ALABAMA POWER CO - Quarter Report: 2008 September (Form 10-Q)

     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 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		X
Alabama Power Company						X
Georgia Power Company						X
Gulf Power Company						X
Mississippi Power Company						X
Southern Power Company						X

     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.)

		Description of		Shares Outstanding
Registrant		Common Stock		at September 30, 2008
The Southern Company		Par Value $5 Per Share			774,580,361
Alabama Power Company		Par Value $40 Per Share			23,600,000
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

     This combined Form 10-Q 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 registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants.

INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 2008

						Page
						Number
DEFINITIONS							5
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION							7
PART I — FINANCIAL INFORMATION
Item 1.				Financial Statements (Unaudited)
Item 2.				Management’s Discussion and Analysis of Financial Condition and Results of Operations
				The Southern Company and Subsidiary Companies
				Condensed Consolidated Statements of Income			9
				Condensed Consolidated Statements of Cash Flows			10
				Condensed Consolidated Balance Sheets			11
				Condensed Consolidated Statements of Comprehensive Income			13
				Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
				Alabama Power Company
				Condensed Statements of Income			38
				Condensed Statements of Comprehensive Income			38
				Condensed Statements of Cash Flows			39
				Condensed Balance Sheets			40
				Management’s Discussion and Analysis of Financial Condition and Results of Operations			42
				Georgia Power Company
				Condensed Statements of Income			59
				Condensed Statements of Comprehensive Income			59
				Condensed Statements of Cash Flows			60
				Condensed Balance Sheets			61
				Management’s Discussion and Analysis of Financial Condition and Results of Operations			63
				Gulf Power Company
				Condensed Statements of Income			80
				Condensed Statements of Comprehensive Income			80
				Condensed Statements of Cash Flows			81
				Condensed Balance Sheets			82
				Management’s Discussion and Analysis of Financial Condition and Results of Operations			84
				Mississippi Power Company
				Condensed Statements of Income			100
				Condensed Statements of Comprehensive Income			100
				Condensed Statements of Cash Flows			101
				Condensed Balance Sheets			102
				Management’s Discussion and Analysis of Financial Condition and Results of Operations			104
				Southern Power Company and Subsidiary Companies
				Condensed Consolidated Statements of Income			123
				Condensed Consolidated Statements of Comprehensive Income			123
				Condensed Consolidated Statements of Cash Flows			124
				Condensed Consolidated Balance Sheets			125
				Management’s Discussion and Analysis of Financial Condition and Results of Operations			127
				Notes to the Condensed Financial Statements			139
Item 3.				Quantitative and Qualitative Disclosures about Market Risk			36
Item 4.				Controls and Procedures			36
Item 4T.				Controls and Procedures			36

INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 2008

						Page
						Number
PART II — OTHER INFORMATION
Item 1.				Legal Proceedings				165
Item 1A.				Risk Factors				165
Item 2.				Unregistered Sales of Equity Securities and Use of Proceeds		Inapplicable
Item 3.				Defaults Upon Senior Securities		Inapplicable
Item 4.				Submission of Matters to a Vote of Security Holders		Inapplicable
Item 5.				Other Information		Inapplicable
Item 6.				Exhibits				166
				Signatures				169

DEFINITIONS

Term		Meaning
2007 Retail Rate Plan		Georgia Power’s retail rate plan for the years 2008 through 2010
Alabama Power		Alabama Power Company
Bcf		Billion cubic feet
Clean Air Act		Clean Air Act Amendments of 1990
Dalton Utilities		The City of Dalton, Georgia, an incorporated municipality in the State of Georgia acting by and through its Board of Water, Light and Sinking Fund Commissioners
DOE		U.S. Department of Energy
Duke Energy		Duke Energy Corporation
ECO Plan		Mississippi Power’s Environmental Compliance Overview Plan
EPA		U.S. Environmental Protection Agency
FASB		Financial Accounting Standards Board
FERC		Federal Energy Regulatory Commission
Form 10-K		Combined Annual Report on Form 10-K of Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power for the year ended December 31, 2007
Georgia Power		Georgia Power Company
Gulf Power		Gulf Power Company
IGCC		Integrated coal gasification combined cycle
IIC		Intercompany Interchange Contract
IRC		Internal Revenue Code of 1986, as amended
IRS		Internal Revenue Service
KWH		Kilowatt-hour
LIBOR		London Interbank Offered Rate
MEAG Power		Municipal Electric Authority of Georgia
Mirant		Mirant Corporation
Mississippi Power		Mississippi Power Company
mmBtu		Million British thermal unit
MW		Megawatt
MWH		Megawatt-hour
NRC		Nuclear Regulatory Commission
NSR		New Source Review
OPC		Oglethorpe Power Corporation
PEP		Performance Evaluation Plan
Power Pool		The operating arrangement whereby the integrated generating resources of the traditional operating companies and Southern Power are subject to joint commitment and dispatch in order to serve their combined load obligations
PPA		Power Purchase Agreement
PSC		Public Service Commission
Rate CNP		Alabama Power’s certified new plant rate mechanism
Rate ECR		Alabama Power’s energy cost recovery rate mechanism
Rate NDR		Alabama Power’s natural disaster recovery rate mechanism
Rate RSE		Alabama Power’s rate stabilization and equilization rate mechanism
registrants		Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power

DEFINITIONS
(continued)

Term		Meaning
SCS		Southern Company Services, Inc.
SEC		Securities and Exchange Commission
SFAS No. 157		FASB Statement No. 157, “Fair Value Measurement”
Southern Company		The Southern Company
Southern Company system		Southern Company, the traditional operating companies, Southern Power, and other subsidiaries
Southern Nuclear		Southern Nuclear Operating Company, Inc.
Southern Power		Southern Power Company
Stone & Webster		Stone & Webster, Inc.
traditional operating companies		Alabama Power, Georgia Power, Gulf Power, and Mississippi Power
Westinghouse		Westinghouse Electric Company LLC
wholesale revenues		revenues generated from sales for resale

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q 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 and other rate actions, environmental regulations and expenditures, earnings growth, dividend payout ratios, access to sources of capital, projections for postretirement benefit and nuclear decommissioning trust contributions, financing activities, completion of construction projects, plans and estimated costs for new generation resources, sales under new PPAs, impacts of adoption of new accounting rules, costs of implementing the IIC settlement with the FERC, cash flow impact of the Economic Stimulus Act of 2008 on tax payments in 2008, unrecognized tax benefits related to leveraged lease transactions, estimated sales under new power sale agreements, 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 fuels;

•

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;

•

regulatory approvals related to the potential Plant Vogtle expansion, including Georgia PSC and NRC approvals;

•

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 and to perform as required;

•

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 (including the Form 10-K) filed by the registrants from time to time with the SEC.

Each registrant expressly disclaims any obligation to update any forward-looking statements.

THE SOUTHERN COMPANY AND
SUBSIDIARY COMPANIES

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2008				2007				2008				2007
		(in thousands)								(in thousands)
Operating Revenues:
Retail revenues		$	4,478,292			$	4,085,704			$	10,933,784			$	9,934,571
Wholesale revenues			774,847				563,233				1,880,311				1,530,809
Other electric revenues			142,459				130,590				413,811				381,467
Other revenues			30,901				52,516				96,690				165,793
Total operating revenues			5,426,499				4,832,043				13,324,596				12,012,640
Operating Expenses:
Fuel			2,152,828				1,738,693				5,226,845				4,512,718
Purchased power			378,259				281,489				668,423				445,698
Other operations			644,191				651,127				1,853,986				1,802,876
Maintenance			264,213				260,449				866,233				831,483
Depreciation and amortization			367,014				311,939				1,069,644				928,569
Taxes other than income taxes			215,298				206,763				602,612				574,329
Total operating expenses			4,021,803				3,450,460				10,287,743				9,095,673
Operating Income			1,404,696				1,381,583				3,036,853				2,916,967
Other Income and (Expense):
Allowance for equity funds used during construction			35,541				28,050				111,612				71,821
Interest income			9,744				11,638				20,737				31,853
Equity in income (losses) of unconsolidated subsidiaries			4,704				(410	)			6,129				(20,712	)
Leveraged lease income (losses)			6,343				12,359				(53,611	)			31,928
Interest expense, net of amounts capitalized			(219,067	)			(232,786	)			(665,123	)			(673,212	)
Preferred and preference dividends of subsidiaries			(16,194	)			(10,451	)			(48,584	)			(30,709	)
Other income (expense), net			(10,816	)			17,271				(14,386	)			8,325
Total other income and (expense)			(189,745	)			(174,329	)			(643,226	)			(580,706	)
Earnings Before Income Taxes			1,214,951				1,207,254				2,393,627				2,336,261
Income taxes			434,515				445,259				837,605				806,424
Consolidated Net Income		$	780,436			$	761,995			$	1,556,022			$	1,529,837
Common Stock Data:
Earnings per share —
Basic		$	1.01			$	1.00			$	2.02			$	2.03
Diluted		$	1.00			$	1.00			$	2.01			$	2.02
Average number of shares of common stock outstanding (in thousands)
Basic			772,622				758,308				769,298				754,568
Diluted			776,903				762,392				773,451				759,182
Cash dividends paid per share of common stock		$	0.4200			$	0.4025			$	1.2425			$	1.1925

The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

		For the Nine Months
		Ended September 30,
		2008				2007
		(in thousands)
Operating Activities:
Consolidated net income		$	1,556,022			$	1,529,837
Adjustments to reconcile consolidated net income to net cash provided from operating activities —
Depreciation and amortization			1,265,696				1,108,475
Deferred income taxes and investment tax credits			46,006				102,314
Deferred revenues			94,924				(5,527	)
Allowance for equity funds used during construction			(111,612	)			(71,821	)
Equity in income (losses) of unconsolidated subsidiaries			(6,129	)			20,712
Leveraged lease income (losses)			53,611				(31,928	)
Pension, postretirement, and other employee benefits			75,965				75,303
Stock option expense			17,730				26,011
Hedge settlements			17,289				15,151
Hurricane Katrina grant proceeds-property reserve			—				60,000
Other, net			(57,111	)			15,981
Changes in certain current assets and liabilities —
Receivables			(522,004	)			(426,107	)
Fossil fuel stock			(112,328	)			(57,624	)
Materials and supplies			(25,347	)			(55,191	)
Other current assets			(33,896	)			(2,808	)
Hurricane Katrina grant proceeds			—				14,345
Accounts payable			(45,080	)			(3,951	)
Accrued taxes			409,684				303,781
Accrued compensation			(86,436	)			(148,274	)
Other current liabilities			49,651				(1,342	)
Net cash provided from operating activities			2,586,635				2,467,337
Investing Activities:
Property additions			(2,860,118	)			(2,469,059	)
Investment in restricted cash from pollution control bonds			(5,454	)			(96,052	)
Distribution of restricted cash from pollution control bonds			46,782				44,550
Nuclear decommissioning trust fund purchases			(581,171	)			(538,049	)
Nuclear decommissioning trust fund sales			574,291				531,169
Proceeds from property sales			5,718				31,333
Investment in unconsolidated subsidiaries			(1,000	)			(34,550	)
Cost of removal, net of salvage			(74,714	)			(65,601	)
Hurricane Katrina capital grant proceeds			7,314				10,869
Other			(91,419	)			25,908
Net cash used for investing activities			(2,979,771	)			(2,559,482	)
Financing Activities:
Increase (decrease) in notes payable, net			62,302				(656,348	)
Proceeds —
Long-term debt			2,416,035				3,081,500
Common stock			381,200				414,498
Preference stock			—				150,000
Redemptions —
Long-term debt			(769,790	)			(1,599,646	)
Preferred stock			(125,000	)			—
Payment of common stock dividends			(954,438	)			(898,766	)
Other			(11,704	)			(31,432	)
Net cash provided from financing activities			998,605				459,806
Net Change in Cash and Cash Equivalents			605,469				367,661
Cash and Cash Equivalents at Beginning of Period			200,550				166,846
Cash and Cash Equivalents at End of Period		$	806,019			$	534,507
Supplemental Cash Flow Information:
Cash paid during the period for —
Interest (net of $54,403 and $44,229 capitalized for 2008 and 2007, respectively)		$	575,597			$	600,634
Income taxes (net of refunds)		$	489,600			$	388,634

The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

		At September 30,				At December 31,
Assets		2008				2007
		(in thousands)
Current Assets:
Cash and cash equivalents		$	806,019			$	200,550
Restricted cash			31,007				68,013
Receivables —
Customer accounts receivable			1,310,242				999,264
Unbilled revenues			390,069				294,487
Under recovered regulatory clause revenues			630,336				715,744
Other accounts and notes receivable			272,367				347,573
Accumulated provision for uncollectible accounts			(27,723	)			(22,142	)
Fossil fuel stock, at average cost			826,460				709,823
Materials and supplies, at average cost			755,060				725,001
Vacation pay			134,622				134,806
Prepaid expenses			258,022				147,903
Other			438,220				411,210
Total current assets			5,824,701				4,732,232
Property, Plant, and Equipment:
In service			49,821,845				47,175,717
Less accumulated depreciation			18,105,660				17,412,658
			31,716,185				29,763,059
Nuclear fuel, at amortized cost			460,848				336,129
Construction work in progress			2,935,064				3,227,605
Total property, plant, and equipment			35,112,097				33,326,793
Other Property and Investments:
Nuclear decommissioning trusts, at fair value			978,450				1,131,798
Leveraged leases			929,824				984,441
Other			224,290				237,400
Total other property and investments			2,132,564				2,353,639
Deferred Charges and Other Assets:
Deferred charges related to income taxes			957,151				910,402
Prepaid pension costs			2,430,760				2,368,798
Unamortized debt issuance expense			199,191				190,700
Unamortized loss on reacquired debt			274,130				288,973
Deferred under recovered regulatory clause revenues			654,127				388,945
Other regulatory assets			914,500				769,226
Other			513,128				459,172
Total deferred charges and other assets			5,942,987				5,376,216
Total Assets		$	49,012,349			$	45,788,880

The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

		At September 30,				At December 31,
Liabilities and Stockholders’ Equity		2008				2007
		(in thousands)
Current Liabilities:
Securities due within one year		$	1,076,285			$	1,177,889
Notes payable			1,333,760				1,271,457
Accounts payable			1,187,460				1,213,766
Customer deposits			295,611				273,800
Accrued taxes —
Income taxes			203,673				52,237
Unrecognized tax benefits			241,676				164,599
Other			429,554				329,895
Accrued interest			256,974				217,883
Accrued vacation pay			170,279				170,574
Accrued compensation			323,059				407,543
Other			372,354				351,017
Total current liabilities			5,890,685				5,630,660
Long-term Debt			15,781,761				14,143,114
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes			5,996,905				5,838,674
Deferred credits related to income taxes			258,426				272,181
Accumulated deferred investment tax credits			461,431				479,302
Employee benefit obligations			1,575,486				1,492,472
Asset retirement obligations			1,164,770				1,200,094
Other cost of removal obligations			1,340,587				1,307,732
Other regulatory liabilities			1,665,155				1,613,004
Other			391,224				346,371
Total deferred credits and other liabilities			12,853,984				12,549,830
Total Liabilities			34,526,430				32,323,604
Preferred and Preference Stock of Subsidiaries			1,081,863				1,080,248
Common Stockholders’ Equity:
Common stock, par value $5 per share —
Authorized — 1 billion shares
Issued — September 30, 2008: 774,988,223 Shares;
— December 31, 2007: 763,502,427 Shares
Treasury — September 30, 2008: 407,862 Shares;
— December 31, 2007: 398,746 Shares
Par value			3,874,898				3,817,453
Paid-in capital			1,812,324				1,454,288
Treasury, at cost			(12,867	)			(11,143	)
Retained earnings			7,752,182				7,154,596
Accumulated other comprehensive loss			(22,481	)			(30,166	)
Total Common Stockholders’ Equity			13,404,056				12,385,028
Total Liabilities and Stockholders’ Equity		$	49,012,349			$	45,788,880

The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2008				2007				2008				2007
		(in thousands)								(in thousands)
Consolidated Net Income		$	780,436			$	761,995			$	1,556,022			$	1,529,837
Other comprehensive income (loss):
Qualifying hedges:
Changes in fair value, net of tax of $11,996, $(7,342), $579, and $6,087, respectively			18,604				(11,667	)			690				9,704
Reclassification adjustment for amounts included in net income, net of tax of $1,730, $1,548, $5,879, and $4,227, respectively			2,708				2,369				9,217				6,770
Marketable securities:
Change in fair value, net of tax of $163, $1,094, $(2,293), and $2,998, respectively			86				2,130				(3,940	)			4,757
Reclassification adjustment for amounts included in net income, net of tax of $3, $(127), $3, and $(488), respectively			4				(201	)			4				(774	)
Pension and other post retirement benefit plans:
Additional prior service costs from amendment to non-qualified plans, net of tax of $-, $-,$-, and $(1,510), respectively			—				—				—				(2,424	)
Reclassification adjustment for amounts included in net income, net of tax of $237, $263, $773, and $790, respectively			376				422				1,258				1,264
Total other comprehensive income (loss)			21,778				(6,947	)			7,229				19,297
COMPREHENSIVE INCOME		$	802,214			$	755,048			$	1,563,251			$	1,549,134

The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THIRD QUARTER 2008 vs. THIRD QUARTER 2007
AND
YEAR-TO-DATE 2008 vs. YEAR-TO-DATE 2007

OVERVIEW

Discussion of the results of operations is focused on Southern Company’s primary business of electricity sales in the Southeast by the traditional operating companies – Alabama Power, Georgia Power, Gulf Power, and Mississippi Power – and Southern Power. The 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. Southern Company’s other business activities include investments in leveraged lease projects, telecommunications, and energy-related services. For additional information on these businesses, see BUSINESS – The Southern Company System – “Traditional Operating Companies,” “Southern Power,” and “Other Businesses” in Item 1 of the Form 10-K.

Southern Company continues to focus on several key performance indicators. These indicators include customer satisfaction, plant availability, system reliability, and earnings per share. For additional information on these indicators, see MANAGEMENT’S DISCUSSION AND ANALYSIS – OVERVIEW – “Key Performance Indicators” of Southern Company in Item 7 of the Form 10-K.

RESULTS OF OPERATIONS

Net Income

Third Quarter 2008 vs. Third Quarter 2007				Year-to-Date 2008 vs. Year-to-Date 2007
(change in millions)		(% change)		(change in millions)		(% change)
$18.4		2.4		$26.2		1.7

Southern Company’s third quarter 2008 earnings were $780.4 million ($1.01 per share) compared to $762.0 million ($1.00 per share) for the third quarter 2007. The increase for third quarter 2008 when compared to the same period in 2007 was primarily the result of an increase in contributions from market-response rates to large commercial and industrial customers and retail base rate increases at Alabama Power and Georgia Power. This increase was partially offset by higher depreciation and amortization.

Southern Company’s year-to-date 2008 earnings were $1.56 billion ($2.02 per share) compared to $1.53 billion ($2.03 per share) for year-to-date 2007. The increase for year-to-date 2008 when compared to the same period in 2007 was primarily the result of an increase in contributions from market-response rates to large commercial and industrial customers, retail base rate increases at Alabama Power and Georgia Power, and an increase in allowance for equity funds used during construction. This increase for year-to-date 2008 was partially offset by lower leveraged lease income related to a significant charge in the second quarter 2008, higher depreciation and amortization, and higher other operations and maintenance expenses.

Retail Revenues

Third Quarter 2008 vs. Third Quarter 2007				Year-to-Date 2008 vs. Year-to-Date 2007
(change in millions)		(% change)		(change in millions)		(% change)
$392.6		9.6		$999.2		10.1

In the third quarter 2008, retail revenues were $4.48 billion compared to $4.09 billion for the same period in 2007.

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For year-to-date 2008, retail revenues were $10.93 billion compared to $9.93 billion for the same period in 2007.

Details of the change to retail revenues are as follows:

		Third Quarter								Year-to-Date
		2008								2008
		(in millions)				(% change)				(in millions)				(% change)
Retail – prior year		$	4,085.7							$	9,934.6
Estimated change in —
Rates and pricing			194.4				4.8				542.8				5.5
Sales growth			(21.5	)			(0.5	)			1.9				0.0
Weather			(84.4	)			(2.1	)			(97.8	)			(1.0	)
Fuel and other cost recovery			304.1				7.4				552.3				5.6
Retail – current year		$	4,478.3				9.6	%		$	10,933.8				10.1	%

Revenues associated with changes in rates and pricing increased in the third quarter and year-to-date 2008 when compared to the same periods in 2007 primarily as a result of an increase in revenues from market-response rates to large commercial and industrial customers and retail base rate increases at Alabama Power and Georgia Power.

Revenues attributable to changes in sales growth decreased in the third quarter 2008 when compared to the same period in 2007 due to a 1.4% decrease in weather-adjusted retail KWH sales. This decrease resulted primarily from a 2.1% decrease in electricity usage mainly due to a slowing economy and lower home occupancy rates in Southern Company’s service area as compared to the same period in 2007, partially offset by a 0.7% increase in customer growth. For the third quarter 2008, weather-adjusted residential KWH sales decreased 2.4%, weather-adjusted commercial KWH sales increased 1.1%, and weather-adjusted industrial KWH sales decreased 3.0%. Revenues attributable to changes in sales growth were insignificant for year-to-date 2008 when compared to the same period in 2007.

Revenues resulting from changes in weather decreased in the third quarter and year-to-date 2008 because of less favorable weather when compared to the same periods in 2007.

Fuel and other cost recovery revenues increased $304.1 million in the third quarter 2008 and $552.3 million for year-to-date 2008 when compared to the same periods in 2007. Electric rates for the traditional operating companies include provisions to adjust billings for fluctuations in fuel costs, including the energy component of purchased power costs. Under these provisions, fuel revenues generally equal fuel expenses, including the fuel component of purchased power costs, and do not affect net income.

Wholesale Revenues

Third Quarter 2008 vs. Third Quarter 2007				Year-to-Date 2008 vs. Year-to-Date 2007
(change in millions)		(% change)		(change in millions)		(% change)
$211.6		37.6		$349.5		22.8

In the third quarter 2008, wholesale revenues were $774.8 million compared to $563.2 million for the same period in 2007.

For year-to-date 2008, wholesale revenues were $1.88 billion compared to $1.53 billion for the same period in 2007.

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The increases for the third quarter and year-to-date 2008 when compared to the same periods in 2007 were primarily the result of higher revenues associated with new and existing wholesale contracts, as well as increases in fuel revenues due to increases of 31.6% and 19.3% in the average unit cost of fuel per net KWH generated in the third quarter and year-to-date 2008, respectively. Lower revenues from short-term opportunity sales partially offset the third quarter and year-to-date 2008 increases. Short-term opportunity sales are made at market-based rates that generally provide a margin above Southern Company’s variable cost to produce the energy. Weather-related generation load reductions when compared to the same periods in 2007 also partially offset the third quarter and year-to-date 2008 increases.

Other Electric Revenues

Third Quarter 2008 vs. Third Quarter 2007				Year-to-Date 2008 vs. Year-to-Date 2007
(change in millions)		(% change)		(change in millions)		(% change)
$11.9		9.1		$32.3		8.5

In the third quarter 2008, other electric revenues were $142.5 million compared to $130.6 million for the same period in 2007. The increase was primarily the result of a $5.3 million increase in co-generation revenues due to higher natural gas prices, an increase in customer fees of $3.0 million, and a $2.0 million increase in transmission revenues.

For year-to-date 2008, other electric revenues were $413.8 million compared to $381.5 million for the same period in 2007. The increase was primarily the result of a $14.5 million increase in co-generation revenues due to higher natural gas prices, an increase in customer fees of $6.8 million, an increase in transmission revenues of $5.7 million, and an increase in outdoor lighting revenues of $5.2 million.

Co-generation revenues do not have a significant impact on earnings since they are generally offset by fuel expense.

Other Revenues

Third Quarter 2008 vs. Third Quarter 2007				Year-to-Date 2008 vs. Year-to-Date 2007
(change in millions)		(% change)		(change in millions)		(% change)
$(21.6)		(41.2)		$(69.1)		(41.7)

In the third quarter 2008, other revenues were $30.9 million compared to $52.5 million for the same period in 2007. The decrease was primarily the result of a $15.4 million decrease due to Southern Company ending its synthetic fuel production in December 2007.

For year-to-date 2008, other revenues were $96.7 million compared to $165.8 million for the same period in 2007. The decrease was primarily the result of a $47.2 million decrease due to Southern Company ending its synthetic fuel production in December 2007 and a $4.4 million decrease in revenues at a subsidiary that provides energy-related services.

Fuel and Purchased Power Expenses

		Third Quarter 2008								Year-to-Date 2008
		vs.								vs.
		Third Quarter 2007								Year-to-Date 2007
		(change in millions)				(% change)				(change in millions)				(% change)
Fuel		$	414.1				23.8			$	714.1				15.8
Purchased power			96.8				34.4				222.7				50.0
Total fuel and purchased power expenses		$	510.9							$	936.8

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In the third quarter 2008, fuel and purchased power expenses were $2.53 billion compared to $2.02 billion for the same period in 2007. The increase was primarily due to a $572.9 million net increase in the average cost of fuel and purchased power, primarily related to a 34.7% increase in the cost of coal per net KWH generated, partially offset by a $62.0 million net decrease related to lower total KWHs generated and purchased when compared to the same period in 2007.

For year-to-date 2008, fuel and purchased power expenses were $5.90 billion compared to $4.96 billion for the same period in 2007. The increase was primarily due to a $923.5 million net increase in the average cost of fuel and purchased power, primarily related to a 22.4% increase in the cost of coal per net KWH generated, and a $13.3 million net increase related to higher total KWHs generated and purchased when compared to the same period in 2007.

Increases in fuel expense at the traditional operating companies are generally offset by fuel revenues and do not affect net income. See FUTURE EARNINGS POTENTIAL – “FERC and State PSC Matters – Retail Fuel Cost Recovery” herein for additional information. Fuel expenses incurred under Southern Power’s PPAs are generally the responsibility of the counterparties and do not significantly affect net income.

Details of Southern Company’s cost of generation and purchased power are as follows:

		Third Quarter				Third Quarter				Percent				Year-to-Date				Year-to-Date				Percent
Average Cost		2008				2007				Change				2008				2007				Change
		(cents per net KWH)												(cents per net KWH)
Fuel		3.96				3.01				31.6				3.46				2.90				19.3
Purchased power		10.19				8.67				17.5				8.80				7.75				13.6

Energy purchases will vary depending on demand for energy within the Southern Company service area, the market cost of available energy as compared to the cost of Southern Company system-generated energy, and the availability of Southern Company system generation.

Other Operations and Maintenance Expenses

		Third Quarter 2008								Year-to-Date 2008
		vs.								vs.
		Third Quarter 2007								Year-to-Date 2007
		(change in millions)				(% change)				(change in millions)				(% change)
Other operations		$	(6.9	)			(1.1	)		$	51.1				2.8
Maintenance			3.7				1.4				34.8				4.2
Total other operations and maintenance		$	(3.2	)						$	85.9

In the third quarter 2008, other operations and maintenance expenses were $908.4 million compared to $911.6 million for the same period in 2007. The third quarter 2008 variance when compared to the third quarter 2007 is not material.

For year-to-date 2008, other operations and maintenance expenses were $2.72 billion compared to $2.63 billion for the same period in 2007. The increase was primarily due to a $62.6 million increase in fossil and hydro expenses due to costs incurred for scheduled outages, increases in commodity and labor costs, and expenses for new facilities; and a $27.5 million increase in nuclear expenses due to costs incurred for scheduled outages and increases in commodity and labor costs, partially offset by levelization of nuclear refueling outages.

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Depreciation and Amortization

Third Quarter 2008 vs. Third Quarter 2007				Year-to-Date 2008 vs. Year-to-Date 2007
(change in millions)		(% change)		(change in millions)		(% change)
$55.1		17.7		$141.1		15.2

In the third quarter 2008, depreciation and amortization was $367.0 million compared to $311.9 million for the same period in 2007.

For year-to-date 2008, depreciation and amortization was $1.07 billion compared to $928.6 million for the same period in 2007.

The increases for the third quarter and year-to-date 2008 when compared to the same periods in 2007 were primarily due to an increase in plant in service related to environmental projects at Alabama Power and environmental, transmission, and distribution projects at Georgia Power. An increase in depreciation rates at Georgia Power and Southern Power also contributed to the third quarter and year-to-date 2008 increases, as well as the completion of Southern Power’s Plant Oleander Unit 5 in December 2007 and Plant Franklin Unit 3 in June 2008.

Taxes Other Than Income Taxes

Third Quarter 2008 vs. Third Quarter 2007				Year-to-Date 2008 vs. Year-to-Date 2007
(change in millions)		(% change)		(change in millions)		(% change)
$8.5		4.1		$28.3		4.9

In the third quarter 2008, taxes other than income taxes were $215.3 million compared to $206.8 million for the same period in 2007.

For year-to-date 2008, taxes other than income taxes were $602.6 million compared to $574.3 million for the same period in 2007.

The increases for the third quarter and year-to-date 2008 when compared to the same periods in 2007 were primarily due to increases in franchise fees and municipal gross receipt taxes associated with increases in revenues from energy sales.

Allowance for Equity Funds Used During Construction

Third Quarter 2008 vs. Third Quarter 2007				Year-to-Date 2008 vs. Year-to-Date 2007
(change in millions)		(% change)		(change in millions)		(% change)
$7.4		26.7		$39.8		55.4

In the third quarter 2008, allowance for equity funds used during construction was $35.5 million compared to $28.1 million for the same period in 2007.

For year-to-date 2008, allowance for equity funds used during construction was $111.6 million compared to $71.8 million for the same period in 2007.

The increases for the third quarter and year-to-date 2008 when compared to the same periods in 2007 were primarily due to additional investments in environmental projects mainly at Alabama Power, Georgia Power, and Gulf Power; transmission projects at Alabama Power and Georgia Power; generation facilities at Georgia Power; and distribution projects at Alabama Power.

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Interest Income

Third Quarter 2008 vs. Third Quarter 2007				Year-to-Date 2008 vs. Year-to-Date 2007
(change in millions)		(% change)		(change in millions)		(% change)
$(1.9)		(16.3)		$(11.2)		(34.9)

In the third quarter 2008, interest income was $9.7 million compared to $11.6 million for the same period in 2007. The third quarter 2008 variance when compared to the third quarter 2007 is not material.

For year-to-date 2008, interest income was $20.7 million compared to $31.9 million for the same period in 2007. The decrease was primarily the result of the reversal of accrued interest income on IRS deposits related to sale-in-lease-out (SILO) transactions.

Equity in Income (Losses) of Unconsolidated Subsidiaries

Third Quarter 2008 vs. Third Quarter 2007				Year-to-Date 2008 vs. Year-to-Date 2007
(change in millions)		(% change)		(change in millions)		(% change)
$5.1		N/M		$26.8		129.6

In the third quarter 2008, equity in income (losses) of unconsolidated subsidiaries was $4.7 million compared to $(0.4) million for the same period in 2007. The third quarter 2008 variance when compared to the third quarter 2007 is not material.

For year-to-date 2008, equity in income (losses) of unconsolidated subsidiaries was $6.1 million compared to $(20.7) million for the same period in 2007. The increase was primarily the result of Southern Company ending its investment in synthetic fuel production facilities in December 2007.

Leveraged Lease Income (Losses)

Third Quarter 2008 vs. Third Quarter 2007				Year-to-Date 2008 vs. Year-to-Date 2007
(change in millions)		(% change)		(change in millions)		(% change)
$(6.1)		(48.7)		$(85.5)		(267.9)

In the third quarter 2008, leveraged lease income (losses) were $6.3 million compared to $12.4 million for the same period in 2007.

For year-to-date 2008, leveraged lease income (losses) were $(53.6) million compared to $31.9 million for the same period in 2007.

Southern Company has several leveraged lease agreements which relate to international and domestic energy generation, distribution, and transportation assets. Southern Company receives federal income tax deductions for depreciation and amortization, as well as interest on long-term debt related to these investments. The decreases in leveraged lease income for the third quarter and year-to-date 2008 when compared to the same periods in 2007 were primarily the result of the application of FASB Staff Position No. 13-2, “Accounting for a Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction” (FSP 13-2), including a $51.2 million after tax adjustment in the second quarter 2008. See FUTURE EARNINGS POTENTIAL – “Income Tax Matters – Leveraged Lease Transactions” and Note (B) to the Condensed Financial Statements under “INCOME TAX MATTERS – Leveraged Lease Transactions” herein for further information.

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Interest Expense, Net of Amounts Capitalized

Third Quarter 2008 vs. Third Quarter 2007				Year-to-Date 2008 vs. Year-to-Date 2007
(change in millions)		(% change)		(change in millions)		(% change)
$(13.7)		(5.9)		$(8.1)		(1.2)

In the third quarter 2008, interest expense, net of amounts capitalized was $219.1 million compared to $232.8 million for the same period in 2007. The decrease was primarily due to $25.5 million related to lower average interest rates on existing variable rate debt and a $5.6 million decrease related to other interest charges, partially offset by a $15.1 million increase associated with $1.37 billion in additional debt outstanding at September 30, 2008 compared to September 30, 2007. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Financing Activities” of Southern Company in Item 7 of the Form 10-K and herein for additional information. Also partially offsetting this decrease was $2.3 million less capitalized interest in the third quarter 2008 compared to the third quarter 2007.

For year-to-date 2008, interest expense, net of amounts capitalized was $665.1 million compared to $673.2 million for the same period in 2007. The decrease was primarily due to $61.2 million related to lower average interest rates on existing variable rate debt and $10.2 million more capitalized interest year-to-date 2008 compared to year-to-date 2007. This decrease was partially offset by a $44.7 million increase associated with the additional debt outstanding and an $18.6 million increase related to other interest charges primarily resulting from a $15.7 million after tax adjustment in the second quarter 2008 relating to the application of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). See FUTURE EARNINGS POTENTIAL – “Income Tax Matters – Leveraged Lease Transactions” and Note (B) to the Condensed Financial Statements under “INCOME TAX MATTERS – Leveraged Lease Transactions” herein for further information.

Preferred and Preference Dividends of Subsidiaries

Third Quarter 2008 vs. Third Quarter 2007				Year-to-Date 2008 vs. Year-to-Date 2007
(change in millions)		(% change)		(change in millions)		(% change)
$5.7		55.0		$17.9		58.2

In the third quarter 2008, preferred and preference dividends of subsidiaries were $16.2 million compared to $10.5 million for the same period in 2007.

For year-to-date 2008, preferred and preference dividends of subsidiaries were $48.6 million compared to $30.7 million for the same period in 2007.

The increases for the third quarter and year-to-date 2008 resulted primarily from the issuance of $470 million of preference stock in September and October 2007, partially offset by the redemption of $125 million of preferred stock in January 2008. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Financing Activities” of Southern Company in Item 7 of the Form 10-K and herein for further information.

Other Income (Expense), Net

Third Quarter 2008 vs. Third Quarter 2007				Year-to-Date 2008 vs. Year-to-Date 2007
(change in millions)		(% change)		(change in millions)		(% change)
$(28.1)		(162.6)		$(22.7)		(272.8)

In the third quarter 2008, other income (expense), net was $(10.8) million compared to $17.3 million for the same period in 2007.

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For year-to-date 2008, other income (expense), net was $(14.4) million compared to $8.3 million for the same period in 2007.

The decreases in other income (expense), net for the third quarter and year-to-date 2008 when compared to the same periods in 2007 were primarily the result of gains during 2007 on hedge transactions associated with Southern Company’s investment in synthetic fuel production facilities, which ended in December 2007.

Income Taxes

Third Quarter 2008 vs. Third Quarter 2007				Year-to-Date 2008 vs. Year-to-Date 2007
(change in millions)		(% change)		(change in millions)		(% change)
$(10.8)		(2.4)		$31.2		3.9

In the third quarter 2008, income taxes were $434.5 million compared to $445.3 million for the same period in 2007. The decrease was primarily due to an increase in the net synthetic fuel tax credits reserve in 2007.

For year-to-date 2008, income taxes were $837.6 million compared to $806.4 million for the same period in 2007. The increase was primarily due to higher pre-tax earnings and a decrease in net synthetic fuel tax credits, partially offset by the tax benefit associated with an increase in allowance for equity funds used during construction. See Note (H) to the Condensed Financial Statements under “Effective Tax Rate” herein for further information.

FUTURE EARNINGS POTENTIAL

The results of operations discussed above are not necessarily indicative of Southern Company’s future earnings potential. The level of Southern Company’s future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Southern Company’s primary business of selling electricity. These factors include the traditional operating companies’ ability to maintain a stable regulatory environment that continues to allow for the recovery of all prudently incurred costs during a time of increasing costs. Other major factors include profitability of the competitive wholesale supply business and federal regulatory policy (including the FERC’s market-based rate proceeding), which may impact Southern Company’s level of participation in this market. Future earnings for the electricity business in the near term will depend, in part, upon growth in energy sales, which is subject to a number of factors. These factors include weather, competition, new energy contracts with neighboring utilities, energy conservation practiced by customers, the price of electricity, the price elasticity of demand, and the rate of economic growth in the service area. In addition, the level of future earnings for the wholesale supply business also depends on numerous factors including creditworthiness of customers, total generating capacity available in the Southeast, and the successful remarketing of capacity as current contracts expire. For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL of Southern Company in Item 7 of the Form
10-K.

Environmental Matters

Compliance costs related to the Clean Air Act and other environmental statutes and regulations could affect earnings if such costs cannot continue to be fully recovered in rates on a timely basis. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “Environmental Matters” in Item 8 of the Form 10-K for additional information.

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

New Source Review Actions

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters – New Source Review Actions” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “Environmental Matters – New Source Review Actions” in Item 8 of the Form 10-K for additional information regarding civil actions brought by the EPA against certain Southern Company subsidiaries. The EPA’s action against Alabama Power alleged that Alabama Power had violated the NSR provisions of the Clean Air Act and related state laws with respect to certain of its coal-fired generating facilities. On July 24, 2008, the U.S. District Court for the Northern District of Alabama granted partial summary judgment in favor of Alabama Power regarding the proper legal test for determining whether projects are routine maintenance, repair, and replacement and therefore are excluded from NSR permitting. The decision does not resolve the case. The ultimate outcome of these matters cannot be determined at this time.

Clean Air Interstate Rule

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters – Environmental Statutes and Regulations – Air Quality” of Southern Company in Item 7 of the Form 10-K for background regarding the Clean Air Interstate Rule (CAIR). On July 11, 2008, in response to petitions brought by certain states and regulated industries challenging particular aspects of CAIR, the U.S. Court of Appeals for the District of Columbia Circuit issued a decision vacating CAIR in its entirety and remanding it to the EPA for further action consistent with its opinion. Southern Company’s overall environmental compliance strategy has been developed in response to numerous federal and state regulatory requirements, many of which remain unaffected by the court’s ruling; however, the court’s decision has the potential to impact future decision making regarding capital expenditures, the installation and operation of pollution control equipment, and the purchase, use, and associated carrying values of emissions allowances. The ultimate impact of the court’s decision cannot be determined at this time and may depend on subsequent legal action, including issuance of the court’s mandate, and future rulemaking and regulatory treatment.

Eight-Hour Ozone Regulations

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters – Environmental Statutes and Regulations – Air Quality” of Southern Company in Item 7 of the Form 10-K for additional information regarding revisions to the eight-hour ozone air quality standard. In March 2008, the EPA finalized its revisions to the eight-hour ozone standard, increasing its stringency. The EPA plans to designate nonattainment areas based on the new standard by 2010, and new nonattainment areas within Southern Company’s service territory are expected. The ultimate outcome of this matter cannot be determined at this time and will depend on subsequent legal action and/or future nonattainment designations and regulatory plans.

Carbon Dioxide Litigation

On February 26, 2008, the Native Village of Kivalina and the City of Kivalina filed a suit in the U.S. District Court for the Northern District of California against several electric utilities (including Southern Company), several oil companies, and a coal company. The plaintiffs are the governing bodies of an Inupiat village in Alaska. The plaintiffs contend that the village is being destroyed by erosion allegedly caused by global warming that the plaintiffs attribute to emissions of greenhouse gases by the defendants. The plaintiffs assert claims for public and private nuisance and contend that the defendants have acted in concert and are therefore

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

jointly and severally liable for the plaintiffs’ damages. The suit seeks damages for lost property values and for the cost of relocating the village, which cost is alleged to be $95 million to $400 million. On June 30, 2008, all defendants filed motions to dismiss this case. Southern Company believes that these claims are without merit and notes that the complaint cites no statutory or regulatory basis for the claims. The ultimate outcome of this matter cannot be determined at this time.

Global Climate Issues

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters - Global Climate Issues” of Southern Company in Item 7 of the Form 10-K for additional information regarding executive orders issued by the Governor of the State of Florida addressing reduction of greenhouse gas emissions within the state. On June 25, 2008, Florida’s Governor signed comprehensive energy-related legislation that includes authorization for the Florida Department of Environmental Protection to adopt rules for a cap-and-trade regulatory program to address greenhouse gas emissions from electric utilities, conditioned upon their ratification by the legislature no sooner than the 2010 legislative session. This legislation also authorizes the Florida PSC to adopt a renewable portfolio standard for public utilities, subject to legislative ratification. The impact of this legislation on Southern Company will depend on the development, adoption, legislative ratification, implementation, and potential legal challenges in connection with rules governing greenhouse gas emissions and mandates regarding the use of renewable energy, and the ultimate outcome cannot be determined at this time.

FERC and State PSC Matters

Market-Based Rate Authority

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “FERC Matters – Market-Based Rate Authority” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “FERC Matters – Market-Based Rate Authority” in Item 8 of the Form 10-K for information regarding market-based rate authority. In June 2007, the FERC issued its final rule in Order No. 697 regarding market-based rate authority. The FERC generally retained its current market-based rate standards. Responding to a number of requests for rehearing, the FERC issued Order No. 697-A on April 21, 2008. This order largely affirmed its prior revision and codification of the regulations governing market-based rates for public utilities. In accordance with the order, Southern Company submitted to the FERC an updated market power analysis on September 2, 2008 related to its continued market-based rate authority. The ultimate outcome of this matter cannot now be determined.

On October 17, 2008, Southern Company filed with the FERC a revised market-based rate (MBR) tariff and a new cost-based rate (CBR) tariff. The revised MBR tariff provides for a “must offer” energy auction whereby Southern Company offers all of its available energy for sale in a day-ahead auction and an hour-ahead auction, after considering Southern Company’s native load requirements, reliability obligations, and sales commitments to third parties. All sales under the energy auction would be at market clearing prices established under the auction rules. The new CBR tariff is designed to be an alternative means for conducting short-term transactions in the wholesale markets and provides for a cost-based cap for wholesale sales of less than a year. Both tariffs must be approved by the FERC. The final outcome of this matter cannot now be determined.

Retail Fuel Cost Recovery

The traditional operating companies each have established fuel cost recovery rates approved by their respective state PSCs. Over the past several years, the traditional operating companies have continued to experience

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

higher than expected fuel costs for coal, natural gas, and uranium. These higher fuel costs have resulted in under recovered fuel costs included in the balance sheets of approximately $1.2 billion at September 30, 2008 as compared to $1.1 billion at December 31, 2007. Operating revenues are adjusted for differences in actual recoverable fuel costs and amounts billed in current regulated rates. Accordingly, changes to the billing factors will have no significant effect on Southern Company’s revenues or net income but will affect cash flow. The traditional operating companies continuously monitor the under recovered fuel cost balance in light of these higher fuel costs. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Fuel Cost Recovery” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “Alabama Power Retail Regulatory Matters” and “Georgia Power Retail Regulatory Matters” in Item 8 of the Form 10-K for additional information.

On February 29, 2008, Georgia Power filed a request with the Georgia PSC to change the fuel cost recovery rate effective June 1, 2008. The request was approved on May 20, 2008. Total annual fuel recovery billings increased by approximately $222 million. Georgia Power is required to file its next fuel cost recovery case by March 1, 2009.

Gulf Power filed a petition on June 20, 2008 with the Florida PSC requesting an adjustment to the fuel cost recovery factor. On July 29, 2008, the Florida PSC approved Gulf Power’s request for an increase of approximately 28.3% in the fuel factor for retail customers. This change represents an increase of 11.3% for a residential customer billing of 1,000 KWH per month. The increase will result in the recovery of $38.2 million of the projected under recovered balance during the period from September 2008 through December 2008. The remaining portion of the projected under recovered balance is expected to be recovered in 2009. On September 2, 2008, Gulf Power filed its 2009 projected fuel cost recovery filing with the Florida PSC which includes the fuel factors proposed for January through December 2009. The proposed 2009 fuel factor represents an increase of 12.9% over the fuel factor in place September 2008 through December 2008. This change represents an increase of 5.8% in the total bill for a residential customer using 1,000 KWH per month. The Florida PSC will hold hearings to address this filing in November 2008. On October 13, 2008, Gulf Power notified the Florida PSC that the projected fuel cost under recovery balance at year-end exceeds the 10% threshold, but no adjustment to the 2008 or the 2009 factor was requested.

On October 7, 2008, the Alabama PSC approved an increase in Alabama Power’s Rate ECR factor to 3.983 cents per KWH for a 24-month period beginning with October 9, 2008 billings. Thereafter, the Rate ECR factor shall be 5.910 cents per KWH, absent a contrary order by the Alabama PSC. During the 24-month period, Alabama Power will be allowed to continue to include a carrying charge associated with the under recovered fuel costs in the fuel expense calculation. In the event the application of this increased Rate ECR factor results in an over recovered position during this period, Alabama Power will pay interest on any such over recovered balance at the same rate used to derive the carrying cost. Accordingly, this approved increase in the billing factor will have no significant effect on Southern Company’s revenues or net income, but will increase annual cash flow.

Alabama Retail Rate Adjustments

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Alabama Power” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “Alabama Power Retail Regulatory Matters” in Item 8 of the Form 10-K for additional information. On October 7, 2008, the Alabama PSC approved a corrective rate package effective in January 2009 providing for various adjustments to customer charges under Alabama Power’s rate structure which are expected to generate additional annual revenues of $168 million. Alabama Power expects that these additional revenues will preclude the need for a rate adjustment under the Rate RSE in 2009 and agreed to a moratorium on any increase in 2009 under Rate RSE.

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On October 7, 2008, Alabama Power agreed to defer collection during 2009 of any increase in rates under the portion of Rate CNP which permits recovery of costs associated with environmental laws and regulations until 2010.

Mississippi Base Load Construction Legislation

In the 2008 regular session of the Mississippi legislature, a bill was passed and signed by the Governor on May 9, 2008 to enhance the Mississippi PSC’s authority to facilitate development and construction of base load generation in the State of Mississippi. The bill authorizes, but does not require, the Mississippi PSC to include in retail base rates, prior to and during construction, all or a portion of the prudently incurred pre-construction and construction costs incurred by a utility in constructing a base load electric generating plant. The bill also provides for periodic prudence reviews by the Mississippi PSC and prohibits the cancellation of any such generating plant without the approval of the Mississippi PSC. In the event of cancellation of the construction of the plant without approval of the Mississippi PSC, the bill authorizes the Mississippi PSC to make a public interest determination as to whether and to what extent the utility will be afforded rate recovery for costs incurred in connection with such cancelled generating plant. The effect of this legislation on Mississippi Power cannot now be determined.

Mirant Matters

Mirant Securities Litigation

See Note 3 to the financial statements of Southern Company under “Mirant Matters – Mirant Securities Litigation” in Item 8 of the Form 10-K for information regarding a class action lawsuit that several Mirant shareholders (plaintiffs) originally filed against Mirant and certain Mirant officers in May 2002. On August 6, 2008, the court entered an order in regard to the defendants’ motions to dismiss and for partial summary judgment. The court granted the defendants’ motion for partial summary judgment in two respects concluding that certain holders of Mirant stock do not have standing under the securities laws. The court denied the defendants’ other motions and granted leave to the plaintiffs to re-plead their claims against the defendants. In accordance with the court’s order, the plaintiffs filed an amended complaint. Southern Company and the remaining defendants filed motions to dismiss the amended complaint on October 9, 2008. The ultimate outcome of this matter cannot now be determined.

Income Tax Matters

Leveraged Lease Transactions

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Income Tax Matters – Leveraged Lease Transactions” of Southern Company in Item 7 of the Form 10-K for information regarding pending litigation and proposed legislation related to the SILO transactions. Also see Note 1 to the financial statements of Southern Company under “Income and Other Taxes,” Note 3 to the financial statements of Southern Company under “Income Tax Matters,” and Note 5 to the financial statements of Southern Company under “Unrecognized Tax Benefits” in Item 8 of the Form 10-K and Note (H) to the Condensed Financial Statements under “Unrecognized Tax Benefits” herein for information regarding Southern Company’s unrecognized tax benefit related to the SILO transactions.

During the second quarter 2008, decisions in favor of the IRS were reached in several court cases involving other tax payers with similar leveraged lease investments. Pursuant to the application of FIN 48 and FSP 13-2, management is required to assess, on a periodic basis, the likely outcome of the uncertain tax positions related to the SILO transactions. Based on these accounting standards and management’s review of the recent court

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decisions, Southern Company recorded an after tax charge of approximately $67 million in the second quarter 2008. Of the total, approximately $16 million is associated with the application of FIN 48 and represents additional interest expense related to tax returns for years 2000 through 2007 and approximately $51 million represents non-cash charges related to the application of FSP 13-2. The charges related to FSP 13-2 reflect the reallocation of lease income and will be recognized as income over the remaining term of the affected leases. The tax benefit associated with the lease transactions represents timing differences that do not impact total net income over the life of the transactions.

Furthermore, on August 6, 2008, the Commissioner of the IRS announced a settlement initiative for more than 45 corporations with similar leveraged lease transactions. Southern Company did not receive a formal offer to settle. In addition, the U.S. Senate continues to consider 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 or LILO transactions). The ultimate impact on Southern Company’s net income and cash flow will be dependent on the outcome of its pending litigation, associated settlement discussions, and proposed legislation and cannot be determined at this time.

Legislation

On February 13, 2008, President Bush signed the Economic Stimulus Act of 2008 (Stimulus Act) into law. The Stimulus Act includes a provision that allows 50% bonus depreciation for certain property acquired in 2008 and placed in service in 2008 or, in certain limited cases, 2009. The States of Alabama, Florida, Georgia, and Mississippi do not allow the bonus depreciation deduction allowed by the Stimulus Act for state income tax purposes. Southern Company estimates the cash flow reduction to tax payments as a result of the Stimulus Act for 2008 to be between $120 million and $215 million.

On October 3, 2008, President Bush signed the Economic Stabilization Act of 2008 (Stabilization Act) into law. In addition to addressing financial issues, the Stabilization Act includes renewable energy incentives as well as accelerated depreciation for smart meters and smart grid systems. Southern Company is currently assessing the financial implications of the Stabilization Act. The ultimate impact cannot be determined at this time.

Construction Projects

Integrated Coal Gasification Combined Cycle

As part of the evaluation and screening of alternatives to meet its future generation needs, Mississippi Power is considering the construction of an advanced coal gasification facility to be located in Kemper County, Mississippi, that would use locally mined lignite coal. The plant would use an air-blown IGCC technology that generates power from low-rank coals and coals with high moisture or high ash content. These coals, which include lignite, make up approximately half the proven United States and worldwide coal reserves. The feasibility assessment of the project is currently underway. Mississippi Power filed an application in June 2006 with the DOE for certain tax credits available to projects using clean coal technologies under the Energy Policy Act of 2005. The DOE subsequently certified the project and in November 2006, the IRS allocated IRC Section 48A tax credits of $133 million to Mississippi Power. The utilization of these credits is dependent upon meeting the certification requirements for the project, including an in-service date no later than November 2013. On February 14, 2008, Mississippi Power also requested that the DOE transfer the remaining funds previously granted to a cancelled Southern Company project that would have been located in Orlando, Florida.

In December 2006, the Mississippi PSC approved Mississippi Power’s requested accounting treatment to defer the costs associated with Mississippi Power’s generation resource planning, evaluation, and screening activities as a regulatory asset. In December 2007, Mississippi Power reported to the Mississippi PSC an updated

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estimate and received an order directing Mississippi Power to continue charging all costs associated with the generation capacity assessment to the regulatory asset. At September 30, 2008, Mississippi Power had spent $36.2 million, of which $2.7 million related to land purchases capitalized. The remaining retail portion of $23.4 million was deferred in other regulatory assets.

The wholesale portion of $10.1 million was expensed, with $6.0 million through September 30, 2008 and $4.1 million during 2007. On August 29, 2008, Mississippi Power and its wholesale customers entered into an agreement regarding a wholesale rate increase. The FERC accepted the filing on October 24, 2008. This agreement will allow $9.3 million of the wholesale portion of the generation screening and evaluation costs associated with the IGCC project to be reclassified from expense to a regulatory asset in the fourth quarter 2008.

These costs will remain as a regulatory asset until the Mississippi PSC and the FERC determine the prudence and ultimate recovery of such costs. The balance of such regulatory asset is included in Mississippi Power’s rate base for ratemaking purposes. Approval by various regulatory agencies, including the Mississippi PSC, will also be required if the project proceeds. The Mississippi PSC, in its discretion, may exercise its additional rate authority granted to the Mississippi PSC in the Mississippi base load construction legislation if the project proceeds. See FUTURE EARNINGS POTENTIAL – “FERC and State PSC Matters – Mississippi Base Load Construction Legislation” herein for additional information.

The final outcome of this matter cannot now be determined.

Nuclear

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Construction Projects - Nuclear” of Southern Company in Item 7 of the Form 10-K for information regarding the potential expansion of Plant Vogtle.

In August 2006, Southern Nuclear, on behalf of Georgia Power, OPC, MEAG Power, and Dalton Utilities (collectively, Owners), filed an application with the NRC for an early site permit approving two additional nuclear units on the site of Plant Vogtle. On March 31, 2008, Southern Nuclear filed an application with the NRC for a combined construction and operating license (COL) for the new units.

On April 8, 2008, Georgia Power, acting for itself and as agent for the Owners, and a consortium consisting of Westinghouse and Stone & Webster (collectively, Consortium) entered into an engineering, procurement, and construction agreement to design, engineer, procure, construct, and test two AP1000 nuclear units with electric generating capacity of approximately 1,100 MWs each and related facilities, structures, and improvements at Plant Vogtle (Vogtle 3 and 4 Agreement).

The Vogtle 3 and 4 Agreement is an arrangement whereby the Consortium supplies and constructs the entire facility with the exception of certain items provided by the Owners. Under the terms of the Vogtle 3 and 4 Agreement, the Owners will pay a purchase price that will be subject to certain price escalation and adjustments, adjustments for change orders, and performance bonuses. Each Owner is severally (and not jointly) liable for its proportionate share, based on its ownership interest, of all amounts owed to the Consortium under the Vogtle 3 and 4 Agreement. Georgia Power’s proportionate share, based on its current ownership interest, is 45.7%. Under the terms of a separate joint development agreement, the Owners finalized their ownership percentages on July 2, 2008, except for allowed changes, under certain limited circumstances, during the Georgia PSC certification process.

Georgia Power submitted its self-build nuclear proposal to the Georgia PSC on May 1, 2008 in connection with its 2016-2017 base load capacity request for proposals (RFP). No other responses to the RFP were received.

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On August 1, 2008, Georgia Power submitted an application for the Georgia PSC to certify the project. Hearings began November 3, 2008 and a final certification decision is expected in March 2009.

If certified by the Georgia PSC and licensed by the NRC, Vogtle Units 3 and 4 are scheduled to be placed in service in 2016 and 2017, respectively. The total plant value to be placed in service will also include financing costs for each of the Owners, the impacts of inflation on costs, and transmission and other costs that are the responsibility of the Owners. Georgia Power’s proportionate share of the estimated in-service costs, based on its current ownership interest, is approximately $6.4 billion, subject to adjustments and performance bonuses under the Vogtle 3 and 4 Agreement.

The Owners and the Consortium have agreed to certain liquidated damages upon the Consortium’s failure to comply with the schedule and performance guarantees. The Owners and the Consortium also have agreed to certain bonuses payable to the Consortium for early completion and unit performance. The Consortium’s liability to the Owners for schedule and performance liquidated damages and warranty claims is subject to a cap.

The obligations of Westinghouse and Stone & Webster under the Vogtle 3 and 4 Agreement are guaranteed by Toshiba Corporation and The Shaw Group, Inc., respectively. In the event of certain credit rating downgrades of any Owner, such Owner will be required to provide a letter of credit or other credit enhancement.

The Vogtle 3 and 4 Agreement is subject to certification by the Georgia PSC. In addition, the Owners may terminate the Vogtle 3 and 4 Agreement at any time for their convenience, provided that the Owners will be required to pay certain termination costs and, at certain stages of the work, cancellation fees to the Consortium. The Consortium may terminate the Vogtle 3 and 4 Agreement under certain circumstances, including delays in receipt of the COL or delivery of full notice to proceed, certain Owner suspension or delays of work, action by a governmental authority to permanently stop work, certain breaches of the Vogtle 3 and 4 Agreement by the Owners, Owner insolvency, and certain other events.

Other Matters

Southern Company is involved in various other matters being litigated, regulatory matters, and certain tax-related issues that could affect future earnings. In addition, Southern Company is subject to certain claims and legal actions arising in the ordinary course of business. Southern Company’s business activities are subject to extensive governmental regulation related to public health and the environment. 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. The ultimate outcome of such pending or potential litigation against Southern Company and its subsidiaries cannot be predicted at this time; however, for current proceedings not specifically reported herein or in Note 3 to the financial statements of Southern Company in Item 8 of the Form 10-K, management does not anticipate that the liabilities, if any, arising from such current proceedings would have a material adverse effect on Southern Company’s financial statements.

On July 3, 2008, Georgia Power self-reported to the SERC Reliability Council (SERC) a potential violation of the North American Electric Reliability Council reliability standard for transmission vegetation management programs related to a single tree. The SERC can impose penalties ranging from $1,000 to $1,000,000 per day, per violation, which can be adjusted according to certain risk factors and other aggravating or mitigating factors. On September 10, 2008, Georgia Power submitted a proposed settlement agreement, including a proposed mitigation plan. The SERC has not responded to the proposed settlement agreement and the penalty that SERC may assess remains uncertain. The ultimate outcome of this matter cannot be determined at this

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time; however, it could have a significant and potentially material impact on the net income and cash flow of Southern Company.

See the Notes to the Condensed Financial Statements herein for discussion of various other contingencies, regulatory matters, and other matters being litigated which may affect future earnings potential.

ACCOUNTING POLICIES

Application of Critical Accounting Policies and Estimates

Southern Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States. Significant accounting policies are described in Note 1 to the financial statements of Southern Company in Item 8 of the Form 10-K. In the application of these policies, certain estimates are made that may have a material impact on Southern Company’s results of operations and related disclosures. Different assumptions and measurements could produce estimates that are significantly different from those recorded in the financial statements. See MANAGEMENT’S DISCUSSION AND ANALYSIS – ACCOUNTING POLICIES – “Application of Critical Accounting Policies and Estimates” of Southern Company in Item 7 of the Form 10-K for a complete discussion of Southern Company’s critical accounting policies and estimates related to Electric Utility Regulation, Contingent Obligations, Unbilled Revenues, and Leveraged Leases.

New Accounting Standards

Business Combinations

In December 2007, the FASB issued FASB Statement No. 141 (revised 2007), “Business Combinations (SFAS No. 141R). SFAS No. 141R, when adopted, will significantly change the accounting for business combinations, specifically the accounting for contingent consideration, contingencies, acquisition costs, and restructuring costs. Southern Company plans to adopt SFAS No. 141R on January 1, 2009. It is likely that the adoption of SFAS No. 141R will have a significant impact on the accounting for any business combinations completed by Southern Company after January 1, 2009.

In December 2007, the FASB issued FASB Statement No. 160, “Non-controlling Interests in Consolidated Financial Statements” (SFAS No. 160). SFAS No. 160 amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements” to establish accounting and reporting standards for the non-controlling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary should be reported as equity in the consolidated financial statements and establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation. Southern Company plans to adopt SFAS No. 160 on January 1, 2009. Southern Company is currently assessing its impact, if any.

FINANCIAL CONDITION AND LIQUIDITY

Overview

Southern Company’s financial condition remained stable at September 30, 2008. Throughout the recent turmoil in the financial markets, Southern Company has maintained adequate access to capital without drawing any of its committed bank credit arrangements used to support its commercial paper programs and variable rate pollution control revenue bonds. Southern Company and the traditional operating companies have continued to issue commercial paper which has increased the balance of short-term debt while also increasing cash and cash equivalents as a precautionary measure. Since September 15, 2008, Southern Power has not needed to access

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS

the commercial paper market or draw on its committed bank credit arrangements. Due to the recent contraction in the credit market, Southern Power’s access to commercial paper could have been limited. During the third quarter 2008 and subsequent to September 30, 2008, Alabama Power, Georgia Power, Gulf Power, and Mississippi Power purchased a total of approximately $133 million of variable rate pollution control revenue bonds that were tendered for purchase, of which $86 million were remarketed by Alabama Power and Georgia Power. Southern Company intends to continue to monitor its access to short-term and long-term capital markets as well as its bank credit arrangements to meet future capital needs. No material changes in bank credit arrangements have occurred. Southern Company’s interest cost for short-term debt has not changed materially. The impact on future financing costs as a result of the recent financial turmoil cannot be determined at this time. See “Sources of Capital” and “Financing Activities” herein for additional information.

As a result of the turmoil in the financial markets, Southern Company experienced no material counterparty credit losses. Southern Company’s investments in pension and nuclear decommissioning trust funds declined in value as of September 30, 2008. No material changes in funding requirements related to these funds are currently expected; however, the ultimate outcome cannot be determined at this time.

Net cash provided from operating activities totaled $2.59 billion for the first nine months of 2008 compared to $2.47 billion for the first nine months of 2007. The $119 million increase in net cash provided from operating activities in 2008 as compared to the prior period is primarily due to increased revenues as a result of retail rate increases at Alabama Power and Georgia Power and an increase in cash flow of $106 million in accrued taxes primarily due to a difference between the periods in payments for federal taxes and property taxes. Net cash used for investing activities totaled $2.98 billion for the first nine months of 2008, compared to $2.56 billion in the same period of the prior year, an increase of $420 million, primarily due to property additions to utility plant. Net cash provided from financing activities totaled $999 million for the first nine months of 2008 compared to $460 million for the corresponding period in 2007, primarily due to the increased levels of notes payable and the amount and timing of financings in 2008 compared to 2007.

Significant balance sheet changes for the first nine months of 2008 include an increase in total property, plant, and equipment of $1.79 billion, an increase in long-term debt, excluding amounts due within one year, of $1.64 billion used primarily for construction expenditures and general corporate purposes, and an increase of $605 million in cash.

The market price of Southern Company’s common stock at September 30, 2008 was $37.69 per share (based on the closing price as reported on the New York Stock Exchange) and the book value was $17.30 per share, representing a market-to-book ratio of 218%, compared to $38.75, $16.23, and 239%, respectively, at the end of 2007. The dividend for the third quarter 2008 was $0.42 per share compared to $0.4025 per share in the third quarter 2007.

Capital Requirements and Contractual Obligations

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Capital Requirements and Contractual Obligations” of Southern Company in Item 7 of the Form 10-K for a description of Southern Company’s capital requirements for its construction program and other funding requirements associated with scheduled maturities of long-term debt, as well as the related interest, preferred and preference stock dividends, leases, trust funding requirements, other purchase commitments, unrecognized tax benefits and interest, and derivative obligations. Revised funding requirements associated with unrecognized tax benefits and interest for 2008 are $290 million and $142 million for years after 2008. Approximately $1.1 billion will be required through September 30, 2009 for maturities of long-term debt. In addition, in connection with Georgia Power’s entering into the Vogtle 3 and 4 Agreement, as described under FUTURE EARNINGS POTENTIAL – “Construction Projects” herein, the revised estimated total construction

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS

program for Southern Company is $4.4 billion in 2008, $5.2 billion in 2009, and $4.8 billion in 2010. In November 2008, Georgia Power’s management plans to request approval by the Georgia Power Board of Directors of a revised capital budget of approximately $2.9 billion for 2009 and $2.6 billion for 2010. The increases are primarily a result of changes in the timing of expenditures for environmental controls at Plant Bowen and Yates and the new generating units at Plant McDonough, as well as other project scope and price changes. In October 2008, Alabama Power’s Board of Directors approved a new capital budget for 2009 and 2010. The construction program of Alabama Power is estimated to be $1.6 billion for 2009 and $1.1 billion for 2010. The Southern Company system financial plan, including the Southern Company system capital budget, is expected to be reviewed by the Southern Company Board of Directors in early 2009. Actual construction costs may vary from these estimates because of changes in such factors as: business conditions; environmental statutes and regulations; nuclear plant regulation; FERC rules and regulations; load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost and availability of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered.

Sources of Capital

Southern Company intends to meet its future capital needs through internal cash flow and external security issuances. Equity capital can be provided from any combination of Southern Company’s stock plans, private placements, or public offerings. The amount and timing of additional equity capital to be raised in 2008, as well as in subsequent years, will be contingent on Southern Company’s investment opportunities. The traditional operating companies and Southern Power plan to obtain the funds required for construction and other purposes from sources similar to those used in the past, which were primarily from operating cash flows, security issuances, term loans, short-term borrowings, and equity contributions from Southern Company. However, the amount, type, and timing of any financings, if needed, will depend upon prevailing market conditions, regulatory approval, and other factors. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Sources of Capital” of Southern Company in Item 7 of the Form 10-K for additional information.

Southern Company’s current liabilities frequently exceed current assets because of the continued use of short-term debt as a funding source to meet cash needs as well as scheduled maturities of long-term debt. To meet short-term cash needs and contingencies, Southern Company has substantial cash flow from operating activities and access to capital markets, including commercial paper programs (which are backed by bank credit facilities) to meet liquidity needs. At September 30, 2008, Southern Company and its subsidiaries had approximately $806 million of cash and cash equivalents and approximately $4.3 billion of unused credit arrangements with banks, of which $234 million expire in 2008, $821 million expire in 2009, $25 million expire in 2011, and $3.2 billion expire in 2012. Approximately $79 million of the credit facilities expiring in 2008 and 2009 allow for the execution of term loans for an additional two-year period, and $584 million contain provisions allowing one-year term loans. At September 30, 2008, approximately $1.35 billion of the credit facilities were dedicated to providing liquidity support to the traditional operating companies’ variable rate pollution control revenue bonds, compared to $1.44 billion at June 30, 2008. During the third quarter 2008, Alabama Power, Georgia Power, and Mississippi Power were required to purchase a total of approximately $96 million of variable rate pollution control revenue bonds that were tendered by investors. Alabama Power remarketed all $11 million of its repurchased variable rate pollution control revenue bonds that were tendered by investors. Subsequent to September 30, 2008, Georgia Power and Gulf Power converted a total of approximately $134 million of variable rate pollution control revenue bonds to fixed interest rate modes. Also subsequent to September 30, 2008, Gulf Power purchased from investors $37 million of variable rate pollution control revenue bonds that were subject to mandatory tender. In addition, Georgia Power remarketed $75 million of its repurchased pollution control revenue bonds that were tendered by investors. Including the impact of the conversions, the tenders, and the remarketing of tendered bonds, $1.25 billion of the credit facilities are now dedicated to providing liquidity support to the traditional operating companies’ variable rate pollution control revenue

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bonds. See Note 6 to the financial statements of Southern Company under “Bank Credit Arrangements” in Item 8 of the Form 10-K and Note (F) to the Condensed Financial Statements under “Bank Credit Arrangements” herein for additional information. The traditional operating companies may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper and extendible commercial notes at the request and for the benefit of each of the traditional operating companies. At September 30, 2008, the Southern Company system had outstanding commercial paper of $1.2 billion and short-term bank notes of $102 million. Management believes that the need for working capital can be adequately met by utilizing commercial paper programs, lines of credit, and cash.

Off-Balance Sheet Financing Arrangements

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Off-Balance Sheet Financing Arrangements” of Southern Company in Item 7 and Note 7 to the financial statements of Southern Company under “Operating Leases” in Item 8 of the Form 10-K for information related to Mississippi Power’s lease of a combined cycle generating facility at Plant Daniel.

Credit Rating Risk

Southern Company does not have any credit arrangements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. There are certain contracts that could require collateral, but not accelerated payment, in the event of a credit rating change of certain subsidiaries to BBB and Baa2, or BBB- and/or Baa3 or below. These contracts are for physical electricity purchases and sales, fuel purchases, fuel transportation and storage, emissions allowances, energy price risk management, and construction of new generation. At September 30, 2008, the maximum potential collateral requirements under these contracts at a BBB and Baa2 rating were approximately $9 million and at a BBB- or Baa3 rating were approximately $398 million. At September 30, 2008, the maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were approximately $1.7 billion. Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash.

Market Price Risk

Southern Company’s market risk exposures relative to interest rate changes have not changed materially compared with the December 31, 2007 reporting period. Since a significant portion of outstanding indebtedness is at fixed rates, Southern Company is not aware of any facts or circumstances that would significantly affect exposures on existing indebtedness in the near term. However, the impact on future financing costs cannot now be determined.

Due to cost-based rate regulation, the traditional operating companies continue to have limited exposure to market volatility in interest rates, commodity fuel prices, and prices of electricity. In addition, Southern Power’s exposure to market volatility in commodity fuel prices and prices of electricity is limited because its long-term sales contracts shift substantially all fuel cost responsibility to the purchaser. However, during 2008, Southern Power is exposed to market volatility in energy-related commodity prices as a result of sales of uncontracted generating capacity. To mitigate residual risks relative to movements in electricity prices, the traditional operating companies enter into physical fixed-price contracts for the purchase and sale of electricity through the wholesale electricity market and, to a lesser extent, into financial hedge contracts for natural gas purchases. The traditional operating companies continue to manage fuel-hedging programs implemented at the instruction of their respective state PSCs. As such, the traditional operating companies have no material change in market risk exposures when compared with the December 31, 2007 reporting period.

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The changes in fair value of energy-related derivative contracts for the three months and nine months ended September 30, 2008 were as follows:

		Third Quarter				Year-to-Date
		2008				2008
		Changes				Changes
		Fair Value
		(in millions)
Contracts outstanding at the beginning of the period, assets (liabilities), net		$	313.2			$	4.4
Contracts realized or settled			(131.4	)			(179.0	)
Current period changes(a)			(281.6	)			74.8
Contracts outstanding at the end of the period, assets (liabilities), net		$	(99.8	)		$	(99.8	)

(a) Current period changes also include the changes in fair value of new contracts entered into during the period, if any.

The decreases in the fair value positions of the energy-related derivative contracts for the three months and nine months ended September 30, 2008 were $413 million and $104 million, respectively, substantially all of which is due to natural gas positions. These changes are attributable to both the volume and prices of natural gas. At September 30, 2008, Southern Company had a net hedge volume of 139.6 Bcf with a weighted average contract cost approximately $0.84 per mmBtu above market prices, compared to 106.5 Bcf at June 30, 2008 with a weighted average contract cost approximately $3.53 per mmBtu below market prices and compared to 99.0 Bcf at December 31, 2007 with a weighted average contract cost approximately $0.01 per mmBtu above market prices. The majority of the natural gas hedges are recovered through the traditional operating companies’ fuel cost recovery clauses.

At September 30, 2008 and December 31, 2007, the fair value of energy-related derivative contracts by hedge designation was reflected in the financial statements as follows:

		September 30,				December 31,
		2008				2007
		(in millions)
Regulatory hedges		$	(111.3	)		$	(0.1	)
Cash flow hedges			8.6				1.5
Non-accounting hedges			2.9				3.0
Total fair value		$	(99.8	)		$	4.4

Energy-related derivative contracts which are designated as regulatory hedges relate to the traditional operating companies’ fuel hedging programs, where gains and losses are initially recorded as regulatory liabilities and assets, respectively, and then are included in fuel expense as they are recovered through the fuel cost recovery clauses. Gains and losses on energy-related derivatives designated as cash flow hedges are mainly used by Southern Power to hedge anticipated purchases and sales and are initially deferred in other comprehensive income before being recognized in income in the same period as the hedged transaction. Gains and losses on energy-related derivative contracts that are not designated or fail to qualify as hedges are recognized in the statements of income as incurred.

Unrealized pre-tax gains/(losses) recognized in income for the three months and nine months ended September 30, 2008 for energy-related derivative contracts that are not hedges were $6.5 million and $(0.1) million, respectively. For the three months and nine months ended September 30, 2007, the unrealized losses recognized in income were $(2.2) million and $(0.7) million, respectively.

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The maturities of the energy-related derivative contracts and the level of the fair value hierarchy in which they fall at September 30, 2008 are as follows:

		September 30, 2008
		Fair Value Measurements
		Total				Maturity
		Fair Value				Year 1				Years 2&3				Years 4 & 5
		(in millions)
Level 1		$	—			$	—			$	—			$	—
Level 2			(99.8	)			(74.0	)			(24.0	)			(1.8	)
Level 3			—				—				—				—
Fair value of contracts outstanding at end of period		$	(99.8	)		$	(74.0	)		$	(24.0	)		$	(1.8	)

As part of the adoption of SFAS No. 157 to increase consistency and comparability in fair value measurements and related disclosures, the table above now uses the three-tier fair value hierarchy, as discussed in Note (C) to the Condensed Financial Statements herein, as opposed to the previously used descriptions “actively quoted,” “external sources,” and “models and other methods.” The three-tier fair value hierarchy focuses on the fair value of the contract itself, whereas the previous descriptions focused on the source of the inputs. Because Southern Company uses over-the-counter contracts that are not exchange traded but are fair valued using prices which are actively quoted, the valuations of those contracts now appear in Level 2; previously they were shown as “actively quoted.”

For additional information, see MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Market Price Risk” of Southern Company in Item 7 and Notes 1 and 6 to the financial statements of Southern Company under “Financial Instruments” in Item 8 of the Form 10-K and Note (F) to the Condensed Financial Statements herein.

Financing Activities

In the first nine months of 2008, Southern Company and its subsidiaries issued $1.7 billion of senior notes, and Southern Company issued $381 million of common stock through the Southern Investment Plan and employee and director stock plans. In addition, Georgia Power, Gulf Power, and Mississippi Power entered into long-term bank loans of $300 million, $110 million, and $80 million, respectively. Alabama Power and Georgia Power also incurred obligations related to the issuance of pollution control revenue bonds totaling $120 million and $53 million, respectively. The proceeds were primarily used to repay short-term indebtedness and to fund ongoing construction projects. Also in September 2008, Georgia Power paid at maturity $75 million of Series 2007C floating rate Senior Notes. See Southern Company’s Condensed Consolidated Statements of Cash Flows herein for further details on financing activities during the first nine months of 2008. Also during the first nine months of 2008, interest rate hedges of $405 million notional amount were settled at a loss of $25.7 million related to the issuances. These losses were deferred in other comprehensive income and will be amortized to income over the original term of the hedges. See Note (F) to the Condensed Financial Statements herein for further details. Also during the first nine months of 2008, Southern Company and its subsidiaries repaid at maturity $769.8 million of long-term debt and also redeemed $125 million of preferred stock.

Also in 2008, Southern Company’s subsidiaries converted their entire $1.2 billion of obligations related to auction rate pollution control revenue bonds from auction rate modes to other interest rate modes. Initially, approximately $696 million of the auction rate pollution control revenue bonds were converted to fixed interest rate modes and approximately $553 million were converted to daily floating rate modes. In June 2008, approximately $98 million of the daily floating rate pollution control revenue bonds were converted to fixed interest rate modes. During the third quarter 2008, Alabama Power, Georgia Power, and Mississippi Power were required to purchase a total of approximately $96 million of variable rate pollution control revenue bonds

THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

that were tendered by investors. Alabama Power remarketed all $11 million of its repurchased variable rate pollution control revenue bonds that were tendered by investors. Subsequent to September 30, 2008, Georgia Power and Gulf Power converted a total of approximately $134 million of variable rate pollution control revenue bonds to fixed interest rate modes. Also subsequent to September 30, 2008, Gulf Power purchased from investors $37 million of variable rate pollution control revenue bonds that were subject to mandatory tender. In addition, Georgia Power remarketed $75 million of its repurchased pollution control revenue bonds that were tendered by investors.

During the first nine months of 2008, Southern Company and its subsidiaries entered into additional derivative transactions designed to hedge interest rate risk related to variable rate obligations. The total notional amount of these derivatives is $1.2 billion.

In addition to any financings that may be necessary to meet capital requirements and contractual obligations, Southern Company and its subsidiaries plan to continue, when economically feasible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit.

PART I

Item 3. Quantitative And Qualitative Disclosures About Market Risk.

See MANAGEMENT’S DISCUSSION AND ANALYSIS — FINANCIAL CONDITION AND LIQUIDITY — “Market Price Risk” herein for each registrant and Notes 1 and 6 to the financial statements of Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power under “Financial Instruments” in Item 8 of the Form 10-K. Also, see Note (F) to the Condensed Financial Statements herein for information relating to derivative instruments.

Item 4. Controls and Procedures.

     (a) Evaluation of disclosure controls and procedures.

As of the end of the period covered by this quarterly report, Southern Company conducted an evaluation under the supervision and with the participation of Southern Company’s management, including the Chief Executive Officer and the 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.

     (b) 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 third quarter of 2008 that have materially affected or are reasonably likely to materially affect Southern Company’s internal control over financial reporting.

Item 4T. Controls and Procedures.

     (a) Evaluation of disclosure controls and procedures.

As of the end of the period covered by this quarterly 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 the 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.

     (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 third quarter of 2008 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.

ALABAMA POWER COMPANY

ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2008				2007				2008				2007
		(in thousands)								(in thousands)
Operating Revenues:
Retail revenues		$	1,559,034			$	1,394,539			$	3,741,074			$	3,444,282
Wholesale revenues —
Non-affiliates			196,381				160,832				536,392				472,015
Affiliates			60,583				35,400				240,696				116,626
Other revenues			49,084				44,427				153,412				135,569
Total operating revenues			1,865,082				1,635,198				4,671,574				4,168,492
Operating Expenses:
Fuel			651,673				506,933				1,628,170				1,353,914
Purchased power —
Non-affiliates			104,238				71,622				153,907				94,330
Affiliates			121,651				100,054				286,147				249,261
Other operations			203,019				201,495				585,581				556,639
Maintenance			97,948				88,135				331,479				303,989
Depreciation and amortization			132,410				118,403				387,677				351,514
Taxes other than income taxes			76,200				72,503				227,585				216,752
Total operating expenses			1,387,139				1,159,145				3,600,546				3,126,399
Operating Income			477,943				476,053				1,071,028				1,042,093
Other Income and (Expense):
Allowance for equity funds used during construction			11,730				9,600				32,269				24,562
Interest income			4,794				4,935				13,694				12,942
Interest expense, net of amounts capitalized			(71,166	)			(69,977	)			(209,787	)			(206,743	)
Other income (expense), net			(5,731	)			(13,067	)			(19,661	)			(19,957	)
Total other income and (expense)			(60,373	)			(68,509	)			(183,485	)			(189,196	)
Earnings Before Income Taxes			417,570				407,544				887,543				852,897
Income taxes			156,109				152,956				323,335				319,840
Net Income			261,461				254,588				564,208				533,057
Dividends on Preferred and Preference Stock			9,866				8,504				29,598				24,867
Net Income After Dividends on Preferred and Preference Stock		$	251,595			$	246,084			$	534,610			$	508,190