The following discussion and analysis by management focuses on those factors that had a material effect on Xcel Energy's financial condition and results of operations during the periods presented, or are expected to have a material impact in the future. It should be read in conjunction with the accompanying unaudited consolidated financial statements and notes.

Except for the historical statements contained in this report, the matters discussed in the following discussion and analysis are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements are intended to be identified in this document by the words "anticipate," "believe," "estimate," "expect," "intend," "may," "objective," "outlook," "plan," "project," "possible," "potential," "should" and similar expressions. Actual results may vary materially. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them to reflect changes that occur after that date. Factors that could cause actual results to differ materially include, but are not limited to: general economic conditions, including the availability of credit and its impact on capital expenditures and the ability of Xcel Energy and its subsidiaries to obtain financing on favorable terms; business conditions in the energy industry; actions of credit rating agencies; competitive factors, including the extent and timing of the entry of additional competition in the markets served by Xcel Energy and its subsidiaries; unusual weather; effects of geopolitical events, including war and acts of terrorism; state, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rates or have an impact on asset operation or ownership or impose environmental compliance conditions; structures that affect the speed and degree to which competition enters the electric and natural gas markets; costs and other effects of legal and administrative proceedings, settlements, investigations and claims; actions of accounting regulatory bodies; the items described under Factors Affecting Results of Continuing Operations; and the other risk factors listed from time to time by Xcel Energy in reports filed with the SEC, including "Risk Factors" in Item 1A of Xcel Energy's Form 10-K for the year ended Dec. 31, 2007, and Exhibit 99.01 to this report on Form 10-Q for the quarter ended Sept. 30, 2008.

RESULTS OF OPERATIONS

Summary of Financial Results

The following table summarizes the earnings contributions. Continuing operations consist of the following:

† Regulated utility subsidiaries, operating in the electric and natural gas segments; and

† Other nonregulated subsidiaries and the holding company, where corporate financing activity occurs.

                                                          Three months ended Sept. 30,            Nine months ended Sept. 30,
Contribution to Earnings (Millions of Dollars)              2008                2007               2008                2007
GAAP income (loss)
Regulated electric utility income - continuing
operations                                             $         223.4     $         260.4    $         423.3     $         456.4
Regulated natural gas utility income - continuing
operations                                                         4.0                 1.4               83.4                67.2
Other utility results                                              7.3                 6.8               23.3               (37.1 )
Utility income - continuing operations                           234.7               268.6              530.0               486.5

Holding company costs and other results                          (12.0 )             (13.9 )            (47.8 )             (45.6 )
Income - continuing operations                                   222.7               254.7              482.2               440.9

Income (loss) - discontinued operations                            0.1                 0.1               (0.7 )               2.4
Total GAAP income                                      $         222.8     $         254.8    $         481.5     $         443.3




                                           Three months ended Sept. 30,          Nine months ended Sept. 30,
                                             2008                2007              2008               2007
GAAP earnings per share contribution
Regulated electric utility -
continuing operations                   $          0.51     $          0.60   $         0.97     $         1.05
Regulated natural gas utility -
continuing operations                              0.01                   -             0.19               0.16
Other utility results                              0.02                0.02             0.05              (0.09 )
Utility earnings per share -
continuing operations                              0.54                0.62             1.21               1.12

Holding company costs and other
results                                           (0.03 )             (0.03 )          (0.11 )            (0.09 )
Earnings per share - continuing
operations                                         0.51                0.59             1.10               1.03

Earnings per share - discontinued
operations                                            -                   -                -               0.01
Total GAAP earnings per share -
diluted                                 $          0.51     $          0.59   $         1.10     $         1.04

The following table summarizes significant components contributing to the changes in the third quarter of 2008 diluted earnings per share compared with the same period in 2007, which are discussed in more detail later.

                                                Three months ended
                                                    Sept. 30,           Nine months ended Sept. 30,
Increase (decrease)                                2008 vs. 2007               2008 vs. 2007
2007 GAAP earnings per share                  $                 0.59   $                        1.04
Earnings per share - discontinued
operations                                                         -                           (0.01 )
2007 GAAP earnings per share-continuing
operations                                                      0.59                            1.03

PSRI/COLI IRS settlement                                       (0.01 )                          0.09
2007 ongoing earnings per share                                 0.58                            1.12

Components of change - 2008 vs. 2007
Higher (lower) base electric utility
margins                                                        (0.04 )                          0.02
Higher depreciation and amortization                           (0.03 )                         (0.03 )
Lower wholesale and commodity trading
margins                                                        (0.01 )                         (0.01 )
Higher allowance for funds used during
construction-equity                                             0.02                            0.05
Lower (higher) conservation and demand-side
management program expenses                                     0.01                           (0.02 )
Higher natural gas margins                                      0.01                            0.06
Higher operating and maintenance expense                           -                           (0.06 )
Higher financing costs                                             -                           (0.02 )
Other, including income taxes                                  (0.03 )                         (0.01 )
Net change in earnings per share                               (0.07 )                         (0.02 )

2008 GAAP earnings per share                  $                 0.51   $                        1.10

During 2007, Xcel Energy resolved a dispute with the IRS regarding its COLI program. Excluding the impact of the COLI program, Xcel Energy's ongoing third quarter 2008 earnings were $223 million, or $0.51 per share, compared with third quarter 2007 ongoing earnings of $249 million, or $0.58 per share. The following tables provide a reconciliation of GAAP earnings and earnings per share to ongoing earnings and ongoing earnings per share for 2008 and 2007.

                                          Three months ended Sept. 30,           Nine months ended Sept. 30,
(Millions of Dollars)                       2008                2007              2008                2007
Ongoing earnings                       $         223.3     $         249.2   $         482.5     $         480.1
PSRI/COLI IRS settlement                          (0.6 )               5.5              (0.3 )             (39.2 )
Total continuing operations                      222.7               254.7             482.2               440.9
Discontinued operations                            0.1                 0.1              (0.7 )               2.4
Total GAAP earnings                    $         222.8     $         254.8   $         481.5     $         443.3




                                        Three months ended Sept. 30,          Nine months ended Sept. 30,
                                          2008                2007              2008               2007
Ongoing earnings                     $          0.51     $          0.58   $         1.11     $         1.12
PSRI/COLI IRS settlement                           -                0.01                -              (0.09 )
Total GAAP earnings per
share-continuing operations          $          0.51     $          0.59   $         1.11     $         1.03
Discontinued operations                            -                   -            (0.01 )             0.01
Total GAAP earnings per share        $          0.51     $          0.59   $         1.10     $         1.04

As a result of the termination of the COLI program, Xcel Energy's management believes that ongoing earnings provide a more meaningful comparison of earnings results between different periods in which the COLI program was in place and is more representative of Xcel Energy's fundamental core earnings power. Xcel Energy's management uses ongoing earnings and earnings contribution internally for financial planning and analysis, for reporting of results to the board of directors, in determining whether performance targets are met for performance-based compensation and when communicating its earnings outlook to analysts and investors.

Utility Results

Ongoing and GAAP earnings for the third quarter of 2008 were lower than the third quarter of last year primarily due to lower electric margins and higher depreciation and amortization expenses. Lower electric margins were largely due to the negative impact of cooler temperatures in the third quarter of 2008 as well as an overall decline in residential electric customer sales growth. The increase in depreciation expense was primarily due to the approval of a NSP-Minnesota remaining lives depreciation filing in the third quarter of 2007 related to the life extension of the Monticello nuclear plan, which served to reduced depreciation expense in that period by approximately $31 million.

The following summarizes the estimated impact of weather on regulated utility earnings per share, based on estimated temperature variations from historical averages (excluding the impact on commodity trading operations):

                            Three months ended                     Nine months ended
                                Sept. 30,                              Sept. 30,
                    2008 vs.     2007 vs.     2008 vs.     2008 vs.     2007 vs.     2008 vs.
                     Normal       Normal        2007        Normal       Normal        2007
Retail electric    $    (0.01 ) $     0.04   $    (0.05 ) $    (0.01 ) $     0.06   $    (0.07 )
Firm natural gas            -            -            -         0.01            -         0.01
Total              $    (0.01 ) $     0.04   $    (0.05 ) $        -   $     0.06   $    (0.06 )

Other Results - Holding Company and Other Costs

Financing Costs and Preferred Dividends - Holding company results include interest expense and preferred dividend costs, which are incurred at the Xcel Energy and intermediate holding company levels and are not directly assigned to individual subsidiaries.

Discontinued Operations

Seren Innovations Inc., NRG, e prime, Xcel Energy International, Utility Engineering, and Quixx, which were all divested or sold in 2006 or earlier, have activity reflected on Xcel Energy's financial statements. See Note 4 to the consolidated financial statements.

Income Statement Analysis

Electric Utility, Short-Term Wholesale and Commodity Trading Margins

Electric fuel and purchased power expenses tend to vary with changing retail and wholesale sales requirements and cost changes in fuel and purchased power. Due to fuel and purchased energy cost-recovery mechanisms for customers in most states, the fluctuations in these costs do not materially affect electric utility margin.

Xcel Energy has two distinct forms of wholesale sales: short-term wholesale and commodity trading. Short-term wholesale refers to energy-related purchase and sales activity, and the use of financial instruments associated with the fuel required for, and energy produced from, Xcel Energy's generation assets or the energy and capacity purchased to serve native load. Commodity trading is not associated with Xcel Energy's generation assets or the energy and capacity purchased to serve native load. Short-term wholesale and commodity trading activities are considered part of the electric utility segment.

Short-term wholesale and commodity trading margins reflect the estimated impact of regulatory sharing of margins, if applicable. Commodity trading revenues are reported net of related costs (i.e., on a margin basis) in the consolidated statements of income. Commodity trading expenses include purchased power, transmission, broker fees and other related costs.

The following table details the revenues and margin for base electric utility, short-term wholesale and commodity trading activities.