ALABAMA POWER CO - Quarter Report: 2009 June (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 registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files). Yes o 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 June 30, 2009
The Southern Company		Par Value $5 Per Share			796,051,643
Alabama Power Company		Par Value $40 Per Share			25,475,000
Georgia Power Company		Without Par Value			9,261,500
Gulf Power Company		Without Par Value			3,142,717
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
June 30, 2009

				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			34
		Condensed Statements of Comprehensive Income			34
		Condensed Statements of Cash Flows			35
		Condensed Balance Sheets			36
		Management’s Discussion and Analysis of Financial Condition and Results of Operations			38
		Georgia Power Company
		Condensed Statements of Income			54
		Condensed Statements of Comprehensive Income			54
		Condensed Statements of Cash Flows			55
		Condensed Balance Sheets			56
		Management’s Discussion and Analysis of Financial Condition and Results of Operations			58
		Gulf Power Company
		Condensed Statements of Income			73
		Condensed Statements of Comprehensive Income			73
		Condensed Statements of Cash Flows			74
		Condensed Balance Sheets			75
		Management’s Discussion and Analysis of Financial Condition and Results of Operations			77
		Mississippi Power Company
		Condensed Statements of Income			93
		Condensed Statements of Comprehensive Income			93
		Condensed Statements of Cash Flows			94
		Condensed Balance Sheets			95
		Management’s Discussion and Analysis of Financial Condition and Results of Operations			97
		Southern Power Company and Subsidiary Companies
		Condensed Consolidated Statements of Income			115
		Condensed Consolidated Statements of Comprehensive Income			115
		Condensed Consolidated Statements of Cash Flows			116
		Condensed Consolidated Balance Sheets			117
		Management’s Discussion and Analysis of Financial Condition and Results of Operations			119
		Notes to the Condensed Financial Statements			132
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			32
Item 4.		Controls and Procedures			32
Item 4T.		Controls and Procedures			32

INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2009

				Page
				Number
PART II — OTHER INFORMATION
Item 1.		Legal Proceedings				162
Item 1A.		Risk Factors				162
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				162
Item 5.		Other Information		Inapplicable
Item 6.		Exhibits				166
		Signatures				170

DEFINITIONS

Term		Meaning
2007 Retail Rate Plan		Georgia Power’s retail rate plan for the years 2008 through 2010
Alabama Power		Alabama Power Company
Clean Air Act		Clean Air Act Amendments of 1990
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, 2008 and, with respect to Southern Company, the subsequently revised audited financial statements included in the Current Report on Form 8-K filed May 8, 2009
Georgia Power		Georgia Power Company
Gulf Power		Gulf Power Company
IGCC		Integrated coal gasification combined cycle
IIC		Intercompany Interchange Contract
Internal Revenue Code		Internal Revenue Code of 1986, as amended
IRS		Internal Revenue Service
KWH		Kilowatt-hour
LIBOR		London Interbank Offered Rate
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
OCI		Other Comprehensive Income
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 ECR		Alabama Power’s energy cost recovery rate mechanism
registrants		Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power
SCS		Southern Company Services, Inc.
SEC		Securities and Exchange Commission
Southern Company		The Southern Company
Southern Company system		Southern Company, the traditional operating companies, Southern Power, and other subsidiaries

DEFINITIONS
(continued)

Term		Meaning
SouthernLINC Wireless		Southern Communications Services, Inc.
Southern Nuclear		Southern Nuclear Operating Company, Inc.
Southern Power		Southern Power Company
traditional operating companies		Alabama Power, Georgia Power, Gulf Power, and Mississippi Power
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, customer growth, storm damage cost recovery and repairs, fuel cost recovery and other rate actions, environmental regulations and expenditures, retail return on equity projections, 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, impacts of adoption of new accounting rules, potential exemptions from ad valorem taxation of the Kemper IGCC project, unrecognized tax benefits related to leveraged lease transactions, impact of the American Recovery and Reinvestment Act of 2009, estimated sales and purchases under new power sale and purchase 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 and avoid cost overruns during the development and construction of facilities;
•		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 and including Georgia Power’s pending accounting order request;
•		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 and other wholesale customers;
•		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 or other 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 Six Months
		Ended June 30,								Ended June 30,
		2009				2008				2009				2008
		(in thousands)								(in thousands)
Operating Revenues:
Retail revenues		$	3,293,012			$	3,449,878			$	6,357,671			$	6,455,492
Wholesale revenues			437,750				591,802				889,164				1,105,464
Other electric revenues			128,403				141,162				251,201				271,352
Other revenues			25,999				32,345				53,435				65,789
Total operating revenues			3,885,164				4,215,187				7,551,471				7,898,097
Operating Expenses:
Fuel			1,449,138				1,622,074				2,855,405				3,074,017
Purchased power			133,188				197,260				240,832				290,164
Other operations and maintenance			831,214				914,998				1,702,295				1,811,815
MC Asset Recovery litigation settlement			—				—				202,000				—
Depreciation and amortization			377,341				358,745				767,099				702,630
Taxes other than income taxes			208,089				198,042				407,969				387,314
Total operating expenses			2,998,970				3,291,119				6,175,600				6,265,940
Operating Income			886,194				924,068				1,375,871				1,632,157
Other Income and (Expense):
Allowance for equity funds used during construction			47,500				35,486				90,112				76,071
Interest income			4,870				1,188				11,778				10,993
Equity in income (losses) of unconsolidated subsidiaries			680				1,097				(296	)			1,425
Leveraged lease income (losses)			8,676				(70,879	)			18,117				(59,954	)
Gain on disposition of lease termination			26,300				—				26,300				—
Loss on extinguishment of debt			(17,184	)			—				(17,184	)			—
Interest expense, net of amounts capitalized			(232,830	)			(228,948	)			(458,557	)			(446,057	)
Other income (expense), net			(3,681	)			(4,483	)			(16,531	)			(3,569	)
Total other income and (expense)			(165,669	)			(266,539	)			(346,261	)			(421,091	)
Earnings Before Income Taxes			720,525				657,529				1,029,610				1,211,066
Income taxes			225,717				224,952				392,886				403,090
Consolidated Net Income			494,808				432,577				636,724				807,976
Dividends on Preferred and Preference Stock of Subsidiaries			16,195				16,195				32,390				32,390
Consolidated Net Income After Dividends on Preferred and Preference Stock of Subsidiaries		$	478,613			$	416,382			$	604,334			$	775,586
Common Stock Data:
Earnings per share (EPS) —
Basic EPS		$	0.61			$	0.54			$	0.77			$	1.01
Diluted EPS		$	0.60			$	0.54			$	0.77			$	1.00
Average number of shares of common stock outstanding (in thousands)
Basic			790,748				769,122				785,303				767,636
Diluted			792,068				773,140				786,865				771,727
Cash dividends paid per share of common stock		$	0.4375			$	0.4200			$	0.8575			$	0.8225

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 Six Months
		Ended June 30,
		2009				2008
		(in thousands)
Operating Activities:
Consolidated net income		$	636,724			$	807,976
Adjustments to reconcile consolidated net income to net cash provided from operating activities —
Depreciation and amortization, total			895,354				831,790
Deferred income taxes and investment tax credits			(13,807	)			(79,033	)
Deferred revenues			(26,295	)			57,768
Allowance for equity funds used during construction			(90,112	)			(76,071	)
Equity in income (losses) of unconsolidated subsidiaries			296				(1,425	)
Leveraged lease income (losses)			(18,117	)			59,954
Gain on disposition of lease termination			(26,300	)			—
Loss on extinguishment of debt			17,184				—
Pension, postretirement, and other employee benefits			(10,939	)			24,596
Stock option expense			18,956				15,734
Hedge settlements			(16,167	)			17,289
Other, net			27,948				(3,969	)
Changes in certain current assets and liabilities —
-Receivables			74,770				(317,403	)
-Fossil fuel stock			(375,888	)			(121,823	)
-Materials and supplies			(20,079	)			(28,609	)
-Other current assets			(96,394	)			(54,536	)
-Accounts payable			14,711				161,703
-Accrued taxes			(140,308	)			181,105
-Accrued compensation			(298,670	)			(185,500	)
-Other current liabilities			66,748				121,337
Net cash provided from operating activities			619,615				1,410,883
Investing Activities:
Property additions			(2,192,959	)			(1,983,177	)
Investment in restricted cash from pollution control revenue bonds			(49,478	)			(161	)
Distribution of restricted cash from pollution control revenue bonds			59,741				32,908
Nuclear decommissioning trust fund purchases			(823,416	)			(405,999	)
Nuclear decommissioning trust fund sales			788,690				399,119
Proceeds from property sales			339,903				5,495
Cost of removal, net of salvage			(63,705	)			(40,757	)
Change in construction payables			128,101				3,174
Other investing activities			8,063				(34,547	)
Net cash used for investing activities			(1,805,060	)			(2,023,945	)
Financing Activities:
Increase (decrease) in notes payable, net			148,090				(151,513	)
Proceeds —
Long-term debt issuances			1,785,474				1,684,935
Common stock issuances			539,088				235,454
Redemptions —
Long-term debt			(199,929	)			(361,263	)
Redeemable preferred stock			—				(125,000	)
Payment of common stock dividends			(670,226	)			(630,594	)
Payment of dividends on preferred and preference stock of subsidiaries			(32,465	)			(33,273	)
Other financing activities			(19,327	)			(12,267	)
Net cash provided from financing activities			1,550,705				606,479
Net Change in Cash and Cash Equivalents			365,260				(6,583	)
Cash and Cash Equivalents at Beginning of Period			416,581				200,550
Cash and Cash Equivalents at End of Period		$	781,841			$	193,967
Supplemental Cash Flow Information:
Cash paid during the period for —
Interest (net of $38,594 and $39,434 capitalized for 2009 and 2008, respectively)		$	386,729			$	389,466
Income taxes (net of refunds)		$	468,278			$	280,902

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 June 30,				At December 31,
Assets		2009				2008
		(in thousands)
Current Assets:
Cash and cash equivalents		$	781,841			$	416,581
Restricted cash and cash equivalents			96,540				102,537
Receivables —
Customer accounts receivable			1,149,309				1,053,674
Unbilled revenues			453,022				320,439
Under recovered regulatory clause revenues			547,927				646,318
Other accounts and notes receivable			335,712				301,028
Accumulated provision for uncollectible accounts			(27,273	)			(26,326	)
Fossil fuel stock, at average cost			1,387,738				1,018,314
Materials and supplies, at average cost			773,721				756,746
Vacation pay			134,958				140,283
Prepaid expenses			364,463				301,570
Other regulatory assets, current			322,790				275,424
Other current assets			68,622				51,044
Total current assets			6,389,370				5,357,632
Property, Plant, and Equipment:
In service			51,880,917				50,618,219
Less accumulated depreciation			18,739,799				18,285,800
Plant in service, net of depreciation			33,141,118				32,332,419
Nuclear fuel, at amortized cost			546,217				510,274
Construction work in progress			3,810,611				3,035,795
Total property, plant, and equipment			37,497,946				35,878,488
Other Property and Investments:
Nuclear decommissioning trusts, at fair value			940,499				864,396
Leveraged leases			599,569				897,338
Miscellaneous property and investments			227,196				226,757
Total other property and investments			1,767,264				1,988,491
Deferred Charges and Other Assets:
Deferred charges related to income taxes			1,010,624				972,781
Unamortized debt issuance expense			215,437				207,763
Unamortized loss on reacquired debt			260,614				270,919
Deferred under recovered regulatory clause revenues			364,728				606,483
Other regulatory assets, deferred			2,553,505				2,636,217
Other deferred charges and assets			357,561				428,432
Total deferred charges and other assets			4,762,469				5,122,595
Total Assets		$	50,417,049			$	48,347,206

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 June 30,				At December 31,
Liabilities and Stockholders’ Equity		2009				2008
		(in thousands)
Current Liabilities:
Securities due within one year		$	1,095,586			$	616,415
Notes payable			1,093,217				953,437
Accounts payable			1,419,534				1,249,694
Customer deposits			319,842				302,495
Accrued taxes —
Accrued income taxes			95,345				195,922
Unrecognized tax benefits			150,344				131,641
Other accrued taxes			301,852				396,206
Accrued interest			222,382				195,500
Accrued vacation pay			168,273				178,519
Accrued compensation			162,969				446,718
Liabilities from risk management activities			267,977				260,977
Other current liabilities			365,441				298,711
Total current liabilities			5,662,762				5,226,235
Long-term Debt			17,921,409				16,816,438
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes			6,151,050				6,080,104
Deferred credits related to income taxes			261,840				259,156
Accumulated deferred investment tax credits			443,128				455,398
Employee benefit obligations			2,029,596				2,057,424
Asset retirement obligations			1,217,956				1,182,769
Other cost of removal obligations			1,327,726				1,320,558
Other regulatory liabilities, deferred			217,020				261,970
Other deferred credits and liabilities			319,029				329,534
Total deferred credits and other liabilities			11,967,345				11,946,913
Total Liabilities			35,551,516				33,989,586
Redeemable Preferred Stock of Subsidiaries			374,496				374,496
Stockholders’ Equity:
Common Stockholders’ Equity:
Common stock, par value $5 per share —
Authorized — 1 billion shares
Issued — June 30, 2009: 796,509,669 Shares;
— December 31, 2008: 777,615,751 Shares
Treasury — June 30, 2009: 458,026 Shares;
— December 31, 2008: 423,477 Shares
Par value			3,982,521				3,888,041
Paid-in capital			2,356,636				1,892,802
Treasury, at cost			(13,299	)			(12,279	)
Retained earnings			7,546,424				7,611,977
Accumulated other comprehensive loss			(88,612	)			(104,784	)
Total Common Stockholders’ Equity			13,783,670				13,275,757
Preferred and Preference Stock of Subsidiaries			707,367				707,367
Total Stockholders’ Equity			14,491,037				13,983,124
Total Liabilities and Stockholders’ Equity		$	50,417,049			$	48,347,206

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 Six Months
		Ended June 30,								Ended June 30,
		2009				2008				2009				2008
		(in thousands)								(in thousands)
Consolidated Net Income		$	494,808			$	432,577			$	636,724			$	807,976
Other comprehensive income (loss):
Qualifying hedges:
Changes in fair value, net of tax of $(1,744), $2,571, $(982), and $(11,417), respectively			(2,811	)			4,338				(1,664	)			(17,913	)
Reclassification adjustment for amounts included in net income, net of tax of $4,630, $2,371, $8,463, and $4,149, respectively			7,370				3,733				13,468				6,508
Marketable securities:
Change in fair value, net of tax of $1,204, $(319), $1,295, and $(2,456), respectively			2,935				(925	)			3,669				(4,026	)
Pension and other post retirement benefit plans:
Reclassification adjustment for amounts included in net income, net of tax of $221, $277, $443, and $536, respectively			349				471				699				882
Total other comprehensive income (loss)			7,843				7,617				16,172				(14,549	)
Dividends on preferred and preference stock of subsidiaries			(16,195	)			(16,195	)			(32,390	)			(32,390	)
Comprehensive Income		$	486,456			$	423,999			$	620,506			$	761,037

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

SECOND QUARTER 2009 vs. SECOND QUARTER 2008
AND
YEAR-TO-DATE 2009 vs. YEAR-TO-DATE 2008

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, owns, 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

Second Quarter 2009 vs. Second Quarter 2008				Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)		(% change)		(change in millions)		(% change)
$62.2		14.9		$(171.3)		(22.1)

Southern Company’s second quarter 2009 net income after dividends on preferred and preference stock of subsidiaries was $478.6 million ($0.61 per share) compared to $416.4 million ($0.54 per share) for the second quarter 2008. The increase for the second quarter 2009 when compared to the corresponding period in 2008 was primarily the result of an increase in customer charges at Alabama Power, increased recognition of environmental compliance cost recovery revenues at Georgia Power, lower operations and maintenance expenses, a 2008 charge related to tax treatment of leveraged lease investments, and a gain on the early termination of two international leveraged lease investments. The increase for the second quarter 2009 was partially offset by a decrease in revenues from lower KWH sales, a decrease in revenues from market-response rates to large commercial and industrial customers, and higher depreciation and amortization.

Southern Company’s year-to-date 2009 net income after dividends on preferred and preference stock of subsidiaries was $604.3 million ($0.77 per share) compared to $775.6 million ($1.01 per share) for year-to-date 2008. The decrease for year-to-date 2009 when compared to the corresponding period in 2008 was primarily the result of a litigation settlement with MC Asset Recovery, LLC (MC Asset Recovery), a decrease in revenues from lower KWH sales, a decrease in revenues from market-response rates to large commercial and industrial customers, and higher depreciation and amortization. The decrease for year-to-date 2009 was partially offset by an increase in customer charges at Alabama Power, increased recognition of environmental compliance cost recovery revenues at Georgia Power, lower operations and maintenance expenses, a 2008 charge related to tax treatment of leveraged lease investments, and a gain on the early termination of two international leveraged lease investments.

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

Retail Revenues

Second Quarter 2009 vs. Second Quarter 2008				Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)		(% change)		(change in millions)		(% change)
$(156.9)		(4.5)		$(97.8)		(1.5)

In the second quarter 2009, retail revenues were $3.29 billion compared to $3.45 billion for the corresponding period in 2008.

For year-to-date 2009, retail revenues were $6.36 billion compared to $6.46 billion for the corresponding period in 2008.

Details of the change to retail revenues are as follows:

		Second Quarter								Year-to-Date
		2009								2009
		(in millions)				(% change)				(in millions)				(% change)
Retail – prior year		$	3,449.9							$	6,455.5
Estimated change in —
Rates and pricing			7.7				0.2				85.7				1.3
Sales growth (decline)			(82.6	)			(2.4	)			(139.1	)			(2.2	)
Weather			8.3				0.3				4.4				0.1
Fuel and other cost recovery			(90.3	)			(2.6	)			(48.8	)			(0.7	)
Retail – current year		$	3,293.0				(4.5	)%		$	6,357.7				(1.5	)%

Revenues associated with changes in rates and pricing increased in the second quarter and for year-to-date 2009 when compared to the corresponding periods in 2008 primarily as a result of an increase in customer charges at Alabama Power and increased recognition of environmental compliance cost recovery revenues at Georgia Power in accordance with its 2007 Retail Rate Plan, partially offset by a decrease in revenues from market-response rates to large commercial and industrial customers.

Revenues attributable to changes in sales declined in the second quarter and for year-to-date 2009 when compared to the corresponding periods in 2008 due to decreases in weather-adjusted retail KWH sales of 6.8% and 6.5%, respectively, resulting primarily from recessionary economic conditions. For the second quarter 2009, weather-adjusted residential KWH sales decreased 1.6%, weather-adjusted commercial KWH sales decreased 0.5%, and weather-adjusted industrial KWH sales decreased 17.7%. For year-to-date 2009, weather-adjusted residential KWH sales decreased 1.0%, weather-adjusted commercial KWH sales decreased 0.9%, and weather-adjusted industrial KWH sales decreased 17.3%. Reduced demand in the primary metals and chemical sectors contributed to the decreases in weather-adjusted industrial KWH sales in the second quarter and for year-to-date 2009 when compared to the corresponding periods in 2008. Reduced demand in the stone, clay, and glass sector also contributed to the second quarter 2009 decrease in weather-adjusted industrial KWH sales.

Revenues resulting from changes in weather increased in the second quarter 2009 and for year-to-date 2009 as a result of more favorable weather when compared to the corresponding periods in 2008.

Fuel and other cost recovery revenues decreased $90.3 million in the second quarter 2009 and $48.8 million for year-to-date 2009 when compared to the corresponding periods in 2008. 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.

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

Wholesale Revenues

Second Quarter 2009 vs. Second Quarter 2008				Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)		(% change)		(change in millions)		(% change)
$(154.0)		(26.0)		$(216.3)		(19.6)

In the second quarter 2009, wholesale revenues were $437.8 million compared to $591.8 million for the corresponding period in 2008. Wholesale fuel revenues, which are generally offset by wholesale fuel expenses and do not affect net income, decreased $143.3 million in the second quarter 2009 when compared to the corresponding period in 2008. Excluding wholesale fuel revenues, wholesale revenues decreased $10.7 million in the second quarter 2009 when compared to the corresponding period in 2008. The decrease was primarily the result of fewer short-term opportunity sales due to lower energy prices, partially offset by additional revenues associated with Plant Franklin Unit 3 at Southern Power which went into service in June 2008.

For year-to-date 2009, wholesale revenues were $889.2 million compared to $1.11 billion for the corresponding period in 2008. Wholesale fuel revenues, which are generally offset by wholesale fuel expenses and do not affect net income, decreased $225.2 million for year-to-date 2009 when compared to the corresponding period in 2008. Excluding wholesale fuel revenues, wholesale revenues increased $8.9 million for year-to-date 2009 when compared to the corresponding period in 2008. The increase was primarily the result of additional revenues associated with Plant Franklin Unit 3 at Southern Power, returns on new and existing wholesale contracts, and changes in mark-to-market positions on sales of uncontracted generating capacity. Fewer short-term opportunity sales due to lower energy prices partially offset this increase.

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.

Other Electric Revenues

Second Quarter 2009 vs. Second Quarter 2008				Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)		(% change)		(change in millions)		(% change)
$(12.8)		(9.0)		$(20.2)		(7.4)

In the second quarter 2009, other electric revenues were $128.4 million compared to $141.2 million for the corresponding period in 2008. The decrease was primarily the result of a $15.3 million decrease in co-generation revenues due to lower gas prices and a decline in sales volume, partially offset by a $4.4 million increase in transmission revenues.

For year-to-date 2009, other electric revenues were $251.2 million compared to $271.4 million for the corresponding period in 2008. The decrease was the result of a $21.6 million decrease in co-generation revenues due to lower gas prices and a decline in sales volume.

Revenues from co-generation are generally offset by related expenses and do not affect net income.

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

Other Revenues

Second Quarter 2009 vs. Second Quarter 2008				Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)		(% change)		(change in millions)		(% change)
$(6.3)		(19.6)		$(12.4)		(18.8)

In the second quarter 2009, other revenues were $26.0 million compared to $32.3 million for the corresponding period in 2008. The decrease was primarily the result of a $6.4 million decrease in revenues at SouthernLINC Wireless related to lower average revenue per subscriber and fewer subscribers as a result of increased competition in the industry when compared to the corresponding period in 2008.

For year-to-date 2009, other revenues were $53.4 million compared to $65.8 million for the corresponding period in 2008. The decrease was primarily the result of a $12.1 million decrease in revenues at SouthernLINC Wireless related to lower average revenue per subscriber and fewer subscribers as a result of increased competition in the industry when compared to the corresponding period in 2008.

Fuel and Purchased Power Expenses

		Second Quarter 2009								Year-to-Date 2009
		vs.								vs.
		Second Quarter 2008								Year-to-Date 2008
		(change in millions)				(% change)				(change in millions)				(% change)
Fuel		$	(172.9	)			(10.7	)		$	(218.6	)			(7.1	)
Purchased power			(64.1	)			(32.5	)			(49.3	)			(17.0	)
Total fuel and purchased power expenses		$	(237.0	)						$	(267.9	)

Fuel and purchased power expenses for the second quarter 2009 were $1.58 billion compared to $1.82 billion for the corresponding period in 2008. The decrease was primarily the result of a $204.3 million net decrease related to total KWHs generated and purchased and a $32.7 million net decrease in the average cost of fuel and purchased power when compared to the corresponding period in 2008. The net decrease in the average cost of fuel and purchased power for the second quarter 2009 resulted from lower fossil fuel prices when compared to the corresponding period in 2008.

For year-to-date 2009, fuel and purchased power expenses were $3.10 billion compared to $3.36 billion for the corresponding period in 2008. The decrease was primarily the result of a $326.3 million net decrease related to total KWHs generated and purchased, partially offset by a $58.4 million net increase in the average cost of fuel and purchased power, primarily related to a 23.7% increase in the cost of coal per net KWH generated, when compared to the corresponding period in 2008.

Fuel expenses 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.

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

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

		Second Quarter				Second Quarter				Percent				Year-to-Date				Year-to-Date				Percent
Average Cost		2009				2008				Change				2009				2008				Change
		(cents per net KWH)												(cents per net KWH)
Fuel			3.29				3.29				—				3.34				3.18				5.0
Purchased power			7.79				9.61				(18.9	)			6.31				8.28				(23.8	)

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

Second Quarter 2009 vs. Second Quarter 2008				Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)		(% change)		(change in millions)		(% change)
$(83.8)		(9.2)		$(109.5)		(6.0)

In the second quarter 2009, other operations and maintenance expenses were $831.2 million compared to $915.0 million for the corresponding period in 2008. The decrease was primarily the result of a $28.2 million decrease in fossil and hydro expenses mainly due to less planned spending on outages and maintenance; a $27.2 million decrease in transmission and distribution expenses mainly due to lower maintenance expenses; a $10.8 million decrease in administrative and general expenses primarily related to employee medical expenses; a $5.8 million decrease in expenses related to lower advertising, litigation, and property insurance costs; a $5.5 million decrease in expenses primarily related to lower sales volume at SouthernLINC Wireless; and a $5.3 million decrease in expenses related to customer service and sales.

For year-to-date 2009, other operations and maintenance expenses were $1.70 billion compared to $1.81 billion for the corresponding period in 2008. The decrease was primarily the result of a $53.2 million decrease in fossil and hydro expenses mainly due to less planned spending on outages and maintenance; a $41.2 million decrease in transmission and distribution expenses mainly due to lower maintenance and metering expenses; a $13.1 million decrease in expenses related to lower advertising, litigation, and property insurance costs; a $10.1 million decrease in expenses primarily related to lower sales volume at SouthernLINC Wireless; and a $6.9 million decrease in expenses related to customer service and sales. This decrease was partially offset by a $16.3 million increase in administration and general expenses largely related to the $29.4 million charge in the first quarter 2009 in connection with a voluntary attrition program at Georgia Power under which 579 employees elected to resign their positions effective March 31, 2009. In the second quarter 2009, approximately one-third of the $29.4 million charge was offset by lower salary and employee benefits costs, and the other two-thirds will be offset during the remainder of the year. This charge is not expected to have a material impact on Southern Company’s financial statements for the year ending December 31, 2009.

MC Asset Recovery Litigation Settlement

Second Quarter 2009 vs. Second Quarter 2008				Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)		(% change)		(change in millions)		(% change)
—		—		$202.0		N/M

N/M — Not Meaningful

In the first quarter 2009, Southern Company entered into a litigation settlement agreement with MC Asset Recovery which resulted in a charge of $202.0 million. See Note (B) to the Condensed Financial Statements under “Mirant Matters – MC Asset Recovery Litigation” herein for additional information.

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

Depreciation and Amortization

Second Quarter 2009 vs. Second Quarter 2008				Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)		(% change)		(change in millions)		(% change)
$18.6		5.2		$64.5		9.2

In the second quarter 2009, depreciation and amortization was $377.3 million compared to $358.7 million for the corresponding period in 2008. The increase was primarily the result of an increase in plant in service related to environmental, transmission, and distribution projects at Georgia Power; an increase in depreciation rates at Southern Power; and the completion of Southern Power’s Plant Franklin Unit 3 in June 2008.

For year-to-date 2009, depreciation and amortization was $767.1 million compared to $702.6 million for the corresponding period in 2008. The increase was primarily the result of an increase in plant in service related to environmental, transmission, and distribution projects at Alabama Power and Georgia Power; an increase in depreciation rates at Southern Power; and the completion of Southern Power’s Plant Franklin Unit 3 in June 2008.

Taxes Other Than Income Taxes

Second Quarter 2009 vs. Second Quarter 2008				Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)		(% change)		(change in millions)		(% change)
$10.1		5.1		$20.7		5.3

In the second quarter 2009, taxes other than income taxes were $208.1 million compared to $198.0 million for the corresponding period in 2008.

For year-to-date 2009, taxes other than income taxes were $408.0 million compared to $387.3 million for the corresponding period in 2008.

The second quarter and year-to-date 2009 increases were primarily the result of increases in state and municipal public utility license tax bases at Alabama Power, higher ad valorem taxes at Georgia Power, and increases in franchise fees at Gulf Power. Increases in franchise fees are associated with increases in revenues from retail energy sales.

Allowance for Equity Funds Used During Construction

Second Quarter 2009 vs. Second Quarter 2008				Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)		(% change)		(change in millions)		(% change)
$12.0		33.9		$14.0		18.5

In the second quarter 2009, allowance for equity funds used during construction (AFUDC) was $47.5 million compared to $35.5 million for the corresponding period in 2008.

For year-to-date 2009, AFUDC was $90.1 million compared to $76.1 million for the corresponding period in 2008.

The second quarter and year-to-date 2009 increases were primarily the result of additional investments in environmental projects mainly at Alabama Power and Gulf Power.

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

Leveraged Lease Income (Losses)

Second Quarter 2009 vs. Second Quarter 2008				Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)		(% change)		(change in millions)		(% change)
$79.6		112.2		$78.1		130.2

In the second quarter 2009, leveraged lease income (losses) was $8.7 million compared to $(70.9) million for the corresponding period in 2008.

For year-to-date 2009, leveraged lease income (losses) was $18.1 million compared to $(60.0) million for the corresponding period in 2008.

Southern Company has several leveraged lease investments in 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 second quarter and year-to-date 2009 increases were primarily the result of the 2008 application of certain accounting standards related to leveraged leases, including a second quarter 2008 after tax charge of $51.2 million. See Note (B) to the Condensed Financial Statements under “Income Tax Matters — Leveraged Leases” herein for additional information.

Gain on Disposition of Lease Termination

Second Quarter 2009 vs. Second Quarter 2008				Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)		(% change)		(change in millions)		(% change)
$26.3		N/M		$26.3		N/M

N/M — Not Meaningful

In the second quarter 2009, Southern Company terminated two international leveraged lease investments early which resulted in a gain of $26.3 million.

Loss on Extinguishment of Debt

Second Quarter 2009 vs. Second Quarter 2008				Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)		(% change)		(change in millions)		(% change)
$17.2		N/M		$17.2		N/M

N/M — Not Meaningful

In the second quarter 2009, Southern Company terminated two international leveraged lease investments early. The proceeds from the terminations were used to extinguish all debt related to leveraged lease investments, a portion of which had make-whole redemption provisions which resulted in a loss of $17.2 million.

Interest Expense, Net of Amounts Capitalized

Second Quarter 2009 vs. Second Quarter 2008				Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)		(% change)		(change in millions)		(% change)
$3.9		1.7		$12.5		2.8

In the second quarter 2009, interest expense, net of amounts capitalized was $232.8 million compared to $228.9 million for the corresponding period in 2008. The increase when compared to the corresponding period in 2008 was not material.

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

For year-to-date 2009, interest expense, net of amounts capitalized was $458.6 million compared to $446.1 million for the corresponding period in 2008. The increase was primarily due to a $53.0 million increase associated with $2.46 billion in additional debt outstanding at June 30, 2009 compared to June 30, 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 additional information. Partially offsetting this increase was $30.2 million related to lower average interest rates on existing variable rate debt and an $11.2 million decrease related to other interest charges.

Other Income (Expense), Net

Second Quarter 2009 vs. Second Quarter 2008				Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)		(% change)		(change in millions)		(% change)
$0.8		17.9		$(12.9)		N/M

N/M — Not Meaningful

In the second quarter 2009, other income (expense), net was $(3.7) million compared to $(4.5) million for the corresponding period in 2008. The decrease in expense when compared to the corresponding period in 2008 is not material.

For year-to-date 2009, other income (expense), net was $(16.5) million compared to $(3.6) million for the corresponding period in 2008. The increase in expense was primarily the result of the first quarter 2008 recognition of a $6.4 million fee received for participating in an asset auction and a $6.0 million gain on the sale of an undeveloped tract of land to the Orlando Utilities Commission.

Income Taxes

Second Quarter 2009 vs. Second Quarter 2008				Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)		(% change)		(change in millions)		(% change)
$0.7		0.3		$(10.2)		(2.5)

In the second quarter 2009, income taxes were $225.7 million compared to $225.0 million for the corresponding period in 2008. The increase was the result of taxes on higher pre-tax earnings, largely offset by lower tax expenses associated with the early termination of one of the international leveraged lease investments and the extinguishment of the associated debt discussed previously under “Gain on Disposition of Lease Termination” and “Loss on Extinguishment of Debt.” See Note (G) to the Condensed Financial Statements under “Effective Tax Rate” herein for details regarding the impact of the early lease termination on the effective tax rate.

For year-to-date 2009, income taxes were $392.9 million compared to $403.1 million for the corresponding period in 2008. The decrease was primarily the result of lower tax expenses associated with the early termination of one of the international leveraged lease investments and the extinguishment of the associated debt discussed previously under “Gain on Disposition of Lease Termination” and “Loss on Extinguishment of Debt.” See Note (G) to the Condensed Financial Statements under “Effective Tax Rate” herein for details regarding the impact of the MC Asset Recovery litigation settlement and the early lease termination on the effective tax rate.

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 constructive regulatory environment that continues to allow for the recovery of prudently incurred costs during a time of increasing costs. Other major factors include profitability of the competitive wholesale supply business and federal regulatory policy, which may impact Southern Company’s level of participation in this market. Future earnings for the electricity

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

business in the near term will depend, in part, upon maintaining energy sales, which is subject to a number of factors. These factors include weather, competition, new energy contracts with neighboring utilities and other wholesale customers, energy conservation practiced by customers, the price of electricity, the price elasticity of demand, and the rate of economic growth or decline 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. Recent recessionary conditions have negatively impacted sales for the traditional operating companies and have negatively impacted wholesale capacity revenues at Southern Power. The current economic recession is expected to continue to have a negative impact on energy sales, particularly to industrial customers. The timing and extent of the economic recovery will impact future earnings. 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.

Water Quality

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters – Environmental Statutes and Regulations – Water Quality” of Southern Company in Item 7 of the Form 10-K for additional information regarding the EPA’s regulation of cooling water intake structures. On April 1, 2009, the U.S. Supreme Court reversed the U.S. Court of Appeals for the Second Circuit’s decision with respect to the rule’s use of cost-benefit analysis and held that the EPA could consider costs in arriving at its standards and in providing variances from those standards for existing power plant cooling water intake structures. Other aspects of the court’s decision were not appealed and remain unaffected by the U.S. Supreme Court’s ruling. While the U.S. Supreme Court’s decision may ultimately result in greater flexibility for demonstrating compliance with the standards, the full scope of the regulations will depend on subsequent legal proceedings, further rulemaking by the EPA, the results of studies and analyses performed as part of the rules’ implementation, and the actual requirements established by state regulatory agencies and, therefore, 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 information regarding the potential for legislation and regulation addressing greenhouse gas emissions. On April 17, 2009, the EPA released a proposed finding that certain greenhouse gas emissions from new motor vehicles endanger public health and welfare due to climate change. The ultimate outcome of the proposed endangerment finding cannot be determined at this time and will depend on additional regulatory action and potential legal challenges. However, regulatory decisions that may follow from such a finding could have implications for both new and existing stationary sources, such as power plants. In addition, federal legislative proposals that would impose mandatory requirements related to greenhouse gas emissions, renewable energy standards, and energy efficiency standards continue to be actively considered in Congress, and the reduction of greenhouse gas emissions has been identified as a high priority by the current Administration. On June 26, 2009, the American Clean Energy and Security Act of 2009, which would impose mandatory greenhouse gas restrictions through implementation of a cap and trade program, a renewable energy standard, and other measures, was passed by the House of Representatives and is expected to now be considered by the Senate. The ultimate outcome of these matters cannot be determined at this time; however, mandatory restrictions on

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

Southern Company’s greenhouse gas emissions, or requirements relating to renewable energy or energy efficiency, could result in significant additional compliance costs that could affect future unit retirement and replacement decisions and results of operations, cash flows, and financial condition if such costs are not recovered through regulated rates.

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 October 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 with reserve prices not to exceed the CBR tariff price, 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 provides for a cost-based price for wholesale sales of less than a year. On March 5, 2009, the FERC accepted Southern Company’s CBR tariff for filing. On March 25, 2009, the FERC accepted Southern Company’s compliance filing related to the MBR tariff and directed Southern Company to commence the energy auction in 30 days. Southern Company commenced the energy auction on April 23, 2009. The FERC has determined that implementation of the energy auction in accordance with the MBR tariff order adequately mitigates going forward any presumption of market power that Southern Company may have in the Southern Company retail service territory and adjacent market areas. The original generation dominance proceeding initiated by the FERC in December 2004 remains pending before the FERC. The ultimate outcome of this matter cannot be determined at this time.

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 experienced 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 $882 million at June 30, 2009 as compared to $1.2 billion at December 31, 2008. 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,” “Georgia Power Retail Regulatory Matters,” and “Gulf Power Retail Regulatory Matters” in Item 8 of the Form 10-K for additional information.

On March 10, 2009, the Georgia PSC granted Georgia Power’s request to delay its fuel case filing until September 4, 2009. The extension was requested as a result of difficulty in establishing a forward-looking fuel rate due to volatile coal and gas prices, uncertain sales forecasts, and a continuing decline in the State of Georgia’s economy. The ultimate outcome of this matter cannot now be determined.

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

Retail Rate Matters

Under the 2007 Retail Rate Plan, Georgia Power’s earnings are evaluated against a retail return on equity (ROE) range of 10.25% to 12.25%. In connection with the 2007 Retail Rate Plan, the Georgia PSC ordered that Georgia Power file its next general base rate case by July 1, 2010; however, the 2007 Retail Rate Plan provides that Georgia Power may file for a general base rate increase in the event its projected retail ROE falls below 10.25%.

The economic recession has significantly reduced Georgia Power’s revenues upon which retail rates were set under the 2007 Retail Rate Plan. Despite stringent efforts to reduce expenses, current projections indicate Georgia Power’s retail ROE will be less than 10.25% in both 2009 and 2010. However, in lieu of filing to increase customer rates as allowed under the 2007 Retail Rate Plan, on June 29, 2009, Georgia Power filed a request with the Georgia PSC for an accounting order that would allow Georgia Power to amortize approximately $324 million of its regulatory liability related to other cost of removal obligations. Under Georgia Power’s proposal, the regulatory liability would be amortized ratably over the 18-month period from July 1, 2009 through December 31, 2010 as a reduction to operating expenses. Even if the Georgia PSC approves the accounting order request as filed, Georgia Power currently expects its retail ROE will remain below the 10.25% low end of its allowed retail ROE range in 2009 and 2010. The accounting order request is subject to the review and approval of the Georgia PSC. The ultimate outcome of this matter cannot be determined at this time.

Legislation

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA). Major tax incentives in the ARRA include an extension of bonus depreciation and multiple renewable energy incentives, which could have a significant impact on the future cash flow and net income of Southern Company. Southern Company estimates the cash flow reduction to 2009 tax payments as a result of the bonus depreciation provisions of the ARRA to be between approximately $225 million and $275 million. Southern Company and its subsidiaries have also filed an application under the ARRA for a grant of approximately $360 million to be used primarily for the advanced metering infrastructure program and other transmission and distribution automation and modernization projects. Southern Company continues to assess the other financial implications of the ARRA. The ultimate impact cannot be determined at this time.

Construction Projects

Integrated Coal Gasification Combined Cycle

See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Construction Projects – Integrated Coal Gasification Combined Cycle” of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under “Integrated Coal Gasification Combined Cycle” in Item 8 of the Form 10-K for information regarding the Kemper IGCC.

On May 11, 2009, Mississippi Power received notification from the IRS formally certifying the Internal Revenue Code Section 48A tax credits of $133 million to Mississippi Power. The utilization of these credits is dependent upon meeting the certification requirements for the Kemper IGCC, including an in-service date no later than May 2014.

On April 6, 2009, the Governor of the State of Mississippi signed into law a bill that will provide an ad valorem tax exemption for a portion of the assessed value of all property utilized in certain electric generating facilities with integrated gasification process facilities. This tax exemption, which may not exceed 50% of the total value of the project, is for projects with a capital investment from private sources of $1 billion or more. Mississippi

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

Power expects the Kemper IGCC to be a qualifying project under the law and the gasification portion of the Kemper IGCC to be exempt from ad valorem taxation.

On April 6, 2009, Mississippi Power received an accounting order from the Mississippi PSC directing Mississippi Power to continue to charge all generation resource planning, evaluation, and screening costs to regulatory assets including those costs associated with activities to obtain a certificate of public convenience and necessity and costs necessary and prudent to preserve the availability, economic viability, and/or required schedule of the Kemper IGCC generation resource planning, evaluation, and screening activities until the Mississippi PSC makes findings and determination as to the recovery of Mississippi Power’s prudent expenditures. The Mississippi PSC’s determination of prudence for Mississippi Power’s pre-construction costs is scheduled to occur by May 2010. As of June 30, 2009, Mississippi Power had spent a total of $56.4 million associated with Mississippi Power’s generation resource planning, evaluation, and screening activities, including regulatory filing costs. Costs incurred for the six months ended June 30, 2009 totaled $14.1 million as compared to $13.0 million for the six months ended June 30, 2008. Of the total $56.4 million, $51.9 million was deferred in other regulatory assets, $3.7 million was related to land purchases capitalized, and $0.8 million was previously expensed.

Several motions were filed by intervenors, most of which were procedural in nature and sought to stay or delay the timely and orderly administration of the docket. In addition to these procedural motions, a motion was filed by the Attorney General for the State of Mississippi which questioned whether the Mississippi PSC had authority to approve the gasification portion of the Kemper IGCC. On June 5, 2009, all of these motions were denied by the Mississippi PSC.

On June 5, 2009, the Mississippi PSC issued an order initiating an evaluation of the Kemper IGCC and establishing a two-phase procedural schedule. During Phase I, the Mississippi PSC will determine if a need exists for new generating resources. Hearings for Phase I are scheduled for October 2009 with a decision in November 2009. If it is determined a need exists in Phase I, the appropriate resource to fill the need as well as the cost recovery of that resource through application of the State of Mississippi’s Baseload Act of 2008 will be determined during Phase II. Hearings regarding Phase II issues are scheduled for February 2010 with a decision by May 2010. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Mississippi Base Load Construction Legislation” of Southern Company in Item 7 of the Form 10-K for information regarding the Baseload Act of 2008.

The ultimate outcome of these matters cannot now be determined.

Nuclear

See Note (B) to the Condensed Financial Statements under “Construction Projects – Nuclear” herein for information regarding the potential expansion of Plant Vogtle.

On March 17, 2009, the Georgia PSC voted to certify construction of Plant Vogtle Units 3 and 4 at an in-service cost of $6.4 billion. In addition, the Georgia PSC voted to approve inclusion of the related construction work in progress accounts in rate base and to recover financing costs during the construction period beginning in 2011, which is expected to reduce the in-service cost to approximately $4.5 billion.

On April 21, 2009, the Governor of the State of Georgia signed into law the Georgia Nuclear Energy Financing Act that will allow Georgia Power to recover financing costs for nuclear construction projects by including the related construction work in progress accounts in rate base during the construction period. The cost recovery provisions will become effective January 1, 2011.

On June 15, 2009, an environmental group filed a petition in the Superior Court of Fulton County, Georgia seeking review of the Georgia PSC’s certification order and challenging the constitutionality of the Georgia Nuclear Energy Financing Act. Georgia Power believes there is no meritorious basis for this petition and intends to vigorously defend against the requested actions. The ultimate outcome of this matter cannot be determined at this time.

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

Nuclear Relicensing

The NRC operating licenses for Plant Vogtle Units 1 and 2 were scheduled to expire in January 2027 and February 2029, respectively. In June 2007, Georgia Power filed an application with the NRC to extend the licenses for Plant Vogtle Units 1 and 2 for an additional 20 years. On June 3, 2009, the NRC approved the extension of the licenses as requested.

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.

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, and Unbilled Revenues.

New Accounting Standards

Variable Interest Entities

In June 2009, the FASB issued new guidance on the consolidation of variable interest entities, which replaces the quantitative-based risks and rewards calculation for determining whether an enterprise is the primary beneficiary in a variable interest entity with an approach that is primarily qualitative, requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity, and requires additional disclosures about an enterprise’s involvement in variable interest entities. Southern Company is required to adopt this new guidance effective January 1, 2010 and is evaluating the impact, if any, it will have on its financial statements.

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

FINANCIAL CONDITION AND LIQUIDITY

Overview

Southern Company’s financial condition remained stable at June 30, 2009. Throughout the turmoil in the financial markets, Southern Company and its subsidiaries have maintained adequate access to capital without drawing on any committed bank credit arrangements used to support commercial paper programs and variable rate pollution control revenue bonds. 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 and liquidity needs. Market rates for committed credit have increased, and Southern Company and its subsidiaries have been and expect to continue to be subject to higher costs as existing facilities are replaced or renewed. Total committed credit fees for Southern Company and its subsidiaries currently average less than ¹/4 of 1% per year. Southern Company’s interest cost for short-term debt has decreased as market short-term interest rates have declined from 2008 levels. The ultimate impact on future financing costs as a result of financial turmoil cannot be determined at this time. Southern Company experienced no material counterparty credit losses as a result of the turmoil in the financial markets. See “Sources of Capital” and “Financing Activities” herein for additional information.

Southern Company’s investments in pension and nuclear decommissioning trust funds stabilized during the second quarter 2009. Southern Company expects that the earliest that cash may have to be contributed to the pension trust fund is 2012 and such contribution could be significant; however, projections of the amount vary significantly depending on interpretations of and decisions related to federal legislation passed during 2008 as well as other key variables including future trust fund performance and cannot be determined at this time. Southern Company does not expect any changes to funding obligations to the nuclear decommissioning trusts prior to 2011.

For the first six months of 2009, net cash provided from operating activities totaled $620 million, a decrease of $791 million from the corresponding period in 2008. Significant changes in operating cash flow for the first six months of 2009 as compared to the corresponding period in 2008 include a reduction to net income as previously discussed and increased outflows of funds used for federal tax and property tax payments of $321 million and fuel purchases of $254 million. These uses of funds were partially offset by increased cash inflows as a result of higher fuel rates included in customer billings. Net cash used for investing activities totaled $1.8 billion for the first six months of 2009 as compared to $2.0 billion for the corresponding period in 2008. While the cash outflows in each of these periods were primarily related to property additions to utility plant, the decrease in the current period as compared to the corresponding period in 2008 was primarily due to approximately $340 million in cash received from the early termination of two leveraged lease investments. For the first six months of 2009, net cash provided from financing activities totaled $1.6 billion as compared to $606 million for the corresponding period in 2008 primarily due to higher levels of short-term borrowings, the issuance of new long-term debt, and common stock issuances.

Significant balance sheet changes for the first six months of 2009 include an increase of $365 million in cash and cash equivalents primarily due to cash received from the early termination of two leveraged lease investments; an increase of $1.6 billion in total property, plant, and equipment for the installation of equipment to comply with environmental standards and construction of generation, transmission, and distribution facilities; and purchases of nuclear fuel. Other significant changes include an increase in long-term debt, excluding amounts due within one year, of $1.1 billion used primarily for construction expenditures and general corporate purposes.

The market price of Southern Company’s common stock at June 30, 2009 was $31.16 per share (based on the closing price as reported on the New York Stock Exchange) and the book value was $17.32 per share, representing a market-to-book ratio of 180%, compared to $37.00, $17.08, and 217%, respectively, at the end of 2008. The dividend for the second quarter 2009 was $0.4375 per share compared to $0.42 per share in the second quarter 2008.

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

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 programs 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. Approximately $1.1 billion will be required through June 30, 2010 to fund maturities and announced redemptions of long-term debt. The construction programs are subject to periodic review and revision, and actual construction costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in load projections; changes in environmental statutes and regulations; changes in nuclear plants to meet new regulatory requirements; changes in FERC rules and regulations; PSC approvals; changes in legislation; the cost and efficiency of construction labor, equipment, and materials; and the cost 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 2009, 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 June 30, 2009, Southern Company and its subsidiaries had approximately $782 million of cash and cash equivalents and approximately $4.7 billion of unused credit arrangements with banks, of which $484 million expire in 2009, $965 million expire in 2010, $25 million expire in 2011, and $3.2 billion expire in 2012. Approximately $44 million of the credit facilities expiring in 2009 and 2010 allow for the execution of term loans for an additional two-year period, and $501 million contain provisions allowing one-year term loans. At June 30, 2009, approximately $1.3 billion of the credit facilities were dedicated to providing liquidity support to the traditional operating companies’ variable rate pollution control revenue bonds and such credit facilities also serve as liquidity support for the commercial paper programs. Subsequent to June 30, 2009, financings at Georgia Power increased the total amount of variable rate pollution control bonds requiring liquidity support to $1.5 billion. See Note 6 to the financial statements of Southern Company under “Bank Credit Arrangements” in Item 8 of the Form 10-K and Note (E) 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 at the request and for the benefit of each of the traditional operating companies. At June 30, 2009, the Southern Company system had outstanding commercial paper of $1.1 billion. Management believes that the

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

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 June 30, 2009, the maximum potential collateral requirements under these contracts at a BBB and Baa2 rating were approximately $9 million and at a BBB- and/or Baa3 rating were approximately $413 million. At June 30, 2009, the maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were approximately $2.0 billion. In addition, certain nuclear fuel agreements could require collateral of up to $251 million in the event of a rating change to below investment grade for Southern Company. Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, any credit rating downgrade could impact Southern Company’s ability to access capital markets, particularly the short-term debt market.

Market Price Risk

Southern Company’s market risk exposure relative to interest rate changes has not changed materially compared with the December 31, 2008 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 2009, Southern Power is exposed to market volatility in energy-related commodity prices as a result of sales of uncontracted generating capacity. The traditional operating companies continue to manage fuel-hedging programs implemented per the guidelines of their respective state PSCs. 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. To mitigate residual risks relative to movements in gas prices, Southern Company’s subsidiaries may enter into fixed-price contracts for natural gas purchases; however, a significant portion of contracts are priced at market. As such, the traditional operating companies have no material change in market risk exposure when compared with the December 31, 2008 reporting period.

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

The changes in fair value of energy-related derivative contracts for the three and six months ended June 30, 2009 were as follows:

		Second Quarter				Year-to-Date
		2009				2009
		Changes				Changes
		Fair Value
		(in millions)
Contracts outstanding at the beginning of the period, assets (liabilities), net		$	(423	)		$	(285	)
Contracts realized or settled			127				187
Current period changes(a)			(6	)			(204	)
Contracts outstanding at the end of the period, assets (liabilities), net		$	(302	)		$	(302	)

The changes in the fair value positions of the energy-related derivative contracts for the three months and six months ended June 30, 2009 were an increase of $121 million and a decrease of $17 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 June 30, 2009, Southern Company had a net hedge volume of 173 million mmBtu (includes location basis of 2 million mmBtu) with a weighted average contract cost approximately $1.78 per mmBtu above market prices, compared to 173 million mmBtu (includes location basis of 2 million mmBtu) at March 31, 2009 with a weighted average contract cost approximately $2.53 per mmBtu above market prices and compared to 149 million mmBtu at December 31, 2008 with a weighted average contract cost approximately $1.97 per mmBtu above market prices. The majority of the natural gas hedge settlements are recovered through the traditional operating companies’ fuel cost recovery clauses.

At June 30, 2009 and December 31, 2008, the fair value of energy-related derivative contracts by hedge designation was reflected in the financial statements as follows:

		June 30, 2009				December 31, 2008
		(in millions)
Regulatory hedges		$	(305	)		$	(288	)
Cash flow hedges			—				(1	)
Not designated			3				4
Total fair value		$	(302	)		$	(285	)

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 to hedge anticipated purchases and sales and are initially deferred in OCI 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.

Total net unrealized pre-tax losses recognized in the statements of income for the six months ended June 30, 2009 for energy-related derivative contracts that are not hedges were $(1) million and were not material for the three months ended June 30, 2009. For the three and six months ended June 30, 2008, the total net unrealized gains (losses) recognized in the statements of income were $7 million and $(7) million, respectively. See Note (E) to the Condensed Financial Statements herein for further details of these gains (losses).

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 June 30, 2009 are as follows:

		June 30, 2009
		Fair Value Measurements
		Total				Maturity
		Fair Value				Year 1				Years 2&3				Years 4&5
		(in millions)
Level 1		$	—			$	—			$	—			$	—
Level 2			(302	)			(234	)			(66	)			(2	)
Level 3			—				—				—				—
Fair value of contracts outstanding at end of period		$	(302	)		$	(234	)		$	(66	)		$	(2	)

Southern Company uses over-the-counter contracts that are not exchange traded but are fair valued using prices which are actively quoted, and thus fall into Level 2. See Note (C) to the Condensed Financial Statements herein for further discussion on fair value measurements.

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 (E) to the Condensed Financial Statements herein.

Financing Activities

In the first six months of 2009, Southern Company issued $350 million of Series 2009A 4.15% Senior Notes due May 15, 2014, and its subsidiaries issued $1.3 billion of senior notes and incurred obligations of $183 million related to the issuance of pollution control revenue bonds. Southern Company also issued 14 million shares of common stock for $399 million through the Southern Investment Plan and employee and director stock plans. In addition, during the three months ended June 30, 2009, Southern Company issued 5 million shares of common stock through at-the-market issuances pursuant to sales agency agreements related to Southern Company’s continuous equity offering program and received cash proceeds of $140 million, net of $1.4 million in fees and commissions. The proceeds were primarily used to fund ongoing construction projects, to repay short-term and long-term indebtedness, and for general corporate purposes.

Subsequent to June 30, 2009, Georgia Power incurred obligations in connection with the issuance of $154.3 million of variable rate pollution control revenue bonds. The proceeds of the bonds were used to retire $154.3 million of fixed rate pollution control revenue bonds. Also, subsequent to June 30, 2009, Georgia Power issued a notice to redeem on August 21, 2009 its $55 million of Series D 5.50% Senior Insured Quarterly Notes due November 15, 2017.

Subsequent to June 30, 2009, Gulf Power entered into a forward starting interest rate swap to mitigate exposure to interest rate changes related to anticipated debt issuances. The notional amount of the swap is $50 million, and the swap has been designated as a cash flow hedge.

Subsequent to June 30, 2009, Southern Company used a portion of the cash received from the early termination of two leveraged lease investments to extinguish $252.7 million of debt which included all debt related to leveraged lease investments and to pay make-whole redemption premiums of $17.2 million associated with such debt.

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 (E) 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 second quarter 2009 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 second quarter 2009 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 Six Months
		Ended June 30,								Ended June 30,
		2009				2008				2009				2008
		(in thousands)								(in thousands)
Operating Revenues:
Retail revenues		$	1,119,606			$	1,147,786			$	2,177,743			$	2,182,040
Wholesale revenues, non-affiliates			153,912				169,971				312,607				340,011
Wholesale revenues, affiliates			52,493				96,421				136,845				180,113
Other revenues			40,505				55,635				79,087				104,328
Total operating revenues			1,366,516				1,469,813				2,706,282				2,806,492
Operating Expenses:
Fuel			447,486				523,348				930,719				976,497
Purchased power, non-affiliates			26,123				38,450				41,667				49,669
Purchased power, affiliates			56,570				75,789				98,130				164,496
Other operations and maintenance			278,298				306,543				555,157				616,093
Depreciation and amortization			126,487				130,630				269,903				255,267
Taxes other than income taxes			82,039				75,614				162,320				151,385
Total operating expenses			1,017,003				1,150,374				2,057,896				2,213,407
Operating Income			349,513				319,439				648,386				593,085
Other Income and (Expense):
Allowance for equity funds used during construction			19,153				9,235				35,878				20,539
Interest income			4,148				4,258				8,270				8,900
Interest expense, net of amounts capitalized			(76,768	)			(69,646	)			(148,975	)			(138,622	)
Other income (expense), net			(4,491	)			(6,707	)			(10,863	)			(13,929	)
Total other income and (expense)			(57,958	)			(62,860	)			(115,690	)			(123,112	)
Earnings Before Income Taxes			291,555				256,579				532,696				469,973
Income taxes			105,357				93,798				190,366				167,226
Net Income			186,198				162,781				342,330				302,747
Dividends on Preferred and Preference Stock			9,866				9,866				19,732				19,732
Net Income After Dividends on Preferred and Preference Stock		$	176,332			$	152,915			$	322,598			$	283,015

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
		2009				2008				2009				2008
		(in thousands)								(in thousands)
Net Income After Dividends on Preferred and Preference Stock		$	176,332			$	152,915			$	322,598			$	283,015
Other comprehensive income (loss):
Qualifying hedges:
Changes in fair value, net of tax of $(700), $1,171, $(1,586), and $(1,039), respectively			(1,152	)			1,927				(2,609	)			(1,710	)
Reclassification adjustment for amounts included in net income, net of tax of $1,178, $443, $2,239, and $628, respectively			1,938				728				3,683				1,033
Total other comprehensive income (loss)			786				2,655				1,074				(677	)
Comprehensive Income		$	177,118			$	155,570			$	323,672			$	282,338

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

ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

		For the Six Months
		Ended June 30,
		2009				2008
		(in thousands)
Operating Activities:
Net income		$	342,330			$	302,747
Adjustments to reconcile net income to net cash provided from operating activities —
Depreciation and amortization, total			311,868				297,792
Deferred income taxes and investment tax credits, net			5,182				20,648
Allowance for equity funds used during construction			(35,878	)			(20,539	)
Pension, postretirement, and other employee benefits			(16,568	)			(12,958	)
Stock option expense			3,168				2,520
Tax benefit of stock options			42				460
Other, net			638				14,499
Changes in certain current assets and liabilities —
-Receivables			206,523				34,056
-Fossil fuel stock			(59,418	)			(21,879	)
-Materials and supplies			(9,094	)			(6,887	)
-Other current assets			(62,618	)			(42,632	)
-Accounts payable			(133,138	)			(68,407	)
-Accrued taxes			25,199				64,490
-Accrued compensation			(56,429	)			(47,094	)
-Other current liabilities			18,302				26,481
Net cash provided from operating activities			540,109				543,297
Investing Activities:
Property additions			(641,598	)			(714,878	)
Investment in restricted cash from pollution control revenue bonds			(290	)			(161	)
Distribution of restricted cash from pollution control revenue bonds			32,758				19,687
Nuclear decommissioning trust fund purchases			(124,057	)			(180,522	)
Nuclear decommissioning trust fund sales			124,057				180,522
Cost of removal, net of salvage			(13,004	)			(18,157	)
Other investing activities			(1,583	)			(11,489	)
Net cash used for investing activities			(623,717	)			(724,998	)
Financing Activities:
Increase (decrease) in notes payable, net			(24,995	)			24,980
Proceeds —
Common stock issued to parent			—				150,000
Capital contributions from parent company			11,510				12,178
Gross excess tax benefit of stock options			81				858
Pollution control revenue bonds			53,000				—
Senior notes issuances			500,000				600,000
Redemptions —
Preferred stock			—				(125,000	)
Senior notes			—				(250,000	)
Payment of preferred and preference stock dividends			(19,740	)			(21,142	)
Payment of common stock dividends			(261,400	)			(245,650	)
Other financing activities			(6,114	)			(5,523	)
Net cash provided from financing activities			252,342				140,701
Net Change in Cash and Cash Equivalents			168,734				(41,000	)
Cash and Cash Equivalents at Beginning of Period			28,181				73,616
Cash and Cash Equivalents at End of Period		$	196,915			$	32,616
Supplemental Cash Flow Information:
Cash paid during the period for —
Interest (net of $15,005 and $9,322 capitalized for 2009 and 2008, respectively)		$	122,624			$	126,502
Income taxes (net of refunds)		$	203,248			$	124,050