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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 September 30, 2008
 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. EmployerFile Number
    
    Address and Telephone Number
    
    Identification No.1-3526
    
    The Southern Company
    
    58-0690070(A Delaware Corporation)30 Ivan Allen Jr. Boulevard, N.W.Atlanta, Georgia 30308(404) 506-50001-3164
    
    Alabama Power Company
    
    63-0004250(An Alabama Corporation)600 North 18th StreetBirmingham, Alabama 35291(205) 257-10001-6468
    
    Georgia Power Company
    
    58-0257110(A Georgia Corporation)241 Ralph McGill Boulevard, N.E.Atlanta, Georgia 30308(404) 506-65260-2429
    
    Gulf Power Company
    
    59-0276810(A Florida Corporation)One Energy PlacePensacola, Florida 32520(850) 444-6111001-11229
    
    Mississippi Power Company
    
    64-0205820(A Mississippi Corporation)2992 West BeachGulfport, Mississippi 39501(228) 864-1211333-98553
    
    Southern Power Company
    
    58-2598670(A Delaware Corporation)30 Ivan Allen Jr. Boulevard, N.W.Atlanta, Georgia 30308(404) 506-5000




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Indicate by check mark whether the registrants (1) have filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrants were required to file such reports), and (2) have been
subject to such filing requirements for the past 90 days. Yes þ No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
 Large
    
    
    
    
    
    SmallerAccelerated
    
    Accelerated
    
    Non-accelerated
    
    ReportingRegistrant
    
    Filer
    
    Filer
    
    Filer
    
    CompanyThe Southern Company
    
    XAlabama Power Company
    
    
    
    
    
    XGeorgia Power Company
    
    
    
    
    
    XGulf Power Company
    
    
    
    
    
    XMississippi Power Company
    
    
    
    
    
    XSouthern 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 OutstandingRegistrant
    
    Common Stock
    
    at September 30, 2008The Southern Company
    
    Par Value $5 Per Share
    
    
    774,580,361Alabama Power Company
    
    Par Value $40 Per Share
    
    
    23,600,000Georgia Power Company
    
    Without Par Value
    
    
    9,261,500Gulf Power Company
    
    Without Par Value
    
    
    1,792,717Mississippi Power Company
    
    Without Par Value
    
    
    1,121,000Southern Power Company
    
    Par Value $0.01 Per Share
    
    
    1,000
  2




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INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 2008
 PageNumberDEFINITIONS
    
    
    5CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
    
    
    7PART I
 FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of OperationsThe Southern Company and Subsidiary CompaniesCondensed Consolidated Statements of Income
    
    
    9Condensed Consolidated Statements of Cash Flows
    
    
    10Condensed Consolidated Balance Sheets
    
    
    11Condensed Consolidated Statements of Comprehensive Income
    
    
    13Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Alabama Power CompanyCondensed Statements of Income
    
    
    38Condensed Statements of Comprehensive Income
    
    
    38Condensed Statements of Cash Flows
    
    
    39Condensed Balance Sheets
    
    
    40Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    42Georgia Power CompanyCondensed Statements of Income
    
    
    59Condensed Statements of Comprehensive Income
    
    
    59Condensed Statements of Cash Flows
    
    
    60Condensed Balance Sheets
    
    
    61Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    63Gulf Power CompanyCondensed Statements of Income
    
    
    80Condensed Statements of Comprehensive Income
    
    
    80Condensed Statements of Cash Flows
    
    
    81Condensed Balance Sheets
    
    
    82Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    84Mississippi Power CompanyCondensed Statements of Income
    
    
    100Condensed Statements of Comprehensive Income
    
    
    100Condensed Statements of Cash Flows
    
    
    101Condensed Balance Sheets
    
    
    102Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    104Southern Power Company and Subsidiary CompaniesCondensed Consolidated Statements of Income
    
    
    123Condensed Consolidated Statements of Comprehensive Income
    
    
    123Condensed Consolidated Statements of Cash Flows
    
    
    124Condensed Consolidated Balance Sheets
    
    
    125Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    127Notes to the Condensed Financial Statements
    
    
    139Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    36Item 4.
    
    Controls and Procedures
    
    
    36Item 4T.
    
    Controls and Procedures
    
    
    36
 3




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INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 2008
 PageNumberPART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    
    165Item 1A.
    
    Risk Factors
    
    
    
    165Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    InapplicableItem 3.
    
    Defaults Upon Senior Securities
    
    InapplicableItem 4.
    
    Submission of Matters to a Vote of Security Holders
    
    InapplicableItem 5.
    
    Other Information
    
    InapplicableItem 6.
    
    Exhibits
    
    
    
    166Signatures
    
    
    
    169
  4




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DEFINITIONS
 Term
    
    Meaning2007 Retail Rate Plan
    
    Georgia Powers retail rate plan for the years 2008 through 2010Alabama Power
    
    Alabama Power CompanyBcf
    
    Billion cubic feetClean Air Act
    
    Clean Air Act Amendments of 1990Dalton Utilities
    
    The City of Dalton, Georgia, an incorporated municipality in the
State of Georgia acting by and through its Board of Water, Light
and Sinking Fund CommissionersDOE
    
    U.S. Department of EnergyDuke Energy
    
    Duke Energy CorporationECO Plan
    
    Mississippi Powers Environmental Compliance Overview PlanEPA
    
    U.S. Environmental Protection AgencyFASB
    
    Financial Accounting Standards BoardFERC
    
    Federal Energy Regulatory CommissionForm 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, 2007Georgia Power
    
    Georgia Power CompanyGulf Power
    
    Gulf Power CompanyIGCC
    
    Integrated coal gasification combined cycleIIC
    
    Intercompany Interchange ContractIRC
    
    Internal Revenue Code of 1986, as amendedIRS
    
    Internal Revenue ServiceKWH
    
    Kilowatt-hourLIBOR
    
    London Interbank Offered RateMEAG Power
    
    Municipal Electric Authority of GeorgiaMirant
    
    Mirant CorporationMississippi Power
    
    Mississippi Power CompanymmBtu
    
    Million British thermal unitMW
    
    MegawattMWH
    
    Megawatt-hourNRC
    
    Nuclear Regulatory CommissionNSR
    
    New Source ReviewOPC
    
    Oglethorpe Power CorporationPEP
    
    Performance Evaluation PlanPower 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 obligationsPPA
    
    Power Purchase AgreementPSC
    
    Public Service CommissionRate CNP
    
    Alabama Powers certified new plant rate mechanismRate ECR
    
    Alabama Powers energy cost recovery rate mechanismRate NDR
    
    Alabama Powers natural disaster recovery rate mechanismRate RSE
    
    Alabama Powers rate stabilization and equilization rate mechanismregistrants
    
    Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power
 5




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DEFINITIONS
 Term
    
    MeaningSCS
    
    Southern Company Services, Inc.SEC
    
    Securities and Exchange CommissionSFAS No. 157
    
    FASB Statement No. 157, Fair Value MeasurementSouthern Company
    
    The Southern CompanySouthern Company system
    
    Southern Company, the traditional operating companies, Southern
Power, and other subsidiariesSouthern Nuclear
    
    Southern Nuclear Operating Company, Inc.Southern Power
    
    Southern Power CompanyStone & Webster
    
    Stone & Webster, Inc.traditional operating companies
    
    Alabama Power, Georgia Power, Gulf Power, and Mississippi PowerWestinghouse
    
    Westinghouse Electric Company LLCwholesale revenues
    
    revenues generated from sales for resale
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
  
    
    the impact of recent and future federal and state regulatory change, including legislative
and regulatory initiatives regarding deregulation and restructuring of the electric utility
industry, implementation of the Energy Policy Act of 2005, environmental laws including
regulation of water quality and emissions of sulfur, nitrogen, mercury, carbon, soot, or
particulate matter and other substances, and also changes in tax and other laws and
regulations to which Southern Company and its subsidiaries are subject, as well as changes in
application of existing laws and regulations;
 
    
    current and future litigation, regulatory investigations, proceedings, or inquiries,
including the pending EPA civil actions against certain Southern Company subsidiaries, FERC
matters, IRS audits, and Mirant matters;
 
    
    the effects, extent, and timing of the entry of additional competition in the markets in
which Southern Companys subsidiaries operate;
 
    
    variations in demand for electricity, including those relating to weather, the general
economy, population and business growth (and declines), and the effects of energy conservation
measures;
 
    
    available sources and costs of fuels;
 
    
    effects of inflation;
 
    
    ability to control costs;
 
    
    investment performance of Southern Companys employee benefit plans;
 
    
    advances in technology;
 
    
    state and federal rate regulations and the impact of pending and future rate cases and
negotiations, including rate actions relating to fuel and storm restoration cost recovery;
 
    
    regulatory approvals related to the potential Plant Vogtle expansion, including Georgia PSC
and NRC approvals;
 
    
    the performance of projects undertaken by the non-utility businesses and the success of
efforts to invest in and develop new opportunities;
 
    
    internal restructuring or other restructuring options that may be pursued;
 
    
    potential business strategies, including acquisitions or dispositions of assets or
businesses, which cannot be assured to be completed or beneficial to Southern Company or its
subsidiaries;
 
    
    the ability of counterparties of Southern Company and its subsidiaries to make payments as
and when due and to perform as required;
 
    
    the ability to obtain new short- and long-term contracts with neighboring utilities;
 
    
    the direct or indirect effect on Southern Companys business resulting from terrorist
incidents and the threat of terrorist incidents;
 
    
    interest rate fluctuations and financial market conditions and the results of financing
efforts, including Southern Companys and its subsidiaries credit ratings;
 
    
    the ability of Southern Company and its subsidiaries to obtain additional generating
capacity at competitive prices;
 
    
    catastrophic events such as fires, earthquakes, explosions, floods, hurricanes, droughts,
pandemic health events such as an avian influenza, or other similar occurrences;
 
    
    the direct or indirect effects on Southern Companys business resulting from incidents
similar to the August 2003 power outage in the Northeast;
 
    
    the effect of accounting pronouncements issued periodically by standard setting bodies; and
 
    
    other factors discussed elsewhere herein and in other reports (including the Form 10-K)
filed by the registrants from time to time with the SEC.
 Each registrant expressly disclaims any obligation to update any forward-looking statements.
 7




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 8




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




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




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 At September 30,
    
    
    At December 31,Assets
    
    2008
    
    
    2007(in thousands)Current Assets:Cash and cash equivalents
    
    $
    806,019
    
    
    $
    200,550Restricted cash
    
    
    31,007
    
    
    
    68,013Receivables Customer accounts receivable
    
    
    1,310,242
    
    
    
    999,264Unbilled revenues
    
    
    390,069
    
    
    
    294,487Under recovered regulatory clause revenues
    
    
    630,336
    
    
    
    715,744Other accounts and notes receivable
    
    
    272,367
    
    
    
    347,573Accumulated provision for uncollectible accounts
    
    
    (27,723
    )
    
    
    (22,142
    )Fossil fuel stock, at average cost
    
    
    826,460
    
    
    
    709,823Materials and supplies, at average cost
    
    
    755,060
    
    
    
    725,001Vacation pay
    
    
    134,622
    
    
    
    134,806Prepaid expenses
    
    
    258,022
    
    
    
    147,903Other
    
    
    438,220
    
    
    
    411,210Total current assets
    
    
    5,824,701
    
    
    
    4,732,232Property, Plant, and Equipment:In service
    
    
    49,821,845
    
    
    
    47,175,717Less accumulated depreciation
    
    
    18,105,660
    
    
    
    17,412,65831,716,185
    
    
    
    29,763,059Nuclear fuel, at amortized cost
    
    
    460,848
    
    
    
    336,129Construction work in progress
    
    
    2,935,064
    
    
    
    3,227,605Total property, plant, and equipment
    
    
    35,112,097
    
    
    
    33,326,793Other Property and Investments:Nuclear decommissioning trusts, at fair value
    
    
    978,450
    
    
    
    1,131,798Leveraged leases
    
    
    929,824
    
    
    
    984,441Other
    
    
    224,290
    
    
    
    237,400Total other property and investments
    
    
    2,132,564
    
    
    
    2,353,639Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    957,151
    
    
    
    910,402Prepaid pension costs
    
    
    2,430,760
    
    
    
    2,368,798Unamortized debt issuance expense
    
    
    199,191
    
    
    
    190,700Unamortized loss on reacquired debt
    
    
    274,130
    
    
    
    288,973Deferred under recovered regulatory clause revenues
    
    
    654,127
    
    
    
    388,945Other regulatory assets
    
    
    914,500
    
    
    
    769,226Other
    
    
    513,128
    
    
    
    459,172Total deferred charges and other assets
    
    
    5,942,987
    
    
    
    5,376,216Total Assets
    
    $
    49,012,349
    
    
    $
    45,788,880
  11




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##### Table of Contents



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




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    
    (in thousands)Consolidated Net Income
    
    $
    780,436
    
    
    $
    761,995
    
    
    $
    1,556,022
    
    
    $
    1,529,837Other comprehensive income (loss):Qualifying hedges:Changes in fair value, net of tax of $11,996, $(7,342), $579,
and $6,087, respectively
    
    
    18,604
    
    
    
    (11,667
    )
    
    
    690
    
    
    
    9,704Reclassification adjustment for amounts included in net income,
net of tax of $1,730, $1,548, $5,879, and $4,227, respectively
    
    
    2,708
    
    
    
    2,369
    
    
    
    9,217
    
    
    
    6,770Marketable securities:Change in fair value, net of tax of $163, $1,094, $(2,293),
and $2,998, respectively
    
    
    86
    
    
    
    2,130
    
    
    
    (3,940
    )
    
    
    4,757Reclassification adjustment for amounts included in net income,
net of tax of $3, $(127), $3, and $(488), respectively
    
    
    4
    
    
    
    (201
    )
    
    
    4
    
    
    
    (774
    )Pension and other post retirement benefit plans:Additional prior service costs from amendment to non-qualified plans,
net of tax of $-, $-,$-, and $(1,510), respectively
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,424
    )Reclassification adjustment for amounts included in net income,
net of tax of $237, $263, $773, and $790, respectively
    
    
    376
    
    
    
    422
    
    
    
    1,258
    
    
    
    1,264Total other comprehensive income (loss)
    
    
    21,778
    
    
    
    (6,947
    )
    
    
    7,229
    
    
    
    19,297COMPREHENSIVE INCOME
    
    $
    802,214
    
    
    $
    755,048
    
    
    $
    1,563,251
    
    
    $
    1,549,134
  13




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 
 OVERVIEW
   RESULTS OF OPERATIONS
 Net Income
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$18.4
    
    2.4
    
    $26.2
    
    1.7
   Retail Revenues
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$392.6
    
    9.6
    
    $999.2
    
    10.1
  14




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   Third Quarter
    
    
    Year-to-Date2008
    
    
    2008(in millions)
    
    
    (% change)
    
    
    (in millions)
    
    
    (% change)Retail  prior year
    
    $
    4,085.7
    
    
    
    
    
    
    $
    9,934.6Estimated change in Rates and pricing
    
    
    194.4
    
    
    
    4.8
    
    
    
    542.8
    
    
    
    5.5Sales growth
    
    
    (21.5
    )
    
    
    (0.5
    )
    
    
    1.9
    
    
    
    0.0Weather
    
    
    (84.4
    )
    
    
    (2.1
    )
    
    
    (97.8
    )
    
    
    (1.0
    )Fuel and other cost recovery
    
    
    304.1
    
    
    
    7.4
    
    
    
    552.3
    
    
    
    5.6Retail  current year
    
    $
    4,478.3
    
    
    
    9.6
    %
    
    $
    10,933.8
    
    
    
    10.1
    %
     Wholesale Revenues
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$211.6
    
    37.6
    
    $349.5
    
    22.8
   15




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Other Electric Revenues
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$11.9
    
    9.1
    
    $32.3
    
    8.5
    Other Revenues
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(21.6)
    
    (41.2)
    
    $(69.1)
    
    (41.7)
   Fuel and Purchased Power Expenses
 Third Quarter 2008
    
    
    Year-to-Date 2008vs.
    
    
    vs.Third Quarter 2007
    
    
    Year-to-Date 2007(change in millions)
    
    
    (% change)
    
    
    (change in millions)
    
    
    (% change)Fuel
    
    $
    414.1
    
    
    
    23.8
    
    
    $
    714.1
    
    
    
    15.8Purchased power
    
    
    96.8
    
    
    
    34.4
    
    
    
    222.7
    
    
    
    50.0Total fuel and purchased power expenses
    
    $
    510.9
    
    
    
    
    
    
    $
    936.8
 16




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
     Third Quarter
    
    
    Third Quarter
    
    
    Percent
    
    
    Year-to-Date
    
    
    Year-to-Date
    
    
    PercentAverage Cost
    
    2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change(cents per net KWH)
    
    
    
    
    
    
    (cents per net KWH)Fuel
    
    3.96
    
    
    3.01
    
    
    31.6
    
    
    3.46
    
    
    2.90
    
    
    19.3Purchased power
    
    10.19
    
    
    8.67
    
    
    17.5
    
    
    8.80
    
    
   7.75
    
    
    13.6
  Other Operations and Maintenance Expenses
 Third Quarter 2008
    
    Year-to-Date 2008vs.
    
    vs.Third Quarter 2007
    
    Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Other operations
    
    $
    (6.9
    )
    
    
    (1.1
    )
    
    $
    51.1
    
    
    
    2.8Maintenance
    
    
    3.7
    
    
    
    1.4
    
    
    
    34.8
    
    
    
    4.2Total other operations and maintenance
    
    $
    (3.2
    )
    
    
    
    
    
    $
    85.9
   17




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 Depreciation and Amortization
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$55.1
    
    17.7
    
    $141.1
    
    15.2
    Taxes Other Than Income Taxes
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$8.5
    
    4.1
    
    $28.3
    
    4.9
    Allowance for Equity Funds Used During Construction
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$7.4
    
    26.7
    
    $39.8
    
    55.4
    18




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 Interest Income
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(1.9)
    
    (16.3)
    
    $(11.2)
    
    (34.9)
   Equity in Income (Losses) of Unconsolidated Subsidiaries
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$5.1
    
    N/M
    
    $26.8
    
    129.6
 
 N/M  Not Meaningful   Leveraged Lease Income (Losses)
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(6.1)
    
    (48.7)
    
    $(85.5)
    
    (267.9)
    19




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 Interest Expense, Net of Amounts Capitalized
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(13.7)
    
    (5.9)
    
    $(8.1)
    
    (1.2)
   Preferred and Preference Dividends of Subsidiaries
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$5.7
    
    55.0
    
    $17.9
    
    58.2
    Other Income (Expense), Net
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(28.1)
    
    (162.6)
    
    $(22.7)
    
    (272.8)
  20




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   Income Taxes
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(10.8)
    
    (2.4)
    
    $31.2
    
    3.9
   FUTURE EARNINGS POTENTIAL
 
 Environmental Matters
  21




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 New Source Review Actions
  Clean Air Interstate Rule
  Eight-Hour Ozone Regulations
  Carbon Dioxide Litigation
  22




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Global Climate Issues
  FERC and State PSC Matters
 Market-Based Rate Authority
   Retail Fuel Cost Recovery
  23




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
     Alabama Retail Rate Adjustments
  24




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Mississippi Base Load Construction Legislation
  Mirant Matters
 Mirant Securities Litigation
  Income Tax Matters
 Leveraged Lease Transactions
   25




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   Legislation
   Construction Projects
 Integrated Coal Gasification Combined Cycle
   26




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
     Nuclear
      27




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
      Other Matters
   28




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  New Accounting Standards
 Business Combinations
   FINANCIAL CONDITION AND LIQUIDITY
 Overview
  29




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
      Capital Requirements and Contractual Obligations
  30




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Sources of Capital
   31




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Off-Balance Sheet Financing Arrangements
  Credit Rating Risk
  Market Price Risk
   32




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Third Quarter
    
    Year-to-Date2008
    
    2008Changes
    
    ChangesFair Value(in millions)Contracts outstanding at the beginning of the period, assets
(liabilities), net
    
    $
    313.2
    
    
    $
    4.4Contracts realized or settled
    
    
    (131.4
    )
    
    
    (179.0
    )Current period changes(a)
    
    
    (281.6
    )
    
    
    74.8Contracts outstanding at the end of the period, assets (liabilities), net
    
    $
    (99.8
    )
    
    $
    (99.8
    )
    September 30,
    
    December 31,2008
    
    2007(in millions)Regulatory hedges
    
    $
    (111.3
    )
    
    $
    (0.1
    )Cash flow hedges
    
    
    8.6
    
    
    
    1.5Non-accounting hedges
    
    
    2.9
    
    
    
    3.0Total fair value
    
    $
    (99.8
    )
    
    $
    4.4
   33




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  September 30, 2008Fair Value MeasurementsTotal
    
    MaturityFair Value
    
    Year 1
    
    Years 2&3
    
    Years 4 & 5(in millions)Level 1
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Level 2
    
    
    (99.8
    )
    
    
    (74.0
    )
    
    
    (24.0
    )
    
    
    (1.8
    )Level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fair value of
contracts
outstanding at end
of period
    
    $
    (99.8
    )
    
    $
    (74.0
    )
    
    $
    (24.0
    )
    
    $
    (1.8
    )
   Financing Activities
   34




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
    35




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##### Table of Contents



PART I
 
 Item 3. Quantitative And Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
     
 Item 4T. Controls and Procedures.
     36




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ALABAMA POWER COMPANY
 37




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##### Table of Contents



ALABAMA POWER COMPANY
 For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    1,559,034
    
    
    $
    1,394,539
    
    
    $
    3,741,074
    
    
    $
    3,444,282Wholesale revenues Non-affiliates
    
    
    196,381
    
    
    
    160,832
    
    
    
    536,392
    
    
    
    472,015Affiliates
    
    
    60,583
    
    
    
    35,400
    
    
    
    240,696
    
    
    
    116,626Other revenues
    
    
    49,084
    
    
    
    44,427
    
    
    
    153,412
    
    
    
    135,569Total operating revenues
    
    
    1,865,082
    
    
    
    1,635,198
    
    
    
    4,671,574
    
    
    
    4,168,492Operating Expenses:Fuel
    
    
    651,673
    
    
    
    506,933
    
    
    
    1,628,170
    
    
    
    1,353,914Purchased power Non-affiliates
    
    
    104,238
    
    
    
    71,622
    
    
    
    153,907
    
    
    
    94,330Affiliates
    
    
    121,651
    
    
    
    100,054
    
    
    
    286,147
    
    
    
    249,261Other operations
    
    
    203,019
    
    
    
    201,495
    
    
    
    585,581
    
    
    
    556,639Maintenance
    
    
    97,948
    
    
    
    88,135
    
    
    
    331,479
    
    
    
    303,989Depreciation and amortization
    
    
    132,410
    
    
    
    118,403
    
    
    
    387,677
    
    
    
    351,514Taxes other than income taxes
    
    
    76,200
    
    
    
    72,503
    
    
    
    227,585
    
    
    
    216,752Total operating expenses
    
    
    1,387,139
    
    
    
    1,159,145
    
    
    
    3,600,546
    
    
    
    3,126,399Operating Income
    
    
    477,943
    
    
    
    476,053
    
    
    
    1,071,028
    
    
    
    1,042,093Other Income and (Expense):Allowance for equity funds used during construction
    
    
    11,730
    
    
    
    9,600
    
    
    
    32,269
    
    
    
    24,562Interest income
    
    
    4,794
    
    
    
    4,935
    
    
    
    13,694
    
    
    
    12,942Interest expense, net of amounts capitalized
    
    
    (71,166
    )
    
    
    (69,977
    )
    
    
    (209,787
    )
    
    
    (206,743
    )Other income (expense), net
    
    
    (5,731
    )
    
    
    (13,067
    )
    
    
    (19,661
    )
    
    
    (19,957
    )Total other income and (expense)
    
    
    (60,373
    )
    
    
    (68,509
    )
    
    
    (183,485
    )
    
    
    (189,196
    )Earnings Before Income Taxes
    
    
    417,570
    
    
    
    407,544
    
    
    
    887,543
    
    
    
    852,897Income taxes
    
    
    156,109
    
    
    
    152,956
    
    
    
    323,335
    
    
    
    319,840Net Income
    
    
    261,461
    
    
    
    254,588
    
    
    
    564,208
    
    
    
    533,057Dividends on Preferred and Preference Stock
    
    
    9,866
    
    
    
    8,504
    
    
    
    29,598
    
    
    
    24,867Net Income After Dividends on Preferred and Preference Stock
    
    $
    251,595
    
    
    $
    246,084
    
    
    $
    534,610
    
    
    $
    508,190
 
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred and Preference Stock
    
    $
    251,595
    
    
    $
    246,084
    
    
    $
    534,610
    
    
    $
    508,190Other comprehensive income (loss):Qualifying hedges:Changes in fair value, net of tax of $50, $(932), $(989), and
$256, respectively
    
    
    83
    
    
    
    (1,533
    )
    
    
    (1,627
    )
    
    
    420Reclassification adjustment for amounts included in net income,
net of tax of $82, $74, $710, and $206, respectively
    
    
    135
    
    
    
    121
    
    
    
    1,168
    
    
    
    339Total other comprehensive income (loss)
    
    
    218
    
    
    
    (1,412
    )
    
    
    (459
    )
    
    
    759COMPREHENSIVE INCOME
    
    $
    251,813
    
    
    $
    244,672
    
    
    $
    534,151
    
    
    $
    508,949
  38




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##### Table of Contents



ALABAMA POWER COMPANY
 For the Nine MonthsEnded September 30,2008
    
    
    2007(in thousands)Operating Activities:Net income
    
    $
    564,208
    
    
    $
    533,057Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    451,182
    
    
    
    410,695Deferred income taxes and investment tax credits, net
    
    
    109,459
    
    
    
    10,545Allowance for equity funds used during construction
    
    
    (32,269
    )
    
    
    (24,562
    )Pension, postretirement, and other employee benefits
    
    
    (133
    )
    
    
    6,941Stock option expense
    
    
    2,822
    
    
    
    4,533Tax benefit of stock options
    
    
    641
    
    
    
    1,051Other, net
    
    
    22,717
    
    
    
    11,465Changes in certain current assets and liabilities Receivables
    
    
    (92,773
    )
    
    
    (168,447
    )Fossil fuel stock
    
    
    (61,753
    )
    
    
    (17,123
    )Materials and supplies
    
    
    (19,915
    )
    
    
    (30,412
    )Other current assets
    
    
    (33,841
    )
    
    
    7,624Accounts payable
    
    
    (62,186
    )
    
    
    (53,611
    )Accrued taxes
    
    
    92,749
    
    
    
    213,510Accrued compensation
    
    
    (27,786
    )
    
    
    (23,986
    )Other current liabilities
    
    
    22,248
    
    
    
    17,130Net cash provided from operating activities
    
    
    935,370
    
    
    
    898,410Investing Activities:Property additions
    
    
    (1,024,668
    )
    
    
    (822,818
    )Investment in restricted cash from pollution control bonds
    
    
    (5,454
    )
    
    
    (96,049
    )Distribution of restricted cash from pollution control bonds
    
    
    24,585
    
    
    
    44,550Nuclear decommissioning trust fund purchases
    
    
    (218,606
    )
    
    
    (201,523
    )Nuclear decommissioning trust fund sales
    
    
    218,606
    
    
    
    201,523Cost of removal, net of salvage
    
    
    (33,579
    )
    
    
    (33,194
    )Other
    
    
    (26,839
    )
    
    
    (12,930
    )Net cash used for investing activities
    
    
    (1,065,955
    )
    
    
    (920,441
    )Financing Activities:Increase (decrease) in notes payable, net
    
    
    94,891
    
    
    
    (119,670
    )Proceeds Senior notes
    
    
    600,000
    
    
    
    450,000Common stock issued to parent
    
    
    225,000
    
    
    
    140,000Capital contributions
    
    
    15,095
    
    
    
    (146
    )Gross excess tax benefit of stock options
    
    
    1,226
    
    
    
    2,324Preference Stock
    
    
    
    
    
    
    150,000Pollution control revenue bonds
    
    
    131,100
    
    
    
    246,500Redemptions Senior notes
    
    
    (250,000
    )
    
    
    (168,500
    )Preferred stock
    
    
    (125,000
    )
    
    
    Pollution control revenue bonds
    
    
    (11,100
    )
    
    
    Payment of preferred and preference stock dividends
    
    
    (31,024
    )
    
    
    (22,875
    )Payment of common stock dividends
    
    
    (368,475
    )
    
    
    (348,750
    )Other
    
    
    (6,467
    )
    
    
    (14,676
    )Net cash provided from financing activities
    
    
    275,246
    
    
    
    314,207Net Change in Cash and Cash Equivalents
    
    
    144,661
    
    
    
    292,176Cash and Cash Equivalents at Beginning of Period
    
    
    73,616
    
    
    
    15,539Cash and Cash Equivalents at End of Period
    
    $
    218,277
    
    
    $
    307,715Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $14,649 and $12,455 capitalized for 2008 and 2007, respectively)
    
    $
    183,218
    
    
    $
    176,842Income taxes (net of refunds)
    
    $
    197,907
    
    
    $
    157,501
  39




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##### Table of Contents



ALABAMA POWER COMPANY
 At September 30,
    
    
    At December 31,Assets
    
    2008
    
    
    2007(in thousands)Current Assets:Cash and cash equivalents
    
    $
    218,277
    
    
    $
    73,616Restricted cash
    
    
    601
    
    
    
    19,732Receivables Customer accounts receivable
    
    
    432,895
    
    
    
    357,355Unbilled revenues
    
    
    108,775
    
    
    
    95,278Under recovered regulatory clause revenues
    
    
    92,715
    
    
    
    232,226Other accounts and notes receivable
    
    
    43,350
    
    
    
    42,745Affiliated companies
    
    
    34,466
    
    
    
    61,250Accumulated provision for uncollectible accounts
    
    
    (9,044
    )
    
    
    (7,988
    )Fossil fuel stock, at average cost
    
    
    248,706
    
    
    
    182,963Materials and supplies, at average cost
    
    
    307,258
    
    
    
    287,994Vacation pay
    
    
    50,616
    
    
    
    50,266Prepaid expenses
    
    
    115,095
    
    
    
    72,952Other
    
    
    48,677
    
    
    
    19,610Total current assets
    
    
    1,692,387
    
    
    
    1,487,999Property, Plant, and Equipment:In service
    
    
    17,450,685
    
    
    
    16,669,142Less accumulated provision for depreciation
    
    
    6,173,487
    
    
    
    5,950,37311,277,198
    
    
    
    10,718,769Nuclear fuel, at amortized cost
    
    
    198,772
    
    
    
    137,146Construction work in progress
    
    
    893,041
    
    
    
    928,182Total property, plant, and equipment
    
    
    12,369,011
    
    
    
    11,784,097Other Property and Investments:Equity investments in unconsolidated subsidiaries
    
    
    51,002
    
    
    
    48,664Nuclear decommissioning trusts, at fair value
    
    
    460,440
    
    
    
    542,846Other
    
    
    40,995
    
    
    
    31,146Total other property and investments
    
    
    552,437
    
    
    
    622,656Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    359,519
    
    
    
    347,193Prepaid pension costs
    
    
    1,034,226
    
    
    
    989,085Deferred under recovered regulatory clause revenues
    
    
    247,382
    
    
    
    81,650Other regulatory assets
    
    
    218,868
    
    
    
    224,792Other
    
    
    261,530
    
    
    
    209,153Total deferred charges and other assets
    
    
    2,121,525
    
    
    
    1,851,873Total Assets
    
    $
    16,735,360
    
    
    $
    15,746,625
  40




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##### Table of Contents



ALABAMA POWER COMPANY
  At September 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2008
    
    
    2007(in thousands)Current Liabilities:Securities due within one year
    
    $
    410,117
    
    
    $
    535,152Notes payable
    
    
    94,891
    
    
    
    Accounts payable Affiliated
    
    
    177,140
    
    
    
    193,518Other
    
    
    277,275
    
    
    
    308,177Customer deposits
    
    
    74,798
    
    
    
    67,722Accrued taxes Income taxes
    
    
    7,935
    
    
    
    45,958Other
    
    
    96,978
    
    
    
    29,198Accrued interest
    
    
    68,240
    
    
    
    55,263Accrued vacation pay
    
    
    42,138
    
    
    
    42,138Accrued compensation
    
    
    67,728
    
    
    
    92,385Other
    
    
    95,375
    
    
    
    55,331Total current liabilities
    
    
    1,412,615
    
    
    
    1,424,842Long-term Debt
    
    
    5,221,120
    
    
    
    4,750,196Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    2,244,396
    
    
    
    2,065,264Deferred credits related to income taxes
    
    
    90,949
    
    
    
    93,709Accumulated deferred investment tax credits
    
    
    174,612
    
    
    
    180,578Employee benefit obligations
    
    
    376,797
    
    
    
    349,974Asset retirement obligations
    
    
    454,153
    
    
    
    505,794Other cost of removal obligations
    
    
    632,364
    
    
    
    613,616Other regulatory liabilities
    
    
    584,182
    
    
    
    637,040Other
    
    
    39,764
    
    
    
    31,417Total deferred credits and other liabilities
    
    
    4,597,217
    
    
    
    4,477,392Total Liabilities
    
    
    11,230,952
    
    
    
    10,652,430Preferred and Preference Stock
    
    
    685,127
    
    
    
    683,512Common Stockholders Equity:Common stock, par value $40 per share Authorized - 40,000,000 sharesOutstanding - September 30, 2008: 23,600,000 shares- December 31, 2007: 17,975,000 shares
    
    
    944,000
    
    
    
    719,000Paid-in capital
    
    
    2,084,904
    
    
    
    2,065,298Retained earnings
    
    
    1,795,283
    
    
    
    1,630,832Accumulated other comprehensive loss
    
    
    (4,906
    )
    
    
    (4,447
    )Total common stockholders equity
    
    
    4,819,281
    
    
    
    4,410,683Total Liabilities and Stockholders Equity
    
    $
    16,735,360
    
    
    $
    15,746,625
  41




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##### Table of Contents



ALABAMA POWER COMPANY
 
 OVERVIEW
   RESULTS OF OPERATIONS
 Net Income
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$5.5
    
    2.2
    
    $26.4
    
    5.2
  42




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##### Table of Contents



ALABAMA POWER COMPANY
 Retail Revenues
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$164.5
    
    11.8
    
    $296.8
    
    8.6
   Third Quarter
    
    Year-to-Date2008
    
    2008(in millions)
    
    (% change)
    
    (in millions)
    
    (% change)Retail  prior year
    
    $
    1,394.5
    
    
    
    
    
    
    $
    3,444.3Estimated change in Rates and pricing
    
    
    76.4
    
    
    
    5.5
    
    
    
    187.7
    
    
    
    5.4Sales growth
    
    
    (6.3
    )
    
    
    (0.4
    )
    
    
    23.0
    
    
    
    0.7Weather
    
    
    (40.0
    )
    
    
    (2.9
    )
    
    
    (61.4
    )
    
    
    (1.8
    )Fuel and other cost recovery
    
    
    134.4
    
    
    
    9.6
    
    
    
    147.5
    
    
    
    4.3Retail  current year
    
    $
    1,559.0
    
    
    
    11.8
    %
    
    $
    3,741.1
    
    
    
    8.6
    %
    43




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##### Table of Contents



ALABAMA POWER COMPANY
  Wholesale Revenues  Non-Affiliates
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$35.5
    
    22.1
    
    $64.4
    
    13.6
    Wholesale Revenues  Affiliates
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$25.2
    
    71.1
    
    $124.1
    
    106.4
    44




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##### Table of Contents



ALABAMA POWER COMPANY
 Other Revenues
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$4.7
    
    10.5
    
    $17.8
    
    13.2
    Fuel and Purchased Power Expenses
 Third Quarter 2008
    
    Year-to-Date 2008vs.
    
    vs.Third Quarter 2007
    
    Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Fuel
    
    $
    144.7
    
    
    
    28.6
    
    
    $
    274.3
    
    
    
    20.3Purchased power  non-affiliates
    
    
    32.6
    
    
    
    45.5
    
    
    
    59.6
    
    
    
    63.2Purchased power  affiliates
    
    
    21.6
    
    
    
    21.6
    
    
    
    36.9
    
    
    
    14.8Total fuel and purchased power expenses
    
    $
    198.9
    
    
    
    
    
    
    $
    370.8
    45




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##### Table of Contents



ALABAMA POWER COMPANY
  Third Quarter
    
    Third Quarter
    
    Percent
    
    Year-to-Date
    
    Year-to-Date
    
    PercentAverage Cost
    
    2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(cents per net KWH)
    
    
    
    
    
    (cents per net KWH)Fuel
    
    
    3.29
    
    
    
    2.35
    
    
    
    40.0
    
    
    
    2.88
    
    
    
    2.35
    
    
    
    22.6Purchased power
    
    
    9.21
    
    
    
    7.57
    
    
    
    21.7
    
    
    
    7.95
    
    
    
    6.30
    
    
    
    26.2
   Non-affiliates
    Affiliates
   46




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##### Table of Contents



ALABAMA POWER COMPANY
  Other Operations and Maintenance Expenses
 Third Quarter 2008
    
    Year-to-Date 2008vs.
    
    vs.Third Quarter 2007
    
    Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Other operations
    
    $
    1.5
    
    
    
    0.8
    
    
    $
    28.9
    
    
    
    5.2Maintenance
    
    
    9.8
    
    
    
    11.1
    
    
    
    27.5
    
    
    
    9.0Total other operations and maintenance
    
    $
    11.3
    
    
    
    
    
    
    $
    56.4
   Depreciation and Amortization
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$14.0
    
    11.8
    
    $36.2
    
    10.3
  Taxes Other Than Income Taxes
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$3.7
    
    5.1
    
    $10.8
    
    5.0
 47




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##### Table of Contents



ALABAMA POWER COMPANY
   Allowance for Equity Funds Used During Construction
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$2.1
    
    22.2
    
    $7.7
    
    31.4
   Other Income (Expense), Net
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$7.3
    
    56.1
    
    $0.3
    
    1.5
   FUTURE EARNINGS POTENTIAL
  48




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##### Table of Contents



ALABAMA POWER COMPANY
  Environmental Matters
  New Source Review Actions
  Clean Air Interstate Rule
  Eight-Hour Ozone Regulations
  49




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##### Table of Contents



ALABAMA POWER COMPANY
  Carbon Dioxide Litigation
  FERC and Alabama PSC Matters
 Market-Based Rate Authority
   Retail Rate Adjustments
  50




---



##### Table of Contents



ALABAMA POWER COMPANY
   Retail Fuel Cost Recovery
   Natural Disaster Cost Recovery
  51




---



##### Table of Contents



ALABAMA POWER COMPANY
 Income Tax Matters
 Legislation
   Other Matters
   ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  52




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##### Table of Contents



ALABAMA POWER COMPANY
 FINANCIAL CONDITION AND LIQUIDITY
 Overview
     53




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##### Table of Contents



ALABAMA POWER COMPANY
 Capital Requirements and Contractual Obligations
   Sources of Capital
   54




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##### Table of Contents



ALABAMA POWER COMPANY
  Credit Rating Risk
  Market Price Risk
    Third Quarter
    
    Year-to-Date2008
    
    2008Changes
    
    ChangesFair Value(in millions)Contracts outstanding at the beginning of the period, assets
(liabilities), net
    
    $
    104.9
    
    
    $
    (0.4
    )Contracts realized or settled
    
    
    (45.8
    )
    
    
    (59.2
    )Current period changes(a)
    
    
    (97.7
    )
    
    
    21.0Contracts outstanding at the end of the period, assets (liabilities), net
    
    $
    (38.6
    )
    
    $
    (38.6
    )
 
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered into
during the period, if any. 55




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##### Table of Contents



ALABAMA POWER COMPANY
   September 30,
    
    December 31,2008
    
    2007(in millions)Regulatory hedges
    
    $
    (38.7
    )
    
    $
    (0.7
    )Cash flow hedges
    
    
    0.1
    
    
    
    0.5Non-accounting hedges
    
    
    
    
    
    
    (0.2
    )Total fair value
    
    $
    (38.6
    )
    
    $
    (0.4
    )
    September 30, 2008Fair Value MeasurementsTotal
    
    MaturityFair Value
    
    Year 1
    
    Years 2&3
    
    Years 4&5(in millions)Level 1
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Level 2
    
    
    (38.6
    )
    
    
    (31.9
    )
    
    
    (6.7
    )
    
    
    Level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fair value of
contracts
outstanding at end
of period
    
    $
    (38.6
    )
    
    $
    (31.9
    )
    
    $
    (6.7
    )
    
    $
    
  56




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##### Table of Contents



ALABAMA POWER COMPANY
  Financing Activities
           57




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##### Table of Contents



GEORGIA POWER COMPANY
 58




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##### Table of Contents



GEORGIA POWER COMPANY
 For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    2,317,817
    
    
    $
    2,143,511
    
    
    $
    5,723,577
    
    
    $
    5,141,403Wholesale revenues Non-affiliates
    
    
    148,933
    
    
    
    127,810
    
    
    
    443,901
    
    
    
    406,632Affiliates
    
    
    106,659
    
    
    
    107,451
    
    
    
    252,733
    
    
    
    208,065Other revenues
    
    
    70,836
    
    
    
    64,965
    
    
    
    200,043
    
    
    
    188,956Total operating revenues
    
    
    2,644,245
    
    
    
    2,443,737
    
    
    
    6,620,254
    
    
    
    5,945,056Operating Expenses:Fuel
    
    
    859,778
    
    
    
    786,021
    
    
    
    2,181,000
    
    
    
    2,030,745Purchased power Non-affiliates
    
    
    192,293
    
    
    
    168,358
    
    
    
    358,047
    
    
    
    282,121Affiliates
    
    
    247,845
    
    
    
    196,700
    
    
    
    748,622
    
    
    
    560,897Other operations
    
    
    260,575
    
    
    
    258,865
    
    
    
    767,691
    
    
    
    739,151Maintenance
    
    
    118,739
    
    
    
    129,812
    
    
    
    372,219
    
    
    
    391,070Depreciation and amortization
    
    
    162,325
    
    
    
    128,268
    
    
    
    472,137
    
    
    
    381,679Taxes other than income taxes
    
    
    91,587
    
    
    
    87,708
    
    
    
    242,358
    
    
    
    231,659Total operating expenses
    
    
    1,933,142
    
    
    
    1,755,732
    
    
    
    5,142,074
    
    
    
    4,617,322Operating Income
    
    
    711,103
    
    
    
    688,005
    
    
    
    1,478,180
    
    
    
    1,327,734Other Income and (Expense):Allowance for equity funds used during construction
    
    
    20,887
    
    
    
    17,846
    
    
    
    72,625
    
    
    
    45,712Interest income
    
    
    1,416
    
    
    
    1,436
    
    
    
    3,253
    
    
    
    2,543Interest expense, net of amounts capitalized
    
    
    (86,201
    )
    
    
    (88,594
    )
    
    
    (256,266
    )
    
    
    (261,139
    )Other income (expense), net
    
    
    (3,671
    )
    
    
    11,291
    
    
    
    (5,593
    )
    
    
    7,376Total other income and (expense)
    
    
    (67,569
    )
    
    
    (58,021
    )
    
    
    (185,981
    )
    
    
    (205,508
    )Earnings Before Income Taxes
    
    
    643,534
    
    
    
    629,984
    
    
    
    1,292,199
    
    
    
    1,122,226Income taxes
    
    
    237,358
    
    
    
    229,862
    
    
    
    453,438
    
    
    
    401,046Net Income
    
    
    406,176
    
    
    
    400,122
    
    
    
    838,761
    
    
    
    721,180Dividends on Preferred and Preference Stock
    
    
    4,345
    
    
    
    689
    
    
    
    13,036
    
    
    
    2,067Net Income After Dividends on Preferred and Preference Stock
    
    $
    401,831
    
    
    $
    399,433
    
    
    $
    825,725
    
    
    $
    719,113
 
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred and Preference Stock
    
    $
    401,831
    
    
    $
    399,433
    
    
    $
    825,725
    
    
    $
    719,113Other comprehensive income (loss):Qualifying hedges:Changes in fair value, net of tax of $(874), $(4,686),
$(890), and
$5,044, respectively
    
    
    (1,386
    )
    
    
    (7,430
    )
    
    
    (1,410
    )
    
    
    7,996Reclassification adjustment for amounts included in net
income,
net of tax of $574, $73, $1,269, and $75, respectively
    
    
    911
    
    
    
    116
    
    
    
    2,012
    
    
    
    120Marketable securities:Change in fair value, net of tax of $-, $71, $-, and $107,
respectively
    
    
    
    
    
    
    112
    
    
    
    
    
    
    
    170Total other comprehensive income (loss)
    
    
    (475
    )
    
    
    (7,202
    )
    
    
    602
    
    
    
    8,286COMPREHENSIVE INCOME
    
    $
    401,356
    
    
    $
    392,231
    
    
    $
    826,327
    
    
    $
    727,399
  59




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##### Table of Contents



GEORGIA
POWER COMPANY
 For the Nine MonthsEnded September 30,2008
    
    
    2007(in thousands)Operating Activities:Net income
    
    $
    838,761
    
    
    $
    721,180Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    561,987
    
    
    
    458,522Deferred income taxes and investment tax credits
    
    
    97,752
    
    
    
    34,267Deferred revenues
    
    
    96,557
    
    
    
    (719
    )Deferred expenses  affiliates
    
    
    (19,762
    )
    
    
    (19,460
    )Allowance for equity funds used during construction
    
    
    (72,625
    )
    
    
    (45,712
    )Pension, postretirement, and other employee benefits
    
    
    35,067
    
    
    
    35,337Hedge settlements
    
    
    (20,486
    )
    
    
    12,121Other, net
    
    
    (21,598
    )
    
    
    2,980Changes in certain current assets and liabilities Receivables
    
    
    (284,993
    )
    
    
    (211,971
    )Fossil fuel stock
    
    
    5,302
    
    
    
    1,827Prepaid income taxes
    
    
    5,185
    
    
    
    42,047Other current assets
    
    
    (19,981
    )
    
    
    (15,155
    )Accounts payable
    
    
    (51,662
    )
    
    
    (1,122
    )Accrued taxes
    
    
    151,112
    
    
    
    25,779Accrued compensation
    
    
    (18,839
    )
    
    
    (62,643
    )Other current liabilities
    
    
    30,285
    
    
    
    31,179Net cash provided from operating activities
    
    
    1,312,062
    
    
    
    1,008,457Investing Activities:Property additions
    
    
    (1,419,885
    )
    
    
    (1,214,093
    )Distribution of restricted cash from pollution control bonds
    
    
    22,197
    
    
    
    Nuclear decommissioning trust fund purchases
    
    
    (362,565
    )
    
    
    (336,526
    )Nuclear decommissioning trust fund sales
    
    
    355,685
    
    
    
    329,646Cost of removal, net of salvage
    
    
    (29,798
    )
    
    
    (28,811
    )Change in construction payables, net of joint owner portion
    
    
    (22,265
    )
    
    
    48,074Other
    
    
    (30,542
    )
    
    
    (11,553
    )Net cash used for investing activities
    
    
    (1,487,173
    )
    
    
    (1,213,263
    )Financing Activities:Increase (decrease) in notes payable, net
    
    
    172,789
    
    
    
    (166,951
    )Proceeds Senior notes
    
    
    500,000
    
    
    
    1,400,000Pollution control revenue bonds
    
    
    94,935
    
    
    
    Capital contributions from parent company
    
    
    259,750
    
    
    
    270,250Other long-term debt
    
    
    300,000
    
    
    
    Redemptions Capital leases
    
    
    (921
    )
    
    
    (2,073
    )Senior notes
    
    
    (122,427
    )
    
    
    (300,000
    )Pollution control revenue bonds
    
    
    (118,555
    )
    
    
    Other long-term debt
    
    
    
    
    
    
    (453,608
    )Payment of preferred and preference stock dividends
    
    
    (12,668
    )
    
    
    (2,255
    )Payment of common stock dividends
    
    
    (540,900
    )
    
    
    (517,425
    )Other
    
    
    (8,436
    )
    
    
    (24,662
    )Net cash provided from financing activities
    
    
    523,567
    
    
    
    203,276Net Change in Cash and Cash Equivalents
    
    
    348,456
    
    
    
    (1,530
    )Cash and Cash Equivalents at Beginning of Period
    
    
    15,392
    
    
    
    16,850Cash and Cash Equivalents at End of Period
    
    $
    363,848
    
    
    $
    15,320Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $30,112 and $19,181 capitalized for 2008 and 2007, respectively)
    
    $
    216,572
    
    
    $
    229,282Income taxes (net of refunds)
    
    $
    228,792
    
    
    $
    254,742
  60




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GEORGIA
POWER COMPANY
 At September 30,
    
    
    At December 31,Assets
    
    2008
    
    
    2007(in thousands)Current Assets:Cash and cash equivalents
    
    $
    363,848
    
    
    $
    15,392Restricted cash
    
    
    30,405
    
    
    
    48,279Receivables Customer accounts receivable
    
    
    687,767
    
    
    
    491,389Unbilled revenues
    
    
    200,990
    
    
    
    137,046Under recovered regulatory clause revenues
    
    
    406,314
    
    
    
    384,538Other accounts and notes receivable
    
    
    75,572
    
    
    
    147,498Affiliated companies
    
    
    19,984
    
    
    
    21,699Accumulated provision for uncollectible accounts
    
    
    (10,449
    )
    
    
    (7,636
    )Fossil fuel stock, at average cost
    
    
    387,920
    
    
    
    393,222Materials and supplies, at average cost
    
    
    353,947
    
    
    
    337,652Vacation pay
    
    
    68,881
    
    
    
    69,394Prepaid income taxes
    
    
    45,917
    
    
    
    51,101Other
    
    
    113,139
    
    
    
    55,169Total current assets
    
    
    2,744,235
    
    
    
    2,144,743Property, Plant, and Equipment:In service
    
    
    23,457,294
    
    
    
    22,011,215Less accumulated provision for depreciation
    
    
    9,031,348
    
    
    
    8,696,66814,425,946
    
    
    
    13,314,547Nuclear fuel, at amortized cost
    
    
    262,076
    
    
    
    198,983Construction work in progress
    
    
    1,625,598
    
    
    
    1,797,642Total property, plant, and equipment
    
    
    16,313,620
    
    
    
    15,311,172Other Property and Investments:Equity investments in unconsolidated subsidiaries
    
    
    57,054
    
    
    
    53,813Nuclear decommissioning trusts, at fair value
    
    
    518,010
    
    
    
    588,952Other
    
    
    43,562
    
    
    
    47,914Total other property and investments
    
    
    618,626
    
    
    
    690,679Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    562,461
    
    
    
    532,539Prepaid pension costs
    
    
    1,065,296
    
    
    
    1,026,985Deferred under recovered regulatory clause revenues
    
    
    369,745
    
    
    
    307,294Other regulatory assets
    
    
    669,131
    
    
    
    541,014Other
    
    
    288,526
    
    
    
    268,335Total deferred charges and other assets
    
    
    2,955,159
    
    
    
    2,676,167Total Assets
    
    $
    22,631,640
    
    
    $
    20,822,761
  61




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GEORGIA POWER COMPANY
 At September 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2008
    
    
    2007(in thousands)Current Liabilities:Securities due within one year
    
    $
    369,396
    
    
    $
    198,576Notes payable
    
    
    888,381
    
    
    
    715,591Accounts payable Affiliated
    
    
    259,676
    
    
    
    236,332Other
    
    
    382,789
    
    
    
    463,945Customer deposits
    
    
    183,483
    
    
    
    171,553Accrued taxes Income taxes
    
    
    163,382
    
    
    
    68,782Other
    
    
    241,346
    
    
    
    219,585Accrued interest
    
    
    91,047
    
    
    
    74,674Accrued vacation pay
    
    
    55,064
    
    
    
    56,303Accrued compensation
    
    
    94,959
    
    
    
    114,974Other
    
    
    130,320
    
    
    
    103,225Total current liabilities
    
    
    2,859,843
    
    
    
    2,423,540Long-term Debt
    
    
    6,418,570
    
    
    
    5,937,792Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    2,989,439
    
    
    
    2,850,655Deferred credits related to income taxes
    
    
    139,329
    
    
    
    146,886Accumulated deferred investment tax credits
    
    
    259,445
    
    
    
    269,125Employee benefit obligations
    
    
    737,994
    
    
    
    678,826Asset retirement obligations
    
    
    677,351
    
    
    
    663,503Other cost of removal obligations
    
    
    417,779
    
    
    
    414,745Other regulatory liabilities
    
    
    687,781
    
    
    
    577,642Other
    
    
    190,176
    
    
    
    158,670Total deferred credits and other liabilities
    
    
    6,099,294
    
    
    
    5,760,052Total Liabilities
    
    
    15,377,707
    
    
    
    14,121,384Preferred and Preference Stock
    
    
    265,957
    
    
    
    265,957Common Stockholders Equity:Common stock, without par valueAuthorized - 20,000,000 sharesOutstanding - 9,261,500 shares
    
    
    398,473
    
    
    
    398,473Paid-in capital
    
    
    3,641,907
    
    
    
    3,374,777Retained earnings
    
    
    2,960,887
    
    
    
    2,676,063Accumulated other comprehensive loss
    
    
    (13,291
    )
    
    
    (13,893
    )Total common stockholders equity
    
    
    6,987,976
    
    
    
    6,435,420Total Liabilities and Stockholders Equity
    
    $
    22,631,640
    
    
    $
    20,822,761
  62




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##### Table of Contents



GEORGIA
POWER COMPANY
 
 OVERVIEW
  
 RESULTS OF OPERATIONS
 Net Income
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$2.4
    
    0.6
    
    $106.6
    
    14.8
  63




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##### Table of Contents



GEORGIA POWER COMPANY
 Retail Revenues
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$174.3
    
    8.1
    
    $582.2
    
    11.3
   Third Quarter
    
    Year-to-Date2008
    
    2008(in millions)
    
    (% change)
    
    (in millions)
    
    (% change)Retail  prior year
    
    $
    2,143.5
    
    
    
    
    
    
    $
    5,141.4Estimated change in Rates and pricing
    
    
    109.2
    
    
    
    5.1
    
    
    
    336.2
    
    
    
    6.5Sales growth
    
    
    (8.0
    )
    
    
    (0.4
    )
    
    
    (13.8
    )
    
    
    (0.3
    )Weather
    
    
    (43.3
    )
    
    
    (2.0
    )
    
    
    (41.1
    )
    
    
    (0.8
    )Fuel and other cost recovery
    
    
    116.4
    
    
    
    5.4
    
    
    
    300.9
    
    
    
    5.9Retail  current year
    
    $
    2,317.8
    
    
    
    8.1
    %
    
    $
    5,723.6
    
    
    
    11.3
    %
     64




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##### Table of Contents



GEORGIA POWER COMPANY
 Wholesale Revenues  Non-Affiliates
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$21.1
    
    16.5
    
    $37.3
    
    9.2
   Wholesale Revenues  Affiliates
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(0.8)
    
    (0.7)
    
    $44.6
    
    21.5
    Fuel and Purchased Power Expenses
 Third Quarter 2008
    
    Year-to-Date 2008vs.
    
    vs.Third Quarter 2007
    
    Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Fuel
    
    $
    73.8
    
    
    
    9.4
    
    
    $
    150.3
    
    
    
    7.4Purchased power  non-affiliates
    
    
    23.9
    
    
    
    14.2
    
    
    
    75.9
    
    
    
    26.9Purchased power  affiliates
    
    
    51.1
    
    
    
    26.0
    
    
    
    187.7
    
    
    
    33.5Total fuel and purchased power expenses
    
    $
    148.8
    
    
    
    
    
    
    $
    413.9
 65




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##### Table of Contents



GEORGIA POWER COMPANY
     Third Quarter
    
    Third Quarter
    
    Percent
    
    Year-to-Date
    
    Year-to-Date
    
    PercentAverage Cost
    
    2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(cents per net KWH)
    
    
    
    
    
    (cents per net KWH)Fuel
    
    
    3.32
    
    
    
    2.77
    
    
    
    19.9
    
    
    
    3.07
    
    
    
    2.69
    
    
    
    14.1Purchased power
    
    
    8.87
    
    
    
    7.61
    
    
    
    16.6
    
    
    
    8.39
    
    
    
    7.25
    
    
    
    15.7
  Non-affiliates
   66




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##### Table of Contents



GEORGIA POWER COMPANY
 Affiliates
    Other Operations and Maintenance Expenses
 Third Quarter 2008
    
    Year-to-Date 2008vs.
    
    vs.Third Quarter 2007
    
    Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Other operations
    
    $
    1.7
    
    
    
    0.7
    
    
    $
    28.5
    
    
    
    3.9Maintenance
    
    
    (11.1
    )
    
    
    (8.5
    )
    
    
    (18.8
    )
    
    
    (4.8
    )Total other operations and maintenance
    
    $
    (9.4
    )
    
    
    
    
    
    $
    9.7
   Depreciation and Amortization
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$34.0
    
    26.6
    
    $90.4
    
    23.7
  67




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##### Table of Contents



GEORGIA POWER COMPANY
 Taxes Other Than Income Taxes
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$3.9
    
    4.4
    
    $10.7
    
    4.6
  Allowance for Equity Funds Used During Construction
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$3.1
    
    17.0
    
    $26.9
    
    58.9
  Income Taxes
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$7.5
    
    3.3
    
    $52.4
    
    13.1
  Dividends on Preferred and Preference Stock
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$3.6
    
    N/M
    
    $10.9
    
    N/M
   68




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##### Table of Contents



GEORGIA POWER COMPANY
 FUTURE EARNINGS POTENTIAL
  Environmental Matters
  New Source Review Actions
  Clean Air Interstate Rule
  69




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##### Table of Contents



GEORGIA POWER COMPANY
  Eight-Hour Ozone Regulations
  Carbon Dioxide Litigation
  FERC and Georgia PSC Matters
 Market-Based Rate Authority
   70




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##### Table of Contents



GEORGIA POWER COMPANY
  Retail Fuel Cost Recovery
  Nuclear
 Nuclear Projects
      71




---



##### Table of Contents



GEORGIA POWER COMPANY
      Income Tax Matters
 Legislation
   Other Matters
  72




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##### Table of Contents



GEORGIA POWER COMPANY
    ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
  73




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##### Table of Contents



GEORGIA POWER COMPANY
     Capital Requirements and Contractual Obligations
 
 Sources of Capital
  74




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##### Table of Contents



GEORGIA POWER COMPANY
    Credit Rating Risk
  Market Price Risk
  75




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##### Table of Contents



GEORGIA POWER COMPANY
    Third Quarter
    
    Year-to-Date2008
    
    2008Changes
    
    ChangesFair Value(in millions)Contracts outstanding at the beginning of the period, assets
(liabilities), net
    
    $
    168.5
    
    
    $
    (0.4
    )Contracts realized or settled
    
    
    (65.4
    )
    
    
    (86.8
    )Current period changes(a)
    
    
    (150.5
    )
    
    
    39.8Contracts outstanding at the end of the period, assets (liabilities), net
    
    $
    (47.4
    )
    
    $
    (47.4
    )
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered into
during the period, if any.
   September
30, 2008
    
    December 31, 2007(in millions)Regulatory hedges
    
    $
    (47.4
    )
    
    $
    (0.4
    )Cash flow hedges
    
    
    
    
    
    
    Non-accounting hedges
    
    
    
    
    
    
    Total fair value
    
    $
    (47.4
    )
    
    $
    (0.4
    )
  76




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##### Table of Contents



GEORGIA POWER COMPANY
    September 30, 2008Fair Value MeasurementsTotal
    
    MaturityFair Value
    
    Year 1
    
    Years 2&3
    
    Years 4&5(in millions)Level 1
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Level 2
    
    
    (47.4
    )
    
    
    (35.5
    )
    
    
    (11.9
    )
    
    
    Level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fair value of
contracts
outstanding at end
of period
    
    $
    (47.4
    )
    
    $
    (35.5
    )
    
    $
    (11.9
    )
    
    $
    
   Financing Activities
   77




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##### Table of Contents



GEORGIA POWER COMPANY
     78




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##### Table of Contents



GULF POWER COMPANY
 79




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##### Table of Contents



GULF POWER COMPANY
 For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    359,652
    
    
    $
    325,864
    
    
    $
    871,834
    
    
    $
    788,827Wholesale revenues Non-affiliates
    
    
    26,194
    
    
    
    20,892
    
    
    
    76,902
    
    
    
    65,296Affiliates
    
    
    20,036
    
    
    
    13,297
    
    
    
    89,500
    
    
    
    74,190Other revenues
    
    
    15,959
    
    
    
    16,503
    
    
    
    45,007
    
    
    
    42,870Total operating revenues
    
    
    421,841
    
    
    
    376,556
    
    
    
    1,083,243
    
    
    
    971,183Operating Expenses:Fuel
    
    
    185,003
    
    
    
    150,665
    
    
    
    501,129
    
    
    
    430,188Purchased power 
Non-affiliates
    
    
    14,057
    
    
    
    7,110
    
    
    
    23,269
    
    
    
    10,453Affiliates
    
    
    41,136
    
    
    
    36,737
    
    
    
    66,564
    
    
    
    54,247Other operations
    
    
    48,879
    
    
    
    53,987
    
    
    
    143,758
    
    
    
    147,000Maintenance
    
    
    16,344
    
    
    
    16,491
    
    
    
    53,670
    
    
    
    49,148Depreciation and amortization
    
    
    22,295
    
    
    
    21,540
    
    
    
    66,205
    
    
    
    63,840Taxes other than income taxes
    
    
    25,088
    
    
    
    25,027
    
    
    
    66,587
    
    
    
    65,516Total operating expenses
    
    
    352,802
    
    
    
    311,557
    
    
    
    921,182
    
    
    
    820,392Operating Income
    
    
    69,039
    
    
    
    64,999
    
    
    
    162,061
    
    
    
    150,791Other Income and (Expense):Allowance for equity funds used during construction
    
    
    2,673
    
    
    
    539
    
    
    
    6,196
    
    
    
    1,403Interest income
    
    
    914
    
    
    
    1,295
    
    
    
    2,332
    
    
    
    4,192Interest expense, net of amounts capitalized
    
    
    (10,489
    )
    
    
    (11,545
    )
    
    
    (32,164
    )
    
    
    (34,075
    )Other income (expense), net
    
    
    (357
    )
    
    
    (389
    )
    
    
    (1,366
    )
    
    
    (1,264
    )Total other income and (expense)
    
    
    (7,259
    )
    
    
    (10,100
    )
    
    
    (25,002
    )
    
    
    (29,744
    )Earnings Before Income Taxes
    
    
    61,780
    
    
    
    54,899
    
    
    
    137,059
    
    
    
    121,047Income taxes
    
    
    22,886
    
    
    
    19,911
    
    
    
    48,542
    
    
    
    44,271Net Income
    
    
    38,894
    
    
    
    34,988
    
    
    
    88,517
    
    
    
    76,776Dividends on Preference Stock
    
    
    1,551
    
    
    
    825
    
    
    
    4,652
    
    
    
    2,475Net Income After Dividends on Preference Stock
    
    $
    37,343
    
    
    $
    34,163
    
    
    $
    83,865
    
    
    $
    74,301
 
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preference Stock
    
    $
    37,343
    
    
    $
    34,163
    
    
    $
    83,865
    
    
    $
    74,301Other comprehensive income (loss):Qualifying hedges:Changes in
fair value, net of tax of $-, $(976), $(1,077),
and $1,561, respectively
    
    
    
    
    
    
    (1,554
    )
    
    
    (1,715
    )
    
    
    2,485Reclassification adjustment for amounts included in net income,
net of tax of $104, $54, $261, and $214, respectively
    
    
    167
    
    
    
    87
    
    
    
    416
    
    
    
    342Total other comprehensive income (loss)
    
    
    167
    
    
    
    (1,467
    )
    
    
    (1,299
    )
    
    
    2,827COMPREHENSIVE INCOME
    
    $
    37,510
    
    
    $
    32,696
    
    
    $
    82,566
    
    
    $
    77,128
  80




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##### Table of Contents



GULF POWER COMPANY
 For the Nine MonthsEnded September 30,2008
    
    
    2007(in thousands)Operating Activities:Net income
    
    $
    88,517
    
    
    $
    76,776Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    69,926
    
    
    
    67,644Deferred income taxes
    
    
    24,850
    
    
    
    (11,540
    )Allowance for equity funds used during construction
    
    
    (6,196
    )
    
    
    (1,403
    )Pension, postretirement, and other employee benefits
    
    
    1,413
    
    
    
    1,809Stock option expense
    
    
    656
    
    
    
    1,022Tax benefit of stock options
    
    
    200
    
    
    
    268Hedge settlements
    
    
    (5,220
    )
    
    
    3,030Other, net
    
    
    (4,115
    )
    
    
    1,472Changes in certain current assets and liabilities Receivables
    
    
    (75,430
    )
    
    
    (18,793
    )Fossil fuel stock
    
    
    (26,408
    )
    
    
    (19,667
    )Materials and supplies
    
    
    7,135
    
    
    
    (1,521
    )Prepaid income taxes
    
    
    (3,929
    )
    
    
    7,177Property damage cost recovery
    
    
    20,038
    
    
    
    19,467Other current assets
    
    
    2,371
    
    
    
    1,735Accounts payable
    
    
    (2,154
    )
    
    
    7,500Accrued taxes
    
    
    3,825
    
    
    
    31,826Accrued compensation
    
    
    (3,063
    )
    
    
    (5,217
    )Other current liabilities
    
    
    (2,058
    )
    
    
    2,890Net cash provided from operating activities
    
    
    90,358
    
    
    
    164,475Investing Activities:Property additions
    
    
    (232,398
    )
    
    
    (164,217
    )Cost of removal, net of salvage
    
    
    (5,246
    )
    
    
    (7,890
    )Construction payables
    
    
    13,830
    
    
    
    (6,354
    )Other
    
    
    (3,956
    )
    
    
    (232
    )Net cash used for investing activities
    
    
    (227,770
    )
    
    
    (178,693
    )Financing Activities:Increase (decrease) in notes payable, net
    
    
    57,813
    
    
    
    (94,881
    )Proceeds Senior Notes
    
    
    
    
    
    
    85,000Common stock issued to parent
    
    
    
    
    
    
    80,000Gross excess tax benefit of stock options
    
    
    283
    
    
    
    646Capital contributions from parent company
    
    
    75,304
    
    
    
    Other long-term debt
    
    
    110,000
    
    
    
    Redemptions  Senior notes
    
    
    (974
    )
    
    
    Payment of preference stock dividends
    
    
    (4,507
    )
    
    
    (2,475
    )Payment of common stock dividends
    
    
    (61,275
    )
    
    
    (55,575
    )Other
    
    
    (2,135
    )
    
    
    (1,104
    )Net cash provided from financing activities
    
    
    174,509
    
    
    
    11,611Net Change in Cash and Cash Equivalents
    
    
    37,097
    
    
    
    (2,607
    )Cash and Cash Equivalents at Beginning of Period
    
    
    5,348
    
    
    
    7,526Cash and Cash Equivalents at End of Period
    
    $
    42,445
    
    
    $
    4,919Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $2,470 and $619 capitalized for 2008 and 2007, respectively)
    
    $
    27,940
    
    
    $
    24,875Income taxes (net of refunds)
    
    $
    37,353
    
    
    $
    25,659
  81




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##### Table of Contents



GULF POWER COMPANY
 At September 30,
    
    
    At December 31,Assets
    
    2008
    
    
    2007(in thousands)Current Assets:Cash and cash equivalents
    
    $
    42,445
    
    
    $
    5,348Receivables Customer accounts receivable
    
    
    88,988
    
    
    
    63,227Unbilled revenues
    
    
    54,455
    
    
    
    39,000Under recovered regulatory clause revenues
    
    
    71,105
    
    
    
    58,435Other accounts and notes receivable
    
    
    7,569
    
    
    
    7,162Affiliated companies
    
    
    2,327
    
    
    
    19,377Accumulated provision for uncollectible accounts
    
    
    (2,101
    )
    
    
    (1,711
    )Fossil fuel stock, at average cost
    
    
    97,739
    
    
    
    71,012Materials and supplies, at average cost
    
    
    38,627
    
    
    
    45,763Property damage cost recovery
    
    
    
    
    
    
    18,585Other regulatory assets
    
    
    22,146
    
    
    
    10,220Other
    
    
    18,760
    
    
    
    14,878Total current assets
    
    
    442,060
    
    
    
    351,296Property, Plant, and Equipment:In service
    
    
    2,755,543
    
    
    
    2,678,952Less accumulated provision for depreciation
    
    
    966,499
    
    
    
    931,9681,789,044
    
    
    
    1,746,984Construction work in progress
    
    
    291,455
    
    
    
    150,870Total property, plant, and equipment
    
    
    2,080,499
    
    
    
    1,897,854Other Property and Investments
    
    
    4,745
    
    
    
    4,563Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    22,728
    
    
    
    17,847Prepaid pension costs
    
    
    109,407
    
    
    
    107,151Other regulatory assets
    
    
    134,462
    
    
    
    97,492Other
    
    
    36,301
    
    
    
    22,784Total deferred charges and other assets
    
    
    302,898
    
    
    
    245,274Total Assets
    
    $
    2,830,202
    
    
    $
    2,498,987
  82




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##### Table of Contents



GULF POWER COMPANY
  At September 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2008
    
    
    2007(in thousands)Current Liabilities:Securities due within one year
    
    $
    37,000
    
    
    $
    Notes payable
    
    
    102,439
    
    
    
    44,625Accounts payable Affiliated
    
    
    51,664
    
    
    
    39,375Other
    
    
    66,916
    
    
    
    56,823Customer deposits
    
    
    27,202
    
    
    
    24,885Accrued taxes Income taxes
    
    
    44,039
    
    
    
    30,026Other
    
    
    22,494
    
    
    
    10,577Accrued interest
    
    
    10,025
    
    
    
    7,698Accrued compensation
    
    
    12,034
    
    
    
    15,096Other regulatory liabilities
    
    
    5,699
    
    
    
    6,027Other
    
    
    30,447
    
    
    
    32,023Total current liabilities
    
    
    409,959
    
    
    
    267,155Long-term Debt
    
    
    812,429
    
    
    
    740,050Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    248,502
    
    
    
    240,101Accumulated deferred investment tax credits
    
    
    11,688
    
    
    
    12,988Employee benefit obligations
    
    
    76,888
    
    
    
    74,021Other cost of removal obligations
    
    
    179,467
    
    
    
    172,876Other regulatory liabilities
    
    
    85,087
    
    
    
    82,741Other
    
    
    80,460
    
    
    
    79,802Total deferred credits and other liabilities
    
    
    682,092
    
    
    
    662,529Total Liabilities
    
    
    1,904,480
    
    
    
    1,669,734Preference Stock
    
    
    97,998
    
    
    
    97,998Common Stockholders Equity:Common stock, without par valueAuthorized - 20,000,000 sharesOutstanding - 1,792,717 shares
    
    
    118,060
    
    
    
    118,060Paid-in capital
    
    
    511,400
    
    
    
    435,008Retained earnings
    
    
    203,362
    
    
    
    181,986Accumulated other comprehensive loss
    
    
    (5,098
    )
    
    
    (3,799
    )Total common stockholders equity
    
    
    827,724
    
    
    
    731,255Total Liabilities and Stockholders Equity
    
    $
    2,830,202
    
    
    $
    2,498,987
  83




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##### Table of Contents



GULF POWER COMPANY
 
 OVERVIEW
   RESULTS OF OPERATIONS
 Net Income
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$3.2
    
    9.3
    
    $9.6
    
    12.9
   Retail Revenues
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$33.8
    
    10.4
    
    $83.0
    
    10.5
  84




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##### Table of Contents



GULF POWER COMPANY
  Third Quarter
    
    Year-to-Date2008
    
    2008(in millions)
    
    (% change)
    
    (in millions)
    
    (% change)Retail  prior year
    
    $
    325.9
    
    
    
    
    
    
    $
    788.8Estimated change in Rates and pricing
    
    
    2.0
    
    
    
    0.6
    
    
    
    4.8
    
    
    
    0.6Sales growth
    
    
    (4.3
    )
    
    
    (1.3
    )
    
    
    (3.9
    )
    
    
    (0.5
    )Weather
    
    
    0.1
    
    
    
    0.0
    
    
    
    4.5
    
    
    
    0.6Fuel and other cost recovery
    
    
    36.0
    
    
    
    11.1
    
    
    
    77.6
    
    
    
    9.8Retail  current year
    
    $
    359.7
    
    
    
    10.4
    %
    
    $
    871.8
    
    
    
    10.5
    %
      85




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##### Table of Contents



GULF POWER COMPANY
  Wholesale Revenues  Non-Affiliates
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$5.3
    
    25.4
    
    $11.6
    
    17.8
   Wholesale Revenues  Affiliates
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$6.7
    
    50.7
    
    $15.3
    
    20.6
    86




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##### Table of Contents



GULF POWER COMPANY
 Fuel and Purchased Power Expenses
 Third Quarter 2008
    
    Year-to-Date 2008vs.
    
    vs.Third Quarter 2007
    
    Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Fuel
    
    $
    34.3
    
    
    
    22.8
    
    
    $
    70.9
    
    
    
    16.5Purchased power  non-affiliates
    
    
    6.9
    
    
    
    97.7
    
    
    
    12.8
    
    
    
    122.6Purchased power  affiliates
    
    
    4.4
    
    
    
    12.0
    
    
    
    12.3
    
    
    
    22.7Total fuel and purchased power expenses
    
    $
    45.6
    
    
    
    
    
    
    $
    96.0
     Third Quarter
    
    Third Quarter
    
    Percent
    
    Year-to-Date
    
    Year-to-Date
    
    PercentAverage Cost
    
    2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(cents per net KWH)
    
    (cents per net KWH)Fuel
    
    4.54
    
    
    3.44
    
    
    32.0
    
    
    4.20
    
    
    3.42
    
    
    22.8Purchased power
    
    13.09
    
    
    13.08
    
    
    0.1
    
    
    11.07
    
    
    9.41
    
    
    17.6
   87




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##### Table of Contents



GULF POWER COMPANY
 Non-affiliates
    Affiliates
    Other Operations and Maintenance Expenses
 Third Quarter 2008
    
    Year-to-Date 2008vs.
    
    vs.Third Quarter 2007
    
    Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Other operations
    
    $
    (5.1
    )
    
    
    (9.5
    )
    
    $
    (3.2
    )
    
    
    (2.2
    )Maintenance
    
    
    (0.1
    )
    
    
    (0.9
    )
    
    
    4.5
    
    
    
    9.2Total other operations and maintenance
    
    $
    (5.2
    )
    
    
    
    
    
    $
    1.3
   88




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##### Table of Contents



GULF POWER COMPANY
  Allowance for Equity Funds Used During Construction
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$2.2
    
    395.9
    
    $4.8
    
    341.6
  Interest Income
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(0.4)
    
    (29.4)
    
    $(1.9)
    
    (44.4)
  Interest Expense, Net of Amounts Capitalized
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(1.0)
    
    (9.1)
    
    $(1.9)
    
    (5.6)
  Income Taxes
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$3.0
    
    14.9
    
    $4.2
    
    9.6
  89




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##### Table of Contents



GULF POWER COMPANY
   Dividends on Preference Stock
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$0.7
    
    88.0
    
    $2.2
    
    88.0
  FUTURE EARNINGS POTENTIAL
  Environmental Matters
  New Source Review Actions
  90




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##### Table of Contents



GULF POWER COMPANY
  Clean Air Interstate Rule
  Eight-Hour Ozone Regulations
  Carbon Dioxide Litigation
  91




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##### Table of Contents



GULF POWER COMPANY
 Global Climate Issues
  FERC and Florida PSC Matters
 Market-Based Rate Authority
   Retail Fuel Cost Recovery
  92




---



##### Table of Contents



GULF POWER COMPANY
   Income Tax Matters
 Legislation
   Other Matters
  93




---



##### Table of Contents



GULF POWER COMPANY
   ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
    94




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##### Table of Contents



GULF POWER COMPANY
   Capital Requirements and Contractual Obligations
  Sources of Capital
    95




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##### Table of Contents



GULF POWER COMPANY
  Credit Rating Risk
  Market Price Risk
    Third Quarter
    
    Year-to-Date2008
    
    2008Changes
    
    ChangesFair Value(in millions)Contracts outstanding at the beginning of the period, assets
(liabilities), net
    
    $
    25.4
    
    
    $
    (0.2
    )Contracts realized or settled
    
    
    (9.4
    )
    
    
    (12.4
    )Current period changes(a)
    
    
    (28.0
    )
    
    
    0.6Contracts outstanding at the end of the period, assets (liabilities), net
    
    $
    (12.0
    )
    
    $
    (12.0
    )
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered into
during the period, if any. 96




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##### Table of Contents



GULF POWER COMPANY
   September 30,
    
    December 31,2008
    
    2007(in millions)Regulatory hedges
    
    $
    (12.0
    )
    
    $
    (0.2
    )Cash flow hedges
    
    
    
    
    
    
    Non-accounting hedges
    
    
    
    
    
    
    Total fair value
    
    $
    (12.0
    )
    
    $
    (0.2
    )
    September 30, 2008Fair Value MeasurementsTotal
    
    MaturityFair Value
    
    Year 1
    
    Years 2&3
    
    Years 4&5(in millions)Level 1
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Level 2
    
    
    (12.0
    )
    
    
    (11.1
    )
    
    
    (0.9
    )
    
    
    Level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fair value of
contracts
outstanding at end
of period
    
    $
    (12.0
    )
    
    $
    (11.1
    )
    
    $
    (0.9
    )
    
    $
    
 97




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##### Table of Contents



GULF POWER COMPANY
   Financing Activities
     98




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 99




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 
 For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    241,788
    
    
    $
    221,790
    
    
    $
    597,298
    
    
    $
    560,059Wholesale revenues Non-affiliates
    
    
    106,595
    
    
    
    93,750
    
    
    
    274,996
    
    
    
    247,746Affiliates
    
    
    28,908
    
    
    
    13,657
    
    
    
    79,833
    
    
    
    42,229Other revenues
    
    
    4,124
    
    
    
    3,826
    
    
    
    12,636
    
    
    
    13,031Total operating revenues
    
    
    381,415
    
    
    
    333,023
    
    
    
    964,763
    
    
    
    863,065Operating Expenses:Fuel
    
    
    174,300
    
    
    
    146,864
    
    
    
    443,273
    
    
    
    390,781Purchased power Non-affiliates
    
    
    13,777
    
    
    
    5,960
    
    
    
    21,458
    
    
    
    8,173Affiliates
    
    
    35,421
    
    
    
    27,506
    
    
    
    78,903
    
    
    
    56,970Other operations
    
    
    45,302
    
    
    
    46,264
    
    
    
    137,605
    
    
    
    133,220Maintenance
    
    
    19,526
    
    
    
    14,941
    
    
    
    55,364
    
    
    
    46,219Depreciation and amortization
    
    
    17,229
    
    
    
    15,302
    
    
    
    52,327
    
    
    
    44,683Taxes other than income taxes
    
    
    17,142
    
    
    
    16,651
    
    
    
    48,993
    
    
    
    44,989Total operating expenses
    
    
    322,697
    
    
    
    273,488
    
    
    
    837,923
    
    
    
    725,035Operating Income
    
    
    58,718
    
    
    
    59,535
    
    
    
    126,840
    
    
    
    138,030Other Income and (Expense):Interest income
    
    
    403
    
    
    
    538
    
    
    
    996
    
    
    
    1,537Interest expense, net of amounts capitalized
    
    
    (4,503
    )
    
    
    (4,593
    )
    
    
    (13,336
    )
    
    
    (14,030
    )Other income (expense), net
    
    
    1,506
    
    
    
    184
    
    
    
    6,025
    
    
    
    5,161Total other income and (expense)
    
    
    (2,594
    )
    
    
    (3,871
    )
    
    
    (6,315
    )
    
    
    (7,332
    )Earnings Before Income Taxes
    
    
    56,124
    
    
    
    55,664
    
    
    
    120,525
    
    
    
    130,698Income taxes
    
    
    19,474
    
    
    
    20,781
    
    
    
    42,832
    
    
    
    49,033Net Income
    
    
    36,650
    
    
    
    34,883
    
    
    
    77,693
    
    
    
    81,665Dividends on Preferred Stock
    
    
    433
    
    
    
    433
    
    
    
    1,299
    
    
    
    1,299Net Income After Dividends on Preferred
Stock
    
    $
    36,217
    
    
    $
    34,450
    
    
    $
    76,394
    
    
    $
    80,366CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred Stock
    
    $
    36,217
    
    
    $
    34,450
    
    
    $
    76,394
    
    
    $
    80,366Other comprehensive income (loss):Qualifying hedges:Changes in fair value, net of tax
of $1,285, $(200), $(169),
and $(154), respectively
    
    
    2,075
    
    
    
    (322
    )
    
    
    (272
    )
    
    
    (249
    )COMPREHENSIVE INCOME
    
    $
    38,292
    
    
    $
    34,128
    
    
    $
    76,122
    
    
    $
    80,117
  100




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MISSISSIPPI POWER COMPANY
 For the Nine MonthsEnded September 30,2008
    
    
    2007(in thousands)Operating Activities:Net income
    
    $
    77,693
    
    
    $
    81,665Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    56,025
    
    
    
    51,809Deferred income taxes and investment tax credits, net
    
    
    5,112
    
    
    
    (5,806
    )Plant Daniel capacity
    
    
    
    
    
    
    (4,244
    )Pension, postretirement, and other employee benefits
    
    
    6,088
    
    
    
    6,877Stock option expense
    
    
    639
    
    
    
    935Tax benefit of stock options
    
    
    473
    
    
    
    253Hurricane Katrina grant proceeds-property reserve
    
    
    
    
    
    
    60,000Other, net
    
    
    (27,388
    )
    
    
    (14,443
    )Changes in certain current assets and liabilities Receivables
    
    
    (36,440
    )
    
    
    (2,501
    )Fossil fuel stock
    
    
    (26,810
    )
    
    
    (18,687
    )Materials and supplies
    
    
    (2,961
    )
    
    
    22Prepaid income taxes
    
    
    1,187
    
    
    
    4,822Other current assets
    
    
    4,098
    
    
    
    915Hurricane Katrina grant proceeds
    
    
    
    
    
    
    14,345Hurricane Katrina accounts payable
    
    
    
    
    
    
    3,309Other accounts payable
    
    
    10,195
    
    
    
    (14,032
    )Accrued taxes
    
    
    (6,998
    )
    
    
    (9,897
    )Accrued compensation
    
    
    (8,066
    )
    
    
    (7,236
    )Other current liabilities
    
    
    17,355
    
    
    
    (716
    )Net cash provided from operating activities
    
    
    70,202
    
    
    
    147,390Investing Activities:Property additions
    
    
    (100,490
    )
    
    
    (84,383
    )Cost of removal, net of salvage
    
    
    (3,497
    )
    
    
    6,274Construction payables
    
    
    (5,202
    )
    
    
    3,327Hurricane Katrina capital grant proceeds
    
    
    7,314
    
    
    
    10,869Other
    
    
    2,423
    
    
    
    (90
    )Net cash used for investing activities
    
    
    (99,452
    )
    
    
    (64,003
    )Financing Activities:Increase in notes payable, net
    
    
    44,608
    
    
    
    8,939Proceeds Capital contributions
    
    
    4,222
    
    
    
    (3
    )Gross excess tax benefit of stock options
    
    
    892
    
    
    
    508Other long-term debt
    
    
    80,000
    
    
    
    Redemptions Pollution control revenue bonds
    
    
    (7,900
    )
    
    
    Other long-term debt
    
    
    
    
    
    
    (36,082
    )Payment of preferred stock dividends
    
    
    (1,299
    )
    
    
    (1,299
    )Payment of common stock dividends
    
    
    (51,300
    )
    
    
    (50,475
    )Other
    
    
    (1,475
    )
    
    
    Net cash provided from (used for) financing activities
    
    
    67,748
    
    
    
    (78,412
    )Net Change in Cash and Cash Equivalents
    
    
    38,498
    
    
    
    4,975Cash and Cash Equivalents at Beginning of Period
    
    
    4,827
    
    
    
    4,214Cash and Cash Equivalents at End of Period
    
    $
    43,325
    
    
    $
    9,189Supplemental Cash Flow Information:Cash paid during the period for Interest
(net of $113 and $- capitalized for 2008 and
2007, respectively)
    
    $
    12,054
    
    
    $
    13,098Income taxes (net of refunds)
    
    $
    38,710
    
    
    $
    48,048
  101




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MISSISSIPPI POWER COMPANY
 At September 30,
    
    
    At December 31,Assets
    
    2008
    
    
    2007(in thousands)Current Assets:Cash and cash equivalents
    
    $
    43,325
    
    
    $
    4,827Receivables Customer accounts receivable
    
    
    54,193
    
    
    
    43,946Unbilled revenues
    
    
    25,850
    
    
    
    23,163Under recovered regulatory clause revenues
    
    
    60,201
    
    
    
    40,545Other accounts and notes receivable
    
    
    8,842
    
    
    
    5,895Affiliated companies
    
    
    15,654
    
    
    
    11,838Accumulated provision for uncollectible
accounts
    
    
    (1,326
    )
    
    
    (924
    )Fossil fuel stock, at average cost
    
    
    74,276
    
    
    
    47,466Materials and supplies, at average cost
    
    
    30,401
    
    
    
    27,440Other regulatory assets
    
    
    34,871
    
    
    
    32,234Other
    
    
    14,132
    
    
    
    18,422Total current assets
    
    
    360,419
    
    
    
    254,852Property, Plant, and Equipment:In service
    
    
    2,171,087
    
    
    
    2,130,835Less accumulated provision for depreciation
    
    
    914,207
    
    
    
    880,1481,256,880
    
    
    
    1,250,687Construction work in progress
    
    
    86,328
    
    
    
    50,015Total property, plant, and equipment
    
    
    1,343,208
    
    
    
    1,300,702Other Property and Investments
    
    
    8,524
    
    
    
    9,556Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    8,430
    
    
    
    8,867Prepaid pension costs
    
    
    65,663
    
    
    
    66,099Other regulatory assets
    
    
    81,210
    
    
    
    62,746Other
    
    
    28,538
    
    
    
    24,843Total deferred charges and other assets
    
    
    183,841
    
    
    
    162,555Total Assets
    
    $
    1,895,992
    
    
    $
    1,727,665
  102




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MISSISSIPPI POWER COMPANY
 At September 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2008
    
    
    2007(in thousands)Current Liabilities:Securities due within one year
    
    $
    41,207
    
    
    $
    1,138Notes payable
    
    
    54,551
    
    
    
    9,944Accounts payable Affiliated
    
    
    48,089
    
    
    
    40,394Other
    
    
    62,312
    
    
    
    60,758Customer deposits
    
    
    10,128
    
    
    
    9,640Accrued taxes Income taxes
    
    
    2,123
    
    
    
    Other
    
    
    40,661
    
    
    
    48,853Accrued interest
    
    
    3,085
    
    
    
    2,713Accrued compensation
    
    
    13,899
    
    
    
    21,965Over recovered regulatory clause revenues
    
    
    17,555
    
    
    
    Other regulatory liabilities
    
    
    11,476
    
    
    
    11,082Other
    
    
    27,024
    
    
    
    23,882Total current liabilities
    
    
    332,110
    
    
    
    230,369Long-term Debt
    
    
    313,170
    
    
    
    281,963Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    209,896
    
    
    
    206,818Deferred credits related to income taxes
    
    
    13,221
    
    
    
    15,156Accumulated deferred investment tax credits
    
    
    14,393
    
    
    
    15,254Employee benefit obligations
    
    
    91,023
    
    
    
    88,300Other cost of removal obligations
    
    
    95,916
    
    
    
    90,485Other regulatory liabilities
    
    
    105,564
    
    
    
    119,458Other
    
    
    43,093
    
    
    
    33,252Total deferred credits and other liabilities
    
    
    573,106
    
    
    
    568,723Total Liabilities
    
    
    1,218,386
    
    
    
    1,081,055Preferred Stock
    
    
    32,780
    
    
    
    32,780Common Stockholders Equity:Common stock, without par value Authorized - 1,130,000 sharesOutstanding - 1,121,000 shares
    
    
    37,691
    
    
    
    37,691Paid-in capital
    
    
    320,498
    
    
    
    314,324Retained earnings
    
    
    286,336
    
    
    
    261,242Accumulated other comprehensive income
    
    
    301
    
    
    
    573Total common stockholders equity
    
    
    644,826
    
    
    
    613,830Total Liabilities and Stockholders Equity
    
    $
    1,895,992
    
    
    $
    1,727,665
  103




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  
 OVERVIEW
   RESULTS OF OPERATIONS
 Net Income
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$1.8
    
    5.1
    
    $(4.0)
    
    (4.9)
   104




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MISSISSIPPI POWER COMPANY
  Retail Revenues
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$20.0
    
    9.0
    
    $37.2
    
    6.6
   Third Quarter
    
    Year-to-Date2008
    
    2008(in millions)
    
    (% change)
    
    (in millions)
    
    (% change)Retail  prior year
    
    $
    221.8
    
    
    
    
    
    
    $
    560.1Estimated change in Rates and pricing
    
    
    6.9
    
    
    
    3.1
    
    
    
    14.1
    
    
    
    2.5Sales growth
    
    
    (2.8
    )
    
    
    (1.3
    )
    
    
    (3.3
    )
    
    
    (0.6
    )Weather
    
    
    (1.3
    )
    
    
    (0.6
    )
    
    
    0.1
    
    
    
    0.0Fuel and other cost recovery
    
    
    17.2
    
    
    
    7.8
    
    
    
    26.3
    
    
    
    4.7Retail  current year
    
    $
    241.8
    
    
    
    9.0
    %
    
    $
    597.3
    
    
    
    6.6
    %
   105




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##### Table of Contents



MISSISSIPPI POWER COMPANY
   Wholesale Revenues  Non-Affiliates
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$12.8
    
    13.7
    
    $27.2
    
    11.0
    106




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Wholesale Revenues  Affiliates
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$15.2
    
    111.7
    
    $37.6
    
    89.0
    Fuel and Purchased Power Expenses
 Third Quarter 2008
    
    Year-to-Date 2008vs.
    
    vs.Third Quarter 2007
    
    Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Fuel
    
    $
    27.5
    
    
    
    18.7
    
    
    $
    52.5
    
    
    
    13.4Purchased power  non-affiliates
    
    
    7.8
    
    
    
    131.2
    
    
    
    13.3
    
    
    
    162.5Purchased power  affiliates
    
    
    7.9
    
    
    
    28.8
    
    
    
    21.9
    
    
    
    38.5Total fuel and purchased power expenses
    
    $
    43.2
    
    
    
    
    
    
    $
    87.7
    107




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  Third Quarter
    
    Third Quarter
    
    Percent
    
    Year-to-Date
    
    Year-to-Date
    
    PercentAverage Cost
    
    2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(cents per net KWH)
    
    
    
    
    
    (cents per net KWH)Fuel
    
    
    4.99
    
    
    
    3.94
    
    
    
    26.7
    
    
    
    4.32
    
    
    
    3.74
    
    
    
    15.5Purchased power
    
    
    7.64
    
    
    
    6.15
    
    
    
    24.2
    
    
    
    6.66
    
    
    
    4.71
    
    
    
    41.4
   Non-affiliates
    Affiliates
    108




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Other Operations and Maintenance Expenses
 Third Quarter 2008
    
    Year-to-Date 2008vs.
    
    vs.Third Quarter 2007
    
    Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Other operations
    
    $
    (1.0
    )
    
    
    (2.1
    )
    
    $
    4.4
    
    
    
    3.3Maintenance
    
    
    4.6
    
    
    
    30.7
    
    
    
    9.1
    
    
    
    19.8Total other operations and maintenance
    
    $
    3.6
    
    
    
    
    
    
    $
    13.5
   Depreciation and Amortization
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$1.9
    
    12.6
    
    $7.6
    
    17.1
    109




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Taxes Other Than Income Taxes
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$0.5
    
    2.9
    
    $4.0
    
    8.9
    Other Income (Expense), Net
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$1.3
    
    718.5
    
    $0.8
    
    16.7
   Income Taxes
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(1.3)
    
    (6.3)
    
    $(6.2)
    
    (12.6)
  110




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  FUTURE EARNINGS POTENTIAL
  Environmental Matters
  New Source Review Actions
  Clean Air Interstate Rule
  111




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  Eight-Hour Ozone Regulations
  Carbon Dioxide Litigation
  FERC and Mississippi PSC Matters
 Market-Based Rate Authority
  112




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  Wholesale Rate Filing
  Retail Regulatory Matters
 Environmental Compliance Overview Plan
   113




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Performance Evaluation Plan
   Fuel Cost Recovery
  Fuel Adjustment Clause Hearing
  Statewide Electric Generation Needs Review
  Mississippi Base Load Construction Legislation
  114




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  Integrated Coal Gasification Combined Cycle
      115




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Income Tax Matters
 Legislation
   Other Matters
   ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  116




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 FINANCIAL CONDITION AND LIQUIDITY
 Overview
     117




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Capital Requirements and Contractual Obligations
  Sources of Capital
   Off-Balance Sheet Financing Arrangements
  Credit Rating Risk
  118




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  Market Price Risk
    Third Quarter
    
    Year-to-Date2008
    
    2008Changes
    
    ChangesFair Value(in millions)Contracts outstanding at the beginning of the period, assets
(liabilities), net
    
    $
    44.1
    
    
    $
    2.0Contracts realized or settled
    
    
    (23.0
    )
    
    
    (32.4
    )Current period changes(a)
    
    
    (33.2
    )
    
    
    18.3Contracts outstanding at the end of the period, assets (liabilities), net
    
    $
    (12.1
    )
    
    $
    (12.1
    )
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered into
during the period, if any.  119




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  September 30,
    
    December 31,2008
    
    2007(in millions)Regulatory hedges
    
    $
    (13.2
    )
    
    $
    1.3Cash flow hedges
    
    
    0.8
    
    
    
    0.9Non-accounting hedges
    
    
    0.3
    
    
    
    (0.2
    )Total fair value
    
    $
    (12.1
    )
    
    $
    2.0
    September 30, 2008Fair Value MeasurementsTotal
    
    MaturityFair Value
    
    Year 1
    
    Years 2 & 3
    
    Years 4 & 5(in millions)Level 1
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Level 2
    
    
    (12.1
    )
    
    
    (5.2
    )
    
    
    (5.1
    )
    
    
    (1.8
    )Level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fair value of
contracts
outstanding at end
of period
    
    $
    (12.1
    )
    
    $
    (5.2
    )
    
    $
    (5.1
    )
    
    $
    (1.8
    )
   120




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Financing Activities
     121




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##### Table of Contents



SOUTHERN POWER COMPANY
AND SUBSIDIARY COMPANIES
 122




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##### Table of Contents



SOUTHERN
POWER COMPANY AND SUBSIDIARY COMPANIES
 For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    
    (in thousands)Operating Revenues:Wholesale revenues Non-affiliates
    
    $
    296,743
    
    
    $
    159,951
    
    
    $
    548,119
    
    
    $
    339,121Affiliates
    
    
    216,622
    
    
    
    185,310
    
    
    
    494,008
    
    
    
    438,737Other revenues
    
    
    2,506
    
    
    
    2,490
    
    
    
    5,860
    
    
    
    6,403Total operating revenues
    
    
    515,871
    
    
    
    347,751
    
    
    
    1,047,987
    
    
    
    784,261Operating Expenses:Fuel
    
    
    221,735
    
    
    
    115,669
    
    
    
    334,123
    
    
    
    201,814Purchased power Non-affiliates
    
    
    56,312
    
    
    
    28,291
    
    
    
    107,180
    
    
    
    50,502Affiliates
    
    
    59,539
    
    
    
    42,350
    
    
    
    175,210
    
    
    
    110,477Other operations
    
    
    25,136
    
    
    
    27,267
    
    
    
    73,573
    
    
    
    69,711Maintenance
    
    
    6,413
    
    
    
    4,872
    
    
    
    28,661
    
    
    
    18,375Depreciation and amortization
    
    
    24,014
    
    
    
    18,424
    
    
    
    64,944
    
    
    
    55,120Taxes other than income taxes
    
    
    4,130
    
    
    
    3,670
    
    
    
    13,311
    
    
    
    11,697Total operating expenses
    
    
    397,279
    
    
    
    240,543
    
    
    
    797,002
    
    
    
    517,696Operating Income
    
    
    118,592
    
    
    
    107,208
    
    
    
    250,985
    
    
    
    266,565Other Income and (Expense):Interest expense, net of amounts capitalized
    
    
    (22,162
    )
    
    
    (19,602
    )
    
    
    (61,414
    )
    
    
    (60,954
    )Other income (expense), net
    
    
    674
    
    
    
    (2,029
    )
    
    
    13,289
    
    
    
    (926
    )Total other income and (expense)
    
    
    (21,488
    )
    
    
    (21,631
    )
    
    
    (48,125
    )
    
    
    (61,880
    )Earnings Before Income Taxes
    
    
    97,104
    
    
    
    85,577
    
    
    
    202,860
    
    
    
    204,685Income taxes
    
    
    37,542
    
    
    
    34,139
    
    
    
    78,903
    
    
    
    81,357Net Income
    
    $
    59,562
    
    
    $
    51,438
    
    
    $
    123,957
    
    
    $
    123,328
 
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    
    (in thousands)Net Income
    
    $
    59,562
    
    
    $
    51,438
    
    
    $
    123,957
    
    
    $
    123,328Other comprehensive income (loss):Qualifying hedges:Changes in fair value, net of tax of $11,534, $(548), $3,703,
and $(619), respectively
    
    
    17,830
    
    
    
    (827
    )
    
    
    5,714
    
    
    
    (949
    )Reclassification adjustment for amounts included in net
income,
net of tax of $979, $1,357, $3,669, and $3,762, respectively
    
    
    1,513
    
    
    
    2,062
    
    
    
    5,671
    
    
    
    6,020Total other comprehensive income (loss)
    
    
    19,343
    
    
    
    1,235
    
    
    
    11,385
    
    
    
    5,071COMPREHENSIVE INCOME
    
    $
    78,905
    
    
    $
    52,673
    
    
    $
    135,342
    
    
    $
    128,399
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SOUTHERN
POWER COMPANY AND SUBSIDIARY COMPANIES
 For the Nine MonthsEnded September 30,2008
    
    
    2007(in thousands)Operating Activities:Net income
    
    $
    123,957
    
    
    $
    123,328Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    75,985
    
    
    
    66,791Deferred income taxes and investment tax credits, net
    
    
    13,952
    
    
    
    19,289Deferred revenues
    
    
    27,493
    
    
    
    24,083Mark-to-market adjustments
    
    
    701
    
    
    
    875Accumulated billings on construction contract
    
    
    62,045
    
    
    
    45,293Accumulated costs on construction contract
    
    
    (77,534
    )
    
    
    (15,979
    )Gain on sale of property
    
    
    (6,015
    )
    
    
    Other, net
    
    
    178
    
    
    
    3,575Changes in certain current assets and liabilities Receivables
    
    
    (82,449
    )
    
    
    (57,504
    )Fossil fuel stock
    
    
    (2,658
    )
    
    
    (3,974
    )Materials and supplies
    
    
    6,246
    
    
    
    (287
    )Other current assets
    
    
    2,102
    
    
    
    (1,439
    )Accounts payable
    
    
    34,116
    
    
    
    19,630Accrued taxes
    
    
    43,438
    
    
    
    43,334Accrued interest
    
    
    (12,448
    )
    
    
    (11,722
    )Other current liabilities
    
    
    (3,516
    )
    
    
    Net cash provided from operating activities
    
    
    205,593
    
    
    
    255,293Investing Activities:Property additions
    
    
    (45,114
    )
    
    
    (109,629
    )Sale of property
    
    
    5,009
    
    
    
    Change in construction payables, net
    
    
    (4,393
    )
    
    
    (1,682
    )Payments pursuant to long-term service agreements
    
    
    (24,130
    )
    
    
    (39,994
    )Other
    
    
    (1,083
    )
    
    
    (7,557
    )Net cash used for investing activities
    
    
    (69,711
    )
    
    
    (158,862
    )Financing Activities:Decrease in notes payable, net
    
    
    (49,748
    )
    
    
    (33,848
    )Proceeds  Capital contributions
    
    
    3,215
    
    
    
    76Redemptions  Long-term debt
    
    
    
    
    
    
    (1,209
    )Payment of common stock dividends
    
    
    (70,875
    )
    
    
    (67,350
    )Other
    
    
    
    
    
    
    (24
    )Net cash used for financing activities
    
    
    (117,408
    )
    
    
    (102,355
    )Net Change in Cash and Cash Equivalents
    
    
    18,474
    
    
    
    (5,924
    )Cash and Cash Equivalents at Beginning of Period
    
    
    5
    
    
    
    29,929Cash and Cash Equivalents at End of Period
    
    $
    18,479
    
    
    $
    24,005Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $7,009 and $11,771
capitalized for 2008 and 2007, respectively)
    
    $
    63,311
    
    
    $
    61,484Income taxes (net of refunds)
    
    $
    33,109
    
    
    $
    31,064
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SOUTHERN
POWER COMPANY AND SUBSIDIARY COMPANIES
 At September 30,
    
    
    At December 31,Assets
    
    2008
    
    
    2007(in thousands)Current Assets:Cash and cash equivalents
    
    $
    18,479
    
    
    $
    5Receivables Customer accounts receivable
    
    
    31,196
    
    
    
    19,100Other accounts receivable
    
    
    1,421
    
    
    
    1,025Affiliated companies
    
    
    99,129
    
    
    
    27,004Fossil fuel stock, at average cost
    
    
    17,818
    
    
    
    15,160Materials and supplies, at average cost
    
    
    19,667
    
    
    
    19,284Prepaid service agreements  current
    
    
    41,096
    
    
    
    14,233Assets from risk management activities
    
    
    18,097
    
    
    
    16,079Other
    
    
    11,134
    
    
    
    7,066Total current assets
    
    
    258,037
    
    
    
    118,956Property, Plant, and Equipment:In service
    
    
    2,841,002
    
    
    
    2,534,507Less accumulated provision for depreciation
    
    
    339,634
    
    
    
    280,9622,501,368
    
    
    
    2,253,545Construction work in progress
    
    
    5,387
    
    
    
    283,084Total property, plant, and equipment
    
    
    2,506,755
    
    
    
    2,536,629Deferred Charges and Other Assets:Prepaid long-term service agreements
    
    
    80,560
    
    
    
    87,058OtherAffiliated
    
    
    3,905
    
    
    
    4,138Other
    
    
    18,595
    
    
    
    21,993Total deferred charges and other assets
    
    
    103,060
    
    
    
    113,189Total Assets
    
    $
    2,867,852
    
    
    $
    2,768,774
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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 At September 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2008
    
    
    2007(in thousands)Current Liabilities:Notes payable
    
    $
    
    
    
    $
    49,748Accounts payable Affiliated
    
    
    86,428
    
    
    
    48,475Other
    
    
    12,353
    
    
    
    20,322Accrued taxes Income taxes
    
    
    38,999
    
    
    
    392Other
    
    
    14,103
    
    
    
    2,658Accrued interest
    
    
    17,720
    
    
    
    30,168Liabilities from risk management activities
    
    
    8,381
    
    
    
    12,639Billings in excess of cost on construction contract
    
    
    20,895
    
    
    
    36,384Other
    
    
    283
    
    
    
    9,523Total current liabilities
    
    
    199,162
    
    
    
    210,309Long-term Debt
    
    
    1,297,289
    
    
    
    1,297,099Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    155,657
    
    
    
    138,123Deferred capacity revenues  Affiliated
    
    
    59,564
    
    
    
    34,801OtherAffiliated
    
    
    6,718
    
    
    
    7,754Other
    
    
    4,574
    
    
    
    2,801Total deferred credits and other liabilities
    
    
    226,513
    
    
    
    183,479Total Liabilities
    
    
    1,722,964
    
    
    
    1,690,887Common Stockholders Equity:Common stock, par value $.01 per share Authorized - 1,000,000 sharesOutstanding - 1,000 shares
    
    
    
    
    
    
    Paid-in capital
    
    
    861,681
    
    
    
    858,466Retained earnings
    
    
    305,532
    
    
    
    253,131Accumulated other comprehensive loss
    
    
    (22,325
    )
    
    
    (33,710
    )Total common stockholders equity
    
    
    1,144,888
    
    
    
    1,077,887Total Liabilities and Stockholders Equity
    
    $
    2,867,852
    
    
    $
    2,768,774
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SOUTHERN
POWER COMPANY AND SUBSIDIARY COMPANIES
 
 OVERVIEW
   RESULTS OF OPERATIONS
 Net Income
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$8.2
    
    15.8
    
    $0.7
    
    0.5
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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
  Wholesale Revenues  Non-Affiliates
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$136.7
    
    85.5
    
    $209.0
    
    61.6
     Wholesale Revenues  Affiliates
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$31.3
    
    16.9
    
    $55.3
    
    12.6
  128




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 
   Fuel and Purchased Power Expenses
 Third Quarter 2008
    
    Year-to-Date 2008vs.
    
    vs.Third Quarter 2007
    
    Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Fuel
    
    $
    106.1
    
    
    
    91.7
    
    
    $
    132.3
    
    
    
    65.6Purchased power  non-affiliates
    
    
    28.0
    
    
    
    99.0
    
    
    
    56.7
    
    
    
    112.2Purchased power  affiliates
    
    
    17.2
    
    
    
    40.6
    
    
    
    64.7
    
    
    
    58.6Total fuel and purchased power expenses
    
    $
    151.3
    
    
    
    
    
    
    $
    253.7
   Other Operations and Maintenance Expenses
 Third Quarter 2008
    
    Year-to-Date 2008vs.
    
    vs.Third Quarter 2007
    
    Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Other operations
    
    $
    (2.1
    )
    
    
    (7.8
    )
    
    $
    3.8
    
    
    
    5.5Maintenance
    
    
    1.5
    
    
    
    31.6
    
    
    
    10.3
    
    
    
    56.0Total other operations and maintenance
    
    $
    (0.6
    )
    
    
    
    
    
    $
    14.1
  129




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
   Depreciation and Amortization
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$5.6
    
    30.3
    
    $9.8
    
    17.8
   Taxes Other Than Income Taxes
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$0.4
    
    12.5
    
    $1.6
    
    13.8
  Interest Expense, Net of Amounts Capitalized
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$2.6
    
    13.1
    
    $0.4
    
    0.7
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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 Other Income (Expense), Net
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$2.7
    
    N/M
    
    $14.2
    
    N/M
    Income Taxes
 Third Quarter 2008 vs. Third Quarter 2007
    
    Year-to-Date 2008 vs. Year-to-Date 2007(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$3.4
    
    10.0
    
    $(2.5)
    
    (3.0)
   FUTURE EARNINGS POTENTIAL
  FERC Matters
 Market-Based Rate Authority
  131




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
   Construction Projects
 Plant Franklin Unit 3
  Power Sales Agreements
   Environmental Matters
  132




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 Carbon Dioxide Litigation
  Other Matters
   ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
 
 133




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 Depreciation
   New Accounting Standards
 Business Combinations
   FINANCIAL CONDITION AND LIQUIDITY
 Overview
  134




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
    Capital Requirements and Contractual Obligations
   Sources of Capital
   135




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
    Credit Rating Risk
   Market Price Risk
    136




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
   Third Quarter
    
    Year-to-Date2008
    
    2008Changes
    
    ChangesFair Value(in millions)Contracts outstanding at the beginning of the period, assets
(liabilities), net
    
    $
    (29.7
    )
    
    $
    3.4Contracts realized or settled
    
    
    12.1
    
    
    
    11.9Current period changes(a)
    
    
    27.9
    
    
    
    (5.0
    )Contracts outstanding at the end of the period, assets (liabilities), net
    
    $
    10.3
    
    
    $
    10.3
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered into
during the period, if any.
  September 30,
    
    June 30,
    
    December 31,2008
    
    2008
    
    2007Power (net sold)MWHs (in millions)
    
    
    0.7
    
    
    
    2.4
    
    
    
    1.7Weighted average contract
cost per MWH above/(below)
market prices (in dollars)
    
    $
    21.26
    
    
    $
    (22.37
    )
    
    $
    1.76Natural gas (net purchase)Bcf
    
    
    1.2
    
    
    
    6.6
    
    
    
    3.9Weighted average contract
cost per mmBtu
above/(below) market
prices (in dollars)
    
    $
    2.38
    
    
    $
    (3.74
    )
    
    $
    0.09
  September 30,
    
    December 31,2008
    
    2007(in millions)Cash flow hedges
    
    $
    7.7
    
    
    $
    0.1Non-accounting hedges
    
    
    2.6
    
    
    
    3.3Total fair value
    
    $
    10.3
    
    
    $
    3.4
  137




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
  September 30, 2008Fair Value MeasurementsTotal
    
    MaturityFair Value
    
    Year 1
    
    Years 2&3
    
    Years 4&5(in millions)Level 1
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Level 2
    
    
    10.3
    
    
    
    9.7
    
    
    
    0.6
    
    
    
    Level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fair value of
contracts
outstanding at end
of period
    
    $
    10.3
    
    
    $
    9.7
    
    
    $
    0.6
    
    
    $
    
   Financing Activities
  138




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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
 
 Registrant
    
    Applicable NotesSouthern Company
    
    A, B, C, D, E, F, G, H, I, KAlabama Power
    
    A, B, C, D, F, G, H, IGeorgia Power
    
    A, B, C, D, F, G, H, IGulf Power
    
    A, B, C, F, G, HMississippi Power
    
    A, B, C, D, F, G, HSouthern Power
    
    A, B, C, F, H, J
 139




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##### Table of Contents



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)
    
    INTRODUCTIONThe 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, 2007 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 September 30,
2008 and 2007. 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 Form 10-K and details which have not changed
significantly in amount or composition since the filing of the Form 10-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. 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.Certain prior period amounts have been reclassified to conform to current period
presentation. Where applicable, each registrants statements of income for the three months
and nine months ended September 30, 2007 were modified to report Interest expense to
affiliate trusts together with Interest expense, net of amounts capitalized. In
addition, where applicable, the financing activities section of each registrants statement
of cash flows for the nine months ended September 30, 2007 was modified to report Long-term
debt to affiliate trust together with Long-term debt.Southern Companys current liability section of the balance sheet at December 31, 2007 was
modified to reflect the amount of Unrecognized tax benefits as a separate line item
previously included within Accrued taxes  Income taxes. Also, Southern Companys
statement of cash flows for the prior period was modified within the operating activities
section to present a separate line item for Deferred revenues previously included in
Other, net.Georgia Powers statement of cash flows for the prior period was modified within the
operating
activities section to present separate line items for Deferred revenues and Hedge
settlements previously included in Other, net. Additionally, the line item Materials
and supplies was combined into Other current assets.Gulf Power modified its statements of income for the three months and nine months ended
September 30, 2007 to report a separate line item for Allowance for equity funds used
during construction previously included in Other income and expense, net. In conjunction
with such modification, Gulf Power modified its statement of cash flows within the operating
activities section to present a separate line item for Allowance for equity funds used
during construction previously included in Other, net. In addition, the operating
activities section now includes a separate line item to present Hedge settlements
previously included in Other, net in the prior period.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 Due to the relative insignificance of the amount reported at September 30, 2008, the balance
sheet at December 31, 2007 of Mississippi Power was modified to combine assets in Prepaid
income taxes into Other.Southern Power modified its statement of cash flows for the nine months ended September 30,
2007 to present a separate line within the investing section for Payments pursuant to
long-term service agreements previously included in Property additions. The amount of
assets in Other prepaid expenses was collapsed into Other.These reclassifications had no effect on total assets, net income, cash flows, or earnings
per share.In the first quarter 2008, Gulf Power sold a turbine rotor assembly to Southern Power for
$9.4 million. In the second quarter 2008, Southern Power sold a turbine rotor assembly to
Alabama Power for $8.2 million. These affiliate transactions were made in accordance with
FERC and state PSC rules and guidelines and were eliminated in consolidation for Southern
Company.(B)
    
    CONTINGENCIES AND REGULATORY MATTERSSee 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 MattersEach 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 MattersMirant 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 BankruptcyIn 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).
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 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. Through December 2007, Southern Company received from the IRS approximately $36
million in refunds related to Mirant. Southern Company believes it has a right to recoup
the $39 million tax payment owed by Mirant from such tax refunds. As a result, Southern
Company intends to retain the tax refunds and reduce its claim against Mirant for the
payment of Mirant taxes by the amount of such refunds. MC Asset Recovery, a special purpose
subsidiary of Reorganized Mirant, has objected to and sought to equitably subordinate the
Southern Company tax claim in its fraudulent transfer litigation against Southern Company.
Southern Company has reserved the approximately $3 million amount remaining with respect to
its Mirant tax claim.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. Southern Company has sought reimbursement by
filing claims as an unsecured creditor in Mirants Chapter 11 proceeding. As part of the
pending fraudulent transfer litigation, MC Asset Recovery objected to and sought equitable
subordination of these and other Southern Company claims, and Mirant moved in the bankruptcy
court to reject the separation agreements entered into in connection with the spin-off. If
Southern Companys claims for indemnification 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 LitigationIn June 2005, Mirant, as a debtor in possession, and the Official Committee of Unsecured
Creditors of Mirant Corporation filed a complaint against Southern Company in the U.S.
Bankruptcy Court for the Northern District of Texas, which was amended in July 2005,
February 2006, May 2006, and March 2007.In 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 is 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 will 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, alleges that Southern Company caused Mirant to
engage in certain fraudulent transfers and to pay illegal dividends to Southern Company
prior to the spin-off. The alleged fraudulent transfers and illegal dividends include
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 asserts is valued at over $200 million. The complaint also seeks to
recharacterize certain advances from Southern Company to Mirant for investments in energy
facilities from debt to equity. The complaint further alleges that
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 Southern Company is 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 seeks recoveries under the theories of restitution and unjust
enrichment. In addition, the complaint alleges a claim under the Federal Debt Collection
Procedure Act (FDCPA) to void certain transfers from Mirant to Southern Company. MC Asset
Recovery claims to have standing to assert violations of the FDCPA and to recover property
on behalf of the Mirant debtors estates. On July 7, 2008, the court ruled that the FDCPA
does not apply and that Georgia law should apply instead. The complaint seeks monetary
damages in excess of $2 billion plus interest, punitive damages, attorneys fees, and costs.
Finally, the complaint includes an objection to Southern Companys pending claims against
Mirant in the Bankruptcy Court (which relate to reimbursement under the separation
agreements of payments such as income taxes, interest, legal fees, and other guarantees
described in Note 7 to the financial statements of Southern Company in Item 8 of the Form
10-K) and seeks equitable subordination of Southern Companys claims to the claims of all
other creditors. Southern Company served an answer to the complaint in April 2007.In 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 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 are barred. On August 6, 2008, Southern
Company filed a second motion for summary judgment. MC Asset Recovery filed its response to
Southern Companys motion for summary judgment on October 20, 2008. Southern Company
believes there is no meritorious basis for the claims in the complaint and is vigorously
defending itself in this action. However, the final outcome of this matter cannot now be
determined.Mirant Securities LitigationIn November 2002, Southern Company, certain former and current senior officers of Southern
Company, and 12 underwriters of Mirants initial public offering were added as defendants in
a class action lawsuit that several Mirant shareholders originally filed against Mirant and
certain Mirant officers in May 2002. Several other similar lawsuits filed subsequently were
consolidated into this litigation in the U.S. District Court for the Northern District of
Georgia. The amended complaint is based on allegations related to alleged improper energy
trading and marketing activities involving the California energy market, alleged false
statements and omissions in Mirants prospectus for its initial public offering and in
subsequent public statements by Mirant, and accounting-related issues previously disclosed
by Mirant. The lawsuit purports to include persons who acquired Mirant securities between
September 26, 2000 and September 5, 2002.In July 2003, the court dismissed all claims based on Mirants alleged improper energy
trading and marketing activities involving the California energy market. The other claims
did not allege any improper trading and marketing activity, accounting errors, or material
misstatements or omissions on the part of Southern Company but seek to impose liability on
Southern Company based on allegations that Southern Company was a control person as to
Mirant prior to the spin-off date. Southern Company filed an answer to the consolidated
amended class action complaint in September 2003. The plaintiffs seek monetary damages for
the diminished value of Mirant stock
through the putative class period. Because the proposed class period extends to after
Southern Company ceased to own any interest in Mirant, it is not possible to calculate the
damage claims with reasonable certainty.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 During Mirants Chapter 11 proceeding, the securities litigation was stayed, with the
exception of limited discovery. Since Mirants plan of reorganization has become effective,
the stay has been lifted. In March 2006, the plaintiffs filed a motion for reconsideration
requesting that the court vacate that portion of its July 2003 order dismissing the
plaintiffs claims based upon Mirants alleged improper energy trading and marketing
activities involving the California energy market. Southern Company and the other
defendants opposed the plaintiffs motion. In March 2007, the court granted plaintiffs
motion for reconsideration, reinstated the California energy market claims, and granted in
part and denied in part defendants motion to compel certain class certification discovery.
In March 2007, defendants filed renewed motions to dismiss the California energy claims on
grounds originally set forth in their 2003 motions to dismiss, but which were not addressed
by the court. In July 2007, certain defendants, including Southern Company, filed motions
for reconsideration of the courts denial of a motion seeking dismissal of certain federal
securities laws claims based upon, among other things, certain alleged errors included in
financial statements issued by Mirant. On August 6, 2008, the court entered an order in
regard to the defendants motions to dismiss and for partial summary judgment. The court
granted the defendants motion for partial summary judgment in two respects concluding that
certain holders of Mirant stock do not have standing under the securities laws. The court
denied the defendants other motions and granted leave to the plaintiffs to re-plead their
claims against defendants. In accordance with the courts order, the plaintiffs filed an
amended complaint. Southern Company and the remaining defendants filed motions to dismiss
the amended complaint on October 9, 2008.The plaintiffs have also stated that they intend to request that the court grant leave for
them to amend the complaint to add allegations based upon claims asserted against Southern
Company in the MC Asset Recovery litigation.Under certain circumstances, Southern Company will be obligated under its by-laws to
indemnify the four former Southern Company officers who served as directors of Mirant at the
time of its initial public offering through the date of the spin-off and who are also named
as defendants in this lawsuit.The ultimate outcome of these matters cannot be determined at this time.Environmental MattersNew Source Review ActionsIn 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 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 violations relating to Gulf Powers Plant Crist and a unit
partially owned by Gulf Power at Plant Scherer. In early 2000, the EPA filed a motion to
amend its complaint to add the allegations in the notice of violation and to add Gulf Power
as a defendant. 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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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 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 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 and 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, and the appeal was stayed by the Appeals Court 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. In October 2007, the U.S. District Court
for the Northern District of Alabama issued an order in the Alabama Power case indicating a
willingness to re-evaluate its previous decision in light of the Supreme Courts Duke Energy
opinion. 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. On July
24, 2008, the U.S. District Court for the Northern District of Alabama granted partial
summary judgment in favor of Alabama Power regarding the proper legal test for determining
whether projects are routine maintenance, repair, and replacement and therefore are excluded
from NSR permitting. The decision does not resolve the case, the ultimate outcome of which
cannot be determined at this time.Southern Company and the traditional operating companies believe they 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
$32,500 per day, per violation at each generating unit, depending on the date of the alleged
violation. An adverse outcome in either of these cases 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 LitigationNew York CaseIn July 2004, attorneys general from eight states, each outside of Southern Companys
service territory, and the corporation counsel for New York City filed a complaint in the
U.S. District Court for the Southern District of New York against Southern Company and four
other electric power companies. A nearly identical complaint was filed by three
environmental groups in the same court. 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 and no decision has been issued. The ultimate outcome of
these matters cannot be determined at this time.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 Kivalina CaseOn February 26, 2008, the Native Village of Kivalina and the City of Kivalina filed a suit
in the U.S. District Court for the Northern District of California against several electric
utilities (including Southern Company), several oil companies, and a coal company. The
plaintiffs are the governing bodies of an Inupiat village in Alaska. The plaintiffs contend
that the village is being destroyed by erosion allegedly caused by global warming that the
plaintiffs attribute to emissions of greenhouse gases by the defendants. The plaintiffs
assert claims for public and private nuisance and contend that the defendants have acted in
concert and are therefore 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. On June 30, 2008, all defendants filed
motions to dismiss this case. Southern Company believes that these claims are without merit
and notes that the complaint cites no statutory or regulatory basis for the claims. The
ultimate outcome of this matter cannot be determined at this time.Environmental RemediationThe 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 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, will participate in negotiations with the EPA to
address cleanup of the site and reimbursement for the EPAs past expenditures related to
work performed at the site. The ultimate outcome of this matter 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. The balance of Georgia Powers environmental remediation liability at September
30, 2008 was $10.6 million.Gulf Powers environmental remediation liability includes estimated costs of environmental
remediation projects of approximately $66.8 million as of September 30, 2008. 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.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 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 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 during 2005, 2006, and 2007 related to this work were not
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 in Item 8 of the Form 10-K for additional information.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 MattersMarket-Based Rate AuthorityEach 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.
This order largely affirmed its prior revision and codification of the regulations governing
market-based
rates for public utilities. In accordance with the order, Southern Company submitted to the
FERC an updated market power analysis on September 2, 2008 related to its continued
market-based rate authority. The ultimate outcome of this matter cannot now be determined.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 On October 17, 2008, Southern Company filed with the FERC a revised market-based rate (MBR)
tariff and a new cost-based rate (CBR) tariff. The revised MBR tariff provides for a must
offer energy auction whereby Southern Company offers all of its available energy for sale
in a day-ahead auction and an hour-ahead auction, after considering Southern Companys
native load requirements, reliability obligations, and sales commitments to third parties.
All sales under the energy auction would be at market clearing prices established under the
auction rules. The new CBR tariff is designed to be an alternative means for conducting
short-term transactions in the wholesale markets and provides for a cost-based cap for
wholesale sales of less than a year. Both tariffs must be approved by the FERC. The final
outcome of this matter cannot now be determined.Intercompany Interchange ContractSouthern 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. Southern Company filed with the FERC in November
2006 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
is not expected to have a material impact on the financial statements of Southern Company or
the traditional operating companies. Southern Powers cost of implementing the compliance
plan, including the modifications, is expected to be approximately $8 million annually. In
November 2007, Southern Company notified the FERC that the plan had been implemented and the
FERC division of audits subsequently began an audit pertaining to compliance implementation
and related matters, which is ongoing. The audit report is expected to be submitted to the
FERC in November 2008.Generation Interconnection AgreementsIn 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 have appealed the orders to the U.S. Circuit Court for the
District of Columbia. The final outcome of this matter cannot now be determined.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 Right of Way LitigationSouthern Company and certain of its subsidiaries, including Gulf Power, Mississippi Power,
and Southern Telecom, Inc. (a subsidiary of SouthernLINC Wireless), have been named as
defendants in numerous lawsuits brought by landowners since 2001. The plaintiffs lawsuits
claim that the 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 the 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 its subsidiaries believe that they have complied with applicable laws and that
the plaintiffs claims are without merit.In November 2003, the Second Circuit Court in Gadsden County, Florida, ruled in favor of the
plaintiffs on their motion for partial summary judgment concerning liability in one such
lawsuit brought by landowners regarding the installation and use of fiber optic cable over
Gulf Power rights of way located on the landowners property. The complaint was
subsequently amended in January 2005. In November 2005, the trial court ruled in favor of
the plaintiffs and against Gulf Power on their respective motions for partial summary
judgment. In that same order, the trial court also denied Gulf Powers motion to dismiss
certain claims. Following an appeal to the Florida First District Court of Appeals by Gulf
Power, the case was returned to the trial court for further proceedings. The parties
reached agreement on a proposed settlement plan that was subject to approval by the trial
court. At a hearing on April 30, 2008, the trial court granted final approval of the
settlement agreement. The appeal period for that order has since expired. On September 29,
2008, in accordance with the approved settlement agreement, the settlement administrator
issued payments to all approved claims and a refund of unclaimed funds to Gulf Power and its
co-defendant. The impact on Southern Companys and Gulf Powers financial statements was
not material.To date, Mississippi Power has entered into agreements with the plaintiffs in approximately
90% 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 Alabama
Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Telecom, Inc. (a
subsidiary of SouthernLINC Wireless), 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 certain of the defendants 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.
The defendants 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.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 Income Tax MattersLeveraged Lease TransactionsSee Note 1 to the financial statements of Southern Company under Income and Other Taxes,
Note 3 to the financial statements of Southern Company under Income Tax Matters, and Note
5 to the financial statements of Southern Company under Unrecognized Tax Benefits in Item
8 of the Form 10-K. The IRS challenged Southern Companys deductions related to three
international lease transactions (so-called SILO or sale-in-lease-out transactions), in
connection with its audits of Southern Companys 2000 through 2003 tax returns. In the
third quarter 2006, Southern Company paid the full amount of the disputed tax and the
applicable interest on the SILO issue for tax years 2000  2001 and filed a claim for refund
which has now been denied by the IRS. The disputed tax amount is $79 million and the related
interest is approximately $24 million for these tax years. This payment, and the subsequent
IRS disallowance of the refund claim, closed the issue with the IRS and Southern Company has
initiated litigation in the U.S. District Court for the Northern District of Georgia for a
complete refund of tax and interest paid for the 2000  2001 tax years. The IRS also
challenged the SILO deductions for the tax years 2002 and 2003. The estimated amount of
disputed tax and interest for these tax years was approximately $83 million and $15 million,
respectively. The tax and interest for these tax years was paid to the IRS in the fourth
quarter 2006. Southern Company has accounted for both payments in 2006 as deposits. For
tax years 2000 through 2007, Southern Company has claimed approximately $284 million in tax
benefits related to these SILO transactions challenged by the IRS. These tax benefits
relate to timing differences and do not impact total net income over the life of the
transactions. Southern Company believes these transactions are valid leases for U.S. tax
purposes and the related deductions are allowable.During the second quarter 2008, decisions in favor of the IRS were reached in several court
cases involving other tax payers with similar leveraged lease investments. Pursuant to the
application of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN
48) and FASB Staff Position No. 13-2, Accounting for a Change in the Timing of Cash Flows
Relating to Income Taxes Generated by a Leveraged Lease Transaction (FSP 13-2), 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. Of the total, approximately
$16 million is associated with the application of FIN 48 and represents additional interest
expense related to tax returns for years 2000 through 2007 and approximately $51 million
represents non-cash charges related to the application of FSP 13-2. The charges related to
FSP 13-2 reflect the reallocation of lease income and will be recognized as income over the
remaining term of the affected leases. The tax benefit associated with the lease
transactions represents timing differences that do not impact total net income over the life
of the transactions. In accordance with the requirements of FIN 48 and FSP 13-2, Southern
Company will continue to evaluate the SILO transactions and the projected timing of income
tax cash flows.Furthermore, on August 6, 2008, the Commissioner of the IRS announced a settlement
initiative for more than 45 corporations with similar leveraged lease transactions.
Southern Company did not receive a formal offer to settle. In addition, the U.S. Senate
continues to consider legislation that would disallow tax benefits after December 31, 2007
for SILO losses and other international leveraged lease transactions (such as lease-in,
lease-out, or LILO transactions). The ultimate impact on Southern Companys net income and
cash flow will be dependent on the outcome of its
pending litigation, associated settlement discussions, and proposed legislation and cannot
be determined at this time.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 Georgia State Income Tax CreditsGeorgia 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. On July 24, 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.IRC Section 199 Domestic Production DeductionThe American Jobs Creation Act of 2004 created a tax deduction for a portion of income
attributable to U.S. production activities as defined in the IRC Section 199 (production
activities deduction). The deduction is equal to a stated percentage of qualified
production activities net income. The percentage is phased in over the years 2005 through
2010 with a 3% rate applicable to the years 2005 and 2006, a 6% rate applicable for years
2007 through 2009, and a 9% rate applicable for all years after 2009. The IRS has not
clearly defined a methodology for calculating this deduction. However, Southern Company has
tentatively agreed with the IRS on a calculation methodology. Therefore, Southern Company
reversed the unrecognized tax benefit and adjusted the deduction to conform with the
tentative agreement. The net impact of the reversal of unrecognized tax benefits combined
with the true-up to the new methodology was immaterial. See Note (H) to the Condensed
Financial Statements herein for additional information.Other MattersOn July 3, 2008, Georgia Power self-reported to the SERC Reliability Council (SERC) a
potential violation of the North American Electric Reliability Council reliability standard
for transmission vegetation management programs related to a single tree. The SERC can
impose penalties ranging from $1,000 to $1,000,000 per day, per violation, which can be
adjusted according to certain risk factors and other aggravating or mitigating factors. On
September 10, 2008, Georgia Power submitted a proposed settlement agreement, including a
proposed mitigation plan. The SERC has not responded to the proposed settlement agreement
and the penalty that SERC may assess remains uncertain. The ultimate outcome of this matter
cannot be determined at this time; however, it could have a significant and potentially
material impact on the net income and cash flow of Southern Company and Georgia Power.(C)
    
    FAIR VALUE MEASUREMENTOn January 1, 2008, the registrants adopted FASB Statement No. 159, Fair Value Option
for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement No. 115 (SFAS No. 159). This standard permits an entity to choose to measure
many financial instruments and certain other items at fair value. Southern Company,
Alabama Power, and Georgia Power have elected the fair value option only for investment
securities held in nuclear decommissioning trust funds (Funds). See Note 1 to the
financial statements of Southern Company, Alabama Power, and Georgia Power under
Nuclear Decommissioning in Item 8 of the Form 10-K for information on these trusts
funds.Management elected the fair value option for the Funds because management believes that
fair value best represents the nature of the Funds. Management has delegated day-to-day
management of the investments in the Funds to unrelated third party managers with
oversight by Southern
 151




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 Company, Alabama Power, and Georgia Power management. The managers of the Funds are
authorized, within broad limits, to actively buy and sell securities at their own
discretion in order to maximize the investment return on the Funds investments.The adoption of SFAS No. 159 had no impact on the results of operations, cash flows, or
financial condition of Southern Company, Alabama Power, and Georgia Power as all gains,
losses, and other-than-temporary impairments, whether realized or unrealized, continue
to be recorded through a regulatory liability. For the three months and nine months
ended September 30, 2008, the reduction in fair value of the Funds, which includes
reinvested interest and dividends, was $41.9 million and $78.5 million, respectively,
for Alabama Power, and was $30.5 million and $73.9 million, respectively, for Georgia
Power, and which totals $72.4 million and $152.4 million, respectively, for Southern
Company.Also on January 1, 2008, the registrants adopted SFAS No. 157 which defines fair value,
establishes a framework for measuring fair value, and requires additional disclosures
about fair value measurements. The criterion that is set forth in this standard is
applicable to fair value measurement where it is permitted or required under other
accounting pronouncements.SFAS No. 157 defines fair value as the exit price, which is the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value measurement is
based on inputs of observable and unobservable market data that a market participant
would use in pricing the asset or liability. The use of observable inputs is maximized
where available and the use of unobservable inputs is minimized for fair value
measurement. As a means to illustrate the inputs used, SFAS No. 157 establishes a
three-tier fair value hierarchy that prioritizes inputs to valuation techniques used for
fair value measurement.
 
    
    Level 1 consists of observable market data in an active market for identical
assets or liabilities.
    
    Level 2 consists of observable market data, other than that included in
Level 1, that is either directly or indirectly observable.
    
    Level 3 consists of unobservable market data. The input may reflect the
assumptions of the registrant of what a market participant would use in pricing
an asset or liability. If there is little available market data, then the
registrants own assumptions are the best available information.
 In the case of multiple inputs being used in a fair value measurement, the lowest level
input that is significant to the fair value measurement represents the level in the fair
value hierarchy in which the fair value measurement is reported.The adoption of SFAS No. 157 has not resulted in any significant changes to the
methodologies used for fair value measurement. Primarily all the changes in the fair
value of assets and liabilities are recorded in other comprehensive income or regulatory
assets and liabilities, and thus the impact on earnings is limited to derivatives that
do not qualify for hedge accounting. See Note 1 to the financial statements of Southern
Company, Alabama Power, and Georgia Power under Nuclear Decommissioning in Item 8 of
the Form 10-K for additional information and Note 6 to the financial statements of the
registrants in Item 8 of the Form 10-K for information on financial instruments.
 152




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 The fair value measurements performed on a recurring basis and the level of the fair
value hierarchy in which they fall as of September 30, 2008 are as follows:
 As of September 30, 2008:
    
    Level 1
    
    Level 2
    
    Level 3
    
    Total(in millions)Southern CompanyAssetsEnergy-related derivatives
    
    $
    
    
    
    $
    35.0
    
    
    $
    
    
    
    $
    35.0Interest rate derivatives
    
    
    
    
    
    
    8.8
    
    
    
    
    
    
    
    8.8Nuclear decommissioning trusts
    
    
    614.4
    
    
    
    359.7
    
    
    
    
    
    
    
    974.1
    (a)Cash equivalents
    
    
    650.3
    
    
    
    
    
    
    
    
    
    
    
    650.3Other
    
    
    1.7
    
    
    
    46.3
    
    
    
    44.7
    
    
    
    92.7Total fair value
    
    $
    1,266.4
    
    
    $
    449.8
    
    
    $
    44.7
    
    
    $
    1,760.9LiabilitiesEnergy-related derivatives
    
    $
    
    
    
    $
    134.8
    
    
    $
    
    
    
    $
    134.8Interest rate derivatives
    
    
    
    
    
    
    9.9
    
    
    
    
    
    
    
    9.9Total fair value
    
    $
    
    
    
    $
    144.7
    
    
    $
    
    
    
    $
    144.7Alabama PowerAssets:Energy-related derivatives
    
    $
    
    
    
    $
    4.7
    
    
    $
    
    
    
    $
    4.7Interest rate derivatives
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    2.3Nuclear decommissioning trusts
    
    
    279.0
    
    
    
    179.6
    
    
    
    
    
    
    
    458.6
    (a)Cash equivalents
    
    
    136.2
    
    
    
    
    
    
    
    
    
    
    
    136.2Total fair value
    
    $
    415.2
    
    
    $
    186.6
    
    
    $
    
    
    
    $
    601.8Liabilities:Energy-related derivatives
    
    $
    
    
    
    $
    43.3
    
    
    $
    
    
    
    $
    43.3Interest rate derivatives
    
    
    
    
    
    
    3.9
    
    
    
    
    
    
    
    3.9Total fair value
    
    $
    
    
    
    $
    47.2
    
    
    $
    
    
    
    $
    47.2Georgia PowerAssets:Energy-related derivatives
    
    $
    
    
    
    $
    5.9
    
    
    $
    
    
    
    $
    5.9Interest rate derivatives
    
    
    
    
    
    
    6.5
    
    
    
    
    
    
    
    6.5Nuclear decommissioning trusts
    
    
    335.4
    
    
    
    180.1
    
    
    
    
    
    
    
    515.5
    (a)Cash equivalents
    
    
    343.8
    
    
    
    
    
    
    
    
    
    
    
    343.8Total fair value
    
    $
    679.2
    
    
    $
    192.5
    
    
    $
    
    
    
    $
    871.7Liabilities:Energy-related derivatives
    
    $
    
    
    
    $
    53.3
    
    
    $
    
    
    
    $
    53.3Interest rate derivatives
    
    
    
    
    
    
    6.0
    
    
    
    
    
    
    
    6.0Total fair value
    
    $
    
    
    
    $
    59.3
    
    
    $
    
    
    
    $
    59.3
 153




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 As of September 30, 2008:
    
    Level 1
    
    Level 2
    
    Level 3
    
    Total(in millions)Gulf PowerAssets:Energy-related
derivatives total fair
value
    
    $
    
    
    
    $
    1.4
    
    
    $
    
    
    
    $
    1.4Liabilities:Energy-related
derivatives total fair
value
    
    $
    
    
    
    $
    13.4
    
    
    $
    
    
    
    $
    13.4Mississippi PowerAssets:Energy-related derivatives
    
    $
    
    
    
    $
    4.2
    
    
    $
    
    
    
    $
    4.2Cash equivalents
    
    
    38.4
    
    
    
    
    
    
    
    
    
    
    
    38.4Total fair value
    
    $
    38.4
    
    
    $
    4.2
    
    
    $
    
    
    
    $
    42.6Liabilities:Energy-related
derivatives total fair
value
    
    $
    
    
    
    $
    16.3
    
    
    $
    
    
    
    $
    16.3Southern PowerAssets:Energy-related derivatives
    
    $
    
    
    
    $
    18.8
    
    
    $
    
    
    
    $
    18.8Cash equivalents
    
    
    18.5
    
    
    
    
    
    
    
    
    
    
    
    18.5Total fair value
    
    $
    18.5
    
    
    $
    18.8
    
    
    $
    
    
    
    $
    37.3Liabilities:Energy-related
derivatives total fair
value
    
    $
    
    
    
    $
    8.5
    
    
    $
    
    
    
    $
    8.5
 (a)
    
    Excludes receivables related to investment income and pending investment sales, and
payables related to pending investment purchases.
 Energy-related derivatives and interest rate derivatives significantly comprise
over-the-counter contracts. The nuclear decommissioning trust funds are invested in a
diversified mix of equity and fixed income securities. The cash equivalents consist of
securities with original maturities of 90 days or less. Other represents marketable
securities and funds set aside to fund deferred compensation for certain management and
are 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 for Southern Company at
September 30, 2008 are as follows:
 Southern CompanyThree Months Ended
    
    Nine Months EndedOther
    
    September 30, 2008
    
    September 30, 2008(in millions)Beginning balance
    
    
    $44.3
    
    
    
    $50.4Total gains/(losses)  realized/unrealized:Included in other comprehensive income
    
    
    0.2
    
    
    
    (5.9
    )Purchases, issuances and settlements
    
    
    0.2
    
    
    
    0.2Transfers in and/or out of Level 3
    
    
    
    
    
    
    Ending balance as of September 30, 2008
    
    
    $44.7
    
    
    
    $44.7
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 (D)
    
    CONSTRUCTION PROJECTSConstruction ProgramIn connection with Georgia Powers entering into an engineering, procurement, and
construction agreement to design, engineer, procure, construct, and test two AP 1000 nuclear
units with electric generating capacity of approximately 1,100 MWs each and related
facilities, structures, and improvements at Plant Vogtle, the revised estimated total construction program for Southern Company is $4.4 billion in 2008,
$5.2 billion in 2009, and $4.8 billion in 2010 and for Georgia Power is $2.0 billion in
2008, $2.6 billion in 2009, and $2.5 billion in 2010. In November 2008, Georgia Powers
management plans to request approval by the Georgia Power Board of Directors of a revised
capital budget of approximately $2.9 billion for 2009 and $2.6 billion for 2010. The
increases are primarily a result of changes in the timing of expenditures for environmental
controls at Plant Bowen and Yates and the new generating units at Plant McDonough, as well
as other project scope and price changes. In October 2008, Alabama Powers Board of
Directors approved a new capital budget for 2009 and 2010. The construction program of
Alabama Power is estimated to be $1.6 billion for 2009 and $1.1 billion for 2010. Over the
next two years, Alabama Power estimates spending $715 million on environmental-related
additions, $391 million on Plant Farley (including $219 million for nuclear fuel), $704
million on distribution facilities, and $297 million on transmission facilities. The
Southern Company system financial plan, including the Southern Company system capital
budget, is expected to be reviewed by the Southern Company Board of Directors in early 2009.
Actual construction costs may vary from these estimates because of changes in such factors
as: business conditions; environmental statutes and regulations; nuclear plant regulation;
FERC rules and regulations; load projections; the cost and efficiency of construction labor,
equipment, and materials; and the cost and availability of capital. In addition, there can
be no assurance that costs related to capital expenditures will be fully recovered. See
Note 7 to the financial statements of Southern Company, Georgia Power, and Alabama Power
under COMMITMENTS  Construction Program in Item 8 of the Form 10-K for additional
information.Integrated Coal Gasification Combined CycleAs part of the evaluation and screening of alternatives to meet its future generation needs,
Mississippi Power is considering the construction of an advanced coal gasification facility
to be located in Kemper County, Mississippi, that would use locally mined lignite coal. The
plant would use an air-blown IGCC technology that generates power from low-rank coals and
coals with high moisture or high ash content. These coals, which include lignite, make up
approximately half the proven United States and worldwide coal reserves. The feasibility
assessment of the project is currently underway. Mississippi Power filed an application in
June 2006 with the DOE for certain tax credits available to projects using clean coal
technologies under the Energy Policy Act of 2005. The DOE subsequently certified the
project and in November 2006, the IRS allocated IRC Section 48A tax credits of $133 million
to Mississippi Power. The utilization of these credits is dependent upon meeting the
certification requirements for the project, including an in-service date no later than
November 2013. On February 14, 2008, Mississippi Power also requested that the DOE transfer
the remaining funds previously granted to a cancelled Southern Company project that would
have been located in Orlando, Florida.In December 2006, the Mississippi PSC approved Mississippi Powers requested accounting
treatment to defer the costs associated with Mississippi Powers generation resource
planning,
evaluation, and screening activities as a regulatory asset. In December 2007, Mississippi
Power reported to the Mississippi PSC an updated estimate and received an order directing
Mississippi Power to continue charging all costs associated with the generation capacity
assessment to the regulatory asset. At September 30, 2008, Mississippi Power had spent
$36.2 million, of which $2.7
 155




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 million related to land purchases capitalized. The remaining retail portion of $23.4
million was deferred in other regulatory assets.The wholesale portion of $10.1 million was expensed, with $6.0 million through September 30,
2008 and $4.1 million during 2007. On August 29, 2008, Mississippi Power and its wholesale
customers entered into an agreement regarding a wholesale rate increase. The FERC accepted
the filing on October 24, 2008. This agreement will allow $9.3 million of the wholesale
portion of the generation screening and evaluation costs associated with the IGCC project to
be reclassified from expense to a regulatory asset in the fourth quarter 2008.These costs will remain as a regulatory asset until the Mississippi PSC and the FERC
determine the prudence and ultimate recovery of such costs. The balance of such regulatory
asset is included in Mississippi Powers rate base for ratemaking purposes. Approval by
various regulatory agencies, including the Mississippi PSC, will also be required if the
project proceeds. The Mississippi PSC, in its discretion, may exercise its additional rate
authority granted to the Mississippi PSC in the Mississippi base load construction
legislation if the project proceeds.The final outcome of this matter cannot now be determined.(E)
    
    COMMON STOCKFor 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
    
    Nine Months
    
    Nine MonthsEnded
    
    Ended
    
    Ended
    
    EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007As reported shares
    
    
    772,622
    
    
    
    758,308
    
    
    
    769,298
    
    
    
    754,568Effect of options
    
    
    4,281
    
    
    
    4,084
    
    
    
    4,153
    
    
    
    4,614Diluted shares
    
    
    776,903
    
    
    
    762,392
    
    
    
    773,451
    
    
    
    759,182
 (F)
    
    FINANCINGBank Credit ArrangementsSouthern Company maintained unused committed lines of credit in the amount of $4.3 billion
as of September 30, 2008 (including $1.35 billion of such lines which were dedicated to
providing liquidity support to the traditional operating companies variable rate pollution
control revenue bonds), of which $234 million will expire in 2008, $821 million expire in
2009, $25 million expire in 2011, and $3.2 billion expire in 2012. Approximately $79
million of the credit facilities expiring in 2008 and 2009 allow for the execution of term
loans for an additional two-year period, and $584 million contain provisions allowing
one-year term loans. See Note 6 to the financial statements of Southern Company under Bank
Credit Arrangements in Item 8 of the Form 10-K for additional information.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 Alabama Power maintained unused committed lines of credit in the amount of $1.3 billion as
of September 30, 2008 (including $582.4 million of such lines which were dedicated to
providing liquidity support to its variable rate pollution control revenue bonds), of which
$75 million will expire in 2008, $416.1 million expire in 2009, $25 million expire in 2011,
and $765 million expire in 2012. Of the facilities that expire in 2008 and 2009, $404
million allow for one-year term loans. See Note 6 to the financial statements of Alabama
Company under Bank Credit Arrangements in Item 8 of the Form 10-K for additional
information.Georgia Power maintained unused committed lines of credit in the amount of $1.3 billion as
of September 30, 2008. Of the unused credit arrangements, $225 million will expire in 2009,
and $1.1 billion expire in 2012. Of the facilities that expire in 2009, $40 million
contain provisions allowing two-year term loans executable at expiration. At September 30,
2008, substantially all of these credit arrangements provided liquidity support to Georgia
Powers commercial paper program and purchase obligations related to $666.4 million of
variable rate pollution control revenue bonds compared to $743 million in the second quarter
2008. The decrease is due to Georgia Powers required purchase of $76.6 million of variable
rate pollution control revenue bonds that were tendered by investors. Subsequent to
September 30, 2008, Georgia Power converted $104.6 million of variable rate pollution
control revenue bonds to a fixed interest rate mode. In addition, Georgia Power remarketed
approximately $75 million of bonds that were tendered by investors. The net effect of these
transactions decreased the amount of liquidity support dedicated to funding purchase
obligations to $636.3 million. See Note 6 to the financial statements of Georgia Power
under Bank Credit Arrangements in Item 8 of the Form 10-K for additional information.Gulf Power maintained unused committed lines of credit in the amount of $130 million as of
September 30, 2008 (which were dedicated to providing liquidity support to Gulf Powers
obligations with respect to variable rate pollution control revenue bonds and commercial
paper), of which $80 million either expired or will expire in 2008, $50 million expire in
2009, and $105 million contain provision allowing one-year term loans executable at
expiration. Subsequent to September 30, 2008, Gulf Power renewed $60 million of its credit
facilities that were set to expire in 2008 and entered into a new committed line of credit
for $10 million that will expire in 2009. Also subsequent to September 30, 2008, Gulf
Power purchased from investors $37 million of variable rate pollution control revenue bonds
that were subject to mandatory tender. See Note 6 to the financial statements of Gulf Power
under Bank Credit Arrangements in Item 8 of the Form 10-K for additional information.Mississippi Power maintained unused committed lines of credit in the amount of $149.2
million as of September 30, 2008 (which were dedicated to providing liquidity support to
Mississippi Powers commercial paper program and $32.2 million dedicated to funding purchase
obligations related to variable rate pollution control revenue bonds), of which $69.2
million will expire in 2008, and $80 million expire in 2009. Approximately $39 million of
these credit facilities contain provisions allowing two-year loans executable at expiration
and $15 million contain provisions allowing one-year term loans executable at expiration.
Subsequent to September 30, 2008, Mississippi Power terminated $55.7 million of the credit
facilities expiring in 2008. These facilities were put in place to fund storm damage costs
related to Hurricane Katrina and are now no longer required. See Note 6 to the financial
statements of Mississippi Power under Bank Credit Arrangements in Item 8 of the Form 10-K
for additional information.Southern Power maintained unused committed lines of credit in the amount of approximately
$400 million as of September 30, 2008, all of which expire in 2012. See Note 6 to the
financial
statements of Southern Power under Bank Credit Arrangements in Item 8 of the Form 10-K for
additional information.
 157




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 Financial InstrumentsSee Note 6 to the financial statements of the registrants under Financial Instruments in
Item 8 of the Form 10-K. The fair value gain/(loss) arising on energy-related derivative
contracts outstanding at September 30, 2008 was reflected in the financial statements as
follows (in millions):
 Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    Mississippi
    
    SouthernCompany
    
    Power
    
    Power
    
    Power
    
    Power
    
    PowerRegulatory
(assets)/
liabilities, net
    
    $
    (111.3
    )
    
    $
    (38.7
    )
    
    $
    (47.4
    )
    
    $
    (12.0
    )
    
    $
    (13.2
    )
    
    $
    Accumulated other
comprehensive
income (loss)
    
    
    8.6
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.8
    
    
    
    7.7Cumulative net
income (loss)
    
    
    2.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    2.6Total fair value
gain/(loss)
    
    $
    (99.8
    )
    
    $
    (38.6
    )
    
    $
    (47.4
    )
    
    $
    (12.0
    )
    
    $
    (12.1
    )
    
    $
    10.3
 For the three months and nine months ended September 30, 2008, the unrealized gain/(loss)
recognized in income for energy-related derivative contracts that are not hedges was $6.5
million and $(0.1) million, respectively, for Southern Company, was $7.8 million and $(0.7)
million, respectively, for Southern Power, and was immaterial for all other registrants.
For the three months and nine months ended September 30, 2007, the unrealized loss
recognized in income was $(2.2) million and $(0.7) million, respectively, for Southern
Company, was $(2.1) million and $(1.0) million, respectively, for Southern Power, and was
immaterial for all other registrants.The amounts reclassified from other comprehensive income to revenue and fuel expense for the
three months and nine months ended September 30, 2008 and 2007 were immaterial for each
registrant. Additionally, no material ineffectiveness has been recorded in net income for
the three months and nine months ended September 30, 2008 and 2007. The amounts expected to
be reclassified from other comprehensive income to revenue for the next twelve-month period
to September 30, 2009 are gains of $7.2 million for Southern Company, $8.0 million for
Southern Power, and immaterial for all other registrants. All other expected
reclassifications to income are immaterial for each registrant.During 2007, Southern Company had derivatives in place to reduce its exposure to a phase-out
of certain income tax credits related to synthetic fuel production in 2007. In accordance
with Section 45K of the IRC, these tax credits were subject to limitation as the annual
average price of oil increases. These derivatives settled on January 1, 2008 and thus there
was no income statement impact in the nine months ended September 30, 2008. For the three
months and nine months ended September 30, 2007, the fair value gain recognized in income to
mark the derivatives to market was $23.6 million and $23.4 million, respectively.
 158




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 At September 30, 2008, Southern Company had a total of $1.5 billion notional amount of
interest rate derivatives outstanding with net fair value losses of approximately $1.1
million as follows:
 Cash Flow Hedges
 Weighted
    
    Hedge
    
    Fair ValueNotional
    
    Variable Rate
    
    Average
    
    Maturity
    
    Gain/(Loss)Amount
    
    Received
    
    Fixed Rate Paid
    
    Date
    
    September 30, 2008(in millions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    (in millions)Alabama Power*
    
    $
    576
    
    
    SIFMA Index
    
    
    2.69
    %
    
    February 2010
    
    $
    (1.6
    )Georgia Power*
    
    
    301
    
    
    SIFMA Index
    
    
    2.22
    %
    
    December 2009
    
    
    0.7Georgia Power
    
    
    75
    
    
    1-month LIBOR
    
    
    2.61
    %
    
    November 2008
    
    
    Georgia Power
    
    
    150
    
    
    3-month LIBOR
    
    
    2.63
    %
    
    February 2009
    
    
    0.6Georgia Power
    
    
    100
    
    
    3-month LIBOR
    
    
    5.28
    %
    
    February 2019
    
    
    (6.0
    )Georgia Power
    
    
    300
    
    
    1-month LIBOR
    
    
    2.43
    %
    
    April 2010
    
    
    5.2
 
 *
    
    Hedged using the Securities Industry and Financial Markets Association
Municipal Swap Index (SIFMA) (formerly the Bond Market Association/PSA
Municipal Swap Index)
 The amounts reclassified from other comprehensive income to interest expense for the three
months and nine months ended September 30, 2008 were losses of $(4.6) million and $(15.4)
million, respectively, for Southern Company and $(2.6) million and $(9.6) million,
respectively, for Southern Power, and were immaterial for all other registrants. For the
three months and nine months ended September 30, 2007, the losses reclassified to interest
expense were $(3.9) million and $(11.2) million, respectively, for Southern Company and
$(3.4) million and $(9.9) million, respectively, for Southern Power, and were immaterial for
all other registrants. No material ineffectiveness has been recorded in net income for any
of the periods reported.For the next twelve-month period ending September 30, 2009, the following table reflects the
estimated pre-tax gains/(losses) that will be reclassified from other comprehensive income
to interest expense (in millions):
 Southern Company
    
    $
    (7.9
    )Alabama Power
    
    
    3.0Georgia Power
    
    
    Gulf Power
    
    
    (1.1
    )Southern Power
    
    
    (9.9
    )
 (G)
    
    RETIREMENT BENEFITSSouthern Company accounts for pension and other postretirement obligations in accordance
with SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans, which is an amendment of FASB Statements No. 87, 88, 106, and 132(R)
(SFAS No. 158). SFAS No. 158 requires recognition of an asset for a plans over funded
status or a liability for a plans under funded status in Southern Companys statement of
financial position. In addition, the measurement date (the date at which plan assets and the
benefit obligation are measured) is required to be the same as Southern Companys fiscal
year end. As permitted, Southern Company adopted the measurement date provisions of SFAS
No. 158 effective January 1, 2008. Southern Companys pension and postretirement plans
previously used a September 30 measurement date. All plans are now measured as of December
31, consistent with Southern Companys fiscal year end. The adoption of the measurement
date provisions of SFAS No. 158 increased long-term liabilities by
 159




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 approximately $28 million and prepaid pension costs by approximately $16 million. There was
no effect on Southern Companys results of operations or cash flows.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- and nine-month periods
ended September 30, 2008 and 2007 are as follows (in millions):
 Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    Mississippipension plans
    
    Company
    
    Power
    
    Power
    
    Power
    
    PowerThree Months Ended
September 30, 2008Service cost
    
    $
    36
    
    
    $
    9
    
    
    $
    12
    
    
    $
    2
    
    
    $
    2Interest cost
    
    
    87
    
    
    
    21
    
    
    
    33
    
    
    
    4
    
    
    
    4Expected return on plan assets
    
    
    (131
    )
    
    
    (40
    )
    
    
    (52
    )
    
    
    (6
    )
    
    
    (6
    )Net amortization
    
    
    12
    
    
    
    4
    
    
    
    5
    
    
    
    
    
    
    
    1Net cost (income)
    
    $
    4
    
    
    $
    (6
    )
    
    $
    (2
    )
    
    $
    
    
    
    $
    1Nine Months Ended
September 30, 2008Service cost
    
    $
    109
    
    
    $
    26
    
    
    $
    37
    
    
    $
    5
    
    
    $
    5Interest cost
    
    
    261
    
    
    
    65
    
    
    
    100
    
    
    
    12
    
    
    
    12Expected return on plan assets
    
    
    (394
    )
    
    
    (120
    )
    
    
    (158
    )
    
    
    (18
    )
    
    
    (16
    )Net amortization
    
    
    35
    
    
    
    10
    
    
    
    13
    
    
    
    1
    
    
    
    2Net cost (income)
    
    $
    11
    
    
    $
    (19
    )
    
    $
    (8
    )
    
    $
    
    
    
    $
    3Three Months Ended
September 30, 2007Service cost
    
    $
    37
    
    
    $
    9
    
    
    $
    13
    
    
    $
    2
    
    
    $
    2Interest cost
    
    
    81
    
    
    
    20
    
    
    
    31
    
    
    
    4
    
    
    
    4Expected return on plan assets
    
    
    (120
    )
    
    
    (36
    )
    
    
    (49
    )
    
    
    (5
    )
    
    
    (5
    )Net amortization
    
    
    12
    
    
    
    3
    
    
    
    5
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    10
    
    
    $
    (4
    )
    
    $
    
    
    
    $
    1
    
    
    $
    1Nine Months Ended
September 30, 2007Service cost
    
    $
    110
    
    
    $
    26
    
    
    $
    38
    
    
    $
    5
    
    
    $
    5Interest cost
    
    
    242
    
    
    
    61
    
    
    
    94
    
    
    
    11
    
    
    
    11Expected return on plan assets
    
    
    (361
    )
    
    
    (109
    )
    
    
    (146
    )
    
    
    (16
    )
    
    
    (14
    )Net amortization
    
    
    34
    
    
    
    9
    
    
    
    13
    
    
    
    1
    
    
    
    1Net cost (income)
    
    $
    25
    
    
    $
    (13
    )
    
    $
    (1
    )
    
    $
    1
    
    
    $
    3
 160




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    Mississippipostretirement plans
    
    Company
    
    Power
    
    Power
    
    Power
    
    PowerThree Months Ended
September 30, 2008Service cost
    
    $
    7
    
    
    $
    1
    
    
    $
    3
    
    
    $
    
    
    
    $
    Interest cost
    
    
    28
    
    
    
    7
    
    
    
    12
    
    
    
    1
    
    
    
    1Expected return on plan assets
    
    
    (15
    )
    
    
    (6
    )
    
    
    (8
    )
    
    
    
    
    
    
    Net amortization
    
    
    8
    
    
    
    3
    
    
    
    4
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    28
    
    
    $
    5
    
    
    $
    11
    
    
    $
    1
    
    
    $
    1Nine Months Ended
September 30, 2008Service cost
    
    $
    21
    
    
    $
    5
    
    
    $
    8
    
    
    $
    1
    
    
    $
    1Interest cost
    
    
    83
    
    
    
    22
    
    
    
    37
    
    
    
    3
    
    
    
    4Expected return on plan assets
    
    
    (44
    )
    
    
    (17
    )
    
    
    (23
    )
    
    
    (1
    )
    
    
    (1
    )Net amortization
    
    
    23
    
    
    
    7
    
    
    
    12
    
    
    
    1
    
    
    
    Net cost (income)
    
    $
    83
    
    
    $
    17
    
    
    $
    34
    
    
    $
    4
    
    
    $
    4Three Months Ended
September 30, 2007Service cost
    
    $
    6
    
    
    $
    1
    
    
    $
    3
    
    
    $
    
    
    
    $
    Interest cost
    
    
    27
    
    
    
    7
    
    
    
    12
    
    
    
    1
    
    
    
    2Expected return on plan assets
    
    
    (13
    )
    
    
    (4
    )
    
    
    (7
    )
    
    
    
    
    
    
    Net amortization
    
    
    9
    
    
    
    2
    
    
    
    4
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    29
    
    
    $
    6
    
    
    $
    12
    
    
    $
    1
    
    
    $
    2Nine Months Ended
September 30, 2007Service cost
    
    $
    20
    
    
    $
    5
    
    
    $
    8
    
    
    $
    1
    
    
    $
    1Interest cost
    
    
    80
    
    
    
    21
    
    
    
    35
    
    
    
    3
    
    
    
    4Expected return on plan assets
    
    
    (39
    )
    
    
    (14
    )
    
    
    (20
    )
    
    
    (1
    )
    
    
    (1
    )Net amortization
    
    
    29
    
    
    
    8
    
    
    
    14
    
    
    
    1
    
    
    
    1Net cost (income)
    
    $
    90
    
    
    $
    20
    
    
    $
    37
    
    
    $
    4
    
    
    $
    5
 (H)
    
    EFFECTIVE TAX RATE AND UNRECOGNIZED TAX BENEFITSEffective Tax RateSouthern Companys effective tax rate was 34.3% for the nine months ended September 30,
2008, as compared to 34.1% for the same period in 2007. 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 recorded net synthetic fuel tax credits for the nine
months ended September 30, 2008 that are $33.6 million less than the net synthetic fuel tax
credits recorded for the same period in 2007, which resulted in an increase in income tax
expense. The credits are not allowed under IRC Section 45K for any production after
December 31, 2007. Southern Companys effective tax rate was also impacted by decreases in
the effective tax rate due to additional allowance for equity funds used during construction
(which is not taxable) recorded by Alabama Power, Georgia Power, and Gulf Power.
 161




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 Unrecognized Tax BenefitsChanges during the year for unrecognized tax benefits are as follows:
 Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    Mississippi
    
    SouthernCompany
    
    Power
    
    Power
    
    Power
    
    Power
    
    Power
    
    Total(in millions)Unrecognized tax benefits as of
December 31, 2007
    
    $
    167.1
    
    
    $
    4.8
    
    
    $
    89.2
    
    
    $
    0.9
    
    
    $
    0.9
    
    
    $
    1.4
    
    
    $
    264.3Tax positions from current
periods
    
    
    0.2
    
    
    
    1.3
    
    
    
    32.1
    
    
    
    0.3
    
    
    
    0.7
    
    
    
    0.5
    
    
    
    35.1Tax positions from prior periods
    
    
    77.9
    
    
    
    0.5
    
    
    
    7.8
    
    
    
    0.7
    
    
    
    1.0
    
    
    
    (0.3
    )
    
    
    87.6Reductions due to settlements
    
    
    (0.3
    )
    
    
    (4.1
    )
    
    
    (8.3
    )
    
    
    (1.6
    )
    
    
    (1.0
    )
    
    
    (1.2
    )
    
    
    (16.5
    )Reductions due to expired
statute of limitations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance as of September 30, 2008
    
    $
    244.9
    
    
    $
    2.5
    
    
    $
    120.8
    
    
    $
    0.3
    
    
    $
    1.6
    
    
    $
    0.4
    
    
    $
    370.5
 The tax positions from current periods increase relate primarily to the Georgia state tax
credits litigation and other miscellaneous uncertain tax positions. The tax positions from
prior periods increase relate primarily to the SILO litigation issue that was remeasured
during the second quarter 2008. The reduction due to settlements relates to the tentative
agreement with the IRS regarding the production activities deduction methodology. See Note
(B) to the Condensed Financial Statements under Leveraged Lease Transactions, Georgia
State Income Tax Credits, and IRC Section 199 Domestic Production Deduction herein for
further information regarding these matters.Impact on Southern Companys effective tax rate, if recognized, is as follows:
 As of
    
    As ofSouthern
    
    Georgia
    
    Other
    
    September 30,
    
    December 31,Company
    
    Power
    
    Registrants
    
    2008
    
    2007
    
    Change(in millions)Tax positions
impacting the
effective tax rate
    
    $
    3.2
    
    
    $
    117.9
    
    
    $
    4.8
    
    
    $
    125.9
    
    
    $
    96.6
    
    
    $
    29.3Tax positions not
impacting the
effective tax rate
    
    
    241.7
    
    
    
    2.9
    
    
    
    
    
    
    
    244.6
    
    
    
    167.7
    
    
    
    76.9Balance of
unrecognized tax
benefits
    
    $
    244.9
    
    
    $
    120.8
    
    
    $
    4.8
    
    
    $
    370.5
    
    
    $
    264.3
    
    
    $
    106.2
 The tax positions impacting the effective tax rate increase of $29.3 million primarily
relate to Georgia state tax credit litigation at Georgia Power. The $76.9 million increase
in tax positions not impacting the effective tax rate relates to the SILO litigation
uncertain tax position.Accrued interest for unrecognized tax benefits:
 (in millions)Interest accrued as of December 31, 2007
    
    $
    31Interest accrued during the period
    
    
    30Balance as of September 30, 2008
    
    $
    61
 The increase to accrued interest during the period is primarily associated with the SILO
litigation and Georgia state tax credit litigation.
 162




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 It is reasonably possible that the amount of the unrecognized benefit with respect to a
majority of Georgia Powers and Southern Companys unrecognized tax positions will
significantly increase or decrease within the next 12 months. The possible settlement of
the SILO litigation, the Georgia state tax credits litigation, and/or the conclusion or
settlement of federal or state audits could impact the balances significantly. At this
time, other than the SILO litigation, an estimate of the range of reasonably possible
outcomes cannot be determined. Southern Companys unrecognized tax benefit
related to the SILO litigation could decrease by $242 million within the next 12 months.
However, since the unrecognized tax benefits related to the SILO litigation are related to
timing differences only, the $242 million decrease would have no impact on income.(I)
    
    NUCLEAR FUEL DISPOSAL COST LITIGATIONSee Note 1 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.
On January 2, 2008, the government filed a notice of appeal. On February 29, 2008, the
government filed a motion to stay the appeal pending the courts decisions in three other
cases already on appeal. On April 1, 2008, the court granted the governments motion to
stay the appeal. A claim against the government was also filed for damages incurred after
December 31, 2004 (the court-mandated cut-off in the original claim), due to the
governments continuing breach of contract. This claim was filed without including any
dollar amount for recovery of damages. The final outcome of this matter cannot be
determined at this time, but no material impact on net income is expected as any damage
amounts collected from the government are expected to be returned to customers.(J)
    
    SOUTHERN POWER DEPRECIATION STUDYSouthern Power revised its depreciation rates in January 2008. This change in estimate
arises from changes in useful life assumptions of certain components of plant in service
based on an engineering study completed in the first quarter of 2008. Depreciation rates by
generating facility changed from a range of 2.7% to 3.8% to a range of 1.8% to 4.1%. These
changes increased depreciation and reduced income from continuing operations and net income
by $3.4 million and $2.0 million, respectively for the first nine months of 2008. The
expected total impact on Southern Powers income from continuing operations and net income
for 2008 is a decrease of $4.5 million and $2.7 million, respectively.
 163




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 (K)
    
    SEGMENT AND RELATED INFORMATIONSouthern Companys reportable business segments are the sale of electricity in the Southeast
by the traditional operating companies and Southern Power. 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 leveraged lease projects,
telecommunications, and energy-related services. Southern Powers revenues from sales to
the traditional operating companies were $217 million and $494 million for the three months
and nine months ended September 30, 2008, respectively, and $185 million and $439 million
for the three months and nine months ended September 30, 2007, respectively. All other
intersegment revenues are not material. Financial data for business segments and products
and services are as follows:
 Electric UtilitiesTraditionalOperating
    
    Southern
    
    
    
    
    
    
    
    
    
    AllCompanies
    
    Power
    
    Eliminations
    
    Total
    
    Other
    
    Eliminations
    
    Consolidated(in millions)Three Months Ended
September 30, 2008:Operating revenues
    
    $
    5,156
    
    
    $
    516
    
    
    $
    (276
    )
    
    $
    5,396
    
    
    $
    46
    
    
    $
    (15
    )
    
    $
    5,427Segment net income (loss)
    
    
    727
    
    
    
    60
    
    
    
    
    
    
    
    787
    
    
    
    (7
    )
    
    
    
    
    
    
    780Nine Months Ended
September 30, 2008:Operating revenues
    
    $
    12,849
    
    
    $
    1,048
    
    
    $
    (669
    )
    
    $
    13,228
    
    
    $
    141
    
    
    $
    (44
    )
    
    $
    13,325Segment net income (loss)
    
    
    1,520
    
    
    
    124
    
    
    
    
    
    
    
    1,644
    
    
    
    (88
    )
    
    
    
    
    
    
    1,556Total assets at September 30, 2008
    
    $
    45,252
    
    
    $
    2,868
    
    
    $
    (256
    )
    
    $
    47,864
    
    
    $
    1,636
    
    
    $
    (488
    )
    
    $
    49,012
 Electric UtilitiesTraditionalOperating
    
    Southern
    
    
    
    
    
    
    
    
    
    AllCompanies
    
    Power
    
    Eliminations
    
    Total
    
    Other
    
    Eliminations
    
    Consolidated(in millions)Three Months Ended
September 30, 2007:Operating revenues
    
    $
    4,660
    
    
    $
    347
    
    
    $
    (227
    )
    
    $
    4,780
    
    
    $
    95
    
    
    $
    (43
    )
    
    $
    4,832Segment net income (loss)
    
    
    714
    
    
    
    51
    
    
    
    
    
    
    
    765
    
    
    
    (4
    )
    
    
    1
    
    
    
    762Nine Months Ended
September 30, 2007:Operating revenues
    
    $
    11,612
    
    
    $
    784
    
    
    $
    (549
    )
    
    $
    11,847
    
    
    $
    294
    
    
    $
    (128
    )
    
    $
    12,013Segment net income (loss)
    
    
    1,381
    
    
    
    123
    
    
    
    
    
    
    
    1,504
    
    
    
    26
    
    
    
    
    
    
    
    1,530Total assets at December 31, 2007
    
    $
    41,812
    
    
    $
    2,769
    
    
    $
    (122
    )
    
    $
    44,459
    
    
    $
    1,767
    
    
    $
    (437
    )
    
    $
    45,789
 Products and Services
 Electric Utilities RevenuesPeriod
    
    Retail
    
    Wholesale
    
    Other
    
    Total(in millions)Three Months Ended September 30, 2008
    
    $
    4,479
    
    
    $
    775
    
    
    $
    142
    
    
    $
    5,396Three Months Ended September 30, 2007
    
    $
    4,086
    
    
    $
    563
    
    
    $
    131
    
    
    $
    4,780Nine Months Ended September 30, 2008
    
    $
    10,934
    
    
    $
    1,880
    
    
    $
    414
    
    
    $
    13,228Nine Months Ended September 30, 2007
    
    $
    9,935
    
    
    $
    1,531
    
    
    $
    381
    
    
    $
    11,847
 164




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##### Table of Contents



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.
 165




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##### Table of Contents



Item 6. Exhibits.
 (4) Instruments Describing Rights of Security Holders, Including Indentures
 Southern Company(a)1
    
    -
    
    Third Supplemental Indenture to
Senior Note Indenture
dated as of August 21,
2008, providing for the
issuance of the Series
2008A Floating Rate
Senior Notes.
(Designated in Form 8-K
dated August 13, 2008,
File No. 1-3526, as
Exhibit 4.2.)(10) Material ContractsSouthern Company(a)1
    
    -
    
    Compensation and
Retention Agreement
between Southern Company
Services, Inc. and C.
Alan Martin effective as
of February 1, 2008.(24) Power of Attorney and ResolutionsSouthern Company(a)1
    
    -
    
    Power of Attorney and
resolution. (Designated
in the Form 10-K for the
year ended December 31,
2007, File No. 1-3526 as
Exhibit 24(a) and
incorporated herein by
reference.)Alabama Power(b)1
    
    -
    
    Power of Attorney and
resolution. (Designated
in the Form 10-K for the
year ended December 31,
2007, File No. 1-3164 as
Exhibit 24(b) and
incorporated herein by
reference.)Georgia Power(c)1
    
    -
    
    Power of Attorney and
resolution. (Designated
in the Form 10-K for the
year ended December 31,
2007, File No. 1-6468 as
Exhibit 24(c) and
incorporated herein by
reference.)Gulf Power(d)1
    
    -
    
    Power of Attorney and
resolution. (Designated
in the Form 10-K for the
year ended December 31,
2007, File No. 0-2429 as
Exhibit 24(d) and
incorporated herein by
reference.)(d)2
    
    -
    
    Power of Attorney for
Philip C. Raymond.
(Designated in the Form
10-Q for the quarter
ended March 31, 2008,
File No. 0-2429 as
Exhibit 24(d)2 and
incorporated herein by
reference.)Mississippi Power(e)1
    
    -
    
    Power of Attorney and
resolution. (Designated
in the Form 10-K for the
year ended December 31,
2007, File No. 001-11229
as Exhibit 24(e) and
incorporated herein by
reference.)Southern Power(f)1
    
    -
    
    Power of Attorney and
resolution. (Designated
in the Form 10-K for the
year ended December 31,
2007, File No. 333-98553
as Exhibit 24(f) and
incorporated herein by
reference.)
 166




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(31) Section 302 CertificationsSouthern 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.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.
 167




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##### Table of Contents



(32) Section 906 CertificationsSouthern 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.
 168




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##### Table of Contents



THE SOUTHERN COMPANY
 SIGNATURES
  THE SOUTHERN COMPANYBy
    
    David M. RatcliffeChairman, President, and Chief Executive Officer(Principal Executive Officer)By
    
    W. Paul BowersExecutive Vice President and Chief Financial Officer(Principal Financial Officer)By
    
    /s/ Wayne Boston

(Wayne Boston, Attorney-in-fact)
  169




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ALABAMA POWER COMPANY
 SIGNATURES
  ALABAMA POWER COMPANYBy
    
    Charles D. McCraryPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Art P. BeattieExecutive Vice President, Chief Financial Officer, and Treasurer(Principal Financial Officer)By
    
    /s/ Wayne Boston

(Wayne Boston, Attorney-in-fact)
  170




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##### Table of Contents



GEORGIA POWER COMPANY
 SIGNATURES
  GEORGIA POWER COMPANYBy
    
    Michael D. GarrettPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Cliff S. ThrasherExecutive Vice President, Chief Financial Officer, and Treasurer(Principal Financial Officer)By
    
    /s/ Wayne Boston

(Wayne Boston, Attorney-in-fact)
  171




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##### Table of Contents



GULF POWER COMPANY
 SIGNATURES
  GULF POWER COMPANYBy
    
    Susan N. StoryPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Philip C. RaymondVice President and Chief Financial Officer(Principal Financial Officer)By
    
    /s/ Wayne Boston

(Wayne Boston, Attorney-in-fact)
  172




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 SIGNATURES
  MISSISSIPPI POWER COMPANYBy
    
    Anthony J. TopaziPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Frances TurnageVice President, Treasurer, and Chief Financial Officer(Principal Financial Officer)By
    
    /s/ Wayne Boston

(Wayne Boston, Attorney-in-fact)
  173




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##### Table of Contents



SOUTHERN POWER COMPANY
 SIGNATURES
  SOUTHERN POWER COMPANYBy
    
    Ronnie L. BatesPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Michael W. SouthernSenior Vice President, Treasurer, and Chief Financial Officer(Principal Financial Officer)By
    
    /s/ Wayne Boston

(Wayne Boston, Attorney-in-fact)
  174