

___________ ___, 20__

To each of the Lenders parties to the Credit Agreement referred to below and to Wachovia Bank, N.A., as Administrative Agent

Re: Carolina Power & Light Company d/b/a Progress Energy Carolinas, Inc.

Ladies and Gentlemen:

This opinion is furnished to you by me as Vice President (Legal) of Progress Energy Service Company, LLC and in my capacity as counsel to Carolina Power & Light Company d/b/a Progress Energy Carolinas, Inc. (the “Borrower”) in connection with the extension of the Termination Date until ________ __, _____ under Section 2.16 (the “Extension”) of the Credit Agreement, dated as of March 28, 2005, as amended, (the “Credit Agreement”, the terms defined therein being used herein as therein defined), among the Borrower, certain lenders from time to time parties thereto (the “Lenders”) and Wachovia Bank, N.A., as Administrative Agent for the Lenders.

In connection with the Extension, I have examined:

(1)The Credit Agreement.

(2)The documents furnished by the Borrower pursuant to Section 3.01 of the Credit Agreement.

(3)The Request for Extension of Termination Date and Certificate, dated _____, submitted by the Borrower in connection with the Extension.

(4)The Restated Charter of the Borrower and all amendments thereto (the “Charter”).

(5)The By-Laws of the Borrower and all amendments thereto (the “By-Laws”).

I have also examined the originals, or copies of such other corporate records of the Borrower, certificates of public officials and of officers of the Borrower and agreements, instruments and other documents as I have deemed necessary as a basis for the opinions expressed below. As to questions of fact material to such opinions, I have, when relevant facts were not independently established by me, relied upon certificates of the Borrower or its officers or of public officials. I have assumed the authenticity of all documents submitted to me as originals, the conformity to originals of all documents submitted as certified or photostatic copies and the authenticity of the signatures (other than those of the Borrower), and the due execution and delivery, pursuant to due authorization, of the Credit Agreement by the Lenders and the Administrative Agent and the validity and binding effect thereof on such parties. For purposes of my opinions expressed in paragraph 1 below as to existence and good standing, I have relied as of their respective dates on certificates of public officials, copies of which are attached hereto as Exhibit A. Whenever the phrase “to my knowledge” is used in this opinion it refers to my actual knowledge and the actual knowledge of the attorneys who work under my supervision and who were involved in the representation of the Borrower in connection with the transactions contemplated by the Credit Agreement.

I or attorneys working under my supervision are qualified to practice law in the State of North Carolina and the opinions expressed herein are limited to the law of the State of North Carolina, the Federal law of the United States and, in reliance on a certificate issued by the Secretary of State of South Carolina and attached hereto as part of Exhibit A, the laws of the State of South Carolina for purposes of the first sentence of opinion paragraph 1 below.

Based upon the foregoing and upon such investigation as I have deemed necessary, I am of the following opinion:

1.The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of North Carolina, and is duly qualified to do business and in good standing in the State of South Carolina.

2.The execution, delivery and performance by the Borrower of the Credit Agreement, after giving effect to the Extension, are within the Borrower’s corporate powers, have been duly authorized by all necessary corporate action, and do not violate (i) the Charter or the By-Laws or any law, rule or regulation applicable to the Borrower (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System) or (ii) result in breach of, or constitute a default under, any judgment, decree or order binding on the Borrower, or any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound. The Credit Agreement has been duly executed and delivered on behalf of the Borrower.

3.No authorization, approval or other action by, and no notice to or filing with any governmental authority or regulatory body is required for the due execution, delivery and performance, by the Borrower of the Credit Agreement, after giving effect to the Extension, other than a notification to the North Carolina Utilities Commission, which has been timely made.

4.To my knowledge, except as described in the reports and registration statements that the Borrower has filed with the Securities and Exchange Commission, there are no pending or overtly threatened actions or proceedings against the Borrower or any of the Subsidiaries before any court, governmental agency or arbitrator, that may materially adversely affect the financial condition, operations or properties of the Borrower and its Subsidiaries, taken as a whole.

The opinions set forth above are subject to the qualification that no opinion is expressed herein as to the enforceability of the Credit Agreement or any other document.

The foregoing opinions are solely for your benefit and may not be relied upon by any other Person other than any other Person that may become a Lender under the Credit Agreement after the date hereof and Hunton & Williams LLP, in connection with their opinion delivered on the date hereof under Section 2.16(c) of the Credit Agreement. This letter speaks only as of the date hereof and may not be relied on by any person with respect to any date after the date hereof. I do not undertake to advise you of any changes in the opinions expressed herein from matters that may hereafter arise or be brought to my attention.

Very truly yours,

EXHIBIT A-2

EXHIBIT D-4

FORM OF OPINION OF SPECIAL COUNSEL TO THE BORROWER UPON EXTENSION OF THE TERMINATION DATE

___________ ___, 20__

To each of the Lenders parties to the Credit Agreement referred to below and to Wachovia Bank, N.A., as Administrative Agent

Re: Carolina Power & Light Company d/b/a Progress Energy Carolinas, Inc.

Ladies and Gentlemen:

This opinion is furnished to you by us as counsel for Carolina Power & Light Company d/b/a Progress Energy Carolinas, Inc. (the “Borrower”) in connection with the extension of the Termination Date until June [ ], 20___ under Section 2.16 (the “Extension”) of the Credit Agreement, dated as of March 28, 2005, as amended, (the “Credit Agreement”, the terms defined therein being used herein as therein defined), among the Borrower, certain lenders from time to time parties thereto (the “Lenders”) and Wachovia Bank, N.A., as Administrative Agent for the Lenders.

In connection with the Extension, we have examined:

(1)The Credit Agreement.

(2)The documents furnished by the Borrower pursuant to Section 3.01 of the Credit Agreement.

(3)The Request for Extension of Termination Date and Certificate, dated _____, submitted by the Borrower in connection with the Extension.

(4)The opinion letter of even date herewith, addressed to you by __________, counsel to the Borrower and delivered in connection with the transactions contemplated by the Credit Agreement (the “Borrower Opinion Letter”).

We have also examined the originals, or copies of such other corporate records of the Borrower, certificates of public officials and of officers of the Borrower and agreements, instruments and other documents as we have deemed necessary as a basis for the opinions expressed below. As to questions of fact material to such opinions, we have, when relevant facts were not independently established by us, relied upon certificates of the Borrower or its officers or of public officials. We have assumed the authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted as certified or photostatic copies and the authenticity of the originals (other than those of the Borrower), and the due execution and delivery, pursuant to due authorization, of the Credit Agreement by the Lenders and the Administrative Agent and the validity and binding effect thereof on such parties. Whenever the phrase “to our knowledge” is used in this opinion it refers to the actual knowledge of the attorneys of this firm involved in the representation of the Borrower without independent investigation.

We are qualified to practice law in the States of North Carolina and New York, and the opinions expressed herein are limited to the law of the States of North Carolina and New York applicable to public utilities and the federal law of the United States. To the extent that our opinions expressed herein depend upon opinions expressed in paragraphs 1 through 4 of the Borrower Opinion Letter, we have relied without independent investigation on the accuracy of the opinions expressed in the Borrower Opinion Letter, subject to the assumptions, qualifications and limitations set forth in the Borrower Opinion Letter.

Based upon the foregoing and upon such investigation as we have deemed necessary, we are of the following opinion the Credit Agreement after giving effect to the Extension constitutes the valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms except as enforcement may be limited or otherwise affected by (a) bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting the rights of creditors generally and (b) principles of equity, whether considered at law or in equity.

The opinion set forth above is subject to the following qualifications:

(a)In addition to the application of equitable principles described above, courts have imposed an obligation on contracting parties to act reasonably and in good faith in the exercise of their contractual rights and remedies, and may also apply public policy considerations in limiting the right of parties seeking to obtain indemnification under circumstances where the conduct of such parties is determined to have constituted negligence.

(b)No opinion is expressed herein as to (i) Section 8.05 of the Credit Agreement, (ii) the enforceability of provisions purporting to grant to a party conclusive rights of determination, (iii) the availability of specific performance or other equitable remedies, (iv) the enforceability of rights to indemnity under federal or state securities laws or (v) the enforceability of waivers by parties of their respective rights and remedies under law.

(c)No opinion is expressed herein as to provisions, if any, in the Credit Agreement, which (A) purport to excuse, release or exculpate a party for liability for or indemnify a party against the consequences of its own acts, (B) purport to make void any act done in contravention thereof, (C) purport to authorize a party to make binding determinations in its sole discretion, (D) relate to the effects of laws which may be enacted in the future, (E) require waivers, consents or amendments to be made only in writing, (F) purport to waive rights of offset or to create rights of set off other than as provided by statute, or (G) purport to permit acceleration of indebtedness and the exercise of remedies by reason of the occurrence of an immaterial breach of the Credit Agreement or any related document. Further, we express no opinion as to the necessity for any Lender, by reason of such Lender’s particular circumstances, to qualify to transact business in the State of New York or as to any Lender’s liability for taxes in any jurisdiction.

The foregoing opinion is solely for your benefit and may not be relied upon by any other Person other than any other Person that may become a Lender under the Credit Agreement after the date hereof in accordance with the provisions thereof. This letter speaks only as of the date hereof and may not be relied on by any person with respect to any date after the date hereof. We do not undertake to advise you of any changes in the opinions expressed herein from matters that may hereafter arise or be brought to our attention.

Very truly yours,

EXHIBIT B

EXHIBIT F

FORM OF REQUEST FOR EXTENSION OF

THE TERMINATION DATE

CREDIT AGREEMENT

Dated as of March 28, 2005

___________________________________

CAROLINA POWER & LIGHT COMPANY d/b/a PROGRESS ENERGY CAROLINAS, INC.

(Company)

and

THE BANKS LISTED ON THE SIGNATURE PAGES HEREOF

(Banks)

and

OTHER LENDERS FROM TIME TO TIME

PARTY HERETO

(Lenders)

and

WACHOVIA BANK, N.A.

(Administrative Agent)

Request for Extension of Termination Date

I, [______________], [_________________] of Progress Energy Carolinas, Inc., do hereby request that the Termination Date of the Credit Agreement, dated as of March 28, 2005, as amended (the “Credit Agreement”, the terms defined therein being used herein as therein defined), among Progress Energy Carolinas, Inc., certain Lenders from time to time parties thereto and Wachovia Bank, N.A., as Administrative Agent for the Lenders, be extended for a one-year period (hereinafter the “Proposed Extension”) pursuant to Section 2.16 of the Credit Agreement and, in connection therewith, hereby certify as follows:

(i)as of the date hereof, the representations and warranties set forth in Section 4.01 (including without limitation those regarding any required approvals of or notices to governmental bodies) of the Credit Agreement are and will be as of the effective date of the Proposed Extension accurate both before and after giving effect to the Proposed Extension; and

(ii)as of the date hereof, no Event of Default has occurred, nor has any event occurred, that with the giving of notice or the passage of time or both, would constitute an Event of Default, in either case both before and after giving effect to the Proposed Extension.

Witness my hand this ______ day of _________, ____.

________________________

[________________]

EX-10.E

Exhibit 10(e)

[EXECUTION COPY]

AMENDMENT

Dated as of May 3, 2006

To the Lenders parties to the Credit Agreement

referred to below

Ladies and Gentlemen:

Reference is made to the Credit Agreement, dated as of March 28, 2005 (the “Credit Agreement”), among Florida Power Corporation d/b/a Progress Energy Florida, Inc. (the “Company”), the Lenders and Bank of America, N.A., as Administrative Agent (the “Administrative Agent”). Capitalized terms used herein and not otherwise defined herein have the meanings given such terms in the Credit Agreement. The Company has requested, and the Lenders have agreed, that the Credit Agreement be amended as provided below.

Section 1. Amendments. The parties agree that, subject to the satisfaction of the conditions precedent to effectiveness set forth below, the Credit Agreement is, as of the date hereof, hereby amended as follows:

(a) The following definitions in Section 1.01 are amended and restated in their entirety to read as follows:

““Applicable Margin” means on any date, the rate per annum set forth below for the applicable Type of Advance, determined by reference to the ratings assigned to the Reference Securities:

Basis for Pricing	LEVEL 1 If the Reference Securities are rated at least A- by S&P or at least A3 by Moody’s	LEVEL 2 If the Reference Securities are rated lower than Level 1 but at least BBB+ by S&P or at least Baa1 by Moody’s	LEVEL 3 If the Reference Securities are rated lower than Level 2 but at least BBB by S&P or at least Baa2 by Moody’s	LEVEL 4 If the Reference Securities are rated lower than Level 3 but at least BBB- by S&P or at least Baa3 by Moody’s	LEVEL 5 If the Reference Securities are rated lower than Level 4 or unrated
Eurodollar Rate	0.230%	0.270%	0.350%	0.475%	0.575%
Base Rate	0.0%	0.0%	0.0%	0.0%	0.0%

The Applicable Margin will increase by 0.050% at Levels 1 and 2, by 0.100% at Levels 3 and 4 and by 0.125% at Level 5 at any time that more than 50% of the Commitments are utilized. The Applicable Margin will be redetermined on the date of any change in the rating assigned by S&P or Moody’s, as the case may be, to the Reference Securities. If and so long as an Event of Default shall have occurred and shall be continuing, the Applicable Margin will increase by 2.00%. If the ratings assigned to the Reference Securities by S&P and Moody’s are not comparable (i.e., a “split rating”), and (i) the ratings differential is one category, the higher of such two ratings shall control, unless one of the ratings is below BBB- or Baa3, or (ii) the ratings differential is two or more categories or one of the ratings is below BBB- or Baa3, the rating that is one below the higher of the two ratings shall control.”

““Termination Date” means, with respect to any Lender, the earlier to occur of (i) March 28, 2010, subject to extension to a later date for such Lender pursuant to Section 2.16, and (ii) the date of termination in whole of the Commitments pursuant to Section 2.04 or 6.01.”

(b) The following new definitions are inserted in Section 1.01 in appropriate alphabetic order:

““Additional Commitment Lender” has the meaning specified in Section 2.16(b).”

““Anniversary Date” has the meaning specified in Section 2.16(a).”

““Current Termination Date” has the meaning specified in Section 2.16(a).”

““Declining Lender” has the meaning specified in Section 2.16(a).”

(c) Section 2.03 is amended and restated in its entirety to read as follows:

“SECTION 2.03. Facility Fee.

The Company agrees to pay to the Administrative Agent for the account of each Lender a facility fee on each Lender’s Commitment, irrespective of usage, from the date hereof, in the case of each Bank, and from the effective date specified in the Assignment and Assumption pursuant to which it became a Lender, in the case of each other Lender, until the Termination Date, payable quarterly in arrears on the last day of each March, June, September and December during the term of such Lender’s Commitment and on the Termination Date, at a rate per annum determined by reference to the ratings assigned to the Reference Securities as set forth below:

Basis for Pricing	LEVEL 1 If the Reference Securities are rated at least A- by S&P or at least A3 by Moody’s	LEVEL 2 If the Reference Securities are rated lower than Level 1 but at least BBB+ by S&P or at least Baa1 by Moody’s	LEVEL 3 If the Reference Securities are rated lower than Level 2 but at least BBB by S&P or at least Baa2 by Moody’s	LEVEL 4 If the Reference Securities are rated lower than Level 3 but at least BBB- by S&P or at least Baa3 by Moody’s	LEVEL 5 If the Reference Securities are rated lower than Level 4 or unrated
Facility Fee	0.070%	0.080%	0.100%	0.125%	0.175%

The facility fee rate will be redetermined on the date of any change in the rating assigned by S&P or Moody’s, as the case may be, to the Reference Securities. If the ratings assigned to the Reference Securities by S&P and Moody’s are not comparable (i.e., a “split rating”), and (i) the ratings differential is one category, unless one of the ratings is below BBB- or Baa3 the higher of such two ratings shall control, or (ii) the ratings differential is two or more categories or one of the ratings is below BBB- or Baa3, the rating that is one below the higher of the two ratings shall control.”

(d) The third sentence of Section 2.14(a) is amended and restated in its entirety to read as follows:

“The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or fees (other than pursuant to Section 2.08, 2.12 or 2.16(b)) ratably to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement.”

(e) The following is added as a new Section 2.16:

“SECTION 2.16. Extension of Termination Date.

(a)So long as no Event of Default shall have occurred and be continuing and the Termination Date shall not have occurred, then at least 30 days but not more than 60 days prior to each of the second and third anniversaries of the date hereof (each, an “Anniversary Date”), the Company may request that the Lenders, by written notice to the Administrative Agent (in substantially the form attached hereto as Exhibit F) with a copy to the Arrangers, consent to a one-year extension of the Termination Date. Each Lender shall, in its sole discretion, determine whether to consent to such request and shall notify the Administrative Agent of its determination at least 20 days prior to the applicable Anniversary Date. The failure to respond by any Lender within such time period shall be deemed a denial of such request. The Administrative Agent shall deliver a notice to the Company and the Lenders at least 15 days prior to such Anniversary Date of the identity of the Lenders that have consented to such extension and the Lenders that have declined such consent (the “Declining Lenders”). If Lenders holding in the aggregate 50% or less of the Commitments have consented to the requested extension, the Termination Date shall not be extended, and the Commitments of all Lenders shall terminate on the then current Termination Date (the “Current Termination Date”).

(b)If Lenders holding in the aggregate more than 50% of the Commitments have consented to the requested extension, subject to the conditions set forth in Section 2.16(c), the Termination Date shall be extended as to such consenting Lenders only (and not as to any Declining Lender) for a period of one year following the Current Termination Date. Unless assigned to another Lender as set forth below, the commitments of the Declining Lenders shall terminate on such Current Termination Date, all Advances of and other amounts payable to such Declining Lenders shall be repaid to them on such Current Termination Date, and such Declining Lenders shall have no further liability as of such Current Termination Date. The Company shall have the right at any time on or before the applicable Anniversary Date to replace each Declining Lender with, and add as “Lenders” under this Agreement in place thereof, one or more Eligible Assignees (each, an “Additional Commitment Lender”) as provided in Section 8.07(f), each of which Additional Commitment Lenders shall have entered into an Assignment and Acceptance pursuant to which each such Additional Commitment Lender shall, effective as of such Anniversary Date, assume a Commitment (and, if any such Additional Commitment Lender is already a Lender, its Commitment shall be in addition to such Lender’s Commitment hereunder on such date) and accept as such Additional Lender’s Termination Date with respect to the Commitment so assumed the latest date to which the Termination Date has been extended pursuant to this Section 2.16.

(c)Any extension of the Termination Date pursuant to this Section 2.16 shall become effective upon the applicable Anniversary Date if the Company shall have delivered to the Administrative Agent and each Lender, on or prior to such Anniversary Date, (i) opinions of counsel to the Company substantially in the forms of Exhibits D-3 and D-4 attached hereto upon which each Lender and the Administrative Agent may rely, together with any governmental order referred to therein attached thereto and (ii) a certificate of a duly authorized officer of the Company (the statements contained in which shall be true) to the effect that (x) the representations and warranties contained in Section 4.01 are correct on and as of such Anniversary Date before and after giving effect to the extension of the Termination Date, as though made on and as of such Anniversary Date, and (y) no event has occurred and is continuing, or would result from such extension of the Termination Date, that constitutes an Event of Default or that would constitute an Event of Default but for the requirement that notice be given or time elapse, or both.

(d)Upon the extension of any Termination Date in accordance with this Section 2.16, the Administrative Agent shall deliver to each Lender a revised Schedule II setting forth the Commitment of each Lender after giving effect to such extension, and such Schedule II shall replace the Schedule II in effect before the applicable Anniversary Date.”

(f) The first sentence of Section 8.07(f) is amended and restated in its entirety to read as follows:

“If (x) any Lender shall be a Declining Lender, (y) any Lender or any Participant shall make any demand for payment under Section 2.12 or (z) the Company is required to pay any additional amount to any Lender or governmental authority for the account of any Lender pursuant to Section 8.04(c) or (d), then within the time period specified in Section 2.16(b) or within 30 days after such demand for any such payment (if, but only if, such demanded payment has been made by the Company) (as applicable), the Company may, at its sole expense and effort, upon notice to such Lender and with the approval of the Administrative Agent (which approval shall not be unreasonably withheld or delayed), demand that such Lender assign in accordance with and subject to the restrictions contained in, and consents required by, this Section 8.07 to one or more Eligible Assignees designated by the Company all (but not less than all) of such Lender’s Commitment (if any) and the Advances owing to it no later than the applicable Anniversary Date or within the period ending on the later to occur of such 30th day and the last day of the longest of the then current Interest Periods for such Advances (as applicable), provided that (i) no Default or Event of Default shall then have occurred and be continuing; (ii) the Company shall have paid to the Administrative Agent the assignment fee specified in Section 8.07(a); (iii) such Lender shall have received payment of an amount equal to the outstanding principal of its Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder (including any amounts under Section 8.04(b) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Company (in the case of all other amounts); (iv) in the case of any such assignment resulting from a claim for compensation under Section 2.12 or payments required to be made pursuant to Section 8.04(c) or (d), such assignment will result in a reduction in such compensation or payments thereafter; (v) in the case of any such assignment by a Declining Lender, such Declining Lender shall have consented to such assignment, and (vi) such assignment does not conflict with applicable laws.”

(g) Schedule II is amended and restated in its entirety to read as the attached Schedule I hereto.

(h) The attached Exhibit A-1 and Exhibit A-2 hereto are added as “Exhibit D-3” and “Exhibit D-4”, respectively, to the Credit Agreement.

(i) The attached Exhibit B hereto is added as “Exhibit F” to the Credit Agreement.

Section 2. Conditions to Effectiveness. Section 1 of this Amendment shall be effective as of the date hereof when and if (i) the Company and the Lenders shall have executed and delivered to the Administrative Agent executed counterparts of this Amendment, and (ii) the representations and warranties of the Company set forth in Section 3 below shall be true and correct on and as of such date of effectiveness as though made on and as of such date.

Section 3. Representations and Warranties.The Company represents and warrants that (i) the representations and warranties contained in Article IV of the Credit Agreement, as amended hereby (with each reference therein to “this Agreement”, “hereunder” and words of like import referring to the Credit Agreement being deemed to be a reference to this Amendment and the Credit Agreement, as amended hereby), are true and correct on and as of the date hereof as though made on and as of such date, and (ii) no event has occurred and is continuing, or would result from the execution and delivery of this Amendment, that constitutes an Event of Default.

Section 4. Effect on the Credit Agreement. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under the Credit Agreement, nor constitute a waiver of any provision of any of the Credit Agreement. Except as expressly amended above, the Credit Agreement is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. This Amendment shall be binding on the parties hereto and their respective successors and permitted assigns under the Credit Agreement.

Section 5. Costs, Expenses and Taxes. The Company agrees to pay on demand all costs and expenses of the Administrative Agent in connection with the preparation, execution and delivery of this Amendment and any other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto, and all costs and expenses (including, without limitation, counsel fees and expenses), if any, in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Amendment or such other instruments and documents. In addition, the Company agrees to pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Amendment and any other instruments and documents to be delivered hereunder, and agree jointly and severally to save the Lenders and the Administrative Agent harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes.

Section 6. Counterparts. This Amendment may be executed in any number of counterparts and by any combination of the parties hereto in separate counterparts, each of which counterparts shall constitute an original, and all of which taken together shall constitute one and the same instrument.

Section 7. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York.

[Remainder of page intentionally left blank]

If you consent and agree to the foregoing, please evidence such consent and agreement by executing and faxing one copy, and returning six counterparts, of this Amendment to King & Spalding LLP, 1185 Avenue of the Americas, New York, New York 10036, Attention: Colleen Stapleton (fax no. 212-556-2222) no later than 5:00 p.m., New York City time, on May 3, 2006.

Very truly yours,

FLORIDA POWER CORPORATION d/b/a

     PROGRESS ENERGY FLORIDA, INC.

By /s/ Thomas R. Sullivan

      Thomas R. Sullivan

      Treasurer

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS FLORIDA CREDIT AGREEMENT

The undersigned hereby consent

and agree to the foregoing:

BANK OF AMERICA, N.A.,

as Administrative Agent

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS FLORIDA CREDIT AGREEMENT

BANK OF AMERICA, N.A., as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS FLORIDA CREDIT AGREEMENT

BARCLAYS BANK PLC, as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS FLORIDA CREDIT AGREEMENT

THE BANK OF NEW YORK, as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS FLORIDA CREDIT AGREEMENT

CITIBANK, N.A., as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS FLORIDA CREDIT AGREEMENT

MELLON BANK, N.A., as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS FLORIDA CREDIT AGREEMENT

JPMORGAN CHASE BANK, N.A., as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS FLORIDA CREDIT AGREEMENT

DEUTSCHE BANK AG

NEW YORK BRANCH, as Lender

By_______________________________

Name:

Title:

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS FLORIDA CREDIT AGREEMENT

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,

 NEW YORK BRANCH (as successor-by-merger to

 UFJ BANK LIMITED), as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS FLORIDA CREDIT AGREEMENT

WACHOVIA BANK, N.A., as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS FLORIDA CREDIT AGREEMENT

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,

NEW YORK BRANCH (formerly known as

THE BANK OF TOKYO-MITSUBISHI, LTD.,

NEW YORK BRANCH), as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS FLORIDA CREDIT AGREEMENT

SUNTRUST BANK, as Lender

By_______________________________

Name:

Title:

SIGNATURE PAGE TO AMENDMENT TO 2005 PROGRESS FLORIDA CREDIT AGREEMENT

SCHEDULE I

SCHEDULE II

Commitments

Lender	Commitment	Domestic Lending Office	Eurodollar Lending Office
Bank of America, N.A.	$ 70,000,000	901 Main Street, 14th Fl. Mail Code: TX1-492-14-12 Dallas, TX 75202-3714 Attention: Jacqueline R. Archuleta Telephone: 214.209.2135 Telecopier: 214.290.8372 Email: jacqueline.archuleta@bankofamerica.com	Same as Domestic Lending Office
Barclays Bank PLC	$ 70,000,000	Barclays Capital Services, LLC 200 Cedar Knolls Road Whippany, NJ 07981 Attention: Erik Hoffman Telephone: 973.576.3709 Telecopier: 973.576.3014 Email: erik.hoffman@barcap.com	Same as Domestic Lending Office
The Bank of Tokyo-Mitsubishi, Ltd., New York Branch	$ 60,000,000	BTM Information Services, Inc. c/o The Bank of Tokyo-Mitsubishi, Ltd., NY Branch 1251 Avenue of the Americas, 12th Floor New York, NY 10020-1104 Attention: Rolando Uy, AVP, Loan Operations Dept. Telephone: 201.413.8570 Telecopier: 201.521.2304 Email: N/A	Same as Domestic Lending Office
Deutsche Bank AG New York Branch	$ 45,000,000	60 Wall Street New York, NY 10005 Attention: Russell Johnson Telephone: 832.239.4622 Telecopier: 832.239.4693 Email: russell.johnson@db.com	Same as Domestic Lending Office
SunTrust Bank	$ 45,000,000	SunTrust Bank Mail Code 1929 303 Peachtree Street, 10th Floor Atlanta, GA 30308 Attn: Tina Marie Edwards Telephone: 404-588-8660 Telecopier: 404-588-4402 Email: tinamarie.edwards@suntrust.com	Same as Domestic Lending Office
JPMorgan Chase Bank, N.A.	$ 40,000,000	1111 Fannin - 10 Houston, TX 77002 Attention: Kelly Collins, Account Manager Telephone: 713.750.2530 Telecopier: 713.427.6307 Email: kelly.collins@jpmchase.com	Same as Domestic Lending Office
Wachovia Bank, N.A.	$ 40,000,000	201 South College Street Charlotte NC 28288-0680 Attention: Jeremy Collins, Analyst Telephone: 704.715.7682 Telecopier: 704.715.0091 E-Mail: jeremy.collins1@wachovia.com	Same as Domestic Lending Office
Citibank, N.A.	$ 35,000,000	388 Greenwich Street New York, New York 10013 Attention: Stuart Glen Telephone: 212.816-8553 Telecopier: 212.816-8098 Email: stuart.j.glen@citigroup.com	Same as Domestic Lending Office
Mellon Bank, N.A.	$ 25,000,000	525 William Penn Place Room 153-1203 Pittsburgh, PA 15259-0003 Attention: Daria Armen, Loan Administrator Telephone: 412.234.1870 Telecopier: 412.209.6117 Email: N/A	Same as Domestic Lending Office
The Bank of New York	$ 20,000,000	One Wall Street 19th Floor New York, NY 10286 Attention: Frank Su, Energy Division Telephone: 212.635.7532 Telecopier: 212.635.7552 Email: fsu@bankofny.com	Same as Domestic Lending Office
Total:	$ 450,000,000

EXHIBIT A-1

EXHIBIT D-3

FORM OF OPINION OF GENERAL COUNSEL TO THE BORROWER UPON EXTENSION OF THE TERMINATION DATE

___________ ___, 20__

To each of the Lenders parties to the Credit Agreement referred to below and to Bank of America, N.A., as Administrative Agent

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

Ladies and Gentlemen:

This opinion is furnished to you by me as Associate General Counsel of Progress Energy Service Company, LLC and in my capacity as counsel to Florida Power Corporation d/b/a Progress Energy Florida, Inc. (the “Borrower”) in connection with the extension of the Termination Date until ________ __, _____ under Section 2.16 (the “Extension”) of the Credit Agreement, dated as of March 28, 2005, as amended, (the “Credit Agreement”, the terms defined therein being used herein as therein defined), among the Borrower, certain lenders from time to time parties thereto (the “Lenders”) and Bank of America, N.A., as Administrative Agent for the Lenders.

In connection with the Extension, I have examined:

(1)The Credit Agreement.

(2)The documents furnished by the Borrower pursuant to Section 3.01 of the Credit Agreement.

(3)The Request for Extension of Termination Date and Certificate, dated _____, submitted by the Borrower in connection with the Extension.

(4)The Amended Articles of Incorporation of the Borrower and all amendments thereto (the “Charter”).

(5)The By-Laws of the Borrower and all amendments thereto (the “By-Laws”).

I have also examined the originals, or copies of such other corporate records of the Borrower, certificates of public officials and of officers of the Borrower and agreements, instruments and other documents as I have deemed necessary as a basis for the opinions expressed below. As to questions of fact material to such opinions, I have, when relevant facts were not independently established by me, relied upon certificates of the Borrower or its officers or of public officials. I have assumed the authenticity of all documents submitted to me as originals, the conformity to originals of all documents submitted as certified or photostatic copies and the authenticity of the signatures (other than those of the Borrower), and the due execution and delivery, pursuant to due authorization, of the Credit Agreement by the Lenders and the Administrative Agent and the validity and binding effect thereof on such parties. For purposes of my opinions expressed in paragraph 1 below as to existence and good standing, I have relied as of their respective dates on certificates of public officials, copies of which are attached hereto as Exhibit A. Whenever the phrase “to my knowledge” is used in this opinion it refers to my actual knowledge and the actual knowledge of the attorneys who work under my supervision and who were involved in the representation of the Borrower in connection with the transactions contemplated by the Credit Agreement.

I or attorneys working under my supervision are qualified to practice law in the State of Florida and the opinions expressed herein are limited to the law of the State of Florida and the Federal law of the United States.

Based upon the foregoing and upon such investigation as I have deemed necessary, I am of the following opinion:

1.The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida.

2.The execution, delivery and performance by the Borrower of the Credit Agreement, after giving effect to the Extension, are within the Borrower’s corporate powers, have been duly authorized by all necessary corporate action, and do not violate (i) the Charter or the By-Laws or any law, rule or regulation applicable to the Borrower (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System) or (ii) result in breach of, or constitute a default under, any judgment, decree or order binding on the Borrower, or any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound. The Credit Agreement has been duly executed and delivered on behalf of the Borrower.

3.No authorization, approval or other action by, and no notice to or filing with any governmental authority or regulatory body is required for the due execution, delivery and performance, by the Borrower of the Credit Agreement, after giving effect to the Extension, other than a notification to the Florida Public Service Commission, which has been timely made.

4.To my knowledge, except as described in the reports and registration statements that the Borrower has filed with the Securities and Exchange Commission, there are no pending or overtly threatened actions or proceedings against the Borrower or any of the Subsidiaries before any court, governmental agency or arbitrator, that may materially adversely affect the financial condition, operations or properties of the Borrower and its Subsidiaries, taken as a whole.

The opinions set forth above are subject to the qualification that no opinion is expressed herein as to the enforceability of the Credit Agreement or any other document.

The foregoing opinions are solely for your benefit and may not be relied upon by any other Person other than any other Person that may become a Lender under the Credit Agreement after the date hereof and Hunton & Williams LLP, in connection with their opinion delivered on the date hereof under Section 2.16(c) of the Credit Agreement. This letter speaks only as of the date hereof and may not be relied on by any person with respect to any date after the date hereof. I do not undertake to advise you of any changes in the opinions expressed herein from matters that may hereafter arise or be brought to my attention.

Very truly yours,

EXHIBIT A-2

EXHIBIT D-4

FORM OF OPINION OF SPECIAL COUNSEL TO THE BORROWER UPON EXTENSION OF THE TERMINATION DATE

___________ ___, 20__

To each of the Lenders parties to the Credit Agreement referred to below and to Bank of America, N.A., as Administrative Agent

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

Ladies and Gentlemen:

This opinion is furnished to you by us as counsel for Florida Power Corporation d/b/a Progress Energy Florida, Inc. (the “Borrower”) in connection with the extension of the Termination Date until March [ ], 20___ under Section 2.16 (the “Extension”) of the Credit Agreement, dated as of March 28, 2005, as amended, (the “Credit Agreement”, the terms defined therein being used herein as therein defined), among the Borrower, certain lenders from time to time parties thereto (the “Lenders”) and Bank of America, N.A., as Administrative Agent for the Lenders.

In connection with the Extension, we have examined:

(1)The Credit Agreement.

(2)The documents furnished by the Borrower pursuant to Section 3.01 of the Credit Agreement.

(3)The Request for Extension of Termination Date and Certificate, dated _____, submitted by the Borrower in connection with the Extension.

(4)The opinion letter of even date herewith, addressed to you by __________, counsel to the Borrower and delivered in connection with the transactions contemplated by the Credit Agreement (the “Borrower Opinion Letter”).

We have also examined the originals, or copies of such other corporate records of the Borrower, certificates of public officials and of officers of the Borrower and agreements, instruments and other documents as we have deemed necessary as a basis for the opinions expressed below. As to questions of fact material to such opinions, we have, when relevant facts were not independently established by us, relied upon certificates of the Borrower or its officers or of public officials. We have assumed the authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted as certified or photostatic copies and the authenticity of the originals (other than those of the Borrower), and the due execution and delivery, pursuant to due authorization, of the Credit Agreement by the Lenders and the Administrative Agent and the validity and binding effect thereof on such parties. Whenever the phrase “to our knowledge” is used in this opinion it refers to the actual knowledge of the attorneys of this firm involved in the representation of the Borrower without independent investigation.

We are qualified to practice law in the States of Florida and New York, and the opinions expressed herein are limited to the law of the States of Florida and New York applicable to public utilities and the federal law of the United States. To the extent that our opinions expressed herein depend upon opinions expressed in paragraphs 1 through 4 of the Borrower Opinion Letter, we have relied without independent investigation on the accuracy of the opinions expressed in the Borrower Opinion Letter, subject to the assumptions, qualifications and limitations set forth in the Borrower Opinion Letter.

Based upon the foregoing and upon such investigation as we have deemed necessary, we are of the following opinion the Credit Agreement after giving effect to the Extension constitutes the valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms except as enforcement may be limited or otherwise affected by (a) bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting the rights of creditors generally and (b) principles of equity, whether considered at law or in equity.

The opinion set forth above is subject to the following qualifications:

(a)In addition to the application of equitable principles described above, courts have imposed an obligation on contracting parties to act reasonably and in good faith in the exercise of their contractual rights and remedies, and may also apply public policy considerations in limiting the right of parties seeking to obtain indemnification under circumstances where the conduct of such parties is determined to have constituted negligence.

(b)No opinion is expressed herein as to (i) Section 8.05 of the Credit Agreement, (ii) the enforceability of provisions purporting to grant to a party conclusive rights of determination, (iii) the availability of specific performance or other equitable remedies, (iv) the enforceability of rights to indemnity under federal or state securities laws or (v) the enforceability of waivers by parties of their respective rights and remedies under law.

(c)No opinion is expressed herein as to provisions, if any, in the Credit Agreement, which (A) purport to excuse, release or exculpate a party for liability for or indemnify a party against the consequences of its own acts, (B) purport to make void any act done in contravention thereof, (C) purport to authorize a party to make binding determinations in its sole discretion, (D) relate to the effects of laws which may be enacted in the future, (E) require waivers, consents or amendments to be made only in writing, (F) purport to waive rights of offset or to create rights of set off other than as provided by statute, or (G) purport to permit acceleration of indebtedness and the exercise of remedies by reason of the occurrence of an immaterial breach of the Credit Agreement or any related document. Further, we express no opinion as to the necessity for any Lender, by reason of such Lender’s particular circumstances, to qualify to transact business in the State of New York or as to any Lender’s liability for taxes in any jurisdiction.

The foregoing opinion is solely for your benefit and may not be relied upon by any other Person other than any other Person that may become a Lender under the Credit Agreement after the date hereof in accordance with the provisions thereof. This letter speaks only as of the date hereof and may not be relied on by any person with respect to any date after the date hereof. We do not undertake to advise you of any changes in the opinions expressed herein from matters that may hereafter arise or be brought to our attention.

Very truly yours,

EXHIBIT B

EXHIBIT F

FORM OF REQUEST FOR EXTENSION OF

THE TERMINATION DATE

CREDIT AGREEMENT

Dated as of March 28, 2005

___________________________________

FLORIDA POWER CORPORATION d/b/a PROGRESS ENERGY FLORIDA, INC.

(Company)

and

THE BANKS LISTED ON THE SIGNATURE PAGES HEREOF

(Banks)

and

OTHER LENDERS FROM TIME TO TIME

PARTY HERETO

(Lenders)

and

BANK OF AMERICA, N.A.

(Administrative Agent)

Request for Extension of Termination Date

I, [______________], [_________________] of Progress Energy Florida, Inc., do hereby request that the Termination Date of the Credit Agreement, dated as of March 28, 2005, as amended (the “Credit Agreement”, the terms defined therein being used herein as therein defined), among Progress Energy Florida, Inc., certain Lenders from time to time parties thereto and Bank of America, N.A., as Administrative Agent for the Lenders, be extended for a one-year period (hereinafter the “Proposed Extension”) pursuant to Section 2.16 of the Credit Agreement and, in connection therewith, hereby certify as follows:

(i)as of the date hereof, the representations and warranties set forth in Section 4.01 (including without limitation those regarding any required approvals of or notices to governmental bodies) of the Credit Agreement are and will be as of the effective date of the Proposed Extension accurate both before and after giving effect to the Proposed Extension; and

(ii)as of the date hereof, no Event of Default has occurred, nor has any event occurred, that with the giving of notice or the passage of time or both, would constitute an Event of Default, in either case both before and after giving effect to the Proposed Extension.

Witness my hand this ______ day of _________, ____.

________________________

[________________]

EX-10.F

BENEFITS AGREEMENT

            BENEFITS AGREEMENT (“Agreement”), dated as of May 12, 2006 between Carolina Power and Light, a North Carolina corporation headquartered in Raleigh, North Carolina (the “Company”) its successors or assigns and Don K. Davis (“Davis”).

WHEREFORE, Davis has provided to the Company his voluntary termination of employment in accordance with his current Employment Agreement (dated August 1, 2000) and shall no longer be an employee effective May 12, 2006.  The Company and Davis wish to enter a new agreement providing for Davis’s continued participation in Company benefit plans.

            NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, the parties hereto hereby agree as follows:

The Agreement becomes effective on May 12, 2006 and shall remain in effect indefinitely.

Following Davis’ separation on May 12, 2006, Davis shall be entitled to participate as a retiree,  at subsidized rates, in the following Company sponsored benefits programs: medical , dental , vision, and life insurance.  In addition, Mr. Davis will be allowed to participate in the Company sponsored Matching Gifts Program.  Provided, however, that nothing contained in this Agreement shall require the Company to continue to offer such benefits or programs or to limit the Company’s absolute right to modify or eliminate these benefits.

IN WITNESS WHEREOF, the parties hereto have executed, or have caused this Agreement to be executed by their duly authorized officer, as the case may be, all as of the day and year written below.

By: /s/ Don K. Davis	Date:April 12, 2006
Don K. Davis
By: /s/ Robert B. McGehee	Date: April 12, 2006
Robert B. McGehee

EX-31.A

Exhibit 31(a)

CERTIFICATION

I, Robert B. McGehee, certify that:

1.        I have reviewed this quarterly report on Form 10-Q of Progress Energy, Inc.;

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

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

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

a)       designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,  to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)       designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)       evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

d)       disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter in the case of this quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)       all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)       any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 9, 2006	By: /s/ Robert B. McGehee
	Robert B. McGehee
	Chairman and Chief Executive Officer

EX-31.B

                                                                                                                                                         &# 160;      Exhibit 31(b)

CERTIFICATION

I, Peter M. Scott III, certify that:

1.        I have reviewed this quarterly report on Form 10-Q of Progress Energy, Inc.;

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

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

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

a)     designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,  to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)    designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)     evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

d)    disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter in the case of this quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)     all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 9, 2006	By: /s/ Peter M. Scott III
	Peter M. Scott III
	Executive Vice President and Chief Financial Officer

EX-31.C

                                                                                                                                                         &# 160;      Exhibit 31(c)

CERTIFICATION

I, Fred N. Day IV, certify that:

1.        I have reviewed this quarterly report on Form 10-Q of Carolina Power & Light Company;

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

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

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

a)     designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,  to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)    evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

c)     disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter in the case of this quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)     all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 9, 2006	/s/ Fred N. Day IV
	Fred N. Day IV
	President and Chief Executive Officer

EX-31.D

                                                                                                                                                         &# 160;      Exhibit 31(d)

CERTIFICATION

I, Peter M. Scott III, certify that:

1.        I have reviewed this quarterly report on Form 10-Q of Carolina Power & Light Company;

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

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

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

a)     designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)    evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

c)     disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter in the case of this quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)     all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 9, 2006	/s/ Peter M. Scott III
	Peter M. Scott III
	Executive Vice President and Chief Financial Officer

EX-31.E

                                                                                                                                                         &# 160;      Exhibit 31(e)

CERTIFICATION

I, H. William Habermeyer, Jr., certify that:

1.        I have reviewed this quarterly report on Form 10-Q of Florida Power Corporation;

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

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

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

a)     designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)    evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

c)     disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter in the case of this quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)     all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 9, 2006	/s/ H. William Habermeyer, Jr.
	H. William Habermeyer, Jr.
	President and Chief Executive Officer

EX-31.F

                                                                                                                                                         &# 160;      Exhibit 31(f)

CERTIFICATION

I, Peter M. Scott III, certify that:

1.        I have reviewed this quarterly report on Form 10-Q of Florida Power Corporation;

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

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

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

a)     designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)    evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

c)     disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter in the case of this quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)     all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 9, 2006	/s/ Peter M. Scott III
	Peter M. Scott III
	Executive Vice President and Chief Financial Officer

EX-32.A

                                                                                                                                                         &# 160;      Exhibit 32(a)

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

                In connection with the Quarterly Report on Form 10-Q of Progress Energy, Inc. (the “Company”) for the period ending March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert B. McGehee, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ Robert B. McGehee

Robert B. McGehee

Chairman and Chief Executive Officer

May 9, 2006

This certification is being furnished and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any filing under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended.

EX-32.B

Exhibit 32(b)

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

                In connection with the Quarterly Report on Form 10-Q of Progress Energy, Inc. (the “Company”) for the period ending March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter M. Scott III, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ Peter M. Scott III

Peter M. Scott III

Executive Vice President and

Chief Financial Officer

May 9, 2006

This certification is being furnished and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any filing under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended.

EX-32.C

                                                                                                                                                         &# 160;      Exhibit 32(c)

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

                In connection with the Quarterly Report on Form 10-Q of Carolina Power & Light Company (the “Company”) for the period ending March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Fred N. Day IV, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ Fred N. Day IV

Fred N. Day IV
President and Chief Executive Officer
May 9, 2006

This certification is being furnished and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any filing under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended.

EX-32.D

Exhibit 32(d)

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

                In connection with the Quarterly Report on Form 10-Q of Carolina Power & Light Company (the “Company”) for the period ending March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter M. Scott III, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ Peter M. Scott III

Peter M. Scott III
Executive Vice President and

Chief Financial Officer
May 9, 2006

This certification is being furnished and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any filing under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended.

EX-32.E

Exhibit 32(e)

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

                In connection with the Quarterly Report on Form 10-Q of Florida Power Corporation (the “Company”) for the period ending March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, H. William Habermeyer, Jr., President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ H. William Habermeyer, Jr.

H. William Habermeyer, Jr.
President and Chief Executive Officer
May 9, 2006

This certification is being furnished and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any filing under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended.

EX-32.F

 Exhibit 32(f)

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

                In connection with the Quarterly Report on Form 10-Q of Florida Power Corporation (the “Company”) for the period ending March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter M. Scott III, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ Peter M. Scott III

Peter M. Scott III

Executive Vice President and

Chief Financial Officer
May 9, 2006

This certification is being furnished and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any filing under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended.