ALABAMA POWER CO - Annual Report: 2007 (Form 10-K)

Securities registered pursuant to Section 12(b) of the Act:¹

Each of the following classes or series of securities registered pursuant to Section 12(b) of the Act is listed on the New York Stock Exchange.

Title of each class				Registrant
Common Stock, $5 par value				The Southern Company
Class A preferred, cumulative, $25 stated capital				Alabama Power Company
5.20% Series		5.83% Series
5.30% Series
Senior Notes
5 5/8% Series AA		5.875% Series II
5 7/8% Series GG		6.375% Series JJ
5.875% Series 2007B
Class A Preferred Stock, non-cumulative,
Par value $25 per share				Georgia Power Company
6 1/8% Series
Senior Notes
5.90% Series O		6% Series R		5.70% Series X
5.75% Series T		6% Series W		5.75% Series G2
6.375% Series 2007D
Mandatorily redeemable preferred securities,
$25 liquidation amount
5 7/8% Trust Preferred Securities3
Senior Notes				Gulf Power Company
5.25% Series H		5.75% Series I
5.875% Series J

Senior Notes				Mississippi Power Company
5 5/8% Series E

Depositary preferred shares, each representing one-fourth
of a share of preferred stock, cumulative, $100 par value
5.25% Series

Securities registered pursuant to Section 12(g) of the Act:⁴

Title of each class						Registrant
Preferred stock, cumulative, $100 par value						Alabama Power Company
4.20% Series		4.60% Series		4.72% Series
4.52% Series		4.64% Series		4.92% Series

Class A Preferred Stock, cumulative, $100,000 stated capital
Flexible Money Market (Series 2003A)⁵

Preferred stock, cumulative, $100 par value				Mississippi Power Company
4.40% Series		4.60% Series
4.72% Series

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Registrant		Yes		No
The Southern Company		ü
Alabama Power Company		ü
Georgia Power Company		ü
Gulf Power Company				ü
Mississippi Power Company				ü
Southern Power Company				ü

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ (Response applicable to all registrants.)

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

		Large						Smaller
		Accelerated		Accelerated		Non-accelerated		Reporting
Registrant		Filer		Filer		Filer		Company
The Southern Company		ü
Alabama Power Company						ü
Georgia Power Company						ü
Gulf Power Company						ü
Mississippi Power Company						ü
Southern Power Company						ü

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ (Response applicable to all registrants.)

Aggregate market value of The Southern Company’s common stock held by non-affiliates of The Southern Company at June 29, 2007: $25.9 billion. All of the common stock of the other registrants is held by The Southern Company. A description of each registrant’s common stock follows:

		Description of		Shares Outstanding
Registrant		Common Stock		at January 31, 2008
The Southern Company		Par Value $5 Per Share			764,712,159
Alabama Power Company		Par Value $40 Per Share			17,975,000
Georgia Power Company		Without Par Value			9,261,500
Gulf Power Company		Without Par Value			1,792,717
Mississippi Power Company		Without Par Value			1,121,000
Southern Power Company		Par Value $0.01 Per Share			1,000

Documents incorporated by reference: specified portions of The Southern Company’s Proxy Statement relating to the 2008 Annual Meeting of Stockholders are incorporated by reference into PART III. In addition, specified portions of the Information Statements of Alabama Power Company, Georgia Power Company, and Mississippi Power Company relating to each of their respective 2008 Annual Meetings of Shareholders are incorporated by reference into PART III.

Southern Power Company meets the conditions set forth in General Instructions I(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format specified in General Instructions I(2)(b) and (c) of Form 10-K.

This combined Form 10-K is separately filed by The Southern Company, Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Southern Power Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes no representation as to information relating to the other companies.

 

Table of Contents

				Page
		PART I
Item 1		Business		I-1
		The Southern Company System		I-2
		Construction Programs		I-3
		Financing Programs		I-4
		Fuel Supply		I-4
		Territory Served by the Traditional Operating Companies and Southern Power		I-5
		Competition		I-7
		Seasonality		I-8
		Regulation		I-8
		Rate Matters		I-10
		Employee Relations		I-12
Item 1A		Risk Factors		I-13
Item 1B		Unresolved Staff Comments		I-23
Item 2		Properties		I-24
Item 3		Legal Proceedings		I-28
Item 4		Submission of Matters to a Vote of Security Holders		I-29
		Executive Officers of Southern Company		I-30
		Executive Officers of Alabama Power		I-32
		Executive Officers of Georgia Power		I-33
		Executive Officers of Mississippi Power		I-34
		PART II
Item 5		Market for Registrants’ Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		II-1
Item 6		Selected Financial Data		II-2
Item 7		Management’s Discussion and Analysis of Financial Condition and Results of Operations		II-2
Item 7A		Quantitative and Qualitative Disclosures about Market Risk		II-3
Item 8		Financial Statements and Supplementary Data		II-4
Item 9		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		II-5
Item 9A		Controls and Procedures		II-6
Item 9A(T)		Controls and Procedures		II-6
Item 9B		Other Information		II-7
		PART III
Item 10		Directors, Executive Officers and Corporate Governance		III-1
Item 11		Executive Compensation		III-4
Item 12		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		III-41
Item 13		Certain Relationships and Related Transactions, and Director Independence		III-42
Item 14		Principal Accountant Fees and Services		III-43
		PART IV
Item 15		Exhibits and Financial Statement Schedules		IV-1
		Signatures		IV-2

 i

DEFINITIONS

When used in Items 1 through 5 and Items 9A through 15, the following terms will have the meanings indicated.

Term		Meaning
AFUDC		Allowance for Funds Used During Construction
Alabama Power		Alabama Power Company
AMEA		Alabama Municipal Electric Authority
Clean Air Act		Clean Air Act Amendments of 1990
Dalton		Dalton Utilities
DOE		United States Department of Energy
Duke Energy		Duke Energy Corporation
Energy Act of 1992		Energy Policy Act of 1992
Energy Act of 2005		Energy Policy Act of 2005
Energy Solutions		Southern Company Energy Solutions, Inc.
EPA		United States Environmental Protection Agency
FASB		Financial Accounting Standards Board
FERC		Federal Energy Regulatory Commission
FMPA		Florida Municipal Power Agency
FP&L		Florida Power & Light Company
Georgia Power		Georgia Power Company
Gulf Power		Gulf Power Company
Hampton		City of Hampton, Georgia
Holding Company Act		Public Utility Holding Company Act of 1935, as amended
IBEW		International Brotherhood of Electrical Workers
IIC		Intercompany Interchange Contract
IPP		Independent Power Producer
IRP		Integrated Resource Plan
IRS		Internal Revenue Service
KUA		Kissimmee Utility Authority
MEAG		Municipal Electric Authority of Georgia
Mirant		Mirant Corporation
Mississippi Power		Mississippi Power Company
Moody’s		Moody’s Investors Service
NRC		Nuclear Regulatory Commission
OPC		Oglethorpe Power Corporation
OUC		Orlando Utilities Commission
PowerSouth		PowerSouth Energy Cooperative (formerly, Alabama Electric Cooperative, Inc.)
PPA		Power Purchase Agreement
Progress Energy Carolinas		Carolina Power & Light Company, d/b/a Progress Energy Carolinas, Inc.
Progress Energy Florida		Florida Power Corporation, d/b/a Progress Energy Florida, Inc.
PSC		Public Service Commission
registrants		The Southern Company, Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Southern Power Company

 ii

DEFINITIONS
(continued)

Term		Meaning
RFP		Request for Proposal
RUS		Rural Utility Service (formerly Rural Electrification Administration)
S&P		Standard and Poor’s, a division of The McGraw-Hill Companies
Savannah Electric		Savannah Electric and Power Company (merged into Georgia Power on July 1, 2006)
SCS		Southern Company Services, Inc. (the system service company)
SEC		Securities and Exchange Commission
SEGCO		Southern Electric Generating Company
SEPA		Southeastern Power Administration
SERC		Southeastern Electric Reliability Council
SMEPA		South Mississippi Electric Power Association
Southern Company		The Southern Company
Southern Company system		Southern Company, the traditional operating companies, Southern Power, SEGCO, Southern Nuclear, SCS, SouthernLINC Wireless, and other subsidiaries
Southern Holdings		Southern Company Holdings, Inc.
SouthernLINC Wireless		Southern Communications Services, Inc.
Southern Nuclear		Southern Nuclear Operating Company, Inc.
Southern Power		Southern Power Company
traditional operating companies		Alabama Power Company, Georgia Power Company, Gulf Power Company, and Mississippi Power Company
TVA		Tennessee Valley Authority

 iii

CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K contains forward-looking statements. Forward-looking statements include, among other things, statements concerning the strategic goals for the wholesale business, retail sales growth, customer growth, storm damage cost recovery and repairs, fuel cost recovery, environmental regulations and expenditures, earnings growth, dividend payout ratios, access to sources of capital, projections for postretirement benefit trust contributions, financing activities, completion of construction projects, impacts of adoption of new accounting rules, costs of implementing the IIC settlement with the FERC, and estimated construction and other expenditures. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential,” or “continue” or the negative of these terms or other similar terminology. There are various factors that could cause actual results to differ materially from those suggested by the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include:

•		the impact of recent and future federal and state regulatory change, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry, implementation of the Energy Policy Act of 2005, environmental laws including regulation of water quality and emissions of sulfur, nitrogen, mercury, carbon, soot, or particulate matter and other substances, and also changes in tax and other laws and regulations to which Southern Company and its subsidiaries are subject, as well as changes in application of existing laws and regulations;
•		current and future litigation, regulatory investigations, proceedings, or inquiries, including the pending EPA civil actions against certain Southern Company subsidiaries, FERC matters, IRS audits, and Mirant matters;
•		the effects, extent, and timing of the entry of additional competition in the markets in which Southern Company’s subsidiaries operate;
•		variations in demand for electricity, including those relating to weather, the general economy, population, and business growth (and declines), and the effects of energy conservation measures;
•		available sources and costs of fuel;
•		effects of inflation;
•		ability to control costs;
•		investment performance of Southern Company’s employee benefit plans;
•		advances in technology;
•		state and federal rate regulations and the impact of pending and future rate cases and negotiations, including rate actions relating to fuel and storm restoration cost recovery;
•		the performance of projects undertaken by the non-utility businesses and the success of efforts to invest in and develop new opportunities;
•		internal restructuring or other restructuring options that may be pursued;
•		potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial to Southern Company or its subsidiaries;
•		the ability of counterparties of Southern Company and its subsidiaries to make payments as and when due;
•		the ability to obtain new short- and long-term contracts with neighboring utilities;
•		the direct or indirect effect on Southern Company’s business resulting from terrorist incidents and the threat of terrorist incidents;
•		interest rate fluctuations and financial market conditions and the results of financing efforts, including Southern Company’s and its subsidiaries’ credit ratings;
•		the ability of Southern Company and its subsidiaries to obtain additional generating capacity at competitive prices;
•		catastrophic events such as fires, earthquakes, explosions, floods, hurricanes, droughts, pandemic health events such as an avian influenza, or other similar occurrences;
•		the direct or indirect effects on Southern Company’s business resulting from incidents similar to the August 2003 power outage in the Northeast;
•		the effect of accounting pronouncements issued periodically by standard setting bodies; and
•		other factors discussed elsewhere herein and in other reports filed by the registrants from time to time with the SEC.

The registrants expressly disclaim any obligation to update any forward-looking statements.

PART I

Item 1. BUSINESS

Southern Company was incorporated under the laws of Delaware on November 9, 1945. Southern Company is domesticated under the laws of Georgia and is qualified to do business as a foreign corporation under the laws of Alabama. Southern Company owns all of the outstanding common stock of Alabama Power, Georgia Power, Gulf Power, and Mississippi Power, each of which is an operating public utility company. The traditional operating companies supply electric service in the states of Alabama, Georgia, Florida, and Mississippi. More particular information relating to each of the traditional operating companies is as follows:

Alabama Power is a corporation organized under the laws of the State of Alabama on November 10, 1927, by the consolidation of a predecessor Alabama Power Company, Gulf Electric Company, and Houston Power Company. The predecessor Alabama Power Company had been in continuous existence since its incorporation in 1906.

Georgia Power was incorporated under the laws of the State of Georgia on June 26, 1930, and admitted to do business in Alabama on September 15, 1948. Effective July 1, 2006, Savannah Electric, formerly a wholly-owned subsidiary of Southern Company, was merged with and into Georgia Power.

Gulf Power is a Florida corporation that has had a continuous existence since it was originally organized under the laws of the State of Maine on November 2, 1925. Gulf Power was admitted to do business in Florida on January 15, 1926, in Mississippi on October 25, 1976, and in Georgia on November 20, 1984. Gulf Power became a Florida corporation after being domesticated under the laws of the State of Florida on November 2, 2005.

Mississippi Power was incorporated under the laws of the State of Mississippi on July 12, 1972, was admitted to do business in Alabama on November 28, 1972, and effective December 21, 1972, by the merger into it of the predecessor Mississippi Power Company, succeeded to the business and properties of the latter company. The predecessor Mississippi Power Company was incorporated under the laws of the State of Maine on November 24, 1924, and was admitted to do business in Mississippi on December 23, 1924, and in Alabama on December 7, 1962.

In addition, Southern Company owns all of the common stock of Southern Power, which is also an operating public utility company. Southern Power constructs, acquires, owns, and manages generation assets and sells electricity at market-based rates in the wholesale market. Southern Power is a corporation organized under the laws of Delaware on January 8, 2001 and was admitted to do business in the States of Alabama, Florida, and Georgia on January 10, 2001, in the State of Mississippi on January 30, 2001, and in the State of North Carolina on February 19, 2007.

Southern Company also owns all the outstanding common stock or membership interests of SouthernLINC Wireless, Southern Nuclear, SCS, Southern Holdings and other direct and indirect subsidiaries. SouthernLINC Wireless provides digital wireless communications services to the traditional operating companies and markets these services to the public and also provides wholesale fiber optic solutions to telecommunication providers in the Southeast. Southern Nuclear operates and provides services to Alabama Power’s and Georgia Power’s nuclear plants. SCS is the system service company providing, at cost, specialized services to Southern Company and its subsidiary companies. Southern Holdings is an intermediate holding subsidiary for Southern Company’s investments in synthetic fuels and leveraged leases and various other energy-related businesses. The investments in synthetic fuels ended on December 31, 2007.

Alabama Power and Georgia Power each own 50% of the outstanding common stock of SEGCO. SEGCO is an operating public utility company that owns electric generating units with an aggregate capacity of 1,019,680 kilowatts at Plant Gaston on the Coosa River near Wilsonville, Alabama. Alabama Power and Georgia Power are each entitled to one-half of SEGCO’s capacity and energy. Alabama Power acts as SEGCO’s agent in the operation of SEGCO’s units and furnishes coal to SEGCO as fuel for its units. SEGCO also owns three 230,000 volt transmission lines extending from Plant Gaston to the Georgia state line at which point connection is made with the Georgia Power

transmission line system.

Southern Company’s segments and related information is included in Note 10 to the financial statements of Southern Company in Item 8 herein.

The registrants’ Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports are made available on Southern Company’s website, free of charge, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Southern Company’s internet address is www.southerncompany.com.

The Southern Company System

Traditional Operating Companies

The traditional operating companies own generation and transmission facilities. See PROPERTIES in Item 2 herein for additional information on the traditional operating companies’ generating facilities. The transmission facilities of each of the traditional operating companies are connected to the respective company’s own generating plants and other sources of power and are interconnected with the transmission facilities of the other traditional operating companies and SEGCO by means of heavy-duty high voltage lines. For information on Georgia Power’s integrated transmission system, see “Territory Served by the Traditional Operating Companies and Southern Power” herein.

Operating contracts covering arrangements in effect with principal neighboring utility systems provide for capacity exchanges, capacity purchases and sales, transfers of economy energy, and other similar transactions. Additionally, the traditional operating companies have entered into voluntary reliability agreements with the subsidiaries of Entergy Corporation, Florida Electric Power Coordinating Group and TVA and with Progress Energy Carolinas, Duke Energy, South Carolina Electric & Gas Company, and Virginia Electric and Power Company, each of which provides for the establishment and periodic review of principles and procedures for planning and operation of generation and transmission facilities, maintenance schedules, load retention programs, emergency operations, and other matters affecting the reliability of bulk power supply. The traditional operating companies have joined with other utilities in the Southeast (including those referred to above) to form the SERC to augment further the reliability and adequacy of bulk power supply. Through the SERC, the traditional operating companies are represented on the National Electric Reliability Council.

The IIC provides for coordinating operations of the power producing facilities of the traditional operating companies and Southern Power and the capacities available to such companies from non-affiliated sources and for the pooling of surplus energy available for interchange. Coordinated operation of the entire interconnected system is conducted through a central power supply coordination office maintained by SCS. The available sources of energy are allocated to the traditional operating companies and Southern Power to provide the most economical sources of power consistent with reliable operation. The resulting benefits and savings are apportioned among each of the companies. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “FERC Matters – Intercompany Interchange Contract” of each registrant in Item 7 herein and Note 3 to the financial statements of each registrant, all under “FERC Matters – Intercompany Interchange Contract” in Item 8 herein for information on the settlement of the FERC proceeding related to the IIC.

Southern Company, each traditional operating company, Southern Power, Southern Nuclear, SEGCO, and other subsidiaries have contracted with SCS to furnish, at direct or allocated cost and upon request, the following services: general and design engineering, purchasing, accounting and statistical analysis, finance and treasury, tax, information resources, marketing, auditing, insurance and pension administration, human resources, systems and procedures, and other services with respect to business and operations and power pool transactions. Southern Power and SouthernLINC Wireless have also secured from the traditional operating companies certain services which are furnished at cost and, in the case of Southern Power in compliance with FERC regulations.

Alabama Power and Georgia Power each have a contract with Southern Nuclear to operate Plant Farley and Plants Hatch and Vogtle, respectively. See “Regulation – Nuclear Regulation” herein for additional information.

Southern Power

Southern Power is an electric wholesale generation subsidiary with market-based rate authority from the FERC. Southern Power constructs, acquires, owns, and manages generating facilities and sells the output under long-term, fixed-price capacity contracts both to unaffiliated wholesale purchasers as well as to the traditional operating companies (under PPAs approved by the applicable state PSCs and the FERC). Southern Power’s business activities are not subject to traditional state regulation of utilities but are subject to regulation by the FERC. Southern Power has attempted to insulate itself from significant fuel supply, fuel transportation, and electric transmission risks by making such risks the responsibility of the counterparties to the PPAs. However, Southern Power’s overall profit will depend on the parameters of the wholesale market and the efficient operation of its wholesale generating assets. For additional information on Southern Power’s business activities, see MANAGEMENT’S DISCUSSION AND ANALYSIS– OVERVIEW- “Business Activities” of Southern Power in Item 7 herein.

In 2006, Southern Power acquired all of the outstanding membership interests of DeSoto County Generating Company, LLC and Rowan County Power, LLC from a subsidiary of Progress Energy, Inc. For additional information on these acquisitions see Note 2 to the financial statements of Southern Power in Item 8 herein. At December 31, 2007, Southern Power had 6,896 megawatts of nameplate capacity in commercial operation.

Other Businesses

Southern Holdings is an intermediate holding subsidiary for Southern Company’s investments in synthetic fuels and leveraged leases and various other energy-related businesses. Southern Company’s interest in one of the synthetic fuel entities was terminated in 2006. Synthetic fuel tax credits expired on December 31, 2007 and the synthetic fuel investments were terminated on December 31, 2007.

SouthernLINC Wireless serves the traditional operating companies and markets its services to non-affiliates within the Southeast. SouthernLINC Wireless delivers multiple wireless communication options including push to talk, cellular service, text messaging, wireless internet access, and wireless data. Its system covers approximately 128,000 square miles in the Southeast. SouthernLINC Wireless also provides wholesale fiber optic solutions to telecommunication providers in the Southeast.

These efforts to invest in and develop new business opportunities offer potential returns exceeding those of rate-regulated operations. However, these activities also involve a higher degree of risk.

Construction Programs

The subsidiary companies of Southern Company are engaged in continuous construction programs to accommodate existing and estimated future loads on their respective systems. For estimated construction and environmental expenditures for the periods 2008 through 2010, see Note 7 to the financial statements of each registrant all under “Construction Program” in Item 8 herein. Estimated construction costs in 2008 are expected to be apportioned approximately as follows: (in millions)

		Southern
		Company				Alabama				Georgia				Gulf				Mississippi				Southern
		System*				Power				Power				Power				Power				Power
New generation		$	221			$	—			$	183			$	—			$	—			$	38
Environmental			1,768				646				707				317				75				—
Other generating facilities, including associated plant substations			507				181				186				20				39				71
New business			527				257				212				30				28				—
Transmission			450				96				316				22				15				—
Distribution			343				143				163				11				26				—
Nuclear fuel			308				159				148				—				—				—
General plant			327				89				116				10				3				—
		$	4,451			$	1,571			$	2,031			$	410			$	186			$	109

The construction programs are subject to periodic review and revision, and actual construction costs may vary materially from the above estimates because of numerous factors. These factors include: changes in business conditions; acquisition of additional generating assets; revised load growth estimates; changes in environmental statutes and regulations; changes in existing nuclear plants to meet new regulatory requirements; changes in FERC rules and regulations; increasing costs of labor, equipment and materials; cost of capital and other factors described above under the heading “Cautionary Notice Regarding Forward Looking Statements.” In addition, there can be no assurance that costs related to capital expenditures will be fully recovered.

Under Georgia law, Georgia Power is required to file an IRP for approval by the Georgia PSC. Through the IRP process, the Georgia PSC must pre-certify the construction of new power plants and new PPAs. See “Rate Matters – Integrated Resource Planning” herein for additional information.

See “Regulation – Environmental Statutes and Regulations” herein for additional information with respect to certain existing and proposed environmental requirements and PROPERTIES – “Jointly-Owned Facilities” in Item 2 herein for additional information concerning Alabama Power’s, Georgia Power’s, and Southern Power’s joint ownership of certain generating units and related facilities with certain non-affiliated utilities.

Financing Programs

See each of the registrant’s MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY in Item 7 herein and Note 6 to the financial statements of each registrant in Item 8 herein for information concerning financing programs.

Fuel Supply

The traditional operating companies’ and SEGCO’s supply of electricity is derived predominantly from coal. Southern Power’s supply of electricity is primarily fueled by natural gas. See MANAGEMENT’S DISCUSSION AND ANALYSIS – RESULTS OF OPERATION – “Fuel and Purchased Power Expenses” of Southern Company and each traditional operating company in Item 7 herein for information regarding the electricity generated and the average cost of fuel in cents per net kilowatt-hour generated for the years 2005 through 2007.

The traditional operating companies have agreements in place from which they expect to receive approximately 84% of their coal burn requirements in 2008. These agreements have terms ranging between one and seven years. In 2007, the weighted average sulfur content of all coal burned by the traditional operating companies was 0.84% sulfur. This sulfur level, along with banked and purchased sulfur dioxide allowances, allowed the traditional operating companies to remain within limits set by the Phase II acid rain requirements of the Clean Air Act. In 2007, Southern Company purchased approximately $50.76 million of sulfur dioxide and nitrogen oxide emission allowances to be used in current and future periods. As additional environmental regulations are proposed that impact the utilization of coal, the traditional operating companies’ fuel mix will be monitored to ensure that the traditional operating companies remain in compliance with applicable laws and regulations. Additionally, Southern Company and the traditional operating companies will continue to evaluate the need to purchase additional emission allowances and the timing of capital expenditures for emission control equipment. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters” of Southern Company and each traditional operating company in Item 7 herein for information on the Clean Air Act and global climate issues.

SCS, acting on behalf of the traditional operating companies and Southern Power, has agreements in place for the natural gas burn requirements of the Southern Company system. For 2008, SCS has contracted for 650 billion cubic feet of natural gas supply. These agreements cover remaining terms up to 12 years. In addition to gas supply, SCS has contracts in place for both firm gas transportation and storage. Management believes that these contracts provide sufficient natural gas supplies, transportation, and storage to ensure normal operations of the Southern Company system’s natural gas generating units.

Changes in fuel prices to the traditional operating companies are generally reflected in fuel adjustment clauses contained in rate schedules. See “Rate Matters – Rate Structure and Cost Recovery Plans” herein for additional information. Southern Power’s PPAs generally provide that the counterparty is responsible for substantially all of the cost of fuel.

Alabama Power and Georgia Power have numerous contracts covering a portion of their nuclear fuel needs for uranium, conversion services, enrichment services and fuel fabrication. These contracts have varying expiration dates and most of them are for less than 10 years. Management believes that sufficient capacity for nuclear fuel supplies and processing exists to preclude the impairment of normal operations of the Southern Company system’s nuclear generating units.

Alabama Power and Georgia Power have contracts with the United States, acting through the DOE, that provide for the permanent disposal of spent nuclear fuel. The DOE failed to begin disposing of spent fuel in 1998, as required by the contracts, and Alabama Power and Georgia Power are pursuing legal remedies against the government for breach of contract. See Note 1 to the financial statements of Southern Company, Alabama Power, and Georgia Power under “Nuclear Fuel Disposal Costs” in Item 8 herein for additional information.

Territory Served by the Traditional Operating Companies and Southern Power

The territory in which the traditional operating companies provide electric service comprises most of the states of Alabama and Georgia together with the northwestern portion of Florida and southeastern Mississippi. In this territory there are non-affiliated electric distribution systems which obtain some or all of their power requirements either directly or indirectly from the traditional operating companies. The territory has an area of approximately 120,000 square miles and an estimated population of approximately 13 million. Southern Power sells electricity at market-based prices in the Super-Southeast wholesale market to investor-owned utilities, IPPs, municipalities, and electric cooperatives.

Alabama Power is engaged, within the State of Alabama, in the generation and purchase of electricity and the transmission, distribution, and sale of such electricity at retail in over 650 communities (including Anniston, Birmingham, Gadsden, Mobile, Montgomery, and Tuscaloosa) and at wholesale to 15 municipally-owned electric distribution systems, 11 of which are served indirectly through sales to AMEA, and two rural distributing cooperative associations. Alabama Power also supplies steam service in downtown Birmingham. Alabama Power owns coal reserves near its Plant Gorgas and uses the output of coal from the reserves in its generating plants. Alabama Power also sells, and cooperates with dealers in promoting the sale of, electric appliances.

Georgia Power is engaged in the generation and purchase of electricity and the transmission, distribution, and sale of such electricity within the State of Georgia at retail in over 600 communities (including Athens, Atlanta, Augusta, Columbus, Macon, Rome, and Savannah), as well as in rural areas, and at wholesale currently to OPC, MEAG, Dalton, Hampton, and 30 electric cooperatives.

Gulf Power is engaged, within the northwestern portion of Florida, in the generation and purchase of electricity and the transmission, distribution, and sale of such electricity at retail in 71 communities (including Pensacola, Panama City, and Fort Walton Beach), as well as in rural areas, and at wholesale to a non-affiliated utility and a municipality.

Mississippi Power is engaged in the generation and purchase of electricity and the transmission, distribution, and sale of such energy within 23 counties in southeastern Mississippi, at retail in 123 communities (including Biloxi, Gulfport, Hattiesburg, Laurel, Meridian, and Pascagoula), as well as in rural areas, and at wholesale to one municipality, six rural electric distribution cooperative associations, and one generating and transmitting cooperative.

For information relating to kilowatt-hour sales by classification for the traditional operating companies, see MANAGEMENT’S DISCUSSION AND ANALYSIS – RESULTS OF OPERATIONS of each traditional operating company in Item 7 herein. Also, for information relating to the sources of revenues for Southern Company, each traditional operating company, and Southern Power, reference is made to Item 6 herein.

The RUS has authority to make loans to cooperative associations or corporations to enable them to provide electric

service to customers in rural sections of the country. There are 71 electric cooperative organizations operating in the territory in which the traditional operating companies provide electric service at retail or wholesale.

One of these organizations, PowerSouth, is a generating and transmitting cooperative selling power to several distributing cooperatives, municipal systems, and other customers in south Alabama and northwest Florida. PowerSouth owns generating units with approximately 1,776 megawatts of nameplate capacity, including an undivided 8.16% ownership interest in Alabama Power’s Plant Miller Units 1 and 2. PowerSouth’s facilities were financed with RUS loans secured by long-term contracts requiring distributing cooperatives to take their requirements from PowerSouth to the extent such energy is available.

Alabama Power and Gulf Power have entered into separate agreements with PowerSouth involving interconnection between their respective systems. The delivery of capacity and energy from PowerSouth to certain distributing cooperatives in the service areas of Alabama Power and Gulf Power is governed by the Southern Company/PowerSouth Network Transmission Service Agreement. The rates for this service to PowerSouth are on file with the FERC. See PROPERTIES – “Jointly-Owned Facilities” in Item 2 herein for details of Alabama Power’s joint-ownership with PowerSouth of a portion of Plant Miller.

Four electric cooperative associations, financed by the RUS, operate within Gulf Power’s service area. These cooperatives purchase their full requirements from PowerSouth and SEPA (a federal power marketing agency). A non-affiliated utility also operates within Gulf Power’s service area and purchases its full requirements from Gulf Power.

Mississippi Power has an interchange agreement with SMEPA, a generating and transmitting cooperative, pursuant to which various services are provided, including the furnishing of protective capacity by Mississippi Power to SMEPA.

There are also 65 municipally-owned electric distribution systems operating in the territory in which the traditional operating companies provide electric service at retail or wholesale.

Forty-eight municipally-owned electric distribution systems and one county-owned system receive their requirements through MEAG, which was established by a Georgia state statute in 1975. MEAG serves these requirements from self-owned generation facilities, some of which are acquired and jointly-owned with Georgia Power, power purchased from Georgia Power, and purchases from other resources. MEAG also has a pseudo scheduling and services agreement with Georgia Power. Dalton serves its requirements from self-owned generation facilities, some of which are acquired and jointly-owned with Georgia Power, and through purchases from Georgia Power pursuant to their partial requirements tariff. In addition, Georgia Power serves the full requirements of Hampton’s electric distribution system under a market-based contract. See PROPERTIES – “Jointly-Owned Facilities” in Item 2 herein for additional information.

Georgia Power has entered into substantially similar agreements with Georgia Transmission Corporation (formerly OPC’s transmission division), MEAG, and Dalton providing for the establishment of an integrated transmission system to carry the power and energy of all parties. The agreements require an investment by each party in the integrated transmission system in proportion to its respective share of the aggregate system load. See PROPERTIES – “Jointly-Owned Facilities” in Item 2 herein for additional information.

Southern Power has PPAs with the municipalities of Dalton, North Carolina Municipal Power Agency No. 1, Florida Municipal Power Agency, and Piedmont Municipal Power Agency. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Power Sales Agreements” of Southern Power in Item 7 herein for additional information concerning Southern Power’s PPAs.

SCS, acting on behalf of the traditional operating companies, also has a contract with SEPA providing for the use of the traditional operating companies’ facilities at government expense to deliver to certain cooperatives and municipalities, entitled by federal statute to preference in the purchase of power from SEPA, quantities of power equivalent to the amounts of power allocated to them by SEPA from certain United States government hydroelectric projects.

The retail service rights of all electric suppliers in the State of Georgia are regulated by the Territorial Electric

Service Act of 1973. Pursuant to the provisions of this Act, all areas within existing municipal limits were assigned to the primary electric supplier therein. Areas outside of such municipal limits were either to be assigned or to be declared open for customer choice of supplier by action of the Georgia PSC pursuant to standards set forth in this Act. Consistent with such standards, the Georgia PSC has assigned substantially all of the land area in the state to a supplier. Notwithstanding such assignments, this Act provides that any new customer locating outside of 1973 municipal limits and having a connected load of at least 900 kilowatts may exercise a one-time choice for the life of the premises to receive electric service from the supplier of its choice. See “Competition” herein for additional information.

Pursuant to the 1956 Utility Act, the Mississippi PSC issued “Grandfather Certificates” of public convenience and necessity to Mississippi Power and to six distribution rural cooperatives operating in southeastern Mississippi, then served in whole or in part by Mississippi Power, authorizing them to distribute electricity in certain specified geographically described areas of the state. The six cooperatives serve approximately 325,000 retail customers in a certificated area of approximately 10,300 square miles. In areas included in a “Grandfather Certificate,” the utility holding such certificate may, without further certification, extend its lines up to five miles; other extensions within that area by such utility, or by other utilities, may not be made except upon a showing of, and a grant of a certificate of, public convenience and necessity. Areas included in such a certificate which are subsequently annexed to municipalities may continue to be served by the holder of the certificate, irrespective of whether it has a franchise in the annexing municipality. On the other hand, the holder of the municipal franchise may not extend service into such newly annexed area without authorization by the Mississippi PSC.

Competition

The electric utility industry in the United States is continuing to evolve as a result of regulatory and competitive factors. Among the early primary agents of change was the Energy Act of 1992 which allowed IPPs to access a utility’s transmission network in order to sell electricity to other utilities.

The competition for retail energy sales among competing suppliers of energy is influenced by various factors, including price, availability, technological advancements, service, and reliability. These factors are, in turn, affected by, among other influences, regulatory, political, and environmental considerations, taxation, and supply.

Generally, the traditional operating companies have experienced, and expect to continue to experience, competition in their respective retail service territories in varying degrees as the result of self-generation (as described above) by customers and other factors. See also “Territory Served by the Traditional Operating Companies and Southern Power” herein for additional information concerning suppliers of electricity operating within or near the areas served at retail by the traditional operating companies.

Southern Power competes with investor owned utilities, IPPs, and others for wholesale energy sales in primarily the Southeastern United States wholesale market. The needs of this market are driven by the demands of end users in the Southeast and the generation available. Southern Power’s success in wholesale energy sales is influenced by various factors including reliability and availability of Southern Power’s plants, availability of transmission to serve the demand, price, and Southern Power’s ability to contain costs.

Alabama Power currently has cogeneration contracts in effect with 10 industrial customers. Under the terms of these contracts, Alabama Power purchases excess generation of such companies. During 2007, Alabama Power purchased approximately 101 million kilowatt-hours from such companies at a cost of $4.9 million.

Georgia Power currently has contracts in effect with nine small power producers whereby Georgia Power purchases their excess generation. During 2007, Georgia Power purchased 8 million kilowatt-hours from such companies at a cost of $0.6 million. Georgia Power has PPAs for electricity with two cogeneration facilities. Payments are subject to reductions for failure to meet minimum capacity output. During 2007, Georgia Power purchased 559 million kilowatt-hours at a cost of $86.9 million from these facilities.

Also during 2007, Georgia Power purchased energy from seven customer-owned generating facilities. Six of the seven customers provide only energy to Georgia Power. These six customers make no capacity commitment and are not dispatched by Georgia Power. Georgia Power does have a contract with the remaining customer for eight

megawatts of dispatchable capacity and energy. During 2007, Georgia Power purchased a total of 88 million kilowatt-hours from the seven suppliers at a cost of approximately $2.8 million.

Gulf Power currently has agreements in effect with various industrial, commercial, and qualifying facilities pursuant to which Gulf Power purchases “as available” energy from customer-owned generation. During 2007, Gulf Power purchased 57.8 million kilowatt-hours from such companies for approximately $2.3 million.

Mississippi Power currently has a cogeneration agreement in effect with one of its industrial customers. Under the terms of this contract, Mississippi Power purchases any excess generation. During 2007, this customer had no excess generation.

Seasonality

The demand for electric power generation is affected by seasonal differences in the weather. At the traditional operating companies and Southern Power, the demand for power peaks during the summer months, with market prices reflecting the demand of power and available generating resources at that time. Power demand peaks can also be recorded during the winter. As a result, the overall operating results of Southern Company, the traditional operating companies, and Southern Power in the future may fluctuate substantially on a seasonal basis. In addition, Southern Company, the traditional operating companies, and Southern Power have historically sold less power when weather conditions are milder.

Regulation

State Commissions

The traditional operating companies are subject to the jurisdiction of their respective state PSCs. The PSCs have broad powers of supervision and regulation over public utilities operating in the respective states, including their rates, service regulations, sales of securities (except for the Mississippi PSC), and, in the cases of the Georgia PSC and the Mississippi PSC, in part, retail service territories. See “Territory Served by the Traditional Operating Companies and Southern Power” and “Rate Matters” herein for additional information.

Federal Power Act

In 2005, the U.S. Congress passed the Energy Act of 2005 which repealed the Holding Company Act effective February 8, 2006. The traditional operating companies, Southern Power and its generation subsidiaries, and SEGCO are all public utilities engaged in wholesale sales of energy in interstate commerce and therefore remain subject to the rate, financial, and accounting jurisdiction of the FERC under the Federal Power Act. The FERC must approve certain financings and allows an “at cost standard” for services rendered by system service companies such as SCS. In addition to its repeal of the Holding Company Act, the Energy Act of 2005 authorized the FERC to establish regional reliability organizations authorized to enforce reliability standards, established a process for the FERC to address impediments to the construction of transmission, and established clear responsibility for the FERC to prohibit manipulative energy trading practices.

Alabama Power and Georgia Power are also subject to the provisions of the Federal Power Act or the earlier Federal Water Power Act applicable to licensees with respect to their hydroelectric developments. Among the hydroelectric projects subject to licensing by the FERC are 14 existing Alabama Power generating stations having an aggregate installed capacity of 1,662,400 kilowatts and 18 existing Georgia Power generating stations having an aggregate installed capacity of 1,074,696 kilowatts.

In 2003, Georgia Power started the relicensing process for the Morgan Falls project which is located on the Chattahoochee River near Atlanta, Georgia and submitted the final license application for this facility to the FERC in February 2007. The current license for the Morgan Falls project expires in 2009. In 2007, Georgia Power began the relicensing process for Bartlett’s Ferry which is located on the Chattahoochee River near Columbus, Georgia. The current Bartlett’s Ferry license expires in 2014 and the application for a new license is expected to be submitted to the FERC in 2012. In July 2005, Alabama Power filed two applications with the FERC for new 50-year licenses for its seven hydroelectric developments on the Coosa River (Weiss, Henry, Logan Martin, Lay, Mitchell, Jordan,

and Bouldin) and for the Lewis Smith and Bankhead developments on the Warrior River. The FERC licenses for all of these nine developments expired in July and August of 2007. The FERC issued an annual license for the Coosa developments on August 8, 2007 and issued an annual license for the Warrior developments on September 6, 2007. These annual licenses provide the FERC with additional time to complete its review of the license applications. In 2006, Alabama Power initiated the process of developing an application to relicense the Martin hydroelectric project located on the Tallapoosa River. The current Martin license will expire in 2013 and the application for a new license is expected to be filed with the FERC in 2011. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “FERC Matters – Hydro Relicensing” of Alabama Power in Item 7 herein for additional information.

Georgia Power and OPC also have a license, expiring in 2027, for the Rocky Mountain Plant, a pure pumped storage facility of 847,800 kilowatt capacity. See PROPERTIES – “Jointly-Owned Facilities” in Item 2 herein for additional information.

Licenses for all projects, excluding those discussed above, expire in the period 2015-2034 in the case of Alabama Power’s projects and in the period 2014-2039 in the case of Georgia Power’s projects.

Upon or after the expiration of each license, the United States Government, by act of Congress, may take over the project or the FERC may relicense the project either to the original licensee or to a new licensee. In the event of takeover or relicensing to another, the original licensee is to be compensated in accordance with the provisions of the Federal Power Act, such compensation to reflect the net investment of the licensee in the project, not in excess of the fair value of the property, plus reasonable damages to other property of the licensee resulting from the severance therefrom of the property. If the FERC does not act on the new license application prior to the expiration of the existing license, the FERC is required to issue annual licenses, under the same terms and conditions of the existing license, until a new license is issued.

Nuclear Regulation

Alabama Power, Georgia Power and Southern Nuclear are subject to regulation by the NRC. The NRC is responsible for licensing and regulating nuclear facilities and materials and for conducting research in support of the licensing and regulatory process, as mandated by the Atomic Energy Act of 1954, as amended; the Energy Reorganization Act of 1974, as amended; and the Nuclear Nonproliferation Act of 1978; and in accordance with the National Environmental Policy Act of 1969, as amended, and other applicable statutes. These responsibilities also include protecting public health and safety, protecting the environment, protecting and safeguarding nuclear materials and nuclear power plants in the interest of national security, and assuring conformity with antitrust laws.

The NRC operating licenses for Plant Vogtle units 1 and 2 currently expire in January 2027 and February 2029, respectively. In January 2002, the NRC granted Georgia Power a 20-year extension of the licenses for both units at Plant Hatch which permits the operation of units 1 and 2 until 2034 and 2038, respectively. Georgia Power filed an application with the NRC in June 2007 to extend the licenses for Plant Vogtle units 1 and 2 for an additional 20 years. In May 2005, the NRC granted Alabama Power a 20-year extension of the licenses for both units at Plant Farley which permits operation of units 1 and 2 until 2037 and 2041, respectively.

See Notes 1 and 9 to the financial statements of Southern Company, Alabama Power, and Georgia Power in Item 8 herein for information on nuclear decommissioning costs and nuclear insurance.

FERC Matters

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “FERC Matters” of each of the registrants in Item 7 herein for information on matters regarding the FERC.

Environmental Statutes and Regulations

Southern Company’s operations are subject to extensive regulation by state and federal environmental agencies under a variety of statutes and regulations governing environmental media, including air, water, and land resources. Compliance with these existing environmental requirements involves significant capital and operating costs, a major

portion of which is expected to be recovered through existing ratemaking provisions. There is no assurance, however, that all such costs will be recovered.

Compliance with the federal Clean Air Act and resulting regulations has been, and will continue to be, a significant focus for Southern Company, each traditional operating company, Southern Power, and SEGCO. In addition, existing environmental laws and regulations may be changed or new laws and regulations may be adopted or otherwise become applicable to Southern Company, the traditional operating companies, or Southern Power, including laws and regulations designed to address global climate change, air quality, water quality or other environmental, public health, and welfare concerns. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters” of Southern Company and each of the traditional operating companies in Item 7 herein for additional information about the Clean Air Act and other environmental issues, including the litigation brought by the EPA under the New Source Review provisions of the Clean Air Act and possible climate change legislation and regulation. Also see MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters” and “Global Climate Issues” of Southern Power in Item 7 herein for information about the Clean Air Act, other environmental issues, and possible climate change legislation and regulation.

The traditional operating companies, Southern Power, and SEGCO are unable to predict at this time what additional steps they may be required to take as a result of the implementation of existing or future control requirements for climate, air, water, and hazardous or toxic materials, but such steps could adversely affect system operations and result in substantial additional costs.

The outcome of the matters mentioned above under “Regulation” cannot now be determined, except that these developments may result in delays in obtaining appropriate licenses for generating facilities, increased construction and operating costs, or reduced generation, the nature and extent of which, while not determinable at this time, could be substantial.

Rate Matters

Rate Structure and Cost Recovery Plans

The rates and service regulations of the traditional operating companies are uniform for each class of service throughout their respective service areas. Rates for residential electric service are generally of the block type based upon kilowatt-hours used and include minimum charges. Residential and other rates contain separate customer charges. Rates for commercial service are presently of the block type and, for large customers, the billing demand is generally used to determine capacity and minimum bill charges. These large customers’ rates are generally based upon usage by the customer and include rates with special features to encourage off-peak usage. Additionally, Alabama Power, Gulf Power, and Mississippi Power are generally allowed by their respective state PSCs to negotiate the terms and cost of service to large customers. Such terms and cost of service, however, are subject to final state PSC approval.

Fuel and net purchased energy costs are recovered through specific fuel cost recovery provisions at the traditional operating companies. These fuel cost recovery provisions are adjusted to reflect increases or decreases in such costs as needed. Gulf Power’s and Mississippi Power’s fuel cost recovery provisions are adjusted annually to reflect increases or decreases in such costs. Georgia Power is currently required to file for an adjustment to its fuel cost recovery rate no later than March 1, 2008. Alabama Power’s fuel clause is adjusted as required. Revenues are adjusted for differences between recoverable costs and amounts actually recovered in current rates.

Approved environmental compliance and storm damage costs are recovered at Alabama Power, Gulf Power, and Mississippi Power through cost recovery provisions approved by their respective state PSCs. Within limits approved by their respective PSCs, these rates are adjusted to reflect increases or decreases in such costs as required.

Georgia Power’s environmental compliance costs were recovered in base rates through 2007. Under the 2007 retail rate plan approved by the Georgia PSC, an environmental compliance cost recovery tariff was implemented effective January 1, 2008, to allow for recovery of costs related to environmental controls mandated by state and federal regulations. Georgia Power continues to recover storm damage and new plant costs through its base rates.

Alabama Power recovers the cost of certificated new plant and purchased power capacity and Gulf Power recovers purchased power capacity and conservation costs through cost recovery provisions which are adjusted as required to reflect increases or decreases in such costs as needed. Revenues are adjusted for differences between recoverable costs and amounts actually recovered in current rates.

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters” of Southern Company and each of the traditional operating companies in Item 7 herein and Note 3 to the financial statements of Southern Company under “Alabama Power Retail Regulatory Matters” and “Georgia Power Retail Regulatory Matters” and Note 3 to the financial statements of each of the traditional operating companies under “Retail Regulatory Matters” in Item 8 herein for a discussion of rate matters. Also, see Note 1 to the financial statements of Southern Company and each of the traditional operating companies in Item 8 herein for a discussion of recovery of fuel costs, storm damage costs, and environmental compliance costs through rates.

The traditional operating companies and Southern Power are authorized by the FERC to sell power to non-affiliates, including short-term opportunity sales, at market-based prices. Specific FERC approval must be obtained with respect to a market-based contract with an affiliate. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “FERC Matters – Market-Based Rate Authority” of each registrant in Item 7 herein and Note 3 to the financial statements of each registrant under “FERC Matters – Market-Based Rate Authority” in Item 8 herein for a discussion of rate matters.

Integrated Resource Planning

Triennially, Georgia Power must file an IRP with the Georgia PSC that specifies how it intends to meet the future electrical needs of its customers through a combination of demand-side and supply-side resources. The Georgia PSC under state law will certify any new demand-side or supply-side resources. Once certified, the lesser of actual or certified construction costs and purchased power costs will be recoverable through rates.

On July 12, 2007, the Georgia PSC approved Georgia Power’s 2007 IRP including the following provisions:
(1) retiring the coal units at Plant McDonough and replacing them with combined-cycle natural gas units; (2) approving new energy efficiency pilot programs and rate recovery of demand-side management programs; (3) approving pursuit of up to three new renewable generation projects with a Georgia Power ownership interest; and (4) establishing new nuclear units as a preferred option to meet demand in the 2015/2016 timeframe.

In July 2007, the Georgia PSC ordered Georgia Power to issue a RFP, submit the proposals for new base load generation needed in the 2016-2017 timeframe by February 1, 2008, and file an application to certify the chosen resources by May 1, 2008. The RFP was issued in November 2007. In December 2007, Georgia Power requested, and the Georgia PSC approved, extension of the proposal submission until May 1, 2008 and the filing date of Georgia Power’s application to certify the chosen resources until August 1, 2008.

See MANAGEMENT’S DISCUSSION AND ANALYSIS – RESULTS OF OPERATION – “Fuel and Purchased Power Expenses” of Georgia Power in Item 7 herein for information on the Georgia PSC’s approval of PPAs to begin in 2010.

Employee Relations

The Southern Company system had a total of 26,742 employees on its payroll at December 31, 2007.

		Employees at December 31, 2007
Alabama Power			6,980
Georgia Power			9,270
Gulf Power			1,324
Mississippi Power			1,299
SCS			4,125
Southern Holdings*			1
Southern Nuclear			3,267
Southern Power**			—
Other			476
Total			26,742

The traditional operating companies have separate agreements with local unions of the IBEW generally covering wages, working conditions, and procedures for handling grievances and arbitration. These agreements apply with certain exceptions to operating, maintenance, and construction employees.

Alabama Power has agreements with the IBEW on a five-year contract extending to August 15, 2009. Upon notice given at least 60 days prior to that date, negotiations may be initiated with respect to agreement terms to be effective after such date.

Georgia Power has an agreement with the IBEW covering wages and working conditions, which is in effect through June 30, 2008.

Gulf Power has an agreement with the IBEW covering wages and working conditions, which is in effect through October 14, 2009.

Mississippi Power has an agreement with the IBEW covering wages and working conditions, which is in effect through August 16, 2010.

Southern Nuclear has agreements with the IBEW on a three-year contract extending to June 30, 2008 for Plants Hatch and Vogtle and a three-year contract which is in effect through August 15, 2009 for Plant Farley. Upon notice given at least 60 days prior to these dates, negotiations may be initiated with respect to agreement terms to be effective after such dates.

The agreements also subject the terms of the pension plans for the companies discussed above to collective bargaining with the unions at either a five-year or a 10-year cycle, depending upon union and company actions.

Item 1A. RISK FACTORS

In addition to the other information in this Form 10-K, including MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL in Item 7 of each registrant, and other documents filed by Southern Company and/or its subsidiaries with the SEC from time to time, the following factors should be carefully considered in evaluating Southern Company and its subsidiaries. Such factors could affect actual results and cause results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, Southern Company and/or its subsidiaries.

Risks Related to the Energy Industry

Southern Company and its subsidiaries are subject to substantial governmental regulation. Compliance with current and future regulatory requirements and procurement of necessary approvals, permits, and certificates may result in substantial costs to Southern Company and its subsidiaries.

Southern Company and its subsidiaries, including the traditional operating companies and Southern Power, are subject to substantial regulation from federal, state, and local regulatory agencies. Southern Company and its subsidiaries are required to comply with numerous laws and regulations and to obtain numerous permits, approvals, and certificates from the governmental agencies that regulate various aspects of their businesses, including customer rates, service regulations, retail service territories, sales of securities, asset acquisitions and sales, accounting policies and practices, and the operation of fossil-fuel, hydroelectric, and nuclear generating facilities. For example, the rates charged to wholesale customers by the traditional operating companies and by Southern Power must be approved by the FERC and failure to maintain FERC market-based rate authority may impact the rates charged to wholesale customers. Additionally, the respective state PSCs must approve the traditional operating companies’ rates for retail customers. While the retail rates approved by the respective state PSCs are designed to provide for recovery of costs and a return on invested capital, there can be no assurance that a state PSC will not deem certain costs to be imprudently incurred and not subject to recovery.

Southern Company and its subsidiaries believe the necessary permits, approvals and certificates have been obtained for its existing operations and that their respective businesses are conducted in accordance with applicable laws; however, the impact of any future revision or changes in interpretations of existing regulations or the adoption of new laws and regulations applicable to Southern Company or any of its subsidiaries cannot now be predicted. Changes in regulation or the imposition of additional regulations could influence the operating environment of Southern Company and its subsidiaries and may result in substantial costs.

Certain events in the energy markets that are beyond the control of Southern Company and its subsidiaries have increased the level of public and regulatory scrutiny in the energy industry and in the capital markets. The reaction to these events may result in new laws or regulations related to the business operations or the accounting treatment of the existing operations of Southern Company and its subsidiaries which could have a negative impact on the net income or access to capital of Southern Company and its subsidiaries.

Companies in regulated and unregulated electric utility businesses have been under an increased amount of public and regulatory scrutiny with respect to, among other things, accounting practices, financial disclosures, and relationships with independent auditors. This increased scrutiny has led to substantial changes in laws and regulations affecting Southern Company and its subsidiaries, including, among other things, enhanced internal control and auditor independence requirements, financial statement certification requirements, more frequent SEC reviews of financial statements, and accelerated and additional SEC filing requirements. New accounting and disclosure requirements have changed the way Southern Company and its subsidiaries are required to record revenues, expenses, assets, and liabilities. Southern Company expects continued regulatory focus on accounting and financial reporting issues. Disruptions in the industry and any resulting additional regulations may have a negative impact on the net income or access to capital of Southern Company and its subsidiaries.

General Risks Related to Operation of Southern Company’s Utility Subsidiaries

The regional power market in which Southern Company and its utility subsidiaries compete may have changing transmission regulatory structures, which could affect the ownership of these assets and related

revenues and expenses.

The traditional operating companies currently own and operate transmission facilities as part of a vertically integrated utility. Transmission revenues are not separated from generation and distribution revenues in their approved retail rates. Current FERC efforts that may potentially change the regulatory and/or operational structure of transmission include rules related to the standardization of generation interconnection, as well as an inquiry into, among other things, market power by vertically integrated utilities. The financial condition, net income, and cash flows of Southern Company and its utility subsidiaries could be adversely affected by future changes in the federal regulatory or operational structure of transmission.

Deregulation or restructuring in the electric industry may result in increased competition and unrecovered costs which could negatively impact the net income of Southern Company and the traditional operating companies and the value of their respective assets.

Increased competition resulting from restructuring efforts, could have a significant adverse financial impact on Southern Company and the traditional operating companies. Any adoption in the territories served by the traditional operating companies of retail competition and the unbundling of regulated energy service could have a significant adverse financial impact on Southern Company and the traditional operating companies due to an impairment of assets, a loss of retail customers, lower profit margins, an inability to recover reasonable costs, or increased costs of capital. Southern Company and the traditional operating companies cannot predict if or when they may be subject to changes in legislation or regulation, nor can Southern Company and the traditional operating companies predict the impact of these changes.

Additionally, the electric utility industry has experienced a substantial increase in competition at the wholesale level. As a result of changes in federal law and regulatory policy, competition in the wholesale electricity market has greatly increased due to a greater participation by traditional electricity suppliers, non-utility generators, IPPs, wholesale power marketers, and brokers and due to the trading of energy futures contracts on various commodities exchanges. In addition, FERC rules on transmission service are designed to facilitate competition in the wholesale market on a nationwide basis by providing greater flexibility and more choices to wholesale power customers.

Changes to the criteria used by the FERC for approval of market-based rate authority may negatively impact the traditional operating companies’ and Southern Power’s ability to charge market-based rates which could negatively impact the net income and cash flow of Southern Company, the traditional operating companies, and Southern Power.

Each of the traditional operating companies and Southern Power have authorization from the FERC to sell power to nonaffiliates, including short-term opportunity sales, at market-based prices. Specific FERC approval must be obtained with respect to a market-based sale to an affiliate.

In December 2004, the FERC initiated a proceeding to assess Southern Company’s generation dominance within its retail service territory. The ability to charge market-based rates in other markets is not an issue in the proceeding. Any new market-based rate sales by any subsidiary of Southern Company in Southern Company’s retail service territory entered into during a 15-month refund period that ended in May 2006 could be subject to refund to a cost-based rate level.

In late June and July 2007, hearings were held in this proceeding and the presiding administrative law judge issued an initial decision on November 9, 2007 regarding the methodology to be used in the generation dominance tests. The proceedings are ongoing. The ultimate outcome of this generation dominance proceeding cannot now be determined, but an adverse decision by the FERC in a final order could require the traditional operating companies and Southern Power to charge cost-based rates for certain wholesale sales in the Southern Company retail service territory, which may be lower than negotiated market-based rates, and could also result in refunds of up to $19.7 million, plus interest. Southern Company and its subsidiaries believe that there is no meritorious basis for this proceeding and are vigorously defending themselves in this matter.

On June 21, 2007, the FERC issued its final rule regarding market-based rate authority. The FERC generally retained its current market-based rate standards. The impact of this order and its effect on the generation dominance proceeding cannot now be determined.

Risks Related to Environmental and Climate Change Legislation and Regulation

Southern Company’s and the traditional operating companies’ costs of compliance with environmental laws are significant. The costs of compliance with future environmental laws, including laws and regulations designed to address global climate change, and the incurrence of environmental liabilities could affect unit retirement decisions and negatively impact the net income, cash flows, and financial condition of Southern Company, the traditional operating companies, or Southern Power.

Southern Company, the traditional operating companies, and Southern Power are subject to extensive federal, state, and local environmental requirements which, among other things, regulate air emissions, water discharges, and the management of hazardous and solid waste in order to adequately protect the environment. Compliance with these legal requirements requires Southern Company, the traditional operating companies, and Southern Power to commit significant expenditures for installation of pollution control equipment, environmental monitoring, emissions fees, and permits at all of their respective facilities. These expenditures are significant and Southern Company, the traditional operating companies, and Southern Power expect that they will increase in the future. Through 2007, Southern Company had invested approximately $4.7 billion in capital projects to comply with these requirements, with annual totals of $1.5 billion, $661 million, and $423 million for 2007, 2006, and 2005, respectively. Southern Company expects that capital expenditures to assure compliance with existing and new statutes and regulations will be an additional $1.8 billion, $1.5 billion, and $0.6 billion for 2008, 2009, and 2010, respectively. Because Southern Company’s compliance strategy is impacted by changes to existing environmental laws, statutes, and regulations, the cost, availability, and existing inventory of emission allowances, and Southern Company’s fuel mix, the ultimate outcome cannot be determined at this time.

Litigation over environmental issues and claims of various types, including property damage, personal injury, common law nuisance, and citizen enforcement of environmental requirements, such as opacity and air and water quality standards, has increased generally throughout the United States. In particular, personal injury claims for damages caused by alleged exposure to hazardous materials have become more frequent.

If Southern Company, the traditional operating companies, or Southern Power fail to comply with environmental laws and regulations, even if caused by factors beyond their control, that failure may result in the assessment of civil or criminal penalties and fines. The EPA has filed civil actions against Alabama Power and Georgia Power alleging violations of the new source review provisions of the Clean Air Act. Southern Company is a party to suits alleging its emissions of carbon dioxide, a greenhouse gas, contribute to global warming. An adverse outcome in either of these cases could require substantial capital expenditures that cannot be determined at this time, and could possibly require payment of substantial penalties. Such expenditures could affect unit retirement and replacement decisions, and results of operations, cash flows, and financial condition if such costs are not recovered through regulated rates.

Existing environmental laws and regulations may be revised or new laws and regulations related to global climate change, air quality, or other environmental and health concerns may be adopted or become applicable to Southern Company, the traditional operating companies, and Southern Power. For example, legislative proposals that would impose mandatory requirements on greenhouse gas emissions continue to be considered in Congress. In addition, some states are considering or have undertaken actions to regulate and reduce greenhouse gas emissions. In July 2007, for example, the Governor of the State of Florida signed three executive orders addressing reduction of greenhouse gas emissions within the state, including statewide emission reduction targets beginning in 2017. In 2007, the Supreme Court ruled that the EPA has authority under the Clean Air Act to regulate greenhouse gas emissions from new motor vehicles. The EPA is currently developing its response to this decision. Regulatory decisions that will follow from this response may have implications for both new and existing stationary sources, such as power plants.

New or revised laws and regulations or new interpretations of existing laws and regulations, such as those related to climate change, could affect unit retirement and replacement decisions and/or result in significant additional expense and operating restrictions on the facilities of the traditional operating companies or Southern Power or increased

compliance costs which may not be fully recoverable from customers and would therefore reduce the net income of Southern Company, the traditional operating companies, or Southern Power. The cost impact of such legislation, regulation, or new interpretations would depend upon the specific requirements enacted and cannot be determined at this time.

Risks Related to Southern Company and its Business

Southern Company may be unable to meet its ongoing and future financial obligations and to pay dividends on its common stock if its subsidiaries are unable to pay upstream dividends or repay funds to Southern Company.

Southern Company is a holding company and, as such, Southern Company has no operations of its own. Substantially all of Southern Company’s consolidated assets are held by subsidiaries. Southern Company’s ability to meet its financial obligations and to pay dividends on its common stock at the current rate is primarily dependent on the net income and cash flows of its subsidiaries and their ability to pay upstream dividends or to repay funds to Southern Company. Prior to funding Southern Company, Southern Company’s subsidiaries have financial obligations that must be satisfied, including among others, debt service and preferred and preference stock dividends. Southern Company’s subsidiaries are separate legal entities and have no obligation to provide Southern Company with funds for its payment obligations.

The financial performance of Southern Company and its subsidiaries may be adversely affected if its subsidiaries are unable to successfully operate their facilities.

Southern Company’s financial performance depends on the successful operation of its subsidiaries’ electric generating, transmission, and distribution facilities. Operating these facilities involves many risks, including:

	•		operator error or failure of equipment or processes;
	•		operating limitations that may be imposed by environmental or other regulatory requirements;
	•		labor disputes;
	•		terrorist attacks;
	•		fuel or material supply interruptions;
	•		compliance with mandatory reliability standards; and
	•		catastrophic events such as fires, earthquakes, explosions, floods, droughts, hurricanes, pandemic health events such as an avian influenza, or other similar occurrences.

A decrease or elimination of revenues from power produced by the electric generating facilities or an increase in the cost of operating the facilities would reduce the net income and cash flows and could adversely impact the financial condition of the affected traditional operating company or Southern Power and of Southern Company.

The revenues of Southern Company, the traditional operating companies, and Southern Power depend in part on sales under PPAs. The failure of a counterparty to one of these PPAs to perform its obligations, or the failure to renew the PPAs, could have a negative impact on the net income and cash flows of the affected traditional operating company or Southern Power and of Southern Company.

Most of Southern Power’s generating capacity has been sold to purchasers under PPAs having initial terms of five to 15 years. In addition, the traditional operating companies enter into PPAs with non-affiliated parties. Revenues are dependent on the continued performance by the purchasers of their obligations under these PPAs. Even though Southern Power and the traditional operating companies have a rigorous credit evaluation process, the failure of one of the purchasers to perform its obligations could have a negative impact on the net income and cash flows of the affected traditional operating company or Southern Power and of Southern Company. Although these credit

evaluations take into account the possibility of default by a purchaser, actual exposure to a default by a purchaser may be greater than the credit evaluation predicts. Additionally, neither Southern Power nor any traditional operating company can predict whether the PPAs will be renewed at the end of their respective terms or on what terms any renewals may be made. If a PPA is not renewed, a replacement PPA cannot be assured.

Southern Company, the traditional operating companies, and Southern Power may incur additional costs or delays in the construction of new plants or environmental facilities and may not be able to recover their investment. The facilities of Southern Company, the traditional operating companies, and Southern Power require ongoing capital expenditures.

Certain of the traditional operating companies and Southern Power are in the process of constructing new generating facilities and adding environmental controls equipment at existing generating facilities. Southern Company intends to continue its strategy of developing and constructing other new facilities, expanding existing facilities and adding environmental control equipment. The completion of these types of projects without delays or cost overruns is subject to substantial risks, including:

	•		shortages and inconsistent quality of equipment, materials, and labor, including environmental laws and regulations;
	•		work stoppages;
	•		permits, approvals, and other regulatory matters;
	•		adverse weather conditions;
	•		unforeseen engineering problems;
	•		environmental and geological conditions;
	•		delays or increased costs to interconnect its facilities to transmission grids;
	•		unanticipated cost increases; and
	•		attention to other projects.

Tightening labor markets in the Southeast and increasing costs of materials have resulted in increasing cost estimates for Southern Company’s subsidiaries’ construction projects. If a traditional operating company or Southern Power is unable to complete the development or construction of a facility or decides to delay or cancel construction of a facility, it may not be able to recover its investment in that facility. In addition, construction delays and contractor performance shortfalls can result in the loss of revenues and may, in turn, adversely affect the net income and financial position of a traditional operating company or Southern Power and of Southern Company. Furthermore, if construction projects are not completed according to specification, a traditional operating company or Southern Power and Southern Company may incur liabilities and suffer reduced plant efficiency, higher operating costs, and reduced net income.

Once facilities come into commercial operation, ongoing capital expenditures are required to maintain reliable levels of operation. Significant portions of the traditional operating companies’ existing facilities were constructed many years ago. Older generation equipment, even if maintained in accordance with good engineering practices, may require significant capital expenditures to maintain efficiency, to comply with changing environmental requirements, or to provide reliable operations.

Changes in technology may make Southern Company’s electric generating facilities owned by the traditional operating companies, and Southern Power less competitive.

A key element of the business model of Southern Company, the traditional operating companies, and Southern Power is that generating power at central station power plants achieves economies of scale and produces power at a

competitive cost. There are distributed generation technologies that produce power, including fuel cells, microturbines, wind turbines, and solar cells. It is possible that advances in technology will reduce the cost of alternative methods of producing power to a level that is competitive with that of most central station power electric production. If this were to happen and if these technologies achieved economies of scale, the market share of Southern Company, the traditional operating companies, and Southern Power could be eroded, and the value of their respective electric generating facilities could be reduced. It is also possible that rapid advances in central station power generation technology could reduce the value of the current electric generating facilities owned by Southern Company, the traditional operating companies, and Southern Power. Changes in technology could also alter the channels through which retail electric customers buy or utilize power, which could reduce the revenues or increase the expenses of Southern Company, the traditional operating companies, or Southern Power.

Operation of nuclear facilities involves inherent risks, including environmental, health, regulatory, terrorism and financial risks that could result in fines or the closure of Southern Company’s nuclear units owned by Alabama Power or Georgia Power, and which may present potential exposures in excess of insurance coverage.

Alabama Power owns two nuclear units and Georgia Power holds undivided interests in, and contracts for operation of, four nuclear units. These six units are operated by Southern Nuclear and represent approximately 3,680 megawatts, or 8.8%, of Southern Company’s generation capacity as of December 31, 2007. These nuclear facilities are subject to environmental, health and financial risks such as on-site storage of spent nuclear fuel, the ability to dispose of such spent nuclear fuel, the ability to maintain adequate reserves for decommissioning, potential liabilities arising out of the operation of these facilities, and the threat of a possible terrorist attack. Alabama Power and Georgia Power maintain decommissioning trusts and external insurance coverage to minimize the financial exposure to these risks; however, it is possible that damages could exceed the amount of insurance coverage.

The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities. In the event of non-compliance, the NRC has the authority to impose fines or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. NRC orders or new regulations related to increased security measures and any future safety requirements promulgated by the NRC could require Alabama Power and Georgia Power to make substantial operating and capital expenditures at their nuclear plants. In addition, although Alabama Power, Georgia Power, and Southern Company have no reason to anticipate a serious nuclear incident at their plants, if an incident did occur, it could result in substantial costs to Alabama Power or Georgia Power and Southern Company. A major incident at a nuclear facility anywhere in the world could cause the NRC to limit or prohibit the operation or licensing of any domestic nuclear unit.

In addition, potential terrorist threats and increased public scrutiny of utilities could result in increased nuclear licensing or compliance costs that are difficult or impossible to predict.

The generation and energy marketing operations of Southern Company, the traditional operating companies, and Southern Power are subject to risks, many of which are beyond their control, including changes in power prices and fuel costs, that may reduce Southern Company’s, the traditional operating companies,’ and Southern Power’s revenues and increase costs.

The generation and energy marketing operations of Southern Company, the traditional operating companies, and Southern Power are subject to changes in power prices or fuel costs, which could increase the cost of producing power or decrease the amount Southern Company, the traditional operating companies, and Southern Power receive from the sale of power. The market prices for these commodities may fluctuate significantly over relatively short periods of time. Southern Company, the traditional operating companies, and Southern Power attempt to mitigate risks associated with fluctuating fuel costs by passing these costs on to customers through the traditional operating companies’ fuel cost recovery clauses or through PPAs. Among the factors that could influence power prices and fuel costs are:

•

prevailing market prices for coal, natural gas, uranium, fuel oil, and other fuels used in the generation facilities of the traditional operating companies and Southern Power including associated transportation costs, and supplies of such commodities;

	•		demand for energy and the extent of additional supplies of energy available from current or new competitors;
	•		liquidity in the general wholesale electricity market;
	•		weather conditions impacting demand for electricity;
	•		seasonality;
	•		transmission or transportation constraints or inefficiencies;
	•		availability of competitively priced alternative energy sources;
	•		forced or unscheduled plant outages for the Southern Company system, its competitors, or third party providers;
	•		the financial condition of market participants;
	•		the economy in the service territory, nation and worldwide, including the impact of economic conditions on industrial and commercial demand for electricity and the worldwide demand for fuels;
	•		natural disasters, wars, embargos, acts of terrorism, and other catastrophic events; and
	•		federal, state, and foreign energy and environmental regulation and legislation.

Certain of these factors could increase the expenses of the traditional operating companies or Southern Power and Southern Company. For the traditional operating companies, such increases may not be fully recoverable through rates. Other of these factors could reduce the revenues of the traditional operating companies or Southern Power and Southern Company.

As a result of increasing fuel costs, the traditional operating companies have accrued significant underrecovered fuel cost balances. In addition, Gulf Power has a significant underrecovered balance in its storm cost recovery reserve as a result of Hurricanes Dennis and Katrina. The traditional operating companies may experience similar deficit balances following future storms. While the traditional operating companies are generally authorized to recover underrecovered fuel costs through fuel cost recovery clauses and storm recovery costs through special rate provisions administered by the respective PSCs, recovery may be denied if costs are deemed to be imprudently incurred and delays in the authorization of such recovery could negatively impact the cash flows of the affected traditional operating company and Southern Company.

The use of derivative contracts by Southern Company and its subsidiaries in the normal course of business could result in financial losses that negatively impact the net income of Southern Company and its subsidiaries.

Southern Company and its subsidiaries, including the traditional operating companies and Southern Power, use derivative instruments, such as swaps, options, futures, and forwards, to manage their commodity and financial market risks and, to a lesser extent, engage in limited trading activities. Southern Company and its subsidiaries could recognize financial losses as a result of volatility in the market values of these contracts or if a counterparty fails to perform. In the absence of actively quoted market prices and pricing information from external sources, the valuation of these financial instruments can involve management’s judgment or use of estimates. As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the value of the reported fair value of these contracts.

The traditional operating companies and Southern Power may not be able to obtain adequate fuel supplies, which could limit their ability to operate their facilities.

The traditional operating companies and Southern Power purchase fuel, including coal, natural gas, uranium, and fuel oil, from a number of suppliers. Disruption in the delivery of fuel, including disruptions as a result of, among other things, transportation delays, weather, labor relations, force majeure events, or environmental regulations affecting any of these fuel suppliers, could limit the ability of the traditional operating companies and Southern Power to operate their respective facilities, and thus reduce the net income of the affected traditional operating company or Southern Power and Southern Company.

The traditional operating companies are dependent on coal for much of their electric generating capacity. Each traditional operating company has coal supply contracts in place; however, there can be no assurance that the counterparties to these agreements will fulfill their obligations to supply coal to the traditional operating companies. The suppliers under these agreements may experience financial or technical problems which inhibit their ability to fulfill their obligations to the traditional operating companies. In addition, the suppliers under these agreements may not be required to supply coal to the traditional operating companies under certain circumstances, such as in the event of a natural disaster. If the traditional operating companies are unable to obtain their coal requirements under these contracts, the traditional operating companies may be required to purchase their coal requirements at higher prices, which may not be fully recoverable through rates.

In addition, Southern Power in particular, and the traditional operating companies to a lesser extent, are dependent on natural gas for a portion of their electric generating capacity. Natural gas supplies can be subject to disruption in the event production or distribution is curtailed. For example, in connection with the 2005 hurricanes in the Gulf of Mexico, production and distribution of natural gas was limited for a period of time, resulting in shortages and significant increases in the price of natural gas. In addition, world market conditions for fuels, including the policies of the Organization of Petroleum Exporting Countries, can impact the price and availability of natural gas.

Demand for power could exceed supply capacity, resulting in increased costs for purchasing capacity in the open market or building additional generation capabilities.

Through the traditional operating companies and Southern Power, Southern Company is currently obligated to supply power to retail customers and wholesale customers under long-term PPAs. At peak times, the demand for power required to meet this obligation could exceed Southern Company’s available generation capacity. Market or competitive forces may require that the traditional operating companies or Southern Power purchase capacity on the open market or build additional generation capabilities. Because regulators may not permit the traditional operating companies to pass all of these purchase or construction costs on to their customers, the traditional operating companies may not be able to recover any of these costs or may have exposure to regulatory lag associated with the time between the incurrence of costs of purchased or constructed capacity and the traditional operating companies’ recovery in customers’ rates. Under Southern Power’s long-term fixed price PPAs, Southern Power would not have the ability to recover any of these costs. These situations could have negative impacts on net income and cash flows for the affected traditional operating company or Southern Power and Southern Company.

The operating results of Southern Company, the traditional operating companies, and Southern Power are affected by weather conditions and may fluctuate on a seasonal and quarterly basis.

Electric power supply is generally a seasonal business. In many parts of the country, demand for power peaks during the summer months, with market prices also peaking at that time. In other areas, power demand peaks during the winter. As a result, the overall operating results of Southern Company, the traditional operating companies, and Southern Power in the future may fluctuate substantially on a seasonal basis. In addition, Southern Company, the traditional operating companies, and Southern Power have historically sold less power when weather conditions are milder. Unusually mild weather in the future could reduce the revenues, net income, available cash and borrowing ability of Southern Company, the traditional operating companies, and Southern Power.

Mirant and The Official Committee of Unsecured Creditors of Mirant Corporation have filed a claim against Southern Company seeking substantial monetary damages in connection with transfers made by Mirant to Southern Company prior to the Mirant spin-off.

Mirant was an energy company with businesses that included independent power projects and energy trading and risk management companies in the U.S. and selected other countries. It was a wholly-owned subsidiary of Southern Company until its initial public offering in October 2000. In April 2001, Southern Company completed a spin-off to its shareholders of its remaining ownership, and Mirant became an independent corporate entity.

In July 2003, Mirant and certain of its affiliates filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code. In January 2006, Mirant’s plan of reorganization became effective, and Mirant emerged from bankruptcy. As part of the plan, Mirant transferred substantially all of its assets and its restructured debt to a new corporation that adopted the name Mirant Corporation (Reorganized Mirant).

In December 2004, as a result of concluding an IRS audit for the tax years 2000 and 2001, Southern Company paid approximately $39 million in additional tax and interest related to Mirant tax items and filed a claim in Mirant’s bankruptcy case for that amount. Through December 2007, Southern Company received from the IRS approximately $36 million in refunds related to Mirant. Southern Company believes it has a right to recoup the $39 million tax payment owed by Mirant from such tax refunds. As a result, Southern Company intends to retain the tax refunds and reduce its claim against Mirant for the payment of Mirant taxes by the amount of such refunds.  MC Asset Recovery, a special purpose subsidiary of Reorganized Mirant, has objected to and sought to equitably subordinate the Southern Company tax claim in its fraudulent transfer litigation against Southern Company.  Southern Company has reserved the approximately $3 million amount remaining with respect to its Mirant tax claim.

If Southern Company is ultimately required to make any additional payments either with respect to the IRS audit or its contingent obligations under guarantees of Mirant subsidiaries, Mirant’s indemnification obligation to Southern Company for these additional payments, if allowed, would constitute unsecured claims against Mirant, entitled to stock in Reorganized Mirant.

In June 2005, Mirant, as a debtor in possession, and The Official Committee of Unsecured Creditors of Mirant Corporation filed a complaint against Southern Company in the U.S. Bankruptcy Court for the Northern District of Texas, which was amended in July 2005, February 2006, May 2006, and March 2007. In January 2006, MC Asset Recovery was substituted as plaintiff. The fourth amended complaint alleges that Southern Company caused Mirant to engage in certain fraudulent transfers and to pay illegal dividends to Southern Company prior to the spin-off. The complaint also seeks to recharacterize certain advances from Southern Company to Mirant for investments in energy facilities from debt to equity. The complaint further alleges that Southern Company is liable to Mirant’s creditors for the full amount of Mirant’s liability and that Southern Company breached its fiduciary duties to Mirant and its creditors, caused Mirant to breach fiduciary duties to its creditors, and aided and abetted breaches of fiduciary duties by Mirant’s directors and officers. The complaint also seeks recoveries under theories of restitution, unjust enrichment, and alter ego. In addition, the complaint alleges a claim under the Federal Debt Collection Procedure Act (FDCPA) to void certain transfers from Mirant to Southern Company. MC Asset Recovery claims to have standing to assert violations of the FDCPA and to recover property on behalf of the Mirant debtors’ estates. The complaint seeks monetary damages in excess of $2 billion plus interest, punitive damages, attorneys’ fees, and costs. Finally, the complaint includes an objection to Southern Company’s pending claims against Mirant in the Bankruptcy Court (which relate to reimbursement under the separation agreements of payments such as income taxes, interest, legal fees, and other guarantees described in Note 7 to the financial statements of Southern Company in Item 8 herein) and seeks equitable subordination of Southern Company’s claims to the claims of all other creditors. Southern Company served an answer to the complaint in April 2007.

In February 2006, Southern Company’s motion to transfer the case to the U.S. District Court for the Northern District of Georgia was granted. In May 2006, Southern Company filed a motion for summary judgment seeking entry of judgment against the plaintiff as to all counts in the complaint. In December 2006, the U.S. District Court for the Northern District of Georgia granted in part and denied in part the motion. As a result, certain breach of fiduciary duty claims alleged in earlier versions of the complaint were barred; all other claims may proceed. Southern Company believes there is no meritorious basis for the claims in the complaint and is vigorously defending itself in this action. The ultimate outcome of these matters cannot be determined at this time.

IRS challenges to Southern Company’s income tax deductions taken in connection with three international leveraged lease transactions could result in the payment of substantial additional interest and penalties and

could materially impact Southern Company’s cash flow and net income.

Southern Company undergoes audits by the IRS for each of its tax years. The IRS has completed its audits of Southern Company’s consolidated federal income tax returns for all years prior to 2004. The IRS challenged Southern Company’s deductions related to three international lease transactions (SILO or sale-in-lease-out transactions), in connection with its audits of Southern Company’s 2000 through 2003 tax returns. In the third quarter 2006, Southern Company paid the full amount of the disputed tax and the applicable interest on the SILO issue for tax years 2000 and 2001 and filed a claim for refund which was denied by the IRS. The disputed tax amount was $79 million and the related interest approximately $24 million for these tax years. This payment, and the subsequent IRS disallowance of the refund claim, closed the issue with the IRS and Southern Company initiated litigation in the U.S. District Court for the Northern District of Georgia for a complete refund of tax and interest paid for the 2000 and 2001 tax years. The IRS also challenged the SILO deductions for the tax years 2002 and 2003. The estimated amount of disputed tax and interest for these tax years was approximately $83 million and $15 million, respectively. The tax and interest for these tax years was paid to the IRS in the fourth quarter 2006. Southern Company has accounted for both payments in 2006 as deposits. For the tax years 2000 through 2007, Southern Company has claimed approximately $330 million in tax benefits related to these SILO transactions challenged by the IRS. These tax benefits relate to timing differences and do not impact total net income. Southern Company believes these transactions are valid leases for U.S. tax purposes and the related deductions are allowable. Southern Company is continuing to pursue resolution of these matters; however, the ultimate outcome cannot now be determined. In addition, the U.S. Senate is currently considering legislation that would disallow tax benefits after December 31, 2007 for SILO losses and other international leveraged lease transactions (such as lease-in-lease-out transactions). The ultimate impact on Southern Company’s net income will be dependent on the outcome of the pending litigation and proposed legislation, but could be significant, and potentially material.

Risks Related to Market and Economic Volatility

The business of Southern Company, the traditional operating companies, and Southern Power is dependent on their ability to successfully access capital markets. The inability of Southern Company, any traditional operating company or Southern Power to access capital may limit its ability to execute its business plan or pursue improvements and make acquisitions that Southern Company, the traditional operating companies, or Southern Power may otherwise rely on for future growth.

Southern Company, the traditional operating companies, and Southern Power rely on access to both short-term money markets and longer-term capital markets as a significant source of liquidity for capital requirements not satisfied by the cash flow from their respective operations. If Southern Company, any traditional operating company, or Southern Power is not able to access capital at competitive rates, its ability to implement its business plan or pursue improvements and make acquisitions that Southern Company, the traditional operating companies, or Southern Power may otherwise rely on for future growth will be limited. Each of Southern Company, the traditional operating companies, and Southern Power believes that it will maintain sufficient access to these financial markets based upon current credit ratings. However, certain market disruptions or a downgrade of the credit rating of Southern Company, any traditional operating company, or Southern Power may increase its cost of borrowing or adversely affect its ability to raise capital through the issuance of securities or other borrowing arrangements. Such disruptions could include:

	•		an economic downturn or uncertainty;
	•		the bankruptcy of an unrelated energy company;
	•		capital market conditions generally;
	•		market prices for electricity and gas;
	•		terrorist attacks or threatened attacks on Southern Company’s facilities or unrelated energy companies;
	•		war or threat of war; or

•

the overall health of the utility industry.

Southern Company, the traditional operating companies, and Southern Power are subject to risks associated with a changing economic environment, including their ability to obtain insurance, the financial stability of their respective customers, and their ability to raise capital.

The threat of terrorism and the hurricanes that affected the Gulf Coast, among other things, have had disruptive effects on the insurance industry. The availability of insurance covering risks that Southern Company, the traditional operating companies, Southern Power, and their respective competitors typically insure against may decrease, and the insurance that Southern Company, the traditional operating companies, and Southern Power are able to obtain may have higher deductibles, higher premiums, and more restrictive policy terms. Any economic downturn or disruption of financial markets could negatively affect the financial stability of their respective customers and counterparties. These factors could adversely affect Southern Company’s subsidiaries’ ability to achieve energy sales growth, thereby decreasing Southern Company’s level of future net income.

Certain of the traditional operating companies have substantial investments in the Gulf Coast region which can be subject to major storm activity. The ability of the traditional operating companies to recover costs and replenish reserves in the event of a major storm, other natural disaster, terrorist attack, or other catastrophic event generally will require regulatory action.

Each traditional operating company maintains a reserve for property damage to cover the cost of damages from major storms to its transmission and distribution lines and the cost of uninsured damages to its generating facilities and other property. In September 2004, Hurricane Ivan hit the Gulf coast of Florida and Alabama, causing significant damage to the service areas of Alabama Power and Gulf Power. In July and August 2005, Hurricanes Dennis and Katrina, respectively, hit the Gulf coast of the United States and caused significant damage in the service areas of Gulf Power, Alabama Power, and Mississippi Power. In each case, costs to the respective traditional operating companies exceeded their respective storm cost reserves and insurance coverage and were subsequently approved for recovery by their respective state PSCs. In the event a traditional operating company experiences a natural disaster, terrorist attack, or other catastrophic event, recovery of costs in excess of reserves and insurance coverage is subject to the approval of its state PSC. While the traditional operating companies generally are entitled to recover prudently incurred costs incurred in connection with such an event, any denial by the applicable state PSC or delay in recovery of any portion of such costs could have a material negative impact on a traditional operating company’s and Southern Company’s results of operations and/or cash flows.

Item 1B. UNRESOLVED STAFF COMMENTS.

None.

Item 2. PROPERTIES

Electric Properties – The Electric Utilities

The traditional operating companies, Southern Power, and SEGCO, at December 31, 2007, owned and/or operated 34 hydroelectric generating stations, 34 fossil fuel generating stations, 3 nuclear generating stations, and 12 combined cycle/cogeneration stations. The amounts of capacity for each company are shown in the table below.

				Nameplate
Generating Station		Location		Capacity (1)
				(Kilowatts)
FOSSIL STEAM
Gadsden		Gadsden, AL			120,000
Gorgas		Jasper, AL			1,221,250
Barry		Mobile, AL			1,525,000
Greene County		Demopolis, AL			300,000	(2)
Gaston Unit 5		Wilsonville, AL			880,000
Miller		Birmingham, AL			2,532,288	(3)
Alabama Power Total					6,578,538
Bowen		Cartersville, GA			3,160,000
Branch		Milledgeville, GA			1,539,700
Hammond		Rome, GA			800,000
Kraft		Port Wentworth, GA			281,136
McDonough		Atlanta, GA			490,000
McIntosh		Effingham County, GA			163,117
McManus		Brunswick, GA			115,000
Mitchell		Albany, GA			125,000
Scherer		Macon, GA			750,924	(4)
Wansley		Carrollton, GA			925,550	(5)
Yates		Newnan, GA			1,250,000
Georgia Power Total					9,600,427
Crist		Pensacola, FL			970,000
Daniel		Pascagoula, MS			500,000	(6)
Lansing Smith		Panama City, FL			305,000
Scholz		Chattahoochee, FL			80,000
Scherer Unit 3		Macon, GA			204,500	(4)
Gulf Power Total					2,059,500
Daniel		Pascagoula, MS			500,000	(6)
Eaton		Hattiesburg, MS			67,500
Greene County		Demopolis, AL			200,000	(2)
Sweatt		Meridian, MS			80,000
Watson		Gulfport, MS			1,012,000
Mississippi Power Total					1,859,500
Gaston Units 1-4		Wilsonville, AL
SEGCO Total					1,000,000	(7)
Total Fossil Steam					21,097,965
NUCLEAR STEAM
Farley		Dothan, AL
Alabama Power Total					1,720,000
Hatch		Baxley, GA			899,612	(8)
Vogtle		Augusta, GA			1,060,240	(9)
Georgia Power Total					1,959,852
Total Nuclear Steam					3,679,852
COMBUSTION TURBINES
Greene County		Demopolis, AL
Alabama Power Total					720,000
Boulevard		Savannah, GA			59,100
Bowen		Cartersville, GA			39,400
Intercession City		Intercession City, FL			47,667	(10)
Kraft		Port Wentworth, GA			22,000
McDonough		Atlanta, GA			78,800
McIntosh Units 1 through 8		Effingham County, GA			640,000
McManus		Brunswick, GA			481,700
Mitchell		Albany, GA			118,200
Robins		Warner Robins, GA			158,400
Wansley		Carrollton, GA			26,322
Wilson		Augusta, GA			354,100
Georgia Power Total					2,025,689
Lansing Smith Unit A		Panama City, FL			39,400
Pea Ridge Units 1-3		Pea Ridge, FL			15,000
Gulf Power Total					54,400
Chevron Cogenerating Station		Pascagoula, MS			147,292	(11)
Sweatt		Meridian, MS			39,400

				Nameplate
Generating Station		Location		Capacity (1)
				(Kilowatts)
Watson		Gulfport, MS			39,360
Mississippi Power Total					226,052
Dahlberg		Jackson County, GA			756,000
DeSoto		Arcadia, FL			343,760
Oleander		Cocoa, FL			791,301
Rowan		Salisbury, NC			455,250
Southern Power Total					2,346,311
Gaston (SEGCO)		Wilsonville, AL			19,680	(7)
Total Combustion Turbines					5,392,132
COGENERATION
Washington County		Washington County, AL			123,428
GE Plastics Project		Burkeville, AL			104,800
Theodore		Theodore, AL			236,418
Total Cogeneration					464,646
COMBINED CYCLE
Barry		Mobile, AL
Alabama Power Total					1,070,424
McIntosh Units 10&11		Effingham County, GA
Georgia Power Total					1,318,920
Smith		Lynn Haven, FL
Gulf Power Total					545,500
Daniel (Leased)		Pascagoula, MS
Mississippi Power Total					1,070,424
Franklin		Smiths, AL			1,198,360
Harris		Autaugaville, AL			1,318,920
Rowan		Salisbury, NC			530,550
Stanton Unit A		Orlando, FL			428,649	(12)
Wansley		Carrollton, GA			1,073,000
Southern Power Total					4,549,479
Total Combined Cycle					8,554,747
HYDROELECTRIC FACILITIES
Bankhead		Holt, AL			53,985
Bouldin		Wetumpka, AL			225,000
Harris		Wedowee, AL			132,000
Henry		Ohatchee, AL			72,900
Holt		Holt, AL			46,944
Jordan		Wetumpka, AL			100,000
Lay		Clanton, AL			177,000
Lewis Smith		Jasper, AL			157,500
Logan Martin		Vincent, AL			135,000
Martin		Dadeville, AL			182,000
Mitchell		Verbena, AL			170,000
Thurlow		Tallassee, AL			81,000
Weiss		Leesburg, AL			87,750
Yates		Tallassee, AL			47,000
Alabama Power Total					1,668,079
Barnett Shoals (Leased)		Athens, GA			2,800
Bartletts Ferry		Columbus, GA			173,000
Goat Rock		Columbus, GA			38,600
Lloyd Shoals		Jackson, GA			14,400
Morgan Falls		Atlanta, GA			16,800
North Highlands		Columbus, GA			29,600
Oliver Dam		Columbus, GA			60,000
Rocky Mountain		Rome, GA			215,256	(13)
Sinclair Dam		Milledgeville, GA			45,000
Tallulah Falls		Clayton, GA			72,000
Terrora		Clayton, GA			16,000
Tugalo		Clayton, GA			45,000
Wallace Dam		Eatonton, GA			321,300
Yonah		Toccoa, GA			22,500
6 Other Plants					18,080
Georgia Power Total					1,090,336
Total Hydroelectric Facilities					2,758,415
Total Generating Capacity					41,947,757

Except as discussed below under “Titles to Property,” the principal plants and other important units of the traditional operating companies, Southern Power, and SEGCO are owned in fee by the respective companies. It is the opinion of management of each such company that its operating properties are adequately maintained and are substantially in good operating condition.

Mississippi Power owns a 79-mile length of 500-kilovolt transmission line which is leased to Entergy Gulf States. The line, completed in 1984, extends from Plant Daniel to the Louisiana state line. Entergy Gulf States is paying a use fee over a 40-year period covering all expenses and the amortization of the original $57 million cost of the line. At December 31, 2007, the unamortized portion of this cost was approximately $25 million.

The all-time maximum demand on the traditional operating companies, Southern Power, and SEGCO was 38,777,000 kilowatts and occurred on August 22, 2007. This amount excludes demand served by capacity retained by MEAG, OPC, and SEPA. The reserve margin for the traditional operating companies, Southern Power, and SEGCO at that time was 11.2%. See SELECTED FINANCIAL DATA in Item 6 herein for additional information on peak demands.

Jointly-Owned Facilities

Alabama Power, Georgia Power, and Southern Power have undivided interests in certain generating plants and other related facilities to or from non-affiliated parties. The percentages of ownership are as follows:

						Percentage Ownership
																														Progress
		Total				Alabama				Power				Georgia																Energy				Southern
		Capacity				Power				South				Power				OPC				MEAG				Dalton				Florida				Power				OUC				FMPA				KUA
		(Megawatts)
Plant Miller Units 1 and 2			1,320				91.8	%			8.2	%			—	%			—	%			—	%			—	%			—	%			—	%			—	%			—	%			—	%
Plant Hatch			1,796				—				—				50.1				30.0				17.7				2.2				—				—				—				—				—
Plant Vogtle			2,320				—				—				45.7				30.0				22.7				1.6				—				—				—				—				—
Plant Scherer Units 1 and 2			1,636				—				—				8.4				60.0				30.2				1.4				—				—				—				—				—
Plant Wansley			1,779				—				—				53.5				30.0				15.1				1.4				—				—				—				—				—
Rocky Mountain			848				—				—				25.4				74.6				—				—				—				—				—				—				—
Intercession City, FL			143				—				—				33.3				—				—				—				66.7				—				—				—				—
Plant Stanton A			660				—				—				—				—				—				—				—				65	%			28	%			3.5	%			3.5	%

Alabama Power and Georgia Power have contracted to operate and maintain the respective units in which each has an interest (other than Rocky Mountain and Intercession City) as agent for the joint owners. SCS provides operation and maintenance services for Plant Stanton A.

In addition, Georgia Power has commitments regarding a portion of a five percent interest in Plant Vogtle owned by MEAG that are in effect until the later of retirement of the plant or the latest stated maturity date of MEAG’s bonds issued to finance such ownership interest. The payments for capacity are required whether any capacity is available. The energy cost is a function of each unit’s variable operating costs. Except for the portion of the capacity payments related to the Georgia PSC’s disallowances of Plant Vogtle costs, the cost of such capacity and energy is included in purchased power from non-affiliates in Georgia Power’s statements of income in Item 8 herein.

Titles to Property

The traditional operating companies’, Southern Power’s, and SEGCO’s interests in the principal plants (other than certain pollution control facilities, one small hydroelectric generating station leased by Georgia Power, combined cycle units at Plant Daniel leased by Mississippi Power and the land on which five combustion turbine generators of Mississippi Power are located, which is held by easement) and other important units of the respective companies are owned in fee by such companies, subject only to the liens pursuant to pollution control bonds of Alabama Power and Gulf Power on specific pollution control facilities. As of January 26, 2007, Gulf Power’s mortgage indenture and the lien on its principal property were discharged. See Note 6 to the financial statements of Southern Company, Alabama Power, and Gulf Power under “Assets Subject to Lien” and Note 7 to the financial statements of Mississippi Power under “Operating Leases – Plant Daniel Combined Cycle Generating Units” in Item 8 herein for additional information. The traditional operating companies own the fee interests in certain of their principal plants as tenants in common. See “Jointly-Owned Facilities” herein for additional information. Properties such as electric transmission and distribution lines and steam heating mains are constructed principally on rights-of-way which are maintained under franchise or are held by easement only. A substantial portion of lands submerged by reservoirs is held under flood right easements.

Item 3. LEGAL PROCEEDINGS

(1) United States of America v. Alabama Power (United States District Court for the Northern District of Alabama)

      United States of America v. Georgia Power and Savannah Electric (United States District Court for the Northern District of Georgia)

See “Environmental Matters – New Source Review Actions” in Note 3 to Southern Company’s and each traditional operating company’s financial statements in Item 8 herein for information.

(2) Environmental Remediation

See “Environmental Matters – Environmental Remediation” in Note 3 to the financial statements of Southern Company, Georgia Power, Gulf Power, and Mississippi Power and “Retail Regulatory Matters – Environmental Compliance Overview Plan” in Note 3 to the financial statements of Mississippi Power in Item 8 herein for information related to environmental remediation.

(3) In re: Mirant Corporation, et al. (United States Bankruptcy Court for the Northern District of Texas)

See “Mirant Matters – Mirant Bankruptcy” in Note 3 to Southern Company’s financial statements in Item 8 herein for information.

(4) MC Asset Recovery, LLC v. Southern Company (United States District Court for the Northern District of Georgia) (formerly styled In re: Mirant Corporation, et al. in the United States Bankruptcy Court for the Northern District of Texas)

See “Mirant Matters – MC Asset Recovery Litigation” in Note 3 to Southern Company’s financial statements in Item 8 herein for information.

(5) In re: Mirant Corporation Securities Litigation (United States District Court for the Northern District of Georgia)

See “Mirant Matters – Mirant Securities Litigation” in Note 3 to Southern Company’s financial statements in Item 8 herein for information.

(6) Right of Way Litigation

See “Right of Way Litigation” in Note 3 to Southern Company’s, Georgia Power’s, Gulf Power’s, and Mississippi Power’s financial statements in Item 8 herein for information.

See Note 3 to each registrant’s financial statements in Item 8 herein for descriptions of additional legal and administrative proceedings discussed therein.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Southern Company, Alabama Power, Gulf Power, Mississippi Power, and Southern Power

None.

Georgia Power

By written consent, in lieu of a special meeting of the sole common shareholder of Georgia Power, effective October 8, 2007, the sole shareholder approved an amendment to the Charter of Georgia Power to establish a new series of preference stock designated as the “6.50% Series 2007A Preference Stock, Non-Cumulative, Par Value $100 Per Share” (Amendment).

All of the 9,261,500 outstanding shares of Georgia Power’s common stock were owned by Southern Company and were voted in favor of the Amendment.

EXECUTIVE OFFICERS OF SOUTHERN COMPANY

(Identification of executive officers of Southern Company is inserted in Part I in accordance with Regulation S-K, Item 401(b), Instruction 3.) The ages of the officers set forth below are as of December 31, 2007.

David M. Ratcliffe
Chairman, President, Chief Executive Officer, and Director
Age 59

Elected in 1999. President since April 2004; Chairman and Chief Executive Officer since July 2004. Previously served as Chief Executive Officer of Georgia Power from June 1999 to April 2004; and President of Georgia Power from June 1999 to December 2003.

W. Paul Bowers
Executive Vice President and Chief Financial Officer
Age 51

Elected in 2001. Executive Vice President and Chief Financial Officer since February 1, 2008 and Executive Vice President since May 2007. Previously served as President of Southern Company Generation, a business unit of Southern Company, and Executive Vice President of SCS since May 2001; and President and Chief Executive Officer of Southern Power from May 2001 through March 2005.

Thomas A. Fanning
Executive Vice President and Chief Operating Officer
Age 50

Elected in 2003. Executive Vice President and Chief Operating Officer since February 1, 2008. Previously served as Executive Vice President and Chief Financial Officer from May 2007 through January 2008; Executive Vice President, Chief Financial Officer, and Treasurer from April 2003 to May 2007; and President, Chief Executive Officer, and Director of Gulf Power from 2002 to April 2003.

Michael D. Garrett
Executive Vice President
Age 58

Elected in 2004. Executive Vice President since January 1, 2004. He also serves as President and Director of Georgia Power since January 1, 2004 and Chief Executive Officer of Georgia Power since April 2004. Previously served as President, Chief Executive Officer, and Director of Mississippi Power from 2001 to 2003.

G. Edison Holland, Jr.
Executive Vice President, General Counsel, and Secretary
Age 55

Elected in 2001. Executive Vice President and General Counsel since 2001.

C. Alan Martin
President and Chief Executive Officer of SCS
Age 59

Elected in 2008. President and Chief Executive Officer of SCS since February 1, 2008. Previously served as Executive Vice President of the Customer Service Organization at Alabama Power from May 2001 through January 2008.

Charles D. McCrary
Executive Vice President
Age 56

Elected in 1998. Executive Vice President of Southern Company since February 2002; President, Chief Executive Officer, and Director of Alabama Power since October 2001.

J. Barnie Beasley
President and Chief Executive Officer of Southern Nuclear
Age 56

Elected in 2004. President and Chief Executive Officer of Southern Nuclear since September 2004. Previously served as Executive Vice President of Southern Nuclear from January 2004 to September 2004; and Vice President from July 1998 through December 2003.

The officers of Southern Company were elected for a term running from the first meeting of the directors following the last annual meeting (May 23, 2007) for one year until the first board meeting after the next annual meeting or until their successors are elected and have qualified, except for Mr. Martin whose election was effective on February 1, 2008.

EXECUTIVE OFFICERS OF ALABAMA POWER

(Identification of executive officers of Alabama Power is inserted in Part I in accordance with Regulation S-K, Item 401(b), Instruction 3.) The ages of the officers set forth below are as of December 31, 2007.

Charles D. McCrary
President, Chief Executive Officer, and Director
Age 56

Elected in 2001. President, Chief Executive Officer, and Director since October 2001; Executive Vice President of Southern Company since February 2002.

Art P. Beattie
Executive Vice President, Chief Financial Officer, and Treasurer
Age 53

Elected in 2004. Executive Vice President, Chief Financial Officer, and Treasurer since February 2005. Previously served as Vice President and Comptroller of Alabama Power from 1998 through January 2005.

Mark A. Crosswhite
Executive Vice President
Age 45

Elected in 2008. Executive Vice President of External Affairs since February 1, 2008. Previously served as Senior Vice President and Counsel of Alabama Power from July 2006 through January 2008; Senior Vice President, General Counsel, and Assistant Secretary of Southern Power from March 2004 through January 2005; and Vice President of SCS from March 2004 through January 2008. Prior to March 2004, Mr. Crosswhite was a partner at the law firm of Balch & Bingham LLP.

Steven R. Spencer
Executive Vice President
Age 52

Elected in 2001. Executive Vice President of the Customer Service Organization since February 1, 2008. Previously served as Executive Vice President of External Affairs from 2001 through January 2008.

Jerry L. Stewart
Senior Vice President
Age 58

Elected in 1999. Senior Vice President of Fossil and Hydro Generation since 1999.

The officers of Alabama Power were elected for a term running from the last annual organizational meeting of the directors (July 27, 2007) for one year until the next annual meeting or until their successors are elected and have qualified, except for Mr. Crosswhite whose election was effective February 1, 2008.

EXECUTIVE OFFICERS OF GEORGIA POWER

(Identification of executive officers of Georgia Power is inserted in Part I in accordance with Regulation S-K, Item 401(b), Instruction 3.) The ages of the officers set forth below are as of December 31, 2007.

Michael D. Garrett
President, Chief Executive Officer, and Director
Age 58

Elected in 2003. President, Chief Executive Officer, and Director of Georgia Power since April 2004. Previously served as President and Director of Georgia Power from January 2004 to April 2004; President, Chief Executive Officer, and Director of Mississippi Power from May 2001 through December 2003.

Mickey A. Brown
Executive Vice President
Age 60

Elected in 2001. Executive Vice President of the Customer Service Organization since January 2005. Previously served as Senior Vice President of Distribution from May 2001 through December 2004.

Cliff S. Thrasher
Executive Vice President, Chief Financial Officer, and Treasurer
Age 57

Elected in 2005. Executive Vice President, Chief Financial Officer, and Treasurer since March 2005. Previously served as Senior Vice President, Comptroller, and Chief Financial Officer of Southern Power from November 2002 to March 2005 and Vice President of SCS from June 2002 to March 2005.

Christopher C. Womack
Executive Vice President
Age 49

Elected in 2001. Executive Vice President of External Affairs since March 2006. Previously served as Senior Vice President of Fossil and Hydro Generation and Senior Production Officer from December 2001 to February 2006.

Judy M. Anderson
Senior Vice President
Age 59

Elected in 2001. Senior Vice President of Charitable Giving since 2001.

Douglas E. Jones
Senior Vice President
Age 49

Elected in 2005. Senior Vice President of Fossil and Hydro Generation since March 2006. Previously served as Senior Vice President of Customer Service and Sales from January 2005 to February 2006; Executive Vice President of Southern Power from January 2004 to January 2005; Senior Vice President of SCS from December 2001 to January 2004.

James H. Miller, III
Senior Vice President and General Counsel
Age 58

Elected in 2004. Senior Vice President and General Counsel since March 2004. Previously served as Vice President and Associate General Counsel for SCS and Senior Vice President, General Counsel, and Assistant Secretary of Southern Power from August 2001 through February 2004.

Each of the above is currently an executive officer of Georgia Power, serving a term running from the last annual organizational meeting of the directors (May 16, 2007) for one year until the next annual meeting or until their successors are elected and qualified.

EXECUTIVE OFFICERS OF MISSISSIPPI POWER

(Identification of executive officers of Mississippi Power is inserted in Part I in accordance with Regulation S-K, Item 401(b), Instruction 3.) The ages of the officers set forth below are as of December 31, 2007.

Anthony J. Topazi
President, Chief Executive Officer, and Director
Age 57

Elected in 2003. President, Chief Executive Officer, and Director since January 1, 2004. Previously served as Executive Vice President of Southern Company Generation and Energy Marketing from November 2000 to December 2003; and Senior Vice President of Southern Power from November 2002 to December 2003.

John W. Atherton
Vice President
Age 47

Elected in 2004. Vice President of External Affairs since January 2005. Previously served as the Director of Economic Development from September 2003 to January 2005; and Manager, Sales and Marketing Services from April 2002 to August 2003.

Kimberly D. Flowers
Vice President
Age 44

Elected in 2005. Vice President and Senior Production Officer since March 2005. Previously served as Plant Manager, Plant Bowen, Georgia Power from November 2000 until March 2005.

Donald R. Horsley
Vice President
Age 53

Elected in 2006. Vice President of Customer Services and Retail Marketing since April 2006. Previously served as Vice President of Transmission at Alabama Power from March 2005 to March 2006 and Manager, Transmission Lines at Alabama Power from February 2001 to March 2005.

Frances V. Turnage
Vice President, Treasurer, and
Chief Financial Officer
Age 59

Elected in 2005. Vice President, Treasurer, and Chief Financial Officer since March 2005. Previously served as Comptroller from 1993 to March 2005.

The officers of Mississippi Power were elected for a term running from the last annual organizational meeting of the directors (April 11, 2007) for one year until the next annual meeting or until their successors are elected and have qualified.

PART II

Item 5.		MARKET FOR REGISTRANTS’ COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a)(1) The common stock of Southern Company is listed and traded on the New York Stock Exchange. The common stock is also traded on regional exchanges across the United States. The high and low stock prices for each quarter of the past two years were as follows:

		High				Low
2007
First Quarter		$	37.25			$	34.85
Second Quarter			38.90				33.50
Third Quarter			37.70				33.16
Fourth Quarter			39.35				35.15
2006
First Quarter		$	35.89			$	32.34
Second Quarter			33.25				30.48
Third Quarter			35.00				32.01
Fourth Quarter			37.40				34.49

There is no market for the other registrants’ common stock, all of which is owned by Southern Company.

(a)(2) Number of Southern Company’s common stockholders of record at December 31, 2007: 102,903

Each of the other registrants have one common stockholder, Southern Company.

(a)(3) Dividends on each registrant’s common stock are payable at the discretion of their respective board of directors. The dividends on common stock declared by Southern Company and the traditional operating companies to their stockholder(s) for the past two years were as follows:

Registrant		Quarter				2007				2006
						(in thousands)
Southern Company		First				$	290,292			$	276,442
		Second					303,699				287,704
		Third					304,775				287,845
		Fourth					306,039				288,440
Alabama Power		First					116,250				110,150
		Second					116,250				110,150
		Third					116,250				110,150
		Fourth					116,250				110,150
Georgia Power		First					172,475				157,500
		Second					172,475				157,500
		Third					172,475				157,500
		Fourth					172,475				157,500
Gulf Power		First					18,525				17,575
		Second					18,525				17,575
		Third					18,525				17,575
		Fourth					18,525				17,575
Mississippi Power		First					16,825				16,300
		Second					16,825				16,300
		Third					16,825				16,300
		Fourth					16,825				16,300

In 2006 and 2007, Southern Power paid dividends to Southern Company as follows:

Registrant		Quarter				2007				2006
						(in millions)
Southern Power		First				$	22.45			$	—
		Second					22.45				38.9
		Third					22.45				19.4
		Fourth					22.45				19.4

The dividend paid per share of Southern Company’s common stock was 37.25¢ in the first quarter of 2006 and 38.75¢ for the remaining quarters of 2006 and the first quarter of 2007. For the second, third, and fourth quarters of 2007, the dividend paid per share of Southern Company’s common stock was 40.25¢.

The traditional operating companies and Southern Power can only pay dividends to Southern Company out of retained earnings or paid-in-capital.

Southern Power’s credit facility contains potential limitations on the payment of common stock dividends. At December 31, 2007, Southern Power was in compliance with the conditions of this credit facility and thus had no restrictions on its ability to pay common stock dividends. See Note 8 to the financial statements of Southern Company under “Common Stock Dividend Restrictions” and Note 6 to the financial statements of Southern Power under “Dividend Restrictions” in Item 8 herein for additional information regarding these restrictions.

(a)(4) Securities authorized for issuance under equity compensation plans.

See Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters under the heading “Equity Compensation Plan Information” herein.

(b) Use of Proceeds

Not applicable.

(c) Issuer Purchases of Equity Securities

None.

Item 6. SELECTED FINANCIAL DATA

Southern Company. See “SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA,” contained herein at pages II-97 and II-98.

Alabama Power. See “SELECTED FINANCIAL AND OPERATING DATA,” contained herein at pages II-159 and II-160.

Georgia Power. See “SELECTED FINANCIAL AND OPERATING DATA,” contained herein at pages II-225 and II-226.

Gulf Power. See “SELECTED FINANCIAL AND OPERATING DATA,” contained herein at pages II-282 and II-283.

Mississippi Power. See “SELECTED FINANCIAL AND OPERATING DATA,” contained herein at pages II-343 and II-344.

Southern Power. See “SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA,” contained herein at page II-382.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Southern Company. See “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” contained herein at pages II-12 through II-45.

Alabama Power. See “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” contained herein at pages II-102 through II-122.

Georgia Power. See “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” contained herein at pages II-164 through II-185.

Gulf Power. See “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” contained herein at pages II-230 through II-250.

Mississippi Power. See “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” contained herein at pages II-287 through II-309.

Southern Power. See “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” contained herein at pages II-348 through II-364.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See MANAGEMENT’S DISCUSSION AND ANALYSIS - FINANCIAL CONDITION AND LIQUIDITY – “Market Price Risk” of each of the registrants in Item 7 herein and Note 1 of each of the registrant’s financial statements under “Financial Instruments” in Item 8 herein. See also Note 6 to the financial statements of Southern Company, each traditional operating company, and Southern Power under “Financial Instruments” in Item 8 herein.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO 2007 FINANCIAL STATEMENTS

		Page
The Southern Company and Subsidiary Companies:
Management’s Report on Internal Control Over Financial Reporting		II-9
Reports of Independent Registered Public Accounting Firm
Internal Control over Financial Reporting		II-10
Consolidated Financial Statements		II-11
Consolidated Statements of Income for the Years Ended December 31, 2007, 2006, and 2005		II-46
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005		II-47
Consolidated Balance Sheets at December 31, 2007 and 2006		II-48
Consolidated Statements of Capitalization at December 31, 2007 and 2006		II-50
Consolidated Statements of Common Stockholders’ Equity for the Years Ended December 31, 2007, 2006, and 2005		II-52
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2007, 2006, and 2005		II-52
Notes to Financial Statements		II-53
Alabama Power:
Management’s Report on Internal Control Over Financial Reporting		II-100
Report of Independent Registered Public Accounting Firm		II-101
Statements of Income for the Years Ended December 31, 2007, 2006, and 2005		II-123
Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005		II-124
Balance Sheets at December 31, 2007 and 2006		II-125
Statements of Capitalization at December 31, 2007 and 2006		II-127
Statements of Common Stockholder’s Equity for the Years Ended December 31, 2007, 2006, and 2005		II-129
Statements of Comprehensive Income for the Years Ended December 31, 2007, 2006, and 2005		II-129
Notes to Financial Statements		II-130
Georgia Power:
Management’s Report on Internal Control Over Financial Reporting		II-162
Report of Independent Registered Public Accounting Firm		II-163
Statements of Income for the Years Ended December 31, 2007, 2006, and 2005		II-186
Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005		II-187
Balance Sheets at December 31, 2007 and 2006		II-188
Statements of Capitalization at December 31, 2007 and 2006		II-190
Statements of Common Stockholder’s Equity for the Years Ended December 31, 2007, 2006, and 2005		II-191
Statements of Comprehensive Income for the Years Ended December 31, 2007, 2006, and 2005		II-191
Notes to Financial Statements		II-192
Gulf Power:
Management’s Report on Internal Control Over Financial Reporting		II-228
Report of Independent Registered Public Accounting Firm		II-229
Statements of Income for the Years Ended December 31, 2007, 2006, and 2005		II-251
Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005		II-252
Balance Sheets at December 31, 2007 and 2006		II-253
Statements of Capitalization at December 31, 2007 and 2006		II-255
Statements of Common Stockholder’s Equity for the Years Ended December 31, 2007, 2006, and 2005		II-256
Statements of Comprehensive Income for the Years Ended December 31, 2007, 2006, and 2005		II-256
Notes to Financial Statements		II-257

		Page
Mississippi Power:
Management’s Report on Internal Control Over Financial Reporting		II-285
Report of Independent Registered Public Accounting Firm		II-286
Statements of Income for the Years Ended December 31, 2007, 2006, and 2005		II-310
Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005		II-311
Balance Sheets at December 31, 2007 and 2006		II-312
Statements of Capitalization at December 31, 2007 and 2006		II-314
Statements of Common Stockholder’s Equity for the Years Ended December 31, 2007, 2006, and 2005		II-315
Statements of Comprehensive Income for the Years Ended December 31, 2007, 2006, and 2005		II-315
Notes to Financial Statements		II-316
Southern Power and Subsidiary Companies:
Management’s Report on Internal Control Over Financial Reporting		II-346
Report of Independent Registered Public Accounting Firm		II-347
Consolidated Statements of Income for the Years Ended December 31, 2007, 2006, and 2005		II-365
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005		II-366
Consolidated Balance Sheets at December 31, 2007 and 2006		II-367
Consolidated Statements of Common Stockholder’s Equity for the Years Ended December 31, 2007, 2006, and 2005		II-369
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2007, 2006, and 2005		II-369
Notes to Financial Statements		II-370

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A. CONTROLS AND PROCEDURES

Disclosure Controls And Procedures.

As of the end of the period covered by this annual report, Southern Company conducted an evaluation under the supervision and with the participation of Southern Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures are effective in alerting them in a timely manner to material information relating to Southern Company (including its consolidated subsidiaries) required to be included in periodic filings with the SEC.

Internal Control Over Financial Reporting.

     (a) Management’s Annual Report on Internal Control Over Financial Reporting.

Southern Company’s Management’s Report on Internal Control Over Financial Reporting is included on page II-9 of this Form 10-K.

     (b) Attestation Report of the Registered Public Accounting Firm.

The report of Deloitte & Touche LLP, Southern Company’s independent registered public accounting firm, regarding Southern Company’s internal control over financial reporting is included on page II-10 of this Form 10-K.

     (c) Changes in internal controls.

There have been no changes in Southern Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the fourth quarter 2007 that have materially affected or are reasonably likely to materially affect Southern Company’s internal control over financial reporting.

Item 9A(T). CONTROLS AND PROCEDURES

Disclosure Controls And Procedures.

As of the end of the period covered by this annual report, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power conducted separate evaluations under the supervision and with the participation of each company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based upon these evaluations, the Chief Executive Officer and the Chief Financial Officer, in each case, concluded that the disclosure controls and procedures are effective in alerting them in a timely manner to material information relating to their company (including its consolidated subsidiaries, if any) required to be included in periodic filings with the SEC.

Internal Control Over Financial Reporting.

     (a) Management’s Annual Report on Internal Control Over Financial Reporting.

Alabama Power’s Management’s Report on Internal Control Over Financial Reporting is included on page II-100 of this Form 10-K.

Georgia Power’s Management’s Report on Internal Control Over Financial Reporting is included on page II-162 of this Form 10-K.

Gulf Power’s Management’s Report on Internal Control Over Financial Reporting is included on page II-228 of this Form 10-K.

Mississippi Power’s Management’s Report on Internal Control Over Financial Reporting is included on page II-285 of this Form 10-K.

Southern Power’s Management’s Report on Internal Control Over Financial Reporting is included on page II-346 of this Form 10-K.

     (b) Changes in internal controls.

There have been no changes in Alabama Power’s, Georgia Power’s, Gulf Power’s, Mississippi Power’s, or Southern Power’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the fourth quarter 2007 that have materially affected or are reasonably likely to materially affect Alabama Power’s, Georgia Power’s, Gulf Power’s, Mississippi Power’s, or Southern Power’s internal control over financial reporting.

Item 9B. OTHER INFORMATION

     None.

THE SOUTHERN COMPANY
AND SUBSIDIARY COMPANIES

FINANCIAL SECTION

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Southern Company and Subsidiary Companies 2007 Annual Report

Southern Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting as required by the Sarbanes-Oxley Act of 2002 and as defined in Exchange Act Rule 13a-15(f). A control system can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Under management’s supervision, an evaluation of the design and effectiveness of Southern Company’s internal control over financial reporting was conducted based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that Southern Company’s internal control over financial reporting was effective as of December 31, 2007.

Deloitte & Touche LLP, an independent registered public accounting firm, as auditors of Southern Company’s financial statements, has issued an attestation report on the effectiveness of Southern Company’s internal control over financial reporting as of December 31, 2007. Deloitte & Touche LLP’s report on Southern Company’s internal control over financial reporting is included herein.

/s/ David M. Ratcliffe
David M. Ratcliffe
Chairman, President, and Chief Executive Officer

/s/ W. Paul Bowers
W. Paul Bowers
Executive Vice President and Chief Financial Officer

February 25, 2008

Internal Control Over Financial Reporting

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Southern Company

We have audited the internal control over financial reporting of Southern Company and Subsidiary Companies (the “Company”) as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting (page II-9). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2007 of the Company and our report dated February 25, 2008 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding changes in the method of accounting for uncertainty in income taxes and the method of accounting for the impact of changes in the timing of income tax cash flows generated by leveraged leases in 2007 and a change in the method of accounting for the funded status of defined benefit pension and other postretirement plans in 2006.

/s/ Deloitte & Touche LLP
Atlanta, Georgia
February 25, 2008

Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Southern Company

We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of Southern Company and Subsidiary Companies (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of income, comprehensive income, common stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements (pages II-46 to II-95) present fairly, in all material respects, the financial position of Southern Company and Subsidiary Companies at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Notes 3 and 5 to the financial statements, in 2007 the Company changed its method of accounting for uncertainty in income taxes and its method of accounting for the impact of changes in the timing of income tax cash flows generated by leveraged leases. As discussed in Note 2 to the financial statements, in 2006 the Company changed its method of accounting for the funded status of defined benefit pension and other postretirement plans.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2008 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP
Atlanta, Georgia
February 25, 2008

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Southern Company and Subsidiary Companies 2007 Annual Report

OVERVIEW

Business Activities

The primary business of Southern Company (the Company) is electricity sales in the Southeast by the traditional operating companies — Alabama Power, Georgia Power, Gulf Power, and Mississippi Power — and Southern Power. The four traditional operating companies are vertically integrated utilities providing electric service in four Southeastern states. Southern Power constructs, acquires, and manages generation assets and sells electricity at market-based rates in the wholesale market.

Many factors affect the opportunities, challenges, and risks of Southern Company’s electricity business. These factors include the traditional operating companies’ ability to maintain a stable regulatory environment, to achieve energy sales growth, and to effectively manage and secure timely recovery of rising costs. Each of the traditional operating companies has various regulatory mechanisms that operate to address cost recovery. Since 2005, the traditional operating companies have completed a number of regulatory proceedings that provide for the timely recovery of costs. Appropriately balancing required costs and capital expenditures with customer prices will continue to challenge the Company for the foreseeable future.

Another major factor is the profitability of the competitive market-based wholesale generating business and federal regulatory policy, which may impact Southern Company’s level of participation in this market. Southern Power continues to execute its regional strategy through a combination of acquiring and constructing new power plants and by entering into power purchase agreements (PPAs) with investor owned utilities, independent power producers, municipalities, and electric cooperatives. The Company continues to face regulatory challenges related to transmission and market power issues at the national level.

Southern Company’s other business activities include leveraged lease projects, telecommunications, energy-related services, and an investment in a synthetic fuel producing entity which claimed federal income tax credits designed to offset its operating losses. The availability of synthetic fuel tax credits and the Company’s investment in these activities ended on December 31, 2007. Management continues to evaluate the contribution of each of these remaining activities to total shareholder return and may pursue acquisitions and dispositions accordingly.

Key Performance Indicators

In striving to maximize shareholder value while providing cost-effective energy to more than four million customers, Southern Company continues to focus on several key indicators. These indicators include customer satisfaction, plant availability, system reliability, and earnings per share (EPS), excluding earnings from synthetic fuel investments. Southern Company’s financial success is directly tied to the satisfaction of its customers. Key elements of ensuring customer satisfaction include outstanding service, high reliability, and competitive prices. Management uses customer satisfaction surveys and reliability indicators to evaluate the Company’s results.

Peak season equivalent forced outage rate (Peak Season EFOR) is an indicator of fossil/hydro plant availability and efficient generation fleet operations during the months when generation needs are greatest. The rate is calculated by dividing the number of hours of forced outages by total generation hours. The fossil/hydro 2007 Peak Season EFOR of 1.60% was better than the target. The nuclear generating fleet also uses Peak Season EFOR as an indicator of availability and efficient generation fleet operations during the peak season. The nuclear 2007 Peak Season EFOR of 0.94% was also better than target. Transmission and distribution system reliability performance is measured by the frequency and duration of outages. Performance targets for reliability are set internally based on historical performance, expected weather conditions, and expected capital expenditures. The performance for 2007 was better than target for these reliability measures.

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
Southern Company and Subsidiary Companies 2007 Annual Report

Southern Company’s synthetic fuel investments have generated tax credits as a result of synthetic fuel production. Due to higher oil prices in 2006 and 2007, these tax credits were partially phased out and one synthetic fuel investment was terminated in 2006. These tax credits were no longer available after December 31, 2007. Southern Company management uses EPS, excluding earnings from synthetic fuel investments, to evaluate the performance of Southern Company’s ongoing business activities. Southern Company believes the presentation of earnings and EPS excluding the results of the synthetic fuel investments also is useful for investors because it provides investors with additional information for purposes of comparing Southern Company’s performance for such periods. The presentation of this additional information is not meant to be considered a substitute for financial measures prepared in accordance with generally accepted accounting principles.

Southern Company’s 2007 results compared with its targets for some of these key indicators are reflected in the following chart:

		2007 Target				2007 Actual
Key Performance Indicator		Performance				Performance
		Top quartile in
Customer Satisfaction		customer surveys				Top quartile
Peak Season EFOR — fossil/hydro		2.75% or less					1.60	%
Peak Season EFOR — nuclear		2.00% or less					0.94	%
Basic EPS		$	2.18 — $2.25			$	2.29
EPS, excluding earnings from synthetic fuel investments		$	2.13 — $2.18			$	2.21

See RESULTS OF OPERATIONS herein for additional information on the Company’s financial performance. The financial performance achieved in 2007 reflects the continued emphasis that management places on these indicators as well as the commitment shown by employees in achieving or exceeding management’s expectations.

Earnings

Southern Company’s net income was $1.73 billion in 2007, an increase of 10.2% from the prior year. The higher earnings compared with the prior year were primarily the result of a warm summer and state regulatory actions. These positive factors were offset in part by higher non-fuel operations and maintenance expenses, higher interest expense, and higher asset depreciation primarily associated with increased investment in environmental equipment at generating plants and transmission and distribution related to maintaining reliability. Net income was $1.57 billion in 2006 and $1.59 billion in 2005, reflecting a 1.1% decrease and a 3.8% increase over the prior year, respectively. Basic EPS was $2.29 in 2007, $2.12 in 2006, and $2.14 in 2005. Diluted EPS, which factors in additional shares related to stock options, was $2.28 for 2007, $2.10 for 2006, and $2.13 for 2005.

Dividends

Southern Company has paid dividends on its common stock since 1948. Dividends paid per share of common stock were $1.595 in 2007, $1.535 in 2006, and $1.475 in 2005. In January 2008, Southern Company declared a quarterly dividend of 40.25 cents per share. This is the 241st consecutive quarter that Southern Company has paid a dividend equal to or higher than the previous quarter. The Company targets a dividend payout ratio of approximately 70% of net income, excluding earnings from synthetic fuel investments. For 2007, the actual payout ratio was 72%, excluding earnings from synthetic fuel investments, and 69.5% overall.

RESULTS OF OPERATIONS

Electricity Business

Southern Company’s electric utilities generate and sell electricity to retail and wholesale customers in the Southeast.

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
Southern Company and Subsidiary Companies 2007 Annual Report

A condensed income statement for the electricity business follows:

						Increase (Decrease)
		Amount				from Prior Year
		2007				2007				2006				2005
						(in millions)
Electric operating revenues		$	15,140			$	1,052			$	810			$	1,813
Fuel			5,844				701				655				1,089
Purchased power			515				(28	)			(188	)			88
Other operations and maintenance			3,473				183				70				215
Depreciation and amortization			1,215				51				27				229
Taxes other than income taxes			738				23				39				52
Total electric operating expenses			11,785				930				603				1,673
Operating income			3,355				122				207				140
Other income, net			121				68				(9	)			38
Interest expense and dividends			812				61				75				62
Income taxes			950				1				50				24
Net income		$	1,714			$	128			$	73			$	92

Electric Operating Revenues

Details of electric operating revenues were as follows:

		Amount
		2007				2006				2005
		(in millions)
Retail — prior year		$	11,800.6			$	11,164.9			$	9,732.1
Estimated change in —
Rates and pricing			161.3				9.0				309.0
Sales growth			59.6				114.4				105.0
Weather			54.0				34.9				33.8
Fuel and other cost recovery			563.0				477.4				985.0
Retail — current year			12,638.5				11,800.6				11,164.9
Wholesale revenues			1,988.3				1,821.7				1,667.0
Other electric operating revenues			513.7				465.7				446.2
Electric operating revenues		$	15,140.5			$	14,088.0			$	13,278.1
Percent change			7.5	%			6.1	%			15.8	%