Progress Energy, Inc. 2005 Form 10-K

10-K 1 form10-k2005.htm PROGRESS ENERGY, INC. 2005 FORM 10-K Progress Energy, Inc. 2005 Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

	(Mark One)
	(X)	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

( )

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

Commission File Number	Exact name of registrants as specified in their charters, state of incorporation, address of principal executive offices, and telephone number	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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class	Name of each exchange on which registered
Progress Energy, Inc.:
Common Stock (Without Par Value)	New York Stock Exchange
Carolina Power & Light Company:	None
Florida Power Corporation:	None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Progress Energy, Inc.:	None
Carolina Power & Light Company:	$5 Preferred Stock, No Par Value
	Serial Preferred Stock, No Par Value
Florida Power Corporation:	None

Indicate by check mark whether each registrant is a well-known seasoned issuer, as defined in Rule 405 of the Act.

Progress Energy, Inc. (Progress Energy)	Yes	(X)	No	( )
Carolina Power & Light Company (PEC)	Yes	(X)	No	( )
Florida Power Corporation (PEF)	Yes	( )	No	(X)

Indicate by check mark whether each registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Progress Energy	Yes	( )	No	(X)
PEC	Yes	( )	No	(X)
PEF	Yes	( )	No	(X)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of each registrant’s knowledge, in definitive proxy or information statements incorporated by reference in PART III of this Form 10-K or any amendment to this Form 10-K.

Progress Energy	( )
PEC	(X)
PEF	(X)

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	Large accelerated filer (X)	Accelerated filer ( )	Non-accelerated filer ( )
PEC	Large accelerated filer ( )	Accelerated filer ( )	Non-accelerated filer (X)
PEF	Large accelerated filer ( )	Accelerated filer ( )	Non-accelerated filer (X)

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

Progress Energy	Yes	( )	No	(X)
PEC	Yes	( )	No	(X)
PEF	Yes	( )	No	(X)

As of June 30, 2005, the aggregate market value of the voting and nonvoting common equity of Progress Energy held by nonaffiliates was $11,332,332,138. As of June 30, 2005, the aggregate market value of the common equity of PEC held by nonaffiliates was $0. All of the common stock of PEC is owned by Progress Energy. As of June 30, 2005, the aggregate market value of the common equity of PEF held by nonaffiliates was $0. All of the common stock of PEF is indirectly owned by Progress Energy.

As of February 28, 2006, each registrant had the following shares of common stock outstanding:

Registrant	Description	Shares
Progress Energy	Common Stock (Without Par Value)	252,289,683
PEC	Common Stock (Without Par Value)	159,608,055
PEF	Common Stock (Without Par Value)	100

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Progress Energy and PEC definitive proxy statements for the 2006 Annual Meeting of Shareholders are incorporated into PART III, ITEMS 10, 11, 12 , 13 and 14 hereof.

This combined Form 10-K 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 I (1) (a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format permitted by General Instruction I (2) to such Form 10-K. PEF is not an asset-backed issuer, as defined in Item 11101 of Regulation AB.

TABLE OF CONTENTS

GLOSSARY OF TERMS

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

PART I

ITEM 1.	BUSINESS

ITEM 1A.	RISK FACTORS

ITEM 1B.	UNRESOLVED STAFF COMMENTS

ITEM 2.	PROPERTIES

ITEM 3.	LEGAL PROCEEDINGS

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

	EXECUTIVE OFFICERS OF THE REGISTRANTS

PART II

ITEM 5.	MARKET FOR THE REGISTRANTS’ COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

ITEM 6.	SELECTED FINANCIAL DATA

ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A.	CONTROLS AND PROCEDURES

ITEM 9B.	OTHER INFORMATION

PART III

ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

ITEM 11.	EXECUTIVE COMPENSATION

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES

PART IV

ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


SIGNATURES

GLOSSARY OF TERMS

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

TERM	DEFINITION

401(k)	Progress Energy 401(k) Savings and Stock Ownership Plan
AFUDC	Allowance for funds used during construction
the Agreement	Stipulation and Settlement Agreement related to PEF retail rate matters
AHI	Affordable housing investment
APB No. 25	Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”
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
CO₂	Carbon dioxide
Caronet	Caronet, Inc.
CCO	Competitive Commercial Operations business included within the Progress Ventures segment, previously reported as a separate business segment
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 and Synthetic Fuel	Business segment primarily comprised of synthetic fuel production and sales operations, the operation of synthetic fuel facilities for third-parties, coal terminal services, and fuel transportation and delivery operations
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
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”
DOE	United States Department of Energy
Earthco	Four wholly owned coal-based solid synthetic fuel limited liability companies
ECRC	Environmental Cost Recovery Clause
EIA	Energy Information Agency
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”

EMCs	Electric Membership Cooperatives
ENCNG	Eastern North Carolina Natural Gas Company, formerly referred to as EasternNC
Energy Delivery	Distribution operations of the Utilities
EPA	Environmental Protection Agency
EPACT	Energy Policy Act of 2005
EPIK	EPIK Communications, Inc.
ESOP	Employee Stock Ownership Plan
FASB	Financial Accounting Standards Board
FDEP	Florida Department of Environment and Protection
FERC	Federal Energy Regulatory Commission
FGT	Florida Gas Transmission Company
FIN No. 45	FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”
FIN No. 46R	FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51”
FIN No. 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
Fuels	Previously reported business segment that included natural gas, coal terminal and synthetic fuel operations
Funding Corp.	Florida Progress Funding Corporation, a wholly owned subsidiary of Florida Progress
GAAP	Accounting principles generally accepted in the United States of America
Gas	Natural gas drilling and production operations included within the Progress Ventures segment
Genco	Progress Genco Ventures LLC
Georgia Power	Georgia Power Company
Georgia Region	Reporting unit consisting of our Effingham, Monroe, Walton and Washington nonregulated generation plants in service
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
NSR	New Source Review requirement by EPA
NCUC	North Carolina Utilities Commission
NEIL	Nuclear Electric Insurance Limited

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
Odyssey	Odyssey Telecorp, Inc.
OPEB	Postretirement benefits other than pensions
Order 2000	FERC order regarding RTOs which sets minimum characteristics and functions that RTOs must meet, including independent transmission service
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 comprised of nonregulated energy generation and marketing activities and natural gas operations
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
Rail Services	Previously reported business segment that included rail operations
RBCA or Global RBCA	Risk-based corrective action
RCA	Revolving credit agreement
Rockport	Indiana Michigan Power Company’s Rockport Unit No. 2
Robinson	Robinson Nuclear Plant
ROE	Return on equity
RSA	Restricted stock awards program
RTO	Regional transmission organization
SCPSC	Public Service Commission of South Carolina
SEC	United States Securities and Exchange Commission
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 reference to the Combined Notes to the Financial Statements contained in Part II, ITEM 8
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, “Accounting for Stock-Based Compensation”
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
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
Winter Park	City of Winter Park, Florida

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-K 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-K include, but are not limited to, 1) statements made in PART I, ITEM 1A, “Risk Factors” and 2) PART II, ITEM 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” including, but not limited to, statements under the following headings: a) “Results of Operations” about trends and uncertainties; b) “Liquidity and Capital Resources” about operating cash flows, estimated capital requirements through the year 2008 and future financing plans; c) “Strategy” about our future strategy and goals; and d) “Other Matters” about our synthetic fuel facilities, the effects of new environmental regulations, nuclear decommissioning costs and the effect of electric utility industry restructuring.

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 needed to comply with environmental laws; deregulation or restructuring in the electric industry that may result in increased competition and unrecovered or stranded costs; weather conditions that directly influence the 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; the availability and use of Internal Revenue Code Section 29/45K (Section 29/45K) tax credits by synthetic fuel producers and our continued ability to use 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 detailed from time to time in the Progress Registrants’ 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 ITEM 1A, “Risk Factors,” which you should carefully read. 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 management to predict all such factors, nor can it assess the effect of each such factor on the Progress Registrants.

PART I

ITEM 1. BUSINESS

GENERAL

ORGANIZATION

Progress Energy, Inc., headquartered in Raleigh, N.C., with its regulated and nonregulated subsidiaries, is an integrated energy company serving the southeast region of the United States. In this report, Progress Energy (which includes Progress Energy, Inc.’s holding company operations (the Parent) and its 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. 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.

The Parent was initially incorporated on August 19, 1999 as CP&L Energy, Inc., which became the holding company for PEC on June 19, 2000. All shares of common stock of PEC were exchanged for an equal number of shares of CP&L Energy, Inc. common stock. On November 30, 2000, we completed our acquisition of Florida Progress Corporation (Florida Progress or FPC), a diversified, exempt electric utility holding company whose primary subsidiaries are PEF and Progress Fuels Corporation (Progress Fuels). In the $5.4 billion purchase transaction, we paid cash consideration of approximately $3.5 billion and issued 46.5 million shares of common stock valued at approximately $1.9 billion. In addition, we issued 98.6 million contingent value obligations (CVOs) valued at approximately $49 million. Prior to February 8, 2006, the Parent was a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Effective February 8, 2006, the Parent is subject to additional regulation by the Federal Energy Regulatory Commission (FERC) as discussed below.

Our wholly owned regulated subsidiaries, PEC and PEF, each a business segment, are primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina, South Carolina and Florida. We have over 21,500 megawatts (MW) of regulated electric generation capacity and serve approximately 3 million retail electric customers in portions of North Carolina, South Carolina and Florida as well as other load-serving entities. The Utilities operate in retail service territories that are anticipated to have population growth higher than the U.S. average. In addition, PEC’s greater proportion of commercial and industrial customers, combined with PEF’s greater proportion of residential customers, creates a balanced customer base. We are dedicated to expanding our electric generation capacity and delivering reliable, competitively priced energy from a diverse portfolio of power plants. Prior to December 2005, our reportable business segments included the PEC Electric segment that was comprised of PEC’s utility operations and excluded immaterial operations of PEC’s nonregulated subsidiaries that were previously included in our Corporate and Other segment. Management has realigned the PEC segment based on the manner in which these operations are reviewed to include PEC’s nonregulated subsidiaries. The results of operations and financial position of PEC Electric and PEC are not materially different. Prior year periods have been restated for the PEC segment realignment.

During 2005, we also realigned our nonregulated business segments due to changes in the operations of certain businesses as discussed below and the reclassification of our coal mining operations as discontinued operations. This realignment is consistent with the manner in which management currently reviews these operations. Our current nonregulated segments are: 1) Progress Ventures and 2) Coal and Synthetic Fuels.

Our Progress Ventures segment is involved in nonregulated electric generation operations and energy marketing activities through our Competitive Commercial Operations business (CCO) and natural gas drilling and production (Gas). The functional management and financial reporting structure of the Progress Ventures business unit is not currently aligned with its legal structure. Prior to December 2005, Gas was included within our previously reported Fuels segment. We have historically disclosed CCO as a reportable segment. In the past several years, we have increased our natural gas reserves and our gas drilling capital to act as a natural hedge for CCO’s nonregulated

generation needs. Our CCO business underwent a significant change in 2005 with the expiration of its tolling agreements (which had little fuel price risk) at the end of 2004 and the increased load served under its fixed price full requirements contracts (which have substantial fuel price risk) effective in early 2005. Managing the operations of Gas and CCO on a combined basis allows us to more effectively manage our fuel price risk. Our Progress Ventures segment is involved in limited energy and commodity economic hedging activities and CCO will manage Gas’ financial hedging operations. Prior year periods have been restated for the Progress Ventures segment realignment.

Our Coal and Synthetic Fuels segment is involved 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 outside parties as well as coal terminal services and fuel transportation and delivery. Our Coal terminal operations support our Synthetic Fuel operations for the procuring and processing of coal and the transloading and marketing of synthetic fuel. Prior to 2005, all Coal operations (including mining), synthetic fuel activities and fuel transportation operations were included within our previously reported Fuels segment. Our coal mining business was reclassified as discontinued operations during 2005 as a result of our decision to divest of our coal mine assets. The remaining portions of the previously reported Fuels segment are included within Coal and Synthetic Fuels due to their operational relationship with the segment’s activities and their relative immateriality. Prior year periods have been restated for the Coal and Synthetic Fuels segment realignment.

Prior to its divestiture in 2005, Rail Services was reported as a separate segment.

The Corporate and Other segment primarily includes the activities of the Parent, Progress Energy Service Company, LLC (PESC) and miscellaneous nonregulated businesses. PESC provides centralized administrative, management and support services to our subsidiaries. See Note 19 for additional information about PESC services provided and costs allocated to subsidiaries.

See Note 20 for information regarding the revenues, income and assets attributable to our business segments.

Our consolidated revenues for the year ended December 31, 2005, were $10.1 billion and our consolidated assets at year-end were $27.0 billion.

SIGNIFICANT DEVELOPMENTS

PROGRESS TELECOM DIVESTITURE

On January 25, 2006, we signed a definitive agreement to sell Progress Telecom, LLC (PT LLC) to Level 3 Communications, Inc. (Level 3) for a purchase price of approximately $137 million, with half the proceeds in cash and half in Level 3 common stock. We expect to use net cash proceeds of $70 million from the sale of our interest in PT LLC to reduce debt (See Note 25).

COAL MINE DIVESTITURE

On November 14, 2005, our board of directors approved a plan to divest of the five subsidiaries of Progress Fuels engaged in the coal mining business. The coal mining operations are expected to be sold by the end of 2006. As a result, we have classified the coal mining operations as discontinued operations in the accompanying consolidated financial statements for all periods presented (See Note 3A).

ACQUISITION BY WINCHESTER PRODUCTION COMPANY

In May 2005, Winchester Production Company, Ltd. (Winchester Production), an indirectly owned subsidiary of Progress Fuels, acquired a 50 percent interest in approximately 11 natural gas producing wells and proven reserves of approximately 25 billion cubic feet equivalent from a privately owned company headquartered in Texas. In addition to the natural gas reserves, the transaction also included a 50 percent interest in the gas gathering systems related to these reserves. The total cash purchase price for the transaction was $46 million (See Note 4A).

PROGRESS RAIL DIVESTITURE

In March 2005, we completed the sale of Progress Rail Services Corporation (Progress Rail). 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).

RAILCAR LTD., DIVESTITURE

In March 2003, we signed a letter of intent to sell the majority of Railcar Ltd. assets to The Andersons, Inc. The asset purchase agreement was signed in November 2003, and the transaction closed on February 12, 2004. Net proceeds of approximately $75 million were used to reduce debt (See Note 3B).

NCNG DIVESTITURE

In September 2003, we completed the sale of North Carolina Natural Gas Corporation (NCNG) and our equity investment in Eastern North Carolina Natural Gas Company (ENCNG) to Piedmont Natural Gas Company, Inc. As a result of this action, the operating results of NCNG were reclassified to discontinued operations for all reportable periods. Net proceeds from the sale of NCNG and ENCNG of approximately $443 million were used to reduce debt (See Note 3H).

See Notes 3 and 4 for additional information about our acquisitions and divestitures.

AVAILABLE INFORMATION

The Progress Registrants’ annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are available free of charge through the Investors section of our internet site, http://www.progress-energy.com. These reports are available as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The public may read and copy any material we have filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information regarding the operations of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Alternatively, the SEC maintains an internet site, http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

The Investors section of our website also includes our corporate governance guidelines and code of ethics as well as the charters of the following committees of our board of directors: Audit and Corporate Performance; Corporate Governance; Finance; Operations, Environmental, Health and Safety Issues; and Organization and Compensation. This information is available in print to any shareholder who requests it. Requests should be directed to: Investor Relations, Progress Energy, Inc., 410 S. Wilmington Street, Raleigh, NC 27601.

Information on our website is not incorporated herein and should not be deemed part of this Report.

COMPETITION

GENERAL

Over the past several years, the electric utility industry has experienced a substantial increase in competition at the wholesale level, caused by changes in federal law and regulatory policy. Several states have also restructured aspects of retail electric service. The issue of retail restructuring and competition is being reviewed by a number of states, and bills have been introduced in past sessions of Congress that sought to introduce such restructuring in all states.

On August 8, 2005, the Energy Policy Act of 2005 (EPACT) was signed into law. This new federal law contains key provisions affecting the electric power industry. These provisions include tax changes for the utility industry; incentives for emissions reductions; federal insurance and incentives to build new nuclear power plants; repeal of PUHCA, effective February 8, 2006; and certain protection for native retail load customers of load-serving entities.

It gives the FERC "backstop" transmission siting authority as well as increased utility merger oversight. The law also provides incentives and funding for clean coal technologies and initiatives to voluntarily reduce greenhouse gases and redesignates the Code’s Section 29 (Section 29) tax credit as a general business credit under the Code’s Section 45K (Section 45K). See Note 23D for additional information on the redesignation of the Section 29 tax credits. In addition, the law requires both the FERC and the U.S. Department of Energy (DOE) to study how utilities dispatch their resources to meet the needs of their customers. The results of these studies or any related actions taken by DOE could impact the Utilities’ system operations.

The law requires the FERC to issue certain regulations implementing EPACT within 120 days of enactment. The FERC has commenced the rulemaking process on 11 major issues and a number of secondary issues. We have reviewed the proposed rules and are participating in the public comment process. However, we cannot currently predict what impact the final rules will have on our financial condition and results of operations. The FERC has adopted final rules implementing its new authority under EPACT with regard to mergers, dispositions of utility assets, market manipulation, electric reliability organizations and PUHCA repeal. These new rules: require the FERC’s approval prior to any merger involving a public utility; require the FERC’s approval prior to the disposition of any utility asset with a market value in excess of $10 million; require utility holding companies to comply with the FERC’s cost allocation, record retention and accounting rules; prohibit market participants from intentionally or recklessly making any fraudulent or misleading statements with regard to transactions subject to the FERC’s jurisdiction; and establish the procedure and rules for the establishment of an electric reliability organization that will propose and enforce mandatory reliability standards for the bulk power electric system.

In November 2003, and as subsequently revised and supplemented, the FERC adopted standards of conduct that apply uniformly to interstate natural gas pipelines and public utilities and govern the relationship between transmission providers and their energy affiliates in a manner that prevents a transmission provider from unduly discriminating against nonaffiliates and from granting affiliates preferential treatment. Each utility was required to submit a plan and schedule for compliance with the new rules by February 2004. During 2005, following an audit by the FERC of the Utilities’ compliance with the FERC’s standards of conduct and the Utilities’ codes of conduct, the Utilities reached a settlement with the FERC in regards to certain violations cited in the audit’s results. Pursuant to the settlement, the Utilities agreed to make certain operational and organization changes and provided an immaterial monetary settlement in the form of a one-time credit to their retail and wholesale customers.

REGULATED UTILITIES

To date, many states have adopted legislation that would give retail customers the right to choose their electricity provider (retail choice), and most other states have, in some form, considered the issue. To our knowledge, there is currently no proposed legislation in North Carolina, South Carolina or Florida that would introduce retail choice.

ELECTRIC INDUSTRY RESTRUCTURING

The Utilities monitor developments impacting their competitive environments and actively participate in regulatory reform deliberations in their respective service territories. PEC expects that both the North Carolina and South Carolina General Assemblies will continue to monitor the experiences of states that have implemented electric restructuring legislation. PEF believes that the movement toward deregulation in Florida has been slowed by developments related to deregulation of the electric industry in other states.

REGIONAL TRANSMISSION ORGANIZATIONS

In October 2000, as a result of FERC Order 2000, PEC, along with Duke Energy Corporation and South Carolina Electric & Gas Company, filed an application with the FERC for approval of a regional transmission organization (RTO), GridSouth. In July 2001, the FERC issued an order provisionally approving GridSouth. However, in July 2001, the FERC issued orders recommending that companies in the southeast engage in mediation to develop a plan for a single RTO for the Southeast. PEC participated in the mediation. On August 11, 2005, the GridSouth participants notified the FERC that they had terminated the GridSouth project. By order issued October 20, 2005, the FERC terminated the GridSouth proceeding. PEC has $33 million invested in GridSouth related to startup costs at December 31, 2005. PEC expects to recover these startup costs.

Also as a result of FERC Order 2000, PEF, Florida Power & Light Company and Tampa Electric Company collectively filed with the FERC in October 2000 an application for approval of a GridFlorida RTO. The GridFlorida proposal is pending before both the FERC and the Florida Public Service Commission (FPSC). The FERC provisionally approved the structure and governance of GridFlorida. In December 2003, the FPSC ordered further state proceedings and established a collaborative workshop process to be conducted during 2004. In June 2004, the workshop process was abated pending completion of a cost-benefit study. On December 12, 2005, the final report of the cost-benefit study was issued. The study concluded that the GridFlorida RTO was not cost effective. The study further segregated the costs and benefits between FPSC jurisdictional and nonjurisdictional customers, concluding that the jurisdictional customers would incur even more costs and benefits would be shifted to nonjurisdictional customers. In light of the findings and conclusions of the cost-benefit study, on January 27, 2006, the GridFlorida applicants filed a motion with the FPSC to withdraw the compliance filing and filed a petition to close the docketed proceeding. The Florida Municipal Power Agency and Seminole Electric Power Cooperative have submitted a filing in opposition to this motion. The FPSC has released a schedule that indicates that they will issue an order on this motion by April 24, 2006. The GridFlorida applicants are currently in discussions to determine whether there are cost-effective alternatives to the GridFlorida proposal that could be implemented in peninsular Florida. It is unknown when the FERC or the FPSC will take final action with regard to the status of GridFlorida or what the impact of further proceedings will have on PEF’s earnings, revenues or pricing. PEF has fully recovered its startup costs in GridFlorida.

See Note 7C for further discussion regarding RTOs.

FRANCHISE MATTERS

PEC has nonexclusive franchises with varying expiration dates in most of the municipalities in which it distributes electric energy in North Carolina and South Carolina. The general effect of these franchises is to provide for the manner in which PEC occupies rights-of-way in incorporated areas of municipalities for the purpose of constructing, operating and maintaining an energy transmission and distribution system. Of these 239 franchises, 194 have expiration dates ranging from 2008 to 2061 and 45 of these have no specific expiration dates. All but 13 of the 194 franchises with expiration dates have a term of 60 years. The exceptions have terms ranging from 10 to 50 years. PEC also provides service within a number of municipalities and in all of its unincorporated areas without franchise agreements.

PEF holds franchises with varying expiration dates in 109 of the municipalities in which it distributes electric energy. PEF also provides service to 12 other municipalities and in all its unincorporated areas without franchise agreements. The general effect of these franchises is to provide for the manner in which PEF occupies rights-of-way in incorporated areas of municipalities for the purpose of constructing, operating and maintaining an energy transmission and distribution system. One city which had an expiring franchise agreement with PEF elected in 2005 to purchase the electric distribution system that served that city after satisfying regulatory and operating requirements (See Note 7C). Other litigation regarding franchise matters with certain Florida municipalities were largely resolved during 2005 with renewals of franchise agreements. The franchise agreements cover periods ranging from 10 to 30 years with the majority covering 30-year periods from the date enacted. Of the 109 franchise agreements, 3 expire between January 1, 2006 and December 31, 2010, and 106 expire between January 1, 2011 and December 31, 2035.

WHOLESALE COMPETITION

As a result of various changes in federal law and regulations over the past 25 years, there is competition in the wholesale electricity market. In 1996, the FERC issued new rules on transmission service requiring all utility transmission providers to provide transmission access and service to all market participants pursuant to standardized tariffs. The rules give greater flexibility and more choices to wholesale power customers. EPACT clarified and expanded the FERC’s authority to assure that markets operate fairly without imposing new, mandatory intrusion on state authorities.

The increased competition in the wholesale electric utility industry and the availability of transmission access could affect the Utilities’ load forecasts, plans for power supply and wholesale energy sales and related revenues. The impact could vary depending on the extent to which additional generation is built to compete in the wholesale

market, new opportunities are created for the Utilities to expand their wholesale load, or current wholesale customers elect to purchase from other suppliers after existing contracts expire.

In April 2004, the FERC issued two orders concerning utilities’ ability to sell wholesale electricity at market-based rates. In the first order, the FERC adopted two new interim screens for assessing potential generation market power of applicants for wholesale market-based rates, and described additional analyses and mitigation measures that could be presented if an applicant does not pass one of these interim screens. In July 2004, the FERC issued a second order that re-affirmed its April order and initiated a rulemaking to consider whether the FERC’s current methodology for determining whether a public utility should be allowed to sell wholesale electricity at market-based rates should be modified in any way. The Utilities do not have market-based rate authority for wholesale sales in peninsular Florida. Given the difficulty PEC believed it would experience in passing one of the interim screens, on September 6, 2005, PEC filed revisions to its market-based rate tariffs restricting PEC to sales outside of PEC’s control area and peninsular Florida, and filed a new cost-based tariff for sales within PEC’s control area. The FERC has accepted these revised tariffs.

On June 6, 2005, the Utilities submitted market power studies to the FERC demonstrating that neither company possessed market power outside of peninsular Florida and PEC’s control area. The FERC accepted the Utilities’ respective market power studies and allowed PEC and PEF to continue selling power at market-based rates in areas outside of peninsular Florida and PEC’s control area.

We do not anticipate that the current operations of the Utilities will be materially impacted by the market-based rates decision outlined above.

STRANDED COSTS

An issue encompassed by industry restructuring is the recovery of “stranded costs.” Stranded costs primarily include the generation assets of utilities whose value in a competitive marketplace would be less than their current book value, as well as above-market purchased power commitments to qualifying facilities (QFs). Thus far, all states that have passed restructuring legislation have provided for the opportunity to recover a substantial portion of stranded costs. Assessing the amount of stranded costs for a utility requires various assumptions about future market conditions, including the future price of electricity.

The largest stranded cost exposure for PEF is its commitment to QFs. However, the FPSC allows for full recovery of the retail portion of QFs costs from customers. PEF continues to seek ways to address the impact of escalating payments from contracts it was obligated to sign under provisions of the Public Utilities Regulatory Policies Act of 1978 (PURPA).

EPACT repeals the mandatory purchase and sales requirements of PURPA in competitive markets as determined by the FERC. The law also requires the FERC to revise the criteria for new QFs and removes the ownership limitations on QFs.

NONREGULATED BUSINESSES

Progress Ventures’ CCO operations are in the nonregulated wholesale market, which means competition is its primary driver. CCO competes in the eastern United States utility markets. Factors contributing to success in these markets include a competitive cost structure and strategic locations.

Progress Ventures’ Gas operations develop and produce from wells located in Texas and Louisiana and sell at competitive prices throughout the region. Factors contributing to success include a competitive cost structure, the ability to execute the drilling plan and increase proven reserves.

Coal and Synthetic Fuel operations compete in the eastern United States steam and industrial coal markets. Factors contributing to success in these markets include a competitive cost structure and strategic locations. There are, however, numerous competitors in each of these markets, although no one competitor is dominant in any industry.

REGULATORY MATTERS

PUHCA

As a result of the acquisition of Florida Progress, Progress Energy was a registered holding company subject to regulation by the SEC under PUHCA. Therefore, Progress Energy and its subsidiaries were subject to the regulatory provisions of PUHCA, including provisions relating to the issuance of securities, sales, acquisitions of securities and utility assets, and services performed by PESC.

As discussed under “COMPETITION - General”, federal legislation was enacted during 2005 to repeal PUHCA effective February 8, 2006. Subsequent to that date, the Parent is no longer subject to regulation by the SEC as a public utility holding company. EPACT grants the FERC certain new powers including approval authority of mergers affecting utilities, disposition of utility assets with a value in excess of $10 million and accounting, record retention and cost allocation authority.

UTILITY REGULATION

PEC is subject to regulation in North Carolina by the North Carolina Utilities Commission (NCUC), and in South Carolina by the Public Service Commission of South Carolina (SCPSC) and PEF is subject to regulation in Florida by the FPSC with respect to, among other things, rates and service for electric energy sold at retail, retail service territory cost recovery of unusual or unexpected expense, such as severe storm costs, and issuances of securities. The Utilities are also subject to regulation by the United States Nuclear Regulatory Commission (NRC). In addition, the Utilities are subject to regulation by the FERC with respect to transmission and sales of wholesale power, accounting and certain other matters. The underlying concept of utility ratemaking is to set rates at a level that allows the utility to collect revenues equal to its cost of providing service, plus a reasonable rate of return on its invested capital, including equity. Increased competition as a result of industry restructuring may affect the ratemaking process.

On February 7, 2006, the FPSC approved a utility pole inspection policy that requires extensive testing of wooden utility poles every eight years in an effort to reduce outages during severe storms. PEF does not anticipate a significant impact on its operations from complying with the new regulation as it already had a policy of inspecting its poles every 10 years, and some more often.

RETAIL RATE MATTERS

The NCUC, SCPSC and FPSC authorize retail “base rates” that are designed to provide the respective utility with the opportunity to earn a specific rate of return on its “rate base,” or investment in utility plant. These rates are intended to cover all reasonable and prudent expenses of utility operations except those covered by specific cost recovery clauses and to provide investors with a fair rate of return.

In PEC’s most recent rate cases in 1988, the NCUC and the SCPSC each authorized a return on equity of 12.75% for PEC. The Clean Smokestacks Act enacted in North Carolina in 2002 (Clean Smokestacks Act) froze PEC’s base retail rates in North Carolina through December 31, 2007, unless there are extraordinary events beyond the control of PEC, in which case PEC can petition for a rate increase.

During 2005, the FPSC approved a four-year base rate agreement with PEF (Base Rate Settlement). The new base rates took effect the first billing cycle of January 2006 and will remain in effect through the last billing cycle of December 2009 with PEF having sole option to extend through the last billing cycle of June 2010. Base rates will be adjusted in late 2007 depending on the in-service date of specified generation facilities. The Base Rate Settlement also provides for revenue sharing between PEF and its customers. In 2006, PEF will refund two-thirds of retail, base revenues between the $1.499 billion threshold and the $1.549 billion cap and 100 percent of revenues above the $1.549 billion cap. Both the threshold and cap will be adjusted annually for rolling average 10-year retail kilowatt-hour (kWh) sales growth.

RETAIL COST RECOVERY CLAUSES

Each state utility commission allows recovery of certain costs through various cost recovery clauses, to the extent the respective commission determines in an annual hearing that such costs are prudent. Each state utility commission’s determination results in the addition of a rider to a utility’s base rates to reflect the approval of these costs and to reflect any past over- or under-recovery. The Utilities do not make any profit on the recovery of such costs. Certain fuel costs are eligible for recovery by the Utilities. The Utilities use coal, oil, hydroelectric (PEC only), natural gas and nuclear power to generate electricity thereby maintaining a diverse fuel mix which helps mitigate the impact of cost increases in any one fuel. The Utilities make every effort to minimize these costs. Unless a commission finds a portion of such costs to have been imprudently incurred, due to the regulatory treatment of these costs and the method allowed for recovery, changes from year to year have no material impact on operating results of the Utilities. However, delays between the expenditure for fuel costs and recovery from ratepayers can adversely impact the cash flow of the Utilities.

Costs recovered by the Utilities through cost recovery clauses, by retail jurisdiction, are as follows:

·	North Carolina Retail - fuel costs and the fuel portion of purchased power

·	South Carolina Retail - fuel costs, certain purchased power costs, and sulfur dioxide (SO₂) emission allowance expense

·	Florida Retail - fuel costs, purchased power costs, capacity costs, energy conservation expense and specified environmental costs, including SO₂ emission allowance expense.

WHOLESALE RATE MATTERS

PEC and PEF are subject to regulation by the FERC with respect to rates for transmission and sale of electric energy at wholesale, the interconnection of facilities in interstate commerce (other than interconnections for use in the event of certain emergency situations), the licensing and operation of hydroelectric projects (PEC only) and, to the extent the FERC determines, accounting policies and practices. PEC and its wholesale customers last agreed to a general increase in wholesale rates in 1988 and PEF and its wholesale customers last agreed to a general increase in wholesale rates in 1995. However, wholesale rates for both of the Utilities have been adjusted since that time through contractual negotiations.

STORM RECOVERY

In accordance with a regulatory order, PEF accrues $6 million annually in base rates to a storm damage reserve and is allowed to defer losses in excess of the accumulated reserve for major storms. Under the order, the storm reserve is charged with operation and maintenance expenses related to storm restoration and with capital expenditures related to storm restoration that are in excess of expenditures assuming normal operating conditions.

On July 14, 2005, the FPSC issued an order authorizing PEF to recover $232 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 that impacted PEF’s service territory in 2004. The initial impact was included in customer bills beginning August 1, 2005. The amount approved for recovery was based on PEF’s estimate of costs. On September 12, 2005, PEF filed a true-up of an additional $19 million in costs. The increase was partially offset by $6 million of adjustments. The FPSC administratively approved the true-up amount, subject to audit by the FPSC staff. The net true-up effect was included in customer bills beginning January 1, 2006.

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 is reviewing whether it will seek FPSC approval to issue securitized debt to recover any outstanding balance of its 2004 storm costs and to replenish its storm reserve fund, or to continue the current replenishment of its storm reserve fund through base rates and a surcharge mechanism. If PEF seeks recovery through securitization and assuming FPSC approval, PEF expects the process to take six to nine months to complete.

PEC does not maintain a storm damage reserve account and does not have an on-going regulatory mechanism to recover storm costs. In the past, PEC has sought and received permission from the SCPSC and NCUC to defer and amortize certain storm recovery costs.

See Note 7 for further discussion of regulatory matters.

NUCLEAR MATTERS

GENERAL

The nuclear power industry faces uncertainties with respect to the cost and long-term availability of sites for disposal of spent nuclear fuel and other radioactive waste, compliance with changing regulatory requirements, nuclear plant operations, increased capital outlays for modifications, the technological and financial aspects of decommissioning plants at the end of their licensed lives and requirements relating to nuclear insurance.

PEC owns and operates four nuclear generating units, Brunswick Nuclear Plant (Brunswick) Unit No. 1 and Unit No. 2, Shearon Harris Nuclear Plant (Harris), and Robinson Nuclear Plant (Robinson). NRC operating licenses for Brunswick No. 1 and No. 2, Harris, and Robinson currently expire in September 2016, December 2014, October 2026, and July 2030, respectively. An application to extend the Brunswick licenses 20 years was submitted in October 2004. An application to extend the Harris license 20 years is expected to be submitted in the fourth quarter of 2006.

PEF owns and operates one nuclear generating unit, Crystal River Unit No. 3 (CR3). The NRC operating license for CR3 currently expires in December 2016. An application to extend this license 20 years is expected to be submitted in the first quarter of 2009.

Since 2001, PEC and PEF have made various modifications to increase the output of their nuclear facilities. The cumulative increase is approximately 315 MW, of which 311 MW is at PEC and 4 MW is at PEF.

We currently estimate that we will need to increase our baseload capacity in Florida and North and South Carolina by the middle of the next decade and are evaluating our options for future baseload generation needs. Both nuclear and coal technologies are being explored in parallel paths. We have announced that we are pursuing development of Combined License (COL) applications. Our announcement is not a commitment to build a nuclear plant. It is a necessary step to keep open the option of building a potential plant or plants. On January 23, 2006, we announced that PEC has selected the Harris site to evaluate for possible future nuclear expansion and we announced the selection of the Westinghouse Electric AP-1000 reactor design as the technology upon which to base the 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 2007 or first quarter 2008. We plan to announce the selection of the Florida site in spring 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 online around 2016. We estimate that it will take approximately 36 months for the NRC to review the COL applications and grant approval. See ITEM 1A, “Risk Factors” for additional information.

Our nuclear generating units are regulated by the NRC under the Atomic Energy Act of 1954 and the Energy Reorganization Act of 1974. In the event of noncompliance, the NRC has the authority to impose fines, set license conditions, shut down a nuclear unit, or some combination of these, depending upon its assessment of the severity of the situation, until compliance is achieved. Nuclear units are periodically removed from service to accommodate normal refueling and maintenance outages, repairs and certain other modifications.

The NRC periodically issues bulletins and orders addressing industry issues of interest or concern that necessitate a response from the industry. It is our intent to comply with and to complete required responses in a timely and accurate manner. Any potential impact to company operations will vary and will be dependent upon the nature of the requirement(s).

Since 2002, the NRC has issued various bulletins and orders addressing inspection activities associated with

Pressurized Water Reactor (PWR) vessels. We have complied with all requests. Additionally, we replaced the reactor vessel head at CR3 in 2003 and at Robinson in 2005.

SECURITY

The NRC has issued various orders since September 2001 with regard to security at nuclear plants. These orders include additional restrictions on access, increased security measures at nuclear facilities and closer coordination with our partners in intelligence, military, law enforcement and emergency response at the federal, state and local levels. We completed the requirements as outlined in the orders by the committed dates. As the NRC, other governmental entities and the industry continue to consider security issues, it is possible that more extensive security plans could be required.

SPENT FUEL AND OTHER HIGH-LEVEL RADIOACTIVE WASTE

The Nuclear Waste Policy Act of 1982 (Nuclear Waste Act) provides the framework for development by the federal government of interim storage and permanent disposal facilities for high-level radioactive waste materials. The Nuclear Waste Act promotes increased usage of interim storage of spent nuclear fuel at existing nuclear plants. We will continue to maximize the use of spent fuel storage capability within our own facilities for as long as feasible.

With certain modifications and additional approval by the NRC, including the installation of onsite dry storage facilities at Robinson, Brunswick and CR3, the Utilities’ spent nuclear fuel storage facilities will be sufficient to provide storage space for spent fuel generated on their respective systems through the expiration of the operating licenses, including any license extensions, for all of their nuclear generating units. On March 30, 2005, the NRC issued a 40-year renewal for Robinson’s Independent Spent Fuel Storage Installation license, which was due to expire in August 2006.

See Note 23D for a discussion of the Utilities’ contracts with the DOE for spent nuclear waste.

DECOMMISSIONING AND DECONTAMINATION

In the Utilities’ retail jurisdictions, provisions for nuclear decommissioning costs are approved by the NCUC, the SCPSC and the FPSC and are based on site-specific estimates that include the costs for removal of all radioactive and other structures at the site. In the wholesale jurisdiction, the provisions for nuclear decommissioning costs are approved by the FERC. A condition of the operating license for each unit requires an approved plan for decontamination and decommissioning. See Note 5D for a discussion of the Utilities’ nuclear decommissioning costs.

ENVIRONMENTAL

In the areas of air quality, water quality, control of toxic substances and hazardous and solid wastes and other environmental matters, we are subject to regulation by various federal, state and local authorities. We believe that we are in substantial compliance with those environmental regulations currently applicable to our business and operations and believe we have all necessary permits to conduct such operations. Environmental laws and regulations constantly change and the ultimate costs of compliance cannot always be accurately estimated. The current estimated capital costs associated with compliance with pollution control laws and regulations that we expect to incur are included in the “Capital Expenditures” discussion for Progress Energy under PART II, ITEM 7, “Liquidity and Capital Resources.”

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 legislation. 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, including 11 manufactured gas plant (MGP) sites, with respect to which we have been notified by the EPA, the State of North Carolina or the State of Florida of our potential liability, as a potentially responsible party (PRP). We have accrued costs for the sites to the extent our liability is probable and the costs can be reasonably estimated. Although we may incur additional costs at the sites about which we have been notified, based upon the current status of these sites, the total costs that may be incurred in connection with all sites cannot be determined at this time. It is probable that additional losses, which could be material, may be incurred in the future.

See Note 22 for additional discussion of our environmental matters, which identifies specific environmental issues, the status of the issues, accruals associated with issue resolutions and our associated exposures.

EMPLOYEES

As of February 15, 2006, we employed approximately 11,600 full-time employees. Of this total, approximately 2,000 employees at PEF are represented by the International Brotherhood of Electrical Workers (IBEW). The three-year labor contract with the IBEW expired in November 2005. In January 2006, we reached an agreement on a new three-year contract, which has been ratified by union members and is retroactive to November 2005.

We have a noncontributory defined benefit retirement (pension) plan for substantially all full-time employees and an employee stock purchase plan among other employee benefits. We also provide contributory postretirement benefits, including certain health care and life insurance benefits, for substantially all retired employees.

As of February 15, 2006, PEC and PEF employed approximately 5,000 and 3,700 full-time employees, respectively.

ELECTRIC - PEC

GENERAL

PEC is a public service corporation formed under the laws of North Carolina in 1926 and is primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North and South Carolina. At December 31, 2005, PEC had a total summer generating capacity (including jointly owned capacity) of approximately 12,519 MW. For additional information about PEC’s generating plants, see ELECTRIC - PEC in ITEM 2. PROPERTIES. PEC’s system normally experiences its highest peak demands during the summer, and the all-time system peak of 12,577 megawatt-hour (MWh) was set on July 27, 2005.

PEC distributes and sells electricity in North Carolina and northeastern South Carolina. The service territory covers approximately 34,000 square miles, including a substantial portion of the coastal plain of North Carolina extending from the Piedmont to the Atlantic coast between the Pamlico River and the South Carolina border, the lower Piedmont section of North Carolina, an area in western North Carolina in and around the city of Asheville and an area in the northeastern portion of South Carolina. At December 31, 2005, PEC was providing electric services, retail and wholesale, to approximately 1.4 million customers. Major wholesale power sales customers include North Carolina Eastern Municipal Power Agency (Power Agency), North Carolina Electric Membership Corporation and Public Works Commission of the City of Fayetteville, North Carolina (PWC). PEC is subject to the rules and regulations of the FERC, the NCUC, the SCPSC and the NRC. No single customer accounts for more than 10% of PEC’s revenues.

BILLED ELECTRIC REVENUES

PEC’s electric revenues billed by customer class, for the last three years, are shown as a percentage of total PEC electric revenues in the table below:

BILLED ELECTRIC REVENUE PERCENTAGES
	2005			2004			2003
Residential		37	%		38	%		36	%
Commercial		24	%		25	%		24	%
Industrial		18	%		19	%		18	%
Wholesale		19	%		16	%		20	%
Other retail		2	%		2	%		2	%

Major industries in PEC’s service area include textiles, chemicals, metals, paper, food, rubber and plastics, wood products and electronic machinery and equipment.

FUEL AND PURCHASED POWER

SOURCES OF GENERATION

PEC’s consumption of various types of fuel depends on several factors, the most important of which are the demand for electricity by PEC’s customers, the availability of various generating units, the availability and cost of fuel and the requirements of federal and state regulatory agencies. PEC’s total system generation (including jointly owned capacity) by primary energy source, along with purchased power for the last three years is presented in the following table:

ENERGY MIX PERCENTAGES
	2005			2004			2003
Coal		47	%		47	%		46	%
Nuclear		42	%		43	%		44	%
Purchased power		6	%		6	%		7	%
Oil/Gas		4	%		3	%		2	%
Hydro		1	%		1	%		1	%

PEC is generally permitted to pass the cost of fuel and certain purchased power costs to its customers through fuel adjustment clauses. The future prices for and availability of various fuels discussed in this report cannot be predicted with complete certainty. See “Commodity Price Risk” under ITEM 7A, “Quantitative And Qualitative Disclosures About Market Risk” and ITEM 1A, “Risk Factors.” However, PEC believes that its fuel supply contracts, as described below, will be adequate to meet its fuel supply needs.

PEC’s average fuel costs per million British thermal units (Btu) for the last three years were as follows:

AVERAGE FUEL COST
(per million Btu)			2005			2004			2003

Coal	$ 2.72	$ 2.17	$ 2.00
Nuclear	0.42	0.42	0.43
Oil	8.60	6.78	6.69
Gas	10.90	8.29	8.32
Weighted-average	2.03	1.57	1.43

Changes in the unit price for coal, oil and gas are due to market conditions. Since these costs are primarily recovered through recovery clauses established by regulators, fluctuations do not materially affect net income.

Coal

PEC anticipates a requirement of approximately 12.8 million to 13.4 million tons of coal in 2006. Almost all of the coal will be supplied from Appalachian coal sources in the United States and is primarily delivered by rail.

For 2006, PEC has short-term, intermediate and long-term agreements from various sources for approximately 107% of its estimated burn requirements of its coal units. Amounts in excess of PEC’s estimated burn requirements will be used to build up inventory levels or be consumed if the burn requirements increased above forecast. All of these contracts are at fixed prices adjusted annually. The contracts have expiration dates ranging from 2006 to 2010. PEC will continue to sign contracts of various lengths, terms and quality to meet its expected burn requirements. All the coal to be purchased for PEC is considered to be low-sulfur coal by industry standards.

Nuclear

Nuclear fuel is processed through four distinct stages. Stages I and II involve the mining and milling of the natural uranium ore to produce a uranium oxide concentrate and the conversion of this concentrate into uranium hexafluoride. Stages III and IV entail the enrichment of the uranium hexafluoride and the fabrication of the enriched uranium hexafluoride into usable fuel assemblies.

PEC has sufficient uranium, conversion, enrichment and fabrication contracts to meet its near-term nuclear fuel requirement needs. PEC’s nuclear fuel contracts typically have terms ranging from five to ten years. For a discussion of PEC’s plans with respect to spent fuel storage, see PART I, ITEM 1, “Nuclear Matters.”

Oil and Gas

Oil and natural gas supply for PEC’s generation fleet is purchased under term and spot contracts from several suppliers. PEC has dual-fuel generating facilities that can operate with both oil and gas. The cost of PEC’s oil and gas is determined by market prices as reported in certain industry publications. PEC believes that it has access to an adequate supply of oil and gas for the reasonably foreseeable future. PEC’s natural gas transportation for its baseload gas generation is purchased under term firm transportation contracts with interstate pipelines. PEC also purchases capacity on a seasonal basis from numerous shippers for its peaking load requirements. PEC believes that existing contracts for oil are sufficient to cover its requirements if natural gas is unavailable during a normal winter period for PEC’s combustion turbine and combined cycle fleet.

Hydroelectric

PEC has three hydroelectric generating plants licensed by the FERC: Walters, Tillery and Blewett. PEC also owns the Marshall Plant, which has a license exemption. The total maximum dependable capacity for all four units is 218 MW. PEC is seeking to relicense its Tillery and Blewett Plants. The license for these plants currently expires in April 2008. The Walters Plant license will expire in 2034.

Purchased Power

PEC purchased approximately 4.7 million MWh, 4.0 million MWh and 4.5 million MWh of its system energy requirements during 2005, 2004 and 2003 and had 1,518 MW of firm purchased capacity under contract during 2005. PEC may acquire additional purchased power capacity in the future to accommodate a portion of its system load needs and PEC believes that it can obtain enough purchased power to meet these needs. However, during periods of high demand, the price and availability of purchased power may be significantly affected.

ELECTRIC - PEF

GENERAL

PEF, incorporated in Florida in 1899, is an operating public utility engaged in the generation, transmission, distribution and sale of electricity. At December 31, 2005, PEF had a total summer generating capacity (including jointly owned capacity) of approximately 9,045 MW. For additional information about PEF’s generating plants, see ELECTRIC - PEF in ITEM 2. PROPERTIES. PEF’s system normally experiences its highest peak demands during the winter, and the all-time system peak of 10,131 MWh was set on January 24, 2003. PEF’s system set a new summer peak demand of 9,406 MWh on August 16, 2005.

PEF distributes and sells electricity in Florida. The service territory covers approximately 20,000 square miles and includes the densely populated areas around Orlando, as well as the cities of St. Petersburg and Clearwater. PEF is interconnected with 22 municipal and 9 rural electric cooperative systems. At December 31, 2005, PEF was providing electric services, retail and wholesale, to approximately 1.6 million customers. Major wholesale power sales customers include Seminole Electric Cooperative, Inc., Florida Power & Light Company, Tampa Electric Company, and the cities of Bartow, Winter Park (Winter Park) and Tallahassee. PEF is subject to the rules and regulations of the FERC, the FPSC and the NRC. No single customer accounts for more than 10% of PEF’s revenues.

BILLED ELECTRIC REVENUES

PEF’s electric revenues, billed by customer class for the last three years, are shown as a percentage of total PEF electric revenues in the table below:

BILLED ELECTRIC REVENUE PERCENTAGES
	2005		2004		2003
Residential	52	%	53	%	55	%
Commercial	25	%	25	%	24	%
Industrial	8	%	8	%	7	%
Wholesale	9	%	8	%	8	%
Other retail	6	%	6	%	6	%

Important industries in PEF’s territory include phosphate rock mining and processing, electronics design and manufacturing, and citrus and other food processing. Other important commercial activities are tourism, health care, construction and agriculture.

FUEL AND PURCHASED POWER

SOURCES OF GENERATION

PEF’s consumption of various types of fuel depends on several factors, the most important of which are the demand for electricity by PEF’s customers, the availability of various generating units, the availability and cost of fuel and the requirements of federal and state regulatory agencies. PEF’s total system generation (including jointly owned capacity) by primary energy source, along with purchased power for the last three years is presented in the following table:

ENERGY MIX PERCENTAGES
	2005			2004			2003
Coal (a)		33	%		32	%		36	%
Oil/Gas		33	%		32	%		29	%
Nuclear		13	%		16	%		14	%
Purchased Power		21	%		20	%		21	%

(a)	Amounts include synthetic fuel from unrelated third parties.

PEF is generally permitted to pass the cost of fuel and purchased power to its customers through fuel adjustment clauses. The future prices for and availability of various fuels discussed in this report cannot be predicted with complete certainty. See “Commodity Price Risk” under ITEM 7A, “Quantitative And Qualitative Disclosures About Market Risk” and ITEM 1A, “Risk Factors.” However, PEF believes that its fuel supply contracts, as described below, will be adequate to meet its fuel supply needs.

PEF’s average fuel costs per million Btu for the last three years were as follows:

AVERAGE FUEL COST
(per million Btu)	2005		2004		2003
Coal (a)		$ 2.70		$ 2.30		$ 2.42
Oil		5.90		4.67		4.38
Nuclear		0.51		0.49		0.50
Gas		8.53		6.41		5.98
Weighted-average		4.15		3.21		3.07

(a)	Amounts include synthetic fuel from unrelated third parties.

Coal

PEF anticipates a combined requirement of approximately 6 million tons of coal in 2006. Approximately 70% of the coal is expected to be supplied from Appalachian coal sources in the United States and 30% supplied from coal sources in South America. Approximately 67% of the fuel is expected to be delivered by rail and the remainder by water. All of this fuel has historically been supplied by Progress Fuels, a subsidiary of Progress Energy, pursuant to contracts between PEF and Progress Fuels. Beginning in 2006, PEF will enter into coal contracts on its own behalf.

For 2006, Progress Fuels has medium-term and long-term contracts with various sources for approximately 115% of the estimated burn requirements of PEF’s coal units. Amounts in excess of PEF’s estimated burn requirements will be used to build up inventory levels or be consumed if the burn requirements increased above forecast. These contracts have price adjustment provisions and have expiration dates ranging from 2006 to 2010. All the coal to be purchased for PEF is considered to be low-sulfur coal by industry standards.

Oil and Gas

Oil and natural gas supply for PEF’s generation fleet is purchased under term and spot contracts from several suppliers. PEF has dual-fuel generating facilities that can operate with both oil and gas. The majority of the cost of PEF’s oil and gas is either hedged at a fixed price or determined by market prices as reported in certain industry publications. PEF believes that it has access to an adequate supply of oil and gas for the reasonably foreseeable future. PEF’s natural gas transportation for its gas generation is purchased under term firm transportation contracts with interstate pipelines. PEF purchases capacity on a seasonal basis from numerous shippers and interstate pipelines to serve its peaking load requirements. PEF also uses interruptible transportation contracts on certain occasions when available. PEF believes that existing contracts for oil are sufficient to cover its requirements if natural gas is unavailable during certain time periods.

Nuclear

PEF has sufficient uranium, conversion, enrichment and fabrication contracts to meet its near-term nuclear fuel requirements. PEF’s nuclear fuel contracts typically have terms ranging from five to ten years. For a discussion of PEF’s plans with respect to spent fuel storage, see PART I, ITEM I, “Nuclear Matters.”

Purchased Power

PEF purchased approximately 9.9 million MWh, 9.4 million MWh and 9.4 million MWh of its system energy requirements during 2005, 2004 and 2003 and had 1,631 MW of firm purchased capacity under contract during 2005. These agreements include approximately 812 MW of capacity under contract with certain QFs. PEF may acquire additional purchased power capacity in the future to accommodate a portion of its system load needs and PEF believes that it can obtain enough purchased power to meet these needs. However, during periods of high demand, the price and availability of purchased power may be significantly affected.

PROGRESS VENTURES

The Progress Ventures business segment is responsible for electric generation operations and energy marketing activities in the nonregulated wholesale market and natural gas drilling and production. CCO currently owns six electricity generation facilities with approximately 3,100 MW of generation capacity, and it has contractual rights to an additional 2,500 MW of generation capacity from mixed fuel generation facilities through its agreements with 16 Georgia electric membership cooperatives (EMCs). CCO has contracts for its combined production capacity of approximately 86% for 2006, approximately 81% for 2007, and approximately 84% for 2008. The Progress Ventures segment also includes natural gas properties in Texas and Louisiana producing approximately 24 billions of cubic feet (Bcf) equivalent per year.

The energy that CCO markets is sold under both term contracts and in the spot market. CCO purchases fuel, such as oil and natural gas, for use in the generation of electricity. We believe that there are adequate sources of fuel for CCO’s expected fuel requirements. CCO also uses financial instruments to manage the risks associated with fluctuating commodity prices to hedge the economic value of its portfolio of assets. We strive to mitigate the risks associated with CCO’s full-requirements supply contracts though various strategies including, but not limited to: having access to fixed price callable resources; having contractual caps on cooperative load growth; using selected power hedges over the terms of these agreements; using our generating assets to serve this load; and using our gas reserves in Texas and Louisiana as an economic hedge. However, we cannot provide certainty that these risk management techniques will be effective.

In May 2003, Progress Energy Ventures, Inc. (PVI) acquired from Williams Energy Marketing and Trading, a subsidiary of the Williams Companies, Inc., a long-term full-requirements power supply agreement at fixed prices with Jackson Electric Membership Corporation (Jackson), for $188 million. In 2004, PVI executed wholesale power-supply agreements with 15 Georgia EMCs to serve their electricity needs through 2010.

During 2005, we acquired approximately a 50 percent ownership interest in 11 natural gas producing wells and proven reserves of approximately 25 billion cubic feet equivalent from a privately owned company headquartered in Texas. In addition to the natural gas reserves, the transaction also included a 50 percent ownership interest in the gas gathering systems related to these reserves. The total cash purchase price for the transactions was $46 million (See Note 4A).

In December 2004, we sold certain gas-producing properties and related assets owned by Winchester Production, a wholly owned subsidiary of Progress Fuels for net proceeds of approximately $251 million (See Note 3E).

During 2003, Progress Fuels acquired approximately 200 natural gas-producing wells with proven reserves of approximately 190 Bcf from Republic Energy, Inc. and three other privately owned companies, all headquartered in Texas. The total cash purchase price for the transactions was approximately $168 million (See Note 4C).

COAL AND SYNTHETIC FUEL

We have substantial operations associated with the production of coal-based solid synthetic fuels including five majority owned synthetic fuel entities and one minority interest in a synthetic fuel entity, capable of producing up to 16 million tons per year. The production and sale of these products qualifies for federal income tax credits within the meaning of Section 29/45K so long as certain requirements are satisfied. These operations are subject to numerous risks. We also have five terminals on the Ohio River and its tributaries which blend and transload coal and are part of the trucking, rail and barge network for coal delivery.

Through tax years 2005, our ability to utilize tax credits was dependent on having a sufficient tax liability. In 2005, the tax law was changed and this constraint no longer applies beginning in tax year 2006. Synthetic fuel is generally not economical to produce absent the credits. The tax credits associated with synthetic fuels may be phased out if market prices for crude oil exceed certain prices.

Our synthetic fuel operations and related risks are described in more detail in Note 23D and in ITEM 1A, “Risk Factors.”

CORPORATE AND OTHER

GENERAL

The Corporate and Other business segment includes the operations of PT LLC, Strategic Resource Solutions Corp. (SRS) and the Parent as well as other nonregulated operations.

PT LLC

In December 2003, Progress Telecommunications Corporation (PTC) and Caronet, Inc. (Caronet), both wholly owned subsidiaries of Progress Energy, and EPIK Communications, Inc. (EPIK), a wholly owned subsidiary of Odyssey Telecorp, Inc. (Odyssey), contributed substantially all of their assets and transferred certain liabilities to PT LLC, a subsidiary of PTC. Subsequently, the stock of Caronet was sold to an affiliate of Odyssey for $2 million in cash and Caronet became a wholly owned subsidiary of Odyssey. Following consummation of all the transactions described above, PTC held a 55% ownership interest in, and was the parent of, PT LLC; Odyssey held a combined 45% ownership interest in PT LLC through EPIK and Caronet. The accounts of PT LLC have been included in the Consolidated Financial Statements since the transaction date.

PT LLC has data fiber network transport capabilities that stretch from New York to Miami with gateways to Latin America, and conducts primarily a carrier’s carrier business. PT LLC markets wholesale fiber-optic-based capacity service in the Eastern United States to long-distance carriers, Internet service providers and other telecommunications companies. PT LLC also markets wireless structure attachments to wireless communication companies and governmental entities. At December 31, 2005, PT LLC owned and managed more than 8,524 route miles of fiber and 29 metro networks.

PT LLC competes with other providers of fiber-optic telecommunications services, including local exchange carriers and competitive access providers, in the Eastern United States.

On January 25, 2006, we signed a definitive agreement to sell PT LLC to Level 3 for a purchase price of approximately $137 million. We expect to use net cash proceeds of approximately $70 million from the sale of our interest in PT LLC to reduce debt (See Note 25).

ELECTRIC UTILITY REGULATED OPERATING STATISTICS - PROGRESS ENERGY
	Years Ended December 31
	2005	2004	2003	2002	2001
Energy supply (millions of kilowatt-hours)
Generated
Steam	52,306	50,782	51,501	49,734	48,732
Nuclear	30,120	30,445	30,576	30,126	27,301
Combustion Turbines/Combined Cycle	11,349	9,695	7,819	8,522	6,644
Hydro	749	802	955	491	245
Purchased	14,566	13,466	13,848	14,305	14,469
Total energy supply (Company share)	109,090	105,190	104,699	103,178	97,391
Jointly owned share (a)	5,388	5,395	5,213	5,258	4,886
Total system energy supply	114,478	110,585	109,912	108,436	102,277
Average fuel cost (per million Btu)
Fossil	$ 4.05	$ 3.17	$ 2.94	$ 2.62	$ 2.46
Nuclear fuel	$ 0.44	$ 0.44	$ 0.44	$ 0.44	$ 0.45
All fuels	$ 2.83	$ 2.21	$ 2.05	$ 1.84	$ 1.77
Energy sales (millions of kilowatt-hours)
Retail
Residential	36,558	35,350	34,712	33,993	31,976
Commercial	25,258	24,753	24,110	23,888	23,033
Industrial	16,856	17,105	16,749	16,924	17,204
Other Retail	4,608	4,475	4,382	4,287	4,149
Wholesale	21,137	18,323	19,841	19,204	17,715
Unbilled	(440)	449	189	275	(1,045)
Total energy sales	103,977	100,455	99,983	98,571	93,032
Company uses and losses	5,113	4,735	4,716	4,607	4,359
Total energy requirements	109,090	105,190	104,699	103,178	97,391

Electric revenues (in millions)
Retail		$ 6,607	$ 6,066	$ 5,620	$