Dear Fellow Shareholders:

Robert B. McGehee – Chairman and Chief Executive Officer

Progress Energy kept a relentless focus on excellence and long-term value in 2004. We increased the dividend for the 17th consecutive year and for the 29th time in the last 30 years. And we entered 2005 with a clear vision of what we need to accomplish and a well-founded confidence in our ability to do it.

Even though the unprecedented series of hurricanes last year created serious problems for our customers and company in the short run, the fundamentals of our core business remain sound. Moreover, our employees once again proved how well they rise to any challenge.

Executing a Clear Strategic Plan – In 2004, our management team conducted an extensive analysis of our industry and our company. We developed a clear road map for the next three years and beyond that will reinforce our position as a buy-and-hold stock providing good value at modest risk.

We reaffirmed the basic strategic focus on our three core energy businesses: Progress Energy Carolinas and Progress Energy Florida – our electric utilities serving regulated markets – and Progress Ventures (excluding synthetic fuels), which serves competitive energy markets in the eastern United States.

Our strategic plan also includes selective asset sales to complete the restoration of our balance sheet. We sold our North Texas natural gas properties in December 2004 and have used the over $250 million in proceeds to retire debt. In February 2005, we reached a definitive agreement to sell Progress Rail, a subsidiary acquired in the 2000 merger. The $405 million in proceeds also will be used for debt reduction.

In addition, our plan calls for growing our core business earnings per share over the long term by 3 percent to 5 percent a year, which will support continued dividend growth. We know that consistent dividend growth is a major reason investors buy our stock.

Our strategy will help us maintain and enhance shareholder value as we make the transition beyond the federal synthetic-fuel tax program that expires at the end of 2007. In 2004, we resolved the federal tax audit issues with our Colona synthetic-fuel facilities, but, as of early 2005, we are still working with the Internal Revenue Service to resolve issues with the Earthco synthetic-fuel audit. While we feel good about our case, we can’t predict the outcome.

Investing in Utilities and Controlling Costs – We continue to invest nearly $1 billion of capital each year in our two electric utilities to serve new retail customers and growing demand. We now have almost 3 million customers in our two service areas, which are among the most attractive locations in the country.

In 2004, we began building the third generating unit at our Hines Energy Complex in Polk County, Fla. The unit is scheduled for service in December 2005. Also last year, we received a 20-year license extension for our Robinson Nuclear Plant in Darlington County, S.C., and this year we will complete a four-year program to boost nuclear production capacity at our existing plants. In addition, we’re expanding our transmission system and distribution facilities at both utilities to ensure continued reliability.

Cost management is central to our strategic plan. We began an initiative in late 2004 to eliminate $75 million to $100 million in projected growth of annual nonfuel operating costs by the end of 2007. As part of this effort, we launched a companywide organization study to be completed in 2005. It includes a streamlined management structure and a voluntary early retirement program.

Keeping an Eye on Results that Matter – At Progress Energy, we’re staying focused on achieving five key results that matter for our long-term success:

• excellence in business operations
  
  
• loyal and satisfied customers
  
  
• good value to investors
  
  
• motivated and productive employees
  
  
• exemplary corporate citizenship

As important as it is to meet financial objectives and investor expectations, we must pay close attention to all of these vital areas. For example, in finding ways to reduce costs, we will not take short-sighted actions that compromise safety or service or the high-performance culture we’re building here.

And we know it ultimately benefits us as well as our neighbors when we give back to the communities we serve. We do this by supporting a variety of community initiatives in education, the environment and economic development.

Building Momentum in 2005 – In addition to continuous improvement throughout the company, we are focused on these seven priorities in 2005:

• Entering 2006 with projected core business earnings-per-share growth that supports dividend growth for the 18th consecutive year
  
  
• Sustaining our record of excelling at the basics, including generation performance, service reliability, customer satisfaction and employee safety
  
  
• Implementing organization and process changes to eliminate $75 million to $100 million in projected nonfuel operating expenses by the end of 2007
  
  
• Reducing leverage and recovering our stable investment grade rating
  
  
• Making progress on the Internal Revenue Service tax audit of the Earthco synthetic-fuel plants
  
  
• Successfully resolving the Florida rate case and achieving timely recovery of our storm costs
  
  
• Negotiating a reasonable bargaining-unit contract in Florida

We’re off to a good start in 2005. From operational performance to debt reduction and cost management, we are building positive momentum, and I expect that trend to continue.

As I reflect on my first year as chairman and CEO, I am grateful for all of your support. And in looking ahead, I am enthusiastic about Progress Energy’s future. We understand who we are, what we do well and how to keep improving performance and adapting to change.

We know that our customers, investors and neighbors count on Progress Energy to perform to very high standards, day after day, year after year. I’m convinced we have the right people and focus to live up to that expectation.

	Robert B. McGehee Chairman and Chief Executive Officer

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