Corporate Responsibility Letter From CEO Executive Summary Company Overview	Customers Balanced Solution for Growing Energy Demand Reliable Power Customer Satisfaction	Communities Community Investments Economic Development Supplier Diversity Stakeholder Engagement	Environment Environmental Management Global Climate Change Renewable and Alternative Energy Advanced Vehicle Technologies Air Quality Water Resources Waste Management Remediation Natural Resources Research and Development	Employees Health and Safety Engaged Employees	Shareholders Corporate Governance Ethics Program Financial Highlights	Conclusion GRI Index Safe Harbor for Forward-Looking Statements Employee Recognition

Meeting our customers’ growing energy demand

A major strategic challenge facing our company is meeting anticipated population and demand growth in the communities we serve. Our retail service areas have traditionally had population growth higher than the U.S. average. According to the U.S. Census, the Raleigh-Cary metropolitan area of North Carolina is the fastest growing region in the nation, with a population growth of 4.3 percent from July 2007 to July 2008. The national average was just under 1 percent. This population increase has resulted in steady growth in energy use.

Balanced solution strategy

To meet anticipated demand growth from our customers with clean, reliable, affordable power, Progress Energy is pursuing a long-term, balanced solution strategy that includes:

Energy-efficiency and DSM programs

New strategic focus

A new department, Efficiency and Innovative Technology, was formed in 2008 to manage the company’s efforts to help customers use energy responsibly, expand the use of renewable energy sources, and aggressively pursue innovative energy technologies. This department combined the work of several existing sections and works across state lines to align the company’s energy-efficiency and DSM offerings, enhance renewable energy strategies, and optimize industry partnerships and corporate research opportunities.

New programs and goals

To achieve the first component of our balanced solution strategy, Progress Energy has established a robust DSM portfolio including energy-efficiency and demand-response programs in the Carolinas and Florida. These programs help customers lower their bills by providing information, resources and incentives to save energy and reduce demand during system peaks.

Progress Energy made tremendous advances in its DSM/energy-efficiency portfolio in 2008, filing and receiving regulatory approval for new customer programs in Florida and North Carolina. In Florida, energy-efficiency programs were expanded for both residential and business customers to provide additional options for improving efficiencies on items such as windows, roofs and renewable energy appliances, such as solar water heaters.

Examples of new programs for our Carolinas customers include:

We are working with policymakers, regulators and other stakeholders in the Carolinas to design and implement a shared-savings plan that drives aggressive energy efficiency and will work for customers and shareholders over the long term. For investors, this creates a sustainable and meaningful core business opportunity; and for customers, it reduces electric bills and displaces the need for more expensive power plants. We also support flexibility for the regulators to approve additional incentives as programs evolve.

Progress Energy is a member of the Consortium for Energy Efficiency (CEE), a group of efficiency program administrators from across North America who work together to advance efficiency and exchange information on best practices. This partnership links Progress Energy with other energy-efficiency program administrators, other industries, trade associations and government agencies.

Changing customer behavior is integral to the success of energy-efficiency and DSM programs. Therefore, in 2008, Progress Energy continued to build customer awareness with its Save the Watts™ campaign. Save the Watts educates customers and promotes awareness of, and participation in, these programs. The campaign expanded from advertising and an interactive Web site to include elementary and middle school education and community outreach. For more information, please visit savethewatts.com.

New energy delivery systems

The final component of our energy-efficiency and DSM strategy is investment in new energy delivery technologies. The company is focused on developing an advanced energy delivery system that will enable the company to leverage communication capabilities and other emerging technologies. Many enhancements to the energy delivery system are coming to be known as part of a "smart grid." The U.S. Department of Energy (DOE) has defined seven functions and characteristics as goals for tomorrow’s Smart Grid. According to the DOE, the Smart Grid will:

At Progress Energy, we continue to evolve our Smart Grid strategy and plans to ensure our grid will embody these characteristics.  Smart Grid enables our balanced solution strategy. On the customer side, Smart Grid enables our customers to participate in energy solutions. Customers will be equipped to actively manage their energy use and their bill through pricing signals, pre-pay options and other initiatives. Progress Energy will partner with our customers to assist them in managing their usage based on their preferences and lifestyle choices. The end result will be improved system efficiencies, conservation and a greener environment.  

On the utility side, Smart Grid positions the grid to provide reliable, high-quality services while seamlessly integrating distributed generation (smaller, decentralized power sources), including renewable energy resources and storage sources, into the grid. Progress Energy is approaching our investments in Smart Grid with the philosophy that we must build it in an adaptable and scalable manner. We are leveraging our investments in our DSM and efficiency programs to continue the journey to a smarter grid in partnership with our customers and regulators.

Progress Energy Carolinas is in the early stages of a five-year, multimillion dollar project to design and install a smart grid system to provide advanced operational control of the company’s electricity distribution grid. When fully operational, the distribution system demand-response capability will avoid the need for two large peaking plants by enabling the company to reduce peak-demand usage through systemwide voltage reduction.

Renewable energy and state-of-the-art plants

Progress Energy is investing in renewable and alternative energy resources by partnering with organizations throughout our service territory to develop solar, wind, biomass, hydrogen and other renewable technologies. Our renewable energy activities are discussed further in the environmental section of this report.

Based on customer and demand growth expectations, energy-efficiency programs and renewable energy resources will not be enough to meet anticipated energy demand. Progress Energy will require new baseload generation in Florida and the Carolinas toward the end of the next decade and other incremental generation additions in the meantime.

Of the large-scale, cost-effective technologies available today to address the need for new baseload generation (plants that run 24 hours a day), only nuclear power emits zero greenhouse gases. Progress Energy is pursuing several options to take full advantage of this energy source, including upgrading current plants to increase output. In 2008, Progress Energy filed Combined Operating License (COL) applications with the Nuclear Regulatory Commission (NRC) for the opportunity to build new, state-of-the-art nuclear units in Florida and North Carolina. The decision to build these units has not been made, but the applications are necessary to keep the option open.