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U.S. Securities and Exchange Commission

SECURITIES AND EXCHANGE COMMISSION

(Release No. 35- 27740; 70-9643)

Progress Energy Inc., et al.

Supplemental Order Granting Extension Of Time To Divest Subsidiaries

October 21, 2003

Progress Energy Inc. ("Progress"), a registered holding company, Raleigh, North Carolina, and Progress Fuels Corporation, a subsidiary of Progress, St. Petersburg, Florida (collectively, "Applicants"), have filed with the Securities and Exchange Commission ("Commission") a post-effective amendment under section 11(b)(1) of the Public Utility Holding Company Act of 1935, as amended ("Act"), to a previously filed application-declaration ("Application"). A notice of the Application was issued by the Commission on August 4, 2000 (Holding Co. Act Release No. 27208).

Applicants request extensions of time in which to divest certain subsidiaries and otherwise comply with the divestiture requirements of an order dated November 27, 2000 (Holding Co. Act Release No. 27284)("Merger Order").

In the Merger Order, the Commission authorized Progress, which was then an exempt holding company, to acquire all of the issued and outstanding common stock of Florida Progress Corporation ("Florida Progress"), an exempt holding company that owns all of the issued and outstanding common stock of Florida Power Corporation, a public utility company, in exchange for a combination of Progress common stock, cash, and certain other securities. The transaction was consummated on November 30, 2000, and Progress registered with the Commission as a holding company under section 5 of the Act on the same day.1

Under the terms of the Merger Order, the Commission reserved jurisdiction under section 11(b)(1) of the Act over Progress's retention of certain specified direct and indirect nonutility subsidiaries and investments of Progress and Florida Progress. The Merger Order directed Progress to file a post-effective amendment in this proceeding not later than November 30, 2001, in which it would either set forth the legal basis upon which it is entitled to retain its ownership interest in the specified subsidiaries or, alternatively, commit to divest its interest in some or all of the specified subsidiaries prior to November 30, 2003.

Also, under the Merger Order, the Commission directed Progress to cause its indirect subsidiaries, CaroFund, Inc. ("CaroFund") and CaroHome, LLC ("CaroHome") to sell their interests in five entities that are developing historic and affordable housing tax credit projects or, alternatively, to convert the ownership interests in the five entities into passive interests. The five entities are as follows: Grove Arcade Restoration, LLC ("GAR"), HGA Development, LLC ("HGA"), Historic Property Management, LLC ("Historic Property"), Raleigh-CaroHome/WCK, LLC ("Raleigh-CaroHome") and Trinity Ridge LLC ("Trinity Ridge"). GAR, HGA and Historic Property are involved in an historic building (called the Grove Arcade) restoration project in Asheville, North Carolina. GAR holds the retail commercial space associated with the project, while HGA holds the commercial office and residential space, as well as the common areas, associated with the project. Historic Property is the sole managing member of HGA. Trinity Ridge and Raleigh-CaroHome are developing affordable housing projects in the Raleigh, North Carolina, area.

On March 28, 2001, and June 27, 2001, Progress and its indirect wholly-owned subsidiary, Electric Fuels Corporation, which has since been renamed Progress Fuels Corporation ("Progress Fuels"), filed post-effective amendments (Post-Effective Amendments No. 1 and No. 2) in this proceeding in which they acknowledged that certain direct subsidiaries of Progress Fuels, namely, MEMCO Barge Line, Inc. ("MEMCO"), Progress Rail Services Corporation ("Progress Rail") and Progress Metal Reclamation Company ("Progress Metal"), and their respective subsidiaries and/or the assets of any of these companies, are not retainable under the standards of section 11(b)(1) of the Act.2 By order dated June 27, 2001 (Holding Co. Act Release No. 27422) ("Divestiture Order"), the Commission concurred in this determination and directed Progress and Progress Fuels to sell or otherwise dispose of all of the stock of or other ownership interests in these entities and their respective subsidiaries (collectively, "Non-Retainable EFC Interests") in one or more transactions prior to November 30, 2003. The Commission further directed that the proceeds of the sales or dispositions of these entities be utilized within twenty-four months of receipt to retire or cancel securities representing indebtedness of Progress Fuels or be otherwise expended on property other than "nonexempt property" as defined in section 1083 of the Internal Revenue Code, as amended ("Code").

On August 9, 2001, and September 21, 2001, Progress and Progress Fuels filed further post-effective amendments (Post-Effective Amendments No. 3 and No. 4) in this proceeding in which the Commission was asked to make certain findings with respect to the sale of MEMCO and its subsidiaries to a third party. By supplemental orders dated September 21, 2001 (Holding Co. Act Release No. 27442) and September 26, 2001 (Holding Co. Act Release No. 27444), the Commission made the requested findings and the sale of MEMCO and its subsidiaries was completed on November 1, 2001. The Commission continued its reservation of jurisdiction over Progress's disposition of the remaining Non-Retainable EFC Interests (i.e., Progress Rail and Progress Metal and their respective subsidiaries).

On November 30, 2001, Progress filed Post-Effective Amendment No. 5, in which it set forth the legal basis on which it is entitled to retain (i) all of the other direct and indirect subsidiaries of Progress Fuels (that is, all subsidiaries of Progress Fuels other than the Non-Retainable EFC Interests), (ii) two passive investments in tax credit properties located outside Progress Energy's service area,3 and (iii) passive investments in four venture capital funds that invest in energy-related and technology start-up companies.4

On March 12, 2003, Progress Rail and The Andersons, Inc. ("Andersons"), an Ohio corporation that is engaged primarily in the business of purchasing, processing, storing and reselling agricultural commodities (e.g., corn, soybeans, and wheat), signed a non-binding letter of intent relating to the sale of substantially all of the leasing and other assets of Railcar, Ltd., a wholly-owned subsidiary of Progress Rail, to a newly-formed limited liability company to be owned by a consortium of financial investors, including Andersons. These assets consist of approximately 7,000 railcars and 48 locomotives, most of which are currently under lease. Finalization of the transaction is dependent upon Andersons' completion of due diligence, the receipt by the purchaser of a financing commitment, the execution of a definitive purchase agreement, and approval of the Boards of Directors of Progress Rail and Andersons. Certain aspects of the contemplated transaction may also require separate approval by this Commission. Progress is unable to state at this time when a definitive agreement will be entered into or whether the transaction will close prior to November 30, 2003.

With regard to the tax credit projects referred to above, in August, 2002, CaroHome and CaroFund sold substantially all of their ownership interests in GAR to an unaffiliated third-party and now hold a .01% passive interest in GAR as a special member. CaroHome and CaroFund also reduced their ownership interests in HGA to .01%, although Historic Property, which holds that .01% interest, continues to be the sole managing member of HGA. In July 2003, CaroFund and CaroHome sold 100% of their ownership interests in Trinity Ridge to an unaffiliated third-party. They continue to hold their 99.99% interest in Raleigh-CaroHome.

Applicants request in this Post-Effective Amendment No. 7 a supplemental order of the Commission that (1) grants Progress a three-year extension (to November 30, 2006) to complete its divestiture of the remaining Non-Retainable EFC Interests, and (2) grants a one-year extension (to November 1, 2004) to complete the sale of Historic Property and Raleigh-CaroHome or to cause the ownership interests in these entities to be converted into passive interests.

In support of this request with regard to the Non-Retainable EFC Interests, Progress notes that it has made substantial progress in divesting the Non-Retainable EFC Interests. In addition to completing the sale of MEMCO, Progress Rail has entered into a letter of intent to sell substantially all of the assets of Railcar, Ltd. In addition, Progress Rail has sold portions of the operations of certain of its other subsidiaries and is in the process of liquidating other subsidiaries.5

In early 2001, Progress sought a buyer for all of Progress Rail and Progress Metal through a competitive process. Progress received one offer from a financial investor, but the offer was for less than the net book value of the underlying assets and was therefore considered unacceptable. Accepting the offer would have left Progress with approximately $300 million of unserviced debt. In December 2002, initial discussions were held with another potential purchaser of Progress Rail and Progress Metal. However, with the exception of the letter of intent with Andersons relating to the assets of Railcar, Ltd., no offer has been received to date. Progress believes that its inability to find a buyer for Progress Rail and Progress Metal at an acceptable price is primarily due to the general economic downturn over the past few years. To date, all of the potential buyers of Progress Rail and Progress Metal have been financial investors who have had difficulty in obtaining commitments for third-party financing without substantial support from Progress. To increase the value of Progress Rail and Progress Metal to potential buyers, therefore, Progress has focused on making operational improvements to their business. As a result, Progress Rail and Progress Metal are now generating positive cash flow and no longer require capital from Progress to fund their operations. Under these circumstances, Progress has concluded that it is in its best interest to maintain its ownership of the remaining Non-Retainable EFC Interests until the financial markets improve. In the meantime, Progress Fuels will continue to make reasonable efforts to find a buyer or buyers for the Non-Retainable EFC Interests, including buyers of discrete assets or business units (such as Railcar, Ltd.).

With regard to the tax credit projects, Progress has made substantial progress in selling or converting its interests into passive interests. As indicated above, it has sold Trinity Ridge and reduced its ownership in both GAR and HGA to .01% membership interests (passive in the case of GAR). Progress is in the process of seeking a new managing member for Historic Property, which, in turn, is the managing member of HGA, and also intends to sell down its interest in Raleigh-CaroHome and bring in a new managing member. During the past three years, construction of the Grove Arcade and Raleigh-CaroHome projects has been completed and the leasing activity commenced. Progress believes that the two properties will become easier to sell to third parties only when leasing activity is substantially completed, since that will mitigate the market risks associated with the projects. Progress currently projects that the Grove Arcade commercial building and residential space and Raleigh-CaroHome project will be substantially leased by the first half of 2004. Accordingly, Progress is requesting a one-year extension of time (to November 1, 2004) in which to complete this process.

The proposed transaction is subject to rule 54, which refers to rule 53. Under rule 53, a registered holding company may not issue any security (including any guarantee) for the purpose of financing the acquisition of the securities of, or other interest in, an exempt wholesale generator ("EWG") or foreign utility company ("FUCO") as those terms are defined by the Act unless certain conditions are satisfied. Rule 54 provides that the Commission shall not consider the effect of the capitalization or earnings of any subsidiaries of a registered holding company that are EWGs or FUCOs in determining whether to approve other transactions if rule 53(a), (b) and (c) are satisfied.

Progress currently does not comply with the "safe harbor" investment limitation in rule 53(a)(1). Progress's "aggregate investment" in EWGs is $1.326 billion (as of June 30, 2003), or about 62.2% of Progress's "consolidated retained earnings" for the four quarters ended June 30, 2003 ($2.132 billion).6 However, by order dated July 17, 2002 ("July 2002 Order"), the Commission authorized Progress to increase its "aggregate investment" in EWGs to $4 billion.7 Therefore, although Progress's "aggregate investment" in EWGs currently exceeds the 50% "safe harbor" limitation, this investment level is permitted under the July 2002 Order.

With regard to capitalization, Progress's common equity as of June 30, 2003, as a percentage of consolidated capitalization, is higher than at June 30, 2002, the end of the quarter immediately preceding the issuance of the July 2002 Order.8

As to earnings from EWGs, certificates filed according to rule 24 in this proceeding show that Progress's EWG investments continue to contribute positively to consolidated earnings.

Progress is currently in compliance with all other requirements of rule 53(a). In addition, Progress states that the provisions of rule 53(a) are not made inapplicable to the authorization requested by reason of the occurrence or continuance of any of the circumstances specified in Rule 53(b). Rule 53(c) is inapplicable.

The fees, commissions or expenses that have been incurred in connection with filing this Amendment are estimated at not more than $5,000.

No state or federal commission, other than this Commission, has jurisdiction over the proposed transaction.

Due notice of the filing of the Application has been given in the manner prescribed by rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. Based on the facts in the record, the Commission finds that the applicable standards of the Act are satisfied and that no adverse findings are necessary.

IT IS ORDERED, under the applicable provisions of the Act and the rules under the Act, that the Application, as amended, be granted, effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.

For the Commission, by the Division of Investment Management, pursuant to delegated authority.


Margaret H. McFarland
Deputy Secretary



Action as set forth or recommended herein
APPROVED pursuant to authority delegated by the
Commission under Public Law 87-592.

For The Division of Investment Management


By:___________________________________Branch Chief

October 24, 2003


Endnotes:


http://www.sec.gov/divisions/investment/opur/filing/35-27740.htm

Modified: 10/24/2003