================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                            -------------------------

                                    FORM 10-Q
              (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                    For the Quarter Ended September 30, 1996
                                       OR
              ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the Transition Period from _____to_____

Commission          Registrant, State of Incorporation,      I.R.S. Employer
File Number         Address and Telephone Number             Identification No.
-----------         -----------------------------------      ------------------

  1-3526            The Southern Company                         58-0690070
                    (A Delaware Corporation)
                    270 Peachtree Street, N.W.
                    Atlanta, Georgia 30303
                    (770) 393-0650

  1-3164            Alabama Power Company                        63-0004250
                    (An Alabama Corporation)
                    600 North 18th Street
                    Birmingham, Alabama 35291
                    (205) 250-1000

  1-6468            Georgia Power Company                        58-0257110
                    (A Georgia Corporation)
                    333 Piedmont Avenue, N.E.
                    Atlanta, Georgia 30308
                    (404) 526-6526

  0-2429            Gulf Power Company                           59-0276810
                    (A Maine Corporation)
                    500 Bayfront Parkway
                    Pensacola, Florida 32501
                    (904) 444-6111

  0-6849            Mississippi Power Company                    64-0205820
                    (A Mississippi Corporation)
                    2992 West Beach
                    Gulfport, Mississippi 39501
                    (601) 864-1211

  1-5072            Savannah Electric and Power Company          58-0418070
                    (A Georgia Corporation)
                    600 East Bay Street
                    Savannah, Georgia 31401
                    (912) 232-7171

================================================================================

<PAGE>

     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 X No____

<TABLE>
<CAPTION>

                                        Description of               Shares Outstanding
Registrant                              Common Stock                 at October 31, 1996
----------                              --------------               -------------------
<S>                                     <S>                              <C>
The Southern Company                    Par Value $5 Per Share           673,652,878
Alabama Power Company                   Par Value $40 Per Share            5,608,955
Georgia Power Company                   No Par Value                       7,761,500
Gulf Power Company                      No Par Value                         992,717
Mississippi Power Company               Without Par Value                  1,121,000
Savannah Electric and Power Company     Par Value $5 Per Share            10,844,635
</TABLE>

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

<PAGE>
<TABLE>
<CAPTION>

                     INDEX TO QUARTERLY REPORT ON FORM 10-Q
                               September 30, 1996
                                                                                                                         Page
                                                                                                                        Number
<S>                                                                                                                      <C>

DEFINITIONS...................................................................................................            4

                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited) and
Item 2.  Management's Discussion and Analysis of Results of Operations and Financial Condition
             The Southern Company and Subsidiary Companies
                Condensed Consolidated Statements of Income...................................................            6
                Condensed Consolidated Statements of Cash Flows...............................................            7
                Condensed Consolidated Balance Sheets.........................................................            8
                Management's Discussion and Analysis of Results of Operations and Financial Condition.........           10
             Alabama Power Company
                Condensed Statements of Income................................................................           16
                Condensed Statements of Cash Flows............................................................           17
                Condensed Balance Sheets......................................................................           18
                Management's Discussion and Analysis of Results of Operations and Financial Condition.........           20
                Exhibit 1 - Report of Independent Public Accountants..........................................           24
             Georgia Power Company
                Condensed Statements of Income................................................................           26
                Condensed Statements of Cash Flows............................................................           27
                Condensed Balance Sheets......................................................................           28
                Management's Discussion and Analysis of Results of Operations and Financial Condition.........           30
                Exhibit 1 - Report of Independent Public Accountants..........................................           34
             Gulf Power Company
                Condensed Statements of Income................................................................           36
                Condensed Statements of Cash Flows............................................................           37
                Condensed Balance Sheets......................................................................           38
                Management's Discussion and Analysis of Results of Operations and Financial Condition.........           40
             Mississippi Power Company
                Condensed Statements of Income................................................................           45
                Condensed Statements of Cash Flows............................................................           46
                Condensed Balance Sheets......................................................................           47
                Management's Discussion and Analysis of Results of Operations and Financial Condition.........           49
             Savannah Electric and Power Company
                Condensed Statements of Income................................................................           54
                Condensed Statements of Cash Flows............................................................           55
                Condensed Balance Sheets......................................................................           56
                Management's Discussion and Analysis of Results of Operations and Financial Condition.........           58
             Notes to the Condensed Financial Statements......................................................           61

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings....................................................................................           66
Item 2.  Changes in Securities................................................................................ Inapplicable
Item 3.  Defaults Upon Senior Securities...................................................................... Inapplicable
Item 4.  Submission of Matters to a Vote of Security Holders.................................................. Inapplicable
Item 5.  Other Information.................................................................................... Inapplicable
Item 6.  Exhibits and Reports on Form 8-K.....................................................................           66
         Signatures ..........................................................................................           67

                                       3
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                   DEFINITIONS


TERM                             MEANING
<S>                              <C>
affiliates....................   ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH
ALABAMA.......................   Alabama Power Company
Clean Air Act ................   Clean Air Act Amendments of 1990
ECO Plan......................   Environmental Compliance Overview Plan
Energy Act....................   Energy Policy Act of 1992
EWG...........................   Exempt wholesale generator
FASB..........................   Financial Accounting Standards Board
FERC..........................   Federal Energy Regulatory Commission
Form 10-K.....................   Combined Annual Report on Form 10-K of SOUTHERN, ALABAMA, GEORGIA, GULF,
                                 MISSISSIPPI and SAVANNAH for the year ended December 31, 1995
FUCO..........................   Foreign utility company
GEORGIA.......................   Georgia Power Company
GULF..........................   Gulf Power Company
MEAG..........................   Municipal Electric Authority of Georgia
MISSISSIPPI...................   Mississippi Power Company
OPC...........................   Oglethorpe Power Corporation
operating affiliates..........   see affiliates
operating companies...........   see affiliates
PEP...........................   Performance Evaluation Plan
PSC...........................   Public Service Commission
SAVANNAH......................   Savannah Electric and Power Company
SEC...........................   Securities and Exchange Commission
SOUTHERN......................   The Southern Company
Southern Energy...............   Southern Energy, Inc. (formerly Southern Electric International, Inc.)
SWEB..........................   South Western Electricity plc (United Kingdom)
TVA...........................   Tennessee Valley Authority

                                       4

</TABLE>

<PAGE>

                              THE SOUTHERN COMPANY
                            AND SUBSIDIARY COMPANIES

                                       5

<PAGE>
<TABLE>
<CAPTION>
                  THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
             CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                        (Stated in Thousands of Dollars)

                                                                        For the Three Months               For the Nine Months
                                                                         Ended September 30,               Ended September 30,
                                                                 -------------------------------    -------------------------------
                                                                      1996             1995              1996             1995
                                                                      ----             ----              ----             ----

<S>                                                              <C>              <C>               <C>              <C>
OPERATING REVENUES                                               $   2,916,635    $   2,758,848     $   7,870,821    $   6,871,461
                                                                 --------------   --------------    --------------   --------------
OPERATING EXPENSES:
Operation--
     Fuel                                                              642,400          665,190         1,700,351        1,660,738
     Purchased power                                                   252,291          115,091           746,951          244,180
     Other (Note G)                                                    430,606          430,888         1,298,316        1,180,913
Maintenance                                                            169,675          142,936           552,774          465,244
Depreciation and amortization                                          247,892          243,639           740,023          672,680
Amortization of deferred Plant Vogtle costs (Note M)                    34,077           32,493           101,070           90,443
Taxes other than income taxes                                          162,384          131,995           483,335          376,875
Income taxes                                                           293,596          323,112           678,424          668,556
                                                                 --------------   --------------    --------------   --------------
Total operating expenses                                             2,232,921        2,085,344         6,301,244        5,359,629
                                                                 --------------   --------------    --------------   --------------
OPERATING INCOME                                                       683,714          673,504         1,569,577        1,511,832
OTHER INCOME:
Allowance for equity funds used during construction                      1,169              843             2,213            5,847
Interest income                                                         11,781           10,753            39,588           19,132
Other, net                                                              (2,450)         (32,266)          (14,759)         (31,807)
Income taxes applicable to other income                                (16,268)           8,751            19,584           13,790
                                                                 --------------   --------------    --------------   --------------
INCOME BEFORE INTEREST CHARGES                                         677,946          661,585         1,616,203        1,518,794
                                                                 --------------   --------------    --------------   --------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt                                             126,428          131,999           389,774          405,500
Allowance for debt funds used during construction                       (4,400)          (3,663)          (15,189)         (14,902)
Interest on notes payable                                               30,288           15,501            95,095           43,892
Amortization of debt discount, premium and expense, net                 15,560            7,836            36,500           23,777
Other interest charges                                                  16,509           14,982            52,301           40,416
Minority interests in subsidiaries' earnings                             3,765            4,318             4,591           10,940
Preferred dividends of subsidiary companies                             22,356           21,788            65,556           66,491
                                                                 --------------   --------------    --------------   --------------
Net interest charges and other, net                                    210,506          192,761           628,628          576,114
                                                                 --------------   --------------    --------------   --------------

CONSOLIDATED NET INCOME                                          $     467,440    $     468,824     $     987,575    $     942,680
                                                                 ==============   ==============    ==============   ==============


AVERAGE NUMBER OF SHARES OF
     COMMON STOCK OUTSTANDING (Thousands)                              673,651          665,774           671,838          664,279

EARNINGS PER SHARE OF COMMON STOCK                                       $0.69            $0.71             $1.47            $1.42

CASH DIVIDENDS PAID PER SHARE
     OF COMMON STOCK                                                    $0.315           $0.305            $0.945           $0.915







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

                                        6

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                  THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                        (Stated in Thousands of Dollars)
                                                                                                     For the Nine Months
                                                                                                      Ended September 30,
                                                                                               ------------------------------
                                                                                                 1996                 1995
                                                                                                 ----                 ----
<S>                                                                                        <C>               <C>
OPERATING ACTIVITIES:
Consolidated net income                                                                    $    987,575      $    942,680
Adjustments to reconcile net income to net cash provided by operating activities--
         Depreciation and amortization                                                          913,122           836,792
         Deferred income taxes and investment tax credits                                        67,694            82,255
         Allowance for equity funds used during construction                                     (2,213)           (5,847)
         Amortization of deferred Plant Vogtle costs (Note M)                                   101,070            90,443
         Gain on asset sales                                                                    (62,787)          (23,533)
         Other, net                                                                              39,254           107,832
         Changes in certain current assets and liabilities--
            Receivables, net                                                                    (75,918)         (224,916)
            Fossil fuel stock                                                                    64,170            81,768
            Materials and supplies                                                               22,266             8,610
            Payables                                                                           (136,168)         (216,121)
            Customer deposits                                                                   (83,360)           33,135
            Taxes accrued                                                                       159,459           234,696
            Other                                                                              (111,844)          (77,530)
                                                                                           -------------     -------------
Net cash provided from operating activities                                                   1,882,320         1,870,264
                                                                                           -------------     -------------
INVESTING ACTIVITIES:
Gross property additions                                                                       (911,435)         (967,016)
SEI investments                                                                                       -          (343,947)
Sale of minority interest in SWEB                                                               188,663                 -
Sales of property and other investments                                                          20,895           131,099
Other                                                                                           (98,990)           17,224
                                                                                           -------------     -------------
Net cash used for investing activities                                                         (800,867)       (1,162,640)
                                                                                           -------------     -------------
FINANCING ACTIVITIES:
Proceeds--
     Common stock                                                                                95,873           186,610
     Subsidiary obligated mandatorily redeemable preferred securities                           322,000                 -
     First mortgage bonds                                                                        60,000           345,210
     Pollution control bonds                                                                    146,100           515,300
     Other long-term debt                                                                       319,148           265,772
Retirements--
     Preferred stock                                                                            (78,897)           (1,000)
     First mortgage bonds                                                                      (377,149)         (538,414)
     Pollution control bonds                                                                    (91,460)         (355,205)
     Other long-term debt                                                                    (1,116,073)         (261,551)
Special deposits-redemption funds                                                               (61,480)         (149,585)
Notes payable, net                                                                              (40,027)           96,753
Payment of common stock dividends                                                              (634,553)         (607,988)
Miscellaneous                                                                                   (16,318)          (11,315)
                                                                                           -------------     -------------
Net cash used for financing activities                                                       (1,472,836)         (515,413)
                                                                                           -------------     -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS                                                        (391,383)          192,211
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                772,340           139,309
                                                                                           -------------     -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                 $    380,957      $    331,520
                                                                                           =============     =============

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
     Interest (net of amount capitalized)                                                  $    545,845      $    486,235
     Income taxes                                                                               458,731           453,265


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

                                        7

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                  THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (Stated in Thousands of Dollars)

                                     ASSETS

                                                                               At September 30,
                                                                                    1996                At December 31,
                                                                                 (Unaudited)                1995
                                                                               ----------------       ------------------
<S>                                                                            <C>                     <C>
UTILITY PLANT:
Plant in service                                                               $    32,809,676         $    31,878,166
Less accumulated provision for depreciation                                         10,737,018              10,067,081
                                                                               ----------------        ----------------
                                                                                    22,072,658              21,811,085
Nuclear fuel, at amortized cost                                                        228,828                 225,386
Construction work in progress                                                          777,556                 989,808
                                                                               ----------------        ----------------
Total                                                                               23,079,042              23,026,279
                                                                               ----------------        ----------------

OTHER PROPERTY AND INVESTMENTS:
Argentine operating concession, being amortized                                        420,194                 431,212
Goodwill                                                                               290,262                 343,897
Nuclear decommissioning trusts, at market                                              240,820                 200,641
Miscellaneous                                                                          347,526                 317,103
                                                                               ----------------        ----------------
Total                                                                                1,298,802               1,292,853
                                                                               ----------------        ----------------

CURRENT ASSETS:
Cash and cash equivalents                                                              380,957                 772,340
Special deposits                                                                        61,480                 156,114
Receivables, less accumulated provisions for uncollectible accounts
          of $32,618 at September 30, 1996 and $37,119 at December 31, 1995          1,434,922               1,362,912
Fossil fuel stock, at average cost                                                     262,499                 326,669
Materials and supplies, at average cost                                                533,908                 551,546
Prepayments                                                                            284,583                 265,988
Vacation pay deferred                                                                   77,656                  74,135
                                                                               ----------------        ----------------
Total                                                                                3,036,005               3,509,704
                                                                               ----------------        ----------------

DEFERRED CHARGES:
Deferred charges related to income taxes                                             1,330,666               1,386,116
Deferred Plant Vogtle costs (Note M)                                                   206,568                 307,638
Debt expense, being amortized                                                           76,913                  68,539
Premium on reacquired debt, being amortized                                            275,039                 294,825
Miscellaneous                                                                          624,051                 636,327
                                                                               ----------------        ----------------
Total                                                                                2,513,237               2,693,445
                                                                               ----------------        ----------------

TOTAL ASSETS                                                                   $    29,927,086         $    30,522,281
                                                                               ================        ================









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

                                        8

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                  THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (Stated in Thousands of Dollars)

                         CAPITALIZATION AND LIABILITIES

                                                                         At September 30,
                                                                              1996                  At December 31,
                                                                            (Unaudited)                 1995
                                                                        ------------------        -----------------
<S>                                                                      <C>                      <C>
CAPITALIZATION:
Common stock, par value $5 per share--
     Authorized -- 1 billion shares
     Outstanding -- September 30, 1996: 673,651,015 shares
                 -- December 31, 1995: 669,542,914 shares                $     3,368,255          $     3,347,715
Paid-in capital                                                                1,985,114                1,940,823
Retained earnings                                                              3,835,643                3,483,624
                                                                         ----------------         ----------------
                                                                               9,189,012                8,772,162
Preferred stock of subsidiaries                                                1,153,056                1,332,203
Subsidiary obligated mandatorily redeemable preferred securities                 422,000                  100,000
Long-term debt                                                                 7,356,378                8,274,012
                                                                         ----------------         ----------------
Total                                                                         18,120,446               18,478,377
                                                                         ----------------         ----------------

CURRENT LIABILITIES:
Preferred stock of subsidiaries due within one year                              100,250                        -
Long-term debt due within one year                                               212,080                  508,572
Notes payable                                                                  1,629,711                1,669,738
Accounts payable                                                                 597,190                  785,490
Customer deposits                                                                133,284                  216,644
Taxes accrued--
     Income taxes                                                                144,678                   92,684
     Other                                                                       285,251                  178,807
Interest accrued                                                                 158,630                  199,112
Vacation pay accrued                                                             104,067                   99,678
Miscellaneous                                                                    442,107                  530,461
                                                                         ----------------         ----------------
Total                                                                          3,807,248                4,281,186
                                                                         ----------------         ----------------

DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes                                              4,714,244                4,611,081
Deferred credits related to income taxes                                         892,148                  935,611
Accumulated deferred investment tax credits                                      795,292                  820,127
Employee benefits provisions                                                     478,858                  430,802
Minority interests in subsidiaries                                               373,141                  230,500
Prepaid capacity revenues                                                        125,024                  131,186
Department of Energy assessments                                                  86,113                   86,113
Disallowed Plant Vogtle capacity buyback costs                                    57,050                   58,514
Storm damage reserves                                                             34,136                   30,777
Miscellaneous                                                                    443,386                  428,007
                                                                         ----------------         ----------------
Total                                                                          7,999,392                7,762,718
                                                                         ----------------         ----------------

TOTAL CAPITALIZATION AND LIABILITIES                                     $    29,927,086          $    30,522,281
                                                                         ================         ================



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

                                        9

</TABLE>
<PAGE>


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

                    THIRD QUARTER 1996 vs. THIRD QUARTER 1995
                                       AND
                     YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 1995


RESULTS OF OPERATIONS

Earnings

SOUTHERN's  consolidated net income for the third quarter and year-to-date  1996
was  $467  million  ($0.69  per  share)  and $988  million  ($1.47  per  share),
respectively, compared to $469 million ($0.71 per share) and $943 million ($1.42
per  share)  for  the  corresponding   periods  of  1995.  This  resulted  in  a
consolidated net income decrease of 0.3% for the quarter and an increase of 4.8%
year to date. Milder weather during the third quarter of 1996 when compared with
the third quarter of 1995 kept earnings relatively flat;  however,  year-to-date
earnings of the core business were positively affected by more favorable weather
conditions  during the first half of 1996. The  performance  of Southern  Energy
(primarily  resulting from the acquisition of SWEB effective September 18, 1995)
also  contributed to 1996 earnings.  (Reference is made to Note 14 of SOUTHERN's
financial  statements  in Item 8 of the  Form  10-K for  additional  information
regarding the  acquisition of SWEB.  Reference is also made to "Future  Earnings
Potential" below relating to the sale, in July 1996, of a 25% share of SWEB to a
subsidiary of PP&L Resources, Inc.)

     SOUTHERN's  core  business is primarily  represented  by its five  domestic
electric  utility  operating  companies,  which provide electric service in four
Southeastern  states.  Another  significant  portion of  SOUTHERN's  business is
represented  by  Southern  Energy,  which  owns and  manages  international  and
domestic  businesses for SOUTHERN.  Businesses  acquired by Southern Energy have
been  included  in the  consolidated  statements  of  income  since  the date of
acquisition.  Certain changes in operating  revenues and expenses from the prior
period are the result of such acquisitions.

     Significant  income statement items appropriate for discussion  include the
following:
<TABLE>
<CAPTION>

                                                                          Increase (Decrease)
                                                     --------------------------------------------------------------
                                                             Third Quarter                   Year-To-Date
                                                     ------------------------------- ------------------------------
                                                       (in thousands)        %         (in thousands)        %
<S>                                                       <C>              <C>            <C>              <C>  
Operating revenues...............................         $157,787           5.7          $999,360          14.5
Purchased power expense..........................          137,200         119.2           502,771         205.9
Maintenance expense..............................           26,739          18.7            87,530          18.8
Depreciation and amortization expense............            4,253           1.7            67,343          10.0
Taxes other than income taxes....................           30,389          23.0           106,460          28.2
Interest on long-term debt.......................           (5,571)         (4.2)          (15,726)         (3.9)
Interest on notes payable........................           14,787          95.4            51,203         116.7
</TABLE>

     Operating revenues.  The changes in operating revenues of the core business
were  influenced  most  heavily by changes in the amount of retail  energy sold.
Compared to the corresponding  periods of 1995, total retail kilowatt-hour sales
for the third quarter  decreased  0.3%;  however,  for the current  year-to-date
period,  total retail  kilowatt-hour  sales  increased  3.7%.  Retail  revenues,
excluding  those revenues which  represent the  pass-through of fuel and certain
other  expenses and do not affect  income,  decreased  $48 million for the third
quarter and increased $79 million year-to-date 1996.  Residential and commercial
energy sales experienced the most significant changes for the third quarter and

                                       10
<PAGE>

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


year-to-date  periods,  respectively.  Compared to the corresponding  periods of
1995,  residential  kilowatt-hour  sales for the third quarter  decreased  5.2%;
however, for the current year-to-date  period,  residential  kilowatt-hour sales
increased 3.6%.  Commercial  kilowatt-hour sales increased 2.8% and 6.0% for the
current quarter and  year-to-date  periods,  respectively.  Compared to the same
periods of 1995,  there was growth in the number of  residential  and commercial
customers served;  however,  residential  energy sales were mainly influenced by
favorable weather conditions during the third quarter of 1995 and the first half
of 1996.  For the  third  quarter  and  year-to-date  1996,  operating  revenues
applicable to Southern  Energy-related  activities increased by $245 million and
$881 million,  respectively,  as compared to the corresponding  periods of 1995.
The primary reason for these increases relates to the acquisition of SWEB.

     Purchased  power  expense.  The  substantial  increase in  purchased  power
expense is attributable  to Southern  Energy-related  activities,  specifically,
SWEB's operations.  (SWEB's main business is the distribution of electricity. It
must purchase essentially all of its power.) Purchased power expense in the core
business  decreased  10.6% or $9 million  for the third  quarter  and 2.7% or $5
million for year-to-date 1996 compared to the corresponding periods of 1995.

     Maintenance expense. After excluding those amounts attributable to Southern
Energy-related  business  activities,  maintenance  expense  related to the core
business  increased $13 million or 9.3% for the third quarter and $46 million or
10.0% for year-to-date 1996 compared to the  corresponding  periods of 1995. The
increase  in the  current  quarter is  primarily  attributable  to the timing of
scheduled  maintenance  performed on generating units and a write-off by ALABAMA
of obsolete steam  generating  plant  inventory.  The  year-to-date  increase is
primarily  due to the timing of scheduled  maintenance  performed on  generating
units and an accrual by ALABAMA to  partially  replenish  its  natural  disaster
reserve.

     Depreciation  and  amortization  expense.  After  excluding  those  amounts
attributable to Southern  Energy-related  business activities,  depreciation and
amortization  expense in the core business  decreased $9 million or 3.7% for the
third quarter and increased $23 million or 3.5% for  year-to-date  1996 compared
to the  corresponding  periods of 1995.  The decrease in the current  quarter is
primarily due to a charge to  amortization  expense by GEORGIA in September 1995
for software  development costs. The increase in year-to-date 1996 is mainly due
to  accelerated  depreciation  of certain  generating  plants  pursuant to a new
retail rate plan at GEORGIA  effective  January 1, 1996,  and  additional  plant
investment.

     Taxes other than income taxes.  After excluding those amounts  attributable
to Southern  Energy-related  business activities,  taxes other than income taxes
associated  with the core business  increased $2 million or 1.4% for the current
quarter and $13 million or 3.4% for the current  year-to-date period compared to
the  corresponding  periods of 1995 primarily due to higher municipal and county
franchise  taxes.  Changes in such  franchise  taxes,  which are collected  from
customers, have no impact on earnings.

     Interest on long-term debt.  After excluding those amounts  attributable to
Southern Energy-related  business activities,  interest on long-term debt in the
core business decreased $12 million (9.6%) for the third quarter and $50 million
(13.3%)  year-to-date  1996  compared  to  the  corresponding  periods  of  1995
reflecting  the  redemption  and  refinancing of long-term debt by the operating
companies.

                                       11
<PAGE>

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


     Interest on notes payable.  After excluding  those amounts  attributable to
Southern  Energy-related  business activities,  interest on notes payable in the
core  business  decreased  $3  million  or 20.0%  for the  current  quarter  and
increased  $5 million or 12.1%  year-to-date  1996  reflecting a lower amount of
short-term debt  outstanding in the current quarter  compared to the same period
of 1995 and a higher  amount  of  short-term  debt  outstanding  in the  current
year-to-date period compared to the corresponding period of 1995.

Future Earnings Potential

The results of  operations  discussed  above are not  necessarily  indicative of
future  earnings  potential.  The level of future  earnings  depends on numerous
factors ranging from energy sales growth to a less regulated,  more  competitive
environment, with Southern Energy and other business becoming more significant.

     With respect to Southern Energy-related  activities,  SOUTHERN received, in
April 1996,  an order from the SEC which in effect allows it to use the proceeds
from financings to increase its aggregate  investment in EWGs and FUCOs up to an
amount not  exceeding  100% of  SOUTHERN's  consolidated  retained  earnings.  A
consumer  group that had sought to intervene in the SEC  proceeding  has filed a
motion for  reconsideration  of such  order with the SEC and an appeal  with the
U.S.  Court of Appeals for the 11th Circuit.  At September 30, 1996,  SOUTHERN's
consolidated  retained  earnings  amounted to $3,836 million,  and its aggregate
investment  in  EWGs  and  FUCOs  amounted  to  $889  million.   For  additional
information   relating  to  Southern   Energy  and  SOUTHERN's   other  business
activities, see Item 1 - BUSINESS - "New Business Development" in the Form 10-K.
In  addition to the  discussion  in the Form 10-K  relating to SWEB,  on July 1,
1996, Southern Energy sold,  indirectly,  a 25% share in SWEB to a subsidiary of
PP&L Resources, Inc. for some $189 million.

     On October 9, 1996, Southern Energy announced that a $2.7 billion agreement
had been entered into between Southern Energy,  Southern  Energy-Asia,  Inc. (an
indirect, wholly-owned subsidiary of SOUTHERN), Consolidated Electric Power Asia
Limited (CEPA) and Hopewell Holdings  Limited,  providing for the acquisition by
Southern  Energy-Asia of an 80% interest in CEPA.  For  additional  information,
reference  is made to the  Current  Report on Form 8-K,  dated  October 9, 1996,
filed by SOUTHERN.

     With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is  positioning  the business to meet the challenge of  increasing  competition.
Legislation  has been  enacted in Alabama  that would  establish  a process  for
determining  whether  utilities  would  experience  "stranded  costs"  upon  the
transfer of an existing customer of a utility to another electric supplier. This
legislation  authorizes  the  Alabama  PSC to make a  determination  of  whether
stranded  costs  would  exist as a result of such a transfer  by a  customer  of
ALABAMA and could require the customer  seeking an  alternative  supplier to pay
any stranded costs found to exist.  The legislation  has termination  provisions
keyed  to  passage  of  comprehensive   retail  electric   service   competition
legislation which addresses  stranded costs of existing utilities and eliminates
the  obligation of utilities to provide  generating  resources.  For  additional
information,  see Item 1 -  BUSINESS  "Competition"  and  Item 7 -  MANAGEMENT'S
DISCUSSION  AND ANALYSIS - "Future  Earnings  Potential" of SOUTHERN in the Form
10-K.

     Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be offset.  For additional  information about the Clean Air Act and
other  environmental  issues, see Item 7 - MANAGEMENT'S  DISCUSSION AND ANALYSIS
"Environmental Matters" of SOUTHERN in the Form 10-K.

                                       12
<PAGE>

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


     Reference is made to Notes (B),  (C),  (E),  (F),  (H), (J), (L), (M), (N),
(O), (Q) and (R) in the "Notes to the Condensed Financial Statements" herein for
discussion  of various  contingencies  and other matters which may affect future
earnings  potential.  Reference  is  also  made  to  Part  II - Item 1 -  "Legal
Proceedings" herein.

FINANCIAL CONDITION

Overview

The major change in SOUTHERN's  financial condition during the first nine months
of 1996 was the addition of  approximately  $911 million to utility  plant.  The
funds for these additions and other capital  requirements were derived primarily
from operations.  See SOUTHERN's  Condensed Statements of Cash Flows for further
details.

Financing Activities

During the first nine months of 1996,  the operating  companies sold $60 million
of first  mortgage  bonds,  and  through  public  authorities,  $146  million of
pollution  control  revenue bonds.  Retirements,  including  maturities,  of the
operating  companies'  first mortgage bonds and pollution  control revenue bonds
totaled $463 million,  and redemptions of preferred stock totaled $79 million. A
subsidiary of ALABAMA  formed as a statutory  business trust sold $97 million of
trust preferred securities guaranteed by ALABAMA and loaned the proceeds of such
securities  to ALABAMA.  See Note (I) in the "Notes to the  Condensed  Financial
Statements"  herein for further  details.  A subsidiary  of GEORGIA  formed as a
statutory  business  trust  sold  $225  million  of trust  preferred  securities
guaranteed by GEORGIA and loaned the proceeds of such securities to GEORGIA. See
Note (K) in the "Notes to the Condensed Financial Statements" herein for further
details.

     During the first nine months of 1996,  SOUTHERN raised $96 million from the
issuance of new common stock under  SOUTHERN's  various stock plans.  The market
price of SOUTHERN's  common stock at September 30, 1996 was $22.50 per share and
the book  value was $13.64 per share,  representing  a  market-to-book  ratio of
165%, compared to $24.625,  $13.10 and 188%,  respectively,  at the end of 1995.
The dividend for the third quarter of 1996 was $0.315 per share.

Capital Requirements

Reference is made to Item 7 -  MANAGEMENT'S  DISCUSSION AND ANALYSIS of SOUTHERN
under  "Capital  Requirements  for  Construction,"  "Environmental  Matters" and
"Other Capital  Requirements" in the Form 10-K for a description of the Southern
electric   system's  capital   requirements   for  its   construction   program,
environmental  compliance efforts,  sinking fund requirements and maturing debt.
Approximately  $312 million will be required by September 30, 1997,  for present
sinking fund  requirements,  redemption of preferred  stock and  redemptions and
maturities of long-term debt. Also, the operating companies plan to continue, to
the extent  possible,  a program to retire  higher-cost debt and preferred stock
and replace these securities with lower-cost capital.

Sources of Capital

In addition to the  financing  activities  previously  described,  SOUTHERN  may
require  additional equity capital during the remainder of the year. The amounts
and timing of  additional  equity  capital  to be raised in 1996,  as well as in
subsequent years, will be contingent on SOUTHERN's investment opportunities. The

                                       13
<PAGE>

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


operating companies plan to obtain the funds required for construction and other
purposes from sources  similar to those used in the past.  The amount,  type and
timing of any  financings--if  needed--will  depend upon maintenance of adequate
earnings,  regulatory approval,  prevailing market conditions and other factors.
Currently,  each of the operating  companies  expects to have adequate  earnings
coverage  ratios for any  anticipated  security sales through at least 1998. See
Item  1  BUSINESS  -  "Financing  Programs"  in the  Form  10-K  for  additional
information.

     To meet short-term cash needs and contingencies, the SOUTHERN system had at
September 30, 1996,  approximately $381 million of cash and cash equivalents and
approximately $4,119 million of unused credit arrangements with banks (including
$808 million of such  arrangements  under which  borrowings  may be made only to
fund purchase  obligations of the operating  companies relating to variable rate
pollution  control  bonds).  At September  30, 1996,  the system  companies  had
outstanding  approximately  $1,040 million of short-term  notes payable and $590
million of commercial paper. Since SOUTHERN's  construction program with respect
to major generating projects in the core business has been completed, management
believes that the need for working  capital can be  adequately  met by utilizing
lines of credit without maintaining large cash balances.

     See Note (D) in the "Notes to the Condensed  Financial  Statements"  herein
for discussion of financial derivative contracts entered into by SOUTHERN.

                                       14
<PAGE>

                              ALABAMA POWER COMPANY

                                       15

<PAGE>
<TABLE>
<CAPTION>
                              ALABAMA POWER COMPANY
                   CONDENSED STATEMENTS OF INCOME (UNAUDITED)
                        (Stated in Thousands of Dollars)

                                                                     For the Three Months                For the Nine Months
                                                                      Ended September 30,                Ended September 30,
                                                                    ----------------------             ----------------------
                                                                    1996              1995             1996              1995
                                                                    ----              ----             ----              ----
<S>                                                            <C>               <C>              <C>               <C>
OPERATING REVENUES:
Revenues                                                       $     869,950     $     910,023    $   2,253,194     $   2,264,183
Revenues from affiliates                                              43,358            28,261          172,510            73,925
                                                               --------------    --------------   --------------    --------------
Total operating revenues                                             913,308           938,284        2,425,704         2,338,108
                                                               --------------    --------------   --------------    --------------

OPERATING EXPENSES:
Operation--
     Fuel                                                            245,385           242,649          668,034           596,257
     Purchased power from non-affiliates                              11,795            16,684           31,651            25,895
     Purchased power from affiliates                                  27,502            41,011           67,365            93,695
     Other                                                           124,624           125,667          375,808           363,062
Maintenance                                                           62,361            51,299          193,354           174,529
Depreciation and amortization                                         80,142            75,886          239,859           228,717
Taxes other than income taxes                                         46,507            45,959          140,244           137,668
Federal and state income taxes                                        92,469           105,807          193,141           204,329
                                                               --------------    --------------   --------------    --------------
Total operating expenses                                             690,785           704,962        1,909,456         1,824,152
                                                               --------------    --------------   --------------    --------------
OPERATING INCOME                                                     222,523           233,322          516,248           513,956
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction                      161               564              594             2,823
Income from subsidiary                                                   944               990            2,885             2,865
Interest income                                                        6,521             5,840           21,506             6,760
Other, net                                                            (7,907)           (8,436)         (30,526)          (19,810)
Income taxes applicable to other income                                1,368             1,155           15,463             9,154
                                                               --------------    --------------   --------------    --------------
INCOME BEFORE INTEREST CHARGES                                       223,610           233,435          526,170           515,748
                                                               --------------    --------------   --------------    --------------
INTEREST CHARGES:
Interest on long-term debt                                            42,179            44,737          127,067           135,684
Allowance for debt funds used during construction                     (1,390)             (915)          (5,112)           (4,585)
Interest on interim obligations                                        5,374             4,430           16,852            13,300
Amortization of debt discount, premium and expense, net               10,165             2,544           19,809             7,588
Other interest charges                                                 8,009             7,999           26,107            21,192
                                                               --------------    --------------   --------------    --------------
Net interest charges                                                  64,337            58,795          184,723           173,179
                                                               --------------    --------------   --------------    --------------
NET INCOME                                                           159,273           174,640          341,447           342,569
DIVIDENDS ON PREFERRED STOCK                                           6,684             6,702           19,921            20,377
                                                               --------------    --------------   --------------    --------------
NET INCOME AFTER DIVIDENDS ON
  PREFERRED STOCK                                              $     152,589     $     167,938    $     321,526     $     322,192
                                                               ==============    ==============   ==============    ==============










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

                                       16

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                              ALABAMA POWER COMPANY
                 CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
                        (Stated in Thousands of Dollars)

                                                                                                  For the Nine Months
                                                                                                  Ended September 30,
                                                                                                 ---------------------
                                                                                                 1996            1995
                                                                                                 ----            ----
<S>                                                                                          <C>             <C>
OPERATING ACTIVITIES:
Net income                                                                                   $   341,447     $   342,569
Adjustments to reconcile net income to net cash provided by operating activities--
         Depreciation and amortization                                                           303,893         272,505
         Deferred income taxes and investment tax credits, net                                       (50)         27,182
         Allowance for equity funds used during construction                                        (594)         (2,823)
         Other, net                                                                               22,666          59,823
         Changes in certain current assets and liabilities--
            Receivables, net                                                                     (39,366)        (88,215)
            Inventories                                                                           40,621          26,669
            Payables                                                                             (71,740)       (100,678)
            Taxes accrued                                                                         81,314          83,959
            Energy cost recovery, retail                                                          25,186         (18,693)
            Other                                                                                (37,291)        (32,948)
                                                                                             ------------    ------------
Net cash provided from operating activities                                                      666,086         569,350
                                                                                             ------------    ------------
INVESTING ACTIVITIES:
Gross property additions                                                                        (325,313)       (357,749)
Other                                                                                            (34,838)        (40,366)
                                                                                             ------------    ------------
Net cash used for investing activities                                                          (360,151)       (398,115)
                                                                                             ------------    ------------
FINANCING ACTIVITIES:
Proceeds--
     Company obligated  mandatorily  redeemable  preferred securities of Alabama
         Power Capital Trust I holding Company Junior
         Subordinated Notes (Note I)                                                              97,000               -
     Other long-term debt                                                                              -          50,000
Retirements--
     First mortgage bonds                                                                        (83,797)              -
     Other long-term debt                                                                           (706)        (50,563)
Interim obligations, net                                                                         (58,637)         60,128
Payment of preferred stock dividends                                                             (19,945)        (20,296)
Payment of common stock dividends                                                               (228,800)       (210,700)
Miscellaneous                                                                                     (3,042)         (1,567)
                                                                                             ------------    ------------
Net cash used for financing activities                                                          (297,927)       (172,998)
                                                                                             ------------    ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS                                                            8,008          (1,763)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                  12,616          14,676
                                                                                             ------------    ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                   $    20,624     $    12,913
                                                                                             ============    ============

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
     Interest (net of amount capitalized)                                                    $   152,197     $   148,104
     Income taxes                                                                                135,370         112,268





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

                                       17

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                              ALABAMA POWER COMPANY
                            CONDENSED BALANCE SHEETS
                        (Stated in Thousands of Dollars)

                                     ASSETS

                                                                          At September 30,
                                                                                1996                At December 31,
                                                                             (Unaudited)                 1995
                                                                         -------------------       -----------------
<S>                                                                        <C>                      <C>
UTILITY PLANT:
Plant in service                                                           $    10,705,412          $    10,430,792
Less accumulated provision for depreciation                                      4,051,259                3,838,093
                                                                           ----------------         ----------------
                                                                                 6,654,153                6,592,699
Nuclear fuel, at amortized cost                                                    107,488                  100,537
Construction work in progress                                                      320,079                  362,768
                                                                           ----------------         ----------------
Total                                                                            7,081,720                7,056,004
                                                                           ----------------         ----------------

OTHER PROPERTY AND INVESTMENTS:
Southern Electric Generating Company, at equity                                     25,771                   27,232
Nuclear decommissioning trusts, at market                                          122,526                  108,368
Miscellaneous                                                                       20,937                   19,156
                                                                           ----------------         ----------------
Total                                                                              169,234                  154,756
                                                                           ----------------         ----------------

CURRENT ASSETS:
Cash and cash equivalents                                                           20,624                   12,616
Receivables--
     Customer accounts receivable                                                  384,271                  355,833
     Other accounts and notes receivable                                            26,719                   28,082
     Affiliated companies                                                           48,639                   41,819
     Accumulated provision for uncollectible accounts                               (1,316)                  (1,212)
Refundable income taxes                                                                  -                    2,635
Fossil fuel stock, at average cost                                                  77,765                  106,627
Materials and supplies, at average cost                                            167,344                  179,103
Prepayments                                                                        146,903                  116,331
Vacation pay deferred                                                               28,369                   29,458
                                                                           ----------------         ----------------
Total                                                                              899,318                  871,292
                                                                           ----------------         ----------------

DEFERRED CHARGES:
Deferred charges related to income taxes                                           424,567                  436,837
Debt expense, being amortized                                                        7,512                    7,648
Premium on reacquired debt, being amortized                                         72,465                   89,967
Uranium enrichment decontamination and decommissioning fund                         40,282                   40,282
Miscellaneous                                                                       90,518                   87,574
                                                                           ----------------         ----------------
Total                                                                              635,344                  662,308
                                                                           ----------------         ----------------

TOTAL ASSETS                                                               $     8,785,616          $     8,744,360
                                                                           ================         ================







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

                                       18

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                              ALABAMA POWER COMPANY
                            CONDENSED BALANCE SHEETS
                        (Stated in Thousands of Dollars)

                         CAPITALIZATION AND LIABILITIES

                                                                            At September 30,
                                                                                  1996                At December 31,
                                                                               (Unaudited)                 1995
                                                                           -------------------      -------------------
<S>                                                                          <C>                      <C>
CAPITALIZATION:
Common stock equity--
Common stock (par value $40 per share)--
     authorized 6,000,000 shares; outstanding 5,608,955 shares               $     224,358            $     224,358
Paid-in capital                                                                  1,304,645                1,304,645
Premium on preferred stock                                                             146                      146
Retained earnings                                                                1,253,923                1,161,225
                                                                             --------------           --------------
                                                                                 2,783,072                2,690,374
Preferred stock                                                                    440,400                  440,400
Company obligated mandatorily redeemable preferred securities of
     Alabama Power Capital Trust I holding Company Junior
     Subordinated Notes (Note I)                                                    97,000                        -
Long-term debt                                                                   2,353,522                2,374,948
                                                                             --------------           --------------
Total                                                                            5,673,994                5,505,722
                                                                             --------------           --------------

CURRENT LIABILITIES:
Long-term debt due within one year                                                  20,749                   84,682
Notes payable to banks                                                              20,000                        -
Commercial paper                                                                   311,379                  390,016
Accounts payable--
     Affiliated companies                                                           71,643                   76,326
     Other                                                                          99,777                  182,401
Customer deposits                                                                   32,630                   30,353
Taxes accrued--
     Federal and state income                                                       45,577                   13,599
     Other                                                                          59,747                   18,158
Interest accrued                                                                    46,517                   53,527
Vacation pay accrued                                                                28,369                   29,458
Miscellaneous                                                                       82,825                   70,543
                                                                             --------------           --------------
Total                                                                              819,213                  949,063
                                                                             --------------           --------------

DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes                                                1,207,453                1,191,591
Accumulated deferred investment tax credits                                        296,835                  305,372
Prepaid capacity revenues, net                                                     125,024                  131,186
Uranium enrichment decontamination and decommissioning fund                         36,620                   36,620
Deferred credits related to income taxes                                           368,316                  386,038
Natural disaster reserve                                                            20,306                   17,959
Miscellaneous                                                                      237,855                  220,809
                                                                             --------------           --------------
Total                                                                            2,292,409                2,289,575
                                                                             --------------           --------------

TOTAL CAPITALIZATION AND LIABILITIES                                         $   8,785,616            $   8,744,360
                                                                             ==============           ==============


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

                                       19

</TABLE>

<PAGE>


                              ALABAMA POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

                    THIRD QUARTER 1996 vs. THIRD QUARTER 1995
                                       AND
                     YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 1995


RESULTS OF OPERATIONS

Earnings

ALABAMA's  net income after  dividends on preferred  stock for the third quarter
and  year-to-date  1996 was $152.6  million  and $321.5  million,  respectively,
compared to $167.9 million and $322.2 million for the  corresponding  periods of
1995.  Earnings decreased by 9.1% for the third quarter,  primarily due to lower
retail energy sales, and by 0.2% year-to-date.

     Significant  income statement items appropriate for discussion  include the
following:
<TABLE>
<CAPTION>

                                                                             Increase (Decrease)
                                                           --------------------------------------------------------
                                                                 Third Quarter                Year-To-Date
                                                           -------------------------- -----------------------------
                                                           (in thousands)       %     (in thousands)       %
<S>                                                           <C>              <C>       <C>             <C>
Revenues.............................................         $(40,073)        (4.4)     $(10,989)        (0.5)
Revenues from affiliates.............................           15,097         53.4        98,585        133.4
Fuel expense.........................................            2,736          1.1        71,777         12.0
Purchased power from affiliates......................          (13,509)       (32.9)      (26,330)       (28.1)
Maintenance expense..................................           11,062         21.6        18,825         10.8
Interest income......................................              681         11.7        14,746        218.1
Other, net...........................................              529          6.3       (10,716)       (54.1)
Amortization of debt discount, premium and
   expense, net......................................            7,621        299.6        12,221        161.1
</TABLE>

     Revenues. Excluding fuel revenues, which represent the pass-through of fuel
expenses  and do not affect net  income,  revenues  for the third  quarter  1996
decreased  $14.5  million,  compared to the  corresponding  period of 1995.  The
decrease in third  quarter  1996  revenues  reflects a decrease in the amount of
retail,  particularly  residential,  energy  sold as  well  as  rate  reductions
initiated by ALABAMA for certain  commercial  and industrial  customers.  Milder
weather during the third quarter of 1996 as compared to the  exceptionally  warm
summer of 1995 primarily impacted residential energy sales, which were down 7.3%
compared to the third quarter of 1995.  Commercial  energy sales increased 5.2%,
and industrial  energy sales  decreased  1.8% for the third quarter  compared to
1995. Total retail  kilowatt-hour  sales for the quarter were down 2.3% compared
to the same  period of 1995,  and  retail  revenues,  excluding  fuel  revenues,
decreased $20.1 million.

     Revenues from affiliates and Purchased power from affiliates. Revenues from
sales to affiliated  companies within the Southern  electric system,  as well as
purchases of energy,  will vary from period to period  depending on demand,  the
availability, and cost of generating resources at each company.

     Fuel expense. The increase in fuel expense for the year-to-date 1996 period
as  compared to the  corresponding  period of 1995 can be  attributed  to higher
generation.

                                       20
<PAGE>

                              ALABAMA POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION


     Maintenance expense. Maintenance expense increased for the third quarter of
1996 compared to the same period of 1995 primarily due to a reclassification  of
expenses  previously  charged to operations  and the write-off of obsolete steam
generating plant inventory.  These items, plus an accrual to partially replenish
the natural disaster reserve, represent the primary reasons for the year-to-date
increase.

     Interest income. The 1996 year-to-date increase in interest income compared
to the same period of 1995 reflects  approximately $5 million resulting from the
recognition of gains on sales of securities  within the nuclear  decommissioning
trust.  This increase in income was offset by a concurrent  recognition of other
interest  charges in accordance with FERC  requirements.  In addition,  interest
income was reduced in May 1995, pursuant to litigation,  as a result of a charge
of $9 million to reflect the refund of interest on the sales of  merchandise  by
vendors other than ALABAMA.

     Other,  net.  The  change in this  item for the  year-to-date  1996  period
compared to the same period of 1995 is  primarily  due to a $5.6 million gain on
the  disposition  of  property  which  was  recognized  in  1995  and  increased
contributions and injuries and damages expenses during 1996.

     Amortization  of debt discount,  premium and expense,  net. The increase in
this item for the current quarter and year-to-date  periods compared to the same
periods of 1995 is the result of ALABAMA's reducing the asset account,  relating
to premiums  incurred in connection  with the  refinancing of high-cost debt, by
approximately  $5.0  million  and  $8.0  million  in  February  and  July  1996,
respectively,  as allowed by the Alabama  PSC. See Note (H) in the "Notes to the
Condensed Financial Statements" herein for further details.

Future Earnings Potential

The results of  operations  discussed  above are not  necessarily  indicative of
future  earnings  potential.  The level of future  earnings  depends on numerous
factors ranging from energy sales growth to a less regulated,  more  competitive
environment.

     With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is  positioning  the business to meet the challenge of  increasing  competition.
Legislation  has been  enacted in Alabama  that would  establish  a process  for
determining  whether  utilities  would  experience  "stranded  costs"  upon  the
transfer of an existing customer of a utility to another electric supplier. This
legislation  authorizes  the  Alabama  PSC to make a  determination  of  whether
stranded  costs  would  exist as a result of such a transfer  by a  customer  of
ALABAMA and could require the customer  seeking an  alternative  supplier to pay
any stranded costs found to exist.  The legislation  has termination  provisions
keyed  to  passage  of  comprehensive   retail  electric   service   competition
legislation which addresses  stranded costs of existing utilities and eliminates
the  obligation of utilities to provide  generating  resources.  For  additional
information,  see Item 1 -  BUSINESS  "Competition"  and  Item 7 -  MANAGEMENT'S
DISCUSSION  AND ANALYSIS - "Future  Earnings  Potential"  of ALABAMA in the Form
10-K.

     Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be offset.  For additional  information about the Clean Air Act and
other  environmental  issues, see Item 7 - MANAGEMENT'S  DISCUSSION AND ANALYSIS
"Environmental Matters" of ALABAMA in the Form 10-K.

     Reference is made to Notes (B), (C), (F), (G), (H) and (J) in the "Notes to
the  Condensed   Financial   Statements"   herein  for   discussion  of  various
contingencies  and other  matters which may affect  future  earnings  potential.
Reference is also made to Part II - Item 1 - "Legal Proceedings" herein.

                                       21
<PAGE>

                              ALABAMA POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION


FINANCIAL CONDITION

Overview

The major change in ALABAMA's  financial  condition during the first nine months
of 1996 was the addition of  approximately  $325.3 million to utility plant. The
funds for these additions and other capital  requirements were derived primarily
from operating activities.  See ALABAMA's Condensed Statements of Cash Flows for
further details.

Financing Activities

During the first quarter of 1996,  maturities and  redemptions of first mortgage
bonds of ALABAMA totaled $83.8 million.  Also,  Alabama Power Capital Trust I, a
statutory  business trust  established for the sole purpose of holding ALABAMA's
junior subordinated notes and issuing preferred  securities,  sold $97.0 million
of its 7.375% trust preferred  securities  which are guaranteed by ALABAMA.  See
Note (I) in the "Notes to the Condensed Financial Statements" herein for further
details.  No additional  securities were issued,  redeemed or matured during the
second or third quarters.

     ALABAMA  has  authorized  the sale,  through a public  authority,  of $21.0
million of adjustable rate pollution  control revenue  refunding bonds due 2021.
It is expected  that proceeds from the sale of the new bonds will be applied not
later than  February 11, 1997, to the  redemption  of $21.0 million  outstanding
principal  amount of 7.40%  pollution  control  revenue  bonds  due  2016,  at a
redemption price of 102% plus accrued interest.  ALABAMA has also announced that
it  intends to redeem on January  2,  1997,  $19.8  million of its 9-1/4%  first
mortgage bonds due 2021, at par plus accrued interest, pursuant to provisions of
ALABAMA's  indenture  relating  to the  improvement  fund and use of proceeds of
released property.

     ALABAMA will continue to retire  higher-cost  debt and preferred  stock and
replace these securities with lower-cost capital, as market conditions permit.

Capital Requirements

Reference is made to Item 7 -  MANAGEMENT'S  DISCUSSION  AND ANALYSIS of ALABAMA
under "Capital  Requirements,"  "Other Capital  Requirements" and "Environmental
Matters" in the Form 10-K for a description  of ALABAMA's  capital  requirements
for  its  construction  program,  maturing  debt  and  environmental  compliance
efforts.

Sources of Capital

In addition to the financing  activities  previously  described herein,  ALABAMA
plans to obtain the funds  required for  construction  and other  purposes  from
sources  similar to those used in the past.  The amount,  type and timing of any
financings--if  needed--will  depend  upon  maintenance  of  adequate  earnings,
regulatory approval,  prevailing market conditions and other factors. Currently,
ALABAMA  expects to have adequate  earnings  coverage ratios for any anticipated
security  sales  through  at least  1998.  See Item 1 -  BUSINESS  -  "Financing
Programs" in the Form 10-K for additional information.

                                       22
<PAGE>

                              ALABAMA POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION


     To meet short-term cash needs and  contingencies,  ALABAMA had at September
30,  1996,  approximately  $20.6  million of cash and cash  equivalents  and had
committed lines of credit of approximately  $795 million (including $187 million
of  such  lines  under  which  borrowings  may be made  only  to  fund  purchase
obligations  relating to variable rate pollution  control bonds) with regulatory
authority for up to $750 million of short-term borrowing. At September 30, 1996,
ALABAMA had outstanding  $20.0 million of short-term  notes payable to banks and
$311.4 million of commercial paper. Since ALABAMA has no major generating plants
under construction, management believes that the need for working capital can be
adequately  met by  utilizing  lines of credit  without  maintaining  large cash
balances.

                                       23
<PAGE>

                              ARTHUR ANDERSEN LLP




                                                                       Exhibit 1





                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




TO ALABAMA POWER COMPANY:

     We have reviewed the accompanying  condensed balance sheet of ALABAMA POWER
COMPANY as of September 30, 1996, and the related condensed statements of income
for the  three-month  and nine-month  periods ended September 30, 1996 and 1995,
and  condensed  statements  of cash  flows  for  the  nine-month  periods  ended
September 30, 1996 and 1995. These financial  statements are the  responsibility
of the Company's management.

     We conducted our review in accordance  with  standards  established  by the
American  Institute  of  Certified  Public  Accountants.  A  review  of  interim
financial  information consists principally of applying analytical procedures to
financial  data and making  inquiries of persons  responsible  for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the  expression  of an opinion  regarding the  financial  statements  taken as a
whole. Accordingly, we do not express such an opinion.

     Based on our review,  we are not aware of any material  modifications  that
should be made to the financial  statements  referred to above for them to be in
conformity with generally accepted accounting principles.

     We have previously  audited, in accordance with generally accepted auditing
standards,  the balance  sheet of ALABAMA  POWER COMPANY as of December 31, 1995
(not presented  herein) and, in our report dated February 21, 1996, we expressed
an unqualified  opinion on that statement.  In our opinion,  the information set
forth in the  accompanying  condensed  balance  sheet as of December 31, 1995 is
fairly stated, in all material  respects,  in relation to the balance sheet from
which it has been derived.


/s/ARTHUR ANDERSEN LLP

Birmingham, Alabama
November 8, 1996

                                       24
<PAGE>

                              GEORGIA POWER COMPANY

                                       25

<PAGE>
<TABLE>
<CAPTION>
                              GEORGIA POWER COMPANY
                   CONDENSED STATEMENTS OF INCOME (UNAUDITED)
                        (Stated in Thousands of Dollars)

                                                                     For the Three Months               For the Nine Months
                                                                      Ended September 30,               Ended September 30,
                                                                    ----------------------             ----------------------
                                                                    1996              1995             1996              1995
                                                                    ----              ----             ----              ----
<S>                                                            <C>               <C>              <C>               <C>
OPERATING REVENUES:
Revenues                                                       $   1,303,783     $   1,341,661    $   3,444,445     $   3,356,077
Revenues from affiliates                                               7,044            31,895           29,367            66,875
                                                               --------------    --------------   --------------    --------------
Total operating revenues                                           1,310,827         1,373,556        3,473,812         3,422,952
                                                               --------------    --------------   --------------    --------------

OPERATING EXPENSES:
Operation--
     Fuel                                                            245,635           282,111          648,320           714,366
     Purchased power from non-affiliates                              46,563            53,871          124,335           142,585
     Purchased power from affiliates                                  51,592            36,721          174,349            94,606
     Provision for separation benefits                                 7,947             2,073           34,821             6,052
     Other                                                           171,032           211,983          532,035           549,969
Maintenance                                                           65,014            64,197          217,617           201,384
Depreciation and amortization                                        108,556           122,449          323,824           317,942
Amortization of deferred Plant Vogtle costs (Note M)                  34,077            32,493          101,070            90,443
Taxes other than income taxes                                         56,725            56,301          163,585           158,602
Federal and state income taxes                                       184,787           174,278          390,026           372,927
                                                               --------------    --------------   --------------    --------------
Total operating expenses                                             971,928         1,036,477        2,709,982         2,648,876
                                                               --------------    --------------   --------------    --------------
OPERATING INCOME                                                     338,899           337,079          763,830           774,076
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction                      912                61            1,167             2,471
Equity in earnings of unconsolidated subsidiary                          944               991            2,885             2,866
Interest income                                                        1,002             1,860            3,916             4,529
Other, net                                                           (20,281)          (11,997)         (29,671)            5,368
Income taxes applicable to other income                                7,800             2,841           10,326            (8,467)
                                                               --------------    --------------   --------------    --------------
INCOME BEFORE INTEREST CHARGES                                       329,276           330,835          752,453           780,843
                                                               --------------    --------------   --------------    --------------
INTEREST CHARGES:
Interest on long-term debt                                            51,492            61,571          157,602           199,029
Allowance for debt funds used during construction                     (2,724)           (2,447)          (9,215)           (9,498)
Interest on interim obligations                                        3,500             5,356           14,657            17,476
Amortization of debt discount, premium and expense, net                3,597             3,983           11,069            11,999
Other interest charges                                                 5,517             5,826           18,265            16,152
                                                               --------------    --------------   --------------    --------------
Net interest charges                                                  61,382            74,289          192,378           235,158
                                                               --------------    --------------   --------------    --------------
NET INCOME                                                           267,894           256,546          560,075           545,685
DIVIDENDS ON PREFERRED STOCK                                          12,415            11,843           35,906            36,321
                                                               --------------    --------------   --------------    --------------
NET INCOME AFTER DIVIDENDS ON
  PREFERRED STOCK                                              $     255,479     $     244,703    $     524,169     $     509,364
                                                               ==============    ==============   ==============    ==============








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

                                       26

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                              GEORGIA POWER COMPANY
                 CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
                        (Stated in Thousands of Dollars)

                                                                                                 For the Nine Months
                                                                                                 Ended September 30,
                                                                                              ------------------------
                                                                                              1996                1995
                                                                                              ----                ----
<S>                                                                                      <C>                 <C>
OPERATING ACTIVITIES:
Net income                                                                               $     560,075       $      545,685
Adjustments to reconcile net income to net cash provided by operating activities--
         Depreciation and amortization                                                         384,726              397,225
         Deferred income taxes and investment tax credits, net                                  45,883               46,289
         Allowance for equity funds used during construction                                    (1,167)              (2,471)
         Amortization of deferred Plant Vogtle costs (Note M)                                  101,070               90,443
         Gain on asset sales                                                                    (2,265)             (23,344)
         Other, net                                                                             45,120               61,254
         Changes in certain current assets and liabilities--
            Receivables, net                                                                   (55,008)            (136,413)
            Inventories                                                                         27,632               62,153
            Payables                                                                           (58,218)             (55,295)
            Taxes accrued                                                                      125,462              109,460
            Energy cost recovery, retail                                                        (9,416)              28,145
            Other                                                                              (15,161)              15,818
                                                                                         --------------      ---------------
Net cash provided from operating activities                                                  1,148,733            1,138,949
                                                                                         --------------      ---------------
INVESTING ACTIVITIES:
Gross property additions                                                                      (328,219)            (326,858)
Sales of property                                                                                1,800              131,099
Other                                                                                          (50,967)             (53,362)
                                                                                         --------------      ---------------
Net cash used for investing activities                                                        (377,386)            (249,121)
                                                                                         --------------      ---------------
FINANCING ACTIVITIES:
Proceeds--
     Company obligated mandatorily redeemable preferred securities
         of subsidiary substantially all of whose assets are Junior
         Subordinated Notes (Note K)                                                           225,000                    -
     First mortgage bonds                                                                       10,000               75,000
     Pollution control bonds                                                                   112,825              454,700
Retirements--
     Preferred stock                                                                           (78,897)                   -
     First mortgage bonds                                                                     (210,860)            (505,789)
     Pollution control bonds                                                                   (58,185)            (305,205)
     Other long-term debt                                                                            -              (37,000)
Special deposits - redemption funds                                                            (61,480)            (149,585)
Interim obligations, net                                                                      (298,117)             (33,875)
Payment of preferred stock dividends                                                           (35,705)             (36,540)
Payment of common stock dividends                                                             (365,700)            (333,800)
Miscellaneous                                                                                   (8,409)             (12,261)
                                                                                         --------------      ---------------
Net cash used for financing activities                                                        (769,528)            (884,355)
                                                                                         --------------      ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS                                                          1,819                5,473
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                28,930               12,539
                                                                                         --------------      ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                               $      30,749       $       18,012
                                                                                         ==============      ===============

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
     Interest (net of amount capitalized)                                                $     199,603       $      241,955
     Income taxes                                                                              261,270              277,260

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

                                       27

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                              GEORGIA POWER COMPANY
                            CONDENSED BALANCE SHEETS
                        (Stated in Thousands of Dollars)

                                     ASSETS

                                                                          At September 30,
                                                                               1996                At December 31,
                                                                            (Unaudited)                 1995
                                                                        -------------------      ------------------
<S>                                                                      <C>                      <C>
UTILITY PLANT:
Plant in service                                                         $    14,733,046          $    14,538,595
Less accumulated provision for depreciation                                    4,730,005                4,417,120
                                                                         ----------------         ----------------
                                                                              10,003,041               10,121,475
Nuclear fuel, at amortized cost                                                  121,340                  124,849
Construction work in progress                                                    273,215                  236,715
                                                                         ----------------         ----------------
Total                                                                         10,397,596               10,483,039
                                                                         ----------------         ----------------

OTHER PROPERTY AND INVESTMENTS:
Southern Electric Generating Company, at equity                                   25,771                   27,232
Nuclear decommissioning trusts, at market                                        123,511                   92,273
Miscellaneous                                                                    141,850                  120,383
                                                                         ----------------         ----------------
Total                                                                            291,132                  239,888
                                                                         ----------------         ----------------

CURRENT ASSETS:
Cash and cash equivalents                                                         30,749                   28,930
Special deposits - redemption funds                                               61,480                        -
Receivables--
     Customer accounts receivable                                                488,678                  418,749
     Other accounts and notes receivable                                          81,626                  102,953
     Affiliated companies                                                         15,427                   15,482
     Accumulated provision for uncollectible accounts                             (5,800)                  (5,000)
Fossil fuel stock, at average cost                                               119,636                  145,151
Materials and supplies, at average cost                                          284,687                  286,804
Prepayments                                                                       96,068                  107,764
Vacation pay deferred                                                             40,257                   35,543
                                                                         ----------------         ----------------
Total                                                                          1,212,808                1,136,376
                                                                         ----------------         ----------------

DEFERRED CHARGES:
Deferred charges related to income taxes                                         830,323                  871,783
Deferred Plant Vogtle costs (Note M)                                             206,568                  307,638
Premium on reacquired debt, being amortized                                      167,322                  174,018
Debt expense, being amortized                                                     32,556                   27,227
Miscellaneous                                                                    187,743                  230,306
                                                                         ----------------         ----------------
Total                                                                          1,424,512                1,610,972
                                                                         ----------------         ----------------

TOTAL ASSETS                                                             $    13,326,048          $    13,470,275
                                                                         ================         ================







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

                                       28

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                              GEORGIA POWER COMPANY
                            CONDENSED BALANCE SHEETS
                        (Stated in Thousands of Dollars)

                         CAPITALIZATION AND LIABILITIES

                                                                         At September 30,
                                                                               1996                 At December 31,
                                                                           (Unaudited)                  1995
                                                                        -------------------       ------------------
<S>                                                                      <C>                      <C>
CAPITALIZATION:
Common stock equity--
Common stock (without par value)--
     authorized 15,000,000 shares; outstanding 7,761,500 shares          $       344,250          $       344,250
Paid-in capital                                                                2,384,849                2,384,444
Premium on preferred stock                                                           371                      413
Retained earnings                                                              1,728,416                1,569,905
                                                                         ----------------         ----------------
                                                                               4,457,886                4,299,012
Preferred stock                                                                  513,640                  692,787
Company obligated mandatorily redeemable preferred securities
     of subsidiaries substantially all of whose assets are Junior
     Subordinated Debentures or Notes (Note K)                                   325,000                  100,000
Long-term debt                                                                 3,259,807                3,315,460
                                                                         ----------------         ----------------
Total                                                                          8,556,333                8,407,259
                                                                         ----------------         ----------------

CURRENT LIABILITIES:
Preferred stock due within one year                                              100,250                        -
Long-term debt due within one year                                                61,838                  150,446
Notes payable to banks                                                             1,300                  178,000
Commercial paper                                                                 100,913                  222,330
Accounts payable--
     Affiliated companies                                                         74,885                   72,878
     Other                                                                       222,664                  316,278
Customer deposits                                                                 62,690                   53,145
Taxes accrued--
     Federal and state income                                                     80,307                    7,759
     Other                                                                       149,547                   96,633
Interest accrued                                                                  77,868                   96,162
Vacation pay accrued                                                              38,739                   34,233
Miscellaneous                                                                    124,434                  137,184
                                                                         ----------------         ----------------
Total                                                                          1,095,435                1,365,048
                                                                         ----------------         ----------------

DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes                                              2,519,528                2,510,458
Accumulated deferred investment tax credits                                      419,359                  432,184
Deferred credits related to income taxes                                         389,579                  410,016
Miscellaneous                                                                    345,814                  345,310
                                                                         ----------------         ----------------
Total                                                                          3,674,280                3,697,968
                                                                         ----------------         ----------------

TOTAL CAPITALIZATION AND LIABILITIES                                     $    13,326,048          $    13,470,275
                                                                         ================         ================




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

                                       29

</TABLE>

<PAGE>


                              GEORGIA POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

                    THIRD QUARTER 1996 vs. THIRD QUARTER 1995
                                       AND
                     YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 1995


RESULTS OF OPERATIONS

Earnings

GEORGIA's  net income after  dividends on preferred  stock for the third quarter
and  year-to-date  1996 was $255.5  million  and $524.2  million,  respectively,
compared to $244.7 million and $509.4 million for the  corresponding  periods of
1995.  Earnings  increased  by  4.4%  for the  quarter  primarily  due to  lower
operating and interest expenses and by 2.9%  year-to-date  primarily as a result
of increased retail revenues and lower interest costs.

     Significant  income statement items appropriate for discussion  include the
following:
<TABLE>
<CAPTION>

                                                                             Increase (Decrease)
                                                            -------------------------------------------------------
                                                                  Third Quarter               Year-To-Date
                                                            -------------------------- ----------------------------
                                                            (in thousands)      %      (in thousands)       %
<S>                                                            <C>            <C>         <C>             <C>
Revenues.............................................          $(37,878)       (2.8)      $ 88,368          2.6
Revenue from affiliates..............................           (24,851)      (77.9)       (37,508)       (56.1)
Fuel expense.........................................           (36,476)      (12.9)       (66,046)        (9.2)
Purchased power from affiliates......................            14,871        40.5         79,743         84.3
Provision for separation benefits....................             5,874       283.4         28,769        475.4
Other operation expense..............................           (40,951)      (19.3)       (17,934)        (3.3)
Depreciation and amortization expense................           (13,893)      (11.3)         5,882          1.9
Other, net...........................................            (8,284)      (69.1)       (35,039)      (652.7)
Income taxes applicable to other income..............             4,959      (174.6)        18,793       (222.0)
Interest on long-term debt...........................           (10,079)      (16.4)       (41,427)       (20.8)
</TABLE>

     Revenues. Excluding fuel revenues, which represent the pass-through of fuel
expenses  and do not affect  income,  revenues for the third  quarter  decreased
$31.6 million and for  year-to-date  increased  $45.3  million,  compared to the
corresponding periods of 1995. The decrease in revenues for the third quarter is
primarily due to a 4.0% decrease in residential  kilowatt-hour  sales  resulting
from  milder-than-normal  weather.  Total retail  kilowatt-hour  sales increased
year-to-date primarily due to more favorable weather conditions during the first
and second  quarters of 1996 and a slight  increase  in the number of  customers
served.  Retail  revenues,  excluding  fuel  revenues,  decreased  3.1% or $30.3
million  for  the  current   quarter  and   increased   1.9%  or  $46.3  million
year-to-date.  Energy sales to non-affiliated  wholesale customers for the third
quarter 1996 compared to the same period in 1995 remained  relatively  flat, but
increased  6.5% for  year-to-date  1996 versus 1995  primarily  due to increased
demand by municipalities and cooperatives in Georgia. However, capacity revenues
from sales to  non-affiliated  utilities outside the service territory fell $0.2
million for the  quarter and $13.3  million  year-to-date  primarily  due to the
scheduled decline in megawatts of capacity under long-term contracts.

                                       30
<PAGE>

                              GEORGIA POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION


     Revenues  from  affiliates.  Revenues  from sales to  affiliated  companies
within the Southern electric system,  as well as purchases of energy,  will vary
from  period to period  depending  on demand  and the  availability  and cost of
generating  resources  at  each  company.  These  transactions  do  not  have  a
significant impact on earnings.

     Fuel  expense.  Fuel  expense  decreased  primarily  due to a  decrease  in
generation resulting from the timing of maintenance at fossil and nuclear plants
and a slightly lower average cost of fuel.  (See Purchased power from affiliates
below.)

     Purchased power from  affiliates.  As a result of the timing of maintenance
at fossil and nuclear plants  discussed  above,  purchased power from affiliates
increased  compared to the same periods of 1995.  Purchased  power  transactions
among the affiliated  companies  within the Southern  electric  system will vary
from  period to period  depending  on demand  and the  availability  and cost of
generating  resources  at  each  company.  These  transactions  do  not  have  a
significant impact on earnings.

     Provision for separation benefits. The increase in provision for separation
benefits for each period is attributable to work force reduction programs, which
have been implemented to control growth in future operating  expenses.  See Note
(G) in the "Notes to the  Condensed  Financial  Statements"  herein for  further
details.

     Other operation  expense.  The decrease in other operation  expense for the
current  quarter and  year-to-date  is primarily due to a charge in July 1995 of
$21.8 million of  demand-side  option  program costs not collected  through rate
riders  (see  Note (O) in the  "Notes  to the  Condensed  Financial  Statements"
herein)  and a charge in August  1995 of $12.6  million  of  Nuclear  Regulatory
Commission mandated study costs,  partially offset by increased cost under a new
three-year retail rate plan effective January 1, 1996.

     Depreciation  and  amortization  expense.  The decrease in depreciation and
amortization  for the  current  quarter  compared  to the same period of 1995 is
primarily due to a $15.3  million  charge to  amortization  expense in September
1995 for software  development  costs.  Depreciation and amortization  increased
year-to-date  1996 compared to  year-to-date  1995  primarily due to accelerated
depreciation  of generating  plant  pursuant to a new retail rate plan effective
January 1, 1996, and an increase in plant-in-service.

     Other,  net and Income taxes  applicable to other  income.  For the current
quarter,  the change in each of these items is primarily  the result of expenses
incurred in connection with activities related to the 1996 Summer Olympic games.
For the year-to-date  period, the primary reason for the change in each of these
items is the  completion  of the sale,  in June 1995,  of Plant  Scherer Unit 4,
which resulted in an after-tax gain of approximately $12.0 million.

     Interest on  long-term  debt.  The decline in  interest on  long-term  debt
reflects the redemption and refinancing of long-term debt.

Future Earnings Potential

The results of  operations  discussed  above are not  necessarily  indicative of
future  earnings  potential.  The level of future  earnings  depends on numerous
factors  ranging from energy sales growth to movement  towards a less regulated,
more competitive environment.

                                       31
<PAGE>

                              GEORGIA POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION


     With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition. For
additional  information,  see Item 1 -  BUSINESS  -  "Competition"  and Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of GEORGIA in
the Form 10-K.

     Effective  January 1, 1996,  GEORGIA  began  operating  under a  three-year
retail rate plan. Under the plan, GEORGIA's earnings will be evaluated against a
retail  return on common  equity  range of 10% to 12.5%.  GEORGIA is required to
absorb cost increases of approximately  $29.0 million annually during the plan's
three-year   operation,   including   $14.0  million   annually  of  accelerated
depreciation of electric  plant.  Reference is made to Note (L) in the "Notes to
the Condensed Financial Statements" herein for additional information.

     Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be offset.  For additional  information about the Clean Air Act and
other  environmental  issues, see Item 7 - MANAGEMENT'S  DISCUSSION AND ANALYSIS
"Environmental Issues" of GEORGIA in the Form 10-K.

     Reference is made to Notes (B),  (C), (F) and (L) through (R) in the "Notes
to  the  Condensed  Financial  Statements"  herein  for  discussion  of  various
contingencies  and other  matters which may affect  future  earnings  potential.
Reference is also made to Part II - Item 1 - "Legal Proceedings" herein.

FINANCIAL CONDITION

Overview

The major change in GEORGIA's  financial  condition during the first nine months
of 1996 was the addition of approximately $328.2 million to utility plant. These
additions were primarily related to transmission and distribution facilities and
to the purchase of nuclear fuel. The funds for these additions and other capital
requirements  were derived  primarily from operations.  See GEORGIA's  Condensed
Statements of Cash Flows for further details.

Financing Activities

During the first quarter of 1996,  $150.0  million of GEORGIA's  first  mortgage
bonds matured,  and GEORGIA sold $10.0 million of medium-term notes and redeemed
$6.8  million of  industrial  development  bonds.  In June 1996,  GEORGIA  sold,
through a public  authority,  $51.3 million of variable rate  pollution  control
revenue  bonds,  and the proceeds were applied to the redemption on July 1, 1996
of $51.3 million outstanding principal amount of 7.25% pollution control revenue
bonds. In August 1996, Georgia Power Capital Trust I, a statutory business trust
established for the sole purpose of holding GEORGIA's junior  subordinated notes
and  issuing  preferred  securities,  sold  $225.0  million  of its 7.75%  trust
preferred  securities,  which are  guaranteed  by GEORGIA.  (See Note (K) in the
"Notes to the Condensed  Financial  Statements"  herein for further details.) In
September  1996,  GEORGIA sold,  through  public  authorities,  $61.5 million of
variable rate  pollution  control  revenue bonds due 2026, and the proceeds were
applied  to the  redemption  on  October  1, 1996 of $61.5  million  outstanding
principal  amount of 6-3/8% to 8% pollution  control revenue bonds.  Also during
the third quarter 1996,  GEORGIA  redeemed $78.9 million of preferred  stock and
$60.9 million of first mortgage bonds.

                                       32
<PAGE>

                              GEORGIA POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION


     On November 2, 1996,  GEORGIA  redeemed  all of its  4,000,000  outstanding
shares of $2.125  preferred  stock at the redemption  price of $25.00 per share,
plus accrued  dividends.  GEORGIA plans to continue,  to the extent possible,  a
program  to  retire  higher-cost  debt and  preferred  stock and  replace  these
securities with lower-cost capital.

Capital Requirements

Reference is made to Item 7 -  MANAGEMENT'S  DISCUSSION  AND ANALYSIS of GEORGIA
under "Liquidity and Capital  Requirements"  and  "Environmental  Issues" in the
Form  10-K  for  a  description  of  GEORGIA's  capital   requirements  for  its
construction program and environmental compliance efforts.

Sources of Capital

In addition to the financing  activities  previously  described herein,  GEORGIA
plans to obtain the funds  required for  construction  and other  purposes  from
sources  similar to those used in the past.  The amount,  type and timing of any
financings--if  needed--will  depend  upon  maintenance  of  adequate  earnings,
regulatory approval,  prevailing market conditions and other factors. Currently,
GEORGIA  expects to have adequate  earnings  coverage ratios for any anticipated
security  sales  through  at least  1998.  See Item 1 -  BUSINESS  -  "Financing
Programs" in the Form 10-K for additional information.

     To meet short-term cash needs and  contingencies,  GEORGIA had at September
30,  1996,  approximately  $30.7  million  of  cash  and  cash  equivalents  and
approximately $854.7 million of unused credit arrangements with banks (including
$589.7 million of such  arrangements  under which borrowings may be made only to
fund purchase obligations relating to variable rate pollution control bonds). At
September 30, 1996,  GEORGIA had  outstanding  $1.3 million of short-term  notes
payable to banks and $100.9  million of commercial  paper.  Since GEORGIA has no
major generating plants under  construction,  management  believes that the need
for working  capital can be adequately met by utilizing  lines of credit without
maintaining large cash balances.

                                       33

<PAGE>

                              ARTHUR ANDERSEN LLP




                                                                       Exhibit 1





                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




TO GEORGIA POWER COMPANY:

     We have reviewed the accompanying  condensed balance sheet of GEORGIA POWER
COMPANY (a Georgia  corporation)  as of  September  30,  1996,  and the  related
condensed  statements of income for the three-month and nine-month periods ended
September 30, 1996 and 1995, and the condensed  statements of cash flows for the
nine-month periods ended September 30, 1996 and 1995. These financial statements
are the responsibility of the Company's management.

     We conducted our review in accordance  with  standards  established  by the
American  Institute  of  Certified  Public  Accountants.  A  review  of  interim
financial  information consists principally of applying analytical procedures to
financial  data and making  inquiries of persons  responsible  for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the  expression  of an opinion  regarding the  financial  statements  taken as a
whole. Accordingly, we do not express such an opinion.

     Based on our review,  we are not aware of any material  modifications  that
should be made to the financial  statements  referred to above for them to be in
conformity with generally accepted accounting principles.

     We have previously  audited, in accordance with generally accepted auditing
standards,  the balance  sheet of GEORGIA  POWER COMPANY as of December 31, 1995
(not presented herein), and, in our report dated February 21, 1996, we expressed
an unqualified  opinion on that statement.  In our opinion,  the information set
forth in the  accompanying  condensed  balance sheet as of December 31, 1995, is
fairly stated, in all material  respects,  in relation to the balance sheet from
which it has been derived.


/s/ARTHUR ANDERSEN LLP

Atlanta, Georgia
November 8, 1996

                                       34
<PAGE>

                               GULF POWER COMPANY

                                       35

<PAGE>
<TABLE>
<CAPTION>
                               GULF POWER COMPANY
                   CONDENSED STATEMENTS OF INCOME (UNAUDITED)
                        (Stated in Thousands of Dollars)

                                                                     For the Three Months            For the Nine Months
                                                                      Ended September 30,            Ended September 30,
                                                                     --------------------            -------------------
                                                                     1996            1995            1996           1995
                                                                     ----            ----            ----           ----
<S>                                                              <C>             <C>            <C>             <C>
OPERATING REVENUES:
Revenues                                                         $   173,993     $   178,335    $    477,986    $   461,441
Revenues from affiliates                                               5,626           5,916          10,375         16,785
                                                                 ------------    ------------   -------------   ------------
Total operating revenues                                             179,619         184,251         488,361        478,226
                                                                 ------------    ------------   -------------   ------------

OPERATING EXPENSES:
Operation--
     Fuel                                                             56,105          55,590         140,240        148,822
     Purchased power from non-affiliates                               2,941           3,897           6,804          6,964
     Purchased power from affiliates                                   6,835           9,696          32,177         19,884
     Other                                                            28,324          25,042          83,062         79,899
Maintenance                                                            8,998           9,975          38,360         32,952
Depreciation and amortization                                         14,199          13,863          42,373         41,212
Taxes other than income taxes                                         14,527          14,169          40,377         38,057
Federal and state income taxes                                        15,122          16,832          30,634         32,356
                                                                 ------------    ------------   -------------   ------------
Total operating expenses                                             147,051         149,064         414,027        400,146
                                                                 ------------    ------------   -------------   ------------
OPERATING INCOME                                                      32,568          35,187          74,334         78,080
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction                        1              22              12             69
Interest income                                                          376             520           1,142          1,433
Other, net                                                              (294)           (213)         (1,041)          (508)
Income taxes applicable to other income                                  (74)           (171)           (167)          (522)
                                                                 ------------    ------------   -------------   ------------
INCOME BEFORE INTEREST CHARGES                                        32,577          35,345          74,280         78,552
                                                                 ------------    ------------   -------------   ------------
INTEREST CHARGES:
Interest on long-term debt                                             5,880           5,838          18,264         17,709
Other interest charges                                                   288             339             793          1,044
Interest on notes payable                                                716             668           1,845          2,433
Amortization of debt discount, premium, and expense, net                 524             507           1,567          1,524
Allowance for debt funds used during construction                         (3)            (32)            (61)           (98)
                                                                 ------------    ------------   -------------   ------------
Net interest charges                                                   7,405           7,320          22,408         22,612
                                                                 ------------    ------------   -------------   ------------
NET INCOME                                                            25,172          28,025          51,872         55,940
DIVIDENDS ON PREFERRED STOCK                                           1,451           1,437           4,312          4,376
                                                                 ------------    ------------   -------------   ------------
NET INCOME AFTER DIVIDENDS ON
  PREFERRED STOCK                                                $    23,721     $    26,588    $     47,560    $    51,564
                                                                 ============    ============   =============   ============











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

                                       36

</TABLE>
<PAGE>

<TABLE>
<CAPTION>


                               GULF POWER COMPANY
                 CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
                        (Stated in Thousands of Dollars)

                                                                                                 For the Nine Months
                                                                                                 Ended September 30,
                                                                                               ----------------------
                                                                                               1996              1995
                                                                                               ----              ----
<S>                                                                                        <C>               <C>
OPERATING ACTIVITIES:
Net income                                                                                 $    51,872       $    55,940
Adjustments to reconcile net income to net cash provided by operating activities--
         Depreciation and amortization                                                          56,903            57,320
         Deferred income taxes, net                                                                559            (3,454)
         Allowance for equity funds used during construction                                       (12)              (69)
         Deferred costs of 1995 coal contract renegotiation                                      7,172                 -
         Other, net                                                                              5,841            (7,794)
         Changes in certain current assets and liabilities--
            Receivables, net                                                                    (7,868)          (20,755)
            Inventories                                                                         14,132             3,716
            Payables                                                                            (9,553)           17,211
            Taxes accrued                                                                       16,987            20,416
            Other                                                                               (8,157)              423
                                                                                           ------------      ------------
Net cash provided from operating activities                                                    127,876           122,954
                                                                                           ------------      ------------
INVESTING ACTIVITIES:
Gross property additions                                                                       (49,747)          (44,915)
Other                                                                                           (3,533)            3,081
                                                                                           ------------      ------------
Net cash used for investing activities                                                         (53,280)          (41,834)
                                                                                           ------------      ------------
FINANCING ACTIVITIES:
Proceeds--
     First mortgage bonds                                                                       30,000                 -
     Pollution control bonds                                                                    33,275                 -
     Other long-term debt                                                                       22,148                 -
Retirements--
     Preferred stock subject to mandatory redemption                                                 -            (1,000)
     First mortgage bonds                                                                       (1,750)           (1,750)
     Pollution control bonds                                                                   (33,275)                -
     Other long-term debt                                                                      (32,588)           (9,053)
Notes payable, net                                                                             (43,000)          (30,500)
Payment of preferred stock dividends                                                            (4,312)           (4,376)
Payment of common stock dividends                                                              (37,100)          (34,300)
Miscellaneous                                                                                   (1,852)             (131)
                                                                                           ------------      ------------
Net cash used for financing activities                                                         (68,454)          (81,110)
                                                                                           ------------      ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS                                                          6,142                10
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                   680               902
                                                                                           ------------      ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                 $     6,822       $       912
                                                                                           ============      ============

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
     Interest (net of amount capitalized)                                                  $    19,269       $    17,570
     Income taxes                                                                               20,846            25,505





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

                                       37
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                               GULF POWER COMPANY
                            CONDENSED BALANCE SHEETS
                        (Stated in Thousands of Dollars)

                                     ASSETS

                                                                At September 30,
                                                                     1996                 At December 31,
                                                                  (Unaudited)                  1995
                                                              --------------------      -------------------
<S>                                                             <C>                        <C>
UTILITY PLANT:
Plant in service                                                $   1,724,784              $   1,695,814
Less accumulated provision for depreciation                           685,361                    658,806
                                                                ----------------           --------------
                                                                    1,039,423                  1,037,008
Construction work in progress                                          28,400                     26,301
                                                                ----------------           --------------
Total                                                               1,067,823                  1,063,309
                                                                ----------------           --------------

OTHER PROPERTY AND INVESTMENTS:                                           654                        740
                                                                ----------------           --------------

CURRENT ASSETS:
Cash and cash equivalents                                               6,822                        680
Receivables--
     Customer accounts receivable                                      74,271                     69,166
     Other accounts and notes receivable                                3,618                      3,393
     Affiliated companies                                               3,413                        802
     Accumulated provision for uncollectible accounts                    (841)                      (768)
Fossil fuel stock, at average cost                                     25,707                     37,875
Materials and supplies, at average cost                                31,722                     33,686
Current portion of deferred coal contract costs                        16,359                     12,767
Regulatory clauses under recovery                                       8,120                      3,432
Prepaid income taxes                                                        -                      4,232
Other prepayments                                                       9,485                      8,000
Vacation pay deferred                                                   4,419                      4,419
                                                                ----------------           --------------
Total                                                                 183,095                    177,684
                                                                ----------------           --------------

DEFERRED CHARGES:
Deferred charges related to income taxes                               28,689                     29,093
Debt expense and loss, being amortized                                 20,668                     20,459
Deferred coal contract costs                                           19,198                     33,768
Deferred storm charges                                                  4,537                      7,502
Miscellaneous                                                           9,725                      9,304
                                                                ----------------           --------------
Total                                                                  82,817                    100,126
                                                                ----------------           --------------

TOTAL ASSETS                                                    $   1,334,389              $   1,341,859
                                                                ================           ==============










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

                                       38

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                               GULF POWER COMPANY
                            CONDENSED BALANCE SHEETS
                        (Stated in Thousands of Dollars)

                         CAPITALIZATION AND LIABILITIES

                                                                              At September 30,
                                                                                    1996              At December 31,
                                                                                (Unaudited)                1995
                                                                             -------------------     -----------------
<S>                                                                            <C>                       <C>
CAPITALIZATION:
Common stock equity--
Common stock (without par value)--
         authorized and outstanding--992,717 shares                            $      38,060             $      38,060
Paid-in capital                                                                      218,438                   218,438
Premium on preferred stock                                                                81                        81
Retained earnings                                                                    190,093                   179,663
                                                                               ----------------          --------------
                                                                                     446,672                   436,242
Preferred stock                                                                       89,602                    89,602
Long-term debt                                                                       331,871                   323,376
                                                                               ----------------          --------------
Total                                                                                868,145                   849,220
                                                                               ----------------          --------------

CURRENT LIABILITIES:
Long-term debt due within one year                                                    40,817                    31,548
Notes payable                                                                         37,500                    80,500
Accounts payable--
         Affiliated companies                                                         12,785                    14,447
         Other                                                                        16,839                    27,196
Customer deposits                                                                     13,453                    13,195
Taxes accrued--
         Federal and state income                                                      9,138                         -
         Other                                                                        17,007                     9,547
Interest accrued                                                                       7,088                     5,719
Regulatory clauses over recovery                                                       4,584                     2,800
Vacation pay accrued                                                                   4,419                     4,419
Miscellaneous                                                                          5,555                     7,356
                                                                               ----------------          --------------
Total                                                                                169,185                   196,727
                                                                               ----------------          --------------

DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes                                                    165,667                   162,345
Deferred credits related to income taxes                                              65,258                    67,481
Accumulated deferred investment tax credits                                           34,288                    36,052
Accumulated provision for postretirement benefits                                     17,661                    16,301
Miscellaneous                                                                         14,185                    13,733
                                                                               ----------------          --------------
Total                                                                                297,059                   295,912
                                                                               ----------------          --------------

TOTAL CAPITALIZATION AND LIABILITIES                                           $   1,334,389             $   1,341,859
                                                                               ================          ==============







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

                                       39

</TABLE>

<PAGE>

                               GULF POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

                    THIRD QUARTER 1996 vs. THIRD QUARTER 1995
                                       AND
                     YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 1995


RESULTS OF OPERATIONS

Earnings

GULF's net income after  dividends on preferred  stock for the third quarter and
year-to-date 1996 was $23.7 million and $47.6 million, respectively, compared to
$26.6 million and $51.6 million for the corresponding  periods of 1995. Earnings
decreased by 10.8% for the quarter  primarily due to lower  revenues as a result
of this year's  milder summer  temperatures  compared to the  exceptionally  hot
summer of 1995 and due to increased other operation expense.  Earnings decreased
by 7.8% year-to-date primarily due to higher operation and maintenance expenses.

     Significant  income statement items appropriate for discussion  include the
following:
<TABLE>
<CAPTION>

                                                                      Increase (Decrease)
                                                   ----------------------------------------------------------
                                                           Third Quarter                 Year-To-Date
                                                   ------------------------------ ---------------------------
                                                      (in thousands)      %        (in thousands)       %
<S>                                                    <C>              <C>           <C>             <C>
Revenues.........................................      $(4,342)          (2.4)        $16,545           3.6
Revenues from affiliates.........................         (290)          (4.9)         (6,410)        (38.2)
Purchased power from affiliates..................       (2,861)         (29.5)         12,293          61.8
Other operation expense..........................        3,282           13.1           3,163           4.0
Maintenance expense..............................         (977)          (9.8)          5,408          16.4
</TABLE>

     Revenues.  Of the $16.5  million  increase in revenues  year-to-date  1996,
approximately $6.9 million impacted earnings.  Territorial  revenues,  excluding
those  revenues  which  represent the  pass-through  of fuel expense and certain
other expenses and do not affect income, increased $4.9 million. The increase in
territorial  revenues for the current  year-to-date  period was  influenced by a
2.6% increase in retail kilowatt-hour sales compared to the same period of 1995.
This change in  year-to-date  retail  energy  sales is  primarily  due to higher
residential  and  commercial  sales as a  result  of  colder-than-normal  winter
weather during the first quarter of 1996 and a slight  increase in the number of
customers  served.  Industrial  sales  were  up  for  the  current  quarter  and
year-to-date periods while industrial revenues were down for the current quarter
and  year-to-date  periods,  compared to a year ago,  primarily due to increased
participation  in the  Real-Time-Pricing  program.  See  Item  7 -  MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Future  Earnings  Potential" of GULF in the Form 10-K
for information on initiatives to remain  competitive  and to meet  conservation
goals set by the Florida PSC.

     Revenues  from  affiliates.  Revenues  from sales to  affiliated  companies
within the Southern electric system,  as well as purchases of energy,  will vary
from  period to period  depending  on demand  and the  availability  and cost of
generating  resources  at  each  company.  These  transactions  do  not  have  a
significant impact on earnings.

                                       40
<PAGE>

                               GULF POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION


     Purchased  power from  affiliates.  The  reduction in purchased  power from
affiliates for the current  quarter,  compared to one year ago, is primarily due
to increased  availability  of GULF's  generating  units.  Purchased  power from
affiliates  was  higher  for  the  year-to-date  1996  period  compared  to  the
corresponding period of 1995 due to maintenance outages at Plant Crist and Plant
Daniel during the first half of 1996.  Purchased  power  transactions  among the
affiliated  companies within the Southern  electric system will vary from period
to  period  depending  on demand  and the  availability  and cost of  generating
resources at each company.  These  transactions do not have a significant impact
on earnings.

     Other operation  expense.  Other operation  expense increased for the third
quarter  and   year-to-date   1996   primarily   due  to  increases  in  various
administrative and general expenses,  including expenses related to the approved
increase of GULF's  annual  accrual to the  accumulated  provision  for property
damage to amortize  deferred storm charges and restore the account  balance to a
reasonable  level.  For  additional  information  regarding  the  provision  for
property  damage,  see Item 7 -  MANAGEMENT'S  DISCUSSION AND ANALYSIS - "Future
Earnings  Potential" of GULF in the Form 10-K.  Costs associated with work force
reduction  programs  also  contributed  to the  year-to-date  increase  in other
operation  expense.  For additional  information  regarding work force reduction
programs,  see Note (G) in the  "Notes to the  Condensed  Financial  Statements"
herein.

     Maintenance expense. The fluctuation in maintenance expense for the quarter
and  year-to-date  periods is primarily due to the  scheduling of maintenance on
production facilities.  The increase in maintenance expense for the year-to-date
1996 period compared to 1995 is primarily  attributable to scheduled maintenance
performed at Plant Crist and Plant Daniel during the first half of 1996.

Future Earnings Potential

The results of  operations  discussed  above are not  necessarily  indicative of
future  earnings  potential.  The level of future  earnings  depends on numerous
factors ranging from energy sales growth to a less regulated,  more  competitive
environment.

     With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition.  On
September  3,  1996,   the  Florida  PSC  approved   GULF's   petition  for  the
Commercial/Industrial   Service   Rider   (CISR)   to   be   implemented   on  a
pilot/experimental  basis. The CISR will allow GULF the flexibility to negotiate
prices  and other  terms of service  with its large  commercial  and  industrial
customers who have  competitive  alternatives  to taking  electric  service from
GULF.  For  additional  information,  see Item 7 -  MANAGEMENT'S  DISCUSSION AND
ANALYSIS  "Future  Earnings   Potential"  of  GULF  and  Item  1  -  BUSINESS  -
"Competition" in the Form 10-K.

     Compliance costs related to the Clean Air Act could affect earnings if such
costs are not fully recovered through GULF's environmental cost recovery clause.
For  additional  information  about the  Clean  Air Act and other  environmental
issues,  see Item 7 -  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS -  "Environmental
Matters" of GULF in the Form 10-K.

     Reference  is made to  Notes  (B) and (F) in the  "Notes  to the  Condensed
Financial  Statements" herein for discussion of various  contingencies and other
matters which may affect future earnings potential.

                                       41
<PAGE>

                               GULF POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION


FINANCIAL CONDITION

Overview

The major change in GULF's  financial  condition during the first nine months of
1996 was the addition of approximately $49.7 million to utility plant. The funds
for these additions and other capital  requirements  were derived primarily from
operations. See GULF's Condensed Statements of Cash Flows for further details.

Financing Activities

During the first half of 1996,  GULF sold $30.0 million of first mortgage bonds;
sold,  through public  authorities,  $33.3 million of pollution  control revenue
refunding  bonds and issued a $22.1 million bank note. GULF retired $1.8 million
of first mortgage bonds,  redeemed $12.075 million of pollution  control revenue
bonds,  redeemed $21.2 million of pollution  control revenue refunding bonds and
retired a $25.0  million  bank  note.  No  additional  securities  were  issued,
redeemed or matured during the third quarter.

     On November 6, 1996,  GULF entered into an agreement to sell $25.0  million
of 6-1/2% first mortgage bonds due 2006, and it is expected that delivery of the
bonds will be made on November 20, 1996.  Also, on November 20, 1996, GULF plans
to issue a $27.0  million bank note due 1999.  The proceeds from the sale of the
bonds  together  with  the  bank  borrowings  will  be  applied  by  GULF to the
redemption in December 1996 of the $49.2 million outstanding principal amount of
its 8-3/4% first mortgage bonds due 2021.  Such  redemption is subject to GULF's
closing the sale of the bonds and effecting the bank  borrowings.  GULF plans to
continue,  to the  extent  possible,  a program to retire  higher-cost  debt and
preferred stock and replace these securities with lower-cost capital.  Under the
terms of GULF's  supplemental  indenture  dated as of January 1, 1996,  retained
earnings of $127 million were  restricted  against the payment of cash dividends
on common stock at September 30, 1996.

Capital Requirements

Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of GULF under
"Capital  Requirements  for  Construction,"  "Environmental  Matters" and "Other
Capital  Requirements"  in the Form 10-K for a  description  of  GULF's  capital
requirements for its construction program,  environmental compliance efforts and
maturing debt. GULF's capital requirements for its construction program for 1996
through  1998 were  reduced in October  1996 by $52 million due to various  cost
reduction initiatives.  GULF's gross property additions, including those amounts
related to environmental  compliance,  are now budgeted at $157 million for 1996
through 1998 ($61 million in 1996, $47 million in 1997 and $49 million in 1998).
Approximately  $40.8 million will be required  through  September 30, 1997,  for
maturities of long-term debt.

Sources of Capital

In addition to the financing activities  previously described herein, GULF plans
to obtain the funds  required for  construction  and other purposes from sources
similar  to  those  used  in the  past.  The  amount,  type  and  timing  of any
financings--if  needed--will  depend  upon  maintenance  of  adequate  earnings,
regulatory approval,  prevailing market conditions and other factors. Currently,
GULF  expects to have  adequate  earnings  coverage  ratios for any  anticipated
security  sales  through  at least  1998.  See Item 1 -  BUSINESS  -  "Financing
Programs" in the Form 10-K for additional information.

                                       42
<PAGE>


                               GULF POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION


     To meet short-term cash needs and contingencies,  GULF had at September 30,
1996,  approximately $6.8 million of cash and cash equivalents and $49.3 million
of  unused  committed  lines of  credit  with  banks  (including  $20.3  million
liquidity  support for variable rate pollution  control bonds). At September 30,
1996, GULF had outstanding  $37.5 million of short-term  notes payable to banks.
Since  GULF  has no  major  generating  plants  under  construction,  management
believes that the need for working  capital can be  adequately  met by utilizing
lines of credit without maintaining large cash balances.

                                       43

<PAGE>
                                                           
                            MISSISSIPPI POWER COMPANY

                                       44
<PAGE>
<TABLE>
<CAPTION>
                            MISSISSIPPI POWER COMPANY
                   CONDENSED STATEMENTS OF INCOME (UNAUDITED)
                        (Stated in Thousands of Dollars)

                                                                   For the Three Months            For the Nine Months
                                                                    Ended September 30,            Ended September 30,
                                                                   --------------------            --------------------
                                                                   1996            1995            1996            1995
                                                                   ----            ----            ----            ----
<S>                                                            <C>             <C>             <C>            <C>
OPERATING REVENUES:
Revenues                                                       $   148,125     $   154,405     $   403,425    $    388,507
Revenues from affiliates                                             8,478           2,714          16,881           6,688
                                                               ------------    ------------    ------------   -------------
Total operating revenues                                           156,603         157,119         420,306         395,195
                                                               ------------    ------------    ------------   -------------

OPERATING EXPENSES:
Operation--
     Fuel                                                           40,029          37,366         106,506          90,692
     Purchased power from non-affiliates                            11,075           3,386          17,011           5,298
     Purchased power from affiliates                                 5,840          15,520          26,359          38,059
     Other                                                          25,686          27,807          76,958          78,502
Maintenance                                                         10,278           8,668          35,116          26,107
Depreciation and amortization                                       11,559          10,533          34,912          30,605
Taxes other than income taxes                                       11,082          10,893          32,532          30,097
Federal and state income taxes                                      13,384          14,429          27,477          29,396
                                                               ------------    ------------    ------------   -------------
Total operating expenses                                           128,933         128,602         356,871         328,756
                                                               ------------    ------------    ------------   -------------
OPERATING INCOME                                                    27,670          28,517          63,435          66,439
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction                     29             123             153             300
Interest income                                                         23              24             201              56
Other, net                                                             787           1,212           3,519           3,323
Income taxes applicable to other income                                 40            (241)           (983)           (777)
                                                               ------------    ------------    ------------   -------------
INCOME BEFORE INTEREST CHARGES                                      28,549          29,635          66,325          69,341
                                                               ------------    ------------    ------------   -------------
INTEREST CHARGES:
Interest on long-term debt                                           4,691           5,444          15,119          16,737
Allowance for debt funds used during construction                     (225)           (131)           (541)           (353)
Interest on notes payable                                              488             371           1,339             942
Amortization of debt discount, premium, and expense, net               390             392           1,159           1,137
Other interest charges                                                 196             173             696           1,037
                                                               ------------    ------------    ------------   -------------
Net interest charges                                                 5,540           6,249          17,772          19,500
                                                               ------------    ------------    ------------   -------------
NET INCOME                                                          23,009          23,386          48,553          49,841
DIVIDENDS ON PREFERRED STOCK                                         1,225           1,225           3,674           3,674
                                                               ------------    ------------    ------------   -------------
NET INCOME AFTER DIVIDENDS ON
  PREFERRED STOCK                                              $    21,784     $    22,161     $    44,879    $     46,167
                                                               ============    ============    ============   =============











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

                                       45

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                            MISSISSIPPI POWER COMPANY
                 CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
                        (Stated in Thousands of Dollars)

                                                                                                For the Nine Months
                                                                                                Ended September 30,
                                                                                               --------------------
                                                                                               1996            1995
                                                                                               ----            ----
<S>                                                                                        <C>             <C>
OPERATING ACTIVITIES:
Net income                                                                                 $    48,553     $    49,841
Adjustments to reconcile net income to net cash provided by operating activities--
         Depreciation and amortization                                                          39,372          40,259
         Deferred income taxes                                                                  (2,757)           (918)
         Allowance for equity funds used during construction                                      (153)           (300)
         Other, net                                                                                113           4,376
         Changes in certain current assets and liabilities--
            Receivables, net                                                                     1,751         (11,100)
            Inventories                                                                          4,765           3,880
            Payables                                                                            (1,489)          7,595
            Taxes accrued                                                                        2,834          (2,913)
            Other                                                                                  327           2,482
                                                                                           ------------    ------------
Net cash provided from operating activities                                                     93,316          93,202
                                                                                           ------------    ------------
INVESTING ACTIVITIES:
Gross property additions                                                                       (43,879)        (52,314)
Other                                                                                           (2,765)         (6,880)
                                                                                           ------------    ------------
Net cash used for investing activities                                                         (46,644)        (59,194)
                                                                                           ------------    ------------
FINANCING ACTIVITIES:
Proceeds--
     Capital contribution                                                                           27               -
     Pollution control bonds                                                                         -          10,600
     Other long-term debt                                                                       30,000               -
Retirements--
     First mortgage bonds                                                                      (45,447)         (1,625)
     Other long-term debt                                                                      (20,000)        (38,619)
Notes payable, net                                                                              16,500          29,000
Payment of preferred stock dividends                                                            (3,674)         (3,674)
Payment of common stock dividends                                                              (31,900)        (29,100)
Miscellaneous                                                                                   (2,932)              -
                                                                                           ------------    ------------
Net cash used for financing activities                                                         (57,426)        (33,418)
                                                                                           ------------    ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS                                                        (10,754)            590
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                12,641           1,317
                                                                                           ------------    ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                 $     1,887     $     1,907
                                                                                           ============    ============

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
     Interest (net of amount capitalized)                                                  $    16,715     $    17,307
     Income taxes                                                                               22,240          25,616








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

                                       46

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                            MISSISSIPPI POWER COMPANY
                            CONDENSED BALANCE SHEETS
                        (Stated in Thousands of Dollars)

                                     ASSETS

                                                                At September 30,
                                                                     1996                 At December 31,
                                                                  (Unaudited)                  1995
                                                               -------------------     -------------------
<S>                                                              <C>                      <C>
UTILITY PLANT:
Plant in service, at original cost                               $   1,469,969            $   1,434,327
Less accumulated provision for depreciation                            525,536                  499,308
                                                                 --------------           --------------
                                                                       944,433                  935,019
Construction work in progress                                           41,785                   41,210
                                                                 --------------           --------------
Total                                                                  986,218                  976,229
                                                                 --------------           --------------

OTHER PROPERTY AND INVESTMENTS:                                          3,081                    4,160
                                                                 --------------           --------------

CURRENT ASSETS:
Cash and cash equivalents                                                1,887                   12,641
Receivables--
     Customer accounts receivable                                       32,069                   30,761
     Other accounts and notes receivable                                 9,468                    9,438
     Affiliated companies                                                6,351                    9,213
     Accumulated provision for uncollectible accounts                   (1,029)                    (802)
Fossil fuel stock, at average cost                                      12,215                   15,666
Materials and supplies, at average cost                                 21,244                   22,558
Current portion of deferred fuel charges                                     -                    1,546
Current portion of accumulated deferred income taxes                     4,474                    5,180
Prepayments                                                              3,505                    2,404
Vacation pay deferred                                                    4,611                    4,715
                                                                 --------------           --------------
Total                                                                   94,795                  113,320
                                                                 --------------           --------------

DEFERRED CHARGES:
Debt expense and loss, being amortized                                  12,531                   10,039
Deferred charges related to income taxes                                23,073                   23,384
Deferred early retirement program costs                                  5,041                    7,286
Miscellaneous                                                           14,451                   14,535
                                                                 --------------           --------------
Total                                                                   55,096                   55,244
                                                                 --------------           --------------

TOTAL ASSETS                                                     $   1,139,190            $   1,148,953
                                                                 ==============           ==============












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

                                       47

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                            MISSISSIPPI POWER COMPANY
                            CONDENSED BALANCE SHEETS
                        (Stated in Thousands of Dollars)

                         CAPITALIZATION AND LIABILITIES

                                                                             At September 30,
                                                                                  1996               At December 31,
                                                                               (Unaudited)                 1995
                                                                           --------------------    ------------------
<S>                                                                          <C>                      <C>
CAPITALIZATION:
Common stock equity--
Common stock (without par value)--
     authorized 1,130,000 shares; outstanding 1,121,000 shares               $      37,691            $      37,691
Paid-in capital                                                                    179,389                  179,362
Premium on preferred stock                                                             372                      372
Retained earnings                                                                  170,437                  157,459
                                                                             --------------           --------------
                                                                                   387,889                  374,884
Preferred stock                                                                     74,414                   74,414
Long-term debt                                                                     276,312                  288,820
                                                                             --------------           --------------
Total                                                                              738,615                  738,118
                                                                             --------------           --------------

CURRENT LIABILITIES:
Long-term debt due within one year                                                  35,010                   57,229
Notes payable                                                                       16,500                        -
Accounts payable--
     Affiliated companies                                                            9,881                   13,646
     Other                                                                          37,350                   37,129
Customer deposits                                                                    3,016                    2,716
Taxes accrued--
     Federal and state income                                                        8,988                       97
     Other                                                                          25,759                   31,816
Interest accrued                                                                     4,398                    4,701
Miscellaneous                                                                       13,061                   13,453
                                                                             --------------           --------------
Total                                                                              153,963                  160,787
                                                                             --------------           --------------

DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes                                                  128,111                  129,711
Accumulated deferred investment tax credits                                         28,696                   29,773
Deferred credits related to income taxes                                            41,111                   43,266
Accumulated provision for property damage                                           12,580                   12,018
Miscellaneous                                                                       36,114                   35,280
                                                                             --------------           --------------
Total                                                                              246,612                  250,048
                                                                             --------------           --------------

TOTAL CAPITALIZATION AND LIABILITIES                                         $   1,139,190            $   1,148,953
                                                                             ==============           ==============









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

                                       48

</TABLE>

<PAGE>

                            MISSISSIPPI POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

                    THIRD QUARTER 1996 vs. THIRD QUARTER 1995
                                       AND
                     YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 1995


RESULTS OF OPERATIONS

Earnings

MISSISSIPPI's  net  income  after  dividends  on  preferred  stock for the third
quarter and year-to-date 1996 was $21.8 million and $44.9 million, respectively,
compared to $22.2  million and $46.2  million for the  corresponding  periods of
1995. The 1.7% decrease in earnings for the current quarter was primarily due to
a decrease in revenues  and an increase in  operating  expenses.  An increase in
operating expenses also affected  year-to-date  results as evidenced by the 2.8%
decrease in earnings compared to prior year.

     Significant  income statement items appropriate for discussion  include the
following:
<TABLE>
<CAPTION>

                                                                       Increase (Decrease)
                                                     --------------------------------------------------------
                                                           Third Quarter                Year-To-Date
                                                     --------------------------- ----------------------------
                                                      (in thousands)      %       (in thousands)       %
<S>                                                      <C>             <C>        <C>              <C>
Revenues...........................................      $(6,280)         (4.1)     $ 14,918           3.8
Revenues from affiliates...........................        5,764         212.4        10,193         152.4
Fuel expense.......................................        2,663           7.1        15,814          17.4
Purchased power from non-affiliates................        7,689         227.1        11,713         221.1
Purchased power from affiliates....................       (9,680)        (62.4)      (11,700)        (30.7)
Maintenance expense................................        1,610          18.6         9,009          34.5
Depreciation and amortization expense..............        1,026           9.7         4,307          14.1
Interest on long-term debt.........................         (753)        (13.8)       (1,618)         (9.7)
</TABLE>

     Revenues.  For the quarter and year-to-date  periods,  compared to one year
ago,  the  changes in  revenues  are due  primarily  to changes in the amount of
retail energy sold.  Retail  kilowatt-hour  sales decreased 0.3% for the quarter
and increased 3.8% year to date. Retail revenues, excluding those revenues which
represent  the  recovery of fuel expense and certain  other  expenses and do not
affect income, decreased $1.4 million for the quarter and increased $5.8 million
year to date.  The  changes in retail  sales for the  quarter  and  year-to-date
periods were primarily affected by favorable weather extremes experienced in the
summer  of 1995 and in the  first  half of  1996,  respectively.  For the  third
quarter,  sales to territorial wholesale customers were only slightly lower than
in 1995. For the year-to-date period,  sales to territorial  wholesale customers
were positively  impacted by favorable weather during the first half of 1996 and
customer  growth.   Year-to-date   1996  revenues  from  territorial   wholesale
customers,  excluding fuel revenues  which do not affect income,  increased $4.5
million compared to the same period of 1995, with an increase in energy sales of
7.4%.

     Revenues from affiliates and Purchased power from affiliates. Revenues from
sales to affiliated  companies within the Southern  electric system,  as well as
purchases of energy, will vary from period to period depending on demand and the
availability   and  cost  of  generating   resources  at  each  company.   These
transactions do not have a significant impact on earnings.

                                       49
<PAGE>

                            MISSISSIPPI POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION


     Fuel  expense.  The  increase  in fuel  expense  for the third  quarter and
year-to-date  1996 as  compared  to the  corresponding  periods  of 1995  can be
attributed  to  higher  generation  due  to  increased  kilowatt-hour  sales  to
affiliated companies.

     Purchased  power from  non-affiliates.  The  increase  in this item for the
current quarter and  year-to-date  periods results  primarily from the purchase,
beginning in June 1996, of capacity and energy from another utility as discussed
later under "Future Earnings Potential."

     Maintenance  expense.  The increase in maintenance  expense for the current
quarter is primarily  attributable  to  maintenance  performed at two generating
plants/units  during the third  quarter of 1996.  Maintenance  performed  at two
generating  plants during the first and second quarters of 1996 also contributed
to the increase in  maintenance  expense for the 1996  year-to-date  period.  In
1995,  maintenance  normally  performed  during the first  quarter was postponed
until the fourth quarter.

     Depreciation and amortization expense. Additional plant investment,  higher
depreciation  rates beginning in 1996, and increased  amortization of regulatory
assets,  primarily  those  assets  related  to the ECO plan,  accounted  for the
increases in this item.

     Interest on  long-term  debt.  The decline in  interest on  long-term  debt
reflects the redemption and refinancing of long-term debt.

Future Earnings Potential

The results of  operations  discussed  above are not  necessarily  indicative of
future  earnings  potential.  The level of future  earnings  depends on numerous
factors ranging from energy sales growth to a less regulated,  more  competitive
environment.  Operating  revenues will be affected by any changes in rates under
the PEP and ECO plans. The PEP has proven to be a stabilizing  force on electric
rates,   with  only  moderate   changes  in  rates  taking  place.   Based  upon
MISSISSIPPI's semi-annual PEP evaluation for the period ended June 30, 1996, the
Mississippi  PSC approved a retail  revenue  increase of $4.5 million  (1.06% of
annual retail revenue), effective October 1996. MISSISSIPPI's 1996 annual filing
under the ECO plan with the  Mississippi  PSC  resulted  in an  approved  annual
revenue requirement decrease of $3.0 million, effective April 1996.

     MISSISSIPPI  has entered into  agreements to purchase  summer peaking power
and  options  for  power for the  years  1996  through  2000.  For June  through
September of 1996, MISSISSIPPI entered into an agreement to buy 242 megawatts of
capacity  and  energy  from  another  electric  utility.  For each June  through
September  period of 1997 through 2000,  MISSISSIPPI has purchased  options from
power  marketers for up to 250 megawatts of peaking power in 1997; 300 megawatts
in 1998;  350 megawatts in 1999;  and 400  megawatts in 2000. In June 1996,  the
Mississippi  PSC  approved  MISSISSIPPI's  request  that it be allowed to earn a
return on the capacity portion of these agreements.

     With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition. For
additional  information,  see Item 1 -  BUSINESS  -  "Competition"  and Item 7 -
MANAGEMENT'S   DISCUSSION  AND  ANALYSIS  -  "Future   Earnings   Potential"  of
MISSISSIPPI in the Form 10-K.

                                       50
<PAGE>

                            MISSISSIPPI POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION


     Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be recovered.  For additional  information  about the Clean Air Act
and  other  environmental  issues,  see  Item 7 -  MANAGEMENT'S  DISCUSSION  AND
ANALYSIS - "Environmental Matters" of MISSISSIPPI in the Form 10-K.

     Reference is made to Notes (B), (F) and (G) in the "Notes to the  Condensed
Financial  Statements" herein for discussion of various  contingencies and other
matters which may affect future  earnings  potential.  Reference is also made to
Part II - Item 1 - "Legal Proceedings" herein.

FINANCIAL CONDITION

Overview

The major  change in  MISSISSIPPI's  financial  condition  during the first nine
months of 1996 was the addition of approximately $43.9 million to utility plant.
The funds for  these  additions  and other  capital  requirements  were  derived
primarily from operations and an increase in short-term debt. See  MISSISSIPPI's
Condensed Statements of Cash Flows for further details.

Financing Activities

During  the  first  half of  1996,  $20.0  million  in bank  notes  matured  and
MISSISSIPPI issued a $30.0 million bank note and redeemed $45.4 million of first
mortgage bonds. No additional securities were issued, redeemed or matured during
the third quarter.

     MISSISSIPPI plans to continue,  to the extent possible, a program to retire
higher-cost   debt  and  preferred  stock  and  replace  these  securities  with
lower-cost capital.

Capital Requirements

Reference  is  made  to  Item  7  -  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  of
MISSISSIPPI  under  "Capital  Requirements  for  Construction,"   "Environmental
Matters" and "Other Capital  Requirements" in the Form 10-K for a description of
MISSISSIPPI's capital requirements for its construction  program,  environmental
compliance efforts,  sinking fund requirements and maturities of long-term debt.
Through  September  30, 1997,  approximately  $35.0 million will be required for
maturities of long-term debt.

Sources of Capital

In addition to the financing activities previously described herein, MISSISSIPPI
plans to obtain the funds  required for  construction  and other  purposes  from
sources  similar to those used in the past.  The amount,  type and timing of any
financings--if  needed--will  depend  upon  maintenance  of  adequate  earnings,
regulatory approval,  prevailing market conditions and other factors. Currently,
MISSISSIPPI   expects  to  have  adequate   earnings  coverage  ratios  for  any
anticipated  security  sales  through  at least  1998.  See Item 1 -  BUSINESS -
"Financing Programs" in the Form 10-K for additional information.

                                       51
<PAGE>

                            MISSISSIPPI POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION


     To  meet  short-term  cash  needs  and  contingencies,  MISSISSIPPI  had at
September 30, 1996,  approximately $1.9 million of cash and cash equivalents and
approximately  $96.3 million of unused committed credit  arrangements with banks
(including $10.8 million of such arrangements under which borrowings may be made
only to fund purchase  obligations  relating to variable rate pollution  control
bonds).  At September 30, 1996,  MISSISSIPPI  had  outstanding  $16.5 million of
short-term  notes payable to banks.  Since  MISSISSIPPI has no major  generating
plants under construction, management believes that the need for working capital
can be adequately  met by utilizing  lines of credit without  maintaining  large
cash balances.

                                       52
<PAGE>

                                SAVANNAH ELECTRIC
                                       AND
                                  POWER COMPANY

                                       53

<PAGE>
<TABLE>
<CAPTION>
                       SAVANNAH ELECTRIC AND POWER COMPANY
                   CONDENSED STATEMENTS OF INCOME (UNAUDITED)
                        (Stated in Thousands of Dollars)

                                                                  For the Three Months          For the Nine Months
                                                                  Ended September 30,           Ended September 30,
                                                                  -------------------          --------------------
                                                                  1996           1995          1996            1995
                                                                  ----           ----          ----            ----
<S>                                                            <C>           <C>           <C>             <C>
OPERATING REVENUES:
Revenues                                                       $  72,676     $   71,517    $   183,226     $   172,731
Revenues from affiliates                                             683          1,932          2,614           5,134
                                                               ----------    -----------   ------------    ------------
Total operating revenues                                          73,359         73,449        185,840         177,865
                                                               ----------    -----------   ------------    ------------

OPERATING EXPENSES:
Operation--
     Fuel                                                         11,482         12,096         24,174          21,587
     Purchased power from non-affiliates                             802          1,149          2,014           1,867
     Purchased power from affiliates                              14,395         13,417         45,915          40,861
     Other                                                        10,624         11,235         32,317          32,162
Maintenance                                                        3,064          2,831          9,515          10,323
Depreciation and amortization                                      4,525          4,747         14,329          14,202
Taxes other than income taxes                                      3,195          2,871          9,373           8,791
Federal and state income taxes                                     8,730          8,665         15,313          15,246
                                                               ----------    -----------   ------------    ------------
Total operating expenses                                          56,817         57,011        152,950         145,039
                                                               ----------    -----------   ------------    ------------
OPERATING INCOME                                                  16,542         16,438         32,890          32,826
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction                   48             34            229              93
Interest income                                                       24              5            129             106
Other, net                                                          (747)          (121)        (1,465)           (235)
Income taxes applicable to other income                              607             45            840              50
                                                               ----------    -----------   ------------    ------------
INCOME BEFORE INTEREST CHARGES                                    16,474         16,401         32,623          32,840
                                                               ----------    -----------   ------------    ------------
INTEREST CHARGES:
Interest on long-term debt                                         2,769          3,045          8,787           9,474
Allowance for debt funds used during construction                    (46)          (112)          (222)           (307)
Interest on notes payable                                             81             12            219             135
Amortization of debt discount, premium, and expense, net             185            103            396             344
Other interest charges                                                89             79            286             297
                                                               ----------    -----------   ------------    ------------
Net interest charges                                               3,078          3,127          9,466           9,943
                                                               ----------    -----------   ------------    ------------
NET INCOME                                                        13,396         13,274         23,157          22,897
DIVIDENDS ON PREFERRED STOCK                                         581            581          1,743           1,743
                                                               ----------    -----------   ------------    ------------
NET INCOME AFTER DIVIDENDS ON
  PREFERRED STOCK                                              $  12,815     $   12,693    $    21,414     $    21,154
                                                               ==========    ===========   ============    ============











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

                                       54

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                       SAVANNAH ELECTRIC AND POWER COMPANY
                 CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
                        (Stated in Thousands of Dollars)

                                                                                                  For the Nine Months
                                                                                                  Ended September 30,
                                                                                                 --------------------
                                                                                                 1996            1995
                                                                                                 ----            ----
<S>                                                                                          <C>             <C>
OPERATING ACTIVITIES:
Net income                                                                                   $    23,157     $    22,897
Adjustments to reconcile net income to net cash provided by operating activities--
         Depreciation and amortization                                                            15,248          15,202
         Deferred income taxes and investment tax credits, net                                     5,974           3,102
         Allowance for equity funds used during construction                                        (229)            (93)
         Other, net                                                                                1,983            (783)
         Changes in certain current assets and liabilities--
            Receivables, net                                                                      (6,668)         (6,674)
            Inventories                                                                           (1,022)          2,090
            Payables                                                                                (171)          5,725
            Taxes accrued                                                                          5,689           8,514
            Other                                                                                 (3,594)         (6,413)
                                                                                             ------------    ------------
Net cash provided from operating activities                                                       40,367          43,567
                                                                                             ------------    ------------
INVESTING ACTIVITIES:
Gross property additions                                                                         (21,078)        (19,500)
Other                                                                                             (4,774)           (547)
                                                                                             ------------    ------------
Net cash used for investing activities                                                           (25,852)        (20,047)
                                                                                             ------------    ------------
FINANCING ACTIVITIES:
Proceeds--
     First mortgage bonds                                                                         20,000          15,000
     Other long-term debt                                                                         17,000          33,500
Retirements--
     First mortgage bonds                                                                        (29,400)        (29,250)
     Other long-term debt                                                                           (403)        (22,554)
Notes payable, net                                                                                (2,500)         (2,500)
Payment of preferred stock dividends                                                              (1,743)         (1,743)
Payment of common stock dividends                                                                (14,400)        (13,000)
Miscellaneous                                                                                     (2,241)         (2,019)
                                                                                             ------------    ------------
Net cash used for financing activities                                                           (13,687)        (22,566)
                                                                                             ------------    ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS                                                              828             954
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                     877           1,563
                                                                                             ------------    ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                   $     1,705     $     2,517
                                                                                             ============    ============

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
     Interest (net of amount capitalized)                                                    $    10,987     $    11,984
     Income taxes                                                                                  6,070           5,811









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

                                       55


</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                       SAVANNAH ELECTRIC AND POWER COMPANY
                            CONDENSED BALANCE SHEETS
                        (Stated in Thousands of Dollars)

                                     ASSETS

                                                                               At September 30,
                                                                                    1996               At December 31,
                                                                                 (Unaudited)                1995
                                                                               ----------------        ---------------
<S>                                                                              <C>                     <C>
UTILITY PLANT:
Plant in service, at original cost                                               $   731,005             $   715,146
Less accumulated provision for depreciation                                          299,406                 287,004
                                                                                 ------------            ------------
                                                                                     431,599                 428,142
Construction work in progress                                                         13,853                   6,707
                                                                                 ------------            ------------
Total                                                                                445,452                 434,849
                                                                                 ------------            ------------

OTHER PROPERTY AND INVESTMENTS:                                                        1,786                   1,788
                                                                                 ------------            ------------

CURRENT ASSETS:
Cash and cash equivalents                                                              1,705                     877
Receivables--
     Customer accounts receivable                                                     25,652                  19,574
     Other accounts and notes receivable                                               1,011                   7,251
     Affiliated companies                                                                854                     614
     Accumulated provision for uncollectible accounts                                   (887)                   (983)
     Fuel cost under recovery                                                          6,494                       -
Fossil fuel stock, at average cost                                                     6,868                   6,076
Materials and supplies, at average cost                                                8,469                   8,239
Prepayments                                                                            5,094                   6,467
                                                                                 ------------            ------------
Total                                                                                 55,260                  48,115
                                                                                 ------------            ------------

DEFERRED CHARGES:
Deferred charges related to income taxes                                              20,603                  21,557
Premium on reacquired debt, being amortized                                            7,305                   5,316
Cash surrender value of life insurance for deferred compensation plans                 8,560                   8,560
Miscellaneous                                                                          4,062                   4,477
                                                                                 ------------            ------------
Total                                                                                 40,530                  39,910
                                                                                 ------------            ------------

TOTAL ASSETS                                                                     $   543,028             $   524,662
                                                                                 ============            ============














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

                                       56

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                       SAVANNAH ELECTRIC AND POWER COMPANY
                            CONDENSED BALANCE SHEETS
                        (Stated in Thousands of Dollars)

                         CAPITALIZATION AND LIABILITIES

                                                                               At September 30,
                                                                                    1996               At December 31,
                                                                                 (Unaudited)                1995
                                                                               ----------------        ---------------
<S>                                                                              <C>                     <C>
CAPITALIZATION:
Common stock equity--
Common stock (par value $5 per share)--
     authorized 16,000,000 shares; outstanding 10,844,635 shares                 $    54,223             $    54,223
Paid-in capital                                                                        8,688                   8,688
Additional minimum liability
     for under-funded pension obligations                                             (1,116)                   (132)
Retained earnings                                                                    112,046                 105,033
                                                                                 ------------            ------------
                                                                                     173,841                 167,812
Preferred stock                                                                       35,000                  35,000
Long-term debt                                                                       161,826                 153,679
                                                                                 ------------            ------------
Total                                                                                370,667                 356,491
                                                                                 ------------            ------------

CURRENT LIABILITIES:
Long-term debt due within one year                                                       602                   1,407
Notes payable                                                                          1,500                   4,000
Accounts payable--
     Affiliated companies                                                              5,257                   5,742
     Other                                                                             5,629                   5,620
Fuel cost over recovery                                                                    -                     865
Customer deposits                                                                      5,175                   5,054
Taxes accrued--
     Federal and state income                                                          2,997                     570
     Other                                                                             4,276                   1,014
Interest accrued                                                                       4,464                   6,331
Vacation pay accrued                                                                   1,987                   1,916
Pensions accrued                                                                         397                     685
Miscellaneous                                                                          5,385                   5,185
                                                                                 ------------            ------------
Total                                                                                 37,669                  38,389
                                                                                 ------------            ------------

DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes                                                     76,908                  74,152
Accumulated deferred investment tax credits                                           13,436                  13,934
Deferred credits related to income taxes                                              23,725                  24,419
Deferred compensation plans                                                            8,317                   7,690
Deferred under-funded accrued benefit obligation                                       3,727                   2,123
Postretirement benefits                                                                5,464                   4,728
Miscellaneous                                                                          3,115                   2,736
                                                                                 ------------            ------------
Total                                                                                134,692                 129,782
                                                                                 ------------            ------------

TOTAL CAPITALIZATION AND LIABILITIES                                             $   543,028             $   524,662
                                                                                 ============            ============



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

                                       57

</TABLE>

<PAGE>

                       SAVANNAH ELECTRIC AND POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

                    THIRD QUARTER 1996 vs. THIRD QUARTER 1995
                                       AND
                     YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 1995


RESULTS OF OPERATIONS

Earnings

SAVANNAH's  earnings for the quarter and  year-to-date  periods  remained fairly
constant compared to the corresponding  periods of 1995,  increasing by 1.0% and
1.2%, respectively. SAVANNAH's net income after dividends on preferred stock for
the third quarter and  year-to-date  1996 was $12.8  million and $21.4  million,
respectively,  compared to $12.7 million and $21.2 million for the corresponding
periods of 1995.

     Significant  income statement items appropriate for discussion  include the
following:
<TABLE>
<CAPTION>

                                                                       Increase (Decrease)
                                                     ---------------------------------------------------------
                                                           Third Quarter                 Year-To-Date
                                                     --------------------------- -----------------------------
                                                     (in thousands)       %       (in thousands)       %
<S>                                                      <C>           <C>           <C>             <C>
Revenues.......................................          $ 1,159         1.6         $10,495           6.1
Revenues from affiliates.......................           (1,249)      (64.6)         (2,520)        (49.1)
Fuel expense...................................             (614)       (5.1)          2,587          12.0
Purchased power from affiliates................              978         7.3           5,054          12.4
Other, net.....................................             (626)     (517.4)         (1,230)       (523.4)
</TABLE>

         Revenues.  Excluding fuel revenues, which represent the pass-through of
fuel expenses and do not affect income, revenues for the quarter remained fairly
constant,  while revenues  year-to-date 1996 increased  approximately  $227,000,
compared to the  corresponding  periods of 1995.  The  increase in  year-to-date
revenues was due  primarily to an increase in the amount of retail  energy sold.
Year-to-date 1996 total retail  kilowatt-hour sales increased 2.1% over the same
period  of  1995,  and  retail  revenues,  excluding  fuel  revenues,  increased
approximately  $1.0 million. A slight increase in the number of customers served
coupled with increased usage per customer  accounted for most of the increase in
residential  and  commercial  demand;   however,   kilowatt-hour  sales  to  the
industrial  sector  were down  primarily  due to a reduction  in the  production
schedule of one of SAVANNAH's major industrial customers.

     Revenues from affiliates and Purchased power from affiliates. Revenues from
sales to affiliated  companies within the Southern  electric system,  as well as
purchases of energy, will vary from period to period depending on demand and the
availability   and  cost  of  generating   resources  at  each  company.   These
transactions do not have a significant impact on earnings.

     Fuel  expense.  The  decrease in fuel  expense  for the current  quarter as
compared  to the  same  period  of 1995 is  primarily  attributable  to a timing
difference  in  accrual  of gas  invoices.  The  increase  in fuel  expense  for
year-to-date  1996 as compared to year-to-date  1995 can be attributed to higher
generation  necessary to meet the increased  demand for electricity and a higher
average cost of fuel.

                                       58
<PAGE>

                       SAVANNAH ELECTRIC AND POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION


     Other,  net. For the current  quarter  compared to the same period of 1995,
the  change in this item is  primarily  due to  employee  stock  ownership  plan
contributions  in  September  1996  versus  October  1995 and due to the sale of
timber in 1995. The year-to-date change in this item is attributable to the same
factors affecting the third quarter as well as the  discontinuation of incentive
revenues under the demand-side  option program  effective  October 1, 1995. (For
additional  information about the demand-side option program,  reference is made
to Note (S) in the "Notes to the Condensed Financial Statements" herein.)

Future Earnings Potential

The results of  operations  discussed  above are not  necessarily  indicative of
future  earnings  potential.  The level of future  earnings  depends on numerous
factors ranging from energy sales growth to a less regulated,  more  competitive
environment.

     With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition. For
additional  information,  see Item 1 -  BUSINESS  -  "Competition"  and Item 7 -
MANAGEMENT'S  DISCUSSION AND ANALYSIS - "Future Earnings  Potential" of SAVANNAH
in the Form 10-K.

     Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be offset.  For additional  information about the Clean Air Act and
other  environmental  issues, see Item 7 - MANAGEMENT'S  DISCUSSION AND ANALYSIS
"Environmental Matters" of SAVANNAH in the Form 10-K.

     Reference  is made to  Notes  (B) and (T) in the  "Notes  to the  Condensed
Financial  Statements" herein for discussion of various  contingencies and other
matters which may affect future earnings potential.

FINANCIAL CONDITION

Overview

The major change in SAVANNAH's  financial condition during the first nine months
of 1996 was the addition of  approximately  $21.1 million to utility plant.  The
funds for these additions and other capital  requirements were derived primarily
from operations.  See SAVANNAH's  Condensed Statements of Cash Flows for further
details.

Financing Activities

During the first  quarter of 1996,  SAVANNAH  retired $1.2 million of its 9 3/8%
first  mortgage  bonds  to meet  sinking  fund  requirements  and  entered  into
arrangements  with the Savannah Economic  Development  Authority to provide $7.0
million for the financing of a new coal handling facility at Plant Kraft. During
the second quarter,  SAVANNAH issued $20.0 million of 6.90% first mortgage bonds
due 2006 and a $10.0 million 6.88% bank note due 2001. The proceeds were used to
redeem on July 1, 1996 all remaining outstanding 9 3/8% first mortgage bonds due
2021. No additional securities were issued, redeemed or matured during the third
quarter. SAVANNAH plans to continue, to the extent possible, a program to retire
higher-cost debt and replace these obligations with lower-cost capital.

                                       59
<PAGE>

                       SAVANNAH ELECTRIC AND POWER COMPANY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION


Sources of Capital

SAVANNAH plans to obtain the funds required for  construction and other purposes
from sources  similar to those used in the past. The amount,  type and timing of
any  financings--if  needed--will  depend upon maintenance of adequate earnings,
regulatory approval,  prevailing market conditions and other factors. Currently,
SAVANNAH expects to have adequate  earnings  coverage ratios for any anticipated
security  sales  through  at least  1998.  See Item 1 -  BUSINESS  -  "Financing
Programs" in the Form 10-K for additional information.

     To meet short-term cash needs and contingencies,  SAVANNAH had at September
30,  1996,   approximately  $1.7  million  of  cash  and  cash  equivalents  and
approximately  $39.0  million  of unused  credit  arrangements  with  banks.  At
September  30, 1996,  SAVANNAH had $1.5 million of  short-term  notes payable to
banks.  Since  SAVANNAH  has no  major  generating  plants  under  construction,
management  believes that the need for working  capital can be adequately met by
utilizing lines of credit.

                                       60
<PAGE>


                   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
                       SAVANNAH ELECTRIC AND POWER COMPANY


                          INDEX TO APPLICABLE NOTES TO
                       FINANCIAL STATEMENTS BY REGISTRANT


       Registrant          Applicable Notes

       SOUTHERN            A, B, C, D, E, F, G, H, I, J, K, L, M, N, O, P, Q, R

       ALABAMA             A, B, C, F, G, H, I, J

       GEORGIA             A, B, C, F, G, K, L, M, N, O, P, Q, R

       GULF                A, B, F, G

       MISSISSIPPI         A, B, F, G

       SAVANNAH            A, B, G, S, T


                                       61
<PAGE>

                  THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
                              ALABAMA POWER COMPANY
                              GEORGIA POWER COMPANY
                               GULF POWER COMPANY
                            MISSISSIPPI POWER COMPANY
                       SAVANNAH ELECTRIC AND POWER COMPANY


NOTES TO THE CONDENSED FINANCIAL STATEMENTS:

(A)  The condensed financial  statements of the registrants included herein have
     been prepared by each registrant,  without audit, pursuant to the rules and
     regulations of the SEC. In the opinion of each registrant's management, the
     information   regarding  such  registrant  furnished  herein  reflects  all
     adjustments (which included only normal recurring adjustments) necessary to
     present  fairly the results for the periods  ended  September  30, 1996 and
     1995.  Certain  information and footnote  disclosures  normally included in
     financial   statements  prepared  in  accordance  with  generally  accepted
     accounting principles 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.  It is suggested that these condensed financial  statements
     be read in conjunction with the financial  statements and the notes thereto
     included in each  registrant's  latest annual report on Form 10-K.  Certain
     prior-period  amounts have been reclassified to conform with current-period
     presentation.

         The  condensed  financial  statements  of ALABAMA and GEORGIA  included
     herein have been  reviewed by ALABAMA's and  GEORGIA's  independent  public
     accountants as set forth in their reports  included  herein as Exhibit 1 to
     ALABAMA's and GEORGIA's condensed financial statements.

(B)  SOUTHERN's  operating  affiliates  are  subject to the  provisions  of FASB
     Statement  No.  71,   Accounting  for  the  Effects  of  Certain  Types  of
     Regulation.  In the event that a portion of a  company's  operations  is no
     longer subject to these provisions,  the company would be required to write
     off related  regulatory assets and liabilities,  and determine if any other
     assets have been impaired.  For additional  information,  see Note 1 to the
     financial statements of each registrant in Item 8 of the Form 10-K.

(C)  The  staff of the SEC has  questioned  certain  of the  current  accounting
     practices of the electric utility industry--including SOUTHERN's--regarding
     the recognition,  measurement and classification of  decommissioning  costs
     for nuclear generating facilities in the financial statements.  In response
     to these  questions,  the FASB has  decided  to review the  accounting  for
     liabilities related to closure and removal of long-lived assets,  including
     nuclear  decommissioning.  Reference is made to MANAGEMENT'S DISCUSSION AND
     ANALYSIS - "Future Earnings Potential" of SOUTHERN,  ALABAMA and GEORGIA in
     Item 7 and Note 1 to the  financial  statements  of  SOUTHERN,  ALABAMA and
     GEORGIA under  "Depreciation and Nuclear  Decommissioning" in Item 8 of the
     Form 10-K.

(D)  The SOUTHERN system utilizes certain financial  derivative contracts solely
     for the  purpose  of  risk  management.  The  companies'  participation  in
     derivative contracts has been to hedge business exposure in connection with
     Southern  Energy  activities to  fluctuations in interest rates and foreign
     currency  exchange  rates. At September 30, 1996, the status of outstanding
     derivative contracts was as follows:

                                    Maturity or        Notional      Unrealized
                  Type              Termination         Amount       Gain (Loss)
                  ----              -----------        --------      -----------
                                                           (in thousands)
     Interest rate swaps          1999-2011            $851,706       $(18,550)
     Foreign currency forwards    Renewed monthly        74,668            (50)
     Cross-currency swaps         2002                  165,805         (3,617)

                                       62
<PAGE>

NOTES TO THE CONDENSED FINANCIAL STATEMENTS:  (Continued)


(E)  Reference is made to Note 3 to the financial statements of SOUTHERN in Item
     8 of the Form  10-K  for a  description  of the  proceedings  related  to a
     derivative  action filed against certain  current and former  directors and
     officers of SOUTHERN. In May 1996, a panel of the U.S. Court of Appeals for
     the 11th Circuit  affirmed the trial  court's  dismissal of this suit.  The
     plaintiffs'  subsequent  request for rehearing by the full appellate  court
     was denied in August 1996.

(F)  Reference is made to Note 3 to each of the registrant's, except SAVANNAH's,
     financial  statements  in Item 8 of the Form 10-K for a  discussion  of the
     proceedings  initiated  by the FERC  regarding  the  reasonableness  of the
     return on common  equity  on  certain  of the  Southern  electric  system's
     wholesale rate schedules and contracts.

(G)  Certain of the registrants and other SOUTHERN  subsidiaries have instituted
     work force reduction programs.  The expenses recognized and the unamortized
     balance of deferred  expenses  under these  programs  were as follows:  (in
     thousands)
<TABLE>
<CAPTION>

                       Three Months Ended      Nine Months Ended     Unamortized Balance
                          September 30,          September 30,      at September 30, 1996
                       -------------------    ------------------    ---------------------
                       1996          1995     1996         1995
                       ----          ----     ----         ----
      <S>              <C>         <C>        <C>        <C>               <C>
      ALABAMA          $ 5,951     $1,327     $18,360    $ 5,631           $37,373
      GEORGIA            7,947      2,073      34,821      6,052                 -
      GULF                 238        490       2,472        490                 -
      MISSISSIPPI        1,847        971       3,625      2,471             5,041
      SAVANNAH              28         (4)        262         25                 -
      Other                129        459         343        459                 -
                       -------     ------     -------    -------          --------
      SOUTHERN
         system        $16,140     $5,316     $59,883    $15,128           $42,414
                       =======     ======     =======    =======           =======
</TABLE>

(H)  In June  1995,  the  Alabama  PSC issued a rate  order  granting  ALABAMA's
     request  for  gradual  adjustments  to move toward  parity  among  customer
     classes. This order also calls for a moratorium on any periodic retail rate
     increases  (but not  decreases)  until July 2001.  In  December  1995,  the
     Alabama PSC issued an order  authorizing  ALABAMA to reduce  balance  sheet
     items--such as plant and deferred  charges--at  any time  ALABAMA's  actual
     base rate revenues exceed the budgeted revenues.  Reference is made to Note
     3 to the financial statements of SOUTHERN and ALABAMA in Item 8 of the Form
     10-K for additional information.

(I)  In January 1996,  Alabama Power  Capital  Trust I (the  "Trust"),  of which
     ALABAMA  owns all the  common  securities,  issued  $97  million  of 7.375%
     mandatorily  redeemable  preferred  securities.  Substantially  all  of the
     assets  of the  Trust  are  $100  million  aggregate  principal  amount  of
     ALABAMA's  7.375%  Junior  Subordinated  Notes due March 31, 2026.  ALABAMA
     considers  that the mechanisms  and  obligations  relating to the preferred
     securities,  taken together,  constitute a full and unconditional guarantee
     by ALABAMA of the Trust's payment obligations with respect to the preferred
     securities.

(J)  Actions  against  ALABAMA  have been filed in several  counties  in Alabama
     charging  ALABAMA with fraud and  non-compliance  with regulatory  statutes
     relating to the offer, sale and financing of "extended  service  contracts"
     in  connection  with the sale of electric  appliances.  Some of these cases
     have been filed as class actions, while others have been filed on behalf of
     multiple individual plaintiffs. The plaintiffs in these actions seek

                                       63
<PAGE>

NOTES TO THE CONDENSED FINANCIAL STATEMENTS:  (Continued)


     damages in an  unspecified  amount.  ALABAMA has offered  extended  service
     agreements to its customers since January 1984, and  approximately  175,000
     extended  service  agreements could be involved in these  proceedings.  The
     final outcome of these cases cannot now be determined.

(K)  In August 1996,  Georgia  Power  Capital  Trust I (the  "Trust"),  of which
     GEORGIA  owns all the  common  securities,  issued  $225  million  of 7.75%
     mandatorily  redeemable  preferred  securities.  Substantially  all  of the
     assets  of the  Trust  are  $232  million  aggregate  principal  amount  of
     GEORGIA's  7.75%  Junior  Subordinated  Notes  due June 30,  2036.  GEORGIA
     considers  that the mechanisms  and  obligations  relating to the preferred
     securities,  taken together,  constitute a full and unconditional guarantee
     by GEORGIA of the Trust's payment obligations with respect to the preferred
     securities. Reference is also made to Note 9 to the financial statements of
     GEORGIA in Item 8 of the Form 10-K.

(L)  On February  16, 1996,  the Georgia PSC  approved a three-year  retail rate
     plan for GEORGIA  effective  January 1, 1996. For  additional  information,
     reference  is made to Note 3 to the  financial  statements  of SOUTHERN and
     GEORGIA  in Item 8 of the Form  10-K.  In  November  1996,  on  appeal by a
     consumer group, the Superior Court of Fulton County (Georgia)  reversed the
     order of the Georgia PSC approving the rate plan and remanded the matter to
     the Georgia PSC. The court found that statutory requirements  applicable to
     rate cases  should have been,  but were not,  followed.  GEORGIA  currently
     intends to appeal the court's decision.

(M)  Pursuant to orders from the Georgia PSC,  GEORGIA  deferred  financing  and
     depreciation  costs under  phase-in  plans for Plant  Vogtle  Units 1 and 2
     until the allowed  investment  was fully  reflected  in rates as of October
     1991. In addition,  the Georgia PSC issued two separate  accounting  orders
     that required  GEORGIA to defer  substantially  all operating and financing
     costs related to both units until rate orders  addressed  these costs.  The
     Georgia PSC orders  provide for recovery of deferred costs within 10 years.
     The Georgia PSC also ordered GEORGIA to levelize declining capacity buyback
     expense from the  co-owners of the plant over a six-year  period  beginning
     October 1991. The unamortized  balance of these deferred costs at September
     30, 1996, was $206.6 million. See Notes 1 and 3 to the financial statements
     of  SOUTHERN  and  GEORGIA,  respectively,  in Item 8 of the Form  10-K for
     additional information.

(N)  Reference  is made to Note 3 to the  financial  statements  of SOUTHERN and
     GEORGIA in Item 8 of the Form 10-K for information  concerning the recovery
     by GEORGIA of its costs  associated  with the Rocky Mountain pumped storage
     hydroelectric plant.

(O)  Reference  is made to Note 3 to the  financial  statements  of SOUTHERN and
     GEORGIA in Item 8 of the Form 10-K for  information  regarding  recovery by
     GEORGIA  of  its  costs  associated  with  its   discontinued   demand-side
     conservation programs.

(P)  Reference is made to Note 3 to the financial  statements of GEORGIA in Item
     8 of the Form 10-K for information  concerning a joint complaint filed with
     the FERC by OPC and MEAG seeking  recovery of alleged partial  requirements
     rates  overcharges and the order of the FERC dismissing such complaint.  In
     June 1996, the U.S.  Court of Appeals for the District of Columbia  Circuit
     vacated the FERC's  order  insofar as it denied  OPC's claim for a share of
     the settlement  proceeds that GEORGIA  received from Gulf States  Utilities
     Company and remanded the case to the FERC.

(Q)  In May 1996, MEAG filed a complaint with the FERC seeking termination as of
     December  31, 1996 of the  partial  requirements  tariff  pursuant to which
     GEORGIA  currently sells wholesale energy to MEAG. The complaint also seeks
     refunds  in an  unspecified  amount as a result of alleged  overcharges  by
     GEORGIA  under the tariff for the years 1993,  1994,  1995 and 1996. In its
     response,  filed with the FERC in June 1996, GEORGIA also requests that its
     partial  requirements  service  obligation  to MEAG be terminated as of the
     date  sought by MEAG.  GEORGIA  further  denies  that any refund is owed to
     MEAG.

                                       64
<PAGE>

NOTES TO THE CONDENSED FINANCIAL STATEMENTS:  (Continued)


(R)   Reference is made to Note 3 to the  financial  statements  of SOUTHERN and
      GEORGIA  in Item 8 of the Form 10-K for  information  regarding  GEORGIA's
      designation  as a potentially  responsible  party under the  Comprehensive
      Environmental   Response,   Compensation   and  Liability  Act  and  other
      environmental contingencies.

(S)   Reference  is made to Note 3 to the  financial  statements  of SAVANNAH in
      Item 8 of the Form 10-K for information regarding SAVANNAH's  discontinued
      demand-side conservation programs. In May and June 1996, SAVANNAH refunded
      to  customers  a total  of  $266,000,  which is the  amount  that had been
      overcollected from demand-side rate riders as of December 31, 1995.

(T)   SAVANNAH is currently  undergoing  an earnings  review by the Georgia PSC,
      and to date, the Georgia PSC has made no determination.

                                       65
<PAGE>

PART II - OTHER INFORMATION


Item 1.   Legal Proceedings.

          (1)  Reference  is  made  to  the  Notes  to the  Condensed  Financial
               Statements  herein for  information  regarding  certain legal and
               administrative  proceedings  in which  SOUTHERN and its reporting
               subsidiaries are involved.

          (2)  Reference is made to Item 3 - LEGAL  PROCEEDINGS in the Form 10-K
               for information  regarding a tax deficiency  notice received from
               the Internal Revenue Service relating to GEORGIA's tax accounting
               for the sale in 1984 of an interest  in Plant  Vogtle and related
               capacity and energy buyback commitments.

          (3)  Reference is made to Item 3 - LEGAL  PROCEEDINGS in the Form 10-K
               for information regarding an action filed by ALABAMA, GEORGIA and
               MISSISSIPPI  in January  1996 which  seeks to enjoin the TVA from
               violating a 1959 act that  prohibits  the TVA from selling  power
               outside the area that was being  served by it in 1957.  On August
               28, 1996, the U.S.  District  Court for the Northern  District of
               ALABAMA granted a summary  judgment in favor of ALABAMA,  GEORGIA
               and  MISSISSIPPI,  finding  that the LG&E Power  Marketing  (LPM)
               contract was unlawful.  It is not currently  known whether TVA or
               LPM will appeal this judgment.

Item 6.   Exhibits and Reports on Form 8-K.

          (a)  Exhibits.

               Exhibit 24  - Powers of Attorney and resolutions.  (Designated in
                             the Form 10-K for the year ended December 31, 1995,
                             File Nos. 1-3526, 1-3164, 1-6468, 0-2429, 0-6849
                             and 1-5072 as Exhibits 24(a), 24(b), 24(c), 24(d),
                             24(e) and 24(f), respectively, and incorporated
                             herein by reference.)

               Exhibits 27 - Financial Data Schedules
                             (a)   SOUTHERN
                             (b)   ALABAMA
                             (c)   GEORGIA
                             (d)   GULF
                             (e)   MISSISSIPPI
                             (f)   SAVANNAH

          (b)  Reports on Form 8-K.

               GEORGIA filed a Current Report on Form 8-K dated August 21, 1996:
                        Items reported:                 Item 5
                                                        Item 7
                        Financial statements filed:     None

               SOUTHERN filed a Current Report on Form 8-K dated October 9,
               1996:
                        Items reported:                 Item 5
                                                        Item 7
                        Financial statements filed:     None

                                       66
<PAGE>

                                   SIGNATURES


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.  The signature of the undersigned company
shall be deemed to relate only to matters  having  reference to such company and
any subsidiaries thereof.

          THE SOUTHERN COMPANY

     By   A. W. Dahlberg
          Chairman, President and Chief Executive Officer
          (Principal Executive Officer)

     By   W. L. Westbrook
          Financial Vice President, Chief Financial Officer and Treasurer
          (Principal Financial and Accounting Officer)

     By   /s/ Wayne Boston
          (Wayne Boston, Attorney-in-fact)

                                                       Date:  November 12, 1996

--------------------------------------------------------------------------------

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.  The signature of the undersigned company
shall be deemed to relate only to matters  having  reference to such company and
any subsidiaries thereof.

          ALABAMA POWER COMPANY

     By   Elmer B. Harris
          President and Chief Executive Officer
          (Principal Executive Officer)

     By   William B. Hutchins, III
          Executive Vice President and Chief Financial Officer
          (Principal Financial Officer)

     By   /s/ Wayne Boston
          (Wayne Boston, Attorney-in-fact)

                                                       Date:  November 12, 1996

                                       67
<PAGE>


                                   SIGNATURES


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.  The signature of the undersigned company
shall be deemed to relate only to matters  having  reference to such company and
any subsidiaries thereof.

          GEORGIA POWER COMPANY

     By   H. Allen Franklin
          President and Chief Executive Officer
          (Principal Executive Officer)

     By   Warren Y. Jobe
          Executive Vice President, Treasurer and Chief Financial Officer
          (Principal Financial Officer)

     By   /s/ Wayne Boston
          (Wayne Boston, Attorney-in-fact)

                                                       Date:  November 12, 1996

--------------------------------------------------------------------------------

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.  The signature of the undersigned company
shall be deemed to relate only to matters  having  reference to such company and
any subsidiaries thereof.

          GULF POWER COMPANY

     By   Travis J. Bowden
          President and Chief Executive Officer
          (Principal Executive Officer)

     By   A. E. Scarbrough
          Vice President - Finance
          (Principal Financial and Accounting Officer)

     By   /s/ Wayne Boston
          (Wayne Boston, Attorney-in-fact)


                                                       Date:  November 12, 1996

                                       68
<PAGE>

                                   SIGNATURES


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.  The signature of the undersigned company
shall be deemed to relate only to matters  having  reference to such company and
any subsidiaries thereof.

          MISSISSIPPI POWER COMPANY

     By   Dwight H. Evans
          President and Chief Executive Officer
          (Principal Executive Officer)

     By   Michael W. Southern
          Vice President, Secretary, Treasurer and Chief Financial Officer
          (Principal Financial and Accounting Officer)

     By   /s/ Wayne Boston
          (Wayne Boston, Attorney-in-fact)


                                                       Date:  November 12, 1996

--------------------------------------------------------------------------------

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.  The signature of the undersigned company
shall be deemed to relate only to matters  having  reference to such company and
any subsidiaries thereof.

          SAVANNAH ELECTRIC AND POWER COMPANY

     By   Arthur M. Gignilliat, Jr.
          President and Chief Executive Officer
          (Principal Executive Officer)

     By   Kirby R. Willis
          Vice President, Treasurer and Chief Financial Officer
          (Principal Financial and Accounting Officer)

     By   /s/ Wayne Boston
          (Wayne Boston, Attorney-in-fact)

                                                       Date:  November 12, 1996

                                       69