This Management's Discussion & Analysis contains forward-looking statements, which are subject to the inherent uncertainties in predicting future results and conditions. Actual results may differ materially from those forecasted. The forecasted results are based on the company's current expectations and assumptions, and the company does not undertake to update that information or any other information contained in this Form 10-Q, except as may be required by law. Factors that could impact actual results include: regulatory actions by federal, state or local authorities; unexpected capital needs or unanticipated reductions in cash flow that affect liquidity; access to capital and credit markets when required in the current unsettled economic conditions; the availability of adequate rail transportation capacity for the shipment of TECO Coal's production; general economic conditions affecting energy sales at the utility companies; economic conditions, both national and international, affecting the Florida economy and demand for TECO Coal's production; weather variations and changes in customer energy usage patterns affecting sales and operating costs at Tampa Electric and Peoples Gas and the effect of extreme weather conditions or hurricanes, which are common during the summer months; operating conditions, commodity price and operating cost changes affecting the production levels and margins at TECO Coal, fuel cost recoveries and cash at Tampa Electric or natural gas demand at Peoples Gas; the ability of TECO Energy's subsidiaries to operate equipment without undue accidents, breakdowns or failures; and the ultimate outcome of efforts to revise the significantly lower EEGSA VAD tariff rates implemented by regulatory authorities in Guatemala effective Aug. 1, 2008 affecting TECO Guatemala's results. Additional information is contained under "Risk Factors" in TECO Energy, Inc.'s Annual Report on Form 10-K for the period ended Dec. 31, 2007, as updated by the information contained in Item 1A of Part II of this Quarterly Report on Form 10-Q and the Quarterly Report for the period ended Jun. 30, 2008.

Earnings Summary - Unaudited



                                                            Three months ended Sep. 30,          Nine months ended Sep. 30,
(millions, except per share amounts)                         2008                2007              2008              2007
Consolidated revenues                                   $         926.1     $         990.0   $      2,605.0    $      2,677.8

Net income from continuing operations                              58.2                92.8            140.4             225.0
Discontinued operations                                              -                   -                -               14.3

Net income                                              $          58.2     $          92.8   $        140.4    $        239.3

Average common shares outstanding
Basic                                                             211.2               209.2            210.4             208.9
Diluted                                                           212.6               210.0            211.7             209.8

Earnings per share - basic
Continuing operations                                   $          0.28     $          0.44   $         0.67    $         1.08
Discontinued operations                                              -                   -                -               0.07

Earnings per share - basic                              $          0.28     $          0.44   $         0.67    $         1.15

Earnings per share - diluted
Continuing operations                                   $          0.27     $          0.44   $         0.66    $         1.07
Discontinued operations                                              -                   -                -               0.07

Earnings per share - diluted                            $          0.27     $          0.44   $         0.66    $         1.14

Operating Results

Three Months Ended Sep. 30, 2008:

Third quarter net income and earnings per share were $58.2 million, or $0.28 per share, compared to $92.8 million, or $0.44 per share in the third quarter of 2007. As a result of the sale of TECO Transport in December 2007 and the conclusion of the program for tax credits from the production of synthetic fuel at the end of 2007, third quarter net income in 2008 included no benefits from the operations of TECO Transport or from the production of synthetic fuel, which contributed $11.0 million and $13.1 million, respectively, or $0.11 per share collectively, in the 2007 period.

Nine Months Ended Sep. 30, 2008:

Year-to-date net income and earnings per share were $140.4 million, or $0.67 per share in 2008, compared to $239.3 million, or $1.15 per share in 2007. Net income and earnings per share from continuing operations were $225.0 million, or $1.08 per share for the same period in 2007. TECO Transport and the production of synthetic fuel contributed $27.0 million and $54.8 million, respectively, or $0.39 per share collectively, to year-to-date 2007 net income. In 2007, year-to-date results included a $14.3 million, or $0.07 per share, tax benefit recorded in discontinued operations as a result of reaching a favorable conclusion with taxing authorities related to the 2005 disposition of the Union and Gila River merchant power plants.

Operating Company Results

All amounts included in the operating company and Other and Eliminations discussions are after-tax, unless otherwise noted.

Tampa Electric Company - Electric division (Tampa Electric)

Net income for the third quarter was $50.6 million, compared with $64.8 million for the same period in 2007. Results for the quarter reflect lower retail energy sales, a total number of customers that was essentially unchanged and decreased sales to industrial customers. Net income included $1.3 million of Allowance for Funds Used During Construction (AFUDC) - Equity, which represents allowed equity cost capitalized to construction costs, related to the installation of nitrogen oxide (NOx) pollution control equipment, compared to $0.7 million included in the 2007 period. Base revenues decreased $14.2 million in the quarter, primarily due to mild weather and lower per customer usage.

Operations and maintenance expense, excluding all Florida Public Service Commission (FPSC)-approved cost recovery clauses, increased $0.6 million in the third quarter of 2008, primarily due to $1.1 million higher spending on maintenance at the power generating facilities, slightly higher bad debt expense, $0.5 million of higher employee related and vehicle fuel costs, partially offset by $1.8 million of lower overhead and self-insurance reserve expenses compared to the 2007 period.

Compared to the third quarter of 2007, net income included $4.4 million higher depreciation expense. Results in 2007 included the benefits of nine months of lower depreciation rates recorded as a result of a depreciation study approved by the FPSC in the third quarter. Property tax expense was essentially unchanged from 2007 due to a $1.8 million benefit recorded in the third quarter of 2008 reflecting adjustments to property valuations agreed to with various taxing authorities. In 2007, property tax expenses included the one-time benefit of nine months of lower property tax rates effective in the third quarter from legislation passed in Florida in 2007, and adjustments to property valuations.

Tampa Electric's retail energy sales decreased 6.7% in the third quarter due to mild weather, lower sales to industrial customers due to phosphate production facility outages and continued weak economic conditions. Cooling degree-days for the Tampa area in the third quarter were 7% below normal and 11% below actual 2007 levels.

The absence of net customer growth in the third quarter and 0.3% growth in the year-to-date 2008 period reflect the current weak economic conditions in the Tampa area and continued weakness in the local housing market. New customer additions were essentially offset by meter disconnects associated with housing foreclosures and vacant homes.

Year-to-date net income was $106.7 million, compared to $121.3 million in the 2007 period, driven primarily by 2.4% lower retail energy sales, higher maintenance costs related to generating system unit outages, $2.2 million higher depreciation expense, increased interest expense and lower interest income partially offset by $3.2 million higher earnings on investments in emissions control equipment recovered through the Environmental Cost Recovery Clause. Net income also included $4.3 million of AFUDC-Equity related to the installation of NO x pollution control equipment, compared to $3.5 million included in the 2007 period. Total heating and cooling degree days were 4% below normal due to mild winter weather and 5% below actual 2007 degree days. Year-to-date pretax revenue declined $9.8 million primarily due to mild weather, customer usage patterns and lower sales to phosphate customers due to maintenance outages at their facilities.

Excluding all FPSC-approved cost recovery clause-related expenses, year-to-date net income reflects $7.0 million higher operations and maintenance expense compared to 2007, including $5.1 million higher spending on power generating equipment and $1.1 million higher bad debt expense.

Interest expense at Tampa Electric increased $1.2 million due to higher levels of long-term debt outstanding and higher interest on auction-rate bonds remarketed in the first quarter of the year. In addition, interest income decreased $2.7 million due to lower cash balances and lower interest earned on lower average under-recovered fuel balances.

On Aug. 11, 2008, Tampa Electric filed for an increase in its base rates for the first time since 1992. In its filing, using a 2009 projected test year, Tampa Electric requested a $228.2 million increase in base rates calculated on 55.3% equity in the capital structure with a 12% return on equity, an 8.82% weighted cost of capital on a 13-month average rate base of $3.7 billion. Discovery by the FPSC staff and interveners is underway as are audits by the FPSC staff. Hearings are scheduled for January 2009 with a final FPSC decision expected in April with new rate effective in May 2009.

A summary of Tampa Electric's operating statistics for the three months and nine months ended Sep. 30, 2008 and 2007 follows:

                                                          Operating Revenues                   Kilowatt-hour sales
(millions, except average customers)               2008          2007        % Change       2008       2007     % Change
Three months ended Sep. 30,
By Customer Type
Residential                                      $   299.3     $   327.0         (8.5 )    2,638.8    2,892.3       (8.8 )
Commercial                                           176.3         184.7         (4.5 )    1,784.1    1,869.5       (4.6 )
Industrial - Phosphate                                14.3          18.3        (21.9 )      208.3      262.0      (20.5 )
Industrial - Other                                    28.1          30.7         (8.5 )      327.0      343.1       (4.7 )
Other sales of electricity                            49.4          47.9          3.1        494.5      478.5        3.3
Deferred and other revenues (1)                       (0.3 )       (30.1 )      (99.0 )         -          -          -

                                                     567.1         578.5         (2.0 )    5,452.7    5,845.4       (6.7 )
Sales for resale                                      18.4          18.7         (1.6 )      241.4      249.4       (3.2 )
Other operating revenue                               11.8          10.6         11.3           -          -          -
SO2 Allowance sales                                    4.6          39.0        (88.2 )         -          -          -

                                                 $   601.9     $   646.8         (6.9 )    5,694.1    6,094.8       (6.6 )

Average customers (thousands)                        666.2         666.6         (0.1 )
Retail output to line (kilowatt hours)                                                     5,729.1    6,113.8       (6.3 )

Nine months ended Sep. 30,
By Customer Type
Residential                                      $   753.6     $   781.7         (3.6 )    6,570.3    6,823.2       (3.7 )
Commercial                                           485.6         491.6         (1.2 )    4,873.6    4,926.5       (1.1 )
Industrial - Phosphate                                47.4          54.4        (12.9 )      693.1      782.5      (11.4 )
Industrial - Other                                    85.8          89.4         (4.0 )      957.1      997.7       (4.1 )
Other sales of electricity                           138.8         131.8          5.3      1,377.1    1,295.7        6.3
Deferred and other revenues (1)                        5.5         (22.7 )     (124.2 )         -          -          -

                                                   1,516.7       1,526.2         (0.6 )   14,471.2   14,825.6       (2.4 )
Sales for resale                                      53.5          51.9          3.1        661.2      670.6       (1.4 )
Other operating revenue                               32.7          28.7         13.9           -          -          -
SO2 Allowance sales                                    6.6          56.7        (88.4 )         -          -          -

                                                 $ 1,609.5     $ 1,663.5         (3.2 )   15,132.4   15,496.2       (2.3 )

Average customers (thousands)                        667.6         665.8          0.3
Retail output to line (kilowatt hours)                                                    15,362.7   15,694.7       (2.1 )

(1) Primarily reflects the timing of environmental and fuel clause recoveries.

Tampa Electric Company - Natural gas division (PGS)

Peoples Gas reported net income of $2.6 million for the third quarter, compared to $3.8 million in the same period in 2007. Quarterly results reflect lower margins on off-system sales reflecting market conditions and higher volumes transported for industrial customers. Average customer growth of 0.2% in the quarter is a result of the continued weak Florida housing market. Therm sales to industrial customers increased due to two new customers with significant usage. The effects of these higher volumes were more than offset by higher non-fuel operations and maintenance expense, higher depreciation expense due to routine additions to facilities to serve customers, and increased interest expense due to higher levels of long-term debt outstanding.

Year-to-date net income was $17.9 million, compared to $20.2 million in the 2007 period, driven largely by lower margins on off-system sales, lower residential volumes and higher depreciation expense. Results also reflect average customer growth of 0.3% and lower sales to weather-sensitive residential customers due to very mild weather.

On Aug. 11, 2008, Peoples Gas filed for an increase in its base rates. In its filing, using a 2009 projected test year, Peoples Gas requested a $26.5 million increase in base rates calculated on 54.7% equity in the capital structure with an 11.5% return on equity, an 8.88% weighted cost of capital and a 13-month average rate base of $563.6 million. Discovery by the FPSC staff and intervenors is underway as are audits by the FPSC staff. Hearings are scheduled for March 2009 with a final FPSC decision expected in May with new rate effective in June 2009.

A summary of PGS' regulated operating statistics for the three months and nine months ended Sep. 30, 2008 and 2007 follows:

                                            Operating Revenues                     Therms
(millions, except average customers)    2008      2007     % Change      2008      2007     % Change
Three months ended Sep. 30,
By Customer Type
Residential                            $  26.6   $  23.2       14.7        10.7      10.0        7.0
Commercial                                34.1      31.4        8.6        82.1      79.8        2.9
Industrial                                 1.9       2.4      (20.8 )      44.4      42.2        5.2
Off system sales                         105.4      73.8       42.8        99.0      97.7        1.3
Power generation                           2.9       4.9      (40.8 )     134.3     172.4      (22.1 )
Other revenues                             7.8       8.4       (7.1 )        -         -          -

Total                                  $ 178.7   $ 144.1       24.0       370.5     402.1       (7.9 )

By Sales Type
System supply                          $ 151.3   $ 114.3       32.4       122.5     121.0        1.2
Transportation                            19.6      21.4       (8.4 )     248.0     281.1      (11.8 )
Other revenues                             7.8       8.4       (7.1 )        -         -          -

Total                                  $ 178.7   $ 144.1       24.0       370.5     402.1       (7.9 )

Average customers (thousands)            334.1     333.5        0.2

Nine months ended Sep 30,
By Customer Type
Residential                            $ 107.5   $ 108.6       (1.0 )      53.3      53.6       (0.6 )
Commercial                               116.5     123.1       (5.4 )     279.8     279.4        0.1
Industrial                                 6.4       7.3      (12.3 )     144.5     142.0        1.8
Off system sales                         271.8     174.2       56.0       259.7     226.4       14.7
Power generation                          10.0      11.2      (10.7 )     374.0     354.9        5.4
Other revenues                            26.3      28.6       (8.0 )        -         -          -

Total                                  $ 538.5   $ 453.0       18.9     1,111.3   1,056.3        5.2

By Sales Type
System supply                          $ 445.6   $ 356.6       25.0       357.4     329.5        8.5
Transportation                            66.6      67.7       (1.6 )     753.9     726.8        3.7
Other revenues                            26.3      28.7       (8.4 )        -         -          -

Total                                  $ 538.5   $ 453.0       18.9     1,111.3   1,056.3        5.2

Average customers (thousands)            335.5     334.6        0.3

TECO Coal

TECO Coal achieved third quarter net income of $3.7 million, compared to $20.5 million in the same period in 2007. In 2007, TECO Coal's results included $13.1 million of net income related to synthetic fuel production. The 2008 quarter includes a $2.6 million benefit from a contract settlement related to future coal sales.

Third quarter total sales were 2.2 million tons, compared to 2.4 million tons in the third quarter of 2007, which included 1.7 million tons of synthetic fuel. TECO Coal continues to experience lower than expected production due to difficult mining conditions in an underground mine, which temporarily reduced production from that mine late in the third quarter. Production was also negatively impacted by a shortage of qualified underground mining personnel and increased safety inspections. Compared to the third quarter in 2007, results reflect an average per-ton selling price almost 10% higher across all products, excluding transportation allowances. In the third quarter of 2008, the cash cost of production per ton increased 16% over 2007's level, driven by diesel oil prices that, while down slightly from the second quarter peak, were still more than double 2007 prices; higher per-ton costs for steel products used in underground mining, such as roof bolts; higher costs for explosives used in surface mining operations, that like diesel fuel are down from second quarter peak levels; and higher costs associated with contract miners.

TECO Coal recorded year-to-date net income of $15.4 million in 2008, compared to $83.7 million in the 2007 period. TECO Coal's 2007 year-to-date results included $54.8 million of net income associated with the production of synthetic fuel.

Year-to-date 2008 total sales were 7.1 million tons, compared to 6.8 million tons in the 2007 period, which included 4.5 million tons of synthetic fuel. Results in 2008 reflect an average net per-ton selling price across all products, excluding transportation allowances, that was more than 6% higher than in 2007. In 2008, the cash cost of production for the year-to-date period was approximately 14% higher than in 2007, driven by the same factors as in the third quarter. Results also reflect a $0.6 million benefit in the first quarter of 2008 from the true-up of the 2007 synthetic fuel tax credit rate, compared to a $1.6 million benefit included in the first quarter of 2007.

TECO Guatemala

TECO Guatemala reported third quarter net income of $11.7 million in 2008, compared to $10.2 million in the 2007 period. Year-to-date 2008 net income was $37.1 million, compared to $33.3 million in the 2007 period. Earnings from the San José Power Station increased significantly from higher spot market prices for spot energy sales, and from energy sales made under the power sales contract due to increased sales and a scheduled price escalation. Interest expense for both the Alborada and San José power stations decreased in both periods due to lower interest rates and lower project-debt balances. At EEGSA, the distribution utility, 2008 third quarter and year-to-date results reflect customer growth and higher energy sales, partially offset by the reduction in the VAD tariff effective Aug. 1, 2008, which reduced net income approximately $0.6 million in the quarter. See Note 10 to the TECO Energy, Inc. Consolidated Condensed Financial Statements for further discussion. The earnings from the unregulated EEGSA-affiliated companies (DECA II), which provide, among other things, electricity transmission services, telecommunication carrier services, wholesale power sales to unregulated electric customers and engineering services, increased in both periods from fundamental growth in the businesses. The year-to-date results for EEGSA and affiliated companies also included a $3.1 million benefit related to an adjustment to previously estimated 2007 income and year-end equity balances, compared to a similar $1.9 million benefit in 2007.

Other and Eliminations

The cost for "Parent/other" in the third quarter of 2008 was $10.4 million, compared to a cost of $17.5 million in the same period in 2007. In the 2007 third quarter "Parent/other" included $3.0 million of charges related to the sale of TECO Transport. The improvement in 2008 was driven by lower interest expense partially offset by lower investment income due to lower cash balances. Total parent/TECO Finance interest expense declined by $4.0 million in the third quarter of 2008, reflecting parent debt retirements.

The year-to-date "Parent/other" cost was $36.7 million in 2008, compared to $60.5 million in the 2007 period. Cost in 2008 includes $0.6 million related to previously estimated transaction costs associated with the sale of TECO Transport, compared to 2007, which included $13.0 million of charges related to the sale of TECO Transport. Year-to-date 2008 total parent/TECO Finance interest expense declined by $15.0 million, due to parent debt retirements, and was offset in part by lower interest income.

Income Taxes

The provisions for income taxes from continuing operations for the 2008 third quarter and year-to-date periods were $28.6 million and $64.1 million, respectively, compared to $47.6 million and $104.7 million for the same periods in 2007. The provision for income taxes from continuing operations in the nine months ended Sep. 30, 2008 was impacted by the termination of the synthetic fuel operations tax credit program and its related investor income, as well as by the sale of TECO Transport on Dec. 3, 2007. In addition to the income taxes on recurring operations, the 2007 provision for income taxes includes an income tax benefit related to the application of the "tonnage tax" to qualified vessels.

During the nine month periods ended Sep. 30, 2008 and Sep. 30, 2007, the company experienced a number of events that have impacted the overall effective tax rate on continuing operations. These events included permanent reinvestment of foreign income under APB No. 23, depletion, repatriation of foreign source income to the United States and reduction of income tax expense under the new "tonnage tax" regime.

Interest Charges

Total interest charges for the three and nine months ended Sep. 30, 2008 were $57.4 million and $171.0 million, respectively, compared to $63.9 million and $196.7 million for the three and nine months ended Sep. 30, 2007. The lower interest expense reflects parent debt redemption and refinancing activities including the retirement of $300 million of 6.125% notes at maturity in May 2007 and $297.2 million of 7.5% notes due in 2010 in December 2007, offset slightly by the impact of higher long-term debt balances at the regulated utilities.

Liquidity and Capital Resources

The table below sets forth the Sep. 30, 2008 consolidated liquidity and cash balances, the cash balances at the operating companies and TECO Energy parent, and amounts available under the TECO Energy/TECO Finance and Tampa Electric Company credit facilities.

                                                           Balances as of Sep. 30, 2008
                                                                 Tampa Electric
(millions)                                     Consolidated         Company         Other     Parent
Credit facilities                             $        675.0    $          475.0    $   -     $ 200.0
Drawn amounts / LCs                           $         21.5                14.4        -         7.1

Available credit facilities                            653.5               460.6        -       192.9

Cash and short-term investments                         94.9                26.6      60.0        8.3

Total liquidity                               $        748.4    $          487.2    $ 60.0    $ 201.2

Consolidated restricted cash (not included
above)                                        $          7.5    $             -     $  0.2    $   7.3

Consolidated other cash and short-term investments includes $10.0 million of cash at the unregulated operating companies for normal operations and $50.0 million of consolidated cash and short-term investments at TECO Guatemala held offshore due to the tax deferral strategy associated with EEGSA. In addition to consolidated cash, as of Sep. 30, 2008, unconsolidated affiliates owned by TECO Guatemala, CGESJ (San José) and TCAE (Alborada), had unrestricted cash and short-term investment balances of $26.7 million, which is not included in the table above. The table above also excludes consolidated restricted cash of $7.5 million, primarily at TECO Energy parent.

Tampa Electric's liquidity position reflects its Sep. 30, 2008 $111 million under-recovery in its fuel and purchased power clause, which is projected to increase to approximately $133 million by year-end. Tampa Electric is seeking to recover the under-recovered 2008 fuel costs through the 2009 fuel adjustment process.

Potential Impacts of Financial Market Conditions

The current disruption in the capital and credit markets could adversely impact . . .