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ALABAMA POWER CO - Quarter Report: 2009 June (Form 10-Q)

THE SOUTHERN COMPANY
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
         
Commission   Registrant, State of Incorporation,   I.R.S. Employer
File Number   Address and Telephone Number   Identification No.
1-3526  
The Southern Company
(A Delaware Corporation)
30 Ivan Allen Jr. Boulevard, N.W.
Atlanta, Georgia 30308
(404) 506-5000
  58-0690070
   
 
   
1-3164  
Alabama Power Company
(An Alabama Corporation)
600 North 18th Street
Birmingham, Alabama 35291
(205) 257-1000
  63-0004250
   
 
   
1-6468  
Georgia Power Company
(A Georgia Corporation)
241 Ralph McGill Boulevard, N.E.
Atlanta, Georgia 30308
(404) 506-6526
  58-0257110
   
 
   
0-2429  
Gulf Power Company
(A Florida Corporation)
One Energy Place
Pensacola, Florida 32520
(850) 444-6111
  59-0276810
   
 
   
001-11229  
Mississippi Power Company
(A Mississippi Corporation)
2992 West Beach
Gulfport, Mississippi 39501
(228) 864-1211
  64-0205820
   
 
   
333-98553  
Southern Power Company
(A Delaware Corporation)
30 Ivan Allen Jr. Boulevard, N.W.
Atlanta, Georgia 30308
(404) 506-5000
  58-2598670

 


Table of Contents

     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.

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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
       
           
        9  
        10  
        11  
        13  
        14  
           
        34  
        34  
        35  
        36  
        38  
           
        54  
        54  
        55  
        56  
        58  
           
        73  
        73  
        74  
        75  
        77  
           
        93  
        93  
        94  
        95  
        97  
           
        115  
        115  
        116  
        117  
        119  
        132  
Item 3.       32  
Item 4.       32  
Item 4T.       32  

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INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2009
             
        Page
        Number
PART II — OTHER INFORMATION
   
 
       
Item 1.         162
Item 1A.         162
Item 2.  
Unregistered Sales of Equity Securities and Use of Proceeds
  Inapplicable
Item 3.  
Defaults Upon Senior Securities
  Inapplicable
Item 4.         162
Item 5.  
Other Information
  Inapplicable
Item 6.         166
          170

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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

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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

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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.

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THE SOUTHERN COMPANY AND
SUBSIDIARY COMPANIES

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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.

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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.

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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.

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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.

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Table of Contents

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.

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Table of Contents

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.

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Table of Contents

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.

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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.

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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.

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Table of Contents

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.

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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.

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Table of Contents

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.

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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

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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

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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.

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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

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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.

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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.

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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.

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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

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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.

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

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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.

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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.

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ALABAMA POWER COMPANY

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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.

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

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ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Assets   2009     2008  
    (in thousands)  
Current Assets:
               
Cash and cash equivalents
  $ 196,915     $ 28,181  
Restricted cash and cash equivalents
    47,611       80,079  
Receivables —
               
Customer accounts receivable
    375,523       350,410  
Unbilled revenues
    137,895       98,921  
Under recovered regulatory clause revenues
    125,583       153,899  
Other accounts and notes receivable
    34,923       44,645  
Affiliated companies
    21,122       70,612  
Accumulated provision for uncollectible accounts
    (9,125 )     (8,882 )
Fossil fuel stock, at average cost
    375,978       322,089  
Materials and supplies, at average cost
    313,297       305,880  
Vacation pay
    52,825       52,577  
Prepaid expenses
    146,665       88,219  
Other regulatory assets, current
    78,371       74,825  
Other current assets
    17,451       12,915  
 
           
Total current assets
    1,915,034       1,674,370  
 
           
Property, Plant, and Equipment:
               
In service
    17,897,911       17,635,129  
Less accumulated provision for depreciation
    6,429,812       6,259,720  
 
           
Plant in service, net of depreciation
    11,468,099       11,375,409  
Nuclear fuel, at amortized cost
    244,057       231,862  
Construction work in progress
    1,419,838       1,092,516  
 
           
Total property, plant, and equipment
    13,131,994       12,699,787  
 
           
Other Property and Investments:
               
Equity investments in unconsolidated subsidiaries
    57,071       50,912  
Nuclear decommissioning trusts, at fair value
    420,053       403,966  
Miscellaneous property and investments
    65,735       62,782  
 
           
Total other property and investments
    542,859       517,660  
 
           
Deferred Charges and Other Assets:
               
Deferred charges related to income taxes
    380,116       362,596  
Prepaid pension costs
    186,893       166,334  
Deferred under recovered regulatory clause revenues
          180,874  
Other regulatory assets, deferred
    710,265       732,367  
Other deferred charges and assets
    198,258       202,018  
 
           
Total deferred charges and other assets
    1,475,532       1,644,189  
 
           
Total Assets
  $ 17,065,419     $ 16,536,006  
 
           
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.

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ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Liabilities and Stockholder's Equity   2009     2008  
    (in thousands)  
Current Liabilities:
               
Securities due within one year
  $ 250,000     $ 250,079  
Notes payable
          24,995  
Accounts payable —
               
Affiliated
    169,684       178,708  
Other
    252,902       358,176  
Customer deposits
    84,880       77,205  
Accrued taxes —
               
Accrued income taxes
    35,767       18,299  
Other accrued taxes
    73,653       30,372  
Accrued interest
    69,044       56,375  
Accrued vacation pay
    44,217       44,217  
Accrued compensation
    43,219       91,856  
Liabilities from risk management activities
    87,888       83,873  
Other current liabilities
    45,075       53,777  
 
           
Total current liabilities
    1,156,329       1,267,932  
 
           
Long-term Debt
    6,156,915       5,604,791  
 
           
Deferred Credits and Other Liabilities:
               
Accumulated deferred income taxes
    2,248,530       2,243,117  
Deferred credits related to income taxes
    89,884       90,083  
Accumulated deferred investment tax credits
    168,668       172,638  
Employee benefit obligations
    396,440       396,923  
Asset retirement obligations
    476,038       461,284  
Other cost of removal obligations
    657,939       634,792  
Other regulatory liabilities, deferred
    57,749       79,151  
Other deferred credits and liabilities
    40,428       45,857  
 
           
Total deferred credits and other liabilities
    4,135,676       4,123,845  
 
           
Total Liabilities
    11,448,920       10,996,568  
 
           
Redeemable Preferred Stock
    341,716       341,716  
 
           
Preference Stock
    343,412       343,412  
 
           
Common Stockholder’s Equity:
               
Common stock, par value $40 per share —
               
Authorized - 40,000,000 shares
               
Outstanding - 25,475,000 shares
    1,019,000       1,019,000  
Paid-in capital
    2,106,259       2,091,462  
Retained earnings
    1,814,987       1,753,797  
Accumulated other comprehensive loss
    (8,875 )     (9,949 )
 
           
Total common stockholder’s equity
    4,931,371       4,854,310  
 
           
Total Liabilities and Stockholder’s Equity
  $ 17,065,419     $ 16,536,006  
 
           
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.

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ALABAMA POWER COMPANY
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
Alabama Power operates as a vertically integrated utility providing electricity to retail customers within its traditional service area located within the State of Alabama and to wholesale customers in the Southeast. Many factors affect the opportunities, challenges, and risks of Alabama Power’s primary business of selling electricity. These factors include the ability to maintain a constructive regulatory environment, to maintain energy sales in the midst of the current economic downturn, and to effectively manage and secure timely recovery of rising costs. These costs include those related to projected long-term demand growth, increasingly stringent environmental standards, fuel prices, capital expenditures, and restoration following major storms. Appropriately balancing the need to recover these increasing costs with customer prices will continue to challenge Alabama Power for the foreseeable future.
Alabama Power continues to focus on several key performance indicators. These indicators include customer satisfaction, plant availability, system reliability, and net income after dividends on preferred and preference stock. For additional information on these indicators, see MANAGEMENT’S DISCUSSION AND ANALYSIS – OVERVIEW – “Key Performance Indicators” of Alabama Power 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)
$23.4
  15.3   $39.6   14.0
 
Alabama Power’s financial performance remained stable in the second quarter 2009 despite the continued challenges of a recessionary economy. Alabama Power’s net income after dividends on preferred and preference stock for the second quarter 2009 was $176.3 million compared to $152.9 million for the corresponding period in 2008. The increase was primarily due to the corrective rate package providing for adjustments associated with customer charges effective in January 2009 and a decrease in other operations and maintenance expenses primarily due to a reduction in transmission and distribution, steam power, and administrative and general expenses. The increase was partially offset by a decrease in retail revenues attributable to a decline in KWH sales and an increase in interest expense, net of amounts capitalized.
Alabama Power’s net income after dividends on preferred and preference stock for year-to-date 2009 was $322.6 million compared to $283.0 million for the corresponding period in 2008. The increase was primarily due to the corrective rate package providing for adjustments associated with customer charges effective in January 2009 and a decrease in other operations and maintenance expenses primarily related to steam power. The increase was partially offset by a decrease in retail revenues attributable to a decline in KWH sales, increases in income taxes, and an increase in depreciation related to property, plant, and equipment associated with environmental mandates and transmission and distribution projects.

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ALABAMA POWER COMPANY
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)
$(28.2)   (2.5)   $(4.3)   (0.2)
 
In the second quarter 2009, retail revenues were $1.12 billion compared to $1.15 billion for the corresponding period in 2008. For year-to-date 2009, retail revenues were $2.18 billion compared to $2.18 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
  $ 1,147.8             $ 2,182.0          
Estimated change in —
                               
Rates and pricing
    40.8       3.5       90.4       4.1  
Sales growth (decline)
    (40.5 )     (3.5 )     (72.8 )     (3.3 )
Weather
    3.4       0.3       2.7       0.1  
Fuel and other cost recovery
    (31.9 )     (2.8 )     (24.6 )     (1.1 )
 
Retail – current year
  $ 1,119.6       (2.5 )%   $ 2,177.7       (0.2 )%
 
Revenues associated with changes in rates and pricing increased in the second quarter 2009 and year-to-date 2009 when compared to the corresponding periods in 2008 primarily due to the corrective rate package increase effective January 2009, which mainly provided for adjustments associated with customer charges to certain existing rate structures. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Retail Rate Adjustments” of Alabama Power in Item 7 and Note 3 to the financial statements of Alabama Power under “Retail Regulatory Matters” in Item 8 of the Form 10-K for additional information.
Revenues attributable to changes in sales declined in the second quarter 2009 when compared to the corresponding period in 2008 due to a recessionary economy. Additionally, based on a change in the historical trend in the timing of customers’ meter readings, Alabama Power changed the estimate related to the meter read date assumption used in the unbilled revenue calculation. This change in estimate resulted in a one-time increase in revenue of $13.4 million and a 1.8% increase in retail KWH energy sales for the quarter. Industrial KWH energy sales decreased 24.3% due to a decline in demand across all industrial segments. Weather-adjusted residential KWH energy sales decreased 1.9% driven by a decline in customer demand related to customer energy efficiency efforts in addition to a recessionary economy. Weather-adjusted commercial KWH energy sales decreased 1.0% due to a decline in customer demand.
For year-to-date 2009, revenues attributable to changes in sales declined due to a recessionary economy when compared to the corresponding period in 2008. Industrial KWH energy sales decreased 23.0% due to a decline in demand across all industrial segments. Weather-adjusted residential KWH energy sales decreased 2.3% driven by a decline in customer demand related to customer energy efficiency efforts in addition to a recessionary economy. Weather-adjusted commercial KWH energy sales decreased 1.7% due to a decline in customer demand.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues resulting from changes in weather were relatively insignificant in the second quarter and year-to-date 2009 when compared to the corresponding periods in 2008.
Fuel and other cost recovery revenues decreased in the second quarter and year-to-date 2009 when compared to the corresponding periods in 2008 primarily due to decreases in fuel costs. Electric rates include provisions to recognize the full recovery of fuel costs, purchased power costs, PPAs certificated by the Alabama PSC, and costs associated with the natural disaster reserve. Under these provisions, fuel and other cost recovery revenues generally equal fuel and other cost recovery expenses and do not impact net income.
Wholesale Revenues – Non-Affiliates
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(16.1)
  (9.4)   $(27.4)   (8.1)
 
Wholesale revenues from non-affiliates will vary depending on the market cost of available energy compared to the cost of Alabama Power and Southern Company system-owned generation, demand for energy within the Southern Company service territory, and availability of Southern Company system generation.
In the second quarter 2009, wholesale revenues from non-affiliates were $153.9 million compared to $170.0 million for the corresponding period in 2008. This decrease was due to a 7.0% decrease in KWH sales and a 2.6% reduction in price.
For year-to-date 2009, wholesale revenues from non-affiliates were $312.6 million compared to $340.0 million for the corresponding period in 2008. This decrease was due to a 5.1% reduction in price and a 3.1% decrease in KWH sales.
Wholesale Revenues – Affiliates
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(43.9)   (45.6)   $(43.3)   (24.0)
 
Wholesale revenues from affiliates will vary depending on demand and the availability and cost of generating resources at each company within the Southern Company system. These affiliate sales are made in accordance with the IIC, as approved by the FERC. These transactions do not have a significant impact on earnings since the energy is generally sold at marginal cost.
In the second quarter 2009, wholesale revenues from affiliates were $52.5 million compared to $96.4 million for the corresponding period in 2008. This decrease was primarily due to a 43.2% decrease in fuel prices.
For year-to-date 2009, wholesale revenues from affiliates were $136.8 million compared to $180.1 million for the corresponding period in 2008. This decrease was due to a 34.3% decrease in fuel prices, partially offset by a 15.7% increase in KWH sales.

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ALABAMA POWER COMPANY
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)
$(15.1)   (27.2)   $(25.2)   (24.2)
 
In the second quarter 2009, other revenues were $40.5 million compared to $55.6 million for the corresponding period in 2008. This decrease was primarily due to a $17.2 million decrease in revenues from gas-fueled co-generation steam facilities resulting from lower gas prices and a decline in sales volume.
For year-to-date 2009, other revenues were $79.1 million compared to $104.3 million for the corresponding period in 2008. This decrease was primarily due to a $26.6 million decrease in revenues from gas-fueled co-generation steam facilities resulting from lower gas prices and a decline in sales volume.
Co-generation steam fuel revenues do not have a significant impact on earnings since they are generally offset by fuel expense.
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
  $ (75.9 )     (14.5 )   $ (45.8 )     (4.7 )
Purchased power – non-affiliates
    (12.3 )     (32.1 )     (8.0 )     (16.1 )
Purchased power – affiliates
    (19.2 )     (25.4 )     (66.4 )     (40.3 )
                     
Total fuel and purchased power expenses
  $ (107.4 )           $ (120.2 )        
                     
In the second quarter 2009, total fuel and purchased power expenses were $530.2 million compared to $637.6 million for the corresponding period in 2008. This decrease was primarily due to a $71.8 million decrease in total KWHs generated and purchased and a $35.6 million decrease in the cost of energy primarily resulting from a decrease in the average cost of natural gas.
For year-to-date 2009, total fuel and purchased power expenses were $1.07 billion compared to $1.19 billion for the corresponding period in 2008. This decrease was primarily due to a $151.6 million decrease in total KWHs generated and purchased, partially offset by a $31.4 million increase in the cost of energy primarily resulting from an increase in the average cost of coal.
Fuel and purchased power transactions do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Rate ECR. See FUTURE EARNINGS POTENTIAL – “FERC and Alabama PSC Matters – Retail Fuel Cost Recovery” herein for additional information.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of Alabama Power’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
    2.78       2.72       2.2       2.85       2.66       7.1  
Purchased power
    6.01       8.61       (30.2 )     6.06       6.97       (13.1 )
 
In the second quarter 2009, fuel expense was $447.4 million compared to $523.3 million for the corresponding period in 2008. The total decline in fuel expense was driven by a decrease in generation and lower natural gas prices. The decrease was primarily related to a 21.0% decrease in KWHs generated by coal and a 49.8% decrease in the average cost of KWHs generated by natural gas, resulting in a change in the fuel mix.
For year-to-date 2009, fuel expense was $930.6 million compared to $976.4 million for the corresponding period in 2008. Total fuel expense decreased due to a 38.3% decrease in the average cost of KWHs generated by natural gas and an 8.9% decrease in total KWHs generated. These decreases were partially offset by a 22.9% increase in the average cost of KWHs generated by coal.
Non-Affiliates
In the second quarter 2009, purchased power expense from non-affiliates was $26.2 million compared to $38.5 million for the corresponding period in 2008. This decrease was primarily related to a 21.0% decrease in price.
For year-to-date 2009, purchased power expense from non-affiliates was $41.7 million compared to $49.7 million for the corresponding period in 2008. This decrease was primarily related to a 22.2% decrease in price, partially offset by a 7.8% volume increase in the KWHs purchased due to the availability of lower-priced market energy alternatives.
Energy purchases from non-affiliates will vary depending on the market cost of available energy being lower than the cost of Southern Company system-generated energy, demand for energy within the Southern Company system service territory, and availability of Southern Company system generation.
Affiliates
In the second quarter 2009, purchased power expense from affiliates was $56.6 million compared to $75.8 million for the corresponding period in 2008. This decrease was primarily related to a 26.9% decrease in price.
For year-to-date 2009, purchased power expense from affiliates was $98.1 million compared to $164.5 million for the corresponding period in 2008. This decrease was primarily related to a 33.2% decrease in the amount of energy purchased and a 10.8% decrease in price.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Energy purchases from affiliates will vary depending on demand and the availability and cost of generating resources at each company within the Southern Company system. These purchases are made in accordance with the IIC, as approved by the FERC.
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)
$(28.2)
  (9.2)   $(60.9)   (9.9)
 
In the second quarter 2009, other operations and maintenance expenses were $278.3 million compared to $306.5 million for the corresponding period in 2008. This decrease was primarily a result of a $10.9 million decrease in transmission and distribution expenses related to a reduction in overhead line clearing costs, an $8.6 million decrease in steam power expense associated with fewer scheduled outages, and a $7.2 million decrease in administrative and general expenses primarily related to a reduction in employee medical and other expenses.
For year-to-date 2009, other operations and maintenance expenses were $555.2 million compared to $616.1 million for the corresponding period in 2008. This decrease was primarily a result of a $44.5 million decrease in steam power expense associated with fewer scheduled outages and a $15.0 million decrease in transmission and distribution expenses related to a reduction in overhead line clearing.
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)
$(4.1)   (3.2)   $14.6   5.7
             
In the second quarter 2009, depreciation and amortization was $126.5 million compared to $130.6 million for the corresponding period in 2008. This change was the result of an increase in property, plant, and equipment primarily related to environmental mandates and transmission and distribution projects. This was offset by an adjustment to depreciation of $8.4 million, resulting from the offer of settlement to the FERC discussed below.
On June 25, 2009, Alabama Power submitted an offer of settlement and stipulation to the FERC relating to the 2008 depreciation study that was filed in October 2008. The settlement offer withdraws the requests for authorization to use updated depreciation rates. In lieu of the new rates, Alabama Power will use those depreciation rates employed prior and up to January 1, 2009 that were previously approved by the FERC. The settlement offer is pending FERC approval.
For year-to-date 2009, depreciation and amortization was $269.9 million compared to $255.3 million for the corresponding period in 2008. This change was the result of an increase in property, plant, and equipment primarily related to environmental mandates and transmission and distribution projects.
See MANAGEMENT’S DISCUSSION AND ANALYSIS – RESULTS OF OPERATIONS – “Depreciation and Amortization” of Alabama Power in Item 7 of the Form 10-K for additional information.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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)
$6.4   8.5   $10.9   7.2
 
In the second quarter 2009, taxes other than income taxes were $82.0 million compared to $75.6 million in the corresponding period in 2008. For year-to-date 2009, taxes other than income taxes were $162.3 million compared to $151.4 million for the corresponding period in 2008. These increases were primarily due to increases in state and municipal public utility license tax bases.
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)
$9.9   107.4   $15.3   74.7
 
In the second quarter 2009, allowance for equity funds used during construction (AFUDC) was $19.1 million compared to $9.2 million for the corresponding period in 2008. For year-to-date 2009, AFUDC was $35.8 million compared to $20.5 million for the corresponding period in 2008. These increases were primarily due to increases in the amount of construction work in progress at generating facilities related to environmental mandates.
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)
$7.1   10.2   $10.4   7.5
 
In the second quarter 2009, interest expense, net of amounts capitalized was $76.7 million compared to $69.6 million for the corresponding period in 2008. For year-to-date 2009, interest expense, net of amounts capitalized was $149.0 million compared to $138.6 million for the corresponding period in 2008. These increases were primarily due to the issuance of additional long-term debt. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Financing Activities” of Alabama Power in Item 7 of the Form 10-K and FINANCIAL CONDITION AND LIQUIDITY – “Financing Activities” herein for additional information.
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)
$11.6   12.3   $23.1   13.8
 
In the second quarter 2009, income taxes were $105.4 million compared to $93.8 million for the corresponding period in 2008. For year-to-date 2009, income taxes were $190.3 million compared to $167.2 million for the corresponding period in 2008. These increases were primarily due to higher pre-tax income and a decrease in the tax benefit from the production activities deduction, partially offset by the increase in non-taxable AFUDC.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Alabama Power’s future earnings potential. The level of Alabama Power’s future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Alabama Power’s primary business of selling electricity. These factors include Alabama Power’s ability to maintain a constructive regulatory environment that continues to allow for the recovery of prudently incurred costs during a time of increasing costs. Future earnings 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, energy conservation practiced by customers, the price of electricity, the price elasticity of demand, and the rate of economic growth or decline in Alabama Power’s service area. Recent recessionary conditions have negatively impacted sales and are expected to continue to have a negative impact, 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 Alabama Power 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 Alabama Power in Item 7 and Note 3 to the financial statements of Alabama Power 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 Alabama Power 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 Alabama Power 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

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 program, 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 Alabama Power’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 Alabama PSC Matters
Market-Based Rate Authority
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “FERC Matters – Market-Based Rate Authority” of Alabama Power in Item 7 and Note 3 to the financial statements of Alabama Power 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
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Retail Fuel Cost Recovery” of Alabama Power in Item 7 and Note 3 to the financial statements of Alabama Power under “Retail Regulatory Matters – Fuel Cost Recovery” in Item 8 of the Form 10-K for information regarding Alabama Power’s fuel cost recovery. Alabama Power’s under recovered fuel costs as of June 30, 2009 totaled $102.1 million as compared to $305.8 million at December 31, 2008. These under recovered fuel costs at June 30, 2009 are included in under recovered regulatory clause revenues on Alabama Power’s Condensed Balance Sheets herein. This classification is based on an estimate which includes such factors as weather, generation availability, energy demand, and the price of energy. A change in any of these factors could have a material impact on the timing of the recovery of the under recovered fuel costs.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On June 2, 2009, the Alabama PSC approved a decrease in Alabama Power’s Rate ECR factor from 3.983 cents per KWH to 3.733 cents per KWH for billings beginning June 9, 2009 through October 8, 2010, which will have no significant effect on Alabama Power’s revenues or net income, but will decrease annual cash flow. Thereafter, the Rate ECR factor will be 5.910 cents per KWH, absent a contrary order by the Alabama PSC. Rate ECR revenues, as recorded on the financial statements, are adjusted for differences in actual recoverable fuel costs and amounts billed in current regulated rates. Alabama Power will be allowed to continue to include a carrying charge associated with the under recovered fuel costs in the fuel expense calculation. In the event the Rate ECR factor results in an over recovered position, Alabama Power will accrue interest on any such over recovered balance at the same rate used to derive the carrying cost.
Natural Disaster Cost Recovery
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Natural Disaster Cost Recovery” of Alabama Power in Item 7 and Note 3 to the financial statements of Alabama Power under “Retail Regulatory Matters – Natural Disaster Cost Recovery” in Item 8 of the Form 10-K for information regarding natural disaster cost recovery. At June 30, 2009, Alabama Power had accumulated a balance of $30.6 million in the target reserve for future storms, which is included in the Condensed Balance Sheets herein under “Other Regulatory Liabilities.”
Steam Service
On February 5, 2009, the Alabama PSC granted a Certificate of Abandonment of Steam Service in the downtown area of the City of Birmingham. The order allows Alabama Power to discontinue steam service by the earlier of three years from May 14, 2008 or when it has no remaining steam service customers. Currently, Alabama Power has contractual obligations to provide steam service until 2013. Impacts related to the abandonment of steam service are recognized in operating income and are not material to the earnings of Alabama Power.
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 Alabama Power. Alabama Power estimates the cash flow reduction to 2009 tax payments as a result of the bonus depreciation provisions of the ARRA to be between approximately $75 million and $90 million. Southern Company and its subsidiaries have also filed an application under the ARRA for a grant, of which approximately $120 million relates to Alabama Power, to be used primarily for the advanced metering infrastructure program and other transmission and distribution automation and modernization projects. Alabama Power continues to assess the other financial implications of the ARRA. The ultimate impact cannot be determined at this time.
Other Matters
Alabama Power is involved in various other matters being litigated and regulatory matters that could affect future earnings. In addition, Alabama Power is subject to certain claims and legal actions arising in the ordinary course of business. Alabama Power’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

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 Alabama Power cannot be predicted at this time; however, for current proceedings not specifically reported herein or in Note 3 to the financial statements of Alabama Power 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 Alabama Power’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
Alabama Power prepares its 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 Alabama Power 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 Alabama Power’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 Alabama Power in Item 7 of the Form 10-K for a complete discussion of Alabama Power’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. Alabama Power 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.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Alabama Power’s financial condition remained stable at June 30, 2009. Throughout the turmoil in the financial markets, Alabama Power has maintained adequate access to capital without drawing on any of its committed bank credit arrangements used to support its commercial paper programs and variable rate pollution control revenue bonds. Alabama Power 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 Alabama Power has been and expects to continue to be subject to higher costs as its existing facilities are replaced or renewed. Total committed credit fees currently average less than 1/4 of 1% per year for Alabama Power. Alabama Power’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. Alabama Power experienced no material

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
counterparty credit losses as a result of the turmoil in the financial markets. See “Sources of Capital” and “Financing Activities” herein for additional information.
Alabama Power’s investments in pension and nuclear decommissioning trust funds stabilized during the second quarter 2009. Alabama Power expects that the earliest that cash may have to be contributed to the pension trust fund is 2012. The 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. Alabama Power does not expect any changes to the funding obligations to the nuclear decommissioning trust at this time.
Net cash provided from operating activities totaled $540.1 million for the first six months of 2009, compared to $543.3 million for the corresponding period in 2008. Changes in operating cash flow were not material. Net cash used for investing activities totaled $623.7 million compared to $725.0 million for the corresponding period in 2008. The $101.3 million decrease was primarily due to a decline in gross property additions related to nuclear refueling outages. Net cash provided from financing activities totaled $252.3 million for the first six months of 2009, compared to $140.7 million for the corresponding period in 2008. The $111.6 million increase was primarily due to no redemptions or maturities offset by fewer issuances of securities in the first six months of 2009 as compared to the first six months of 2008. Fluctuations in cash flow from financing activities vary from year-to-year based on capital needs and the maturity or redemption of securities.
Significant balance sheet changes for the first six months of 2009 include an increase of $168.7 million in cash and cash equivalents and an increase of $262.8 million in gross plant primarily due to increases in transmission and distribution projects. Long-term debt increased $552.1 million.
Capital Requirements and Contractual Obligations
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Capital Requirements and Contractual Obligations” of Alabama Power in Item 7 of the Form 10-K for a description of Alabama Power’s capital requirements for its construction program, scheduled maturities of long-term debt, as well as the related interest, derivative obligations, preferred and preference stock dividends, leases, purchase commitments, and trust funding requirements. Approximately $250 million will be required through June 30, 2010 for maturities of long-term debt. The construction program is 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; Alabama 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
 
Alabama Power plans to obtain the funds required for construction and other purposes from sources similar to those utilized in the past. Recently, Alabama Power has primarily utilized funds from operating cash flows, unsecured debt, common stock, preferred stock, and preference stock. However, the amount, type, and timing of any future financings, if needed, will depend upon regulatory approval, prevailing market conditions, and other factors. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Sources of Capital” of Alabama Power in Item 7 of the Form 10-K for additional information.

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ALABAMA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Alabama Power’s current liabilities sometimes exceed current assets because of Alabama Power’s debt due within one year and the periodic use of short-term debt as a funding source primarily to meet scheduled maturities of long-term debt as well as cash needs which can fluctuate significantly due to the seasonality of the business. To meet short-term cash needs and contingencies, Alabama Power had at June 30, 2009 cash and cash equivalents of approximately $196.9 million, unused committed lines of credit of approximately $1.3 billion, and commercial paper programs. The credit facilities provide liquidity support to Alabama Power’s commercial paper borrowings and $582 million are dedicated to funding purchase obligations related to variable rate pollution control revenue bonds. Of the unused credit facilities, $325 million will expire in 2009, $145 million will expire in 2010, $25 million will expire in 2011, and $765 million will expire in 2012. Of the facilities that expire in 2009 and 2010, $361 million allow for one-year term loans. Alabama Power expects to renew its credit facilities, as needed, prior to expiration. See Note 6 to the financial statements of Alabama Power 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. Alabama Power 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 Alabama Power and other Southern Company subsidiaries. At June 30, 2009, Alabama Power had no commercial paper outstanding and no outstanding borrowings under its committed lines of credit. Management believes that the need for working capital can be adequately met by utilizing commercial paper programs, lines of credit, and cash.
Credit Rating Risk
Alabama Power 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 to BBB- and/or Baa3 or below. These contracts are primarily for physical electricity purchases and sales, fuel purchases, fuel transportation and storage, emissions allowances, and energy price risk management. At June 30, 2009, the maximum potential collateral requirements under these contracts at a BBB- and/or Baa3 rating were approximately $16 million. At June 30, 2009, the maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were approximately $175 million. Included in these amounts are certain agreements that could require collateral in the event that one or more Power Pool participants has a credit rating change to below investment grade. In addition, certain nuclear fuel agreements could require collateral of up to $64 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 Alabama Power’s ability to access capital markets, particularly the short-term debt market.
Market Price Risk
Alabama Power’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, Alabama Power 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, Alabama Power continues to have limited exposure to market volatility in interest rates, commodity fuel prices, and prices of electricity. To mitigate residual risks relative to movements in electricity prices, Alabama Power enters into physical fixed-price contracts for the purchase and sale of electricity through the wholesale electricity market. Alabama Power continues to manage a retail fuel-hedging program implemented per the guidelines of the Alabama PSC. As such, Alabama Power has no material change in market risk exposure when compared with the December 31, 2008 reporting period.

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ALABAMA POWER COMPANY
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
  $ (130.2 )   $ (91.9 )
Contracts realized or settled
    40.6       63.9  
Current period changes(a)
    (1.9 )     (63.5 )
 
Contracts outstanding at the end of the period, assets (liabilities), net
  $ (91.5 )   $ (91.5 )
 
 
(a)   Current period changes also include the changes in fair value of new contracts entered into during the period, if any.
The increases in the fair value positions of the energy-related derivative contracts for the three months and six months ended June 30, 2009 were $39 million and $0.4 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, Alabama Power had a net hedge volume of 49 million mmBtu with a weighted average contract cost approximately $1.89 per mmBtu above market prices, compared to 49 million mmBtu at March 31, 2009 with a weighted average contract cost approximately $2.70 per mmBtu above market prices and compared to 45 million mmBtu at December 31, 2008 with a weighted average contract cost approximately $2.12 per mmBtu above market prices. The majority of the natural gas hedge settlements are recovered through the fuel cost recovery clause.
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,   December 31,
    2009   2008
    (in millions)
Regulatory hedges
    $(91.5 )     $(91.9 )
Cash flow hedges
           
Not designated
           
 
Total fair value
    $(91.5 )     $(91.9 )
 
Energy-related derivative contracts which are designated as regulatory hedges relate to Alabama Power’s fuel hedging program 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. Certain other gains and losses on energy-related derivatives, designated as cash flow hedges, 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.
Unrealized pre-tax gains and losses recognized in income for the three months and six months ended June 30, 2009 and 2008 for energy-related derivative contracts that are not hedges were not material.

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ALABAMA POWER COMPANY
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
    (91.5 )     (77.0 )     (14.6 )     0.1  
Level 3
                       
 
Fair value of contracts outstanding at end of period
  $ (91.5 )   $ (77.0 )   $ (14.6 )   $ 0.1  
 
Alabama Power 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 Alabama Power in Item 7 and Notes 1 and 6 to the financial statements of Alabama Power under “Financial Instruments” in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements herein.
Financing Activities
In March 2009, Alabama Power issued $500 million of Series 2009A 6.00% Senior Notes due March 1, 2039. The proceeds were used to repay short-term indebtedness and for other general corporate purposes, including Alabama Power’s continuous construction program.
In June 2009, Alabama Power incurred obligations related to the issuance of $53 million of The Industrial Development Board of the City of Mobile Pollution Control Revenue Bonds (Alabama Power Barry Plant Project), First Series 2009. The proceeds were used to fund pollution control and environmental improvement facilities at Plant Barry.
Subsequent to June 30, 2009, Alabama Power issued 3,375,000 shares of common stock to Southern Company at $40 a share ($135 million aggregate purchase price). The proceeds were used for general corporate purposes.
In addition to any financings that may be necessary to meet capital requirements and contractual obligations, Alabama Power plans to continue, when economically feasible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit.

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GEORGIA POWER COMPANY

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GEORGIA 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
  $ 1,682,225     $ 1,830,753     $ 3,274,620     $ 3,405,760  
Wholesale revenues, non-affiliates
    96,570       142,276       192,556       294,968  
Wholesale revenues, affiliates
    29,623       72,164       44,833       146,074  
Other revenues
    65,896       65,969       128,146       129,207  
 
                       
Total operating revenues
    1,874,314       2,111,162       3,640,155       3,976,009  
 
                       
Operating Expenses:
                               
Fuel
    652,889       683,299       1,253,379       1,321,222  
Purchased power, non-affiliates
    70,817       107,723       132,770       165,754  
Purchased power, affiliates
    172,418       247,842       369,641       500,777  
Other operations and maintenance
    353,562       391,781       744,055       760,596  
Depreciation and amortization
    175,080       159,204       342,191       309,812  
Taxes other than income taxes
    81,008       79,485       157,256       150,771  
 
                       
Total operating expenses
    1,505,774       1,669,334       2,999,292       3,208,932  
 
                       
Operating Income
    368,540       441,828       640,863       767,077  
Other Income and (Expense):
                               
Allowance for equity funds used during construction
    22,313       23,981       43,067       51,738  
Interest income
    (197 )     1,050       1,033       1,837  
Interest expense, net of amounts capitalized
    (99,425 )     (83,727 )     (197,815 )     (170,065 )
Other income (expense), net
    2,531       1,371       (4,189 )     (1,922 )
 
                       
Total other income and (expense)
    (74,778 )     (57,325 )     (157,904 )     (118,412 )
 
                       
Earnings Before Income Taxes
    293,762       384,503       482,959       648,665  
Income taxes
    99,682       132,279       162,310       216,080  
 
                       
Net Income
    194,080       252,224       320,649       432,585  
Dividends on Preferred and Preference Stock
    4,346       4,346       8,691       8,691  
 
                       
Net Income After Dividends on Preferred and Preference Stock
  $ 189,734     $ 247,878     $ 311,958     $ 423,894  
 
                       
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
  $ 189,734     $ 247,878     $ 311,958     $ 423,894  
Other comprehensive income (loss):
                               
Qualifying hedges:
                               
Changes in fair value, net of tax of $(905), $6,027, $275, and $(16), respectively
    (1,435 )     9,556       435       (24 )
Reclassification adjustment for amounts included in net income, net of tax of $2,427, $489, $4,170, and $695, respectively
    3,848       774       6,611       1,101  
 
                       
Total other comprehensive income (loss)
    2,413       10,330       7,046       1,077  
 
                       
Comprehensive Income
  $ 192,147     $ 258,208     $ 319,004     $ 424,971  
 
                       
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.

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GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    For the Six Months  
    Ended June 30,  
    2009     2008  
    (in thousands)  
Operating Activities:
               
Net income
  $ 320,649     $ 432,585  
Adjustments to reconcile net income to net cash provided from operating activities —
               
Depreciation and amortization, total
    402,086       367,910  
Deferred income taxes and investment tax credits
    54,721       29,175  
Deferred revenues
    (20,929 )     60,875  
Deferred expenses
    20,523       27,059  
Allowance for equity funds used during construction
    (43,067 )     (51,738 )
Pension, postretirement, and other employee benefits
    (11,543 )     6,304  
Hedge settlements
    (16,167 )     (20,486 )
Other, net
    42,135       (25,801 )
Changes in certain current assets and liabilities —
               
-Receivables
    (126,080 )     (193,372 )
-Fossil fuel stock
    (222,837 )     (40,214 )
-Prepaid income taxes
    (20,298 )     4,302  
-Other current assets
    (14,914 )     (14,874 )
-Accounts payable
    120,228       102,384  
-Accrued taxes
    (74,291 )     (12,300 )
-Accrued compensation
    (103,764 )     (49,119 )
-Other current liabilities
    31,345       54,941  
 
           
Net cash provided from operating activities
    337,797       677,631  
 
           
Investing Activities:
               
Property additions
    (1,208,114 )     (992,317 )
Distribution of restricted cash from pollution control revenue bonds
    15,566       13,221  
Nuclear decommissioning trust fund purchases
    (699,359 )     (225,477 )
Nuclear decommissioning trust fund sales
    664,633       218,597  
Cost of removal, net of salvage
    (33,041 )     (15,957 )
Change in construction payables, net of joint owner portion
    103,558       7,200  
Other investing activities
    43,910       (16,754 )
 
           
Net cash used for investing activities
    (1,112,847 )     (1,011,487 )
 
           
Financing Activities:
               
Increase (decrease) in notes payable, net
    114,439       (347,612 )
Proceeds —
               
Capital contributions from parent company
    602,968       251,262  
Pollution control revenue bonds issuances
          94,935  
Senior notes issuances
    500,000       500,000  
Other long-term debt issuances
    750       300,000  
Redemptions —
               
Pollution control revenue bonds
          (41,935 )
Senior notes
    (151,928 )     (45,812 )
Payment of preferred and preference stock dividends
    (8,758 )     (8,309 )
Payment of common stock dividends
    (369,450 )     (360,600 )
Other financing activities
    (7,963 )     (8,430 )
 
           
Net cash provided from financing activities
    680,058       333,499  
 
           
Net Change in Cash and Cash Equivalents
    (94,992 )     (357 )
Cash and Cash Equivalents at Beginning of Period
    132,739       15,392  
 
           
Cash and Cash Equivalents at End of Period
  $ 37,747     $ 15,035  
 
           
Supplemental Cash Flow Information:
               
Cash paid during the period for —
               
Interest (net of $18,986 and $21,619 capitalized for 2009 and 2008, respectively)
  $ 167,890     $ 154,225  
Income taxes (net of refunds)
  $ 79,141     $ 130,091  
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.

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GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Assets   2009     2008  
    (in thousands)  
Current Assets:
               
Cash and cash equivalents
  $ 37,747     $ 132,739  
Restricted cash and cash equivalents
    11,081       22,381  
Receivables —
               
Customer accounts receivable
    575,753       554,219  
Unbilled revenues
    212,550       147,978  
Under recovered regulatory clause revenues
    346,608       338,780  
Joint owner accounts receivable
    146,544       43,858  
Other accounts and notes receivable
    44,913       54,041  
Affiliated companies
    15,784       13,091  
Accumulated provision for uncollectible accounts
    (11,679 )     (10,732 )
Fossil fuel stock, at average cost
    707,594       484,757  
Materials and supplies, at average cost
    362,530       356,537  
Vacation pay
    65,644       71,217  
Prepaid income taxes
    86,285       65,987  
Other regulatory assets, current
    151,044       118,961  
Other current assets
    52,240       63,464  
 
           
Total current assets
    2,804,638       2,457,278  
 
           
Property, Plant, and Equipment:
               
In service
    24,779,503       23,975,262  
Less accumulated provision for depreciation
    9,301,959       9,101,474  
 
           
Plant in service, net of depreciation
    15,477,544       14,873,788  
Nuclear fuel, at amortized cost
    302,160       278,412  
Construction work in progress
    1,759,917       1,434,989  
 
           
Total property, plant, and equipment
    17,539,621       16,587,189  
 
           
Other Property and Investments:
               
Equity investments in unconsolidated subsidiaries
    63,450       57,163  
Nuclear decommissioning trusts, at fair value
    520,445       460,430  
Miscellaneous property and investments
    37,058       40,945  
 
           
Total other property and investments
    620,953       558,538  
 
           
Deferred Charges and Other Assets:
               
Deferred charges related to income taxes
    586,370       572,528  
Deferred under recovered regulatory clause revenues
    364,728       425,609  
Other regulatory assets, deferred
    1,361,027       1,449,352  
Other deferred charges and assets
    204,552       265,174  
 
           
Total deferred charges and other assets
    2,516,677       2,712,663  
 
           
Total Assets
  $ 23,481,889     $ 22,315,668  
 
           
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.

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GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Liabilities and Stockholder's Equity   2009     2008  
    (in thousands)  
Current Liabilities:
               
Securities due within one year
  $ 435,372     $ 280,443  
Notes payable
    471,533       357,095  
Accounts payable —
               
Affiliated
    240,279       260,545  
Other
    678,495       422,485  
Customer deposits
    193,851       186,919  
Accrued taxes —
               
Accrued income taxes
    78,877       70,916  
Unrecognized tax benefits
    148,686       128,712  
Other accrued taxes
    155,370       278,172  
Accrued interest
    91,215       79,432  
Accrued vacation pay
    49,248       57,643  
Accrued compensation
    38,556       135,191  
Liabilities from risk management activities
    109,522       113,432  
Other current liabilities
    207,789       136,176  
 
           
Total current liabilities
    2,898,793       2,507,161  
 
           
Long-term Debt
    7,196,675       7,006,275  
 
           
Deferred Credits and Other Liabilities:
               
Accumulated deferred income taxes
    3,161,017       3,064,580  
Deferred credits related to income taxes
    134,470       140,933  
Accumulated deferred investment tax credits
    249,357       256,218  
Employee benefit obligations
    870,699       882,965  
Asset retirement obligations
    706,933       688,019  
Other cost of removal obligations
    378,462       396,947  
Other regulatory liabilities, deferred
    75,293       115,865  
Other deferred credits and liabilities
    108,498       111,505  
 
           
Total deferred credits and other liabilities
    5,684,729       5,657,032  
 
           
Total Liabilities
    15,780,197       15,170,468  
 
           
Preferred Stock
    44,991       44,991  
 
           
Preference Stock
    220,966       220,966  
 
           
Common Stockholder’s Equity:
               
Common stock, without par value—
               
Authorized - 20,000,000 shares
               
Outstanding - 9,261,500 shares
    398,473       398,473  
Paid-in capital
    4,262,668       3,655,731  
Retained earnings
    2,800,298       2,857,789  
Accumulated other comprehensive loss
    (25,704 )     (32,750 )
 
           
Total common stockholder’s equity
    7,435,735       6,879,243  
 
           
Total Liabilities and Stockholder’s Equity
  $ 23,481,889     $ 22,315,668  
 
           
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.

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GEORGIA POWER COMPANY
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
Georgia Power operates as a vertically integrated utility providing electricity to retail customers within its traditional service area located within the State of Georgia and to wholesale customers in the Southeast. Many factors affect the opportunities, challenges, and risks of Georgia Power’s business of selling electricity. These factors include the ability to maintain a constructive regulatory environment, to maintain energy sales in the midst of the current economic downturn, and to effectively manage and secure timely recovery of rising costs. These costs include those related to projected long-term demand growth, increasingly stringent environmental standards, capital expenditures, and fuel prices. Appropriately balancing the need to recover these increasing costs with customer prices will continue to challenge Georgia Power for the foreseeable future. Georgia Power is required to file a general rate case by July 1, 2010, which will determine whether the 2007 Retail Rate Plan should be continued, modified, or discontinued. 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 in lieu of filing a request for a base rate increase. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Retail Rate Matters” herein for additional information.
Georgia Power continues to focus on several key performance indicators. These indicators include customer satisfaction, plant availability, system reliability, and net income after dividends on preferred and preference stock. For additional information on these indicators, see MANAGEMENT’S DISCUSSION AND ANALYSIS – OVERVIEW – “Key Performance Indicators” of Georgia Power 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)
$(58.2)
  (23.5)   $(111.9)   (26.4)
 
Georgia Power’s second quarter 2009 net income after dividends on preferred and preference stock was $189.7 million compared to $247.9 million for the corresponding period in 2008. Georgia Power’s year-to-date 2009 net income after dividends on preferred and preference stock was $312.0 million compared to $423.9 million for the corresponding period in 2008. These decreases were primarily due to lower industrial base revenues resulting from the recessionary economy. Also contributing to the year-to-date decrease was a charge in the first quarter 2009 in connection with a voluntary attrition plan under which 579 employees resigned from their positions effective March 31, 2009.
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)
$(148.5)   (8.1)   $(131.1)   (3.9)
 
In the second quarter 2009, retail revenues were $1.68 billion compared to $1.83 billion for the corresponding period in 2008. For year-to-date 2009, retail revenues were $3.27 billion compared to $3.41 billion for the corresponding period in 2008.

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GEORGIA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
  $ 1,830.8             $ 3,405.8          
Estimated change in —
                               
Rates and pricing
    (42.1 )     (2.3 )     (22.5 )     (0.7 )
Sales growth (decline)
    (42.4 )     (2.3 )     (60.4 )     (1.8 )
Weather
    5.1       0.3       4.5       0.1  
Fuel cost recovery
    (69.2 )     (3.8 )     (52.8 )     (1.5 )
 
Retail – current year
  $ 1,682.2       (8.1 )%   $ 3,274.6       (3.9 )%
 
Revenues associated with changes in rates and pricing decreased in the second quarter and year-to-date 2009 when compared to the corresponding periods in 2008 due to decreased revenues from market-response rates to large commercial and industrial customers of $78.6 million and $105.2 million for the second quarter and year-to-date 2009, respectively, partially offset by increased recognition of environmental compliance cost recovery revenues of $36.7 million and $83.0 million for the second quarter and year-to-date 2009, respectively, in accordance with the 2007 Retail Rate Plan.
Revenues attributable to changes in sales declined in the second quarter and year-to-date 2009 when compared to the corresponding periods in 2008. These decreases were primarily due to the recessionary economy, partially offset by a 0.3% increase in retail customers. Weather-adjusted residential KWH sales decreased 1.1%, weather-adjusted commercial KWH sales decreased 0.8%, and weather-adjusted industrial KWH sales decreased 14.6% for the second quarter 2009 when compared to the corresponding period in 2008. Weather-adjusted residential KWH sales increased 0.1%, weather-adjusted commercial KWH sales decreased 0.7%, and weather-adjusted industrial KWH sales decreased 14.3% year-to-date 2009 when compared to the corresponding period in 2008. Weather-adjusted industrial KWH sales decreased due to a broad decline in demand across all industrial segments for the second quarter and year-to-date 2009.
Revenues attributable to changes in weather for the second quarter and year-to-date 2009 when compared to the corresponding periods in 2008 were not material.
Fuel revenues and costs are allocated between retail and wholesale jurisdictions. Retail fuel cost recovery revenues decreased by $69.2 million in the second quarter 2009 and by $52.8 million year-to-date 2009 when compared to the corresponding periods in 2008 due to decreased KWH sales and fuel and purchased power expenses. Electric rates 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 impact net income.
Wholesale Revenues – Non-Affiliates
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(45.7)
  (32.1)   $(102.4)   (34.7)
 
Wholesale revenues from non-affiliates will vary depending on the market cost of available energy compared to the cost of Georgia Power and Southern Company system-owned generation, demand for energy within the Southern Company service territory, and the availability of Southern Company system generation.

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In the second quarter 2009, wholesale revenues from non-affiliates were $96.6 million compared to $142.3 million for the corresponding period in 2008. For year-to-date 2009, wholesale revenues from non-affiliates were $192.6 million compared to $295.0 million for the corresponding period in 2008. These decreases were due to a 44.7% decrease and a 49.2% decease in KWH sales for the second quarter and year-to-date 2009, respectively, due to lower demand primarily caused by the recessionary economy.
Wholesale Revenues – Affiliates
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(42.6)   (59.0)   $(101.3)   (69.3)
 
Wholesale revenues from affiliates will vary depending on demand and the availability and cost of generating resources at each company within the Southern Company system. These affiliate sales are made in accordance with the IIC, as approved by the FERC. These transactions do not have a significant impact on earnings since the energy is generally sold at marginal cost.
In the second quarter 2009, wholesale revenues from affiliates were $29.6 million compared to $72.2 million for the corresponding period in 2008. For year-to-date 2009, wholesale revenues from affiliates were $44.8 million compared to $146.1 million for the corresponding period in 2008. These decreases were due to a 19.6% decrease and a 58.7% decrease in KWH sales in the second quarter and year-to-date 2009, respectively, due to lower demand primarily caused by the recessionary economy.
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
  $ (30.4 )     (4.5 )   $ (67.8 )     (5.1 )
Purchased power – non-affiliates
    (36.9 )     (34.3 )     (33.0 )     (19.9 )
Purchased power – affiliates
    (75.4 )     (30.4 )     (131.2 )     (26.2 )
                     
Total fuel and purchased power expenses
  $ (142.7 )           $ (232.0 )        
                     
In the second quarter 2009, total fuel and purchased power expenses were $896.1 million compared to $1.04 billion for the corresponding period in 2008. The decrease was due to an $82.6 million decrease related to fewer KHWs generated and purchased and a $60.1 million decrease in the average cost of purchased power, partially offset by an increase in the average cost of fuel.
For year-to-date 2009, total fuel and purchased power expenses were $1.76 billion compared to $1.99 billion for the corresponding period in 2008. The decrease was due to a $190.3 million decrease related to fewer KWHs generated and purchased and a $41.7 million decrease in the average cost of purchased power, partially offset by an increase in the average cost of fuel.

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Details of Georgia Power’s cost of generation and purchased power are as follows:
                                                 
    Second Quarter   Second Quarter   Percent                   Percent
Average Cost   2009   2008   Change   Year-to-Date 2009   Year-to-Date 2008   Change
    (cents per net KWH)           (cents per net KWH)        
Fuel
    3.40       3.03       12.2       3.32       2.94       12.9  
Purchased power
    6.41       8.90       (28.0 )     6.41       8.07       (20.6 )
 
In the second quarter 2009, fuel expense was $652.9 million compared to $683.3 million for the corresponding period in 2008. For year-to-date 2009, fuel expense was $1.25 billion compared to $1.32 billion for the corresponding period in 2008. These decreases were due to lower natural gas prices and decreases of 14.3% and 16.2% in KWHs generated in the second quarter and year-to-date 2009, respectively, as a result of lower KWH demand. These decreases were partially offset by increases of 22.6% and 25.5% in the average cost of coal per KWH generated in the second quarter and year-to-date 2009, respectively.
Fuel and purchased power transactions do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Georgia Power’s fuel cost recovery clause. See FUTURE EARNINGS POTENTIAL – “FERC and Georgia PSC Matters – Retail Fuel Cost Recovery” herein for additional information.
Non-Affiliates
In the second quarter 2009, purchased power from non-affiliates was $70.8 million compared to $107.7 million for the corresponding period in 2008. For year-to-date 2009, purchased power from non-affiliates was $132.8 million compared to $165.8 million for the corresponding period in 2008. These decreases were due to 44.9% and 38.4% decreases in the average cost per KWH purchased in the second quarter and year-to-date 2009, respectively, over the corresponding periods in 2008. These decreases were partially offset by a 24.6% increase and a 33.1% increase in the volume of KWHs purchased from available lower-priced market energy alternatives in the second quarter and year-to-date 2009, respectively, over the corresponding periods in 2008.
Energy purchases from non-affiliates will vary depending on the market cost of available energy being lower than the cost of Southern Company system-generated energy, demand for energy within the Southern Company system service territory, and availability of Southern Company system generation.
Affiliates
In the second quarter 2009, purchased power from affiliates was $172.4 million compared to $247.8 million for the corresponding period in 2008. For year-to-date 2009, purchased power from affiliates was $369.6 million compared to $500.8 million for the corresponding period in 2008. These decreases were primarily due to 21.6% and 15.4% decreases in the average cost per KWH purchased for the second quarter and year-to-date 2009, respectively. These decreases were partially offset by a 20.5% increase and a 5.0% increase in the volume of KWHs purchased in the second quarter and year-to-date 2009, respectively.
Energy purchases from affiliates will vary depending on demand and the availability and cost of generating resources at each company within the Southern Company system. These purchases are made in accordance with the IIC, as approved by the FERC.

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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)
$(38.2)
  (9.8)   $(16.5)   (2.2)
 
In the second quarter 2009, other operations and maintenance expenses were $353.6 million compared to $391.8 million for the corresponding period in 2008. The decrease was due to a $19.1 million decrease in power generation, a $13.9 million decrease in transmission and distribution, and a decrease of $7.1 million in customer accounting, service, and sales costs all of which are related to cost containment activities in an effort to offset the effects of the recessionary economy.
For year-to-date 2009, other operations and maintenance expenses were $744.1 million compared to $760.6 million for the corresponding period in 2008. The decrease was due to a $20.1 million decrease in power generation, an $18.3 million decrease in transmission and distribution, and a $13.3 million decrease in customer accounting, service, and sales costs primarily due to the cost containment activities described above, partially offset by a $4.5 million increase in uncollectible accounts and a $29.4 million charge in the first quarter 2009 in connection with a voluntary attrition plan 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 Georgia Power’s financial statements for the year ending December 31, 2009.
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)
$15.9   10.0   $32.4   10.5
 
In the second quarter 2009, depreciation and amortization was $175.1 million compared to $159.2 million for the corresponding period in 2008. For year-to-date 2009, depreciation and amortization was $342.2 million compared to $309.8 million for the corresponding period in 2008. These increases were primarily due to additional plant in service related to transmission, distribution, and environmental projects.
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)
$(1.7)   (7.0)   $(8.6)   (16.8)
 
In the second quarter 2009, allowance for equity funds used during construction (AFUDC) when compared to the corresponding period in 2008 was not material.
For year-to-date 2009, AFUDC was $43.1 million compared to $51.7 million for the corresponding period in 2008. The decrease was due to a decrease in the average construction work in progress balances for year-to-date 2009 compared to the corresponding period in 2008 as a result of projects completed in 2008.

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Interest Expense, Net of Amount 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)
$15.7   18.7   $27.7   16.3
 
In the second quarter 2009, interest expense, net of amounts capitalized was $99.4 million compared with $83.7 million for the corresponding period in 2008. For year-to-date 2009, interest expense, net of amounts capitalized was $197.8 million compared to $170.1 million for the corresponding period in 2008. These increases were primarily due to an increase in long-term debt levels resulting from the issuance of additional senior notes in the last 12 months, partially offset by lower average interest rates on existing variable rate debt.
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)
$(32.6)   (24.6)   $(53.8)   (24.9)
 
In the second quarter 2009, income taxes were $99.7 million compared with $132.3 million for the corresponding period in 2008. For year-to-date 2009, income taxes were $162.3 million compared with $216.1 million for the corresponding period in 2008. The decreases were primarily due to lower pre-tax net income.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Georgia Power’s future earnings potential. The level of Georgia Power’s future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Georgia Power’s business of selling electricity. These factors include Georgia Power’s ability to maintain a constructive regulatory environment that continues to allow for the recovery of prudently incurred costs during a time of increasing costs. Future earnings 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, energy conservation practiced by customers, the price of electricity, the price elasticity of demand, and the rate of economic growth or decline in Georgia Power’s service area. Recent recessionary conditions have negatively impacted sales and are expected to continue to have a negative impact, 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 Georgia Power 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 Georgia Power in Item 7 and Note 3 to the financial statements of Georgia Power 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 Georgia Power 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

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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 Georgia Power 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 Georgia Power’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 Georgia PSC Matters
Market-Based Rate Authority
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “FERC Matters – Market-Based Rate Authority” of Georgia Power in Item 7 and Note 3 to the financial statements of Georgia Power 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

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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
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Fuel Cost Recovery” of Georgia Power in Item 7 and Note 3 to the financial statements of Georgia Power under “Retail Regulatory Matters – Fuel Cost Recovery” in Item 8 of the Form 10-K for additional information. In May 2008, the Georgia PSC approved an additional increase of approximately $222 million effective June 2008. 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. As of June 30, 2009, Georgia Power had a total under recovered fuel cost balance of approximately $711 million compared to $764 million at December 31, 2008. The ultimate outcome of this matter cannot be determined at this time.
Fuel cost recovery revenues as recorded on the financial statements are adjusted for differences in actual recoverable fuel costs and amounts billed in current regulated rates. Accordingly, any changes in the billing factor will not have a significant effect on Georgia Power’s revenues or net income, but will affect cash flow.
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 Georgia Power. Georgia Power estimates the cash flow reduction to 2009 tax payments as a result of the bonus depreciation provisions of the ARRA to be between approximately $120 million and $150 million. Southern Company and its subsidiaries have also filed an application under the ARRA for a grant, of which approximately $140 million relates to Georgia Power, to be used primarily for the advanced metering

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infrastructure program and other transmission and distribution automation and modernization projects. Georgia Power continues to assess the other financial implications of the ARRA. The ultimate impact cannot be determined at this time.
Construction
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.
Other
On March 17, 2009, the Georgia PSC approved Georgia Power’s request to convert Plant Mitchell from coal-fueled to wood biomass-fueled at an in-service cost of approximately $103 million. The conversion is expected to be completed in 2012. The Georgia PSC also approved Georgia Power’s plan to install additional environmental controls at Plants Branch and Yates.
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
Georgia Power is involved in various other matters being litigated, regulatory matters, and certain tax-related issues that could affect future earnings. In addition, Georgia Power is subject to certain claims and legal actions arising in the ordinary course of business. Georgia Power’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 Georgia Power cannot be predicted at this time; however, for current proceedings not specifically reported herein or in Note 3 to the financial statements of Georgia Power 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 Georgia Power’s financial statements.

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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
Georgia Power prepares its 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 Georgia Power 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 Georgia Power’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 Georgia Power in Item 7 of the Form 10-K for a complete discussion of Georgia Power’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. Georgia Power 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.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Georgia Power’s financial condition remained stable at June 30, 2009. Throughout the turmoil in the financial markets, Georgia Power has maintained adequate access to capital without drawing on any of its committed bank credit arrangements used to support its commercial paper borrowings and variable rate pollution control revenue bonds. Georgia Power 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 Georgia Power has been and expects to continue to be subject to higher costs as its existing facilities are replaced or renewed. Total committed credit fees at Georgia Power currently average less than 3/8 of 1% per year. Georgia Power’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. Georgia Power 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.

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Georgia Power’s investments in pension and nuclear decommissioning trust funds stabilized during the second quarter 2009. Georgia Power 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. Georgia Power does not expect any changes to funding obligations to the nuclear decommissioning trusts prior to 2011.
Net cash provided from operating activities totaled $337.8 million for the first six months of 2009, compared to $677.6 million for the corresponding period in 2008. The $339.8 million decrease in cash provided from operating activities in the first six months of 2009 was primarily due to the $112 million decrease in net income and an increase of $182 million in fuel and materials inventory additions. Net cash used for investing activities totaled $1.1 billion for the first six months of 2009, compared to $1.0 billion for the corresponding period in 2008, primarily due to gross property additions to utility plant. Net cash provided from financing activities totaled $680.1 million for the first six months of 2009, compared to $333.5 million for the corresponding period in 2008. The $346.6 million increase was primarily due to higher capital contributions from Southern Company.
Significant balance sheet changes for the first six months of 2009 include an increase of $1.0 billion in total property, plant, and equipment.
Capital Requirements and Contractual Obligations
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY “Capital Requirements and Contractual Obligations” of Georgia Power in Item 7 of the Form 10-K for a description of Georgia Power’s capital requirements for its construction program, scheduled maturities of long-term debt, as well as related interest, derivative obligations, preferred and preference stock dividends, leases, purchase commitments, trust funding requirements, and unrecognized tax benefits. Approximately $435 million will be required through June 30, 2010 to fund maturities and announced redemptions of long-term debt. The construction program is 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; Georgia 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
Georgia Power plans to obtain the funds required for construction and other purposes from sources similar to those utilized in the past. Recently, Georgia Power has primarily utilized funds from operating cash flows, short-term debt, security issuances, term loans, and equity contributions from Southern Company. However, the amount, type, and timing of any future financings, if needed, will depend upon regulatory approval, prevailing market conditions, and other factors. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Sources of Capital” of Georgia Power in Item 7 of the Form 10-K for additional information.
Georgia Power’s current liabilities frequently exceed current assets because of the continued use of short-term debt as a funding source to meet scheduled maturities of long-term debt as well as cash needs which can fluctuate significantly due to the seasonality of the business. To meet short-term cash needs and contingencies, Georgia Power had at June 30, 2009 approximately $37.7 million of cash and cash equivalents and approximately $1.7 billion of unused credit arrangements with banks. See Note 6 to the financial statements of

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GEORGIA POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Georgia Power 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. Of the unused credit arrangements in place at June 30, 2009, $555 million expire in 2010 and $1.1 billion expire in 2012. Subsequent to June 30, 2009, Georgia Power entered into a new $40 million credit arrangement. The agreement expires in 2010 and contains a two-year term loan executable at expiration. Georgia Power expects to renew its credit facilities, as needed, prior to expiration.
Credit arrangements provide liquidity support to Georgia Power’s purchase obligations related to variable rate pollution control revenue bonds and commercial paper borrowings. At June 30, 2009, Georgia Power had $636.3 million of variable rate pollution control revenue bonds. Subsequent to June 30, 2009, Georgia Power incurred an additional $154.3 million of obligations related to variable rate pollution control revenue bonds and converted another $20.8 million from a fixed rate mode to a variable rate mode, increasing the total outstanding variable rate pollution control bonds to $811.4 million. Georgia Power may 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 Georgia Power and other Southern Company subsidiaries. At June 30, 2009, Georgia Power had approximately $471 million of commercial paper outstanding. Management believes that the need for working capital can be adequately met by utilizing commercial paper programs, lines of credit, and cash.
Credit Rating Risk
Georgia Power 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 to 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/or Baa3 rating were approximately $39 million. At June 30, 2009, the maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were approximately $1.1 billion. Included in these amounts are certain agreements that could require collateral in the event that one or more Power Pool participants has a credit rating change to below investment grade. In addition, certain nuclear fuel agreements could require collateral of up to $187 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 Georgia Power’s ability to access capital markets, particularly the short-term debt market.
Market Price Risk
Georgia Power’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, Georgia Power 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, Georgia Power continues to have limited exposure to market volatility in interest rates, commodity fuel prices, and prices of electricity. To mitigate residual risks relative to movements in electricity prices, Georgia Power enters into physical fixed-price contracts for the purchase and sale of electricity through the wholesale electricity market. Georgia Power continues to manage a fuel-hedging program implemented per the guidelines of the Georgia PSC. As such, Georgia Power has no material change in market risk exposure when compared with the December 31, 2008 reporting period.

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GEORGIA POWER COMPANY
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
  $ (176.6 )   $ (113.2 )
Contracts realized or settled
    54.3       74.1  
Current period changes(a)
    (3.1 )     (86.3 )
 
Contracts outstanding at the end of the period, assets (liabilities), net
  $ (125.4 )   $ (125.4 )
 
 
(a)   Current period changes also include the changes in fair value of new contracts entered into during the period, if any.
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 $51 million and a decrease of $12 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, Georgia Power had a net hedge volume of 75 million mmBtu with a weighted average contract cost approximately $1.69 per mmBtu above market prices, compared to 72 million mmBtu at March 31, 2009 with a weighted average contract cost approximately $2.53 per mmBtu above market prices and compared to 59 million mmBtu at December 31, 2008 with a weighted average contract cost approximately $1.96 per mmBtu above market prices. The natural gas hedge settlements are recovered through the fuel cost recovery mechanism.
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,   December 31,
    2009   2008
    (in millions)
Regulatory hedges
  $ (125.4 )   $ (113.2 )
Not designated
           
 
Total fair value
  $ (125.4 )   $ (113.2 )
 
Energy-related derivative contracts which are designated as regulatory hedges relate to Georgia Power’s fuel hedging program 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 mechanism. Gains and losses on energy-related derivative contracts that are not designated or fail to qualify as hedges are recognized in the statements of income as incurred.
Unrealized pre-tax gains and losses recognized in income for the three and six months ended June 30, 2009 and 2008 for energy-related derivative contracts that are not hedges were not material.

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GEORGIA POWER COMPANY
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
    (125.4 )     (100.6 )     (25.1 )     0.3  
Level 3
                       
 
Fair value of contracts outstanding at end of period
  $ (125.4 )   $ (100.6 )   $ (25.1 )   $ 0.3  
 
Georgia Power 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 Georgia Power in Item 7 and Notes 1 and 6 to the financial statements of Georgia Power under “Financial Instruments” in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements herein.
Financing Activities
During the first quarter 2009, Georgia Power issued $500 million of Series 2009A 5.95% Senior Notes due February 1, 2039. The proceeds were used to repay at maturity $150 million aggregate principal amount of Series U Floating Rate Senior Notes due February 7, 2009, to repay a portion of short-term indebtedness, and for general corporate purposes, including Georgia Power’s continuous construction program. Georgia Power settled $100 million of hedges related to the Series 2009A issuance at a loss of approximately $16 million, and this loss will be amortized to interest expense, in earnings, together with a previously settled loss of approximately $2 million, over 10 years.
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.
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.
In addition to any financings that may be necessary to meet capital requirements and contractual obligations, Georgia Power plans to continue, when economically feasible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit.

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GULF POWER COMPANY

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GULF 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
          $ 290,050     $ 284,218     $ 528,441     $ 512,182  
Wholesale revenues, non-affiliates
            22,700       25,052       44,666       50,708  
Wholesale revenues, affiliates
            10,727       26,524       16,087       69,464  
Other revenues
            17,618       14,073       36,185       29,048  
 
                               
Total operating revenues
            341,095       349,867       625,379       661,402  
 
                               
Operating Expenses:
                                       
Fuel
            156,195       165,999       271,748       316,126  
Purchased power, non-affiliates
            6,051       6,086       10,489       9,212  
Purchased power, affiliates
            13,240       16,685       28,621       25,428  
Other operations and maintenance
            64,983       65,774       137,474       132,205  
Depreciation and amortization
            23,317       22,206       46,376       43,910  
Taxes other than income taxes
            22,989       20,803       45,437       41,499  
 
                               
Total operating expenses
            286,775       297,553       540,145       568,380  
 
                               
Operating Income
            54,320       52,314       85,234       93,022  
Other Income and (Expense):
                                       
Allowance for equity funds used during construction
            5,707       2,040       10,525       3,523  
Interest income
            85       709       294       1,418  
Interest expense, net of amounts capitalized
            (9,907 )     (10,678 )     (19,739 )     (21,674 )
Other income (expense), net
            (487 )     (344 )     (1,103 )     (1,010 )
 
                               
Total other income and (expense)
            (4,602 )     (8,273 )     (10,023 )     (17,743 )
 
                               
Earnings Before Income Taxes
            49,718       44,041       75,211       75,279  
Income taxes
            15,899       15,499       23,299       25,656  
 
                               
Net Income
            33,819       28,542       51,912       49,623  
Dividends on Preference Stock
            1,550       1,550       3,101       3,101  
 
                               
Net Income After Dividends on Preference Stock
          $ 32,269     $ 26,992     $ 48,811     $ 46,522  
 
                               
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 Preference Stock
  $ 32,269     $ 26,992     $ 48,811     $ 46,522  
Other comprehensive income (loss):
                               
Qualifying hedges:
                               
Changes in fair value, net of tax of $-, $403, $-, and $(1,077), respectively
          643             (1,715 )
Reclassification adjustment for amounts included in net income, net of tax of $104, $103, $209, and $157, respectively
    167       162       334       249  
 
                       
Total other comprehensive income (loss)
    167       805       334       (1,466 )
 
                       
Comprehensive Income
  $ 32,436     $ 27,797     $ 49,145     $ 45,056  
 
                       
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.

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GULF POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    For the Six Months  
    Ended June 30,  
    2009     2008  
    (in thousands)  
Operating Activities:
               
Net income
  $ 51,912     $ 49,623  
Adjustments to reconcile net income to net cash provided from operating activities —
               
Depreciation and amortization, total
    48,831       46,438  
Deferred income taxes
    (10,224 )     9,215  
Allowance for equity funds used during construction
    (10,525 )     (3,523 )
Pension, postretirement, and other employee benefits
    (597 )     554  
Stock option expense
    637       537  
Tax benefit of stock options
    3       109  
Hedge settlements
          (5,220 )
Other, net
    (1,762 )     (60 )
Changes in certain current assets and liabilities —
               
-Receivables
    (3,606 )     (27,073 )
-Fossil fuel stock
    (50,999 )     (26,432 )
-Materials and supplies
    (459 )     6,669  
-Prepaid income taxes
    416        
-Property damage cost recovery
    10,816       12,463  
-Other current assets
    1,319       1,339  
-Accounts payable
    (1,002 )     6,419  
-Accrued taxes
    13,591       4,433  
-Accrued compensation
    (9,347 )     (6,952 )
-Other current liabilities
    10,640       2,838  
 
           
Net cash provided from operating activities
    49,644       71,377  
 
           
Investing Activities:
               
Property additions
    (240,336 )     (149,760 )
Investment in restricted cash from pollution control revenue bonds
    (49,188 )      
Distribution of restricted cash from pollution control revenue bonds
    11,417        
Cost of removal, net of salvage
    (5,439 )     (4,519 )
Construction payables
    9,661       5,754  
Other investing activities
    (3,375 )     (2,885 )
 
           
Net cash used for investing activities
    (277,260 )     (151,410 )
 
           
Financing Activities:
               
Decrease in notes payable, net
    (73,944 )     (40,801 )
Proceeds —
               
Common stock issued to parent
    135,000        
Capital contributions from parent company
    1,897       73,060  
Gross excess tax benefit of stock options
    9       212  
Pollution control revenue bonds
    130,400        
Senior notes
    140,000        
Other long-term debt issuances
          110,000  
Redemptions —
               
Senior notes
    (722 )     (651 )
Payment of preference stock dividends
    (3,101 )     (2,956 )
Payment of common stock dividends
    (44,650 )     (40,850 )
Other financing activities
    (1,556 )     (2,141 )
 
           
Net cash provided from financing activities
    283,333       95,873  
 
           
Net Change in Cash and Cash Equivalents
    55,717       15,840  
Cash and Cash Equivalents at Beginning of Period
    3,443       5,348  
 
           
Cash and Cash Equivalents at End of Period
  $ 59,160     $ 21,188  
 
           
Supplemental Cash Flow Information:
               
Cash paid during the period for —
               
Interest (net of $4,195 and $1,404 capitalized for 2009 and 2008, respectively)
  $ 19,502     $ 19,831  
Income taxes (net of refunds)
  $ 25,642     $ 17,744  
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.

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GULF POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Assets   2009     2008  
    (in thousands)  
Current Assets:
               
Cash and cash equivalents
  $ 59,160     $ 3,443  
Restricted cash and cash equivalents
    37,771        
Receivables —
               
Customer accounts receivable
    91,578       69,531  
Unbilled revenues
    71,132       48,742  
Under recovered regulatory clause revenues
    54,573       98,644  
Other accounts and notes receivable
    5,943       7,201  
Affiliated companies
    4,205       8,516  
Accumulated provision for uncollectible accounts
    (2,120 )     (2,188 )
Fossil fuel stock, at average cost
    159,084       108,129  
Materials and supplies, at average cost
    37,295       36,836  
Other regulatory assets, current
    37,791       38,908  
Other current assets
    25,320       25,655  
 
           
Total current assets
    581,732       443,417  
 
           
Property, Plant, and Equipment:
               
In service
    2,872,680       2,785,561  
Less accumulated provision for depreciation
    993,670       971,464  
 
           
Plant in service, net of depreciation
    1,879,010       1,814,097  
Construction work in progress
    540,019       391,987  
 
           
Total property, plant, and equipment
    2,419,029       2,206,084  
 
           
Other Property and Investments
    15,779       15,918  
 
           
Deferred Charges and Other Assets:
               
Deferred charges related to income taxes
    31,556       24,220  
Other regulatory assets, deferred
    172,345       170,836  
Other deferred charges and assets
    24,569       18,550  
 
           
Total deferred charges and other assets
    228,470       213,606  
 
           
Total Assets
  $ 3,245,010     $ 2,879,025  
 
           
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.

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GULF POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Liabilities and Stockholder's Equity   2009     2008  
    (in thousands)  
Current Liabilities:
               
Securities due within one year
  $ 140,000     $  
Notes payable
    65,986       148,239  
Accounts payable —
               
Affiliated
    58,777       50,304  
Other
    93,742       90,381  
Customer deposits
    30,571       28,017  
Accrued taxes —
               
Accrued income taxes
    23,610       39,983  
Other accrued taxes
    18,064       11,855  
Accrued interest
    9,363       8,959  
Accrued compensation
    6,319       15,667  
Other regulatory liabilities, current
    17,799       4,602  
Liabilities from risk management activities
    23,734       26,928  
Other current liabilities
    21,254       29,047  
 
           
Total current liabilities
    509,219       453,982  
 
           
Long-term Debt
    979,177       849,265  
 
           
Deferred Credits and Other Liabilities:
               
Accumulated deferred income taxes
    275,861       254,354  
Accumulated deferred investment tax credits
    10,454       11,255  
Employee benefit obligations
    95,660       97,389  
Other cost of removal obligations
    185,098       180,325  
Other regulatory liabilities, deferred
    41,668       28,597  
Other deferred credits and liabilities
    85,743       83,768  
 
           
Total deferred credits and other liabilities
    694,484       655,688  
 
           
Total Liabilities
    2,182,880       1,958,935  
 
           
Preference Stock
    97,998       97,998  
 
           
Common Stockholder’s Equity:
               
Common stock, without par value—
               
Authorized - 20,000,000 shares
               
Outstanding - June 30, 2009: 3,142,717 shares
               
- December 31, 2008: 1,792,717 shares
    253,060       118,060  
Paid-in capital
    514,091       511,547  
Retained earnings
    201,579       197,417  
Accumulated other comprehensive loss
    (4,598 )     (4,932 )
 
           
Total common stockholder’s equity
    964,132       822,092  
 
           
Total Liabilities and Stockholder’s Equity
  $ 3,245,010     $ 2,879,025  
 
           
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.

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GULF POWER COMPANY
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
Gulf Power operates as a vertically integrated utility providing electricity to retail customers within its traditional service area located in northwest Florida and to wholesale customers in the Southeast. Many factors affect the opportunities, challenges, and risks of Gulf Power’s business of selling electricity. These factors include the ability to maintain a constructive regulatory environment, to maintain energy sales in the midst of the current economic downturn, and to effectively manage and secure timely recovery of rising costs. These costs include those related to projected long-term demand growth, increasingly stringent environmental standards, fuel prices, and storm restoration costs. Appropriately balancing the need to recover these increasing costs with customer prices will continue to challenge Gulf Power for the foreseeable future.
Gulf Power continues to focus on several key performance indicators. These indicators include customer satisfaction, plant availability, system reliability, and net income after dividends on preference stock. For additional information on these indicators, see MANAGEMENT’S DISCUSSION AND ANALYSIS – OVERVIEW – “Key Performance Indicators” of Gulf Power 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)
$5.3
  19.6   $2.3   4.9
 
Gulf Power’s net income after dividends on preference stock for the second quarter 2009 was $32.3 million compared to $27.0 million for the corresponding period in 2008. The increase was primarily due to increased allowance for equity funds used during construction (AFUDC), which is non-taxable, and a decrease in other operations and maintenance expenses.
Gulf Power’s net income after dividends on preference stock for year-to-date 2009 was $48.8 million compared to $46.5 million for the corresponding period in 2008. The increase was primarily due to increased AFUDC, partially offset by a decline in sales, less favorable weather, and increased other operations and maintenance expenses.
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)
$5.9   2.1   $16.2   3.1
 
In the second quarter 2009, retail revenues were $290.1 million compared to $284.2 million for the corresponding period in 2008. For year-to-date 2009, retail revenues were $528.4 million compared to $512.2 million for the corresponding period in 2008.

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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
  $ 284.2             $ 512.2          
Estimated change in –
                               
Rates and pricing
    8.0       2.9       15.3       3.0  
Sales growth (decline)
    0.6       0.2       (3.5 )     (0.7 )
Weather
    (1.4 )     (0.5 )     (3.0 )     (0.6 )
Fuel and other cost recovery
    (1.3 )     (0.5 )     7.4       1.4  
 
Retail – current year
  $ 290.1       2.1 %   $ 528.4       3.1 %
 
Revenues associated with changes in rates and pricing increased in the second quarter and year-to-date 2009 when compared to the corresponding periods in 2008 primarily due to increased revenue associated with higher projected environmental compliance costs in 2009. Annually, Gulf Power petitions the Florida PSC for recovery of projected costs including any true-up amount from prior periods, and approved rates are implemented each January. These recovery provisions include related expenses and a return on average net investment. See Note 1 to the financial statements of Gulf Power under “Revenues” and Note 3 to the financial statements of Gulf Power under “Environmental Matters – Environmental Remediation” and “Retail Regulatory Matters – Environmental Cost Recovery” in Item 8 of the Form 10-K for additional information.
Revenues attributable to changes in sales increased in the second quarter 2009 when compared to the corresponding period in 2008. Weather-adjusted KWH energy sales to residential and commercial customers increased 3.6% and 1.9%, respectively, primarily due to increased customer usage. KWH energy sales to industrial customers decreased 22.1% as a result of recessionary economic conditions and increased customer co-generation due to the lower cost of natural gas.
Revenues attributable to changes in sales declined year-to-date 2009 when compared to the corresponding period in 2008. Weather-adjusted KWH energy sales to residential customers increased 0.4% primarily due to increased customer usage. Weather-adjusted KWH energy sales to commercial customers decreased 0.9% primarily due to decreased customer usage driven by the recession. KWH energy sales to industrial customers decreased 21.2% as a result of recessionary economic conditions and increased customer co-generation due to the lower cost of natural gas.
Revenues attributable to changes in weather decreased in the second quarter and year-to-date 2009 when compared to the corresponding periods in 2008. These decreases were due to less favorable weather in 2009.
Fuel and other cost recovery revenues decreased in the second quarter 2009 when compared to the corresponding period in 2008 due to overall decreased customer usage primarily resulting from decreased industrial usage. Fuel and other cost recovery revenues increased year-to-date 2009 when compared to the corresponding period in 2008 primarily due to higher projected fuel and purchased power costs. Fuel and other cost recovery revenues include fuel expenses, the energy component of purchased power costs, purchased power capacity costs, and revenues related to the recovery of storm damage restoration costs. Annually, Gulf Power petitions the Florida PSC for recovery of projected fuel and purchased power costs including any true-up amount from prior periods, and approved rates are implemented each January. The recovery provisions generally equal the related expenses and have no material impact on net income. See FUTURE EARNINGS POTENTIAL – “FERC and Florida PSC Matters – Retail Fuel Cost Recovery” herein and MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Fuel Cost Recovery” of Gulf Power in Item 7 and Note 1 to the financial statements of Gulf Power under “Revenues” and

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“Property Damage Reserve” and Note 3 to the financial statements of Gulf Power under “Retail Regulatory Matters – Storm Damage Cost Recovery” and “Fuel Cost Recovery” in Item 8 of the Form 10-K for additional information.
Wholesale Revenues – Non-Affiliates
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(2.3)
  (9.4)   $(6.0)   (11.9)
 
Wholesale revenues from non-affiliates will vary depending on the market cost of available energy compared to the cost of Gulf Power and Southern Company system-owned generation, demand for energy within the Southern Company service territory, and availability of Southern Company system generation. Wholesale revenues from non-affiliates are predominantly unit power sales under long-term contracts to other Florida utilities. Revenues from these contracts have both capacity and energy components. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost.
In the second quarter 2009, wholesale revenues from non-affiliates were $22.7 million compared to $25.0 million for the corresponding period in 2008. The decrease was primarily a result of lower energy revenues related to 17.5% decrease in KWH sales.
For year-to-date 2009, wholesale revenues from non-affiliates were $44.7 million compared to $50.7 million for the corresponding period in 2008. The decrease was primarily a result of lower energy revenues related to 21.5% decrease in KWH sales.
Wholesale Revenues – Affiliates
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(15.8)   (59.6)   $(53.4)   (76.8)
 
Wholesale revenues from affiliates will vary depending on demand and the availability and cost of generating resources at each company within the Southern Company system. These affiliate sales are made in accordance with the IIC, as approved by the FERC. These transactions do not have a significant impact on earnings since the energy is generally sold at marginal cost.
In the second quarter 2009, wholesale revenues from affiliates were $10.7 million compared to $26.5 million for the corresponding period in 2008. The decrease was due to reduced customer demand resulting in a 30.4% decrease in KWH sales and a 41.9% decrease in price related to lower Power Pool interchange energy rates.
For year-to-date 2009, wholesale revenues from affiliates were $16.1 million compared to $69.5 million for the corresponding period in 2008. The decrease was due to reduced customer demand resulting in a 66.9% decrease in KWH sales and a 30.0% decrease in price related to lower Power Pool interchange energy rates.

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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)
$3.5   25.2   $7.2   24.6
 
In the second quarter 2009, other revenues were $17.6 million compared to $14.1 million for the corresponding period in 2008. For year-to-date 2009, other revenues were $36.2 million compared to $29.0 million for the corresponding period in 2008. These increases were primarily due to other energy services and higher franchise fees. The increased revenues from other energy services did not have a material impact on net income since they were generally offset by associated expenses. Franchise fees have no impact on net income.
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
  $ (9.8 )     (5.9 )   $ (44.4 )     (14.0 )
Purchased power – non-affiliates
    (0.1 )     (0.6 )     1.3       13.9  
Purchased power – affiliates
    (3.4 )     (20.6 )     3.2       12.6  
                     
Total fuel and purchased power expenses
  $ (13.3 )           $ (39.9 )        
                     
In the second quarter 2009, total fuel and purchased power expenses were $175.5 million compared to $188.8 million for the corresponding period in 2008. The net decrease in fuel and purchased power expenses was due to an $18.1 million decrease related to fewer KWHs generated and a $5.6 million decrease in the average cost of fuel and purchased power, partially offset by a $10.4 million increase related to KWHs purchased.
For year-to-date 2009, total fuel and purchased power expenses were $310.8 million compared to $350.7 million for the corresponding period in 2008. The net decrease in fuel and purchased power expenses was due to a $68.2 million decrease related to fewer KWHs generated, partially offset by a $26.9 million increase related to KWHs purchased as well as a $1.4 million increase in the average cost of fuel and purchased power.
Fuel and purchased power transactions do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Gulf Power’s fuel cost recovery clause. See FUTURE EARNINGS POTENTIAL – “FERC and Florida PSC Matters – Retail Fuel Cost Recovery” herein for additional information.
Details of Gulf Power’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
    4.45       4.26       4.5       4.39       4.03       8.9  
Purchased power
    6.71       10.73       (37.5 )     5.87       8.90       (34.0 )
 

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In the second quarter 2009, fuel expense was $156.2 million compared to $166.0 million for the corresponding period in 2008. The decrease was due to a decrease of 10.9% in KWHs generated as a result of lower KWH demand, and lower natural gas prices of 47.7%. The decrease was partially offset by an increase of 27.5% in the average cost of coal per KWH generated.
For year-to-date 2009, fuel expense was $271.7 million compared to $316.1 million for the corresponding period in 2008. The decrease was due to a decrease of 21.6% in KWHs generated as a result of lower KWH demand, and lower natural gas prices of 38.3%. The decrease was partially offset by an increase of 25.1% in the average cost of coal per KWH generated.
Non-Affiliates
In the second quarter 2009, purchased power from non-affiliates was $6.0 million compared to $6.1 million for the corresponding period in 2008. The decrease was not material.
For year-to-date 2009, purchased power from non-affiliates was $10.5 million compared to $9.2 million for the corresponding period in 2008. The increase was due to a 30.4% increase in the volume of KWHs purchased from available lower-priced market energy alternatives. The increase was partially offset by a 1.6% decrease in the average cost per KWH purchased.
Energy purchases from non-affiliates will vary depending on the market cost of available energy being lower than the cost of Southern Company system-generated energy, demand for energy within the Southern Company system service territory, and the availability of Southern Company system generation.
Affiliates
In the second quarter 2009, purchased power from affiliates was $13.3 million compared to $16.7 million for the corresponding period in 2008. The decrease was due to a 51.7% decrease in average cost per KWH purchased, partially offset by a 66.3% increase in the volume of KWHs purchased from available lower-priced market energy alternatives.
For year-to-date 2009, purchased power from affiliates was $28.6 million compared to $25.4 million for the corresponding period in 2008. The increase was due to a 106.9% increase in the volume of KWHs purchased from available lower-priced market energy alternatives, partially offset by a 45.3% decrease in the average cost per KWH purchased.
Energy purchases from affiliates will vary depending on demand and the availability and cost of generating resources at each company within the Southern Company system. These purchases are made in accordance with the IIC, as approved by the FERC.
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)
$(0.8)
  (1.2)   $5.3   4.0
 
In the second quarter 2009, other operations and maintenance expenses when compared to the corresponding period in 2008 were not material.

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For year-to-date 2009, other operations and maintenance expenses were $137.5 million compared to $132.2 million for the corresponding period in 2008. The increase was primarily due to a $5.5 million increase in other energy services and a $1.5 million increase in scheduled maintenance at generation facilities, partially offset by a $1.7 million decrease in storm recovery costs. The increased expense from other energy services and the decreased storm recovery costs did not have a material impact on earnings since they were offset by increased associated revenues.
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)
$1.1   5.0   $2.5   5.6
 
In the second quarter 2009, depreciation and amortization was $23.3 million compared to $22.2 million for the corresponding period in 2008. For year-to-date 2009, depreciation and amortization was $46.4 million compared to $43.9 million for the corresponding period in 2008. The increases were primarily due to net additions to generation and distribution facilities.
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)
$2.2   10.5   $3.9   9.5
 
In the second quarter 2009, taxes other than income taxes were $23.0 million compared to $20.8 million for the corresponding period in 2008. For year-to-date 2009, taxes other than income taxes were $45.4 million compared to $41.5 million for the corresponding period in 2008. The increases were primarily due to increases in franchise fees and gross receipt taxes, which were directly related to increased retail revenues.
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)
$3.7   N/M   $7.0   N/M
 
N/M-Not Meaningful
In the second quarter 2009, AFUDC was $5.7 million compared to $2.0 million for the corresponding period in 2008. For year-to-date 2009, AFUDC was $10.5 million compared to $3.5 million for the corresponding period in 2008. These increases were primarily due to the construction of environmental control projects.
Interest 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)
$(0.6)   (88.0)   $(1.1)   (79.3)
 
In the second quarter 2009, interest income was $0.1 million compared to $0.7 million for the corresponding period in 2008. For year-to-date 2009, interest income was $0.3 million compared to $1.4 million for the corresponding period in 2008. These decreases were primarily due to decreases in interest received related to the recovery of financing costs associated with the fuel clause and interest on investments.

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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)
$(0.8)   (7.2)   $(1.9)   (8.9)
 
In the second quarter 2009, interest expense, net of amounts capitalized was $9.9 million compared to $10.7 million for the corresponding period in 2008. For year-to-date 2009, interest expense, net of amounts capitalized was $19.8 million compared to $21.7 million for the corresponding period in 2008. These decreases were primarily the result of an increase in capitalization of AFUDC related to the construction of environmental control projects.
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)
$0.4   2.6   $(2.4)   (9.2)
 
In the second quarter 2009, income taxes were $15.9 million compared to $15.5 million for the corresponding period in 2008. The increase was primarily due to higher earnings before income taxes, partially offset by an increase in the tax benefit associated with an increase in AFUDC, which is non-taxable, and state tax credits.
For year-to-date 2009, income taxes were $23.3 million compared to $25.7 million for the corresponding period in 2008. The decrease was primarily due to an increase in the tax benefit associated with an increase in AFUDC, which is non-taxable, and state tax credits, partially offset by a decrease in the federal production activities deduction.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Gulf Power’s future earnings potential. The level of Gulf Power’s future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Gulf Power’s business of selling electricity. These factors include Gulf Power’s ability to maintain a constructive regulatory environment that continues to allow for the recovery of prudently incurred costs during a time of increasing costs. Future earnings 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, energy conservation practiced by customers, the price of electricity, the price elasticity of demand, and the rate of economic growth or decline in Gulf Power’s service area. Recent recessionary conditions have negatively impacted sales and are expected to continue to have a negative impact, 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 Gulf Power 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 Gulf Power in Item 7 and Note 3 to the financial statements of Gulf Power under “Environmental Matters” in Item 8 of the Form 10-K for additional information.

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Water Quality
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters – Environmental Statutes and Regulations – Water Quality” of Gulf Power 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 Gulf Power 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 Gulf Power’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 Florida PSC Matters
Market-Based Rate Authority
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “FERC Matters – Market-Based Rate Authority” of Gulf Power in Item 7 and Note 3 to the financial statements of Gulf Power 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

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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
Gulf Power has established fuel cost recovery rates approved by the Florida PSC. In recent years, Gulf Power has experienced higher than expected fuel costs for coal and natural gas. If the projected fuel cost over or under recovery balance at year-end exceeds 10% of the projected fuel revenue applicable for the period, Gulf Power is required to notify the Florida PSC and indicate if an adjustment to the fuel cost recovery factor is being requested.
Under recovered fuel costs at June 30, 2009 totaled $52.7 million, compared to $96.7 million at December 31, 2008. This amount is included in under recovered regulatory clause revenues on Gulf Power’s Condensed Balance Sheets herein. Fuel cost recovery revenues, as recorded on the financial statements, are adjusted for differences in actual recoverable costs and amounts billed in current regulated rates. Accordingly, any change in the billing factor would have no significant effect on Gulf Power’s revenues or net income, but would affect cash flow. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Fuel Cost Recovery” of Gulf Power in Item 7 and Notes 1 and 3 to the financial statements of Gulf Power under “Revenues” and “Retail Regulatory Matters – Fuel Cost Recovery,” respectively, in Item 8 of the Form 10-K for additional information.
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 Gulf Power. Gulf Power estimates the cash flow reduction to 2009 tax payments as a result of the bonus depreciation provisions of the ARRA to be between approximately $13 million and $16 million. Southern Company and its subsidiaries have also filed an application under the ARRA for a grant, of which approximately $38 million relates to Gulf Power, to be used primarily for the advanced metering infrastructure program and other transmission and distribution automation and modernization projects. Gulf Power continues to assess the other financial implications of the ARRA. The ultimate impact cannot be determined at this time.
Other Matters
On March 16, 2009, Gulf Power entered into a PPA (the Agreement) with Shell Energy North America (US), L.P. (Shell). Under the terms of the Agreement, Gulf Power will be entitled to all of the capacity and energy from an approximately 885 MW combined cycle power plant (the Plant) located in Autauga County, Alabama that is owned and operated by Tenaska Alabama II Partners, L.P. (Tenaska). Shell is entitled to all of the capacity and energy from the Plant under a 20-year Energy Conversion Agreement between Shell and Tenaska that expires on May 24, 2023. On July 14, 2009, the Florida PSC approved the Agreement. The Agreement will commence on the first day of the month after the Florida PSC’s approval becomes a final, non-appealable order. The earliest possible effective date for the Agreement is October 1, 2009. Unless earlier terminated in accordance with its terms, the Agreement will terminate on May 24, 2023. Payments

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under the Agreement will be material; however these costs have been approved by the Florida PSC for recovery through Gulf Power’s fuel clause and purchased power capacity clause; therefore, no material impact is expected on Gulf Power’s net income. The ultimate outcome of this matter cannot now be determined.
Gulf Power is involved in various other matters being litigated and regulatory matters that could affect future earnings. In addition, Gulf Power is subject to certain claims and legal actions arising in the ordinary course of business. Gulf Power’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 Gulf Power cannot be predicted at this time; however, for current proceedings not specifically reported herein or in Note 3 to the financial statements of Gulf Power 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 Gulf Power’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
Gulf Power prepares its 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 Gulf Power 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 Gulf Power’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 Gulf Power in Item 7 of the Form 10-K for a complete discussion of Gulf Power’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. Gulf Power 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.

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FINANCIAL CONDITION AND LIQUIDITY
Overview
Gulf Power’s financial condition remained stable at June 30, 2009. Throughout the turmoil in the financial markets, Gulf Power has maintained adequate access to capital without drawing on any of its committed bank credit arrangements used to support its commercial paper borrowings and variable rate pollution control revenue bonds. Gulf Power 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 Gulf Power has been and expects to continue to be subject to higher costs as its existing facilities are replaced or renewed. In the second quarter 2009, Gulf Power renewed $20 million of expiring credit facilities and entered into an additional $80 million of credit facilities. Total committed credit fees at Gulf Power currently average less than 1/2 of 1% per year. Gulf Power’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. Gulf Power 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.
Gulf Power’s investments in pension trust funds stabilized during the second quarter 2009. Gulf Power 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.
Net cash provided from operating activities totaled $49.6 million for the first six months of 2009 compared to $71.4 million for the corresponding period in 2008. The $21.8 million decrease in cash provided from operating activities was primarily due to a $22.4 million increase in customer receivables. Net cash used for investing activities in the first six months of 2009 totaled $277.3 million primarily due to gross property additions to utility plant. These additions were primarily related to installation of equipment to comply with environmental requirements. Net cash provided from financing activities totaled $283.3 million for the first six months of 2009, compared to $95.9 million for the corresponding period in 2008. The $187.4 million increase in cash provided from financing activities was primarily due to the issuances of $140.0 million of senior notes, $135.0 million of common stock to Southern Company, and $130.4 million of pollution control revenue bonds in 2009, partially offset by an issuance of $110 million of long-term debt in 2008, a $71.2 million decrease of capital contributions from Southern Company, and a $33.1 million increase in cash payments related to notes payable.
Significant balance sheet changes for the first six months of 2009 include a net increase of $212.9 million in property, plant, and equipment, primarily related to environmental control projects; the issuance of $140.0 million in senior notes; the issuance of common stock to Southern Company for $135.0 million; the issuance of $130.4 million of pollution control revenue bonds, with a related restricted cash balance of $37.8 million; an increase in customer accounts receivable and unbilled revenues of $44.4 million; and a $44.0 million decrease in under recovered regulatory clause revenues related to fuel.

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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 Gulf Power in Item 7 of the Form 10-K for a description of Gulf Power’s capital requirements for its construction program, maturities of long-term debt, leases, derivative obligations, preference stock dividends, purchase commitments, and trust funding requirements. Approximately $140 million will be required through June 30, 2010 to fund maturities of debt. The construction program is 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; storm impacts; changes in environmental statutes and regulations; changes in FERC rules and regulations; Florida 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
Gulf Power plans to obtain the funds required for construction and other purposes from sources similar to those utilized in the past. Recently, Gulf Power has utilized funds from operating cash flows, short-term debt, security offerings, a long-term bank note, and equity contributions from Southern Company. However, the amount, type, and timing of any future financings, if needed, will depend upon regulatory approval, prevailing market conditions, and other factors. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Sources of Capital” of Gulf Power in Item 7 of the Form 10-K for additional information.
Gulf Power’s current liabilities frequently exceed current assets because of the continued use of short-term debt as a funding source to meet cash needs which can fluctuate significantly due to the seasonality of the business. To meet short-term cash needs and contingencies, Gulf Power had at June 30, 2009 approximately $59.2 million of cash and cash equivalents and $220 million of unused committed lines of credit with banks. Of these credit agreements, $90 million expire in 2009, $130 million expire in 2010, and $70 million of these facilities contain provisions allowing one-year term loans executable at expiration. Gulf Power expects to renew its credit facilities, as needed, prior to expiration. See Note 6 to the financial statements of Gulf Power 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. These credit arrangements provide liquidity support to Gulf Power’s commercial paper borrowings and $69 million are dedicated to funding purchase obligations related to variable rate pollution control revenue bonds. Gulf Power may 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 Gulf Power and other Southern Company subsidiaries. At June 30, 2009, Gulf Power had $66 million of commercial paper outstanding. Management believes that the need for working capital can be adequately met by utilizing the commercial paper program, lines of credit, and cash.
Credit Rating Risk
Gulf Power 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 to BBB- and/or Baa3 or below. These contracts are for physical electricity purchases and sales, fuel purchases, fuel transportation and storage, emissions allowances, and energy price risk management. At June 30, 2009, the maximum potential collateral requirements under these contracts at a BBB- and/or Baa3 rating were approximately $62 million. At June 30, 2009, the maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were approximately $246 million. Included in these amounts are certain agreements that could require collateral

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
in the event that one or more Power Pool participants has a credit rating change to below investment grade. Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, any credit rating downgrade could impact Gulf Power’s ability to access capital markets, particularly the short-term debt market.
Market Price Risk
Gulf Power’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, Gulf Power 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, Gulf Power continues to have limited exposure to market volatility in interest rates, commodity fuel prices, and prices of electricity. To mitigate residual risks relative to movements in electricity prices, Gulf Power enters into physical fixed-price contracts for the purchase and sale of electricity through the wholesale electricity market. Gulf Power continues to manage a fuel-hedging program implemented per the guidelines of the Florida PSC. As such, Gulf Power has no material change in market risk exposure when compared with the December 31, 2008 reporting period.
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
  $ (43.2 )   $ (31.2 )
Contracts realized or settled
    15.2       23.2  
Current period changes(a)
    (0.2 )     (20.2 )
 
Contracts outstanding at the end of the period, assets (liabilities), net
  $ (28.2 )   $ (28.2 )
 
 
(a)   Current period changes also include the changes in fair value of new contracts entered into during the period, if any.
The increases in the fair value positions of the energy-related derivative contracts for the three months and six months ended June 30, 2009 were $15 million and $3 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, Gulf Power had a net hedge volume of 15 million mmBtu with a weighted average contract cost approximately $1.95 per mmBtu above market prices, compared to 16 million mmBtu at March 31, 2009 with a weighted average contract cost approximately $2.76 per mmBtu above market prices and compared to 14 million mmBtu at December 31, 2008 with a weighted average contract cost approximately $2.24 per mmBtu above market prices. Natural gas hedge settlements are recovered through the fuel cost recovery clause.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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,   December 31,
    2009   2008
 
    (in millions)
Regulatory hedges
  $ (28.2 )   $ (31.2 )
Not designated
           
 
Total fair value
  $ (28.2 )   $ (31.2 )
 
Energy-related derivative contracts which are designated as regulatory hedges relate to Gulf Power’s fuel hedging program 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 clause. Gains and losses on energy-related derivative contracts that are not designated or fail to qualify as hedges are recognized in the statements of income as incurred.
Unrealized pre-tax gains and losses recognized in income for the three and six months ended June 30, 2009 and 2008 for energy-related derivative contracts that are not hedges were not material.
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
    (28.2 )     (23.4 )     (4.8 )      
Level 3
                       
 
Fair value of contracts outstanding at end of period
  $ (28.2 )   $ (23.4 )   $ (4.8 )   $  
 
Gulf Power 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 Gulf Power in Item 7 and Notes 1 and 6 to the financial statements of Gulf Power under “Financial Instruments” in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements herein.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financing Activities
On January 22, 2009, Gulf Power issued to Southern Company 1,350,000 shares of Gulf Power common stock, without par value, and realized proceeds of $135 million. The proceeds were used to repay a portion of Gulf Power’s short-term debt and for other general corporate purposes, including Gulf Power’s continuous construction program.
Also during the first quarter 2009, Gulf Power incurred obligations related to the issuance of $130.4 million of pollution control revenue bonds. The proceeds are being used for the acquisition, construction, installation, and equipping of certain solid waste disposal facilities located at Plant Crist.
In June 2009, Gulf Power issued $140 million of Series 2009A Floating Rate Senior Notes due June 28, 2010. The proceeds were used to repay a portion of short-term indebtedness and for other general corporate purposes, including Gulf Power’s continuous construction program.
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.
In addition to any financings that may be necessary to meet capital requirements, contractual obligations, and storm-recovery, Gulf Power plans to continue, when economically feasible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit.

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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
  $ 201,132     $ 187,121     $ 376,867     $ 355,510  
Wholesale revenues, non-affiliates
    73,693       83,595       153,847       168,401  
Wholesale revenues, affiliates
    7,963       22,546       17,381       50,925  
Other revenues
    3,893       4,670       7,309       8,512  
 
                       
Total operating revenues
    286,681       297,932       555,404       583,348  
 
                       
Operating Expenses:
                               
Fuel
    125,832       138,857       245,797       268,973  
Purchased power, non-affiliates
    2,873       5,426       5,708       7,681  
Purchased power, affiliates
    21,595       17,484       43,400       43,482  
Other operations and maintenance
    61,601       63,368       121,362       128,141  
Depreciation and amortization
    17,660       17,101       35,675       35,098  
Taxes other than income taxes
    16,221       16,286       31,145       31,851  
 
                       
Total operating expenses
    245,782       258,522       483,087       515,226  
 
                       
Operating Income
    40,899       39,410       72,317       68,122  
Other Income and (Expense):
                               
Interest income
    163       184       795       593  
Interest expense, net of amounts capitalized
    (6,254 )     (4,391 )     (11,016 )     (8,832 )
Other income (expense), net
    1,136       2,899       2,765       4,518  
 
                       
Total other income and (expense)
    (4,955 )     (1,308 )     (7,456 )     (3,721 )
 
                       
Earnings Before Income Taxes
    35,944       38,102       64,861       64,401  
Income taxes
    13,578       13,664       24,091       23,358  
 
                       
Net Income
    22,366       24,438       40,770       41,043  
Dividends on Preferred Stock
    433       433       866       866  
 
                       
Net Income After Dividends on Preferred Stock
  $ 21,933     $ 24,005     $ 39,904     $ 40,177  
 
                       
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 Stock
  $ 21,933     $ 24,005     $ 39,904     $ 40,177  
Other comprehensive income (loss):
                               
Qualifying hedges:
                               
Changes in fair value, net of tax of $(139), $(144), $27, and $(1,454), respectively
    (224 )     (233 )     44       (2,347 )
 
                       
Comprehensive Income
  $ 21,709     $ 23,772     $ 39,948     $ 37,830  
 
                       
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.

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CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    For the Six Months  
    Ended June 30,  
    2009     2008  
    (in thousands)  
Operating Activities:
               
Net income
  $ 40,770     $ 41,043  
Adjustments to reconcile net income to net cash provided from operating activities —
               
Depreciation and amortization, total
    39,202       37,232  
Deferred income taxes and investment tax credits, net
    (11,019 )     (8,732 )
Pension, postretirement, and other employee benefits
    2,852       3,765  
Stock option expense
    747       555  
Tax benefit of stock options
    14       95  
Generation construction screening expense
    (14,049 )     (8,780 )
Other, net
    2,078       (1,861 )
Changes in certain current assets and liabilities —
               
-Receivables
    13,274       (22,108 )
-Fossil fuel stock
    (44,024 )     (30,521 )
-Materials and supplies
    (1,464 )     (13,569 )
-Prepaid income taxes
    (446 )     1,607  
-Other current assets
    (12,644 )     273  
-Other accounts payable
    (14,103 )     14,948  
-Accrued taxes
    (14,243 )     (20,369 )
-Accrued compensation
    (12,990 )     (12,379 )
-Other current liabilities
    2,260       19,801  
 
           
Net cash provided from (used for) operating activities
    (23,785 )     1,000  
 
           
Investing Activities:
               
Property additions
    (50,943 )     (57,404 )
Cost of removal, net of salvage
    (7,287 )     (424 )
Construction payables
    (4,709 )     (7,275 )
Hurricane Katrina capital grant proceeds
          7,314  
Other investing activities
    (1,412 )     (998 )
 
           
Net cash used for investing activities
    (64,351 )     (58,787 )
 
           
Financing Activities:
               
Increase in notes payable, net
    20,501       10,669  
Proceeds —
               
Capital contributions from parent company
    2,101       2,714  
Gross excess tax benefit of stock options
    60       253  
Senior notes issuances
    125,000        
Other long-term debt issuances
          80,000  
Redemptions —
               
Senior notes
    (40,000 )      
Payment of preferred stock dividends
    (866 )     (866 )
Payment of common stock dividends
    (34,250 )     (34,200 )
Other financing activities
    (1,780 )     (1,471 )
 
           
Net cash provided from financing activities
    70,766       57,099  
 
           
Net Change in Cash and Cash Equivalents
    (17,370 )     (688 )
Cash and Cash Equivalents at Beginning of Period
    22,413       4,827  
 
           
Cash and Cash Equivalents at End of Period
  $ 5,043     $ 4,139  
 
           
Supplemental Cash Flow Information:
               
Cash paid during the period for —
               
Interest (net of $117 and $58 capitalized for 2009 and 2008, respectively)
  $ 8,873     $ 7,844  
Income taxes (net of refunds)
  $ 27,149     $ 32,628  
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.

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CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Assets   2009     2008  
    (in thousands)  
Current Assets:
               
Cash and cash equivalents
  $ 5,043     $ 22,413  
Receivables —
               
Customer accounts receivable
    52,477       40,262  
Unbilled revenues
    31,445       24,798  
Under recovered regulatory clause revenues
    21,163       54,994  
Other accounts and notes receivable
    11,355       8,995  
Affiliated companies
    23,443       24,108  
Accumulated provision for uncollectible accounts
    (919 )     (1,039 )
Fossil fuel stock, at average cost
    129,562       85,538  
Materials and supplies, at average cost
    28,607       27,143  
Other regulatory assets, current
    72,074       59,220  
Other current assets
    22,497       10,898  
 
           
Total current assets
    396,747       357,330  
 
           
Property, Plant, and Equipment:
               
In service
    2,296,298       2,234,573  
Less accumulated provision for depreciation
    932,020       923,269  
 
           
Plant in service, net of depreciation
    1,364,278       1,311,304  
Construction work in progress
    40,180       70,665  
 
           
Total property, plant, and equipment
    1,404,458       1,381,969  
 
           
Other Property and Investments
    7,606       8,280  
 
           
Deferred Charges and Other Assets:
               
Deferred charges related to income taxes
    8,807       9,566  
Other regulatory assets, deferred
    182,882       171,680  
Other deferred charges and assets
    24,355       23,870  
 
           
Total deferred charges and other assets
    216,044       205,116  
 
           
Total Assets
  $ 2,024,855     $ 1,952,695  
 
           
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.

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CONDENSED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Liabilities and Stockholder's Equity   2009     2008  
    (in thousands)  
Current Liabilities:
               
Securities due within one year
  $ 1,279     $ 41,230  
Notes payable
    46,794       26,293  
Accounts payable —
               
Affiliated
    38,537       36,847  
Other
    43,203       63,704  
Customer deposits
    10,539       10,354  
Accrued taxes —
               
Accrued income taxes
    8,128       8,842  
Other accrued taxes
    28,965       50,700  
Accrued interest
    5,524       3,930  
Accrued compensation
    7,614       20,604  
Other regulatory liabilities, current
    9,695       9,718  
Liabilities from risk management activities
    37,851       29,291  
Other current liabilities
    20,290       19,144  
 
           
Total current liabilities
    258,419       320,657  
 
           
Long-term Debt
    494,073       370,460  
 
           
Deferred Credits and Other Liabilities:
               
Accumulated deferred income taxes
    222,470       222,324  
Deferred credits related to income taxes
    12,592       14,074  
Accumulated deferred investment tax credits
    13,419       14,014  
Employee benefit obligations
    143,513       142,188  
Other cost of removal obligations
    96,497       96,191  
Other regulatory liabilities, deferred
    54,359       51,340  
Other deferred credits and liabilities
    51,662       52,216  
 
           
Total deferred credits and other liabilities
    594,512       592,347  
 
           
Total Liabilities
    1,347,004       1,283,464  
 
           
Redeemable Preferred Stock
    32,780       32,780  
 
           
Common Stockholder’s Equity:
               
Common stock, without par value —
               
Authorized - 1,130,000 shares
               
Outstanding - 1,121,000 shares
    37,691       37,691  
Paid-in capital
    322,880       319,958  
Retained earnings
    284,456       278,802  
Accumulated other comprehensive income (loss)
    44        
 
           
Total common stockholder’s equity
    645,071       636,451  
 
           
Total Liabilities and Stockholder’s Equity
  $ 2,024,855     $ 1,952,695  
 
           
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.

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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
Mississippi Power operates as a vertically integrated utility providing electricity to retail customers within its traditional service area located within the State of Mississippi and to wholesale customers in the Southeast. Many factors affect the opportunities, challenges, and risks of Mississippi Power’s business of selling electricity. These factors include the ability to maintain a constructive regulatory environment, to maintain energy sales in the midst of the current economic downturn, and to effectively manage and secure timely recovery of rising costs. These costs include those related to projected long-term demand growth, increasingly stringent environmental standards, fuel prices, capital expenditures, and restoration following major storms. Mississippi Power has various regulatory mechanisms that operate to address cost recovery. Appropriately balancing required costs and capital expenditures with reasonable retail rates will continue to challenge Mississippi Power for the foreseeable future.
Mississippi Power continues to focus on several key performance indicators. In recognition that Mississippi Power’s long-term financial success is dependent upon how well it satisfies its customers’ needs, Mississippi Power’s retail base rate mechanism, PEP, includes performance indicators that directly tie customer service indicators to Mississippi Power’s allowed return. In addition to the PEP performance indicators, Mississippi Power focuses on other performance measures, including broader measures of customer satisfaction, plant availability, system reliability, and net income after dividends on preferred stock. For additional information on these indicators, see MANAGEMENT’S DISCUSSION AND ANALYSIS — OVERVIEW — “Key Performance Indicators” of Mississippi Power 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)
$(2.1)
  (8.6)   $(0.3)   (0.7)
 
Mississippi Power’s net income after dividends on preferred stock for the second quarter 2009 was $21.9 million compared to $24.0 million for the corresponding period in 2008. Mississippi Power’s net income after dividends on preferred stock for year-to-date 2009 was $39.9 million compared to $40.2 million for the corresponding period in 2008. The decreases in net income after dividends for the second quarter 2009 and year-to-date 2009 were primarily due to decreases in wholesale energy revenues, total other income and (expense), and other revenues. These decreases were partially offset by an increase in territorial base revenues primarily resulting from an increase in territorial wholesale demand and a wholesale base rate increase as well as a decrease in other operations and maintenance expenses.

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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)
$14.0   7.5   $21.4   6.0
 
In the second quarter 2009, retail revenues were $201.1 million compared to $187.1 million for the corresponding period in 2008. For year-to-date 2009, retail revenues were $376.9 million compared to $355.5 million 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
  $ 187.1             $ 355.5          
Estimated change in —
                               
Rates and pricing
    0.9       0.5       2.5       0.7  
Sales growth (decline)
    (0.3 )     (0.2 )     (2.5 )     (0.7 )
Weather
    1.3       0.7       0.2       0.0  
Fuel and other cost recovery
    12.1       6.5       21.2       6.0  
 
Retail – current year
  $ 201.1       7.5 %   $ 376.9       6.0 %
 
Revenues associated with changes in rates and pricing increased in the second quarter 2009 when compared to the corresponding period in 2008 due to a $1.1 million increase related to the reclassification of 2008 System Restoration Rider (SRR) revenue reductions to expense pursuant to an order from the Mississippi PSC dated January 9, 2009, partially offset by decreases in retail revenues of approximately $0.2 million related to the ECO Plan rate.
Revenues associated with changes in rates and pricing increased year-to-date 2009 when compared to the corresponding period in 2008 due to a $2.1 million increase related to the reclassification of 2008 SRR revenue reductions to expense pursuant to an order from the Mississippi PSC dated January 9, 2009 and an increase in base rates of $0.9 million related to a rate change effective in mid-January 2008. These increases were partially offset by a decrease of $0.5 million related to the ECO Plan rate.
For additional information on SRR, see MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – System Restoration Rider” of Mississippi Power in Item 7 of the Form 10-K.
Revenues attributable to changes in sales declined in the second quarter 2009 when compared to the corresponding period in 2008. Weather-adjusted KWH energy sales to residential and commercial customers decreased 5.2% and 0.2%, respectively. KWH energy sales to industrial customers increased 3.2%. The decrease in weather-adjusted KWH sales to residential and commercial customers is primarily due to a recessionary economy. The increase in industrial sales is primarily due to maintenance outages experienced by some industrial customers in 2008.
Revenues attributable to changes in sales declined for year-to-date 2009 when compared to the corresponding period in 2008. Weather-adjusted KWH energy sales to residential and commercial customers decreased 4.1% and 0.5%, respectively. KWH energy sales to industrial customers decreased 1.6%. The decrease in weather-adjusted KWH sales to residential and commercial customers is primarily due to a recessionary economy. The decrease in industrial sales is primarily due to lower production levels experienced by industrial customers resulting from a recessionary economy.

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Revenues attributable to changes in weather increased slightly in the second quarter and year-to-date 2009 when compared to the corresponding periods in 2008. Revenues resulting from changes in weather were minimal as overall weather conditions were similar in 2009 when compared to the corresponding periods in 2008.
Fuel and other cost recovery revenues increased in the second quarter and year-to-date 2009 when compared to the corresponding periods in 2008, primarily as a result of higher recoverable fuel costs. Recoverable fuel costs include fuel and purchased power expenses reduced by the fuel portion of wholesale revenues from energy sold to customers outside Mississippi Power’s service territory. Electric rates include provisions to adjust billings for fluctuations in fuel costs, including the energy component of purchased power costs. Under these provisions, fuel revenues generally equal fuel expenses, including the fuel component of purchased power costs, and do not affect net income.
Wholesale Revenues – Non-Affiliates
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(9.9)
  (11.8)   $(14.6)   (8.6)
 
Wholesale revenues from non-affiliates will vary depending on the market cost of available energy compared to the cost of Mississippi Power and Southern Company system-owned generation, demand for energy within the Southern Company service territory, and availability of Southern Company system generation.
In the second quarter 2009, wholesale revenues from non-affiliates were $73.7 million compared to $83.6 million for the corresponding period in 2008. The decrease was due to decreased revenues from customers outside Mississippi Power’s service territory of $15.5 million, partially offset by $5.6 million increased revenues from customers inside Mississippi Power’s service territory. The $15.5 million decrease in revenues from customers outside Mississippi Power’s service territory was primarily due to a $17.5 million decrease associated with lower prices resulting from lower marginal cost of fuel, partially offset by a $2.0 million increase in sales. The $5.6 million increase in revenues from customers inside Mississippi Power’s service territory was due to a $3.0 million increase in recoverable fuel costs and a $2.6 million increase due to higher demands by customers and a base rate increase that was effective January 2009.
For year-to-date 2009, wholesale revenues to non-affiliates were $153.8 million compared to $168.4 million for the corresponding period in 2008. The decrease was due to decreased revenues from customers outside Mississippi Power’s service territory of $27.4 million, partially offset by $12.8 million increased revenues from customers inside Mississippi Power’s service territory. The $27.4 million decrease in revenues from customers outside Mississippi Power’s service territory was primarily due to a $24.1 million decrease associated with lower prices resulting from lower marginal cost of fuel, a $3.0 million decrease in sales, and a $0.3 million decrease in capacity revenues. The $12.8 million increase in revenues from customers inside Mississippi Power’s service territory was due to a $6.9 million increase in recoverable fuel costs and a $5.9 million increase due to higher demands by customers and a base rate increase that was effective January 2009.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wholesale Revenues – Affiliates
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(14.5)   (64.7)   $(33.5)   (65.9)
 
Wholesale revenues from affiliates will vary depending on demand and the availability and cost of generating resources at each company within the Southern Company system. These affiliate sales are made in accordance with the IIC, as approved by the FERC. These transactions do not have a significant impact on earnings since the energy is generally sold at marginal cost.
In the second quarter 2009, wholesale revenues from affiliates were $8.0 million compared to $22.5 million for the corresponding period in 2008. The decrease was primarily due to a $14.9 million decrease in energy revenues, of which $11.6 million was associated with decreased sales and $3.3 million was associated with lower prices. Capacity revenues increased $0.4 million.
For year-to-date 2009, wholesale revenues from affiliates were $17.4 million compared to $50.9 million for the corresponding period in 2008. The decrease was primarily due to a $34.1 million decrease in energy revenues, of which $29.9 million was associated with decreased sales and $4.2 million was associated with lower prices. Capacity revenues increased $0.6 million.
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)
$(0.8)   (16.6)   $(1.2)   (14.1)
 
In the second quarter 2009, other revenues were $3.9 million compared to $4.7 million for the corresponding period in 2008. The decrease was primarily due to a $0.6 million transmission contract buyout that occurred in 2008.
For year-to-date 2009, other revenues were $7.3 million compared to $8.5 million for the corresponding period in 2008. The decrease was primarily due to a $0.6 million decrease in transmission revenues and a $0.6 million transmission contract buyout that occurred 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
  $ (13.1 )     (9.4 )   $ (23.2 )     (8.6 )
Purchased power – non-affiliates
    (2.5 )     (47.1 )     (2.0 )     (25.7 )
Purchased power – affiliates
    4.1       23.5       (0.1 )     (0.2 )
                     
Total fuel and purchased power expenses
  $ (11.5 )           $ (25.3 )        
                     
In the second quarter 2009, total fuel and purchased power expenses were $150.3 million compared to $161.8 million for the corresponding period in 2008. This decrease was primarily due to a $19.4 million decrease in the cost of fuel and purchased power, partially offset by a $7.9 million increase in total KWHs generated and purchased.

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For year-to-date 2009, total fuel and purchased power expenses were $294.9 million compared to $320.1 million for the corresponding period in 2008. This decrease was primarily due to a $13.5 million decrease in total KWHs generated and purchased and an $11.7 million decrease in the cost of fuel and purchased power.
Fuel and purchased power transactions do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Mississippi Power’s fuel cost recovery clause. See FUTURE EARNINGS POTENTIAL – “FERC and Mississippi PSC Matters – Retail Regulatory Matters” herein for additional information.
Details of Mississippi Power’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
    4.21       4.03       4.5       4.32       3.97       8.8  
Purchased power
    3.36       6.77       (50.4 )     3.62       5.94       (39.1 )
 
In the second quarter 2009, fuel expense was $125.8 million compared to $138.9 million for the corresponding period for 2008. The decrease was primarily due to a 13.2% decrease in generation from Mississippi Power facilities resulting from purchased power available at lower cost and lower energy sales, partially offset by a 4.5% increase in the price of fuel primarily due to an increase in coal prices.
For year-to-date 2009, fuel expense was $245.8 million compared to $269.0 million for the corresponding period for 2008. The decrease was primarily due to a 16.0% decrease in generation from Mississippi Power facilities resulting from purchased power available at lower cost and lower energy sales, partially offset by an 8.8% increase in the price of fuel primarily due to an increase in coal prices.
Non-Affiliates
In the second quarter 2009, purchased power expense from non-affiliates was $2.9 million compared to $5.4 million for the corresponding period in 2008. The decrease was primarily the result of a 74.4% decrease in the average cost of purchased power per KWH, partially offset by a 107.0% increase in KWH volume purchased. The decrease in prices was due to a lower marginal cost of fuel while the increase in volume was a result of lower cost opportunity purchases.
For year-to-date 2009, purchased power expense from non-affiliates was $5.7 million compared to $7.7 million for the corresponding period in 2008. The decrease was primarily the result of a 61.1% decrease in the average cost of purchased power per KWH, partially offset by a 91.2% increase in KWH volume purchased. The decrease in prices was due to a lower marginal cost of fuel while the increase in volume was a result of lower cost opportunity purchases.
Energy purchases from non-affiliates will vary depending on the market cost of available energy being lower than the cost of Southern Company system-generated energy, demand for energy within the Southern Company system service territory, and availability of Southern Company system generation.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Affiliates
In the second quarter 2009, purchased power from affiliates was $21.6 million compared to $17.5 million for the corresponding period in 2008. The increase was primarily due to a 118.1% increase in KWH volume purchased, partially offset by a 43.4% decrease in the average cost of purchased power per KWH.
For year-to-date 2009, purchased power from affiliates was $43.4 million compared to $43.5 million for the corresponding period in 2008. The decrease was primarily due to a 32.2% decrease in the average cost of purchased power per KWH, partially offset by a 47.2% increase in KWH volume purchased.
Energy purchases from affiliates will vary depending on demand and the availability and cost of generating resources at each company within the Southern Company system. These purchases are made in accordance with the IIC, as approved by the FERC.
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)
$(1.8)
  (2.8)   $(6.7)   (5.3)
 
In the second quarter 2009, other operations and maintenance expenses were $61.6 million compared to $63.4 million for the corresponding period in 2008. The decrease in other operations and maintenance expenses was primarily due to generation construction screening expenses of $2.5 million incurred in the second quarter 2008 which were originally expensed and subsequently reclassified in the fourth quarter 2008 to a regulatory asset upon the FERC’s acceptance of the wholesale rate filing in October 2008. Also contributing to the change was a $2.2 million decrease in transmission and distribution expenses as a result of the timing of projects and overall reductions in spending and a $0.3 million decrease in customer accounting, service, and sales expenses. These decreases were partially offset by a $2.6 million increase in production expenses primarily due to outage work in 2009 and a $0.6 million increase in administrative and general expenses primarily due to an increase in property insurance expense.
For year-to-date 2009, other operations and maintenance expenses were $121.4 million compared to $128.1 million for the corresponding period in 2008. The decrease in other operations and maintenance expenses was primarily due to generation construction screening expenses of $4.2 million incurred in the first six months of 2008 which were originally expensed and subsequently reclassified in the fourth quarter 2008 to a regulatory asset upon the FERC’s acceptance of the wholesale rate filing in October 2008. Also contributing to the change was a $4.0 million decrease in transmission and distribution expenses as a result of timing of projects and overall reductions in spending and a $1.5 million decrease in generation-related environmental expenses. These decreases were partially offset by a $3.0 million increase in production expenses primarily due to outage work in 2009.
See Note 3 to the financial statements of Mississippi Power under “FERC Matters” in Item 8 of the Form 10-K for additional information.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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)
$1.9   42.4   $2.2   24.7
 
In the second quarter 2009, interest expense, net of amounts capitalized was $6.3 million compared to $4.4 million for the corresponding period in 2008. The increase was primarily due to a $1.6 million increase in interest expense associated with the issuance of long-term debt in November 2008 and March 2009.
For year-to-date 2009, interest expense, net of amounts capitalized was $11.0 million compared to $8.8 million for the corresponding period in 2008. The increase was primarily due to a $2.3 million increase in interest expense associated with the issuance of long-term debt in November 2008 and March 2009.
For additional information, see MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Financing Activities” of Mississippi Power in Item 7 of the Form 10-K and FINANCIAL CONDITION AND LIQUIDITY – “Financing Activities” herein for additional information.
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)
$(1.8)   (60.8)   $(1.7)   (38.8)
 
In the second quarter 2009, other income (expense), net was $1.1 million compared to $2.9 million for the corresponding period in 2008. The decrease was primarily due to a $1.8 million decrease due to mark-to-market losses on energy-related derivative positions.
For year-to-date 2009, other income (expense), net was $2.8 million compared to $4.5 million for the corresponding period in 2008. The decrease was primarily due to a $1.9 million decrease in income due to mark-to-market losses on energy-related derivative positions and amounts collected from customers for construction of substation projects which had a tax effect of $0.8 million, partially offset by a $0.7 million increase in customer projects.
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)
$(0.1)   (0.6)   $0.7   3.1
 
In the second quarter 2009, income taxes were $13.6 million compared to $13.7 million for the corresponding period in 2008. The change was primarily due to a $0.6 million decrease resulting from the decrease in pre-tax income, partially offset by an increase in income taxes resulting from fully amortizing a regulatory liability through income taxes in 2008 of $0.4 million pursuant to a December 2007 regulatory accounting order from the Mississippi PSC.
For year-to-date 2009, income taxes were $24.1 million compared to $23.4 million for the corresponding period in 2008. The change was primarily due to a $0.4 million increase resulting from the increase in pre-tax income and a $0.7 million increase resulting from fully amortizing a regulatory liability through income taxes in 2008 pursuant to a December 2007 regulatory accounting order from the Mississippi PSC.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
See Note 3 to the financial statements of Mississippi Power under “Retail Regulatory Matters” in Item 8 of the Form 10-K for additional information.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Mississippi Power’s future earnings potential. The level of Mississippi Power’s future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Mississippi Power’s business of selling electricity. These factors include Mississippi Power’s ability to maintain a constructive regulatory environment that continues to allow for the recovery of prudently incurred costs during a time of increasing costs. Future earnings 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, energy conservation practiced by customers, the price of electricity, the price elasticity of demand, and the rate of economic growth or decline in Mississippi Power’s service area. Recent recessionary conditions have negatively impacted sales and are expected to continue to have a negative impact, 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 Mississippi Power 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 Mississippi Power in Item 7 and Note 3 to the financial statements of Mississippi Power 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 Mississippi Power 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 Mississippi Power 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

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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 Mississippi Power’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 Mississippi PSC Matters
Market-Based Rate Authority
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “FERC Matters – Market-Based Rate Authority” of Mississippi Power in Item 7 and Note 3 to the financial statements of Mississippi Power 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 Regulatory Matters
Environmental Compliance Overview Plan
See Note 3 to the financial statements of Mississippi Power under “Retail Regulatory Matters – Environmental Compliance Overview Plan” in Item 8 of the Form 10-K for information on Mississippi Power’s annual environmental filing with the Mississippi PSC. On February 3, 2009, Mississippi Power submitted its 2009 ECO Plan notice which proposed an increase in annual revenue for Mississippi Power of approximately $1.5 million. On June 19, 2009, the Mississippi PSC approved the ECO Plan with the new rates effective in June 2009.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Performance Evaluation Plan
The Mississippi Public Utilities Staff, pursuant to the Mississippi PSC’s 2004 order approving the current PEP, is reviewing the PEP to determine if any modifications should be made. On March 2, 2009, concurrent with this review, the annual PEP evaluation filing for 2009 was suspended. Mississippi Power anticipates that, as a result of this required review, changes to the PEP will be made. Annual evaluations will resume for 2010 under the current PEP or a revised PEP. Mississippi Power does not anticipate that the suspension of the PEP filing for 2009 will have a material impact on 2009 earnings. On August 3, 2009, the Mississippi Public Utilities Staff and Mississippi Power filed a joint report with the Mississippi PSC proposing several changes to the PEP and asking the Mississippi PSC to rule on the recommendations by the end of September 2009. While the final outcome is not known, it is likely that any modifications made to the PEP will result in a lower performance incentive under the PEP and therefore smaller and/or less frequent rate changes in the future. See Note 3 to the financial statements of Mississippi Power under “Retail Regulatory Matters – Performance Evaluation Plan” in Item 8 of the Form 10-K for additional information regarding Mississippi Power’s base rates.
On March 16, 2009, Mississippi Power submitted its annual PEP lookback filing for 2008, which recommended no surcharge or refund. The ultimate outcome of these matters cannot now be determined.
Fuel Cost Recovery
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “PSC Matters – Fuel Cost Recovery” of Mississippi Power in Item 7 of the Form 10-K for information regarding Mississippi Power’s fuel cost recovery. The Mississippi PSC approved the retail fuel cost recovery factor on March 3, 2009, with the new rates effective in March 2009. The retail fuel cost recovery factor will result in an annual increase in an amount equal to 10.3% of total 2008 retail revenues based on ten months of recovery under the new rate. At June 30, 2009, the amount of under recovered retail fuel costs included in the balance sheet was $16.3 million compared to $36.0 million at December 31, 2008. Mississippi Power also has a wholesale Municipal and Rural Associations (MRA) and Market Base (MB) fuel cost recovery factor. Effective January 1, 2009, the wholesale MRA fuel rate increased resulting in an annual increase in an amount equal to 13.9% of total 2008 MRA revenues. Effective February 1, 2009, the wholesale MB fuel rate increased resulting in an annual increase in an amount equal to 16.7% of total 2008 MB revenues. At June 30, 2009, the amount of under recovered wholesale MRA and MB fuel costs included in the balance sheet was $3.5 million and $1.4 million compared to $15.4 million and $3.7 million, respectively, at December 31, 2008. Mississippi Power’s operating revenues are adjusted for differences in actual recoverable fuel cost and amounts billed in accordance with the currently approved cost recovery rate. Accordingly, this increase to the billing factor will have no significant effect on Mississippi Power’s revenues or net income, but will increase annual cash flow.
In October 2008, the Mississippi PSC opened a docket to investigate and review interest and carrying charges under the fuel adjustment clause for utilities within the State of Mississippi including Mississippi Power. A hearing was held in November 2008 to hear testimony regarding the method of calculating carrying charges on over and under recoveries of fuel-related costs. On March 4, 2009, the Mississippi PSC issued an order to apply the prime rate in calculating the carrying costs on the retail over or under recovery balances related to fuel cost recovery. On May 20, 2009, Mississippi Power filed the carrying cost calculation methodology as part of its compliance filing.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Integrated Coal Gasification Combined Cycle
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Integrated Coal Gasification Combined Cycle” of Mississippi Power in Item 7 and Note 3 to the financial statements of Mississippi Power 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 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 Mississippi Power 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.

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MISSISSIPPI POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 Mississippi Power. Mississippi Power estimates the cash flow reduction to 2009 tax payments as a result of the bonus depreciation provisions of the ARRA to be between approximately $11 million and $14 million. Southern Company and its subsidiaries have also filed an application under the ARRA for a grant, of which approximately $40 million relates to Mississippi Power, to be used primarily for the advanced metering infrastructure program and other transmission and distribution automation and modernization projects. Mississippi Power continues to assess the other financial implications of the ARRA. The ultimate impact cannot be determined at this time.
Other Matters
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Other Matters” of Mississippi Power in Item 7 of the Form 10-K for information regarding the South Mississippi Electric Power Association (SMEPA) contract. On June 3, 2009, Mississippi Power’s 10-year power supply agreement with SMEPA for approximately 152 MW effective April 1, 2011 was approved by the U.S. Department of Agriculture’s Rural Utilities Service.
Mississippi Power is involved in various other matters being litigated and regulatory matters that could affect future earnings. In addition, Mississippi Power is subject to certain claims and legal actions arising in the ordinary course of business. Mississippi Power’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 Mississippi Power cannot be predicted at this time; however, for current proceedings not specifically reported herein or in Note 3 to the financial statements of Mississippi Power 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 Mississippi Power’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
Mississippi Power prepares its 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 Mississippi Power 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 Mississippi Power’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 Mississippi Power in Item 7 of the Form 10-K for a complete discussion of Mississippi Power’s critical accounting policies and estimates related to Electric Utility Regulation, Contingent Obligations, Unbilled Revenues, and Plant Daniel Operating Lease.

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MISSISSIPPI POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. Mississippi Power 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.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Mississippi Power’s financial condition remained stable at June 30, 2009. Throughout the turmoil in the financial markets, Mississippi Power has maintained adequate access to capital without drawing on any of its committed bank credit arrangements used to support its commercial paper borrowings and variable rate pollution control revenue bonds. Mississippi Power 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 Mississippi Power has been and expects to continue to be subject to higher costs as its existing facilities are replaced or renewed. Total committed credit fees at Mississippi Power currently average less than 1/4 of 1% per year. Mississippi Power’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. Mississippi Power 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.
Mississippi Power’s investments in pension trust funds stabilized during the second quarter 2009. Mississippi Power 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.
Net cash used for operating activities totaled $23.8 million for the first six months of 2009, compared to $1.0 million provided from operating activities for the corresponding period in 2008. The $24.8 million increase in cash used for operating activities was primarily due to a decrease in Energy Cost Management clause (ECM) revenues resulting from a decrease in the ECM rate effective in March 2009 and cash payments related to losses on settled hedges in 2009. Also contributing to the increase in cash used for operating activities were increases in both coal prices and inventory. These increases in cash used for operating activities were partially offset by an increase in cash resulting from higher fuel rates effective in March 2009. The $5.6 million increase in net cash used for investing activities was primarily due to grant proceeds of $7.3 million received in the second quarter 2008. The $13.7 million increase in net cash provided from financing activities was primarily due to a $9.8 million increase in borrowings from commercial paper in 2009 and an increase in the issuance of long-term debt in the first quarter 2009 of $45 million compared to the corresponding period in 2008, partially offset by cash outflows resulting from $40 million of long-term senior notes that matured on March 9, 2009.

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MISSISSIPPI POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Significant balance sheet changes for the first six months of 2009 include a decrease in under recovered regulatory clause revenues of $33.8 million primarily due to lower fuel costs and the implementation of a higher fuel cost recovery factor in 2009. Fossil fuel inventory increased $44.0 million primarily due to increases in coal inventory and emissions allowances of $26.3 million and $19.9 million, respectively. Other regulatory assets increased $12.9 million primarily due to mark-to-market losses on forward gas contracts and total property, plant, and equipment increased by $22.5 million. Securities due within one year decreased by $40.0 million due to senior notes maturing during the first quarter 2009. Notes payable increased by $20.5 million primarily due to an increase in commercial paper borrowings. Accrued taxes, other decreased by $21.8 million primarily due to 2008 property tax payments of $39.8 million in the first quarter 2009 offset by an $18.4 million accrual for 2009. Long-term debt increased by $124 million primarily due to the issuance of senior notes in the first quarter 2009.
Capital Requirements and Contractual Obligations
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Capital Requirements and Contractual Obligations” of Mississippi Power in Item 7 of the Form 10-K for a description of Mississippi Power’s capital requirements for its construction program, scheduled maturities of long-term debt, as well as the related interest, lease obligations, purchase commitments, derivative obligations, preferred stock dividends, and trust funding requirements. Approximately $1.3 million will be required through June 30, 2010 for maturities of long-term debt. The construction program is 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; storm impacts; changes in environmental statutes and regulations; changes in FERC rules and regulations; Mississippi 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
Mississippi Power plans to obtain the funds required for construction and other purposes from sources similar to those utilized in the past. Mississippi Power has primarily utilized funds from operating cash flows, short-term borrowings, external security offerings, and capital contributions from Southern Company. However, the amount, type, and timing of any future financings, if needed, will depend upon regulatory approval, prevailing market conditions, and other factors. See MANAGEMENT’S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – “Sources of Capital” of Mississippi Power in Item 7 of the Form 10-K for additional information.
Mississippi Power’s current liabilities sometimes exceed current assets because of the continued use of short-term debt as a funding source to meet scheduled maturities of long-term debt as well as cash needs which can fluctuate significantly due to the seasonality of the business. To meet short-term cash needs and contingencies, Mississippi Power had at June 30, 2009 approximately $5.0 million of cash and cash equivalents and $148.5 million of unused committed credit arrangements with banks. These credit arrangements provide liquidity support to Mississippi Power’s commercial paper borrowings and $40 million are dedicated to funding purchase obligations related to variable rate pollution control revenue bonds. Of the unused credit facilities, $58.5 million expire in 2009 and $90 million expire in 2010 while $43.5 million of these credit arrangements contain provisions allowing two-year term loans executable at expiration and $15 million contain provisions allowing one-year term loans executable at expiration. Mississippi Power expects to renew its credit facilities, as needed, prior to expiration.

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MISSISSIPPI POWER COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
See Note 6 to the financial statements of Mississippi Power 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. Mississippi Power may 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 Mississippi Power and other Southern Company subsidiaries. At June 30, 2009, Mississippi Power had $45.4 million of commercial paper outstanding. Management believes that the need for working capital can be adequately met by utilizing commercial paper, 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 Mississippi Power in Item 7 and Note 7 to the financial statements of Mississippi Power 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
Mississippi Power 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 to BBB- and/or Baa3 or below. These contracts are for physical electricity purchases and sales, fuel purchases, fuel transportation and storage, emissions allowances, and energy price risk management. At June 30, 2009, the maximum potential collateral requirements under these contracts at a BBB- and/or Baa3 rating were approximately $12 million. At June 30, 2009, the maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were approximately $211 million. Included in these amounts are certain agreements that could require collateral in the event that one or more Power Pool participants has a credit rating change to below investment grade. Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, any credit rating downgrade could impact Mississippi Power’s ability to access capital markets, particularly the short-term debt market.
Market Price Risk
Mississippi Power’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, Mississippi Power 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, Mississippi Power continues to have limited exposure to market volatility in interest rates, commodity fuel prices, and prices of electricity. To mitigate residual risks relative to movements in electricity prices, Mississippi Power enters into physical fixed-price contracts for the purchase and sale of electricity through the wholesale electricity market. Mississippi Power continues to manage retail fuel-hedging programs implemented per the guidelines of the Mississippi PSC and wholesale fuel-hedging programs under agreements with wholesale customers. As such, Mississippi Power has no material change in market risk exposure when compared with the December 31, 2008 reporting period.

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MISSISSIPPI POWER COMPANY
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
  $ (76.0 )   $ (52.0 )
Contracts realized or settled
    16.8       25.8  
Current period changes(a)
    (0.6 )     (33.6 )
 
Contracts outstanding at the end of the period, assets (liabilities), net
  $ (59.8 )   $ (59.8 )
 
 
(a)   Current period changes also include the changes in fair value of new contracts entered into during the period, if any.
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 $16 million and a decrease of $8 million, respectively, substantially all of which is due to natural gas positions. These changes are attributable to the prices of natural gas positions. At June 30, 2009, Mississippi Power had a net hedge volume of 30 million mmBtu with a weighted average contract cost approximately $2.02 per mmBtu above market prices, compared to 30 million mmBtu at March 31, 2009 with a weighted average contract cost approximately $2.60 per mmBtu above market prices and compared to 29 million mmBtu at December 31, 2008 with a weighted average contract cost approximately $1.89 per mmBtu above market prices. The majority of the natural gas hedge settlements are recovered through the energy cost management clause.
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
  $ (59.6 )   $ (52.0 )
Cash flow hedges
           
Not designated
    (0.2 )      
 
Total fair value
  $ (59.8 )   $ (52.0 )
 
Energy-related derivative contracts which are designated as regulatory hedges relate to Mississippi Power’s fuel hedging program 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 energy cost management clause. Certain other gains and losses on energy-related derivatives, designated as cash flow hedges, 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.
Unrealized pre-tax gains and losses recognized in income for the three and six months ended June 30, 2009 for energy-related derivative contracts that are not hedges were not material. For the three and six months ended June 30, 2008, the total net unrealized gains recognized in the statements of income were $2 million and $2 million, respectively. See Note (E) to the Condensed Financial Statements herein for further details of these gains.

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MISSISSIPPI POWER COMPANY
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
    (59.8 )     (36.4 )     (21.1 )     (2.3 )
Level 3
                       
 
Fair value of contracts outstanding at end of period
  $ (59.8 )   $ (36.4 )   $ (21.1 )   $ (2.3 )
 
Mississippi Power 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 Mississippi Power in Item 7 and Notes 1 and 6 to the financial statements of Mississippi Power under “Financial Instruments” in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements herein.
Financing Activities
During the first quarter 2009, Mississippi Power issued $125 million of Series 2009A 5.55% Senior Notes due March 1, 2019. The proceeds were used to repay at maturity Mississippi Power’s $40 million aggregate principal amount of Series F Floating Rate Senior Notes due March 9, 2009, to repay a portion of short-term indebtedness, and for general corporate purposes, including Mississippi Power’s continuous construction program.
In addition to any financings that may be necessary to meet capital requirements, contractual obligations, and storm restoration costs, Mississippi Power plans to continue, when economically feasible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit.

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SOUTHERN POWER COMPANY
AND SUBSIDIARY COMPANIES

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SOUTHERN POWER 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:
                               
Wholesale revenues, non-affiliates
  $ 90,877     $ 170,907     $ 185,489     $ 251,376  
Wholesale revenues, affiliates
    137,718       143,893       273,002       277,386  
Other revenues
    2,003       1,784       3,624       3,354  
 
                       
Total operating revenues
    230,598       316,584       462,115       532,116  
 
                       
Operating Expenses:
                               
Fuel
    51,731       76,341       117,512       112,388  
Purchased power, non-affiliates
    24,778       34,312       46,260       50,868  
Purchased power, affiliates
    13,860       64,963       29,062       115,671  
Other operations and maintenance
    34,966       35,654       67,939       70,685  
Depreciation and amortization
    27,198       20,943       51,537       40,930  
Taxes other than income taxes
    4,789       4,639       9,548       9,181  
 
                       
Total operating expenses
    157,322       236,852       321,858       399,723  
 
                       
Operating Income
    73,276       79,732       140,257       132,393  
Other Income and (Expense):
                               
Interest expense, net of amounts capitalized
    (21,592 )     (19,894 )     (43,151 )     (39,251 )
Other income (expense), net
    (23 )     34       (234 )     12,614  
 
                       
Total other income and (expense)
    (21,615 )     (19,860 )     (43,385 )     (26,637 )
 
                       
Earnings Before Income Taxes
    51,661       59,872       96,872       105,756  
Income taxes
    20,607       24,452       37,902       41,361  
 
                       
Net Income
  $ 31,054     $ 35,420     $ 58,970     $ 64,395  
 
                       
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)  
Net Income
  $ 31,054     $ 35,420     $ 58,970     $ 64,395  
Other comprehensive income (loss):
                               
Qualifying hedges:
                               
Changes in fair value, net of tax of $-, $(4,886), $302, and $(7,831), respectively
          (7,554 )     466       (12,116 )
Reclassification adjustment for amounts included in net income, net of tax of $931, $1,348, $1,866, and $2,690, respectively
    1,435       2,084       2,875       4,158  
 
                       
Total other comprehensive income (loss)
    1,435       (5,470 )     3,341       (7,958 )
 
                       
Comprehensive Income
  $ 32,489     $ 29,950     $ 62,311     $ 56,437  
 
                       
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.

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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    For the Six Months  
    Ended June 30,  
    2009     2008  
    (in thousands)  
Operating Activities:
               
Net income
  $ 58,970     $ 64,395  
Adjustments to reconcile net income to net cash provided from operating activities —
               
Depreciation and amortization, total
    57,610       48,844  
Deferred income taxes
    24,442       23,614  
Deferred revenues
    (21,070 )     (27,234 )
Mark-to-market adjustments
    991       8,534  
Accumulated billings on construction contract
    24,565       39,437  
Accumulated costs on construction contract
    (31,113 )     (46,014 )
Gain on sale of property
    (24 )     (6,015 )
Other, net
    3,858       1,553  
Changes in certain current assets and liabilities —
               
-Receivables
    (50,026 )     (114,097 )
-Fossil fuel stock
    1,389       (2,776 )
-Materials and supplies
    (1,826 )     (1,049 )
-Prepaid income taxes
    5,510       (12,034 )
-Other current assets
    1,493       (494 )
-Accounts payable
    (15,940 )     59,180  
-Accrued taxes
    8,642       7,829  
-Accrued interest
    27       (25 )
-Other current liabilities
    (158 )     2,326  
 
           
Net cash provided from operating activities
    67,340       45,974  
 
           
Investing Activities:
               
Property additions
    (7,835 )     (40,444 )
Sale of property
    52       5,001  
Change in construction payables
    (1,624 )     (7,222 )
Payments pursuant to long-term service agreements
    (15,450 )     (14,094 )
Other investing activities
    (184 )     (726 )
 
           
Net cash used for investing activities
    (25,041 )     (57,485 )
 
           
Financing Activities:
               
Increase in notes payable, net
          56,625  
Proceeds — Capital contributions
    1,680       2,135  
Payment of common stock dividends
    (53,050 )     (47,250 )
 
           
Net cash provided from (used for) financing activities
    (51,370 )     11,510  
 
           
Net Change in Cash and Cash Equivalents
    (9,071 )     (1 )
Cash and Cash Equivalents at Beginning of Period
    37,894       5  
 
           
Cash and Cash Equivalents at End of Period
  $ 28,823     $ 4  
 
           
Supplemental Cash Flow Information:
               
Cash paid during the period for —
               
Interest (net of $163 and $7,000 capitalized for 2009 and 2008, respectively)
  $ 37,508     $ 31,941  
Income taxes (net of refunds)
  $ 7,725     $ 29,866  
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.

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SOUTHERN POWER 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
  $ 28,823     $ 37,894  
Receivables —
               
Customer accounts receivable
    39,530       23,640  
Other accounts receivable
    1,514       2,162  
Affiliated companies
    70,605       33,401  
Fossil fuel stock, at average cost
    15,521       17,801  
Materials and supplies, at average cost
    28,353       26,527  
Prepaid service agreements — current
    38,992       26,304  
Prepaid income taxes
    15,962       18,066  
Other prepaid expenses
    1,259       2,756  
Assets from risk management activities
    12,884       10,799  
Other current assets
    4,507       4,532  
 
           
Total current assets
    257,950       203,882  
 
           
Property, Plant, and Equipment:
               
In service
    2,880,403       2,847,757  
Less accumulated provision for depreciation
    401,164       351,193  
 
           
Plant in service, net of depreciation
    2,479,239       2,496,564  
Construction work in progress
    10,449       8,775  
 
           
Total property, plant, and equipment
    2,489,688       2,505,339  
 
           
Deferred Charges and Other Assets:
               
Prepaid long-term service agreements
    50,600       81,542  
Other deferred charges and assets — affiliated
    3,684       3,827  
Other deferred charges and assets — non-affiliated
    18,690       18,550  
 
           
Total deferred charges and other assets
    72,974       103,919  
 
           
Total Assets
  $ 2,820,612     $ 2,813,140  
 
           
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                 
    At June 30,     At December 31,  
Liabilities and Stockholder’s Equity   2009     2008  
    (in thousands)  
Current Liabilities:
               
Accounts payable —
               
Affiliated
  $ 49,256     $ 61,527  
Other
    6,502       11,278  
Accrued taxes —
               
Accrued income taxes
    5,471       88  
Other accrued taxes
    10,303       2,343  
Accrued interest
    29,943       29,916  
Liabilities from risk management activities
    8,982       7,452  
Billings in excess of cost on construction contract
    5,359       11,907  
Deferred capacity revenues — current affiliated
    6,099       1,206  
Other current liabilities
    67       223  
 
           
Total current liabilities
    121,982       125,940  
 
           
Long-term Debt
    1,297,480       1,297,353  
 
           
Deferred Credits and Other Liabilities:
               
Accumulated deferred income taxes
    234,652       209,960  
Deferred capacity revenues — affiliated
    8,515       32,211  
Other deferred credits and liabilities — affiliated
    6,150       6,667  
Other deferred credits and liabilities — non-affiliated
    2,532       2,648  
 
           
Total deferred credits and other liabilities
    251,849       251,486  
 
           
Total Liabilities
    1,671,311       1,674,779  
 
           
Common Stockholder’s Equity:
               
Common stock, par value $.01 per share —
               
Authorized - 1,000,000 shares
               
Outstanding - 1,000 shares
           
Paid-in capital
    863,788       862,109  
Retained earnings
    308,229       302,309  
Accumulated other comprehensive loss
    (22,716 )     (26,057 )
 
           
Total common stockholder’s equity
    1,149,301       1,138,361  
 
           
Total Liabilities and Stockholder’s Equity
  $ 2,820,612     $ 2,813,140  
 
           
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.

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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
Southern Power and its wholly-owned subsidiaries construct, acquire, own, and manage generation assets and sell electricity at market-based prices in the southeastern wholesale market. Southern Power continues to execute its strategy through a combination of acquiring and constructing new power plants and by entering into PPAs with investor owned utilities, independent power producers, municipalities, and electric cooperatives.
To evaluate operating results and to ensure Southern Power’s ability to meet its contractual commitments to customers, Southern Power focuses on several key performance indicators. These indicators include peak season equivalent forced outage rate (EFOR), return on invested capital (ROIC), and net income. EFOR defines the hours during peak demand times when Southern Power’s generating units are not available due to forced outages (the lower the better). ROIC is focused on earning a return on all invested capital that meets or exceeds Southern Power’s weighted average cost of capital. For additional information on these indicators, see MANAGEMENT’S DISCUSSION AND ANALYSIS – OVERVIEW – “Key Performance Indicators” of Southern Power 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)
$(4.3)
  (12.3)   $(5.4)   (8.4)
 
Southern Power’s net income for the second quarter 2009 was $31.1 million compared to $35.4 million for the corresponding period in 2008. The decrease was primarily due to increased depreciation associated with an increase in depreciation rates and Plant Franklin Unit 3 being placed into commercial operation in June 2008 and a reduction of capitalized interest as a result of the completion of Plant Franklin Unit 3 in June 2008. These unfavorable impacts were partially offset by increased revenues associated with Plant Franklin Unit 3 being placed into commercial operation in June 2008 and increased generation from Southern Power’s combined cycle units due to lower natural gas prices.
Southern Power’s net income for year-to-date 2009 was $59.0 million compared to $64.4 million for the corresponding period in 2008. The decrease was primarily due to a gain on the sale of an undeveloped tract of land in Orange County, Florida to the Orlando Utilities Commission (OUC) and the receipt of a fee for participating in an asset auction that were both recognized in income in the first quarter 2008. Additionally, the decrease was due to increased depreciation associated with an increase in depreciation rates, increased depreciation associated with Plant Franklin Unit 3 being placed into commercial operation in June 2008, and a reduction of capitalized interest as a result of the completion of Plant Franklin Unit 3 in June 2008. These unfavorable impacts were partially offset by increased revenues associated with Plant Franklin Unit 3 being placed into commercial operation in June 2008 and increased generation from Southern Power’s combined cycle units due to lower natural gas prices.

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Wholesale Revenues Non-Affiliates
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(80.0)   (46.8)   $(65.9)   (26.2)
 
Wholesale energy sales to non-affiliates will vary depending on the energy demand of those customers and their generation capacity, as well as the market cost of available energy compared to the cost of Southern Power’s energy. Increases and decreases in revenues that are driven by fuel prices are accompanied by an increase or decrease in fuel costs and do not have a significant impact on net income.
Wholesale revenues from non-affiliates for the second quarter 2009 were $90.9 million compared to $170.9 million for the corresponding period in 2008. The decrease was due to lower natural gas prices reducing energy revenues by $88.2 million. The decrease was partially offset by increased capacity revenues primarily from the operation of Plant Franklin Unit 3 of $2.0 million and mark-to-market gains of $0.5 million recognized in 2009. Southern Power recognized mark-to-market losses of $5.7 million in 2008.
Wholesale revenues from non-affiliates for year-to-date 2009 were $185.5 million compared to $251.4 million for the corresponding period in 2008. The decrease was due to lower natural gas prices reducing energy revenues by $112.8 million. The decrease was partially offset by increased capacity revenues primarily from the operation of Plant Franklin Unit 3 of $8.0 million and mark-to-market gains of $4.9 million recognized in 2009. Southern Power recognized mark-to-market losses of $34.0 million in 2008.
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Power Sales Agreements” of Southern Power in Item 7 of the Form 10-K and FUTURE EARNINGS POTENTIAL – “Power Sales Agreements” herein for additional information.
Wholesale Revenues Affiliates
             
Second Quarter 2009 vs. Second Quarter 2008   Year-to-Date 2009 vs. Year-to-Date 2008
(change in millions)   (% change)   (change in millions)   (% change)
$(6.2)   (4.3)   $(4.4)   (1.6)
 
Wholesale energy sales to affiliated companies within the Southern Company system will vary depending on demand and the availability and cost of generating resources at each company. Sales to affiliate companies that are not covered by PPAs are made in accordance with the IIC, as approved by the FERC. Increases and decreases in revenues that are driven by fuel prices are accompanied by an increase or decrease in fuel costs and do not have a significant impact on net income.
Wholesale revenues from affiliates for the second quarter 2009 were $137.7 million compared to $143.9 million for the corresponding period in 2008. The decrease was due to a decrease of $104.9 million due to lower natural gas prices. The decrease was substantially offset by increased energy revenues of $98.7 million due to increased power sales under the IIC. The increase in sales under the IIC was primarily due to lower natural gas prices.

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Wholesale revenues from affiliates for year-to-date 2009 were $273.0 million compared to $277.4 million for the corresponding period in 2008. The decrease was due to a decrease of $125.8 million due to lower natural gas prices. The decrease was substantially offset by increased energy revenues of $121.4 million due to increased power sales under the IIC. The increase in sales under the IIC was primarily due to lower natural gas prices.
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Power Sales Agreements” of Southern Power in Item 7 of the Form 10-K for additional information.
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
  $ (24.6 )     (32.2 )   $ 5.1       4.6  
Purchased power – non-affiliates
    (9.5 )     (27.8 )     (4.6 )     (9.1 )
Purchased power – affiliates
    (51.1 )     (78.7 )     (86.6 )     (74.9 )
                     
Total fuel and purchased power expenses
  $ (85.2 )           $ (86.1 )        
                     
Southern Power PPAs generally provide that the purchasers are responsible for substantially all of the cost of fuel. Consequently, any increase or decrease in fuel costs is accompanied by an increase or decrease in related fuel revenues and does not have a significant impact on net income.
In the second quarter 2009, total fuel and purchased power expenses were $90.4 million compared to $175.6 million for the corresponding period in 2008. Fuel expense decreased $117.3 million due to a 33.7% decrease in the average cost of natural gas. This decrease was substantially offset by increases of $77.2 million due to a 101% increase in generation associated with Plant Franklin Unit 3 being placed into commercial operation in June 2008 and increased generation at Southern Power’s other combined cycle units due to lower natural gas prices. Additionally, $16.5 million in mark-to-market gains were recognized in the second quarter 2008 compared to $1.0 million in mark-to-market gains recognized in the second quarter 2009. Purchased power expense decreased $30.6 million due to increased generation at Southern Power’s combined cycle units during the second quarter 2009 due to lower natural gas prices. Additionally, purchased power expense decreased $26.8 million due to a decrease in the average cost of purchased power and a decrease of $3.2 million in mark-to-market losses recognized.
For year-to-date 2009, total fuel and purchased power expenses were $192.8 million compared to $278.9 million for the corresponding period in 2008. Fuel expense increased $152.4 million due to a 135.6% increase in generation associated with Plant Franklin Unit 3 being placed into commercial operation in June 2008 and increased generation at Southern Power’s other combined cycle units due to lower natural gas prices. Additionally, $28.4 million in mark-to-market gains were recognized in 2008 compared to $2.9 million in mark-to-market losses recognized in 2009. These increases were substantially offset by decreases of $178.6 million due to a 44.4% decrease in the average cost of natural gas. Purchased power expense decreased $60.9 million due to increased generation at Southern Power’s combined cycle units due to lower natural gas prices. Additionally, purchased power expense decreased $30.3 million due to a decrease in the average cost of purchased power.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the second quarter 2009, fuel expense was $51.7 million compared to $76.3 million for the corresponding period in 2008. Fuel expense decreased $117.3 million due to a 33.7% decrease in the average cost of natural gas. This decrease was substantially offset by increases of $77.2 million due to a 101% increase in generation associated with Plant Franklin Unit 3 being placed into commercial operation in June 2008 and increased generation at Southern Power’s other combined cycle units due to lower natural gas prices. Additionally, $16.5 million in mark-to-market gains were recognized in the second quarter 2008 compared to $1.0 million in mark-to- market gains recognized in the second quarter 2009.
For year-to-date 2009, fuel expense was $117.5 million compared to $112.4 million for the corresponding period in 2008. Fuel expense increased $152.4 million due to a 135.6% increase in generation associated with Plant Franklin Unit 3 being placed into commercial operation in June 2008 and increased generation at Southern Power’s other combined cycle units due to lower natural gas prices. Additionally, $28.4 million in mark-to-market gains were recognized in 2008 compared to $2.9 million in mark-to-market losses recognized in 2009. These increases were substantially offset by decreases of $178.6 million due to a 44.4% decrease in the average cost of natural gas.
In the second quarter 2009, purchased power expense was $38.6 million compared to $99.3 million for the corresponding period in 2008. Purchased power expense decreased $30.6 million due to increased generation at Southern Power’s combined cycle units during the second quarter 2009 due to lower natural gas prices. Additionally, purchased power expense decreased $26.8 million due to a decrease in the average cost of purchased power and a decrease of $3.2 million in mark-to-market losses recognized.
For year-to-date 2009, purchased power expense was $75.3 million compared to $166.5 million for the corresponding period in 2008. Purchased power expense decreased $60.9 million due to increased generation at Southern Power’s combined cycle units due to lower natural gas prices. Additionally, purchased power expense decreased $30.3 million due to a decrease in the average cost of purchased power.
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)
$(0.7)
  (1.9)   $(2.8)   (3.9)
 
In the second quarter 2009, the change in other operations and maintenance expenses from the second quarter 2008 was not material.
For year-to-date 2009, other operations and maintenance expenses were $67.9 million compared to $70.7 million for the corresponding period in 2008. The decrease was primarily due to transmission tariff penalties of $3.6 million recognized in 2008, partially offset by an increase in plant maintenance activities of $0.8 million.
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)
$6.3   29.9   $10.6   25.9
 
In the second quarter 2009, depreciation and amortization was $27.2 million compared to $20.9 million for the corresponding period in 2008. For year-to-date 2009, depreciation and amortization was $51.5 million compared to $40.9 million for the corresponding period in 2008. These increases were due to the completion of Plant Franklin Unit 3 in June 2008 and higher depreciation rates implemented in January 2009. See Note 1

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
to the financial statements of Southern Power under “Depreciation” in Item 8 of the Form 10-K and Note (A) to the Condensed Financial Statements under “Southern Power Depreciation Policy” herein for additional information.
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)
$1.7   8.5   $3.9   9.9
 
In the second quarter 2009, interest expense, net of amounts capitalized was $21.6 million compared to $19.9 million for the corresponding period in 2008. For year-to-date 2009, interest expense, net of amounts capitalized was $43.2 million compared to $39.3 million for the corresponding period in 2008. These increases were primarily due to a decrease in capitalized interest as a result of the completion of Plant Franklin Unit 3 in June 2008, partially offset by a decrease in short-term borrowing levels.
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)
$(0.1)   N/M   $(12.8)   (101.9)
 
N/M — Not meaningful
In the second quarter 2009, the change in other income (expense), net from the second quarter 2008 was not material.
For year-to-date 2009, other income (expense), net was $(0.2) million as compared to $12.6 million for the corresponding period in 2008. The change was primarily due to a $6.0 million gain on the sale of an undeveloped tract of land in Orange County, Florida to the OUC and a $6.4 million fee received for participating in an asset auction that were both recognized in the first quarter 2008. Southern Power was not the successful bidder in the auction.
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)
$(3.9)   (15.7)   $(3.5)   (8.4)
 
In the second quarter 2009, income taxes were $20.6 million compared to $24.5 million for the corresponding period in 2008. For year-to-date 2009, income taxes were $37.9 million compared to $41.4 million for the corresponding period in 2008. These decreases were primarily due to lower pre-tax earnings.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Southern Power’s future earnings potential. The level of Southern Power’s future earnings depends on numerous factors that affect the opportunities, challenges, and risks of Southern Power’s competitive wholesale business. These factors include Southern Power’s ability to achieve sales growth while containing costs. Another major factor is federal regulatory policy, which may impact Southern Power’s level of participation in the market. The level of future earnings also depends on numerous factors including regulatory matters (such as those related to affiliate contracts), creditworthiness of customers, total generating capacity available in the Southeast, the successful remarketing of capacity as current contracts expire, and Southern Power’s ability to execute its

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
acquisition strategy. Recent recessionary conditions have negatively impacted capacity revenues. 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 Power in Item 7 of the Form 10-K.
Environmental Matters
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “Environmental Matters” of Southern Power in Item 7 of the Form 10-K for information on the development by federal and state environmental regulatory agencies of additional control strategies for emissions of air pollution from industrial sources, including electric generating facilities. Compliance with possible additional federal or state legislation or regulations related to global climate change, air quality, or other environmental and health concerns could also affect earnings. While Southern Power’s PPAs generally contain provisions that permit charging the counterparty with some of the new costs incurred as a result of changes in environmental laws and regulations, the full impact of any such regulatory or legislative changes 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 Power 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 Southern Power’s greenhouse gas emissions, or requirements relating to renewable energy or energy efficiency, could result in significant additional compliance costs that could affect future results of operations, cash flows, and financial condition.
FERC Matters
Market-Based Rate Authority
See MANAGEMENT’S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – “FERC Matters – Market-Based Rate Authority” of Southern Power in Item 7 and Note 3 to the financial statements of Southern Power 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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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. Southern Power estimates the cash flow reduction to 2009 tax payments as a result of the bonus depreciation provisions of the ARRA to be immaterial. Southern Power is currently assessing the other financial implications of the ARRA. The ultimate impact cannot be determined at this time.
Construction Projects
Cleveland County Units 1-4
In December 2008, Southern Power announced that it will build an electric generating plant in Cleveland County, North Carolina. The plant will consist of four combustion turbine natural gas generating units with a total generating capacity of 720 MWs. The units are expected to go into commercial operation in 2012. Costs incurred through June 30, 2009 were $7.5 million. The total estimated construction cost is expected to be between $350 million and $400 million.
Power Sales Agreements
Southern Power has entered into PPAs with North Carolina Electric Membership Corporation (NCEMC) and North Carolina Municipal Power Agency No. 1 (NCMPA1) for a portion of the generating capacity from the Cleveland County plant that will begin in 2012 and expire in 2036 and 2031, respectively. NCEMC will purchase 180 MWs of capacity that will be supported by one unit at the plant and will purchase capacity from a second unit at the plant that will increase to 180 MWs over a seven-year phase-in period. NCMPA1 will purchase 180 MWs from a third unit at the plant. The NCEMC PPAs were approved by the Rural Utilities Service on March 6, 2009.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Potential Acquisition
On April 2, 2009, Southern Power signed an agreement to acquire all of the outstanding general and limited partnership interests of Hartwell Energy Limited Partnership (Hartwell). Hartwell owns a dual-fueled generating plant near Hartwell, Georgia with installed capacity of 318 MWs. The plant consists of two combustion turbine natural gas generating units with oil back-up. The entire output of the plant is sold under a PPA with Oglethorpe Power Corporation (Oglethorpe) through May 31, 2019.
The acquisition was subject to a right of first refusal held by Oglethorpe, certain regulatory approvals, and other conditions. On July 31, 2009, Oglethorpe exercised its right of first refusal and will purchase the ownership interests of Hartwell.
Other Matters
Southern Power is involved in various other matters being litigated and regulatory matters that could affect future earnings. In addition, Southern Power is subject to certain claims and legal actions arising in the ordinary course of business. Southern Power’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 potential litigation against Southern Power 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 Power in Item 8 of the Form 10-K, management does not anticipate that the liabilities, if any, arising from any such proceedings would have a material adverse effect on Southern Power’s financial statements.
See Note (B) 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 Power 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 Power 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 Power’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 Power in Item 7 of the Form 10-K for a complete discussion of Southern Power’s critical accounting policies and estimates related to Revenue Recognition, Normal Sale and Non-Derivative Transactions, Cash Flow Hedge Transactions, Mark-to-Market Transactions, Percentage of Completion, Asset Impairments, Acquisition Accounting, Contingent Obligations, and Depreciation.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 Power 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.
FINANCIAL CONDITION AND LIQUIDITY
Overview
Southern Power’s financial condition remained stable at June 30, 2009. Throughout the turmoil in the financial markets, Southern Power has maintained cash balances to cover the majority of its capital needs and has had limited need to issue commercial paper or draw on committed credit arrangements. Southern Power has successfully accessed the commercial paper market as needed during 2009. There was no commercial paper outstanding at June 30, 2009. Southern Power intends to continue to monitor its access to short-term and long-term capital markets as well as its bank credit arrangements as needed to meet future capital and liquidity needs. Market rates for committed credit have increased, and Southern Power may be subject to higher costs as its existing facilities are replaced or renewed. The current facility expires in 2012 and the commitment fee is less than 1/8 of 1%. Southern Power experienced no material counterparty credit losses as a result of the turmoil in the financial markets. The ultimate impact on future financing costs as a result of financial turmoil cannot be determined at this time. See “Sources of Capital” herein for additional information.
Net cash provided from operating activities totaled $67.3 million for the first six months of 2009, compared to $46.0 million for the corresponding period in 2008. The $21.3 million increase in cash provided from operating activities was due primarily to the timing of income tax payments. Net cash used for investing activities totaled $25.0 million for the first six months of 2009, compared to $57.5 million for the corresponding period in 2008. The $32.5 million decrease was primarily due to reduced property additions as Plant Franklin Unit 3 was completed in June 2008. Net cash used in financing activities totaled $51.4 million for the first six months of 2009 compared to net cash provided of $11.5 million for the corresponding period in 2008. The change was primarily due to a reduction in short-term borrowings in 2009 and an increase in dividends paid to Southern Company.
Significant asset changes in the balance sheet for the first six months of 2009 include increases in accounts receivable balances due to seasonality and a reduction in prepaid service agreements due to completion of scheduled outages.
Significant liability and stockholder’s equity changes in the balance sheet for the first six months of 2009 include a reduction in affiliate accounts payable due to timing of payments to SCS, a reduction in billings in excess of cost due to the timing of scheduled payments, and costs incurred with regard to the OUC construction contract whereby Southern Power is providing engineering, procurement, and construction services to build a combined cycle unit for OUC. The OUC contract is not expected to have any positive or negative impacts to Southern Power over the term of the contract as Southern Power is not anticipating any profit or loss from this transaction at this time. Additionally, deferred capacity revenues decreased due to levelization.

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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 Power in Item 7 of the Form 10-K for a description of Southern Power’s capital requirements for its construction program, maturing debt, interest, leases, derivative obligations, purchase commitments, and long-term service agreements. The construction program is subject to periodic review and revision; these amounts include estimates for potential plant acquisitions and new construction as well as ongoing capital improvements. Planned expenditures for plant acquisitions may vary due to market opportunities and Southern Power’s ability to execute its growth strategy. Actual construction costs may vary from these estimates because of changes in factors such as: business conditions; environmental statutes and regulations; FERC rules and regulations; load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital.
Sources of Capital
Southern Power may use operating cash flows, external funds, equity capital, or loans from Southern Company to finance any new projects, acquisitions, and ongoing capital requirements. Southern Power expects to generate external funds from the issuance of unsecured senior debt and commercial paper or utilization of credit arrangements from banks. 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 Power in Item 7 of the Form 10-K for additional information.
Southern Power’s current liabilities frequently exceed current assets due to the use of short-term indebtedness as a funding source, as well as cash needs which can fluctuate significantly due to the seasonality of the business. To meet liquidity and capital resource requirements, Southern Power had at June 30, 2009 $400 million in committed credit arrangements with banks that will expire in 2012. Proceeds from these credit arrangements may be used for working capital and general corporate purposes as well as liquidity support for Southern Power’s commercial paper program. See Note 6 to the financial statements of Southern Power 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.
Southern Power’s commercial paper program is used to finance acquisition and construction costs related to electric generating facilities and for general corporate purposes.
Management believes that the need for working capital can be adequately met by utilizing commercial paper programs, lines of credit, and cash.
Credit Rating Risk
Southern Power 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 to BBB and Baa2, or BBB- and/or Baa3 or below. These contracts are for physical electricity purchases and sales, fuel transportation and storage, and energy price risk management. 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 $356 million. At June 30, 2009, the maximum potential collateral requirements under these contracts at a rating below BBB- and/or Baa3 were approximately $850 million. Included in these amounts are certain agreements that could require collateral in the event that one or more Power Pool participants has a credit rating change to below investment grade. Generally, collateral may

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, any credit rating downgrade could impact Southern Power’s ability to access capital markets, particularly the short-term debt market.
In addition, through the acquisition of Plant Rowan, Southern Power assumed a PPA with Duke Energy that could require collateral, but not accelerated payment, in the event of a downgrade to Southern Power’s credit rating to below BBB- or Baa3. The amount of collateral required would depend upon actual losses, if any, resulting from a credit downgrade.
Market Price Risk
Southern Power is exposed to market risks, including changes in interest rates and certain energy-related commodity prices. To manage the volatility attributable to these exposures, Southern Power takes advantage of natural offsets and enters into various derivative transactions for the remaining exposures pursuant to Southern Power’s policies in areas such as counterparty exposure and hedging practices. It is Southern Power’s policy that derivatives be used primarily for hedging purposes. Derivative positions are monitored using techniques that include market valuation and sensitivity analysis.
Southern Power’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 Power is not aware of any facts or circumstances that would significantly affect exposure on existing indebtedness in the near term. However, the impact on future financing costs cannot now be determined.
Because energy from Southern Power’s facilities is primarily sold under long-term PPAs with tolling agreements and provisions shifting substantially all of the responsibility for fuel cost to the counterparties, Southern Power’s exposure to market volatility in commodity fuel prices and prices of electricity is generally limited. However, Southern Power has been and may continue to be exposed to market volatility in energy-related commodity prices as a result of sales of uncontracted generating capacity.
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
  $ 3.3     $ 3.4  
Contracts realized or settled
    0.1       0.2  
Current period changes(a)
    (0.2 )     (0.4 )
 
Contracts outstanding at the end of the period, assets (liabilities), net
  $ 3.2     $ 3.2  
 
(a)   Current period changes also include the changes in fair value of new contracts entered into during the period, if any.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The decreases in the fair value positions of the energy-related derivative contracts for the three months and six months ended June 30, 2009 were $0.1 million and $0.2 million, respectively, which is due to both volume and price changes in power and natural gas positions. The net hedge position at June 30, 2009 and respective period end dates that support these changes are as follows:
                         
    June 30,   March 31,   December 31,
    2009   2009   2008
 
Power (net sold)
                       
 
MWHs (in millions)
    1.1       0.7       0.3  
Weighted average contract cost per MWH above (below) market prices (in dollars)
  $ 2.29     $ 3.71     $ (2.29 )
 
Natural gas (net purchase)
                       
 
Commodity – million mmBtu
    2.9       3.5       1.9  
Location basis – million mmBtu
    2.0       2.0        
 
Commodity – Weighted average contract cost per mmBtu above (below) market prices (in dollars)
  $ 0.24     $ (0.27 )   $ (2.16 )
 
Location basis – Weighted average contract cost per mmBtu above (below) market prices (in dollars)
  $ (0.05 )   $ 0.06     $  
 
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)
Cash flow hedges
  $     $ (0.8 )
Not designated
    3.2       4.2  
 
Total fair value
  $ 3.2     $ 3.4  
 
Gains and losses on energy-related derivatives used by Southern Power to hedge anticipated purchases and sales are initially deferred in OCI before being recognized in income in the same period as the hedged transaction. Gains and losses on 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 was $1 million and will continue to be marked to market until the settlement date. For the three months ended June 30, 2009, the net unrealized loss was immaterial. For the three and six months ended June 30, 2008, the total net unrealized gains (losses) recognized in the statements of income were $5 million and $(9) million, respectively. See Note (E) to the Condensed Financial Statements herein for further details of these gains (losses).

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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
    3.2       3.9       (0.7 )      
Level 3
                       
 
Fair value of contracts outstanding at end of period
  $ 3.2     $ 3.9     $ (0.7 )   $  
 
Southern Power 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 Power in Item 7 and Notes 1 and 6 to the financial statements of Southern Power under “Financial Instruments” in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements herein.
Financing Activities
Southern Power did not issue or redeem any long-term securities during the six months ended June 30, 2009.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
INDEX TO APPLICABLE NOTES TO
FINANCIAL STATEMENTS BY REGISTRANT
     
Registrant   Applicable Notes
 
   
Southern Company
  A, B, C, D, E, F, G, H
 
   
Alabama Power
  A, B, C, E, F, G
 
   
Georgia Power
  A, B, C, E, F, G
 
   
Gulf Power
  A, B, C, E, F, G
 
   
Mississippi Power
  A, B, C, E, F, G
 
   
Southern Power
  A, B, C, E, G

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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
NOTES TO THE CONDENSED FINANCIAL STATEMENTS:
  (A)   INTRODUCTION
 
      The condensed quarterly financial statements of each registrant included herein have been prepared by such registrant, without audit, pursuant to the rules and regulations of the SEC. The Condensed Balance Sheets as of December 31, 2008 have been derived from the audited financial statements of each registrant. In the opinion of each registrant’s management, the information regarding such registrant furnished herein reflects all adjustments, which, except as otherwise disclosed, are of a normal recurring nature, necessary to present fairly the results of operations for the periods ended June 30, 2009 and 2008. In addition, all subsequent events have been evaluated for disclosure through the issuance of the financial statements on August 6, 2009. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although each registrant believes that the disclosures regarding such registrant are adequate to make the information presented not misleading. Disclosures which would substantially duplicate the disclosures in the audited financial statements included in the Form 10-K 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 (the Form 8-K), and details which have not changed significantly in amount or composition since the filing of the Form 10-K and, for Southern Company, the Form 8-K are generally omitted from this Quarterly Report on Form 10-Q. Therefore, these Condensed Financial Statements should be read in conjunction with the financial statements and the notes thereto included in the Form 10-K and, for Southern Company, the Form 8-K. Due to the seasonal variations in the demand for energy, operating results for the periods presented do not necessarily indicate operating results for the entire year.
 
      Reclassifications
 
      Certain prior period data presented in the financial statements have been reclassified to conform to the current year presentation. For comparative purposes, each registrant’s statement of income for the three and six months ended June 30, 2008 were modified within the operating expenses section to combine the line items “Other operations” and “Maintenance” into a single line item entitled “Other operations and maintenance.” The balance sheets at December 31, 2008 of Southern Company, Alabama Power, and Georgia Power were modified to present a separate line item for “Other regulatory assets, current” previously included in “Other current assets.” In addition, Georgia Power’s balance sheet was modified to present a separate line item for “Joint owner accounts receivable” previously included in “Other accounts and notes receivable” and to reflect a new line item “Liabilities from risk management activities” previously included in “Other current liabilities.” To conform to the current year presentation, Southern Power’s balance sheet at December 31, 2008 reflects a separate line item for the amount of “Deferred capacity revenues—current affiliated” previously included in “Accounts payable—affiliated.” Southern Company modified its statements of cash flows within the operating activities section for the prior period by collapsing the line item “Derivative fair value adjustments” into “Other, net.” Also, within the investing activities section, the line items “Investment in unconsolidated subsidiaries” and “Hurricane Katrina capital grant proceeds” previously shown as separate line items are now included in “Other investing activities” while “Change in construction payables” previously included in “Other investing activities” is shown separately in the current presentation. Within the operating activities of Georgia Power’s statements of cash flows, “Deferred revenues” and “Deferred expenses” previously included in “Other, net” in

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
      the prior period are now shown as separate line items. Also, within the financing activities of the same statement, the line item “Capital leases” was collapsed into “Other financing activities.” Mississippi Power’s balance sheet was modified to combine the line item “Prepaid income taxes” with “Other current assets.” Mississippi Power’s statement of cash flows for the six months ended June 30, 2008 was modified within the operating activities to present separately from “Other, net” the amount of “Generation construction screening expense.”
 
      These reclassifications had no effect on total assets, net income, cash flows, or earnings per share.
 
      Effective January 1, 2009, Southern Company and its subsidiaries adopted retrospectively a new accounting standard for noncontrolling interests. In connection with the adoption, Southern Company evaluated the requirements with respect to the presentation of preferred and preference stock of subsidiaries. Based on the accounting guidance, the preferred and preference stock at Georgia Power and the preference stock at Alabama Power and Gulf Power are considered to be “noncontrolling interests” and are separately presented as a component of “Stockholders’ Equity” on Southern Company’s consolidated balance sheets. The preferred stock of Alabama Power and Mississippi Power contains a feature that allows the holders to elect a majority of such subsidiary’s board of directors if dividends are not paid for four consecutive quarters. Because such a potential redemption-triggering event is not solely within the control of Alabama Power and Mississippi Power, this preferred stock is presented as “Redeemable Preferred Stock of Subsidiaries” in a manner consistent with temporary equity. The preferred and preference stock at Georgia Power and the preference stock at Alabama Power and Gulf Power do not contain such a provision that would allow the holders to elect a majority of such subsidiary’s board.
 
      In addition, the new accounting standard for noncontrolling interests requires that preferred and preference dividends of subsidiaries previously presented within Southern Company’s consolidated statements of income as a component of “Other Income and (Expense)” be presented as a deduction from “Consolidated Net Income” to arrive at “Consolidated Net Income After Dividends on Preferred and Preference Stock.” In Southern Company’s consolidated statements of cash flows, the preferred and preference dividends previously classified in operating activities are now classified in financing activities.
 
      Southern Power Depreciation Policy
 
      See Note 1 to the financial statements of Southern Power under “Depreciation” in Item 8 of the Form 10-K for information regarding Southern Power’s depreciation policy. Southern Power revised its depreciation rates in 2009. The change in estimate is due to revised useful life assumptions for certain components of plant in service. The expected 2009 impact to Southern Power is an increase in depreciation expense of $8.2 million and a reduction in net income of $5.0 million.
 
      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.
 
      Leveraged Leases
 
      On June 29, 2009, Southern Company terminated two international leveraged lease investments for a net gain, after termination of related debt, of $25.5 million. The termination is reflected on the statements of cash flows and the statements of income on line items “Proceeds from property sales,” “Gain on disposition of lease termination,” and “Loss on extinguishment of debt.”

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
  (B)   CONTINGENCIES AND REGULATORY MATTERS
 
      See Note 3 to the financial statements of the registrants in Item 8 of the Form 10-K for information relating to various lawsuits, other contingencies, and regulatory matters.
 
      General Litigation Matters
 
      Each registrant is subject to certain claims and legal actions arising in the ordinary course of business. In addition, each registrant’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 the registrants and any of their subsidiaries cannot be predicted at this time; however, for current proceedings not specifically reported herein or in Note 3 to the financial statements of each registrant 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 such registrant’s financial statements.
 
      Mirant Matters
 
      Mirant was an energy company with businesses that included independent power projects and energy trading and risk management companies in the United States and selected other countries. It was a wholly-owned subsidiary of Southern Company until its initial public offering in October 2000. In April 2001, Southern Company completed a spin-off to its shareholders of its remaining ownership, and Mirant became an independent corporate entity.
 
      Mirant Bankruptcy
 
      In July 2003, Mirant and certain of its affiliates filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of Texas. The Bankruptcy Court entered an order confirming Mirant’s plan of reorganization in December 2005, and Mirant announced that this plan became effective in January 2006. As part of the plan, Mirant transferred substantially all of its assets and its restructured debt to a new corporation that adopted the name Mirant Corporation (Reorganized Mirant).
 
      Southern Company has certain contingent liabilities associated with guarantees of contractual commitments made by Mirant’s subsidiaries discussed under “Guarantees” in Note 7 to the financial statements of Southern Company in Item 8 of the Form 10-K and with various lawsuits related to Mirant discussed below. Also, Southern Company has joint and several liability with Mirant regarding the joint consolidated federal income tax returns through 2001, as discussed in Note 5 to the financial statements of Southern Company in Item 8 of the Form 10-K. In December 2004, as a result of concluding an IRS audit for the tax years 2000 and 2001, Southern Company paid approximately $39 million in additional tax and interest related to Mirant tax items and filed a claim in Mirant’s bankruptcy case for that amount. To date, Southern Company has received from the IRS approximately $38 million in refunds related to Mirant. Southern Company believes it has a right to recoup the $39 million tax payment owed by Mirant from such tax refunds. As a result, Southern Company intends to retain the tax refunds and reduce its claim against Mirant for the payment of Mirant taxes by the amount of such refunds. MC Asset Recovery, LLC, a special purpose subsidiary of Reorganized Mirant (MC Asset Recovery), has objected to and sought to equitably subordinate the Southern Company tax claim in its fraudulent transfer litigation against Southern Company. Southern Company’s proofs of claim filed in the Mirant bankruptcy survive the settlement of the MC Asset Recovery litigation. Southern Company has reserved the remaining amount with respect to its Mirant tax claim.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
      Under the terms of the separation agreements entered into in connection with the spin-off, Mirant agreed to indemnify Southern Company for costs associated with these guarantees, lawsuits, and additional IRS assessments. As a result of Mirant’s bankruptcy, Southern Company sought reimbursement as an unsecured creditor in Mirant’s Chapter 11 proceeding. As part of a complaint filed against Southern Company in June 2005 and amended thereafter, Mirant and The Official Committee of Unsecured Creditors of Mirant Corporation (Unsecured Creditors’ Committee) objected to and sought equitable subordination of Southern Company’s claims, and Mirant moved to reject the separation agreements entered into in connection with the spin-off. MC Asset Recovery has been substituted as plaintiff in the complaint. If Southern Company’s claims for indemnification with respect to these, or any additional future payments, are allowed, then Mirant’s indemnity obligations to Southern Company would constitute unsecured claims against Mirant entitled to stock in Reorganized Mirant. The final outcome of this matter cannot now be determined.
 
      MC Asset Recovery Litigation
 
      In June 2005, Mirant, as a debtor in possession, and the Unsecured Creditors’ Committee filed a complaint against Southern Company in the U.S. Bankruptcy Court for the Northern District of Texas, which was amended in July 2005, February 2006, May 2006, and March 2007.
 
      In December 2005, the Bankruptcy Court entered an order authorizing the transfer of this proceeding, along with certain other actions, to MC Asset Recovery. Under that order, Reorganized Mirant was obligated to fund up to $20 million in professional fees in connection with the lawsuits, as well as certain additional amounts. Any net recoveries from these lawsuits would be distributed to, and shared equally by, certain unsecured creditors and the original equity holders. In January 2006, the U.S. District Court for the Northern District of Texas substituted MC Asset Recovery as plaintiff.
 
      The complaint, as amended in March 2007, alleged that Southern Company caused Mirant to engage in certain fraudulent transfers and to pay illegal dividends to Southern Company prior to the spin-off. The alleged fraudulent transfers and illegal dividends included without limitation: (1) certain dividends from Mirant to Southern Company in the aggregate amount of $668 million, (2) the repayment of certain intercompany loans and accrued interest in an aggregate amount of $1.035 billion, and (3) the dividend distribution of one share of Series B Preferred Stock and its subsequent redemption in exchange for Mirant’s 80% interest in a holding company that owned SE Finance Capital Corporation and Southern Company Capital Funding, Inc., which transfer plaintiff asserted was valued at over $200 million. The complaint also sought to recharacterize certain advances from Southern Company to Mirant for investments in energy facilities from debt to equity. The complaint further alleged that Southern Company was liable to Mirant’s creditors for the full amount of Mirant’s liability under an alter ego theory of recovery and that Southern Company breached its fiduciary duties to Mirant and its creditors, caused Mirant to breach its fiduciary duties to creditors, and aided and abetted breaches of fiduciary duties by Mirant’s directors and officers. The complaint also sought recoveries under the theories of restitution and unjust enrichment. In addition, the complaint alleged a claim under the Federal Debt Collection Procedure Act (FDCPA) to avoid certain transfers from Mirant to Southern Company; however, in July 2008, the court ruled that the FDCPA does not apply and that Georgia law should apply instead. The complaint sought monetary damages in excess of $2 billion plus interest, punitive damages, attorneys’ fees, and costs. Finally, the complaint included an objection to Southern Company’s pending claims against Mirant in the Bankruptcy Court (which relate to reimbursement under the separation agreements of payments such as income taxes, interest, legal fees, and other guarantees described in Note 7 to the financial statements of Southern Company in Item 8 of the Form 10-K) and sought equitable subordination of Southern Company’s claims to the claims of all other creditors. Southern Company served an answer to the complaint in April 2007.
 
      In January 2006, the U.S. District Court for the Northern District of Texas granted Southern Company’s motion to withdraw this action from the Bankruptcy Court and, in February 2006, granted

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
      Southern Company’s motion to transfer the case to the U.S. District Court for the Northern District of Georgia. In May 2006, Southern Company filed a motion for summary judgment seeking entry of judgment against the plaintiff as to all counts of the complaint. In December 2006, the U.S. District Court for the Northern District of Georgia granted in part and denied in part the motion. As a result, certain breach of fiduciary duty claims alleged in earlier versions of the complaint were barred; all other claims in the complaint were allowed to proceed. In August 2008, Southern Company filed a second motion for summary judgment. MC Asset Recovery filed its response to Southern Company’s motion for summary judgment in October 2008. On February 5, 2009, the court denied the summary judgment motion in connection with the fraudulent conveyance and illegal dividend claims concerning certain advance return/loan repayments in 1999, dividends in 1999 and 2000, and transfers in connection with Mirant’s separation from Southern Company. The court granted Southern Company’s motion for summary judgment with respect to certain claims, including claims for unjust enrichment, claims that Southern Company aided and abetted Mirant’s directors’ breach of fiduciary duties to Mirant, and claims that Southern Company used Mirant as an alter ego. In addition, the court granted Southern Company’s motion in connection with the fraudulent transfer and illegal dividend claims concerning certain turbine termination payments.
 
      On March 31, 2009, Southern Company entered into a settlement agreement with MC Asset Recovery to resolve the action. The settlement includes an agreement by Southern Company to pay MC Asset Recovery $202 million and requires MC Asset Recovery to release Southern Company and certain other designated avoidance actions assigned to MC Asset Recovery in connection with Mirant’s plan of reorganization, as well as to release all actions against current or former officers and directors of Mirant and Southern Company that have or could have been filed. Pursuant to the settlement, Southern Company recorded a charge in the first quarter 2009 of $202 million, which was paid in the second quarter 2009. The settlement has been completed and resolves all claims by MC Asset Recovery against Southern Company. On June 29, 2009, the case was dismissed with prejudice. Southern Company’s claims in the Mirant bankruptcy remain pending. Southern Company is currently evaluating potential recovery of the settlement payment through various means. The degree to which any recovery is realized will determine, in part, the final income tax treatment of the settlement payment. The ultimate outcome of any such recovery and/or income tax treatment cannot be determined at this time.
 
      Environmental Matters
 
      New Source Review Actions
 
      In November 1999, the EPA brought a civil action in the U.S. District Court for the Northern District of Georgia against certain Southern Company subsidiaries, including Alabama Power and Georgia Power, alleging that these subsidiaries had violated the NSR provisions of the Clean Air Act and related state laws at certain coal-fired generating facilities. Through subsequent amendments and other legal procedures, the EPA filed a separate action in January 2001 against Alabama Power in the U.S. District Court for the Northern District of Alabama after Alabama Power was dismissed from the original action. In these lawsuits, the EPA alleged that NSR violations occurred at eight coal-fired generating facilities operated by Alabama Power and Georgia Power, including one facility co-owned by Mississippi Power. The civil actions request penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued notices of violation to Gulf Power and Mississippi Power relating to Gulf Power’s Plant Crist and Mississippi Power’s Plant Watson. In early 2000, the EPA filed a motion to amend its complaint to add Gulf Power and Mississippi Power as defendants based on the allegations in the notices of violation. However, in March 2001, the Court denied the motion based on lack of jurisdiction, and the EPA has not refiled. The action against Georgia Power has been administratively closed since the spring of 2001, and the case has not been reopened.

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      In June 2006, the U.S. District Court for the Northern District of Alabama entered a consent decree between Alabama Power and the EPA, resolving a portion of the Alabama Power lawsuit relating to the alleged NSR violations at Plant Miller. The consent decree required Alabama Power to pay $100,000 to resolve the government’s claim for a civil penalty and to donate $4.9 million of sulfur dioxide emission allowances to a nonprofit charitable organization. It also formalized specific emissions reductions to be accomplished by Alabama Power, consistent with other Clean Air Act programs that require emissions reductions. In August 2006, the district court in Alabama granted Alabama Power’s motion for summary judgment and entered final judgment in favor of Alabama Power on the EPA’s claims related to all of the remaining plants: Plants Barry, Gaston, Gorgas, and Greene County.
 
      The plaintiffs appealed the district court’s decision to the U.S. Court of Appeals for the Eleventh Circuit, where the appeal was stayed, pending the U.S. Supreme Court’s decision in a similar case against Duke Energy. The Supreme Court issued its decision in the Duke Energy case in April 2007, and in December 2007, the Eleventh Circuit vacated the district court’s decision in the Alabama Power case and remanded the case back to the district court for consideration of the legal issues in light of the Supreme Court’s decision in the Duke Energy case. In July 2008, the U.S. District Court for the Northern District of Alabama granted partial summary judgment in favor of Alabama Power regarding the proper legal test for determining whether projects are routine maintenance, repair, and replacement and therefore are excluded from NSR permitting. The decision did not resolve the case, and the ultimate outcome of these matters cannot be determined at this time.
 
      Southern Company and the traditional operating companies believe they have complied with applicable laws and the EPA regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes maximum civil penalties of $25,000 to $37,500 per day, per violation at each generating unit, depending on the date of the alleged violation. An adverse outcome in these matters could require substantial capital expenditures or affect the timing of currently budgeted capital expenditures that cannot be determined at this time and could possibly require payment of substantial penalties. Such expenditures could affect future results of operations, cash flows, and financial condition if such costs are not recovered through regulated rates.
 
      Carbon Dioxide Litigation
 
      New York Case
 
      In July 2004, three environmental groups and attorneys general from eight states, each outside of Southern Company’s service territory, and the corporation counsel for New York City filed complaints in the U.S. District Court for the Southern District of New York against Southern Company and four other electric power companies. The complaints allege that the companies’ emissions of carbon dioxide, a greenhouse gas, contribute to global warming, which the plaintiffs assert is a public nuisance. Under common law public and private nuisance theories, the plaintiffs seek a judicial order (1) holding each defendant jointly and severally liable for creating, contributing to, and/or maintaining global warming and (2) requiring each of the defendants to cap its emissions of carbon dioxide and then reduce those emissions by a specified percentage each year for at least a decade. The plaintiffs have not, however, requested that damages be awarded in connection with their claims. Southern Company believes these claims are without merit and notes that the complaint cites no statutory or regulatory basis for the claims. In September 2005, the U.S. District Court for the Southern District of New York granted Southern Company’s and the other defendants’ motions to dismiss these cases. The plaintiffs filed an appeal to the U.S. Court of Appeals for the Second Circuit in October 2005, but no decision has been issued. The ultimate outcome of these matters cannot be determined at this time.

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      Kivalina Case
 
      In February 2008, the Native Village of Kivalina and the City of Kivalina filed a suit in the U.S. District Court for the Northern District of California against several electric utilities (including Southern Company), several oil companies, and a coal company. The plaintiffs are the governing bodies of an Inupiat village in Alaska. The plaintiffs contend that the village is being destroyed by erosion allegedly caused by global warming that the plaintiffs attribute to emissions of greenhouse gases by the defendants. The plaintiffs assert claims for public and private nuisance and contend that the defendants have acted in concert and are therefore jointly and severally liable for the plaintiffs’ damages. The suit seeks damages for lost property values and for the cost of relocating the village, which is alleged to be $95 million to $400 million. In June 2008, all defendants filed motions to dismiss this case. Southern Company believes that these claims are without merit and notes that the complaint cites no statutory or regulatory basis for the claims. The ultimate outcome of this matter cannot be determined at this time.
 
      Environmental Remediation
 
      The registrants must comply with environmental laws and regulations that cover the handling and disposal of waste and releases of hazardous substances. Under these various laws and regulations, the subsidiaries may also incur substantial costs to clean up properties. The traditional operating companies have each received authority from their respective state PSCs to recover approved environmental compliance costs through regulatory mechanisms. Within limits approved by the state PSCs, these rates are adjusted annually or as necessary.
 
      Georgia Power’s environmental remediation liability at June 30, 2009 was $11.1 million. Georgia Power has been designated or identified as a potentially responsible party (PRP) at sites governed by the Georgia Hazardous Site Response Act and/or by the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), including a large site in Brunswick, Georgia on the CERCLA National Priorities List (NPL). The parties have completed the removal of wastes from the Brunswick site as ordered by the EPA. Additional claims for recovery of natural resource damages at this site or for the assessment and potential cleanup of other sites on the Georgia Hazardous Sites Inventory and CERCLA NPL are anticipated.
 
      By letter dated September 30, 2008, the EPA advised Georgia Power that it has been designated as a PRP at the Ward Transformer Superfund site located in Raleigh, North Carolina. Numerous other entities have also received notices from the EPA. Georgia Power, along with other named PRPs, is negotiating with the EPA to address cleanup of the site and reimbursement for past expenditures related to work performed at the site. In addition, on April 30, 2009, two PRPs filed separate actions in the U.S. District Court for the Eastern District of North Carolina against numerous other PRPs, including Georgia Power, seeking contribution from the defendants for expenses incurred by the plaintiffs related to work performed at a portion of the site. The ultimate outcome of these matters will depend upon further environmental assessment and the ultimate number of PRPs and cannot be determined at this time; however, it is not expected to have a material impact on Georgia Power’s financial statements.
 
      Gulf Power’s environmental remediation liability includes estimated costs of environmental remediation projects of approximately $67.2 million at June 30, 2009. These estimated costs relate to site closure criteria by the Florida Department of Environmental Protection (FDEP) for potential impacts to soil and groundwater from herbicide applications at Gulf Power substations. The schedule for completion of the remediation projects will be subject to FDEP approval. The projects have been approved by the Florida PSC for recovery through Gulf Power’s environmental cost recovery clause; therefore, there was no impact on net income as a result of these estimates.
 
      In 2003, the Texas Commission on Environmental Quality (TCEQ) designated Mississippi Power as a potentially responsible party at a site in Texas. The site was owned by an electric transformer

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      company that handled Mississippi Power’s transformers as well as those of many other entities. The site owner is now in bankruptcy and the State of Texas has entered into an agreement with Mississippi Power and several other utilities to investigate and remediate the site. Amounts expensed related to this work have not been material. Hundreds of entities have received notices from the TCEQ requesting their participation in the anticipated site remediation. The final impact of this matter on Mississippi Power will depend upon further environmental assessment and the ultimate number of potentially responsible parties. The remediation expenses incurred by Mississippi Power are expected to be recovered through the ECO Plan. See Note 3 to the financial statements of Mississippi Power under “Retail Regulatory Matters — Environmental Compliance Overview Plan.”
 
      The final outcome of these matters cannot now be determined. However, based on the currently known conditions at these sites and the nature and extent of activities relating to these sites, Southern Company, Georgia Power, Gulf Power, and Mississippi Power do not believe that additional liabilities, if any, at these sites would be material to their respective financial statements.
 
      FERC Matters
 
      Market-Based Rate Authority
 
      Each of the traditional operating companies and Southern Power has authorization from the FERC to sell power to non-affiliates, including short-term opportunity sales, at market-based prices. Specific FERC approval must be obtained with respect to a market-based contract with an affiliate.
 
      In December 2004, the FERC initiated a proceeding to assess Southern Company’s generation dominance within its retail service territory. The ability to charge market-based rates in other markets is not an issue in the proceeding. Any new market-based rate sales by any subsidiary of Southern Company in Southern Company’s retail service territory entered into during a 15-month refund period that ended in May 2006 could be subject to refund to a cost-based rate level.
 
      In November 2007, the presiding administrative law judge issued an initial decision regarding the methodology to be used in the generation dominance tests. The proceedings are ongoing. The ultimate outcome of this generation dominance proceeding cannot now be determined, but an adverse decision by the FERC in a final order could require the traditional operating companies and Southern Power to charge cost-based rates for certain wholesale sales in the Southern Company retail service territory, which may be lower than negotiated market-based rates and could also result in total refunds of up to $19.7 million, plus interest. The potential refunds include $3.9 million for Alabama Power, $5.8 million for Georgia Power, $0.8 million for Gulf Power, $8.4 million for Mississippi Power, and $0.7 million for Southern Power, in each case plus interest. Southern Company and its subsidiaries believe that there is no meritorious basis for an adverse decision in this proceeding and are vigorously defending themselves in this matter.
 
      In June 2007, the FERC issued its final rule in Order No. 697 regarding market-based rate authority. The FERC generally retained its current market-based rate standards. Responding to a number of requests for rehearing, the FERC issued Order No. 697-A on April 21, 2008 and Order No. 697-B on December 12, 2008 and Order No. 697-C on June 16, 2009. These orders largely affirmed and clarified the FERC’s prior revision and codification of the regulations governing market-based rates for public utilities. In accordance with the orders, Southern Company submitted to the FERC an updated market power analysis in September 2008 related to its continued 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

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      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 within 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.
 
      Intercompany Interchange Contract
 
      Southern Company’s generation fleet in its retail service territory is operated under the IIC as approved by the FERC. In May 2005, the FERC initiated a new proceeding to examine (1) the provisions of the IIC among the traditional operating companies, Southern Power, and SCS, as agent, under the terms of which the Power Pool is operated, (2) whether any parties to the IIC have violated the FERC’s standards of conduct applicable to utility companies that are transmission providers, and (3) whether Southern Company’s code of conduct defining Southern Power as a “system company” rather than a “marketing affiliate” is just and reasonable. In connection with the formation of Southern Power, the FERC authorized Southern Power’s inclusion in the IIC in 2000. The FERC also previously approved Southern Company’s code of conduct.
 
      In October 2006, the FERC issued an order accepting a settlement resolving the proceeding subject to Southern Company’s agreement to accept certain modifications to the settlement’s terms and Southern Company notified the FERC that it accepted the modifications. The modifications largely involve functional separation and information restrictions related to marketing activities conducted on behalf of Southern Power. In November 2006, Southern Company filed with the FERC a compliance plan in connection with the order. In April 2007, the FERC approved, with certain modifications, the plan submitted by Southern Company. Implementation of the plan did not have a material impact on Southern Company’s or the traditional operating companies’ financial statements. Southern Power’s annual cost of implementing the compliance plan is approximately $7.0 million. In November 2007, Southern Company notified the FERC that the plan had been implemented. In December 2008, the FERC division of audits issued for public comment its final audit report pertaining to compliance implementation and related matters. No comments challenging the audit report’s findings were submitted. A decision is now pending from the FERC.
 
      Generation Interconnection Agreements
 
      In November 2004, generator company subsidiaries of Tenaska, Inc. (Tenaska), as counterparties to three previously executed interconnection agreements with subsidiaries of Southern Company, filed complaints at the FERC requesting that the FERC modify the agreements and that those Southern Company subsidiaries refund a total of $19 million previously paid for interconnection facilities, of which $11 million would be refunded by Alabama Power and $8 million by Georgia Power. No other similar complaints are pending with the FERC.
 
      In January 2007, the FERC issued an order granting Tenaska’s requested relief. Although the FERC’s order required the modification of Tenaska’s interconnection agreements, under the provisions of the order, Southern Company determined that no refund was payable to Tenaska. Southern Company requested rehearing asserting that the FERC retroactively applied a new principle to existing interconnection agreements. Tenaska requested rehearing of FERC’s methodology for determining the amount of refunds. The requested rehearings were denied, and Southern Company and Tenaska appealed the orders to the U.S.

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      Circuit Court for the District of Columbia. On July 7, 2009, the U.S. Circuit Court affirmed the FERC’s January 2007 order. The ultimate outcome of these matters cannot now be determined.
 
      Right of Way Litigation
 
      Southern Company and certain of its subsidiaries, including Mississippi Power, have been named as defendants in numerous lawsuits brought by landowners since 2001. The plaintiffs’ lawsuits claim that defendants may not use, or sublease to third parties, some or all of the fiber optic communications lines on the rights of way that cross the plaintiffs’ properties and that such actions exceed the easements or other property rights held by defendants. The plaintiffs assert claims for, among other things, trespass and unjust enrichment and seek compensatory and punitive damages and injunctive relief. Management of Southern Company and Mississippi Power believe that they have complied with applicable laws and that the plaintiffs’ claims are without merit.
 
      To date, Mississippi Power has entered into agreements with plaintiffs in approximately 95% of the actions pending against Mississippi Power to clarify its easement rights in the State of Mississippi. These agreements have been approved by the Circuit Courts of Harrison County and Jasper County, Mississippi (First Judicial Circuit), and dismissals of the related cases are in progress. These agreements have not resulted in any material effects on Southern Company’s or Mississippi Power’s financial statements.
 
      In addition, in late 2001, certain subsidiaries of Southern Company, including Mississippi Power, were named as defendants in a lawsuit brought in Troup County, Georgia, Superior Court by Interstate Fiber Network, a subsidiary of telecommunications company ITC DeltaCom, Inc. that uses rights of way. This lawsuit alleges, among other things, that the defendants are contractually obligated to indemnify, defend, and hold harmless the telecommunications company from any liability that may be assessed against it in pending and future right of way litigation. Southern Company and Mississippi Power believe that the plaintiff’s claims are without merit. In the fall of 2004, the trial court stayed the case until resolution of the underlying landowner litigation discussed above. In January 2005, the Georgia Court of Appeals dismissed the telecommunications company’s appeal of the trial court’s order for lack of jurisdiction. An adverse outcome in this matter, combined with an adverse outcome against the telecommunications company in one or more of the right of way lawsuits, could result in substantial judgments; however, the final outcome of these matters cannot now be determined.
 
      Nuclear Fuel Disposal Cost Litigation
 
      See Note 3 to the financial statements of Southern Company, Alabama Power, and Georgia Power under “Nuclear Fuel Disposal Costs” in Item 8 of the Form 10-K for information regarding the litigation brought by Alabama Power and Georgia Power against the government for breach of contracts related to the disposal of spent nuclear fuel. In July 2007, the U.S. Court of Federal Claims awarded Georgia Power a total of $30 million, based on its ownership interests, and awarded Alabama Power $17.3 million, representing all of the direct costs of the expansion of spent nuclear fuel storage facilities from 1998 through 2004. In August 2007, the government filed a motion for reconsideration, which was denied in November 2007. In January 2008, the government filed a notice of appeal. In February 2008, the government filed a motion to stay the appeal pending the court’s decisions in three other cases already on appeal. In April 2008, the court granted the government’s motion to stay the appeal pending the court’s decisions in three other similar cases already on appeal. Those cases were decided in August 2008. Based on the rulings in those cases, an appeal is expected.
 
      In April 2008, a second claim against the government was filed for damages incurred after December 31, 2004 (the court-mandated cut-off in the original claim), due to the government’s alleged

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      continuing breach of contract. In October 2008, the court denied a similar request by the government to stay this proceeding. The complaint does not contain any specific dollar amount for recovery of damages. Damages will continue to accumulate until the issue is resolved or the storage is provided. No amounts have been recognized in the financial statements as of June 30, 2009 for either claim. The final outcome of these matters cannot be determined at this time; however, no material impact on net income is expected as any damage amounts collected from the government are expected to be returned to customers.
 
      Income Tax Matters
 
      Leveraged Leases
 
      In 2002, the IRS began the examination of three sale-in-lease-out (SILO) transactions entered into by Southern Company. As a result of this examination, the IRS challenged the deductions related to these transactions. Southern Company disagreed with the IRS’s conclusion, went through all administrative appeals, paid approximately $168 million of the additional tax, and sued the IRS for the refund of such taxes.
 
      During the second quarter 2008, decisions in favor of the IRS were reached in several court cases involving other taxpayers with similar leveraged lease investments. Pursuant to the application of certain accounting standards related to leveraged leases, management is required to assess on a periodic basis the likely outcome of the uncertain tax positions related to the SILO transactions. Based on these accounting standards and management’s review of the recent court decisions, Southern Company recorded an after-tax charge of approximately $67 million in the second quarter 2008.
 
      In December 2008, Southern Company received from the Commissioner of the IRS an invitation to participate in a global settlement initiative related to the SILO transactions. Southern Company accepted the settlement offer on January 8, 2009. Pursuant to the settlement offer, Southern Company recorded an additional after-tax charge in the fourth quarter 2008 of $16 million. Including the charge recorded in the second quarter 2008, total after-tax charges related to settling the SILO litigation amounted to $83 million in 2008. Of the total, approximately $7 million represented interest and $76 million represented non-cash charges related to the reallocation of lease income and will be recognized in income over the remaining term of the affected leases. All additional taxes due as a result of the settlement have now been paid. A final closing agreement with the IRS was signed on June 19, 2009. This agreement ends the dispute with the IRS. Subsequent to the settlement and before the end of the second quarter 2009, Southern Company terminated one of the SILOs and one other international leveraged lease. Of the $76 million non-cash charges related to the IRS settlement, approximately $30 million related to the SILO which was terminated on June 29, 2009.
 
      Georgia State Income Tax Credits
 
      Georgia Power’s 2005 through 2008 income tax filings for the State of Georgia include state income tax credits for increased activity through Georgia ports. Georgia Power has also filed similar claims for the years 2002 through 2004. The Georgia Department of Revenue has not responded to these claims. In July 2007, Georgia Power filed a complaint in the Superior Court of Fulton County to recover the credits claimed for the years 2002 through 2004. An unrecognized tax benefit has been recorded related to these credits. If Georgia Power prevails, these claims could have a significant, and possibly material, positive effect on Southern Company’s and Georgia Power’s net income. If Georgia Power is not successful, payment of the related state tax could have a significant, and possibly material, negative effect on Southern Company’s and Georgia Power’s cash flow. The ultimate outcome of this matter cannot now be determined.

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      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 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.
 
      Construction Projects
 
      Integrated Coal Gasification Combined Cycle
 
      On January 16, 2009, Mississippi Power filed for a Certificate of Public Convenience and Necessity with the Mississippi PSC to allow construction of a new electric generating plant located in Kemper County, Mississippi. The plant would utilize an advanced integrated coal gasification combined cycle technology with an output capacity of 582 MWs. The Kemper IGCC will use locally mined lignite (an abundant, lower heating value coal) from a proposed mine adjacent to the plant as fuel. This certificate, if approved by the Mississippi PSC, would authorize Mississippi Power to acquire, construct and operate the Kemper IGCC and related facilities. The Kemper IGCC, subject to federal and state reviews and certain regulatory approvals, is expected to begin commercial operation in May 2014. As part of its filing, Mississippi Power has requested certain rate recovery treatment in accordance with the base load construction legislation.
 
      Mississippi Power filed an application in June 2006 with the DOE for certain tax credits available to projects using clean coal technologies under the Energy Policy Act of 2005. The DOE subsequently certified the Kemper IGCC, and in November 2006 the IRS allocated Internal Revenue Code Section 48A tax credits of $133 million to Mississippi Power. On May 11, 2009, Mississippi Power received notification from the IRS formally certifying these tax credits. 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. Mississippi Power has secured all environmental reviews and permits necessary to commence construction of the Kemper IGCC and has entered into a binding contract for the steam turbine generator, completing two milestone requirements for the Section 48A credits.
 
      On February 14, 2008, Mississippi Power also requested that the DOE transfer the remaining funds previously granted to a cancelled Southern Company project that would have been located in Orlando, Florida. On December 12, 2008, an agreement was reached to assign the remaining funds to the Kemper IGCC. The estimated construction cost of the Kemper IGCC is approximately $2.2 billion, which is net of $220 million related to funding to be received from the DOE related to project construction. The remaining DOE funding of $50 million is projected to be used for demonstration over the first few years of operation.

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      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 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.
 
      Beginning in December 2006, the Mississippi PSC has approved Mississippi Power’s requested accounting treatment to defer the costs associated with Mississippi Power’s generation resource planning, evaluation, and screening activities as a regulatory asset. On December 22, 2008, Mississippi Power requested an amendment to its original order that would allow these costs to continue to be charged to and remain in a regulatory asset until January 1, 2010. 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.
 
      The ultimate outcome of these matters cannot now be determined.
 
      Nuclear
 
      In August 2006, Southern Nuclear, on behalf of Georgia Power, Oglethorpe Power Corporation (OPC), the Municipal Electric Authority of Georgia (MEAG Power), and the City of Dalton, Georgia, an incorporated municipality in the State of Georgia acting by and through its Board of Water, Light and Sinking Fund Commissioners (collectively, Owners), filed an application with the NRC for an early site permit relating to two additional nuclear units on the site of Plant Vogtle. See Note 4 to the financial statements of Southern Company and Georgia Power in Item 8 of the Form 10-K for additional information on these co-owners. On March 31, 2008, Southern Nuclear filed an

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      application with the NRC for a combined construction and operating license (COL) for the new units. If licensed by the NRC, Vogtle Units 3 and 4 are scheduled to be placed in service in 2016 and 2017, respectively.
 
      On April 8, 2008, Georgia Power, acting for itself and as agent for the Owners, and a consortium consisting of Westinghouse Electric Company LLC and Stone & Webster, Inc. (collectively, Consortium) entered into an engineering, procurement, and construction agreement to design, engineer, procure, construct, and test two AP1000 nuclear units with electric generating capacity of approximately 1,100 MWs each and related facilities, structures, and improvements at Plant Vogtle (Vogtle 3 and 4 Agreement).
 
      The Vogtle 3 and 4 Agreement is an arrangement whereby the Consortium supplies and constructs the entire facility with the exception of certain items provided by the Owners. Under the terms of the Vogtle 3 and 4 Agreement, the Owners will pay a purchase price that will be subject to certain price escalation and adjustments, adjustments for change orders, and performance bonuses. Each Owner is severally (and not jointly) liable for its proportionate share, based on its ownership interest, of all amounts owed to the Consortium under the Vogtle 3 and 4 Agreement. Georgia Power’s proportionate share, based on its current ownership interest, is 45.7%.
 
      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 Owners and the Consortium have agreed to certain liquidated damages upon the Consortium’s failure to comply with the schedule and performance guarantees. The Owners and the Consortium also have agreed to certain bonuses payable to the Consortium for early completion and unit performance. The Consortium’s liability to the Owners for schedule and performance liquidated damages and warranty claims is subject to a cap.
 
      The obligations of Westinghouse Electric Company LLC and Stone & Webster, Inc. under the Vogtle 3 and 4 Agreement are guaranteed by Toshiba Corporation and The Shaw Group, Inc., respectively. In the event of certain credit rating downgrades of any Owner, such Owner will be required to provide a letter of credit or other credit enhancement.
 
      In addition, the Owners may terminate the Vogtle 3 and 4 Agreement at any time for their convenience, provided that the Owners will be required to pay certain termination costs and, at certain stages of the work, cancellation fees to the Consortium. The Consortium may terminate the Vogtle 3 and 4 Agreement under certain circumstances, including delays in receipt of the COL or delivery of full notice to proceed, certain Owner suspension or delays of work, action by a governmental authority to permanently stop work, certain breaches of the Vogtle 3 and 4 Agreement by the Owners, Owner insolvency, and certain other events.
 
      Southern Company is also exploring other possibilities relating to additional nuclear power projects, both on its own or in partnership with other utilities. The final outcome of these matters cannot now be determined.

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  (C)   FAIR VALUE MEASUREMENTS
 
      As of June 30, 2009, assets and liabilities measured at fair value on a recurring basis during the period, together with the level of the fair value hierarchy in which they fall, are as follows:
                                         
    Fair Value Measurements Using            
    Quoted Prices                    
    in Active   Significant                
    Markets for   Other   Significant            
    Identical   Observable   Unobservable            
    Assets   Inputs   Inputs            
As of June 30, 2009:   (Level 1)   (Level 2)   (Level 3)   Total        
             (in millions)        
Southern Company
                                       
Assets:
                                       
Energy-related derivatives
  $     $ 23     $     $ 23          
Nuclear decommissioning trusts(a)(b)
    594       343             937          
Cash equivalents and restricted cash
    688                   688          
Other
    7       44       34       85          
 
Total
  $ 1,289     $ 410     $ 34     $ 1,733          
 
Liabilities:
                                       
Energy-related derivatives
  $     $ 325     $     $ 325          
Interest rate derivatives
          16             16          
 
Total
  $     $ 341     $     $ 341          
 
 
                                       
Alabama Power
                                       
Assets:
                                       
Energy-related derivatives
  $     $ 3     $     $ 3          
Nuclear decommissioning trusts(a)
                                       
Domestic equity
    244       35             279          
U.S. Treasury and government agency securities
          12             12          
Corporate bonds
    7       56             63          
Mortgage and asset backed securities
          50             50          
Other
          14             14          
Cash equivalents and restricted cash
    191                   191          
 
Total
  $ 442     $ 170     $     $ 612          
 
Liabilities:
                                       
Energy-related derivatives
  $     $ 95     $     $ 95          
Interest rate derivatives
          9             9          
 
Total
  $     $ 104     $     $ 104          
 
 
                                       
Georgia Power
                                       
Assets:
                                       
Energy-related derivatives
  $     $ 4     $     $ 4          
Nuclear decommissioning trusts(a)
                                       
Domestic equity
    343       1             344          
U.S. Treasury and government agency securities
          24             24          
Municipal bonds
          15             15          
Corporate bonds
          86             86          
Mortgage and asset backed securities
          25             25          
Other
          25             25          
Cash equivalents and restricted cash
    34                   34          
 
Total
  $ 377     $ 180     $     $ 557          
 
Liabilities:
                                       
Energy-related derivatives
  $     $ 129     $     $ 129          
Interest rate derivatives
          7             7          
 
Total
  $     $ 136     $     $ 136          
 

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
                                 
    Fair Value Measurements Using            
    Quoted Prices                    
    in Active   Significant                
    Markets for   Other   Significant            
    Identical   Observable   Unobservable            
    Assets   Inputs   Inputs            
As of June 30, 2009:   (Level 1)   (Level 2)   (Level 3)   Total        
    (in millions)        
Gulf Power
                               
Assets:
                               
Energy-related derivatives
  $     $ 1     $     $ 1  
Cash equivalents and restricted cash
    41                   41  
 
Total
  $ 41     $ 1     $     $ 42  
 
Liabilities:
                               
Energy-related derivatives
  $     $ 29     $     $ 29  
 
 
                               
Mississippi Power
                               
Assets:
                               
Energy-related derivatives
  $     $ 2     $     $ 2  
Cash equivalents
    2                   2  
 
Total
  $ 2     $ 2     $     $ 4  
 
Liabilities:
                               
Energy-related derivatives
  $     $ 62     $     $ 62  
 
 
                               
Southern Power
                               
Assets:
                               
Energy-related derivatives
  $     $ 13     $     $ 13  
Cash equivalents
    29                   29  
 
Total
  $ 29     $ 13     $     $ 42  
 
Liabilities:
                               
Energy-related derivatives
  $     $ 10     $     $ 10  
 
(a)   Excludes receivables related to investment income, pending investment sales, and payables related to pending investment purchases.
 
(b)   For additional detail, see the nuclear decommissioning trusts for Alabama Power and Georgia Power.
      Energy-related derivatives and interest rate derivatives primarily consist of over-the-counter contracts. See Note (E) under “Financial Instruments” herein for additional information. The nuclear decommissioning trust funds are invested in a diversified mix of equity and fixed income securities. The cash equivalents and restricted cash consist of securities with original maturities of 90 days or less. “Other” represents marketable securities and certain deferred compensation funds also invested in various marketable securities. All of these financial instruments and investments are valued primarily using the market approach.
 
      Changes in the fair value measurement of the Level 3 items using significant unobservable inputs for Southern Company at June 30, 2009 are as follows:
                 
    Level 3
    Other
    Three Months Ended   Six Months Ended
    June 30, 2009   June 30, 2009
    (in millions)
Beginning balance
  $ 32     $ 35  
Total gains (losses) — realized/unrealized:
               
Included in earnings
          (3 )
Included in OCI
    2       2  
 
Ending balance at June 30, 2009
  $ 34     $ 34  
 

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
Unrealized losses of $3 million were included in earnings during the six-month period relating to assets still held at June 30, 2009 and are recorded in “depreciation and amortization.”
Southern Company, Alabama Power, and Georgia Power continue to elect the option to fair value investment securities held in the nuclear decommissioning trust funds. For the three months and six months ended June 30, 2009, the increase in fair value of the funds, which includes reinvested interest and dividends, is recorded in the regulatory liability and was $45 million and $22 million, respectively, for Alabama Power, $52 million and $27 million, respectively, for Georgia Power, and $97 million and $49 million, respectively, for Southern Company.
As of June 30, 2009, other financial instruments for which the carrying amount did not equal fair value were as follows:
                 
    Carrying Amount   Fair Value
    (in millions)
Long-term debt:
               
Southern Company
    $18,916       $19,231  
Alabama Power
    $6,407       $6,547  
Georgia Power
    $7,566       $7,626  
Gulf Power
    $1,119       $1,129  
Mississippi Power
    $491       $500  
Southern Power
    $1,297       $1,357  
      The fair values were based on either closing market prices (Level 1) or closing prices of comparable instruments (Level 2).
(D)   STOCKHOLDERS’ EQUITY
 
    Earnings per Share
 
    For Southern Company, the only difference in computing basic and diluted earnings per share is attributable to exercised options and outstanding options under the stock option plan. See Note 8 to the financial statements of Southern Company in Item 8 of the Form 10-K for further information on the stock option plan. The effect of the stock options was determined using the treasury stock method. Shares used to compute diluted earnings per share are as follows (in thousands):
                                 
    Three Months   Three Months   Six Months   Six Months
    Ended   Ended   Ended   Ended
    June 30, 2009   June 30, 2008   June 30, 2009   June 30, 2008
     
As reported shares
    790,748       769,122       785,303       767,636  
Effect of options
    1,320       4,018       1,562       4,091  
     
Diluted shares
    792,068       773,140       786,865       771,727  
     
      The reduction in the effect of options for the three and six months ended June 30, 2009 compared to the corresponding periods in 2008 is primarily due to the anti-dilutive nature of certain stock options outstanding that have exercise prices that exceed the average stock price of Southern Company shares in the three and six months ended June 30, 2009. At June 30, 2009, there were 37.8 million stock options that were not included in the diluted earnings per share calculation because they were anti-dilutive. Assuming an average stock price of $38.01 (the highest exercise price of the anti-dilutive options outstanding), the effect of options for the three and six months ended June 30, 2009 would have increased by 3.5 million and 3.1 million shares, respectively.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
      Changes in Stockholders’ Equity
 
      The following table presents year-to-date changes in stockholders’ equity of Southern Company:
                         
            Preferred and    
    Common   Preference   Total
    Stockholders’   Stock of   Stockholders’
    Equity   Subsidiaries   Equity
            (in millions)        
Balance at December 31, 2008
  $ 13,276     $ 707     $ 13,983  
Net income after dividends on preferred and preference stock
    604             604  
Other comprehensive income (loss)
    16             16  
Stock issued
    559             559  
Cash dividends on common stock
    (670 )           (670 )
Other
    (1 )           (1 )
 
Balance at June 30, 2009
  $ 13,784     $ 707     $ 14,491  
 
                         
            Preferred and    
    Common   Preference   Total
    Stockholders’   Stock of   Stockholders’
    Equity   Subsidiaries   Equity
    (in millions)
Balance at December 31, 2007
  $ 12,385     $ 707     $ 13,092  
Net income after dividends on preferred and preference stock
    776             776  
Other comprehensive income (loss)
    (14 )           (14 )
Stock issued
    260             260  
Cash dividends on common stock
    (630 )           (630 )
Other
    (7 )           (7 )
 
Balance at June 30, 2008
  $ 12,770     $ 707     $ 13,477  
 
  (E)   FINANCING
 
      Bank Credit Arrangements
 
      At June 30, 2009, unused credit arrangements with banks totaled $4.7 billion, of which $484 million expires during 2009, $965 million expires in 2010, $25 million expires in 2011, and $3.2 billion expires in 2012. These credit arrangements provide liquidity support to the registrants’ commercial paper borrowings and the traditional operating companies’ variable rate pollution control revenue bonds.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
      The following table outlines the credit arrangements by company:
                                                                 
                    Executable    
                    Term-Loans   Expires
                    One   Two                
Company   Total   Unused   Year   Years   2009   2010   2011   2012
    (in millions)
Southern Company
  $ 950     $ 950     $     $     $     $     $     $ 950  
Alabama Power
    1,260       1,260       361             325       145       25       765  
Georgia Power
    1,675       1,663                         555             1,120  
Gulf Power
    220       220       70             90       130              
Mississippi Power
    149       149       15       44       59       90              
Southern Power
    400       400                                     400  
Other
    55       55       55             10       45              
 
Total
  $ 4,709     $ 4,697     $ 501     $ 44     $ 484     $ 965     $ 25     $ 3,235  
 
      Subsequent to June 30, 2009, Georgia Power entered into an additional committed credit agreement resulting in an increase of $40 million. The agreement expires in 2010 and contains a two year term-loan option.
 
      See Note 6 to the financial statements of Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power under “Bank Credit Arrangements” in Item 8 of the Form 10-K for additional information.
 
      Changes in Redeemable Preferred Stock of Subsidiaries
 
      The following table presents year-to-date changes in redeemable preferred stock of subsidiaries for Southern Company:
         
    Redeemable Preferred
    Stock of Subsidiaries
    (in millions)
Balance at December 31, 2008
  $ 375  
Issuance (Redemption) of preferred stock
     
 
Balance at June 30, 2009
  $ 375  
 
 
       
Balance at December 31, 2007
  $ 498  
Issuance (Redemption) of preferred stock
    (125 )
Other
    2  
 
Balance at June 30, 2008
  $ 375  
 
      Financial Instruments
 
      Southern Company, the traditional operating companies, and Southern Power are exposed to market risks, primarily commodity price risk and interest rate risk. To manage the volatility attributable to these exposures, each company nets its exposures, where possible, to take advantage of natural offsets and enters into various derivative transactions for the remaining exposures pursuant to the companies’ policies in areas such as counterparty exposure and risk management practices. The registrants’ policy is that derivatives are to be used primarily for hedging purposes and mandates strict adherence to all applicable risk management policies. Derivative positions are monitored using techniques including, but not limited to, market valuation, value at risk, stress testing, and sensitivity analysis. Derivative instruments are recognized at fair value in the statement of financial position as either assets or liabilities.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
      Energy-Related Derivatives
 
      The traditional operating companies and Southern Power enter into energy-related derivatives to hedge exposures to electricity, gas, and other fuel price changes. However, due to cost-based rate regulations, the traditional operating companies have limited exposure to market volatility in commodity fuel prices and prices of electricity. Each of the traditional operating companies manages fuel-hedging programs, implemented per the guidelines of their respective state PSCs, through the use of financial derivative contracts. Southern Power also has limited exposure to market volatility in commodity fuel prices and prices of electricity because its long-term sales contracts shift substantially all fuel cost responsibility to the purchaser. However, Southern Power has been and may continue to be exposed to market volatility in energy-related commodity prices as a result of sales of uncontracted generating capacity.
 
      To mitigate residual risks relative to movements in electricity prices, the registrants enter into physical fixed-price or heat rate contracts for the purchase and sale of electricity through the wholesale electricity market. To mitigate residual risks relative to movements in gas prices, the registrants may enter into fixed-price contracts for natural gas purchases; however, a significant portion of contracts are priced at market.
 
      Energy-related derivative contracts are accounted for in one of three methods:
    Regulatory Hedges – Energy-related derivative contracts which are designated as regulatory hedges relate primarily 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 the underlying fuel is used in operations and ultimately recovered through the respective fuel cost recovery clauses.
 
    Cash Flow Hedges – Gains and losses on energy-related derivatives designated as cash flow hedges, which are mainly used by Southern Power, to hedge anticipated purchases and sales are initially deferred in OCI before being recognized in income in the same period as the hedged transactions are reflected in earnings.
 
    Not Designated – 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.
      Some energy-related derivative contracts require physical delivery as opposed to financial settlement, and this type of derivative is both common and prevalent within the electric industry. When an energy-related derivative contract is settled physically, any cumulative unrealized gain or loss is reversed and the contract price is recognized in the respective line item representing the actual price of the underlying goods being delivered.
 
      At June 30, 2009, the net volume of energy-related derivative contracts for power and natural gas positions for the registrants, together with the longest hedge date over which the respective entity is hedging its exposure to the variability in future cash flows for forecasted transactions and the longest date for derivatives not designated as hedges, were as follows:
                                                 
    Power   Gas
            Longest   Longest   Net   Longest   Longest
As of June 30,   Net Sold   Hedge   Non-Hedge   Purchased   Hedge   Non-Hedge
2009:   MWH   Date   Date   mmBtu   Date   Date
    (in thousands)                   (in millions)                
Southern Company
    1,442       2009       2010       173 *     2012       2010  
Alabama Power
    6             2009       49       2012        
Georgia Power
    7             2009       75       2012        
Gulf Power
    1             2009       15       2012        
Mississippi Power
    286       2009       2009       30       2012       2009  
Southern Power
    1,142             2010       5 *           2010  
 
*   Includes location basis of 2 million mmBtu.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
      For cash flow hedges, the amounts expected to be reclassified from OCI to revenue and fuel expense for the next 12-month period ending June 30, 2010 are immaterial for all registrants.
 
      Interest Rate Derivatives
 
      Southern Company and certain subsidiaries also enter into interest rate derivatives, which include forward-starting interest rate swaps, to hedge exposure to changes in interest rates. Derivatives related to existing variable rate securities or forecasted transactions are accounted for as cash flow hedges. The derivatives employed as hedging instruments are structured to minimize ineffectiveness.
 
      For cash flow hedges, the fair value gains or losses are recorded in OCI and are reclassified into earnings at the same time the hedged transactions affect earnings.
 
      At June 30, 2009, Southern Company had a total of $1.2 billion notional amount of interest rate derivatives outstanding with net fair value losses of $16 million as follows:
                     
            Weighted        
            Average       Fair Value
    Notional   Variable Rate   Fixed Rate   Hedge Maturity   Gain (Loss)
Registrant   Amount   Received   Paid   Date   June 30, 2009
    (in millions)               (in millions)
Cash flow hedges of existing debt                
Alabama Power
  $576   SIFMA* Index   2.69%   February 2010   $(9)
Georgia Power
  301   SIFMA* Index   2.22%   December 2009   (3)
Georgia Power
  300   1-month LIBOR   2.43%   April 2010   (4)
                 
Total
  $1,177               $(16)
                 
*   Securities Industry and Financial Markets Association Municipal Swap Index (SIFMA)
      For the six months ended June 30, 2009, Georgia Power incurred net losses of $16 million (all of which were incurred in the first quarter 2009) upon termination of certain interest rate derivatives at the same time it issued debt. The effective portion of these losses has been deferred in OCI and will be amortized to interest expense over the life of the original interest rate derivative, reflecting the period in which the forecasted hedged transaction affects earnings.
 
      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.
 
      The following table reflects the estimated pre-tax gains (losses) that will be reclassified from OCI to interest expense for the next 12-month period ending June 30, 2010, together with the longest date that total deferred gains and losses are expected to be amortized into earnings.
                 
    Estimated Gain (Loss) to    
    be Reclassified for the   Total Deferred
    12 Months Ending   Gains (Losses)
Registrant   June 30, 2010   Amortized Through
    (in millions)        
Southern Company
  $ (35 )     2037  
Alabama Power
    (9 )     2035  
Georgia Power
    (15 )     2037  
Gulf Power
    (1 )     2018  
Southern Power
    (10 )     2016  
 

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
      Derivative Financial Statement Presentation and Amounts
 
      At June 30, 2009, the fair value of energy-related derivatives and interest rate derivatives was reflected in the balance sheets as follows:
                                                 
Asset Derivatives at June 30, 2009
    Fair Value
Derivative Category and Balance Sheet   Southern   Alabama   Georgia   Gulf   Mississippi   Southern
Location   Company   Power   Power   Power   Power   Power
    (in millions)
Derivatives designated as hedging instruments for regulatory purposes
                                               
Energy-related derivatives
                                               
Other current assets
  $ 4     $ 1     $ 2     $ 1     $          
Other deferred charges and assets
    5       2       2             1          
 
Total derivatives designated as hedging instruments for regulatory purposes
  $ 9     $ 3     $ 4     $ 1     $ 1       N/A  
 
 
                                               
Derivatives not designated as hedging instruments
                                               
Energy-related derivatives
                                               
Other current assets*
  $ 14     $     $     $     $ 1     $  
Assets from risk management activities
                                  13  
 
Total derivatives not designated as hedging instruments
  $ 14     $     $     $     $ 1     $ 13  
 
 
                                               
Total asset derivatives
  $ 23     $ 3     $ 4     $ 1     $ 2     $ 13  
 
*   Southern Company includes Assets from risk management activities in Other current assets.
                                                 
Liability Derivatives at June 30, 2009
    Fair Value
Derivative Category and Balance Sheet   Southern   Alabama   Georgia   Gulf   Mississippi   Southern
Location   Company   Power   Power   Power   Power   Power
    (in millions)
Derivatives designated as hedging instruments for regulatory purposes
                                               
Energy-related derivatives
                                               
Liabilities from risk management activities
  $ 241     $ 78     $ 102     $ 24     $ 37          
Other deferred credits and liabilities
    73       17       27       5       24          
 
Total derivatives designated as hedging instruments for regulatory purposes
  $ 314     $ 95     $ 129     $ 29     $ 61       N/A  
 
 
                                               
Derivatives designated as hedging instruments in cash flow and fair value hedges
                                               
Interest rate derivatives
                                               
Liabilities from risk management activities
  $ 16     $ 9     $ 7     $     $     $  
 
 
                                               
Derivatives not designated as hedging instruments
                                               
Energy-related derivatives
                                               
Liabilities from risk management activities
  $ 10     $     $     $     $ 1     $ 9  
Other deferred credits and liabilities
    1                               1  
 
Total derivatives not designated as hedging instruments
  $ 11     $     $     $     $ 1     $ 10  
 
 
                                               
Total liability derivatives
  $ 341     $ 104     $ 136     $ 29     $ 62     $ 10  
 

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
      All derivative instruments are measured at fair value. See Note (C) herein for additional information.
 
      At June 30, 2009, the pre-tax effect of unrealized derivative gains (losses) arising from energy-related derivative instruments designated as regulatory hedging instruments and deferred on the balance sheets were as follows:
                                         
Regulatory Hedge Unrealized Gain (Loss) Recognized on the Balance Sheet
Derivative Category and Balance Sheet   Southern   Alabama   Georgia   Gulf   Mississippi
Location   Company   Power   Power   Power   Power
    (in millions)
Energy-related derivatives
                                       
Other regulatory assets, current
  $ (241 )   $ (78 )   $ (102 )   $ (24 )   $ (37 )
Other regulatory assets, deferred
    (73 )     (17 )     (27 )     (5 )     (24 )
Other current liabilities
    4       1       2              
Other regulatory liabilities, current
                      1        
Other regulatory liabilities, deferred
    5       2       2             1  
 
Total energy-related derivative gains (losses)
  $ (305 )   $ (92 )   $ (125 )   $ (28 )   $ (60 )
 
For the three months ended June 30, 2009 and June 30, 2008, the pre-tax effect of energy-related derivatives and interest rate derivatives designated as cash flow hedging instruments on the statements of income were as follows:
                                         
    Gain (Loss)    
    Recognized in OCI   Gain (Loss) Reclassified from Accumulated OCI
Derivatives in Cash Flow   on Derivative   into Income (Effective Portion)
Hedging Relationships   (Effective Portion)   Statements of Income Location   Amount
    2009   2008       2009   2008
    (in millions)       (in millions)
Southern Company
                                       
Energy-related derivatives
  $     $ 7     Fuel       $     $  
Interest rate derivatives
    (4 )         Interest expense         (12 )     (6 )
 
Total
  $ (4 )   $ 7             $ (12 )   $ (6 )
 
Alabama Power
                                       
Energy-related derivatives
  $     $     Fuel       $     $  
Interest rate derivatives
    (2 )     3     Interest expense         (3 )     (2 )
 
Total
  $ (2 )   $ 3             $ (3 )   $ (2 )
 
Georgia Power
                                       
Interest rate derivatives total
  $ (2 )   $ 16     Interest expense       $ (6 )   $ (1 )
 
Gulf Power
                                       
Interest rate derivatives total
  $     $ 1     Interest expense       $     $  
 
Mississippi Power
                                       
Energy-related derivatives total
  $     $ (1 )   Fuel       $     $  
 
Southern Power
                                       
Energy-related derivatives
  $     $ (12 )   Fuel       $     $  
Interest rate derivatives
              Interest expense         (3 )     (3 )
 
Total
  $     $ (12 )           $ (3 )   $ (3 )
 

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
      For the six months ended June 30, 2009 and June 30, 2008, the pre-tax effect of energy-related derivatives and interest rate derivatives designated as cash flow hedging instruments on the statements of income were as follows:
                                         
    Gain (Loss)    
    Recognized in OCI    
Derivatives in Cash Flow   on Derivative   Gain (Loss) Reclassified from Accumulated OCI
Hedging Relationships   (Effective Portion)   into Income (Effective Portion)
                    Statements of Income Location   Amount
    2009   2008           2009   2008
    (in millions)           (in millions)
Southern Company
                                       
Energy-related derivatives
  $ 1     $ (5 )   Fuel       $     $  
Interest rate derivatives
    (3 )     (24 )   Interest expense         (22 )     (11 )
 
Total
  $ (2 )   $ (29 )           $ (22 )   $ (11 )
 
Alabama Power
                                       
Energy-related derivatives
  $     $ (1 )   Fuel       $     $  
Interest rate derivatives
    (4 )     (2 )   Interest expense         (6 )     (2 )
 
Total
  $ (4 )   $ (3 )           $ (6 )   $ (2 )
 
Georgia Power
                                       
Interest rate derivatives total
  $ 1     $     Interest expense       $ (11 )   $ (2 )
 
Gulf Power
                                       
Interest rate derivatives total
  $     $ (3 )   Interest expense       $ (1 )   $  
 
Mississippi Power
                                       
Energy-related derivatives total
  $     $ (4 )   Fuel       $     $  
 
Southern Power
                                       
Energy-related derivatives
  $ 1     $ (20 )   Fuel       $     $  
Interest rate derivatives
              Interest expense         (5 )     (7 )
 
Total
  $ 1     $ (20 )           $ (5 )   $ (7 )
 
 
There was no material ineffectiveness recorded in earnings for any registrant for any period presented.
 
For the three months ended June 30, 2009 and June 30, 2008, the pre-tax effect of energy-related derivatives not designated as hedging instruments on the statements of income were as follows:
 
Derivatives not Designated                   Unrealized Gain (Loss) Recognized in Income
as Hedging Instruments                   Statements of Income Location   Amount
                            2009   2008
                            (in millions)
 
                                       
Southern Company
                                       
Energy-related derivatives
                  Wholesale revenues   $ 1     $ (6 )
 
                  Fuel         1       16  
 
                  Purchased power     (2 )     (5 )
 
                  Other income (expense), net           2  
 
Total
                          $     $ 7  
 
Mississippi Power
                                       
Energy-related derivatives
                  Other income (expense), net   $     $ 2  
 
Southern Power
                                       
Energy-related derivatives
                  Wholesale revenues   $ 1     $ (6 )
 
                  Fuel         1       16  
 
                  Purchased power     (2 )     (5 )
 
Total
                          $     $ 5  
 

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
      For the six months ended June 30, 2009 and June 30, 2008, the pre-tax effect of energy-related derivatives not designated as hedging instruments on the statements of income were as follows:
                         
Derivatives not Designated   Unrealized Gain (Loss) Recognized in Income  
as Hedging Instruments   Statements of Income Location     Amount  
            2009   2008
            (in millions)  
Southern Company
                       
Energy-related derivatives
  Wholesale revenues       $ 5     $ (34 )
 
  Fuel         (3 )     28  
 
  Purchased power         (3 )     (3 )
 
  Other income (expense), net               2  
 
Total
          $ (1 )   $ (7 )
 
Mississippi Power
                       
Energy-related derivatives
  Other income (expense), net       $     $ 2  
 
Southern Power
                       
Energy-related derivatives
  Wholesale revenues       $ 5     $ (34 )
 
  Fuel         (3 )     28  
 
  Purchased power         (3 )     (3 )
 
Total
          $ (1 )   $ (9 )
 
      Contingent Features
 
      The registrants do 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 derivatives that could require collateral, but not accelerated payment, in the event of various credit rating changes of certain Southern Company subsidiaries. At June 30, 2009, the fair value of derivative liabilities with contingent features, by registrant, is as follows:
                                                 
    Southern   Alabama   Georgia   Gulf   Mississipi   Southern
    Company   Power   Power   Power   Power   Power
    (in millions)
Derivative liabilities
  $ 68     $ 19     $ 30     $ 5     $ 8     $ 6  
      At June 30, 2009, the registrants had no collateral posted with their derivative counterparties; however, because of the joint and several liability features underlying these derivatives, the maximum potential collateral requirements arising from the credit-risk-related contingent features, at a rating below BBB- and/or Baa3, is $68 million for each registrant.
 
      Currently, each of the registrants has investment grade credit ratings from the major rating agencies with respect to debt, preferred securities, preferred stock, and/or preference stock.
 
      Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. For the traditional operating companies and Southern Power, included in these amounts are certain agreements that could require collateral in the event that one or more Power Pool participants has a credit rating change to below investment grade.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
  (F)   RETIREMENT BENEFITS
 
      Southern Company has a defined benefit, trusteed, pension plan covering substantially all employees. The plan is funded in accordance with requirements of the Employee Retirement Income Security Act of 1974, as amended (ERISA). No contributions to the plan are expected for the year ending December 31, 2009. Southern Company also provides certain defined benefit pension plans for a selected group of management and highly compensated employees. Benefits under these non-qualified pension plans are funded on a cash basis. In addition, Southern Company provides certain medical care and life insurance benefits for retired employees through other postretirement benefit plans. The traditional operating companies fund related trusts to the extent required by their respective regulatory commissions.
 
      See Note 2 to the financial statements of Southern Company, Alabama Power, Georgia Power, Gulf Power, and Mississippi Power in Item 8 of the Form 10-K. Components of the pension plans’ and postretirement plans’ net periodic costs for the three-month and six-month periods ended June 30, 2009 and 2008 are as follows (in millions):
                                                         
    Southern   Alabama   Georgia   Gulf   Mississippi                
PENSION PLANS   Company   Power   Power   Power   Power                
 
Three Months Ended June 30, 2009
                                                       
Service cost
  $ 37     $ 9     $ 12     $ 1     $ 1                  
Interest cost
    97       24       36       5       5                  
Expected return on plan assets
    (136 )     (41 )     (54 )     (6 )     (5 )                
Net amortization
    11       2       4             1                  
 
Net cost (income)
  $ 9     $ (6 )   $ (2 )   $     $ 2                  
 
 
                                                       
Six Months Ended June 30, 2009
                                                       
Service cost
  $ 73     $ 17     $ 24     $ 3     $ 3                  
Interest cost
    194       48       73       9       9                  
Expected return on plan assets
    (271 )     (82 )     (108 )     (12 )     (10 )                
Net amortization
    21       5       8             1                  
 
Net cost (income)
  $ 17     $ (12 )   $ (3 )   $     $ 3                  
 
 
                                                       
Three Months Ended June 30, 2008
                                                       
Service cost
  $ 37     $ 8     $ 13     $ 1     $ 1                  
Interest cost
    87       22       34       4       4                  
Expected return on plan assets
    (132 )     (40 )     (53 )     (6 )     (5 )                
Net amortization
    11       3       3       1       1                  
 
Net cost (income)
  $ 3     $ (7 )   $ (3 )   $     $ 1                  
 
 
                                                       
Six Months Ended June 30, 2008
                                                       
Service cost
  $ 73     $ 17     $ 25     $ 3     $ 3                  
Interest cost
    174       44       67       8       8                  
Expected return on plan assets
    (263 )     (80 )     (106 )     (12 )     (10 )                
Net amortization
    23       6       8       1       1                  
 
Net cost (income)
  $ 7     $ (13 )   $ (6 )   $     $ 2                  
 

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
                                         
    Southern   Alabama   Georgia   Gulf   Mississippi
POSTRETIREMENT PLANS   Company   Power   Power   Power   Power
 
Three Months Ended June 30, 2009
                                       
Service cost
  $ 6     $ 1     $ 3     $ 1     $  
Interest cost
    29       8       12       2       2  
Expected return on plan assets
    (15 )     (6 )     (7 )     (1 )     (1 )
Net amortization
    7       2       3              
 
Net cost (income)
  $ 27     $ 5     $ 11     $ 2     $ 1  
 
 
                                       
Six Months Ended June 30, 2009
                                       
Service cost
  $ 13     $ 3     $ 5     $ 1     $ 1  
Interest cost
    57       15       25       3       3  
Expected return on plan assets
    (30 )     (12 )     (15 )     (1 )     (1 )
Net amortization
    14       4       7              
 
Net cost (income)
  $ 54     $ 10     $ 22     $ 3     $ 3  
 
 
                                       
Three Months Ended June 30, 2008
                                       
Service cost
  $ 7     $ 2     $ 3     $ 1     $ 1  
Interest cost
    27       8       13       1       2  
Expected return on plan assets
    (14 )     (6 )     (8 )     (1 )     (1 )
Net amortization
    7       2       4       1        
 
Net cost (income)
  $ 27     $ 6     $ 12     $ 2     $ 2  
 
 
                                       
Six Months Ended June 30, 2008
                                       
Service cost
  $ 14     $ 4     $ 5     $ 1     $ 1  
Interest cost
    55       15       25       2       3  
Expected return on plan assets
    (29 )     (11 )     (15 )     (1 )     (1 )
Net amortization
    15       4       8       1        
 
Net cost (income)
  $ 55     $ 12     $ 23     $ 3     $ 3  
 
  (G)   EFFECTIVE TAX RATE AND UNRECOGNIZED TAX BENEFITS
 
      Effective Tax Rate
 
      Southern Company’s effective tax rate was 38.2% for the six months ended June 30, 2009, as compared to 33.3% for the same period in 2008. See Note 5 to the financial statements of each registrant in Item 8 of the Form 10-K for information on the effective income tax rate. Southern Company’s effective tax rate increased for the six months ended June 30, 2009 primarily due to the $202 million charge recorded for the MC Asset Recovery settlement. Southern Company is currently evaluating potential recovery of the settlement payment through various means. The degree to which any recovery is realized will determine, in part, the final income tax treatment of the settlement payment. See Note (B) herein under “Mirant Matters” for further information regarding this matter. The increase in Southern Company’s effective tax rate was partially offset by the early termination of an international leveraged lease investment, which is not taxable.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
      Unrecognized Tax Benefits
 
      Changes during 2009 for unrecognized tax benefits are as follows:
                                                 
    Southern   Alabama   Georgia   Gulf   Mississippi   Southern
    Company   Power   Power   Power   Power   Power
 
  (in millions)  
Unrecognized tax benefits as of December 31, 2008
  $ 146.4     $ 3.0     $ 137.1     $ 0.3     $ 1.8     $ 0.5  
Tax positions from current periods
    29.4       1.0       23.4       0.2       0.7       0.3  
Tax positions from prior periods
    2.2       1.2       0.2       0.3       0.1       0.4  
Reductions due to settlements
                                   
Reductions due to expired statute of limitations
                                   
 
Balance as of June 30, 2009
  $ 178.0     $ 5.2     $ 160.7     $ 0.8     $ 2.6     $ 1.2  
 
      The tax positions increase from the current periods relates primarily to the Georgia state tax credits and other miscellaneous uncertain tax positions. See Note (B) herein under “Income Tax Matters — Georgia State Income Tax Credits” for additional information. The tax positions increase from the prior periods relates to the production activities deduction tax position.
 
      Impact on Southern Company’s effective tax rate, if recognized, is as follows:
                                         
                    As of   As of    
    Georgia   Other   June 30,   December 31,    
    Power   Registrants   2009   2008   Change
 
    (in millions)
Tax positions impacting the effective tax rate
  $ 158.0     $ 17.2     $ 175.2     $ 143.5     $ 31.7  
Tax positions not impacting the effective tax rate
    2.8             2.8       2.9       (0.1 )
 
Balance of unrecognized tax benefits
  $ 160.8     $ 17.2     $ 178.0     $ 146.4     $ 31.6  
 
      The change in the tax position impacting the effective tax rate increase relates primarily to the Georgia state tax credits and the production activities deduction.
 
      Accrued interest for unrecognized tax benefits:
         
 
    (in millions)
Interest accrued as of December 31, 2008
  $ 14.8  
Interest accrued year-to-date
    4.4  
 
Balance as of June 30, 2009
  $ 19.2  
 
      It is reasonably possible that the amount of the unrecognized benefit with respect to a majority of Southern Company’s and Georgia Power’s unrecognized tax positions will significantly increase or decrease within the next 12 months. The conclusion or settlement of the Georgia state tax credits litigation would substantially reduce the balances. The conclusion or settlement of federal or state audits could also impact the balances significantly. At this time, an estimate of the range of reasonably possible outcomes cannot be determined.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
  (H)   SEGMENT AND RELATED INFORMATION
 
      Southern Company’s reportable business segments are the sale of electricity in the Southeast by the four traditional operating companies and Southern Power. Southern Power’s revenues from sales to the traditional operating companies were $138 million and $273 million for the three months and six months ended June 30, 2009, respectively, and $144 million and $277 million for the three months and six months ended June 30, 2008, respectively. The “All Other” column includes parent Southern Company, which does not allocate operating expenses to business segments. Also, this category includes segments below the quantitative threshold for separate disclosure. These segments include investments in telecommunications, energy-related services, and leveraged lease projects. All other intersegment revenues are not material. Financial data for business segments and products and services are as follows:
                                                         
    Electric Utilities            
    Traditional                                
    Operating   Southern                   All        
    Companies   Power   Eliminations   Total   Other   Eliminations   Consolidated
    (in millions)
     
Three Months Ended June 30, 2009:
                                                       
Operating revenues
  $ 3,780     $ 230     $ (151 )   $ 3,859     $ 43     $ (17 )   $ 3,885  
Segment net income (loss) after dividends on preferred and preference stock of subsidiaries
    421       31             452       25       1       478  
Six Months Ended June 30, 2009:
                                                       
Operating revenues
  $ 7,338     $ 462     $ (302 )   $ 7,498     $ 87     $ (34 )   $ 7,551  
Segment net income (loss) after dividends on preferred and preference stock of subsidiaries
    723       59             782       (180 )     2       604  
Total assets at June 30, 2009
  $ 46,943     $ 2,821     $ (141 )   $ 49,623     $ 1,359     $ (565 )   $ 50,417  
 
                                                         
    Electric Utilities            
    Traditional                                
    Operating   Southern                   All        
    Companies   Power   Eliminations   Total   Other   Eliminations   Consolidated
    (in millions)
     
Three Months Ended June 30, 2008:
                                                       
Operating revenues
  $ 4,075     $ 316     $ (208 )   $ 4,183     $ 47     $ (15 )   $ 4,215  
Segment net income (loss) after dividends on preferred and preference stock of subsidiaries
    451       35             486       (71 )     2       417  
Six Months Ended June 30, 2008:
                                                       
Operating revenues
  $ 7,693     $ 532     $ (393 )   $ 7,832     $ 95     $ (29 )   $ 7,898  
Segment net income (loss) after dividends on preferred and preference stock of subsidiaries
    793       64             857       (81 )           776  
Total assets at December 31, 2008
  $ 44,794     $ 2,813     $ (139 )   $ 47,468     $ 1,407     $ (528 )   $ 48,347  
 
      Products and Services
                                 
    Electric Utilities’ Revenues
Period   Retail   Wholesale   Other   Total
    (in millions)
Three Months Ended June 30, 2009
  $ 3,293     $ 438     $ 128     $ 3,859  
Three Months Ended June 30, 2008
    3,449       591       143       4,183  
 
Six Months Ended June 30, 2009
  $ 6,358     $ 889     $ 251     $ 7,498  
Six Months Ended June 30, 2008
    6,455       1,105       272       7,832  
 

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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
See the Notes to the Condensed Financial Statements herein for information regarding certain legal and administrative proceedings in which the registrants are involved.
Item 1A. Risk Factors.
See RISK FACTORS in Item 1A of the Form 10-K for a discussion of the risk factors of the registrants. There have been no material changes to these risk factors from those previously disclosed in the Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders.
Southern Company
Southern Company held its annual meeting of stockholders on May 27, 2009. Each nominee for director of Southern Company received the requisite plurality of votes for election. The vote tabulation was as follows:
                 
Nominees   Shares For   Shares Withheld
Juanita Powell Baranco
    557,953,677       16,261,476  
Francis S. Blake
    541,627,901       32,587,252  
Jon A. Boscia
    552,156,149       22,059,004  
Thomas F. Chapman
    559,142,402       15,072,751  
H. William Habermeyer, Jr.
    555,213,786       19,001,367  
Veronica M. Hagen
    553,930,534       20,284,619  
Warren A. Hood, Jr.
    559,164,234       15,050,919  
Donald M. James
    529,248,958       44,966,195  
J. Neal Purcell
    555,467,932       18,747,221  
David M. Ratcliffe
    554,108,638       20,106,515  
William G. Smith, Jr.
    559,122,012       15,093,141  
Gerald J. St. Pé
    555,689,823       18,525,330  

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Item 4. Submission of Matters to a Vote of Security Holders. (Continued)
In addition, at the annual meeting, stockholders were asked to vote on a number of proposals which were as follows:
    to ratify the appointment of the independent registered public accounting firm. Vote tabulation for this proposal was 566,494,731 shares for, 4,531,672 shares against, and 3,188,750 shares abstaining. As a result of this vote, the appointment of the independent registered public accounting firm was ratified.
 
    to amend the Southern Company by-laws. Vote tabulation for this proposal was 428,773,461 shares for, 40,706,371 shares against, and 7,716,817 shares abstaining. Although this proposal received a majority of the votes, its approval was contingent upon the approval of the next proposal to amend the Certificate of Incorporation and, therefore, this proposal to amend the by-laws of Southern Company was not approved.
 
    to amend Southern Company’s Certificate of Incorporation. Vote tabulation for this proposal was 427,791,284 shares for, 44,157,735 shares against, and 5,247,630 shares abstaining. Since this proposal to amend Southern Company’s Certificate of Incorporation did not receive the requisite votes totaling 66 2/3% of the shares outstanding, it was not approved.
 
    stockholder proposal on an environmental report. Vote tabulation for this proposal was 43,159,326 shares for, 332,611,437 shares against, and 52,424,690 shares abstaining. As a result of this vote, the stockholder proposal on an environmental report was not approved.
 
    stockholder proposal on a pension policy. Vote tabulation for this proposal was 162,455,186 shares for, 250,634,517 shares against, and 15,111,301 shares abstaining. As a result of this vote, the stockholder proposal on a pension policy was not approved.
Alabama Power
Alabama Power held its annual meeting of common shareholders and preferred shareholders on April 24, 2009, and the following persons were elected to serve as directors of Alabama Power:
     
Whit Armstrong
  Malcolm Portera
Ralph D. Cook
  Robert D. Powers
David J. Cooper, Sr.
  David M. Ratcliffe
John D. Johns
  C. Dowd Ritter
Patricia M. King
  James H. Sanford
James K. Lowder
  John C. Webb, IV
Charles D. McCrary
  James W. Wright
All 25,475,000 of the shares of Alabama Power’s common stock outstanding on the record date were owned by Southern Company and were voted in favor of the nominees for directors. None of the shares of preferred stock or Class A preferred stock were voted. None of the shares of preference stock were entitled to vote.

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Item 4. Submission of Matters to a Vote of Security Holders. (Continued)
Georgia Power
Georgia Power held its annual meeting of common stockholders and preferred shareholders on May 14, 2009, and the following persons were elected to serve as directors of Georgia Power:
     
Robert L. Brown, Jr.
  Beverly Daniel Tatum
Anna R. Cablik
  D. Gary Thompson
Michael D. Garrett
  Richard W. Ussery
Stephen S. Green
  W. Jerry Vereen
David M. Ratcliffe
  E. Jenner Wood, III
Jimmy C. Tallent
   
All of the 9,261,500 outstanding shares of Georgia Power’s common stock were owned by Southern Company and were voted in favor of the nominees for directors. None of the shares of Class A preferred stock were voted. None of the shares of preference stock were entitled to vote.
Gulf Power
By written consent, in lieu of the annual meeting of shareholders of Gulf Power, effective June 30, 2009, the following persons were elected to serve as directors of Gulf Power:
     
C. LeDon Anchors
  William A. Pullum
William C. Cramer, Jr.
  Winston E. Scott
Fred C. Donovan, Sr.
  Susan N. Story
All of the 3,142,717 outstanding shares of Gulf Power’s common stock are owned by Southern Company and were voted in favor of the nominees for directors. None of the shares of preference stock were entitled to vote.
Mississippi Power
Mississippi Power held its annual meeting of common stockholders and preferred shareholders on May 20, 2009, and the following persons were elected to serve as directors of Mississippi Power:
     
Roy Anderson, III
  George A. Schloegel
Aubrey B. Patterson, Jr.
  Philip J. Terrell
Christine L. Pickering
  Anthony J. Topazi
Martha D. Saunders
   
All of the 1,121,000 outstanding shares of Mississippi Power’s common stock are owned by Southern Company and were voted in favor of the nominees for directors. None of the shares of preferred stock were voted.

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Item 4. Submission of Matters to a Vote of Security Holders. (Continued)
Southern Power
By written consent, in lieu of the annual meeting of stockholders of Southern Power, effective May 29, 2009, the following persons were elected to serve as directors of Southern Power:
     
William P. Bowers
  G. Edison Holland, Jr.
Thomas A. Fanning
  David M. Ratcliffe
All of the 1,000 outstanding shares of Southern Power’s common stock are owned by Southern Company and were voted in favor of the nominees for directors.

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Item 6. Exhibits.
         
(3) Articles of Incorporation and By-Laws
 
       
Georgia Power
 
       
(c)1
  -   By-laws of Georgia Power as amended effective May 20, 2009, and as presently in effect. (Designated in Form 8-K dated May 20, 2009, File No. 1-6468, as Exhibit 3(c)2.)
 
       
(4) Instruments Describing Rights of Security Holders, Including Indentures
 
       
Southern Company
 
       
(a)1
  -   Fourth Supplemental Indenture to the Senior Note Indenture dated as of May 19, 2009, providing for the issuance of Southern Company’s Series 2009A 4.15% Senior Notes due May 15, 2014. (Designated in Form 8-K dated May 11, 2009, File No. 1-3526, as Exhibit 4.2.)
 
       
Gulf Power
 
       
(d)1
  -   Fifteenth Supplemental Indenture to Senior Note Indenture dated as of June 26, 2009, providing for the issuance of Gulf Power’s Series 2009A Floating Rate Senior Notes due June 28, 2010. (Designated in Form 8-K dated June 22, 2009, File No. 0-2429, as Exhibit 4.2.)
 
       
(24) Power of Attorney and Resolutions
 
       
Southern Company
 
       
(a)1
  -   Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2008, File No. 1-3526 as Exhibit 24(a).)
 
       
Alabama Power
 
       
(b)1
  -   Power of Attorney and resolution.
 
       
Georgia Power
 
       
(c)1
  -   Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2008, File No. 1-6468 as Exhibit 24(c).)
 
       
(c)2
  -   Power of Attorney for Ronnie R. Labrato. (Designated in the Form 10-Q for the quarter ended March 31, 2009, File No. 1-6468 as Exhibit 24(c)2.)
 
       
Gulf Power
 
       
(d)1
  -   Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2008, File No. 0-2429 as Exhibit 24(d).)
 
       
Mississippi Power
 
       
(e)1
  -   Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2008, File No. 001-11229 as Exhibit 24(e).)

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Southern Power
 
       
(f)1
  -   Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2008, File No. 333-98553 as Exhibit 24(f).)
 
       
(31) Section 302 Certifications
 
       
Southern Company
 
       
(a)1
  -   Certificate of Southern Company’s Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
       
(a)2
  -   Certificate of Southern Company’s Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
       
Alabama Power
 
       
(b)1
  -   Certificate of Alabama Power’s Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
       
(b)2
  -   Certificate of Alabama Power’s Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
       
Georgia Power
 
       
(c)1
  -   Certificate of Georgia Power’s Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
       
(c)2
  -   Certificate of Georgia Power’s Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
       
Gulf Power
 
       
(d)1
  -   Certificate of Gulf Power’s Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
       
(d)2
  -   Certificate of Gulf Power’s Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
       
Mississippi Power
 
       
(e)1
  -   Certificate of Mississippi Power’s Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
       
(e)2
  -   Certificate of Mississippi Power’s Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.

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Southern Power
 
       
(f)1
  -   Certificate of Southern Power’s Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
       
(f)2
  -   Certificate of Southern Power’s Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
 
       
(32) Section 906 Certifications
 
       
Southern Company
 
       
(a)
  -   Certificate of Southern Company’s Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
 
       
Alabama Power
 
       
(b)
  -   Certificate of Alabama Power’s Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
 
       
Georgia Power
 
       
(c)
  -   Certificate of Georgia Power’s Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
 
       
Gulf Power
 
       
(d)
  -   Certificate of Gulf Power’s Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
 
       
Mississippi Power
 
       
(e)
  -   Certificate of Mississippi Power’s Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
 
       
Southern Power
 
       
(f)
  -   Certificate of Southern Power’s Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.

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(101) XBRL-Related Documents*
         
Southern Company
 
       
INS
  XBRL Instance Document*    
SCH
  XBRL Taxonomy Extension Schema Document*    
PRE
  XBRL Taxonomy Presentation Linkbase Document*    
LAB
  XBRL Taxonomy Label Linkbase Document*    
CAL
  XBRL Taxonomy Calculation Linkbase Document*    
DEF
  XBRL Definition Linkbase Document*    
 
*   To be filed subsequently by amendment.

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THE SOUTHERN COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
             
 
      THE SOUTHERN COMPANY    
 
           
 
  By   David M. Ratcliffe    
 
      Chairman, President, and Chief Executive Officer    
 
      (Principal Executive Officer)    
 
           
 
  By   W. Paul Bowers    
 
      Executive Vice President and Chief Financial Officer    
 
      (Principal Financial Officer)    
 
           
 
  By   /s/ Melissa K. Caen
 
(Melissa K. Caen, Attorney-in-fact)
   
Date: August 6, 2009

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ALABAMA POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
             
 
      ALABAMA POWER COMPANY    
 
           
 
  By   Charles D. McCrary    
 
      President and Chief Executive Officer    
 
      (Principal Executive Officer)    
 
           
 
  By   Art P. Beattie    
 
      Executive Vice President, Chief Financial Officer, and Treasurer    
 
      (Principal Financial Officer)    
 
           
 
  By   /s/ Melissa K. Caen
 
(Melissa K. Caen, Attorney-in-fact)
   
Date: August 6, 2009

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GEORGIA POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
             
 
      GEORGIA POWER COMPANY    
 
           
 
  By   Michael D. Garrett    
 
      President and Chief Executive Officer    
 
      (Principal Executive Officer)    
 
           
 
  By   Ronnie R. Labrato    
 
      Executive Vice President, Chief Financial Officer, and Treasurer    
 
      (Principal Financial Officer)    
 
           
 
  By   /s/ W. Paul Bowers
 
(W. Paul Bowers, Attorney-in-fact)
   
Date: August 6, 2009

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GULF POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
             
 
      GULF POWER COMPANY    
 
           
 
  By   Susan N. Story    
 
      President and Chief Executive Officer    
 
      (Principal Executive Officer)    
 
           
 
  By   Philip C. Raymond    
 
      Vice President and Chief Financial Officer    
 
      (Principal Financial Officer)    
 
           
 
  By   /s/ W. Paul Bowers
 
(W. Paul Bowers, Attorney-in-fact)
   
Date: August 6, 2009

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MISSISSIPPI POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
             
 
      MISSISSIPPI POWER COMPANY    
 
           
 
  By   Anthony J. Topazi    
 
      President and Chief Executive Officer    
 
      (Principal Executive Officer)    
 
           
 
  By   Frances Turnage    
 
      Vice President, Treasurer, and Chief Financial Officer    
 
      (Principal Financial Officer)    
 
           
 
  By   /s/ W. Paul Bowers
 
(W. Paul Bowers, Attorney-in-fact)
   
Date: August 6, 2009

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SOUTHERN POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
             
 
      SOUTHERN POWER COMPANY    
 
           
 
  By   Ronnie L. Bates    
 
      President and Chief Executive Officer    
 
      (Principal Executive Officer)    
 
           
 
  By   Michael W. Southern    
 
      Senior Vice President, Treasurer, and Chief Financial Officer    
 
      (Principal Financial Officer)    
 
           
 
  By   /s/ Laura I. Patterson
 
(Laura I. Patterson, Attorney-in-fact)
   
Date: August 6, 2009

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