##### Table of Contents



UNITED
STATESSECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ    QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 OR
 o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission
    
    Registrant, State of Incorporation,
    
    I.R.S. EmployerFile Number
    
    Address and Telephone Number
    
    Identification No.1-3526
    
    The Southern Company
    
    58-0690070(A Delaware Corporation)30 Ivan Allen Jr. Boulevard, N.W.Atlanta, Georgia 30308(404) 506-50001-3164
    
    Alabama Power Company
    
    63-0004250(An Alabama Corporation)600 North 18th StreetBirmingham, Alabama 35291(205) 257-10001-6468
    
    Georgia Power Company
    
    58-0257110(A Georgia Corporation)241 Ralph McGill Boulevard, N.E.Atlanta, Georgia 30308(404) 506-65260-2429
    
    Gulf Power Company
    
    59-0276810(A Florida Corporation)One Energy PlacePensacola, Florida 32520(850) 444-6111001-11229
    
    Mississippi Power Company
    
    64-0205820(A Mississippi Corporation)2992 West BeachGulfport, Mississippi 39501(228) 864-1211333-98553
    
    Southern Power Company
    
    58-2598670(A Delaware Corporation)30 Ivan Allen Jr. Boulevard, N.W.Atlanta, Georgia 30308(404) 506-5000




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Indicate by check mark whether the registrants (1) have filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrants were required to file such reports), and (2) have been
subject to such filing requirements for the past 90 days. Yes þ No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
 LargeAccelerated
    
    Accelerated
    
    Non-acceleratedRegistrant
    
    Filer
    
    Filer
    
    FilerThe Southern Company
    
    
    XAlabama Power Company
    
    
    
    
    
    
    
    
    
    
    XGeorgia Power Company
    
    
    
    
    
    
    
    
    
    
    XGulf Power Company
    
    
    
    
    
    
    
    
    
    
    XMississippi Power Company
    
    
    
    
    
    
    
    
    
    
    XSouthern Power Company
    
    
    
    
    
    
    
    
    
    
    X
 Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.) Yes o No þ
 Description of
    
    Shares OutstandingRegistrant
    
    Common Stock
    
    at June 30, 2006The Southern Company
    
    Par Value $5 Per Share
    
    
    742,286,154Alabama Power Company
    
    Par Value $40 Per Share
    
    
    10,250,000Georgia Power Company
    
    Without Par Value
    
    
    7,761,500
    *Gulf Power Company
    
    Without Par Value
    
    
    992,717Mississippi Power Company
    
    Without Par Value
    
    
    1,121,000Southern Power Company
    
    Par Value $0.01 Per Share
    
    
    1,000
 *
    
    On July 1, 2006, Georgia Power Company issued an additional 1,500,000 common shares, without par value, in conjunction with the merger of Savannah Electric and Power Company
into Georgia Power Company.
  2




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##### 



INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2006
 PageNumberDEFINITIONS
    
    
    5CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
    
    
    6PART I  FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsThe Southern Company and Subsidiary Companies
    
    
    7Condensed Consolidated Statements of Income
    
    
    8Condensed Consolidated Statements of Cash Flows
    
    
    9Condensed Consolidated Balance Sheets
    
    
    10Condensed Consolidated Statements of Comprehensive Income
    
    
    12Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Alabama Power Company
    
    
    30Condensed Statements of Income
    
    
    31Condensed Statements of Comprehensive Income
    
    
    31Condensed Statements of Cash Flows
    
    
    32Condensed Balance Sheets
    
    
    33Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    35Georgia Power Company
    
    
    47Condensed Statements of Income
    
    
    48Condensed Statements of Comprehensive Income
    
    
    48Condensed Statements of Cash Flows
    
    
    49Condensed Balance Sheets
    
    
    50Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    52Gulf Power Company
    
    
    63Condensed Statements of Income
    
    
    64Condensed Statements of Comprehensive Income
    
    
    64Condensed Statements of Cash Flows
    
    
    65Condensed Balance Sheets
    
    
    66Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    68Mississippi Power Company
    
    
    79Condensed Statements of Income
    
    
    80Condensed Statements of Comprehensive Income
    
    
    80Condensed Statements of Cash Flows
    
    
    81Condensed Balance Sheets
    
    
    82Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    84Southern Power Company and Subsidiary Companies
    
    
    95Condensed Consolidated Statements of Income
    
    
    96Condensed Consolidated Statements of Comprehensive Income
    
    
    96Condensed Consolidated Statements of Cash Flows
    
    
    97Condensed Consolidated Balance Sheets
    
    
    98Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    100Notes to the Condensed Financial Statements
    
    
    108Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    29
  3




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##### 



INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2006
 PageNumberPART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    125Item 1A. Risk Factors
    
    
    125Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    InapplicableItem 3. Defaults Upon Senior Securities
    
    InapplicableItem 4. Submission of Matters to a Vote of Security Holders
    
    
    125Item 5. Other Information
    
    
    127Item 6. Exhibits
    
    
    128Signatures
    
    
    133
  4




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DEFINITIONS
 TERM
    
    MEANINGAFUDC
    
    Allowance for funds used during constructionAlabama Power
    
    Alabama Power CompanyALJ
    
    Administrative law judgeBMA
    
    Bond Market AssociationClean Air Act
    
    Clean Air Act Amendments of 1990DOE
    
    U.S. Department of EnergyECO Plan
    
    Environmental Compliance Overview PlanEPA
    
    U.S. Environmental Protection AgencyERISA
    
    Employee Retirement Income Security Act of 1974, as amendedFASB
    
    Financial Accounting Standards BoardFERC
    
    Federal Energy Regulatory CommissionForm 10-K
    
    Combined Annual Report on Form 10-K of Southern Company,
Alabama Power, Georgia Power, Gulf Power, Mississippi Power,
Savannah Electric, and Southern Power for the year ended
December 31, 2005 and, with respect to Southern Company,
Amendment No. 1 and Amendment No. 2 theretoGeorgia Power
    
    Georgia Power CompanyGulf Power
    
    Gulf Power CompanyIIC
    
    Intercompany Interchange ContractIRC
    
    Internal Revenue Code of 1986, as amendedIRS
    
    Internal Revenue ServiceKWH
    
    Kilowatt-hourLIBOR
    
    London Interbank Offered RateMirant
    
    Mirant CorporationMississippi Power
    
    Mississippi Power CompanyMoodys
    
    Moodys Investors Service, IncMW
    
    MegawattNRC
    
    Nuclear Regulatory CommissionNSR
    
    New Source ReviewPEP
    
    Performance Evaluation PlanPPA
    
    Power Purchase AgreementPSC
    
    Public Service Commissionretail operating companies
    
    Alabama Power, Georgia Power, Gulf Power, Mississippi Power,
and
Savannah Electric (merged into Georgia Power on July 1, 2006)S&P
    
    Standard and Poors, a division of The McGraw-Hill
Companies, Inc.Savannah Electric
    
    Savannah Electric and Power Company (merged into Georgia
Power on July 1, 2006)SCS
    
    Southern Company Services, Inc.SEC
    
    Securities and Exchange CommissionSouthern Company
    
    The Southern CompanySouthern Company system
    
    Southern Company, the retail operating companies, Southern
Power, and other subsidiariesSouthern Power
    
    Southern Power CompanySuper Southeast
    
    Southern Companys traditional service territory, Alabama,
Florida, Georgia, and Mississippi, plus the surrounding
states of Kentucky, Louisiana, North Carolina, South
Carolina, Tennessee, and Virginia
 5




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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
  
    
    the impact of recent and future federal and state regulatory change, including legislative and
regulatory initiatives regarding deregulation and restructuring of the electric utility industry, implementation of
the Energy Policy Act of 2005, and also changes in environmental, tax, and other laws and regulations to which
Southern Company and its subsidiaries are subject, including proposed legislation relating to tax credits
associated with synthetic fuel investments (and the timing of adoption of any such legislation), as well as changes
in application of existing laws and regulations;
    
    current and future litigation, regulatory investigations, proceedings, or inquiries, including the pending
EPA civil actions against certain Southern Company subsidiaries, FERC matters, IRS audits, and Mirant matters;
    
    the effects, extent, and timing of the entry of additional competition in the markets in which Southern
Companys subsidiaries operate;
    
    variations in demand for electricity, including those relating to weather, the general economy and
population, and business growth (and declines);
    
    available sources and costs of fuels;
    
    ability to control costs;
    
    investment performance of Southern Companys employee benefit plans;
    
    advances in technology;
    
    state and federal rate regulations and the impact of pending and future rate cases and negotiations,
including rate actions relating to fuel and storm restoration cost recovery;
    
    the performance of projects undertaken by the non-utility businesses and the success of efforts to invest
in and develop new opportunities;
    
    fluctuations in the level of oil prices;
    
    the level of production, if any, by the synthetic fuel operations at Carbontronics Synfuels Investors LP
and Alabama Fuel Products, LLC for the remainder of fiscal year 2006;
    
    internal restructuring or other restructuring options that may be pursued;
    
    potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot
be assured to be completed or beneficial to Southern Company or its subsidiaries;
    
    the ability of counterparties of Southern Company and its subsidiaries to make payments as and when due;
    
    the ability to obtain new short- and long-term contracts with neighboring utilities;
    
    the direct or indirect effect on Southern Companys business resulting from terrorist incidents and the
threat of terrorist incidents;
    
    interest rate fluctuations and financial market conditions and the results of financing efforts, including
Southern Companys and its subsidiaries credit ratings;
    
    the ability of Southern Company and its subsidiaries to obtain additional generating capacity at
competitive prices;
    
    catastrophic events such as fires, earthquakes, explosions, floods, hurricanes, or other similar
occurrences;
    
    the direct or indirect effects on Southern Companys business resulting from incidents similar to the
August 2003 power outage in the Northeast;
    
    the effect of accounting pronouncements issued periodically by standard setting bodies; and
    
    other factors discussed elsewhere herein and in other reports filed by the registrants from time to time
with the SEC.
 Each registrant expressly disclaims any obligation to update any forward-looking statements.
 6




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THE SOUTHERN COMPANY
AND SUBSIDIARY COMPANIES
 7




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    2,970,387
    
    
    $
    2,555,091
    
    
    $
    5,441,800
    
    
    $
    4,823,900Sales for resale
    
    
    439,902
    
    
    
    384,997
    
    
    
    854,771
    
    
    
    732,122Other electric revenues
    
    
    116,095
    
    
    
    109,348
    
    
    
    227,085
    
    
    
    210,443Other revenues
    
    
    65,119
    
    
    
    70,210
    
    
    
    131,107
    
    
    
    140,211Total operating revenues
    
    
    3,591,503
    
    
    
    3,119,646
    
    
    
    6,654,763
    
    
    
    5,906,676Operating Expenses:Fuel
    
    
    1,307,650
    
    
    
    993,241
    
    
    
    2,356,195
    
    
    
    1,857,862Purchased power
    
    
    138,843
    
    
    
    123,677
    
    
    
    243,254
    
    
    
    221,893Other operations
    
    
    587,921
    
    
    
    572,191
    
    
    
    1,150,373
    
    
    
    1,088,619Maintenance
    
    
    273,292
    
    
    
    259,975
    
    
    
    556,922
    
    
    
    554,067Depreciation and amortization
    
    
    297,532
    
    
    
    286,374
    
    
    
    596,458
    
    
    
    577,484Taxes other than income taxes
    
    
    179,200
    
    
    
    162,798
    
    
    
    354,203
    
    
    
    325,682Total operating expenses
    
    
    2,784,438
    
    
    
    2,398,256
    
    
    
    5,257,405
    
    
    
    4,625,607Operating Income
    
    
    807,065
    
    
    
    721,390
    
    
    
    1,397,358
    
    
    
    1,281,069Other Income and (Expense):Allowance for equity funds used during construction
    
    
    10,398
    
    
    
    14,011
    
    
    
    21,925
    
    
    
    30,870Interest income
    
    
    6,237
    
    
    
    6,223
    
    
    
    12,909
    
    
    
    11,495Equity in losses of unconsolidated subsidiaries
    
    
    (12,277
    )
    
    
    (29,574
    )
    
    
    (44,852
    )
    
    
    (52,678
    )Leveraged lease income
    
    
    17,599
    
    
    
    18,677
    
    
    
    35,702
    
    
    
    36,925Impairment loss on equity method investments
    
    
    (15,274
    )
    
    
    
    
    
    
    (15,274
    )
    
    
    Interest expense, net of amounts capitalized
    
    
    (180,695
    )
    
    
    (154,215
    )
    
    
    (357,070
    )
    
    
    (293,202
    )Interest expense to affiliate trusts
    
    
    (30,640
    )
    
    
    (31,931
    )
    
    
    (61,269
    )
    
    
    (63,861
    )Preferred and preference dividends of subsidiaries
    
    
    (8,006
    )
    
    
    (7,402
    )
    
    
    (17,021
    )
    
    
    (14,804
    )Other income (expense), net
    
    
    15,372
    
    
    
    (1,916
    )
    
    
    4,507
    
    
    
    (7,123
    )Total other income and (expense)
    
    
    (197,286
    )
    
    
    (186,127
    )
    
    
    (420,443
    )
    
    
    (352,378
    )Earnings From Continuing Operations
Before Income Taxes
    
    
    609,779
    
    
    
    535,263
    
    
    
    976,915
    
    
    
    928,691Income taxes
    
    
    222,249
    
    
    
    146,447
    
    
    
    329,271
    
    
    
    222,334Earnings From Continuing Operations
    
    
    387,530
    
    
    
    388,816
    
    
    
    647,644
    
    
    
    706,357Earnings from discontinued operations, net of income taxes
of $(1,467), $(1,259), $(525), and $2,176, respectively
    
    
    (2,307
    )
    
    
    (1,995
    )
    
    
    (814
    )
    
    
    3,424Consolidated Net Income
    
    $
    385,223
    
    
    $
    386,821
    
    
    $
    646,830
    
    
    $
    709,781Common Stock Data:Earnings per share from continuing operations-Basic
    
    $
    0.52
    
    
    $
    0.52
    
    
    $
    0.87
    
    
    $
    0.95Diluted
    
    $
    0.52
    
    
    $
    0.52
    
    
    $
    0.87
    
    
    $
    0.94Earnings per share including discontinued operations-Basic
    
    $
    0.52
    
    
    $
    0.52
    
    
    $
    0.87
    
    
    $
    0.95Diluted
    
    $
    0.52
    
    
    $
    0.52
    
    
    $
    0.87
    
    
    $
    0.95Average number of basic shares of common
stock outstanding (in thousands)
    
    
    742,515
    
    
    
    746,823
    
    
    
    742,355
    
    
    
    745,424Average number of diluted shares of common
stock outstanding (in thousands)
    
    
    746,387
    
    
    
    751,016
    
    
    
    746,725
    
    
    
    749,360Cash dividends paid per share of common stock
    
    $
    0.3875
    
    
    $
    0.3725
    
    
    $
    0.7600
    
    
    $
    0.7300
  8




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 
  For the Six MonthsEnded June 30,2006
    
    
    2005(in thousands)Operating Activities:Consolidated net income
    
    $
    646,830
    
    
    $
    709,781Adjustments to reconcile consolidated net income
to net cash provided from operating activities Depreciation and amortization
    
    
    696,048
    
    
    
    687,205Deferred income taxes and investment tax credits
    
    
    262,870
    
    
    
    175,751Allowance for equity funds used during construction
    
    
    (21,925
    )
    
    
    (30,870
    )Equity in losses of unconsolidated subsidiaries
    
    
    44,852
    
    
    
    52,678Leveraged lease income
    
    
    (35,702
    )
    
    
    (36,925
    )Pension, postretirement, and other employee benefits
    
    
    23,672
    
    
    
    21,656Stock option expense
    
    
    22,186
    
    
    
    Tax benefit of stock options
    
    
    1,103
    
    
    
    36,963Hedge settlements
    
    
    18,502
    
    
    
    (19,860
    )Storm damage accounting order
    
    
    
    
    
    
    45,000Other, net
    
    
    (20,547
    )
    
    
    (38,741
    )Changes in certain current assets and liabilities Receivables
    
    
    (140,438
    )
    
    
    (360,973
    )Fossil fuel stock
    
    
    (120,420
    )
    
    
    (115,221
    )Materials and supplies
    
    
    (42,493
    )
    
    
    (19,362
    )Other current assets
    
    
    (21,734
    )
    
    
    42,244Accounts payable
    
    
    (285,434
    )
    
    
    (109,448
    )Accrued taxes
    
    
    (27,938
    )
    
    
    (80,978
    )Accrued compensation
    
    
    (263,409
    )
    
    
    (210,061
    )Other current liabilities
    
    
    7,605
    
    
    
    47,384Net cash provided from operating activities
    
    
    743,628
    
    
    
    796,223Investing Activities:Property additions
    
    
    (1,167,696
    )
    
    
    (1,141,771
    )Nuclear decommissioning trust fund purchases
    
    
    (384,850
    )
    
    
    (324,849
    )Nuclear decommissioning trust fund sales
    
    
    377,970
    
    
    
    316,150Proceeds from property sales
    
    
    151,760
    
    
    
    9,468Investment in unconsolidated subsidiaries
    
    
    (52,273
    )
    
    
    (51,870
    )Cost of removal net of salvage
    
    
    (40,328
    )
    
    
    (41,485
    )Other
    
    
    (45,417
    )
    
    
    (57,162
    )Net cash used for investing activities
    
    
    (1,160,834
    )
    
    
    (1,291,519
    )Financing Activities:Increase in notes payable, net
    
    
    594,563
    
    
    
    510,947Proceeds Long-term debt
    
    
    960,125
    
    
    
    870,695Common stock
    
    
    19,652
    
    
    
    148,609Gross excess tax benefit of stock options
    
    
    2,506
    
    
    
    Redemptions Long-term debt
    
    
    (423,408
    )
    
    
    (436,470
    )Long-term debt to affiliate trusts
    
    
    (67,457
    )
    
    
    Preferred and preference stock
    
    
    (14,569
    )
    
    
    Common stock repurchased
    
    
    (117
    )
    
    
    (62,321
    )Special deposits  redemption funds
    
    
    
    
    
    
    (102,481
    )Payment of common stock dividends
    
    
    (564,146
    )
    
    
    (543,637
    )Other
    
    
    (29,154
    )
    
    
    (21,737
    )Net cash provided from financing activities
    
    
    477,995
    
    
    
    363,605Net Change in Cash and Cash Equivalents
    
    
    60,789
    
    
    
    (131,691
    )Cash and Cash Equivalents at Beginning of Period
    
    
    202,111
    
    
    
    368,449Cash and Cash Equivalents at End of Period
    
    $
    262,900
    
    
    $
    236,758Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $9,151 and $12,589 capitalized for 2006 and 2005, respectively)
    
    $
    423,312
    
    
    $
    312,975Income taxes (net of refunds)
    
    $
    52,153
    
    
    $
    45,896
  9




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 
  At June 30,
    
    
    At December 31,Assets
    
    2006
    
    
    2005(in thousands)Current Assets:Cash and cash equivalents
    
    $
    262,900
    
    
    $
    202,111Receivables Customer accounts receivable
    
    
    941,661
    
    
    
    868,665Unbilled revenues
    
    
    377,313
    
    
    
    303,782Under recovered regulatory clause revenues
    
    
    614,882
    
    
    
    754,522Other accounts and notes receivable
    
    
    330,323
    
    
    
    409,685Accumulated provision for uncollectible accounts
    
    
    (34,243
    )
    
    
    (37,510
    )Fossil fuel stock, at average cost
    
    
    538,208
    
    
    
    402,579Vacation pay
    
    
    117,356
    
    
    
    116,699Materials and supplies, at average cost
    
    
    694,925
    
    
    
    665,754Assets from risk management activities
    
    
    70,699
    
    
    
    124,607Prepaid expenses
    
    
    188,499
    
    
    
    131,324Other
    
    
    217,859
    
    
    
    262,659Total current assets
    
    
    4,320,382
    
    
    
    4,204,877Property, Plant, and Equipment:In service
    
    
    44,599,652
    
    
    
    43,578,501Less accumulated depreciation
    
    
    16,184,593
    
    
    
    15,727,30028,415,059
    
    
    
    27,851,201Nuclear fuel, at amortized cost
    
    
    265,370
    
    
    
    261,997Construction work in progress
    
    
    1,281,027
    
    
    
    1,367,255Total property, plant, and equipment
    
    
    29,961,456
    
    
    
    29,480,453Other Property and Investments:Nuclear decommissioning trusts, at fair value
    
    
    972,965
    
    
    
    953,554Leveraged leases
    
    
    1,106,644
    
    
    
    1,082,100Other
    
    
    319,805
    
    
    
    337,236Total other property and investments
    
    
    2,399,414
    
    
    
    2,372,890Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    925,670
    
    
    
    936,729Prepaid pension costs
    
    
    1,025,064
    
    
    
    1,021,797Unamortized debt issuance expense
    
    
    173,242
    
    
    
    161,583Unamortized loss on reacquired debt
    
    
    299,194
    
    
    
    309,409Deferred under recovered regulatory clause revenues
    
    
    731,913
    
    
    
    530,668Other regulatory assets
    
    
    537,198
    
    
    
    519,005Other
    
    
    427,682
    
    
    
    339,294Total deferred charges and other assets
    
    
    4,119,963
    
    
    
    3,818,485Total Assets
    
    $
    40,801,215
    
    
    $
    39,876,705
  10




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 At June 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2006
    
    
    2005(in thousands)Current Liabilities:Securities due within one year
    
    $
    993,325
    
    
    $
    900,699Notes payable
    
    
    1,851,991
    
    
    
    1,257,428Accounts payable
    
    
    867,352
    
    
    
    1,229,253Customer deposits
    
    
    237,282
    
    
    
    219,781Accrued taxes Income taxes
    
    
    203,504
    
    
    
    103,925Other
    
    
    294,888
    
    
    
    318,978Accrued interest
    
    
    225,390
    
    
    
    204,292Accrued vacation pay
    
    
    143,454
    
    
    
    143,816Accrued compensation
    
    
    196,204
    
    
    
    458,573Other
    
    
    386,805
    
    
    
    403,606Total current liabilities
    
    
    5,400,195
    
    
    
    5,240,351Long-term Debt
    
    
    11,296,969
    
    
    
    10,957,903Long-term Debt Payable to Affiliated Trusts
    
    
    1,893,187
    
    
    
    1,888,469Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    6,000,558
    
    
    
    5,735,502Deferred credits related to income taxes
    
    
    301,448
    
    
    
    311,083Accumulated deferred investment tax credits
    
    
    515,124
    
    
    
    527,172Employee benefit obligations
    
    
    971,435
    
    
    
    929,908Asset retirement obligations
    
    
    1,144,672
    
    
    
    1,117,280Other cost of removal obligations
    
    
    1,292,836
    
    
    
    1,295,215Other regulatory liabilities
    
    
    262,717
    
    
    
    323,180Other
    
    
    280,148
    
    
    
    265,838Total deferred credits and other liabilities
    
    
    10,768,938
    
    
    
    10,505,178Total Liabilities
    
    
    29,359,289
    
    
    
    28,591,901Preferred and Preference Stock of Subsidiaries
    
    
    595,612
    
    
    
    595,626Common Stockholders Equity:Common stock, par value $5 per share Authorized  1 billion sharesIssued   June 30, 2006: 751,861,212 Shares; December 31, 2005: 751,810,927 SharesTreasury   June 30, 2006: 9,575,058 Shares; December 31, 2005: 10,362,970 SharesPar value
    
    
    3,759,306
    
    
    
    3,759,055Paid-in capital
    
    
    1,101,602
    
    
    
    1,084,799Treasury, at cost
    
    
    (331,771
    )
    
    
    (358,892
    )Retained earnings
    
    
    6,414,930
    
    
    
    6,332,023Accumulated other comprehensive loss
    
    
    (97,753
    )
    
    
    (127,807
    )Total Common Stockholders Equity
    
    
    10,846,314
    
    
    
    10,689,178Total Liabilities and Stockholders Equity
    
    $
    40,801,215
    
    
    $
    39,876,705
  11




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 
  For the Three Months
    
    For the Six MonthsEnded June 30,
    
    Ended June 30,2006
    
    2005
    
    2006
    
    2005(in thousands)
    
    (in thousands)Consolidated Net Income
    
    $
    385,223
    
    
    $
    386,821
    
    
    $
    646,830
    
    
    $
    709,781Other comprehensive income (loss)  continuing operations:Change in fair value of marketable securities, net of tax
of $2,798, $(346), $4,407, and $(2,075), respectively
    
    
    4,334
    
    
    
    (598
    )
    
    
    6,855
    
    
    
    (3,924
    )Changes in fair value of qualifying hedges, net of tax
of $7,255, $(12,321), $14,385, and $(11,386), respectively
    
    
    11,519
    
    
    
    (19,805
    )
    
    
    22,911
    
    
    
    (18,370
    )Reclassification adjustment for amounts included in net income,
net of tax of $65, $1,083, $306, and $2,400, respectively
    
    
    (2
    )
    
    
    1,351
    
    
    
    288
    
    
    
    3,405Total other comprehensive income  continuing operations
    
    
    15,851
    
    
    
    (19,052
    )
    
    
    30,054
    
    
    
    (18,889
    )Other comprehensive income  discontinued operations:Changes in fair value of qualifying hedges,
net of tax of $(448) and $642, respectively
    
    
    
    
    
    
    (710
    )
    
    
    
    
    
    
    1,018Reclassification adjustment for amounts included in net income,
net of tax of $(95) and $598, respectively
    
    
    
    
    
    
    (149
    )
    
    
    
    
    
    
    948Total other comprehensive income  discontinued
operations
    
    
    
    
    
    
    (859
    )
    
    
    
    
    
    
    1,966COMPREHENSIVE INCOME
    
    $
    401,074
    
    
    $
    366,910
    
    
    $
    676,884
    
    
    $
    692,858
  12




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 
 
 
 OVERVIEW
     RESULTS OF OPERATIONS
 Earnings
  13




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   Increase (Decrease)Second Quarter
    
    Year-to-Date(in thousands)
    
    
    %
    
    (in thousands)
    
    
    %Retail
revenues
    
    $
    415,296
    
    
    
    16.3
    
    
    $
    617,900
    
    
    
    12.8Sales for
resale
    
    
    54,905
    
    
    
    14.3
    
    
    
    122,649
    
    
    
    16.8Other electric
revenues
    
    
    6,747
    
    
    
    6.2
    
    
    
    16,642
    
    
    
    7.9Fuel
expense
    
    
    314,409
    
    
    
    31.7
    
    
    
    498,333
    
    
    
    26.8Purchased power
expense
    
    
    15,166
    
    
    
    12.3
    
    
    
    21,361
    
    
    
    9.6Other operations
expense
    
    
    15,730
    
    
    
    2.7
    
    
    
    61,754
    
    
    
    5.7Maintenance
expense
    
    
    13,317
    
    
    
    5.1
    
    
    
    2,855
    
    
    
    0.5Depreciation and
amortization
expense
    
    
    11,158
    
    
    
    3.9
    
    
    
    18,974
    
    
    
    3.3Taxes other than
income
taxes
    
    
    16,402
    
    
    
    10.1
    
    
    
    28,521
    
    
    
    8.8Allowance for
equity funds used
during
construction
    
    
    (3,613
    )
    
    
    (25.8
    )
    
    
    (8,945
    )
    
    
    (29.0
    )Equity in losses of
unconsolidated
subsidiaries
    
    
    (17,297
    )
    
    
    (58.5
    )
    
    
    (7,826
    )
    
    
    (14.9
    )Impairment loss on
equity method
investments
    
    
    15,274
    
    
    
    N/M
    
    
    
    15,274
    
    
    
    N/MInterest expense,
net of amounts
capitalized
    
    
    26,480
    
    
    
    17.2
    
    
    
    63,868
    
    
    
    21.8Other income
(expense),
net
    
    
    17,288
    
    
    
    N/M
    
    
    
    11,630
    
    
    
    N/MIncome
taxes
    
    
    75,802
    
    
    
    51.8
    
    
    
    106,937
    
    
    
    48.1
 
 N/M  Not meaningful Retail revenues.
  Second Quarter
    
    Year-to-Date2006
    
    2006(in millions)
    
    % change
    
    (in millions)
    
    % changeRetail  prior year
    
    $
    2,555
    
    
    
    
    
    
    $
    4,824Change in Base rates
    
    
    17
    
    
    
    0.7
    
    
    
    28
    
    
    
    0.6Sales growth
    
    
    25
    
    
    
    1.0
    
    
    
    60
    
    
    
    1.3Weather
    
    
    61
    
    
    
    2.4
    
    
    
    55
    
    
    
    1.1Fuel cost recovery
    
    
    293
    
    
    
    11.5
    
    
    
    435
    
    
    
    9.0Other cost recovery
    
    
    19
    
    
    
    0.7
    
    
    
    40
    
    
    
    0.8Retail  current year
    
    $
    2,970
    
    
    
    16.3
    %
    
    $
    5,442
    
    
    
    12.8
    %
 Sales for resale
 14




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Other electric revenues.
 Fuel expense and purchased power expense
 Other operations expense.
 Maintenance expense.
 Depreciation and amortization expense.
 15




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Taxes other than income taxes.
 Allowance for equity funds used during construction
 Equity
in losses of unconsolidated subsidiaries.
 Impairment loss on equity method investments.
 Interest expense, net of amounts capitalized.
 Other income (expense), net.
 16




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Income taxes.
 FUTURE EARNINGS POTENTIAL
  Environmental Matters
  17




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 New Source Review Litigation
  New Source Review Reform Rules
  Plant Wansley Environmental Litigation
  Birmingham Area Eight-Hour Ozone Attainment Redesignation
  18




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 FERC and State PSC Matters
 Market-Based Rate Authority
 
   Intercompany Interchange Contract
  19




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 .
 Retail Fuel Cost Recovery
   Storm Damage Cost Recovery
  20




---



##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
    Mirant Matters
  21




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Mirant Bankruptcy Litigation
  Mirant Securities Litigation
  Southern Company Employee Savings Plan Litigation
  Income Tax Matters
 Leveraged Lease Transactions
  22




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   Synthetic Fuel Tax Credits
   Other Matters
   23




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
    ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  New Accounting Standards
 Stock Options
  Income Taxes
  24




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 Leveraged Leases
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
     Capital Requirements and Contractual Obligations
  25




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 Sources of Capital
   Off-Balance Sheet Financing Arrangements
  Credit Rating Risk
  26




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Market Price Risk
   Second Quarter
    
    Year-to-Date2006
    
    2006Changes
    
    ChangesFair Value(in millions)Contracts beginning of period
    
    $
    (35.0
    )
    
    $
    100.5Contracts realized or settled
    
    
    28.3
    
    
    
    12.4New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (50.9
    )
    
    
    (170.5
    )Contracts at June 30, 2006
    
    $
    (57.6
    )
    
    $
    (57.6
    )
 
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered
into during the period. Source of June 30, 2006Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in millions)Actively quoted
    
    $
    (60.0
    )
    
    $
    (64.8
    )
    
    $
    4.8External sources
    
    
    2.4
    
    
    
    2.4
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at June 30, 2006
    
    $
    (57.6
    )
    
    $
    (62.4
    )
    
    $
    4.8
  27




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Amounts(in millions)Regulatory assets, net
    
    $
    (60.2
    )Accumulated other comprehensive
income
    
    
    1.6Net income
    
    
    1.0Total fair value loss
    
    $
    (57.6
    )
   Financing Activities
     28




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##### Table of Contents



PART I
 
 Item 3. Quantitative And Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
     29




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ALABAMA POWER COMPANY
 30




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##### Table of Contents



ALABAMA POWER COMPANY
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    1,026,643
    
    
    $
    863,155
    
    
    $
    1,828,852
    
    
    $
    1,572,241Sales for resale Non-affiliates
    
    
    156,328
    
    
    
    130,598
    
    
    
    302,682
    
    
    
    245,012Affiliates
    
    
    26,098
    
    
    
    47,934
    
    
    
    105,413
    
    
    
    155,220Other revenues
    
    
    40,355
    
    
    
    44,152
    
    
    
    85,184
    
    
    
    83,102Total operating revenues
    
    
    1,249,424
    
    
    
    1,085,839
    
    
    
    2,322,131
    
    
    
    2,055,575Operating Expenses:Fuel
    
    
    419,176
    
    
    
    323,328
    
    
    
    760,943
    
    
    
    623,148Purchased power Non-affiliates
    
    
    32,618
    
    
    
    34,316
    
    
    
    54,704
    
    
    
    58,182Affiliates
    
    
    89,073
    
    
    
    61,487
    
    
    
    145,738
    
    
    
    109,785Other operations
    
    
    176,059
    
    
    
    168,987
    
    
    
    345,072
    
    
    
    315,277Maintenance
    
    
    96,947
    
    
    
    80,858
    
    
    
    206,447
    
    
    
    204,412Depreciation and amortization
    
    
    112,295
    
    
    
    101,019
    
    
    
    222,157
    
    
    
    209,510Taxes other than income taxes
    
    
    65,286
    
    
    
    62,985
    
    
    
    130,943
    
    
    
    125,534Total operating expenses
    
    
    991,454
    
    
    
    832,980
    
    
    
    1,866,004
    
    
    
    1,645,848Operating Income
    
    
    257,970
    
    
    
    252,859
    
    
    
    456,127
    
    
    
    409,727Other Income and (Expense):Allowance for equity funds used during construction
    
    
    3,835
    
    
    
    4,785
    
    
    
    9,364
    
    
    
    10,439Interest income
    
    
    3,868
    
    
    
    4,001
    
    
    
    8,042
    
    
    
    7,569Interest expense, net of amounts capitalized
    
    
    (59,074
    )
    
    
    (50,415
    )
    
    
    (112,293
    )
    
    
    (96,722
    )Interest expense to affiliate trusts
    
    
    (4,060
    )
    
    
    (4,060
    )
    
    
    (8,119
    )
    
    
    (8,119
    )Other income (expense), net
    
    
    (728
    )
    
    
    (1,032
    )
    
    
    (9,733
    )
    
    
    (3,837
    )Total other income and (expense)
    
    
    (56,159
    )
    
    
    (46,721
    )
    
    
    (112,739
    )
    
    
    (90,670
    )Earnings Before Income Taxes
    
    
    201,811
    
    
    
    206,138
    
    
    
    343,388
    
    
    
    319,057Income taxes
    
    
    77,634
    
    
    
    78,573
    
    
    
    130,997
    
    
    
    92,018Net Income
    
    
    124,177
    
    
    
    127,565
    
    
    
    212,391
    
    
    
    227,039Dividends on Preferred Stock
    
    
    6,072
    
    
    
    6,072
    
    
    
    12,144
    
    
    
    12,144Net Income After Dividends on Preferred Stock
    
    $
    118,105
    
    
    $
    121,493
    
    
    $
    200,247
    
    
    $
    214,895
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred Stock
    
    $
    118,105
    
    
    $
    121,493
    
    
    $
    200,247
    
    
    $
    214,895Other comprehensive income (loss):Changes in fair value of qualifying hedges, net of tax
of $910, $(4,490), $2,383, and $(5,203), respectively
    
    
    1,497
    
    
    
    (7,386
    )
    
    
    3,920
    
    
    
    (8,558
    )Reclassification adjustment for amounts included in net income,
net of tax of $(1,009), $(347), $(2,015), and $(281),
respectively
    
    
    (1,660
    )
    
    
    (569
    )
    
    
    (3,314
    )
    
    
    (461
    )COMPREHENSIVE INCOME
    
    $
    117,942
    
    
    $
    113,538
    
    
    $
    200,853
    
    
    $
    205,876
  31




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##### Table of Contents



ALABAMA POWER COMPANY
 
  For the Six MonthsEnded June 30,2006
    
    
    2005(in thousands)Operating Activities:Net income
    
    $
    212,391
    
    
    $
    227,039Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    257,676
    
    
    
    247,403Deferred income taxes and investment tax credits, net
    
    
    (6,511
    )
    
    
    17,335Deferred revenues
    
    
    (599
    )
    
    
    (6,689
    )Allowance for equity funds used during construction
    
    
    (9,364
    )
    
    
    (10,439
    )Pension, postretirement, and other employee benefits
    
    
    (3,134
    )
    
    
    (5,973
    )Stock option expense
    
    
    4,002
    
    
    
    Tax benefit of stock options
    
    
    184
    
    
    
    13,373Hedge settlements
    
    
    18,006
    
    
    
    (21,445
    )Storm damage accounting order
    
    
    
    
    
    
    45,000Other, net
    
    
    (20,864
    )
    
    
    (10,632
    )Changes in certain current assets and liabilities Receivables
    
    
    33,917
    
    
    
    (41,345
    )Fossil fuel stock
    
    
    (33,100
    )
    
    
    (61,777
    )Materials and supplies
    
    
    (2
    )
    
    
    (5,975
    )Other current assets
    
    
    (6,877
    )
    
    
    6,086Accounts payable
    
    
    (156,487
    )
    
    
    (92,512
    )Accrued taxes
    
    
    41,031
    
    
    
    (11,344
    )Accrued compensation
    
    
    (53,489
    )
    
    
    (29,589
    )Other current liabilities
    
    
    23,924
    
    
    
    26,527Net cash provided from operating activities
    
    
    300,704
    
    
    
    285,043Investing Activities:Property additions
    
    
    (416,892
    )
    
    
    (365,016
    )Nuclear decommisioning trust fund purchases
    
    
    (143,829
    )
    
    
    (119,588
    )Nuclear decommisioning trust fund sales
    
    
    143,829
    
    
    
    119,588Cost of removal net of salvage
    
    
    (22,296
    )
    
    
    (25,453
    )Other
    
    
    (14,547
    )
    
    
    (4,934
    )Net cash used for investing activities
    
    
    (453,735
    )
    
    
    (395,403
    )Financing Activities:Decrease in notes payable, net
    
    
    (315,278
    )
    
    
    Proceeds Common stock issued to parent
    
    
    40,000
    
    
    
    40,000Senior notes
    
    
    950,000
    
    
    
    250,000Gross excess tax benefit of stock options
    
    
    368
    
    
    
    Redemptions Pollution control bonds
    
    
    (2,950
    )
    
    
    Senior notes
    
    
    (196,500
    )
    
    
    Payment of preferred stock dividends
    
    
    (12,140
    )
    
    
    (10,815
    )Payment of common stock dividends
    
    
    (220,300
    )
    
    
    (204,950
    )Other
    
    
    (21,866
    )
    
    
    (2,438
    )Net cash provided from financing activities
    
    
    221,334
    
    
    
    71,797Net Change in Cash and Cash Equivalents
    
    
    68,303
    
    
    
    (38,563
    )Cash and Cash Equivalents at Beginning of Period
    
    
    22,472
    
    
    
    79,711Cash and Cash Equivalents at End of Period
    
    $
    90,775
    
    
    $
    41,148Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $3,988 and $4,133 capitalized for
2006 and 2005, respectively)
    
    $
    127,055
    
    
    $
    81,932Income taxes (net of refunds)
    
    $
    122,089
    
    
    $
    84,604
  32




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ALABAMA POWER COMPANY
 
  At June 30,
    
    
    At December 31,Assets
    
    2006
    
    
    2005(in thousands)Current Assets:Cash and cash equivalents
    
    $
    90,775
    
    
    $
    22,472Receivables Customer accounts receivable
    
    
    322,304
    
    
    
    275,702Unbilled revenues
    
    
    110,969
    
    
    
    95,039Under recovered regulatory clause revenues
    
    
    104,956
    
    
    
    132,139Other accounts and notes receivable
    
    
    48,339
    
    
    
    50,008Affiliated companies
    
    
    21,192
    
    
    
    77,304Accumulated provision for uncollectible accounts
    
    
    (7,753
    )
    
    
    (7,560
    )Fossil fuel stock, at average cost
    
    
    150,715
    
    
    
    102,420Vacation pay
    
    
    45,094
    
    
    
    44,893Materials and supplies, at average cost
    
    
    229,955
    
    
    
    244,417Prepaid expenses
    
    
    79,341
    
    
    
    58,845Other regulatory assets
    
    
    66,571
    
    
    
    43,621Other
    
    
    19,435
    
    
    
    54,885Total current assets
    
    
    1,281,893
    
    
    
    1,194,185Property, Plant, and Equipment:In service
    
    
    15,774,064
    
    
    
    15,300,346Less accumulated provision for depreciation
    
    
    5,483,598
    
    
    
    5,313,73110,290,466
    
    
    
    9,986,615Nuclear fuel, at amortized cost
    
    
    116,766
    
    
    
    127,199Construction work in progress
    
    
    359,731
    
    
    
    469,018Total property, plant, and equipment
    
    
    10,766,963
    
    
    
    10,582,832Other Property and Investments:Equity investments in unconsolidated subsidiaries
    
    
    47,561
    
    
    
    46,913Nuclear decommissioning trusts, at fair value
    
    
    473,097
    
    
    
    466,963Other
    
    
    40,608
    
    
    
    41,457Total other property and investments
    
    
    561,266
    
    
    
    555,333Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    381,355
    
    
    
    388,634Prepaid pension costs
    
    
    527,141
    
    
    
    515,281Deferred under recovered regulatory clause revenues
    
    
    194,640
    
    
    
    186,864Other regulatory assets
    
    
    104,894
    
    
    
    122,378Other
    
    
    160,670
    
    
    
    144,400Total deferred charges and other assets
    
    
    1,368,700
    
    
    
    1,357,557Total Assets
    
    $
    13,978,822
    
    
    $
    13,689,907
  33




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ALABAMA POWER COMPANY
  At June 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2006
    
    
    2005(in thousands)Current Liabilities:Securities due within one year
    
    $
    518,674
    
    
    $
    546,645Notes payable
    
    
    
    
    
    
    315,278Accounts payable Affiliated
    
    
    164,624
    
    
    
    190,744Other
    
    
    150,727
    
    
    
    266,174Customer deposits
    
    
    60,609
    
    
    
    56,709Accrued taxes Income taxes
    
    
    21,619
    
    
    
    63,844Other
    
    
    73,533
    
    
    
    31,692Accrued interest
    
    
    55,808
    
    
    
    46,018Accrued vacation pay
    
    
    37,646
    
    
    
    37,646Accrued compensation
    
    
    39,295
    
    
    
    92,784Other
    
    
    78,117
    
    
    
    72,991Total current liabilities
    
    
    1,200,652
    
    
    
    1,720,525Long-term Debt
    
    
    4,335,465
    
    
    
    3,560,186Long-term Debt Payable to Affiliated Trusts
    
    
    309,279
    
    
    
    309,279Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    2,100,519
    
    
    
    2,070,746Deferred credits related to income taxes
    
    
    99,810
    
    
    
    101,678Accumulated deferred investment tax credits
    
    
    192,583
    
    
    
    196,585Employee benefit obligations
    
    
    221,993
    
    
    
    208,663Asset retirement obligations
    
    
    458,753
    
    
    
    446,268Other cost of removal obligations
    
    
    588,050
    
    
    
    600,104Other regulatory liabilities
    
    
    161,452
    
    
    
    194,135Other
    
    
    27,293
    
    
    
    23,966Total deferred credits and other liabilities
    
    
    3,850,453
    
    
    
    3,842,145Total Liabilities
    
    
    9,695,849
    
    
    
    9,432,135Preferred Stock
    
    
    465,046
    
    
    
    465,046Common Stockholders Equity:Common stock, par value $40 per share Authorized  June 30, 2006: 25,000,000 shares December 31, 2005: 15,000,000 sharesOutstanding  June 30, 2006: 10,250,000 shares December 31, 2005: 9,250,000 shares
    
    
    410,000
    
    
    
    370,000Paid-in capital
    
    
    1,999,700
    
    
    
    1,995,056Retained earnings
    
    
    1,419,095
    
    
    
    1,439,144Accumulated other comprehensive loss
    
    
    (10,868
    )
    
    
    (11,474
    )Total common stockholders equity
    
    
    3,817,927
    
    
    
    3,792,726Total Liabilities and Stockholders Equity
    
    $
    13,978,822
    
    
    $
    13,689,907
  34




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##### Table of Contents



ALABAMA POWER COMPANY
 
   
 OVERVIEW
   RESULTS OF OPERATIONS
 Earnings
  35




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##### Table of Contents



ALABAMA POWER COMPANY
  Increase (Decrease)Second Quarter
    
    Year-to-Date(in thousands)
    
    %
    
    (in thousands)
    
    %Retail revenues
    
    $
    163,488
    
    
    
    18.9
    
    
    $
    256,611
    
    
    
    16.3Sales for resale-non-affiliates
    
    
    25,730
    
    
    
    19.7
    
    
    
    57,670
    
    
    
    23.5Sales for resale-affiliates
    
    
    (21,836
    )
    
    
    (45.6
    )
    
    
    (49,807
    )
    
    
    (32.1
    )Fuel expense
    
    
    95,848
    
    
    
    29.6
    
    
    
    137,795
    
    
    
    22.1Purchased power-non-affiliates
    
    
    (1,698
    )
    
    
    (4.9
    )
    
    
    (3,478
    )
    
    
    (6.0
    )Purchased power-affiliates
    
    
    27,586
    
    
    
    44.9
    
    
    
    35,953
    
    
    
    32.7Other operations expense
    
    
    7,072
    
    
    
    4.2
    
    
    
    29,795
    
    
    
    9.5Maintenance expense
    
    
    16,089
    
    
    
    19.9
    
    
    
    2,035
    
    
    
    1.0Depreciation and amortization
    
    
    11,276
    
    
    
    11.2
    
    
    
    12,647
    
    
    
    6.0Interest expense, net of amounts capitalized.
    
    
    8,659
    
    
    
    17.2
    
    
    
    15,571
    
    
    
    16.1Other income (expense), net
    
    
    304
    
    
    
    29.5
    
    
    
    (5,896
    )
    
    
    (153.7
    )Income taxes
    
    
    (939
    )
    
    
    (1.2
    )
    
    
    38,979
    
    
    
    42.4
 Retail revenues
  Second Quarter
    
    Year-to-Date2006
    
    2006(in millions)
    
    % change
    
    (in millions)
    
    % changeRetail  prior year
    
    $
    863
    
    
    
    
    
    
    $
    1,572Change in Base rates
    
    
    9
    
    
    
    1.0
    
    
    
    19
    
    
    
    1.2Sales growth
    
    
    (4
    )
    
    
    (0.5
    )
    
    
    19
    
    
    
    1.2Weather
    
    
    25
    
    
    
    2.9
    
    
    
    24
    
    
    
    1.5Energy cost recovery
    
    
    119
    
    
    
    13.8
    
    
    
    169
    
    
    
    10.7Other cost recovery
    
    
    15
    
    
    
    1.7
    
    
    
    26
    
    
    
    1.7Retail  current year
    
    $
    1,027
    
    
    
    18.9
    %
    
    $
    1,829
    
    
    
    16.3
    %
 36




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##### Table of Contents



ALABAMA POWER COMPANY
 Sales for resale  non-affiliates
 Sales for resale  affiliates.
 Fuel expense, purchased power  non-affiliates, and purchased power  affiliates.
    37




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##### Table of Contents



ALABAMA POWER COMPANY
  Other operations expense.
 Maintenance expense.
 Depreciation and amortization.
 Interest expense, net of amounts capitalized.
 Other income (expense), net.
 38




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##### Table of Contents



ALABAMA POWER COMPANY
 Income taxes.
 FUTURE EARNINGS POTENTIAL
  Environmental Matters
  New Source Review Litigation
  39




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##### Table of Contents



ALABAMA POWER COMPANY
  New Source Review Reform Rules
  Birmingham Area Eight-Hour Ozone Attainment Redesignation
  FERC and Alabama PSC Matters
 Market-Based Rate Authority
 
 40




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##### Table of Contents



ALABAMA POWER COMPANY
   Intercompany Interchange Contract
 .
 Retail Fuel Cost Recovery
  41




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##### Table of Contents



ALABAMA POWER COMPANY
 Other Matters
   ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
 
 New Accounting Standards
 Stock Options
  Income Taxes
  42




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##### Table of Contents



ALABAMA POWER COMPANY
 FINANCIAL CONDITION AND LIQUIDITY
 Overview
  Capital Requirements and Contractual Obligations
   Sources of Capital
   43




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##### Table of Contents



ALABAMA POWER COMPANY
  Credit Rating Risk
  Market Price Risk
    Second Quarter
    
    Year-to-Date2006
    
    2006Changes
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    (22,448
    )
    
    $
    28,978Contracts realized or settled
    
    
    13,580
    
    
    
    7,664New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (20,806
    )
    
    
    (66,316
    )Contracts at June 30, 2006
    
    $
    (29,674
    )
    
    $
    (29,674
    )
 
 (a)
    
    Current period changes also include the changes in fair value of new contracts
entered into during the period, if any. 44




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##### Table of Contents



ALABAMA POWER COMPANY
 Source of June 30, 2006Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    (29,795
    )
    
    $
    (30,375
    )
    
    $
    580External sources
    
    
    121
    
    
    
    121
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at June 30, 2006
    
    $
    (29,674
    )
    
    $
    (30,254
    )
    
    $
    580
  Amounts(in thousands)Regulatory assets, net
    
    $
    (29,731
    )Accumulated other comprehensive
income
    
    
    121Net income
    
    
    (64
    )Total fair value loss
    
    $
    (29,674
    )
  
 Financing Activities
    45




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##### Table of Contents



ALABAMA POWER COMPANY
      46




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##### Table of Contents



GEORGIA POWER COMPANY
 47




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##### Table of Contents



GEORGIA POWER COMPANY
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    1,420,762
    
    
    $
    1,227,087
    
    
    $
    2,687,718
    
    
    $
    2,412,323Sales for resale Non-affiliates
    
    
    132,557
    
    
    
    126,000
    
    
    
    265,921
    
    
    
    238,852Affiliates
    
    
    85,674
    
    
    
    54,743
    
    
    
    120,616
    
    
    
    80,374Other revenues
    
    
    59,745
    
    
    
    51,358
    
    
    
    111,932
    
    
    
    98,069Total operating revenues
    
    
    1,698,738
    
    
    
    1,459,188
    
    
    
    3,186,187
    
    
    
    2,829,618Operating Expenses:Fuel
    
    
    556,691
    
    
    
    412,050
    
    
    
    991,465
    
    
    
    721,316Purchased power Non-affiliates
    
    
    82,321
    
    
    
    64,523
    
    
    
    138,876
    
    
    
    117,497Affiliates
    
    
    145,518
    
    
    
    140,800
    
    
    
    336,037
    
    
    
    360,804Other operations
    
    
    226,256
    
    
    
    223,471
    
    
    
    444,976
    
    
    
    425,550Maintenance
    
    
    119,876
    
    
    
    123,575
    
    
    
    239,176
    
    
    
    240,225Depreciation and amortization
    
    
    117,590
    
    
    
    124,999
    
    
    
    235,447
    
    
    
    248,099Taxes other than income taxes
    
    
    68,945
    
    
    
    58,648
    
    
    
    136,090
    
    
    
    119,407Total operating expenses
    
    
    1,317,197
    
    
    
    1,148,066
    
    
    
    2,522,067
    
    
    
    2,232,898Operating Income
    
    
    381,541
    
    
    
    311,122
    
    
    
    664,120
    
    
    
    596,720Other Income and (Expense):Allowance for equity funds used during construction
    
    
    6,338
    
    
    
    7,935
    
    
    
    12,123
    
    
    
    17,192Interest income
    
    
    199
    
    
    
    31
    
    
    
    515
    
    
    
    502Interest expense, net of amounts capitalized
    
    
    (61,322
    )
    
    
    (55,174
    )
    
    
    (121,529
    )
    
    
    (105,594
    )Interest expense to affiliate trusts
    
    
    (14,877
    )
    
    
    (14,877
    )
    
    
    (29,755
    )
    
    
    (29,755
    )Other income (expense), net
    
    
    3,370
    
    
    
    2,821
    
    
    
    2,376
    
    
    
    (21
    )Total other income and (expense)
    
    
    (66,292
    )
    
    
    (59,264
    )
    
    
    (136,270
    )
    
    
    (117,676
    )Earnings Before Income Taxes
    
    
    315,249
    
    
    
    251,858
    
    
    
    527,850
    
    
    
    479,044Income taxes
    
    
    119,059
    
    
    
    94,140
    
    
    
    199,003
    
    
    
    178,794Net Income
    
    
    196,190
    
    
    
    157,718
    
    
    
    328,847
    
    
    
    300,250Dividends on Preferred Stock
    
    
    
    
    
    
    167
    
    
    
    1,010
    
    
    
    335Net Income After Dividends on Preferred Stock
    
    $
    196,190
    
    
    $
    157,551
    
    
    $
    327,837
    
    
    $
    299,915
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred Stock
    
    $
    196,190
    
    
    $
    157,551
    
    
    $
    327,837
    
    
    $
    299,915Other comprehensive income (loss):Change in fair value of marketable securities, net of tax
of $(66), $28, $(163), and $103, respectively
    
    
    (103
    )
    
    
    46
    
    
    
    (258
    )
    
    
    164Changes in fair value of qualifying hedges, net of tax
of $6,026, $(7,260), $11,241, and $(5,890), respectively
    
    
    9,554
    
    
    
    (11,510
    )
    
    
    17,821
    
    
    
    (9,338
    )Reclassification adjustment for amounts included in net income,
net of tax of $(58), $345, $52, and $521, respectively
    
    
    (93
    )
    
    
    246
    
    
    
    82
    
    
    
    526COMPREHENSIVE INCOME
    
    $
    205,548
    
    
    $
    146,333
    
    
    $
    345,482
    
    
    $
    291,267
  48




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##### Table of Contents



GEORGIA POWER COMPANY
 
  For the Six MonthsEnded June 30,2006
    
    
    2005(in thousands)Operating Activities:Net income
    
    $
    328,847
    
    
    $
    300,250Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    276,048
    
    
    
    292,447Deferred income taxes and investment tax credits
    
    
    13,433
    
    
    
    89,724Deferred expenses  affiliates
    
    
    18,717
    
    
    
    20,302Allowance for equity funds used during construction
    
    
    (12,123
    )
    
    
    (17,192
    )Pension, postretirement, and other employee benefits
    
    
    (1,225
    )
    
    
    5,318Stock option expense
    
    
    4,330
    
    
    
    Tax benefit of stock options
    
    
    282
    
    
    
    10,854Other, net
    
    
    8,447
    
    
    
    (12,437
    )Changes in certain current assets and liabilities Receivables
    
    
    (89,773
    )
    
    
    (247,466
    )Fossil fuel stock
    
    
    (80,881
    )
    
    
    (23,692
    )Materials and supplies
    
    
    (28,885
    )
    
    
    (16,024
    )Prepaid income taxes
    
    
    61,519
    
    
    
    17,892Other current assets
    
    
    (11,520
    )
    
    
    (3,837
    )Accounts payable
    
    
    (128,890
    )
    
    
    (59,236
    )Accrued taxes
    
    
    38,209
    
    
    
    43,098Accrued compensation
    
    
    (83,215
    )
    
    
    (64,952
    )Other current liabilities
    
    
    6,382
    
    
    
    22,357Net cash provided from operating activities
    
    
    319,702
    
    
    
    357,406Investing Activities:Property additions
    
    
    (448,857
    )
    
    
    (381,191
    )Nuclear decommissioning trust fund purchases
    
    
    (241,021
    )
    
    
    (205,261
    )Nuclear decommissioning trust fund sales
    
    
    234,141
    
    
    
    196,562Cost of removal net of salvage
    
    
    (10,658
    )
    
    
    (10,359
    )Change in construction payables, net of joint owner portion
    
    
    (7,136
    )
    
    
    (39,400
    )Other
    
    
    (1,963
    )
    
    
    6,126Net cash used for investing activities
    
    
    (475,494
    )
    
    
    (433,523
    )Financing Activities:Increase in notes payable, net
    
    
    389,817
    
    
    
    171,669Proceeds Senior notes
    
    
    
    
    
    
    375,000Capital contributions from parent company
    
    
    232,328
    
    
    
    100,000Pollution control bonds
    
    
    10,125
    
    
    
    185,000Gross excess tax benefit of stock options
    
    
    611
    
    
    
    Redemptions Senior notes
    
    
    (150,000
    )
    
    
    (300,000
    )Pollution control bonds
    
    
    (10,125
    )
    
    
    (85,000
    )Preferred stock
    
    
    (14,569
    )
    
    
    Special deposit  redemption funds
    
    
    
    
    
    
    (100,000
    )Payment of preferred stock dividends
    
    
    (12
    )
    
    
    (211
    )Payment of common stock dividends
    
    
    (301,250
    )
    
    
    (278,050
    )Other
    
    
    (347
    )
    
    
    (16,494
    )Net cash provided from financing activities
    
    
    156,578
    
    
    
    51,914Net Change in Cash and Cash Equivalents
    
    
    786
    
    
    
    (24,203
    )Cash and Cash Equivalents at Beginning of Period
    
    
    10,636
    
    
    
    33,497Cash and Cash Equivalents at End of Period
    
    $
    11,422
    
    
    $
    9,294Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $4,904 and $6,996 capitalized for 2006 and 2005, respectively)
    
    $
    157,809
    
    
    $
    123,323Income taxes (net of refunds)
    
    $
    26,441
    
    
    $
    3,310
  49




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##### Table of Contents



GEORGIA POWER COMPANY
 
  At June 30,
    
    
    At December 31,Assets
    
    2006
    
    
    2005(in thousands)Current Assets:Cash and cash equivalents
    
    $
    11,422
    
    
    $
    10,636Receivables Customer accounts receivable
    
    
    416,118
    
    
    
    418,154Unbilled revenues
    
    
    176,184
    
    
    
    141,875Under recovered regulatory clause revenues
    
    
    372,587
    
    
    
    454,683Other accounts and notes receivable
    
    
    85,136
    
    
    
    110,397Affiliated companies
    
    
    55,814
    
    
    
    84,597Accumulated provision for uncollectible accounts
    
    
    (8,521
    )
    
    
    (8,647
    )Fossil fuel stock, at average cost
    
    
    262,620
    
    
    
    181,739Vacation pay
    
    
    59,646
    
    
    
    59,190Materials and supplies, at average cost
    
    
    352,866
    
    
    
    323,908Prepaid expenses
    
    
    13,973
    
    
    
    70,825Other
    
    
    101,087
    
    
    
    50,248Total current assets
    
    
    1,898,932
    
    
    
    1,897,605Property, Plant, and Equipment:In service
    
    
    19,957,393
    
    
    
    19,603,249Less accumulated provision for depreciation
    
    
    7,775,166
    
    
    
    7,575,92612,182,227
    
    
    
    12,027,323Nuclear fuel, at amortized cost
    
    
    148,604
    
    
    
    134,798Construction work in progress
    
    
    599,874
    
    
    
    563,155Total property, plant, and equipment
    
    
    12,930,705
    
    
    
    12,725,276Other Property and Investments:Equity investments in unconsolidated subsidiaries
    
    
    68,470
    
    
    
    68,188Nuclear decommissioning trusts, at fair value
    
    
    499,868
    
    
    
    486,591Other
    
    
    70,800
    
    
    
    71,468Total other property and investments
    
    
    639,138
    
    
    
    626,247Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    497,775
    
    
    
    500,882Prepaid pension costs
    
    
    487,462
    
    
    
    476,458Deferred under recovered regulatory clause revenues
    
    
    477,611
    
    
    
    295,116Other regulatory assets
    
    
    330,752
    
    
    
    330,483Other
    
    
    174,519
    
    
    
    195,716Total deferred charges and other assets
    
    
    1,968,119
    
    
    
    1,798,655Total Assets
    
    $
    17,436,894
    
    
    $
    17,047,783
  50




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GEORGIA POWER COMPANY
 At June 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2006
    
    
    2005(in thousands)Current Liabilities:Securities due within one year
    
    $
    2,822
    
    
    $
    167,317Notes payable
    
    
    657,559
    
    
    
    267,743Accounts payable Affiliated
    
    
    207,585
    
    
    
    285,019Other
    
    
    292,313
    
    
    
    360,455Customer deposits
    
    
    140,292
    
    
    
    129,293Accrued taxes Income taxes
    
    
    313,302
    
    
    
    150,896Other
    
    
    146,254
    
    
    
    204,778Accrued interest
    
    
    74,533
    
    
    
    88,885Accrued vacation pay
    
    
    45,692
    
    
    
    45,602Accrued compensation
    
    
    55,416
    
    
    
    137,303Other
    
    
    155,354
    
    
    
    120,312Total current liabilities
    
    
    2,091,122
    
    
    
    1,957,603Long-term Debt
    
    
    4,177,916
    
    
    
    4,179,218Long-term Debt Payable to Affiliated Trusts
    
    
    969,073
    
    
    
    969,073Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    2,693,006
    
    
    
    2,730,303Deferred credits related to income taxes
    
    
    153,196
    
    
    
    158,759Accumulated deferred investment tax credits
    
    
    281,581
    
    
    
    287,726Employee benefit obligations
    
    
    379,656
    
    
    
    358,137Asset retirement obligations
    
    
    647,003
    
    
    
    627,465Other cost of removal obligations
    
    
    403,322
    
    
    
    404,614Other regulatory liabilities
    
    
    78,709
    
    
    
    97,015Other
    
    
    65,992
    
    
    
    63,335Total deferred credits and other liabilities
    
    
    4,702,465
    
    
    
    4,727,354Total Liabilities
    
    
    11,940,576
    
    
    
    11,833,248Common Stockholders Equity:Common stock, without par valueAuthorized   June 30, 2006: 20,000,000 shares
               December 31, 2005: 15,000,000 sharesOutstanding - 7,761,500 shares
    
    
    344,250
    
    
    
    344,250Paid-in capital
    
    
    2,880,563
    
    
    
    2,643,012Retained earnings
    
    
    2,288,285
    
    
    
    2,261,698Accumulated other comprehensive loss
    
    
    (16,780
    )
    
    
    (34,425
    )Total common stockholders equity
    
    
    5,496,318
    
    
    
    5,214,535Total Liabilities and Stockholders Equity
    
    $
    17,436,894
    
    
    $
    17,047,783
  51




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GEORGIA POWER COMPANY
 
 
 
 OVERVIEW
    RESULTS OF OPERATIONS
 Earnings
  52




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GEORGIA POWER COMPANY
  Increase(Decrease)Second Quarter
    
    Year-to-Date(in thousands)
    
    %
    
    (in thousands)
    
    %Retail
revenues
    
    $
    193,675
    
    
    
    15.8
    
    
    $
    275,395
    
    
    
    11.4Sales for resale 
non-affiliates
    
    
    6,557
    
    
    
    5.2
    
    
    
    27,069
    
    
    
    11.3Sales for resale 
affiliates
    
    
    30,931
    
    
    
    56.5
    
    
    
    40,242
    
    
    
    50.1Other
revenues
    
    
    8,387
    
    
    
    16.3
    
    
    
    13,863
    
    
    
    14.1Fuel
expense
    
    
    144,641
    
    
    
    35.1
    
    
    
    270,149
    
    
    
    37.5Purchased power
expense 
non-affiliates
    
    
    17,798
    
    
    
    27.6
    
    
    
    21,379
    
    
    
    18.2Purchased power
expense 
affiliates
    
    
    4,718
    
    
    
    3.4
    
    
    
    (24,767
    )
    
    
    (6.9
    )Depreciation and
amortization
    
    
    (7,409
    )
    
    
    (5.9
    )
    
    
    (12,652
    )
    
    
    (5.1
    )Taxes other than
income
taxes
    
    
    10,297
    
    
    
    17.6
    
    
    
    16,683
    
    
    
    14.0Allowance for
equity funds used
during
construction
    
    
    (1,597
    )
    
    
    (20.1
    )
    
    
    (5,069
    )
    
    
    (29.5
    )Interest expense,
net of amounts
capitalized
    
    
    6,148
    
    
    
    11.1
    
    
    
    15,935
    
    
    
    15.1
 Retail revenues.
  Second Quarter
    
    Year-to-Date2006
    
    2006(in millions)
    
    % change
    
    (in millions)
    
    % changeRetail  prior year
    
    $
    1,227
    
    
    
    
    
    
    $
    2,412Change in Base rates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sales growth
    
    
    35
    
    
    
    2.8
    
    
    
    47
    
    
    
    1.9Weather
    
    
    22
    
    
    
    1.8
    
    
    
    17
    
    
    
    0.7Fuel cost recovery
    
    
    137
    
    
    
    11.2
    
    
    
    212
    
    
    
    8.8Retail  current year
    
    $
    1,421
    
    
    
    15.8
    %
    
    $
    2,688
    
    
    
    11.4
    %
 Sales for resale  non-affiliates.
 53




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##### Table of Contents



GEORGIA POWER COMPANY
 Sales for resale  affiliates.
 Other revenues
 Fuel expense and purchased power expense
    Depreciation and amortization expense.
 Taxes other than income taxes.
 54




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##### Table of Contents



GEORGIA POWER COMPANY
 Allowance for equity funds used during construction.
 Interest expense, net of amounts capitalized
 FUTURE EARNINGS POTENTIAL
  Environmental Matters
  New Source Review Reform Rules
  Plant Wansley Environmental Litigation
  55




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##### Table of Contents



GEORGIA POWER COMPANY
  FERC and Georgia PSC Matters
 Market-Based Rate Authority
    Intercompany Interchange Contract
  56




---



##### Table of Contents



GEORGIA POWER COMPANY
 .
 Retail Fuel Cost Recovery
  Merger
  57




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##### Table of Contents



GEORGIA POWER COMPANY
 Nuclear
  Other Matters
     58




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##### Table of Contents



GEORGIA POWER COMPANY
 ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  New Accounting Standards
 Stock Options
  Income Taxes
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
  59




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##### Table of Contents



GEORGIA POWER COMPANY
 Capital Requirements and Contractual Obligations
 
  Sources of Capital
   Credit Rating Risk
  60




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##### Table of Contents



GEORGIA POWER COMPANY
  Market Price Risk
    Second Quarter
    
    Year-to-Date2006
    
    2006Changes
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    (20,274
    )
    
    $
    26,562Contracts realized or settled
    
    
    12,799
    
    
    
    7,468New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (16,874
    )
    
    
    (58,379
    )Contracts at June 30, 2006
    
    $
    (24,349
    )
    
    $
    (24,349
    )
 (a)
    
    Current period changes also include the changes in fair value of new contracts
entered into during the period.
 Source of June 30, 2006Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    (24,500
    )
    
    $
    (24,988
    )
    
    $
    488External sources
    
    
    151
    
    
    
    151
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at June 30, 2006
    
    $
    (24,349
    )
    
    $
    (24,837
    )
    
    $
    488
  61




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##### Table of Contents



GEORGIA POWER COMPANY
  Amounts(in thousands)Regulatory assets, net
    
    $
    (24,268
    )Accumulated other comprehensive
income
    
    
    Net income
    
    
    (81
    )Total fair value loss
    
    $
    (24,349
    )
   Financing Activities
       62




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GULF POWER COMPANY
 63




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##### Table of Contents



GULF POWER COMPANY
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    245,656
    
    
    $
    207,110
    
    
    $
    424,973
    
    
    $
    369,392Sales for resale Non-affiliates
    
    
    20,344
    
    
    
    19,614
    
    
    
    41,182
    
    
    
    39,326Affiliates
    
    
    15,417
    
    
    
    14,443
    
    
    
    68,025
    
    
    
    47,043Other revenues
    
    
    11,305
    
    
    
    10,130
    
    
    
    21,584
    
    
    
    20,133Total operating revenues
    
    
    292,722
    
    
    
    251,297
    
    
    
    555,764
    
    
    
    475,894Operating Expenses:Fuel
    
    
    120,915
    
    
    
    94,814
    
    
    
    242,156
    
    
    
    187,444Purchased power Non-affiliates
    
    
    4,531
    
    
    
    4,958
    
    
    
    9,327
    
    
    
    10,066Affiliates
    
    
    15,137
    
    
    
    10,829
    
    
    
    22,127
    
    
    
    16,841Other operations
    
    
    46,761
    
    
    
    41,148
    
    
    
    90,251
    
    
    
    74,917Maintenance
    
    
    16,142
    
    
    
    16,286
    
    
    
    30,714
    
    
    
    33,885Depreciation and amortization
    
    
    22,381
    
    
    
    21,333
    
    
    
    44,366
    
    
    
    42,082Taxes other than income taxes
    
    
    19,793
    
    
    
    17,776
    
    
    
    38,682
    
    
    
    35,277Total operating expenses
    
    
    245,660
    
    
    
    207,144
    
    
    
    477,623
    
    
    
    400,512Operating Income
    
    
    47,062
    
    
    
    44,153
    
    
    
    78,141
    
    
    
    75,382Other Income and (Expense):Interest income
    
    
    769
    
    
    
    444
    
    
    
    1,550
    
    
    
    699Interest expense, net of amounts capitalized
    
    
    (9,785
    )
    
    
    (8,991
    )
    
    
    (19,057
    )
    
    
    (17,251
    )Interest expense to affiliate trusts
    
    
    (1,147
    )
    
    
    (1,147
    )
    
    
    (2,295
    )
    
    
    (2,295
    )Other income (expense), net
    
    
    (347
    )
    
    
    (160
    )
    
    
    (897
    )
    
    
    32Total other income and (expense)
    
    
    (10,510
    )
    
    
    (9,854
    )
    
    
    (20,699
    )
    
    
    (18,815
    )Earnings Before Income Taxes
    
    
    36,552
    
    
    
    34,299
    
    
    
    57,442
    
    
    
    56,567Income taxes
    
    
    13,689
    
    
    
    12,787
    
    
    
    21,352
    
    
    
    20,355Net Income
    
    
    22,863
    
    
    
    21,512
    
    
    
    36,090
    
    
    
    36,212Dividends on Preferred and Preference Stock
    
    
    825
    
    
    
    54
    
    
    
    1,650
    
    
    
    108Net Income After Dividends on
Preferred and Preference Stock
    
    $
    22,038
    
    
    $
    21,458
    
    
    $
    34,440
    
    
    $
    36,104
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred and Preference Stock
    
    $
    22,038
    
    
    $
    21,458
    
    
    $
    34,440
    
    
    $
    36,104Other comprehensive income (loss):Changes in fair value of qualifying hedges, net of tax
of $(191) and $(191), respectively
    
    
    (304
    )
    
    
    
    
    
    
    (304
    )
    
    
    Reclassification adjustment for amounts included in net income,
net of tax of $32, $32, $63 and $63, respectively
    
    
    50
    
    
    
    49
    
    
    
    100
    
    
    
    100COMPREHENSIVE INCOME
    
    $
    21,784
    
    
    $
    21,507
    
    
    $
    34,236
    
    
    $
    36,204
  64




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GULF POWER COMPANY
 
  For the Six MonthsEnded June 30,2006
    
    
    2005(in thousands)Operating Activities:Net income
    
    $
    36,090
    
    
    $
    36,212Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    47,115
    
    
    
    45,007Deferred income taxes
    
    
    (9,061
    )
    
    
    (2,553
    )Pension, postretirement, and other employee benefits
    
    
    1,480
    
    
    
    1,123Stock option expense
    
    
    745
    
    
    
    Tax benefit of stock options
    
    
    68
    
    
    
    2,659Other, net
    
    
    1,429
    
    
    
    (2,151
    )Changes in certain current assets and liabilities Receivables
    
    
    (9,935
    )
    
    
    (2,134
    )Fossil fuel stock
    
    
    (11,273
    )
    
    
    (17,991
    )Materials and supplies
    
    
    (15,973
    )
    
    
    1,270Prepaid income taxes
    
    
    1,446
    
    
    
    4,019Property damage cost recovery
    
    
    11,765
    
    
    
    6,462Other current assets
    
    
    926
    
    
    
    6,282Accounts payable
    
    
    7,865
    
    
    
    (38,761
    )Accrued taxes
    
    
    17,204
    
    
    
    6,256Accrued compensation
    
    
    (12,897
    )
    
    
    (7,837
    )Other current liabilities
    
    
    6,282
    
    
    
    7,987Net cash provided from operating activities
    
    
    73,276
    
    
    
    45,850Investing Activities:Property additions
    
    
    (73,761
    )
    
    
    (70,701
    )Cost of removal net of salvage
    
    
    (2,159
    )
    
    
    (2,668
    )Construction payables
    
    
    (5,704
    )
    
    
    (14,421
    )Other
    
    
    (9,404
    )
    
    
    89Net cash used for investing activities
    
    
    (91,028
    )
    
    
    (87,701
    )Financing Activities:Increase in notes payable, net
    
    
    48,310
    
    
    
    13,710Proceeds Capital contributions from parent company
    
    
    21,140
    
    
    
    Gross excess tax benefit of stock options
    
    
    167
    
    
    
    Redemptions  Pollution control bonds
    
    
    (12,075
    )
    
    
    Payment of preferred and preference stock dividends
    
    
    (1,650
    )
    
    
    (108
    )Payment of common stock dividends
    
    
    (35,150
    )
    
    
    (34,200
    )Other
    
    
    (1,190
    )
    
    
    (270
    )Net cash provided from (used for) financing activities
    
    
    19,552
    
    
    
    (20,868
    )Net Change in Cash and Cash Equivalents
    
    
    1,800
    
    
    
    (62,719
    )Cash and Cash Equivalents at Beginning of Period
    
    
    3,847
    
    
    
    64,829Cash and Cash Equivalents at End of Period
    
    $
    5,647
    
    
    $
    2,110Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $12 and $454 capitalized for 2006 and 2005, respectively)
    
    $
    17,175
    
    
    $
    17,814Income taxes (net of refunds)
    
    $
    16,984
    
    
    $
    14,419
  65




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##### Table of Contents



GULF POWER COMPANY
 
  At June 30,
    
    
    At December 31,Assets
    
    2006
    
    
    2005(in thousands)Current Assets:Cash and cash equivalents
    
    $
    5,647
    
    
    $
    3,847Receivables Customer accounts receivable
    
    
    67,023
    
    
    
    51,567Unbilled revenues
    
    
    50,895
    
    
    
    39,951Under recovered regulatory clause revenues
    
    
    38,330
    
    
    
    33,205Other accounts and notes receivable
    
    
    12,620
    
    
    
    10,533Affiliated companies
    
    
    5,738
    
    
    
    24,001Accumulated provision for uncollectible accounts
    
    
    (1,105
    )
    
    
    (1,134
    )Fossil fuel stock, at average cost
    
    
    56,013
    
    
    
    44,740Materials and supplies, at average cost
    
    
    48,949
    
    
    
    32,976Property damage cost recovery
    
    
    27,898
    
    
    
    28,744Other regulatory assets
    
    
    18,022
    
    
    
    9,895Other
    
    
    7,128
    
    
    
    19,636Total current assets
    
    
    337,158
    
    
    
    297,961Property, Plant, and Equipment:In service
    
    
    2,540,385
    
    
    
    2,502,057Less accumulated provision for depreciation
    
    
    875,656
    
    
    
    865,9891,664,729
    
    
    
    1,636,068Construction work in progress
    
    
    29,244
    
    
    
    28,177Total property, plant, and equipment
    
    
    1,693,973
    
    
    
    1,664,245Other Property and Investments
    
    
    16,141
    
    
    
    6,736Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    16,937
    
    
    
    17,379Prepaid pension costs
    
    
    46,429
    
    
    
    46,374Other regulatory assets
    
    
    108,783
    
    
    
    123,258Other
    
    
    18,056
    
    
    
    19,844Total deferred charges and other assets
    
    
    190,205
    
    
    
    206,855Total Assets
    
    $
    2,237,477
    
    
    $
    2,175,797
  66




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GULF POWER COMPANY
  At June 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2006
    
    
    2005(in thousands)Current Liabilities:Securities due within one year
    
    $
    25,000
    
    
    $
    37,075Notes payable
    
    
    137,775
    
    
    
    89,465Accounts payable Affiliated
    
    
    38,266
    
    
    
    36,717Other
    
    
    36,578
    
    
    
    44,139Customer deposits
    
    
    20,340
    
    
    
    18,834Accrued taxes Income taxes
    
    
    22,462
    
    
    
    12,823Other
    
    
    18,495
    
    
    
    11,689Accrued interest
    
    
    7,428
    
    
    
    7,713Accrued compensation
    
    
    7,152
    
    
    
    20,336Other regulatory liabilities
    
    
    17,054
    
    
    
    15,671Other
    
    
    26,023
    
    
    
    21,844Total current liabilities
    
    
    356,573
    
    
    
    316,306Long-term Debt
    
    
    544,585
    
    
    
    544,388Long-term Debt Payable to Affiliated Trusts
    
    
    72,166
    
    
    
    72,166Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    251,215
    
    
    
    256,490Accumulated deferred investment tax credits
    
    
    15,637
    
    
    
    16,569Employee benefit obligations
    
    
    57,769
    
    
    
    56,235Other cost of removal obligations
    
    
    159,594
    
    
    
    153,665Other regulatory liabilities
    
    
    25,135
    
    
    
    26,795Other
    
    
    77,366
    
    
    
    76,948Total deferred credits and other liabilities
    
    
    586,716
    
    
    
    586,702Total Liabilities
    
    
    1,560,040
    
    
    
    1,519,562Preference Stock
    
    
    53,887
    
    
    
    53,891Common Stockholders Equity:Common stock, without par valueAuthorized - 20,000,000 sharesOutstanding - 992,717 shares
    
    
    38,060
    
    
    
    38,060Paid-in capital
    
    
    422,935
    
    
    
    400,815Retained earnings
    
    
    165,569
    
    
    
    166,279Accumulated other comprehensive loss
    
    
    (3,014
    )
    
    
    (2,810
    )Total common stockholders equity
    
    
    623,550
    
    
    
    602,344Total Liabilities and Stockholders Equity
    
    $
    2,237,477
    
    
    $
    2,175,797
  67




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GULF POWER COMPANY
 
   
 OVERVIEW
    RESULTS OF OPERATIONS
 Earnings
  68




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##### Table of Contents



GULF POWER COMPANY
  Increase (Decrease)Second Quarter
    
    Year-to-Date(in thousands)
    
    %
    
    (in thousands)
    
    %Retail
revenues
    
    $
    38,546
    
    
    
    18.6
    
    
    $
    55,581
    
    
    
    15.0Sales for resale 
affiliates
    
    
    974
    
    
    
    6.7
    
    
    
    20,982
    
    
    
    44.6Other
revenues
    
    
    1,175
    
    
    
    11.6
    
    
    
    1,451
    
    
    
    7.2Fuel
expense
    
    
    26,101
    
    
    
    27.5
    
    
    
    54,712
    
    
    
    29.2Purchased power 
affiliates
    
    
    4,308
    
    
    
    39.8
    
    
    
    5,286
    
    
    
    31.4Other operations
expense
    
    
    5,613
    
    
    
    13.6
    
    
    
    15,334
    
    
    
    20.5Maintenance
expense
    
    
    (144
    )
    
    
    (0.9
    )
    
    
    (3,171
    )
    
    
    (9.4
    )Depreciation and
amortization
    
    
    1,048
    
    
    
    4.9
    
    
    
    2,284
    
    
    
    5.4Taxes other than
income
taxes
    
    
    2,017
    
    
    
    11.3
    
    
    
    3,405
    
    
    
    9.7Interest expense,
net of amounts
capitalized
    
    
    794
    
    
    
    8.8
    
    
    
    1,806
    
    
    
    10.5
 Retail revenues.
  Second Quarter 2006
    
    Year-to-Date 2006(in thousands)
    
    %
    
    (in thousands)
    
    %Retail  prior year
    
    $
    207,110
    
    
    
    
    
    
    $
    369,392Change in Sales growth
    
    
    728
    
    
    
    0.4
    
    
    
    (339
    )
    
    
    (0.1
    )Weather
    
    
    7,838
    
    
    
    3.8
    
    
    
    7,990
    
    
    
    2.1Fuel cost recovery
    
    
    25,730
    
    
    
    12.3
    
    
    
    33,941
    
    
    
    9.2Other cost recovery
    
    
    4,250
    
    
    
    2.1
    
    
    
    13,989
    
    
    
    3.8Retail  current year
    
    $
    245,656
    
    
    
    18.6
    %
    
    $
    424,973
    
    
    
    15.0
    %
 69




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##### Table of Contents



GULF POWER COMPANY
 Sales for resale  affiliates
 Other revenues
 Fuel expense
 Purchased power  affiliates
 Other operations expense
 Maintenance expense
 Depreciation and amortization
 Taxes other than income taxes
 70




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##### Table of Contents



GULF POWER COMPANY
  Interest expense, net of amounts capitalized
 FUTURE EARNINGS POTENTIAL
  Environmental Matters
  New Source Review Reform Rules
  FERC and Florida PSC Matters
 Market-Based Rate Authority
 
 71




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##### Table of Contents



GULF POWER COMPANY
    Intercompany Interchange Contract
 .
 72




---



##### Table of Contents



GULF POWER COMPANY
  Storm Damage Cost Recovery
       73




---



##### Table of Contents



GULF POWER COMPANY
 Fuel Cost Recovery
  Other Matters
   ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  New Accounting Standards
 Stock Options
  74




---



##### Table of Contents



GULF POWER COMPANY
  Income Taxes
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
  Capital Requirements and Contractual Obligations
 
 Sources of Capital
 
  75




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##### Table of Contents



GULF POWER COMPANY
  Credit Rating Risk
  Market Price Risk
   76




---



##### Table of Contents



GULF POWER COMPANY
  Second Quarter
    
    Year-to-Date2006
    
    2006Changes
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    (3,261
    )
    
    $
    11,526Contracts realized or settled
    
    
    2,886
    
    
    
    (25
    )New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (5,658
    )
    
    
    (17,534
    )Contracts at June 30, 2006
    
    $
    (6,033
    )
    
    $
    (6,033
    )
 (a)
    
    Current period changes also include the changes in fair value of new contracts
entered into during the period.
 Source of June 30, 2006Valuation PricesTotal
    
    
    MaturityFair Value
    
    
    Year 1
    
    
    1-3 Years(in thousands)Actively quoted
    
    $
    (6,058
    )
    
    $
    (6,817
    )
    
    $
    759External sources
    
    
    25
    
    
    
    25
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at June 30, 2006
    
    $
    (6,033
    )
    
    $
    (6,792
    )
    
    $
    759
  Amounts(in thousands)Regulatory assets, net
    
    $
    (6,020
    )Accumulated other comprehensive
income
    
    
    Net income
    
    
    (13
    )Total fair value loss
    
    $
    (6,033
    )
   77




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##### Table of Contents



GULF POWER COMPANY
 Financing Activities
   78




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 79




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    173,145
    
    
    $
    166,597
    
    
    $
    304,509
    
    
    $
    298,391Sales for resale Non-affiliates
    
    
    66,606
    
    
    
    67,726
    
    
    
    127,928
    
    
    
    127,312Affiliates
    
    
    10,781
    
    
    
    9,988
    
    
    
    22,553
    
    
    
    28,920Other revenues
    
    
    4,388
    
    
    
    4,265
    
    
    
    8,871
    
    
    
    9,169Total operating revenues
    
    
    254,920
    
    
    
    248,576
    
    
    
    463,861
    
    
    
    463,792Operating Expenses:Fuel
    
    
    104,386
    
    
    
    90,639
    
    
    
    182,649
    
    
    
    181,678Purchased power Non-affiliates
    
    
    4,615
    
    
    
    5,210
    
    
    
    9,317
    
    
    
    10,629Affiliates
    
    
    17,381
    
    
    
    24,919
    
    
    
    36,417
    
    
    
    34,523Other operations
    
    
    41,134
    
    
    
    39,724
    
    
    
    78,411
    
    
    
    79,234Maintenance
    
    
    19,360
    
    
    
    21,683
    
    
    
    33,775
    
    
    
    37,221Depreciation and amortization
    
    
    12,002
    
    
    
    8,195
    
    
    
    24,322
    
    
    
    16,252Taxes other than income taxes
    
    
    15,650
    
    
    
    15,147
    
    
    
    29,850
    
    
    
    29,292Total operating expenses
    
    
    214,528
    
    
    
    205,517
    
    
    
    394,741
    
    
    
    388,829Operating Income
    
    
    40,392
    
    
    
    43,059
    
    
    
    69,120
    
    
    
    74,963Other Income and (Expense):Interest income
    
    
    22
    
    
    
    31
    
    
    
    71
    
    
    
    66Interest expense
    
    
    (4,221
    )
    
    
    (597
    )
    
    
    (8,512
    )
    
    
    (4,123
    )Interest expense to affiliate trusts
    
    
    (650
    )
    
    
    (650
    )
    
    
    (1,299
    )
    
    
    (1,299
    )Other income (expense), net
    
    
    1,550
    
    
    
    217
    
    
    
    2,493
    
    
    
    646Total other income and (expense)
    
    
    (3,299
    )
    
    
    (999
    )
    
    
    (7,247
    )
    
    
    (4,710
    )Earnings Before Income Taxes
    
    
    37,093
    
    
    
    42,060
    
    
    
    61,873
    
    
    
    70,253Income taxes
    
    
    13,894
    
    
    
    15,995
    
    
    
    22,959
    
    
    
    26,808Net Income
    
    
    23,199
    
    
    
    26,065
    
    
    
    38,914
    
    
    
    43,445Dividends on Preferred Stock
    
    
    433
    
    
    
    433
    
    
    
    866
    
    
    
    866Net Income After Dividends on Preferred Stock
    
    $
    22,766
    
    
    $
    25,632
    
    
    $
    38,048
    
    
    $
    42,579
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred Stock
    
    $
    22,766
    
    
    $
    25,632
    
    
    $
    38,048
    
    
    $
    42,579Other comprehensive income (loss):Changes in fair value of qualifying hedges, net of
tax
of $64, $47, $204 and $(125), respectively
    
    
    105
    
    
    
    74
    
    
    
    330
    
    
    
    (203
    )COMPREHENSIVE INCOME
    
    $
    22,871
    
    
    $
    25,706
    
    
    $
    38,378
    
    
    $
    42,376
  80




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 
  For the Six MonthsEnded June 30,2006
    
    
    2005(in thousands)Operating Activities:Net income
    
    $
    38,914
    
    
    $
    43,445Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    33,111
    
    
    
    31,097Deferred income taxes and investment tax credits, net
    
    
    21,218
    
    
    
    27,486Plant Daniel capacity
    
    
    (6,504
    )
    
    
    (12,563
    )Pension, postretirement, and other employee benefits
    
    
    2,518
    
    
    
    1,259Stock option expense
    
    
    850
    
    
    
    Tax benefit of stock options
    
    
    49
    
    
    
    2,676Other, net
    
    
    (9,188
    )
    
    
    (3,120
    )Changes in certain current assets and liabilities Receivables
    
    
    41,243
    
    
    
    (16,905
    )Fossil fuel stock
    
    
    5,629
    
    
    
    (15,097
    )Materials and supplies
    
    
    61
    
    
    
    2,491Other current assets
    
    
    30,303
    
    
    
    1,683Hurricane Katrina accounts payable
    
    
    (41,638
    )
    
    
    Other accounts payable
    
    
    (51,837
    )
    
    
    (10,540
    )Accrued taxes
    
    
    (11,342
    )
    
    
    (14,855
    )Accrued compensation
    
    
    (14,117
    )
    
    
    (11,305
    )Over recovered regulatory clause revenues
    
    
    (22,354
    )
    
    
    (1,851
    )Other current liabilities
    
    
    465
    
    
    
    551Net cash provided from operating activities
    
    
    17,381
    
    
    
    24,452Investing Activities:Property additions
    
    
    (91,231
    )
    
    
    (32,385
    )Cost of removal net of salvage
    
    
    (4,040
    )
    
    
    (1,366
    )Other
    
    
    (12,500
    )
    
    
    (1,167
    )Net cash used for investing activities
    
    
    (107,771
    )
    
    
    (34,918
    )Financing Activities:Increase in notes payable, net
    
    
    115,128
    
    
    
    37,887Proceeds Senior notes
    
    
    
    
    
    
    30,000Gross excess tax benefit of stock options
    
    
    36
    
    
    
    Redemptions  First mortgage bonds
    
    
    
    
    
    
    (30,000
    )Special deposits  Redemption fund
    
    
    
    
    
    
    (2,482
    )Capital distributions to parent company
    
    
    (2,378
    )
    
    
    Payment of preferred stock dividends
    
    
    (866
    )
    
    
    (866
    )Payment of common stock dividends
    
    
    (32,600
    )
    
    
    (31,000
    )Net cash provided from financing activities
    
    
    79,320
    
    
    
    3,539Net Change in Cash and Cash Equivalents
    
    
    (11,070
    )
    
    
    (6,927
    )Cash and Cash Equivalents at Beginning of Period
    
    
    14,301
    
    
    
    6,945Cash and Cash Equivalents at End of Period
    
    $
    3,231
    
    
    $
    18Supplemental Cash Flow Information:Cash paid during the period for Interest
    
    $
    15,471
    
    
    $
    6,783Income taxes (net of refunds)
    
    $
    (42,560
    )
    
    $
    (11,811
    )
  81




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 
  At June 30,
    
    
    At December 31,Assets
    
    2006
    
    
    2005(in thousands)Current Assets:Cash and cash equivalents
    
    $
    3,231
    
    
    $
    14,301Receivables Customer accounts receivable
    
    
    43,244
    
    
    
    36,747Unbilled revenues
    
    
    27,421
    
    
    
    20,267Under recovered regulatory clause revenues
    
    
    77,102
    
    
    
    105,505Other accounts and notes receivable
    
    
    3,153
    
    
    
    21,507Insurance receivable
    
    
    42,526
    
    
    
    60,163Affiliated companies
    
    
    14,760
    
    
    
    19,595Accumulated provision for uncollectible accounts
    
    
    (778
    )
    
    
    (2,321
    )Fossil fuel stock, at average cost
    
    
    44,815
    
    
    
    50,444Materials and supplies, at average cost
    
    
    28,616
    
    
    
    28,678Prepaid income taxes
    
    
    6,016
    
    
    
    42,278Other regulatory assets
    
    
    31,468
    
    
    
    23,042Other
    
    
    17,032
    
    
    
    25,160Total current assets
    
    
    338,606
    
    
    
    445,366Property, Plant, and Equipment:In service
    
    
    2,030,990
    
    
    
    1,987,294Less accumulated provision for depreciation
    
    
    826,633
    
    
    
    803,7541,204,357
    
    
    
    1,183,540Construction work in progress
    
    
    46,327
    
    
    
    52,225Total property, plant, and equipment
    
    
    1,250,684
    
    
    
    1,235,765Other Property and Investments
    
    
    7,109
    
    
    
    6,821Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    9,542
    
    
    
    9,863Prepaid pension costs
    
    
    16,219
    
    
    
    17,264Deferred property damage
    
    
    248,381
    
    
    
    209,324Other
    
    
    51,037
    
    
    
    56,866Total deferred charges and other assets
    
    
    325,179
    
    
    
    293,317Total Assets
    
    $
    1,921,578
    
    
    $
    1,981,269
  82




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 At June 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2006
    
    
    2005(in thousands)Current Liabilities:Notes payable
    
    $
    317,252
    
    
    $
    202,124Accounts payable Affiliated
    
    
    28,453
    
    
    
    122,899Other
    
    
    50,959
    
    
    
    89,598Customer deposits
    
    
    8,132
    
    
    
    7,298Accrued taxes Income taxes
    
    
    26,881
    
    
    
    17,736Other
    
    
    28,454
    
    
    
    48,296Accrued interest
    
    
    2,821
    
    
    
    3,408Accrued compensation
    
    
    10,471
    
    
    
    24,587Over recovered regulatory clause revenues
    
    
    3,834
    
    
    
    26,188Plant Daniel capacity
    
    
    9,334
    
    
    
    13,008Other
    
    
    31,442
    
    
    
    40,334Total current liabilities
    
    
    518,033
    
    
    
    595,476Long-term Debt
    
    
    242,550
    
    
    
    242,548Long-term Debt Payable to Affiliated Trusts
    
    
    36,082
    
    
    
    36,082Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    287,739
    
    
    
    266,629Deferred credits related to income taxes
    
    
    18,148
    
    
    
    19,003Accumulated deferred investment tax credits
    
    
    16,871
    
    
    
    17,465Employee benefit obligations
    
    
    59,791
    
    
    
    58,318Other cost of removal obligations
    
    
    84,063
    
    
    
    81,284Other regulatory liabilities
    
    
    6,353
    
    
    
    13,755Other
    
    
    53,673
    
    
    
    56,769Total deferred credits and other liabilities
    
    
    526,638
    
    
    
    513,223Total Liabilities
    
    
    1,323,303
    
    
    
    1,387,329Preferred Stock
    
    
    32,780
    
    
    
    32,780Common Stockholders Equity:Common stock, without par value Authorized - 1,130,000 shares
Outstanding - 1,121,000 shares
    
    
    37,691
    
    
    
    37,691Paid-in capital
    
    
    298,092
    
    
    
    299,536Retained earnings
    
    
    233,150
    
    
    
    227,701Accumulated other comprehensive loss
    
    
    (3,438
    )
    
    
    (3,768
    )Total common stockholders equity
    
    
    565,495
    
    
    
    561,160Total Liabilities and Stockholders Equity
    
    $
    1,921,578
    
    
    $
    1,981,269
  83




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 
   
 OVERVIEW
   RESULTS OF OPERATIONS
 Earnings
  84




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  Increase (Decrease)Second Quarter
    
    Year-to-Date(in thousands)
    
    %
    
    (in thousands)
    
    %Retail
revenues
    
    $
    6,548
    
    
    
    3.9
    
    
    $
    6,118
    
    
    
    2.1Sales for resale 
affiliates
    
    
    793
    
    
    
    7.9
    
    
    
    (6,367
    )
    
    
    (22.0
    )Fuel
expense
    
    
    13,747
    
    
    
    15.2
    
    
    
    971
    
    
    
    0.5Purchased power
expense 
non-affiliates
    
    
    (595
    )
    
    
    (11.4
    )
    
    
    (1,312
    )
    
    
    (12.3
    )Purchased power
expense 
affiliates
    
    
    (7,538
    )
    
    
    (30.3
    )
    
    
    1,894
    
    
    
    5.5Maintenance
expense
    
    
    (2,323
    )
    
    
    (10.7
    )
    
    
    (3,446
    )
    
    
    (9.3
    )Depreciation and
amortization
    
    
    3,807
    
    
    
    46.5
    
    
    
    8,070
    
    
    
    49.7Interest
expense
    
    
    3,624
    
    
    
    N/M
    
    
    
    4,389
    
    
    
    106.5Other income
(expense),
net
    
    
    1,333
    
    
    
    N/M
    
    
    
    1,847
    
    
    
    N/MIncome
taxes
    
    
    (2,101
    )
    
    
    (13.1
    )
    
    
    (3,849
    )
    
    
    (14.4
    )
  Retail revenues.
  Second Quarter
    
    Year-to-Date2006
    
    2006(in thousands)
    
    % change
    
    (in thousands)
    
    % changeRetail  prior year
    
    $
    166,597
    
    
    
    
    
    
    $
    298,391Change in Base rates
    
    
    8,018
    
    
    
    4.8
    
    
    
    9,728
    
    
    
    3.3Sales growth and weather
    
    
    (4,934
    )
    
    
    (3.0
    )
    
    
    (10,509
    )
    
    
    (3.5
    )Fuel cost recovery
    
    
    3,498
    
    
    
    2.1
    
    
    
    7,110
    
    
    
    2.4Other cost recovery
    
    
    (34
    )
    
    
    
    
    
    
    (211
    )
    
    
    (0.1
    )Retail  current year
    
    $
    173,145
    
    
    
    3.9
    %
    
    $
    304,509
    
    
    
    2.1
    %
 Sales for resale affiliates
 85




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Fuel expense and purchased power expense.
    Maintenance
expense
 Depreciation and amortization.
 Interest expense.
 Other income (expense), net.
 Income taxes.
 86




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 FUTURE EARNINGS POTENTIAL
  Environmental Matters
  New Source Review Reform Rules
  FERC and Mississippi PSC Matters
 Market-Based Rate Authority
  87




---



##### Table of Contents



MISSISSIPPI POWER COMPANY
    Intercompany Interchange Contract
 .
 88




---



##### Table of Contents



MISSISSIPPI POWER COMPANY
 Storm Damage Cost Recovery
     89




---



##### Table of Contents



MISSISSIPPI POWER COMPANY
 Retail Regulatory Matters
   Fuel Cost Recovery
  Other Matters
   90




---



##### Table of Contents



MISSISSIPPI POWER COMPANY
 ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  New Accounting Standards
 Stock Options
  Income Taxes
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
  Capital Requirements and Contractual Obligations
  91




---



##### Table of Contents



MISSISSIPPI POWER COMPANY
 Sources of Capital
   Off-Balance Sheet Financing Arrangements
  Credit Rating Risk
  Market Price Risk
  92




---



##### Table of Contents



MISSISSIPPI POWER COMPANY
    Second Quarter
    
    Year-to-Date2006
    
    2006Changes
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    9,892
    
    
    $
    27,106Contracts realized or settled
    
    
    (1,345
    )
    
    
    (4,376
    )New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (6,975
    )
    
    
    (21,158
    )Contracts at June 30, 2006
    
    $
    1,572
    
    
    $
    1,572
 
 (a)
    
    Current period changes also include the changes in fair value of new contracts
entered into during the period. Source of June 30, 2006Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    879
    
    
    $
    (1,441
    )
    
    $
    2,320External sources
    
    
    693
    
    
    
    693
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at June 30, 2006
    
    $
    1,572
    
    
    $
    (748
    )
    
    $
    2,320
  Amounts( in thousands)Regulatory liabilities, net
    
    $
    1,393Accumulated other comprehensive
income
    
    
    192Net income
    
    
    (13
    )Total fair value gain
    
    $
    1,572
 93




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MISSISSIPPI POWER COMPANY
  Financing Activities
  94




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SOUTHERN POWER COMPANY
AND SUBSIDIARY COMPANIES
 95




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SOUTHERN
POWER COMPANY AND SUBSIDIARY COMPANIES
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Operating Revenues:Sales for resale Non-affiliates
    
    $
    62,915
    
    
    $
    39,703
    
    
    $
    114,612
    
    
    $
    79,807Affiliates
    
    
    129,947
    
    
    
    109,217
    
    
    
    217,270
    
    
    
    221,554Other revenues
    
    
    777
    
    
    
    306
    
    
    
    1,586
    
    
    
    686Total operating revenues
    
    
    193,639
    
    
    
    149,226
    
    
    
    333,468
    
    
    
    302,047Operating Expenses:Fuel
    
    
    40,245
    
    
    
    26,730
    
    
    
    54,504
    
    
    
    61,274Purchased power Non-affiliates
    
    
    12,684
    
    
    
    10,772
    
    
    
    26,655
    
    
    
    19,634Affiliates
    
    
    26,362
    
    
    
    16,159
    
    
    
    45,769
    
    
    
    37,113Other operations
    
    
    16,792
    
    
    
    13,814
    
    
    
    34,299
    
    
    
    26,533Maintenance
    
    
    5,519
    
    
    
    4,939
    
    
    
    11,404
    
    
    
    8,198Depreciation and amortization
    
    
    15,864
    
    
    
    13,109
    
    
    
    30,571
    
    
    
    25,892Taxes other than income taxes
    
    
    3,800
    
    
    
    3,092
    
    
    
    7,461
    
    
    
    6,047Total operating expenses
    
    
    121,266
    
    
    
    88,615
    
    
    
    210,663
    
    
    
    184,691Operating Income
    
    
    72,373
    
    
    
    60,611
    
    
    
    122,805
    
    
    
    117,356Other Income and (Expense):Interest expense, net of amounts capitalized
    
    
    (20,656
    )
    
    
    (19,935
    )
    
    
    (40,998
    )
    
    
    (39,179
    )Other income (expense), net
    
    
    899
    
    
    
    202
    
    
    
    3,302
    
    
    
    294Total other income and (expense)
    
    
    (19,757
    )
    
    
    (19,733
    )
    
    
    (37,696
    )
    
    
    (38,885
    )Earnings Before Income Taxes
    
    
    52,616
    
    
    
    40,878
    
    
    
    85,109
    
    
    
    78,471Income taxes
    
    
    20,795
    
    
    
    15,644
    
    
    
    33,388
    
    
    
    30,164Net Income
    
    $
    31,821
    
    
    $
    25,234
    
    
    $
    51,721
    
    
    $
    48,307
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Net Income
    
    $
    31,821
    
    
    $
    25,234
    
    
    $
    51,721
    
    
    $
    48,307Other comprehensive income (loss):Changes in fair value of qualifying hedges, net of tax
of $1,048, $50, $969, and $50, respectively
    
    
    1,625
    
    
    
    72
    
    
    
    1,503
    
    
    
    72Reclassification adjustment for amounts included in net income,
net of tax of $1,125, $1,050, $2,237, and $2,091, respectively
    
    
    1,736
    
    
    
    1,620
    
    
    
    3,468
    
    
    
    3,232COMPREHENSIVE INCOME
    
    $
    35,182
    
    
    $
    26,926
    
    
    $
    56,692
    
    
    $
    51,611
  96




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SOUTHERN
POWER COMPANY AND SUBSIDIARY COMPANIES
 
  For the Six MonthsEnded June 30,2006
    
    
    2005(in thousands)Operating Activities:Net income
    
    $
    51,721
    
    
    $
    48,307Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    37,395
    
    
    
    33,271Deferred income taxes and investment tax credits, net
    
    
    22,753
    
    
    
    23,272Deferred revenues
    
    
    (24,929
    )
    
    
    (26,309
    )Tax benefit of stock options
    
    
    
    
    
    
    231Other, net
    
    
    1,475
    
    
    
    (1,205
    )Changes in certain current assets and liabilities Receivables
    
    
    (7,141
    )
    
    
    (34,828
    )Fossil fuel stock
    
    
    (369
    )
    
    
    (3,092
    )Materials and supplies
    
    
    (719
    )
    
    
    (2,494
    )Other current assets
    
    
    7,274
    
    
    
    5,659Accounts payable
    
    
    (27,505
    )
    
    
    213Accrued taxes
    
    
    6,904
    
    
    
    6,794Accrued interest
    
    
    114
    
    
    
    49Net cash provided from operating activities
    
    
    66,973
    
    
    
    49,868Investing Activities:Property additions
    
    
    (94,294
    )
    
    
    (218,822
    )Sale of property to affiliate
    
    
    15,674
    
    
    
    Other
    
    
    (638
    )
    
    
    (103
    )Net cash used for investing activities
    
    
    (79,258
    )
    
    
    (218,925
    )Financing Activities:Increase in notes payable, net
    
    
    54,861
    
    
    
    163,090Redemptions  Other long term debt
    
    
    (200
    )
    
    
    (200
    )Payment of common stock dividends
    
    
    (38,850
    )
    
    
    Other
    
    
    
    
    
    
    (958
    )Net cash provided from financing activities
    
    
    15,811
    
    
    
    161,932Net Change in Cash and Cash Equivalents
    
    
    3,526
    
    
    
    (7,125
    )Cash and Cash Equivalents at Beginning of Period
    
    
    27,631
    
    
    
    25,241Cash and Cash Equivalents at End of Period
    
    $
    31,157
    
    
    $
    18,116Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $48 and $0 capitalized for 2006 and 2005,
respectively)
    
    $
    33,891
    
    
    $
    31,562Income taxes (net of refunds)
    
    $
    4,767
    
    
    $
    3,582
  97




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SOUTHERN
POWER COMPANY AND SUBSIDIARY COMPANIES
 
  At June 30,
    
    
    At December 31,Assets
    
    2006
    
    
    2005(in thousands)Current Assets:Cash and cash equivalents
    
    $
    31,157
    
    
    $
    27,631Receivables Customer accounts receivable
    
    
    25,752
    
    
    
    20,953Other accounts receivable
    
    
    72
    
    
    
    93Affiliated companies
    
    
    62,940
    
    
    
    60,505Fossil fuel stock, at average cost
    
    
    7,604
    
    
    
    7,221Materials and supplies, at average cost
    
    
    17,416
    
    
    
    15,628Prepaid service agreements  current
    
    
    21,102
    
    
    
    6,178Other prepaid expenses
    
    
    2,581
    
    
    
    4,610Other
    
    
    6,393
    
    
    
    251Total current assets
    
    
    175,017
    
    
    
    143,070Property, Plant, and Equipment:In service
    
    
    2,110,923
    
    
    
    2,030,996Less accumulated provision for depreciation
    
    
    184,699
    
    
    
    161,3581,926,224
    
    
    
    1,869,638Construction work in progress
    
    
    211,626
    
    
    
    218,812Total property, plant, and equipment
    
    
    2,137,850
    
    
    
    2,088,450Deferred Charges and Other Assets:Prepaid long-term service agreements
    
    
    33,661
    
    
    
    46,447OtherAffiliated
    
    
    5,957
    
    
    
    4,496Other
    
    
    16,790
    
    
    
    20,513Total deferred charges and other assets
    
    
    56,408
    
    
    
    71,456Total Assets
    
    $
    2,369,275
    
    
    $
    2,302,976
  98




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##### Table of Contents



SOUTHERN
POWER COMPANY AND SUBSIDIARY COMPANIES
 At June 30,
    
    
    At December 31,Liabilities
and Stockholders Equity
    
    2006
    
    
    2005(in thousands)Current Liabilities:Securities due within one year
    
    $
    1,209
    
    
    $
    200Notes payable
    
    
    165,553
    
    
    
    110,692Accounts payable Affiliated
    
    
    36,260
    
    
    
    65,262Other
    
    
    10,054
    
    
    
    7,651Accrued taxes Income taxes
    
    
    9,326
    
    
    
    3,477Other
    
    
    10,234
    
    
    
    2,524Accrued interest
    
    
    29,275
    
    
    
    29,161Other
    
    
    581
    
    
    
    71Total current liabilities
    
    
    262,492
    
    
    
    219,038Long-term Debt
    
    
    1,098,491
    
    
    
    1,099,520Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    95,570
    
    
    
    68,535Deferred capacity revenues  Affiliated
    
    
    12,890
    
    
    
    37,534OtherAffiliated
    
    
    9,200
    
    
    
    10,792Other
    
    
    6,447
    
    
    
    1,214Total deferred credits and other liabilities
    
    
    124,107
    
    
    
    118,075Total Liabilities
    
    
    1,485,090
    
    
    
    1,436,633Common Stockholders Equity:Common stock, par value $.01 per share Authorized - 1,000,000 sharesOutstanding - 1,000 shares
    
    
    
    
    
    
    Paid-in capital
    
    
    746,243
    
    
    
    746,243Retained earnings
    
    
    177,396
    
    
    
    164,525Accumulated other comprehensive loss
    
    
    (39,454
    )
    
    
    (44,425
    )Total common stockholders equity
    
    
    884,185
    
    
    
    866,343Total Liabilities and Stockholders Equity
    
    $
    2,369,275
    
    
    $
    2,302,976
  99




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 
 
 
 OVERVIEW
   RESULTS OF OPERATIONS
 Earnings
   Increase (Decrease)Second Quarter
    
    Year-to-Date(in thousands)
    
    %
    
    (in thousands)
    
    %Sales for
resale 
non-affiliates
    
    $
    23,212
    
    
    
    58.5
    
    
    
    34,805
    
    
    
    43.6Sales for resale 
affiliates
    
    
    20,730
    
    
    
    19.0
    
    
    
    (4,284
    )
    
    
    (1.9
    )Fuel
expense
    
    
    13,515
    
    
    
    50.6
    
    
    
    (6,770
    )
    
    
    (11.0
    )Purchased power
expense 
non-affiliates
    
    
    1,912
    
    
    
    17.7
    
    
    
    7,021
    
    
    
    35.8Purchased power
expense 
affiliates
    
    
    10,203
    
    
    
    63.1
    
    
    
    8,656
    
    
    
    23.3Other operations
expense
    
    
    2,978
    
    
    
    21.6
    
    
    
    7,766
    
    
    
    29.3Maintenance
expense
    
    
    580
    
    
    
    11.7
    
    
    
    3,206
    
    
    
    39.1Depreciation and
amortization
expense
    
    
    2,755
    
    
    
    21.0
    
    
    
    4,679
    
    
    
    18.1Interest expense,
net of amounts
capitalized
    
    
    721
    
    
    
    3.6
    
    
    
    1,819
    
    
    
    4.6
 100




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 Sales for resale affiliates and non-affiliates
 Fuel expense
 Purchased power expense affiliates and non-affiliates
 Other operations expense.
 Maintenance expense.
 Depreciation and amortization expense.
 Interest expense, net of amounts capitalized.
 101




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 FUTURE EARNINGS POTENTIAL
  FERC Matters
 Market-Based Rate Authority
 
   102




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 Intercompany Interchange Contract
 .
 Franklin Unit 3 Construction Activities
  Plant Acquisitions
   103




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 Other Matters
     ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
 
 New Accounting Standards
 Income Taxes
  104




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 FINANCIAL CONDITION AND LIQUIDITY
 Overview
  Capital Requirements and Contractual Obligations
  Sources of Capital
   Credit Rating Risk
  105




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
  Market Price Risk
     Second Quarter
    
    Year-to-Date2006
    
    2006Changes
    
    ChangesFair Value(in thousands)Contracts beginning of year
    
    $
    2,240
    
    
    $
    223Contracts realized or settled
    
    
    (527
    )
    
    
    (471
    )New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    2,682
    
    
    
    4,643Contracts at June 30, 2006
    
    $
    4,395
    
    
    $
    4,395
   Total
    
    
    MaturityFair Value
    
    
    Year 1
    
    
    1-3 Years(in thousands)Actively quoted
    
    $
    2,971
    
    
    $
    2,965
    
    
    $
    6External sources
    
    
    1,424
    
    
    
    1,424
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts end of quarter
    
    $
    4,395
    
    
    $
    4,389
    
    
    $
    6
 106




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
   Amounts(in thousands)Net Income
    
    $
    3,108Accumulated other comprehensive income
    
    
    1,287Total fair value gain
    
    $
    4,395
  Financing Activities
  107




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 
 Registrant
    
    Applicable NotesSouthern Company
    
    A, B, C, D, E, F, G, H, I, J, K, L, MAlabama Power
    
    A, B, C, D, F, G, JGeorgia Power
    
    A, B, C, D, F, G, HGulf Power
    
    A, B, C, D, F, G, KMississippi Power
    
    A, B, C, D, F, G, ISouthern Power
    
    A, B, F, L
 108




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 NOTES TO THE CONDENSED FINANCIAL STATEMENTS:
 (A)
    
    The condensed quarterly financial statements of the registrants included herein have
been prepared by each registrant, without audit, pursuant to the rules and regulations of
the SEC. The condensed balance sheets as of December 31, 2005 have been derived from the
audited financial statements. In the opinion of each registrants management, the
information regarding such registrant furnished herein reflects all adjustments necessary
to present fairly the results of operations for the periods ended June 30, 2006 and 2005.
Certain information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to such rules and regulations, although each
registrant believes that the disclosures regarding such registrant are adequate to make the
information presented not misleading. Disclosure which would substantially duplicate the
disclosure in the Form 10-K and details which have not changed significantly in amount or
composition since the filing of the Form 10-K are omitted from this Quarterly Report on
Form 10-Q. Therefore, these condensed financial statements should be read in conjunction
with the financial statements and the notes thereto included in the Form 10-K. Certain
prior period amounts have been reclassified to conform to current period presentation. Due
to seasonal variations in the demand for energy, operating results for the periods
presented do not necessarily indicate operating results for the entire year.(B)
    
    See Note 3 to the financial statements of Southern Company and the retail operating
companies and Note 2 to the financial statements of Southern Power in Item 8 of the Form
10-K for information relating to various lawsuits and other contingencies.NEW SOURCE REVIEW ACTIONSNew Source Review LitigationSee MANAGEMENTS DISCUSSION AND ANALYSIS  FUTURE EARNINGS POTENTIAL  Environmental
Matters  New Source Review Actions of Southern Company and Alabama Power in Item 7 and
Note 3 to the financial statements of Southern Company and Alabama Power under
Environmental Matters  New Source Review Actions in Item 8 of the Form 10-K for
additional information regarding a civil action brought by the EPA alleging that Alabama
Power had violated the NSR provisions of the Clean Air Act and related state laws with
respect to certain of its coal-fired generating facilities. On June 19, 2006, the U.S.
District Court for the Northern District of Alabama entered a consent decree between Alabama
Power and the EPA, resolving alleged NSR violations at Plant Miller. The consent decree
requires Alabama Power to pay $100,000 to resolve the governments claim for a civil penalty
and donate $4.9 million of sulfur dioxide emission allowances to a nonprofit charitable
organization. As a result, Alabama Power has recognized $5 million in other income
(expense), net related to the consent decree. The consent decree also formalizes specific
emissions reductions to be accomplished by Alabama Power, consistent with other Clean Air
Act programs that require emissions reductions. On May 31, 2006, Alabama Power filed a
motion for summary judgment and entry of a final order on claims related to Plants Barry,
Gaston, Gorgas, and Greene County, based on the district courts previous ruling regarding
the correct legal tests and stipulations entered between the parties. The final
resolution of these claims is dependent on further court action and subject to possible
appeals and, therefore, cannot be determined at this time.
 109




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 New Source Review Reform Rules
  BIRMINGHAM AREA EIGHT-HOUR OZONE ATTAINMENT REDESIGNATION
  PLANT WANSLEY ENVIRONMENTAL LITIGATION
  MIRANT MATTERS
  Mirant Bankruptcy Litigation
  Mirant Securities Litigation
  110




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
  Southern Company Employee Savings Plan Litigation
  FERC MATTERS
 Market-Based Rate Authority
   111




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
   Intercompany Interchange Contract
 .
 INCOME TAX MATTERS
 Leveraged Lease Transactions
   112




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
  Synthetic Fuel Tax Credits
   SOUTHERN COMPANY GAS SALE
  GEORGIA POWER FAIR LABOR STANDARDS ACT LITIGATION
  113




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 (C)
    
    See Note 1 to the financial statements of Southern Company and the retail operating
companies under Stock Options and Note 8 to the financial statements of Southern Company
and the retail operating companies under Stock Option Plan in Item 8 of the Form 10-K for
information regarding non-qualified employee stock options provided by Southern Company.
Southern Company and the retail operating companies have not modified any of their stock
option plans or outstanding stock options, nor have they changed the underlying valuation
assumptions used in valuing the stock options. Employee stock options vest proportionately
over a three-year service period, which each company recognizes on a straight-line basis.
Prior to January 1, 2006, Southern Company accounted for options granted in accordance with
Accounting Principles Board Opinion No. 25; thus, no compensation expense was recognized
because the exercise price of all options granted equaled the fair market value on the date
of the grant.Effective January 1, 2006, Southern Company and the retail operating companies adopted the
fair value recognition provisions of FASB Statement No. 123(R), using the modified
prospective method. Under that method, compensation cost recognized in the six-month period
ended June 30, 2006 is recognized as the requisite service is rendered and includes: (a)
compensation cost for the portion of share-based awards granted prior to and that are
outstanding as of January 1, 2006, for which the requisite service has not been rendered,
based on the grant-date fair value of those awards as calculated in accordance with the
original provisions of Statement 123, and (b) compensation cost for all share-based awards
granted subsequent to January 1, 2006, based on the grant-date fair value estimated in
accordance with the provisions of Statement No. 123(R). Results for prior periods have not
been restated.For Southern Company and each of the retail operating companies, the adoption of Statement
No. 123(R) has resulted in a reduction in earnings from continuing operations before income
taxes, net income, and operating cash flows as follows (in millions):
 Three months ended June 30, 2006
    
    
    Six months ended June 30, 2006EarningsBefore
    
    
    
    
    
    
    
    
    
    
    EarningsIncome
    
    
    Net
    
    
    Operating
    
    
    Before Income
    
    
    Net
    
    
    OperatingTaxes
    
    
    Income
    
    
    Cash Flows 1
    
    
    Taxes
    
    
    Income
    
    
    Cash Flows 1Alabama Power
    
    $
    0.4
    
    
    $
    0.2
    
    
    $
    0.2
    
    
    $
    4.0
    
    
    $
    2.4
    
    
    $
    0.4Georgia Power
    
    
    0.6
    
    
    
    0.4
    
    
    
    0.2
    
    
    
    4.3
    
    
    
    2.7
    
    
    
    0.6Gulf Power
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.7
    
    
    
    0.5
    
    
    
    0.2Mississippi Power
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.8
    
    
    
    0.5
    
    
    
    Southern Company
    
    $
    3.1
    
    
    $
    1.9
    
    
    $
    0.5
    
    
    $
    22.2
    
    
    $
    13.7
    
    
    $
    2.5
 
 1
    
    Financing cash flows have increased by the stated amount for Southern
Company and each retail operating company, respectively.  114




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
  Three months ended June 30, 2005
    
    Six months ended June 30, 2005Options
    
    
    
    
    
    
    
    
    
    OptionsAs
    
    Impact
    
    Pro
    
    As
    
    Impact
    
    ProReported
    
    After Tax
    
    Forma
    
    Reported
    
    After Tax
    
    FormaNet
income after dividends on preferred stock (in millions):Alabama Power
    
    $
    121.5
    
    
    $
    0.2
    
    
    $
    121.3
    
    
    $
    214.9
    
    
    $
    2.4
    
    
    $
    212.5Georgia Power
    
    
    157.5
    
    
    
    0.3
    
    
    
    157.2
    
    
    
    299.9
    
    
    
    2.7
    
    
    
    297.2Gulf Power
    
    
    21.5
    
    
    
    0.1
    
    
    
    21.4
    
    
    
    36.1
    
    
    
    0.5
    
    
    
    35.6Mississippi Power
    
    
    25.7
    
    
    
    
    
    
    
    25.7
    
    
    
    42.6
    
    
    
    0.5
    
    
    
    42.1Southern Company
    
    $
    388.9
    
    
    $
    1.7
    
    
    $
    387.2
    
    
    $
    706.4
    
    
    $
    13.7
    
    
    $
    692.7Earnings per share (Dollars):Basic
    
    $
    0.52
    
    
    
    
    
    
    $
    0.52
    
    
    $
    0.95
    
    
    
    
    
    
    $
    0.93Diluted
    
    $
    0.52
    
    
    
    
    
    
    $
    0.52
    
    
    $
    0.94
    
    
    
    
    
    
    $
    0.92
  Three months ended June 30
    
    Six months ended June 302006
    
    2005
    
    2006
    
    2005Expected volatility
    
    
    16.7
    %
    
    
    17.7
    %
    
    
    16.9
    %
    
    
    17.9
    %Expected term (in years)
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5Interest rate
    
    
    5.0
    %
    
    
    3.8
    %
    
    
    4.6
    %
    
    
    3.9
    %Dividend yield
    
    
    4.8
    %
    
    
    4.5
    %
    
    
    4.4
    %
    
    
    4.4
    %Weighted average
grant-date fair value
    
    $
    3.82
    
    
    $
    3.78
    
    
    $
    4.15
    
    
    $
    3.90
  Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    MississippiShares Subject to Option
    
    Company
    
    Power
    
    Power
    
    Power
    
    PowerOutstanding at December 31,
2005
    
    
    31,347,355
    
    
    
    5,227,985
    
    
    
    6,705,891
    
    
    
    1,099,549
    
    
    
    1,444,438Granted
    
    
    6,633,437
    
    
    
    1,147,804
    
    
    
    1,337,949
    
    
    
    240,825
    
    
    
    253,762Exercised
    
    
    (849,420
    )
    
    
    (156,316
    )
    
    
    (200,929
    )
    
    
    (48,607
    )
    
    
    (20,797
    )Canceled
    
    
    (135,254
    )
    
    
    (4,136
    )
    
    
    (2,786
    )
    
    
    
    
    
    
    Outstanding at June 30, 2006
    
    
    36,996,118
    
    
    
    6,215,337
    
    
    
    7,840,125
    
    
    
    1,291,767
    
    
    
    1,677,403Exercisable at June 30, 2006
    
    
    24,119,197
    
    
    
    3,986,933
    
    
    
    5,198,898
    
    
    
    821,990
    
    
    
    1,180,538
 115




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
  Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    MississippiWeighted-Average Exercise Price
    
    Company
    
    Power
    
    Power
    
    Power
    
    PowerOutstanding at December 31, 2005
    
    $
    27.13
    
    
    $
    27.09
    
    
    $
    26.82
    
    
    $
    27.07
    
    
    $
    26.86Granted
    
    
    33.81
    
    
    
    33.81
    
    
    
    33.81
    
    
    
    33.81
    
    
    
    33.81Exercised
    
    
    22.87
    
    
    
    23.24
    
    
    
    22.92
    
    
    
    21.94
    
    
    
    24.25Canceled
    
    
    31.30
    
    
    
    24.52
    
    
    
    32.23
    
    
    
    
    
    
    
    Outstanding at June 30, 2006
    
    $
    28.41
    
    
    $
    28.43
    
    
    $
    28.11
    
    
    $
    28.52
    
    
    $
    27.95Exercisable at June 30, 2006
    
    $
    26.10
    
    
    $
    26.03
    
    
    $
    25.77
    
    
    $
    26.11
    
    
    $
    25.94
 At June 30, 2006
    
    Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    Mississippi(in millions unless stated)
    
    Company
    
    Power
    
    Power
    
    Power
    
    PowerWeighted-Average Remaining
Contractual Term  Outstanding
(in years)
    
    
    6.8
    
    
    
    7.1
    
    
    
    6.8
    
    
    
    7.1
    
    
    
    6.4Weighted-Average Remaining
Contractual Term  Exercisable
(in years)
    
    
    5.7
    
    
    
    6.0
    
    
    
    5.7
    
    
    
    6.0
    
    
    
    5.3Aggregate Intrinsic Value 
Outstanding
    
    $
    150.7
    
    
    $
    25.3
    
    
    $
    34.2
    
    
    $
    5.1
    
    
    $
    7.5Aggregate Intrinsic Value 
Exercisable
    
    $
    145.4
    
    
    $
    24.3
    
    
    $
    33.1
    
    
    $
    5.0
    
    
    $
    7.3Six-month periodTotal intrinsic value of
options exercised during 2006
    
    $
    9.3
    
    
    $
    1.4
    
    
    $
    2.3
    
    
    $
    0.6
    
    
    $
    0.2Total intrinsic value of
options exercised during 2005
    
    $
    98.8
    
    
    $
    16.1
    
    
    $
    14.6
    
    
    $
    3.2
    
    
    $
    3.9
  Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    MississippiCompany
    
    Power
    
    Power
    
    Power
    
    PowerUnrecognized compensation
    
    $
    15.2
    
    
    $
    2.2
    
    
    $
    3.5
    
    
    $
    0.7
    
    
    $
    0.6
  116




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 (D)
    
    See Note 1 to the financial statements of Southern Company, Alabama Power, Georgia
Power, Gulf Power, and Mississippi Power under Asset Retirement Obligations and Other
Costs of Removal in Item 8 of the Form 10-K. The following table reflects the details of
the asset retirement obligations included in the Condensed Balance Sheets (in millions).
 Balance at
    
    Liabilities
    
    Liabilities
    
    
    
    
    
    Cash Flow
    
    Balance at12/31/05
    
    Incurred
    
    Settled
    
    Accretion
    
    Revisions
    
    6/30/06Alabama Power
    
    $
    446.3
    
    
    $
    
    
    
    $
    (2.3
    )
    
    $
    14.8
    
    
    $
    
    
    
    $
    458.8Georgia Power
    
    
    627.5
    
    
    
    
    
    
    
    (0.4
    )
    
    
    19.9
    
    
    
    
    
    
    
    647.0Gulf Power
    
    
    15.3
    
    
    
    
    
    
    
    
    
    
    
    (2.9
    )
    
    
    
    
    
    
    12.4Mississippi Power
    
    
    15.4
    
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    (0.2
    )
    
    
    15.7Southern Company
    
    $
    1,117.3
    
    
    $
    
    
    
    $
    (2.8
    )
    
    $
    32.7
    
    
    $
    (0.2
    )
    
    $
    1,147.0
 (E)
    
    For Southern Company, the only difference in computing basic and diluted earnings per
share is attributable to exercised options and outstanding options under the stock option
plan. See Note 8 to the financial statements of Southern Company in Item 8 of the Form
10-K for further information on the stock option plan. The effect of the stock options was
determined using the treasury stock method. Shares used to compute diluted earnings per
share are as follows (in thousands):
 Three Months
    
    Three Months
    
    Six Months
    
    Six MonthsEnded
    
    Ended
    
    Ended
    
    EndedJune 30, 2006
    
    June 30, 2005
    
    June 30, 2006
    
    June 30, 2005As reported shares
    
    
    742,515
    
    
    
    746,823
    
    
    
    742,355
    
    
    
    745,424Effect of options
    
    
    3,872
    
    
    
    4,193
    
    
    
    4,370
    
    
    
    3,936Diluted shares
    
    
    746,387
    
    
    
    751,016
    
    
    
    746,725
    
    
    
    749,360
 (F)
    
    See Note 6 to the financial statements of Southern Company, Alabama Power, Georgia
Power, Gulf Power, and Mississippi Power and Note 5 to the financial statements of Southern
Power under Financial Instruments in Item 8 of the Form 10-K. At June 30, 2006, the fair
value gains/(losses) of derivative energy contracts was reflected in the financial
statements as follows (in millions):
 Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    Mississippi
    
    SouthernCompany
    
    Power
    
    Power
    
    Power
    
    Power
    
    PowerRegulatory
(assets)/liabilities, net
    
    $
    (60.2
    )
    
    $
    (29.7
    )
    
    $
    (24.2
    )
    
    $
    (6.0
    )
    
    $
    1.4
    
    
    $
    Accumulated other
comprehensive income (loss)
    
    
    1.6
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    1.3Net income (loss)
    
    
    1.0
    
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    3.1Total fair value gain/(loss)
    
    $
    (57.6
    )
    
    $
    (29.7
    )
    
    $
    (24.3
    )
    
    $
    (6.0
    )
    
    $
    1.6
    
    
    $
    4.4
   117




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 In June 2006, Southern Company entered into derivative transactions with an initial premium
received of $1.6 million to reduce its exposure to a potential phase-out of certain income
tax credits in 2006. In accordance with Section 45K of the IRC, these tax credits are
subject to limitation as the annual average price of oil increases. At June 30, 2006, the
fair value of the derivatives was $2.3 million. For the three months and six months ended
June 30, 2006, the fair value gain recognized in income to mark the transactions to market
was $3.9 million. For the three months and six months ended June 30, 2005, the fair value
expense recognized in income for similar derivative transactions was $1.2 million.At June 30, 2006, Southern Company had $2.8 billion notional amount of interest rate
derivatives outstanding with net fair value gains of $37.9 million as follows:
 Fair Value Hedges
 Fair Value GainHedge
    
    (Loss)Notional
    
    Fixed Rate
    
    Variable Rate
    
    Maturity
    
    June 30, 2006Amount
    
    Received
    
    Paid
    
    Date
    
    (in millions)Southern Company
    
    $400 million
    
    
    5.30
    %
    
    6-month LIBOR (in
arrears)less 0.10%
    
    February 2007
    
    $
    (1.2
    )
 Cash Flow Hedges
 Fair ValueWeighted Average
    
    Hedge
    
    Gain (Loss)Notional
    
    Variable Rate
    
    Fixed Rate
    
    Maturity
    
    June 30, 2006Amount
    
    Received
    
    Paid
    
    Date
    
    (in millions)Alabama Power
    
    $536 million
    
    BMA Index
    
    
    2.01
    %
    
    January 2007
    
    $
    6.4Alabama Power*
    
    $100 million
    
    3-month LIBOR
    
    
    6.15
    %
    
    November 2017
    
    
    0.6Alabama Power*
    
    $100 million
    
    3-month LIBOR
    
    
    6.15
    %
    
    December 2017
    
    
    0.7Georgia Power*
    
    $300 million
    
    3-month LIBOR
    
    
    5.75
    %
    
    July 2037
    
    
    12.9Georgia Power**
    
    $400 million
    
    Floating
    
    
    3.20  3.85
    %
    
    December 2007
    
    
    1.7Georgia Power
    
    $225 million
    
    3-month LIBOR
    
    
    5.29
    %
    
    March 2017
    
    
    7.4Georgia Power
    
    $150 million
    
    3-month LIBOR
    
    
    5.30
    %
    
    December 2016
    
    
    4.9Georgia Power
    
    $300 million
    
    1-month LIBOR
    
    
    2.67
    %
    
    June 2007
    
    
    3.3Gulf Power
    
    $80 million
    
    3-month LIBOR
    
    
    5.82
    %
    
    October 2016
    
    
    (0.5
    )Savannah Electric***
    
    $14 million
    
    BMA Index
    
    
    2.50
    %
    
    December 2007
    
    
    0.3Southern Power
    
    $200 million
    
    3-month LIBOR
    
    
    5.64
    %
    
    September 2016
    
    
    1.4
 
 *
    
    Interest rate collar (showing only the rate cap percentage)**
    
    Series of interest rate collars with variable rate based on one-month LIBOR (showing
range of rate caps)***
    
    On July 1, 2006, this transaction was assumed by Georgia Power as part of the merger of
Savannah Electric into Georgia Power.  118




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
  (in millions)Alabama Power
    
    $
    6.3Georgia Power
    
    
    2.9Gulf Power
    
    
    (0.4
    )Southern Power
    
    
    (12.2
    )Southern Company
    
    $
    (3.1
    )
 (G)
    
    See Note 2 to the financial statements of Southern Company, Alabama Power, Georgia
Power, Gulf Power, and Mississippi Power in Item 8 of the Form 10-K. Components of the
pension plans and postretirement plans net periodic costs for the three-month and
six-month periods ended June 30, 2006 and 2005 are as follows (in millions):
 Southern
    
    
    Alabama
    
    
    Georgia
    
    
    Gulf
    
    
    MississippiPENSION PLANS
    
    Company
    
    
    Power
    
    
    Power
    
    
    Power
    
    
    PowerThree Months Ended
June 30, 2006Service cost
    
    $
    38
    
    
    $
    9
    
    
    $
    13
    
    
    $
    1
    
    
    $
    2Interest cost
    
    
    75
    
    
    
    19
    
    
    
    28
    
    
    
    4
    
    
    
    4Expected return on plan assets
    
    
    (114
    )
    
    
    (35
    )
    
    
    (46
    )
    
    
    (5
    )
    
    
    (5
    )Recognized net (gain)/loss
    
    
    4
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    Net amortization
    
    
    7
    
    
    
    3
    
    
    
    2
    
    
    
    1
    
    
    
    Net cost (income)
    
    $
    10
    
    
    $
    (3
    )
    
    $
    (2
    )
    
    $
    1
    
    
    $
    1Six Months Ended
June 30, 2006Service cost
    
    $
    76
    
    
    $
    18
    
    
    $
    25
    
    
    $
    3
    
    
    $
    4Interest cost
    
    
    150
    
    
    
    38
    
    
    
    56
    
    
    
    7
    
    
    
    7Expected return on plan assets
    
    
    (228
    )
    
    
    (70
    )
    
    
    (91
    )
    
    
    (10
    )
    
    
    (9
    )Recognized net (gain)/loss
    
    
    8
    
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    Net amortization
    
    
    14
    
    
    
    5
    
    
    
    4
    
    
    
    1
    
    
    
    Net cost (income)
    
    $
    20
    
    
    $
    (7
    )
    
    $
    (4
    )
    
    $
    1
    
    
    $
    2Three Months Ended
June 30, 2005Service cost
    
    $
    35
    
    
    $
    8
    
    
    $
    11
    
    
    $
    2
    
    
    $
    2Interest cost
    
    
    72
    
    
    
    19
    
    
    
    27
    
    
    
    3
    
    
    
    3Expected return on plan assets
    
    
    (116
    )
    
    
    (35
    )
    
    
    (46
    )
    
    
    (5
    )
    
    
    (5
    )Recognized net (gain)/loss
    
    
    3
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    Net amortization
    
    
    6
    
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    
    
    
    $
    (5
    )
    
    $
    (5
    )
    
    $
    
    
    
    $
    Six Months Ended
June 30, 2005Service cost
    
    $
    71
    
    
    $
    17
    
    
    $
    23
    
    
    $
    4
    
    
    $
    3Interest cost
    
    
    143
    
    
    
    37
    
    
    
    53
    
    
    
    6
    
    
    
    7Expected return on plan assets
    
    
    (231
    )
    
    
    (70
    )
    
    
    (92
    )
    
    
    (10
    )
    
    
    (9
    )Recognized net (gain)/loss
    
    
    6
    
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    Net amortization
    
    
    11
    
    
    
    4
    
    
    
    3
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    
    
    
    $
    (11
    )
    
    $
    (11
    )
    
    $
    
    
    
    $
    1
 119




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    MississippiPOSTRETIREMENT PLANS
    
    Company
    
    Power
    
    Power
    
    Power
    
    PowerThree Months Ended
June 30, 2006Service cost
    
    $
    8
    
    
    $
    2
    
    
    $
    2
    
    
    $
    1
    
    
    $
    1Interest cost
    
    
    24
    
    
    
    7
    
    
    
    11
    
    
    
    1
    
    
    
    1Expected return on plan assets
    
    
    (12
    )
    
    
    (5
    )
    
    
    (6
    )
    
    
    (1
    )
    
    
    (1
    )Net amortization
    
    
    10
    
    
    
    3
    
    
    
    5
    
    
    
    
    
    
    
    1Net cost (income)
    
    $
    30
    
    
    $
    7
    
    
    $
    12
    
    
    $
    1
    
    
    $
    2Six Months Ended
June 30, 2006Service cost
    
    $
    15
    
    
    $
    4
    
    
    $
    5
    
    
    $
    1
    
    
    $
    1Interest cost
    
    
    49
    
    
    
    13
    
    
    
    21
    
    
    
    2
    
    
    
    2Expected return on plan assets
    
    
    (24
    )
    
    
    (9
    )
    
    
    (12
    )
    
    
    (1
    )
    
    
    (1
    )Net amortization
    
    
    21
    
    
    
    6
    
    
    
    10
    
    
    
    
    
    
    
    1Net cost (income)
    
    $
    61
    
    
    $
    14
    
    
    $
    24
    
    
    $
    2
    
    
    $
    3Three Months Ended
June 30, 2005Service cost
    
    $
    7
    
    
    $
    2
    
    
    $
    3
    
    
    $
    
    
    
    $
    Interest cost
    
    
    24
    
    
    
    7
    
    
    
    10
    
    
    
    1
    
    
    
    1Expected return on plan assets
    
    
    (11
    )
    
    
    (4
    )
    
    
    (6
    )
    
    
    
    
    
    
    Net amortization
    
    
    10
    
    
    
    3
    
    
    
    5
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    30
    
    
    $
    8
    
    
    $
    12
    
    
    $
    1
    
    
    $
    1Six Months Ended
June 30, 2005Service cost
    
    $
    14
    
    
    $
    4
    
    
    $
    5
    
    
    $
    1
    
    
    $
    1Interest cost
    
    
    48
    
    
    
    13
    
    
    
    21
    
    
    
    2
    
    
    
    2Expected return on plan assets
    
    
    (22
    )
    
    
    (8
    )
    
    
    (11
    )
    
    
    (1
    )
    
    
    (1
    )Net amortization
    
    
    19
    
    
    
    5
    
    
    
    9
    
    
    
    
    
    
    
    1Net cost (income)
    
    $
    59
    
    
    $
    14
    
    
    $
    24
    
    
    $
    2
    
    
    $
    3
 (H)
    
    See Note 3 to the financial statements of Southern Company
under Georgia Power Retail Regulatory
Matters and Merger of Georgia Power and Savannah
Electric and Georgia Power under Retail Regulatory
Matters  Merger and   Fuel Cost Recovery in Item 8 of the Form 10-K for information on
the merger of Savannah Electric into Georgia Power and its impact on retail fuel cost
recovery.With respect to the merger, all required shareholder and regulatory approvals were received
and, effective July 1, 2006, Savannah Electric was merged into Georgia Power. Prior to the
merger, Southern Company was the sole common shareholder of both Georgia Power and Savannah
Electric. At the time of the merger, each outstanding share of Savannah Electric common
stock was cancelled, and Southern Company was issued an additional 1,500,000 shares of
Georgia Power common stock, no par value per share. In addition, at the time of the merger,
each outstanding share of Savannah Electrics preferred stock was cancelled and converted
into the right to receive one share of Georgia Power 6 1/8% Series Class A Preferred Stock,
Non-Cumulative, Par Value $25 Per Share.Following completion of the merger, the outstanding capital stock of Georgia Power consists
of 9,261,500 shares of common stock, all of which are held by Southern Company, and
1,800,000 shares of preferred stock. In connection with the merger, Georgia Power also
assumed all of Savannah Electrics obligations under five series of senior notes outstanding
at July 1, 2006, totaling $195 million, and the obligations of three series related to
pollution control revenue bonds, totaling $18 million. In addition, Georgia Power assumed
Savannah Electrics commercial paper and extendible commercial note obligations of $84
million.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 Savannah Electrics separate SEC reporting obligations were terminated following the merger
and its results of operations and cash flows for the three and six months ended June 30,
2006 and 2005 and assets and liabilities as of June 30, 2006 and December 31, 2005 are
included in the Southern Company condensed consolidated financial statements herein. Georgia Power will
account for the merger in a manner similar to a pooling of interests, and Georgia
Powers financial statements will reflect the merger effective July 1, 2006.In March 2006, Georgia Power and Savannah Electric filed a combined request with the Georgia
PSC to change the fuel cost recovery rate effective July 1, 2006. On June 15, 2006, the
Georgia PSC ruled on the request and approved an increase in Georgia Powers total annual
fuel billings of approximately $400 million. The order provides for a combined ongoing fuel
forecast, but reduced the requested increase related to such forecast by $200 million. The
Georgia PSC order included no disallowances of previously incurred fuel costs. Estimated
under recovered fuel costs as of June 30, 2006 are to be recovered over 35 months for
customers in the former Georgia Power territory and over 41 months for customers in the
former Savannah Electric territory. In accordance with the order, approximately $358
million has been reclassified from current assets to deferred charges and other assets on
the balance sheet. As of June 30, 2006, the under recovered fuel balances of Georgia Power
and Savannah Electric totaled approximately $850 million and $82 million, respectively. Such
balances exceed the estimates used to determine the rates approved in the order for
customers in the former Georgia Power territory and former Savannah Electric territory by
$130 million and $4 million, respectively. The order also requires Georgia Power to file for
a new fuel cost recovery rate, which would include a true-up of these balances, on a
semi-annual basis, beginning September 30, 2006.Fuel cost recovery revenues as recorded on the financial statements are adjusted for
differences in actual recoverable costs and amounts billed in current regulated rates.
Accordingly, any increase in the billing factor will have no significant effect on Georgia
Powers revenues or net income but will increase cash flow.The order also set a Merger Transition Adjustment (MTA) applicable to customers in the
former Savannah Electric service territory so that the new fuel rate plus the MTA equals the
applicable fuel rate paid by such customer as of June 30, 2006. Amounts collected under the
MTA are being credited to customers in the former Georgia Power service territory through a
Merger Transition Credit (MTC). The MTA and the MTC will be in effect until December 31,
2007, when Georgia Powers base rates are scheduled to be adjusted.(I)
    
    See Note 1 to the financial statements of Southern Company and Mississippi Power under
Storm Damage Reserves and Provision for Property Damage, respectively, and Note 3 to
the financial statements of Southern Company and Mississippi Power under Storm Damage Cost
Recovery in Item 8 of the Form 10-K for information on how Mississippi Power maintains a
reserve for property damage to cover the cost of damages from major storms to its
transmission and distribution lines and the cost of uninsured damages to its generation
facilities and other property, as well as the specific impact of Hurricane Katrina on that
reserve.On June 28, 2006, the Mississippi PSC approved an order based upon a stipulation between
Mississippi Power and the Mississippi Public Utilities Staff. The stipulation and the
associated order certified actual storm restoration costs relating to Hurricane Katrina
through April 30, 2006 of $267.9 million and affirmed estimated additional costs through
December 31, 2007 of $34.5 million, for total storm restoration costs of $302.4 million,
without offset for the property damage reserve of $3.0 million. Of the total amount, $292.8
million applies to Mississippi Powers retail jurisdiction. The order directs Mississippi
Power to file an application with the Mississippi Development Authority (MDA) for Community
Development Block Grants (CDBG). The MDA has indicated that $360 million of CDBG will be
available to utilities within the State of Mississippi impacted by Hurricane Katrina. All
CDBG proceeds received by Mississippi Power will be applied to both retail and wholesale
storm restoration
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 costs. The retail portion of any certified restoration costs not covered by the CDBG program
are expected to be funded through the state bond program previously approved by the State of
Mississippi legislature. The Mississippi PSC order also indicated that the state bond
program would be appropriate funding for all or a portion of a new storm operations center
if approved and for an appropriate storm reserve, both of which require additional
Mississippi PSC action. If state bonds are used for any portion of the Hurricane Katrina
restoration costs, periodic true-up mechanisms will be structured to comply with terms and
requirements from the legislation.The Mississippi PSC order also granted continuing authority to record a regulatory asset in
an amount equal to the retail portion of the recorded Hurricane Katrina restoration costs.
The balance in the regulatory asset account at June 30, 2006 is $248.4 million, which is net
of insurance proceeds of $80.1 million. These costs include approximately $142 million of
capital additions and $106 million of operation and maintenance expenditures. For any
future event causing damage to property beyond the balance in the reserve, the order also
granted Mississippi Power the authority to record a regulatory asset. Mississippi Power
would then apply to the Mississippi PSC for recovery of such amounts or for authority to
otherwise dispose of the regulatory asset.Mississippi Power expects to file the CDBG application with the MDA in the third quarter
2006, at which time the MDA is expected to assess applications and award grants.
Mississippi Power filed an application for a financing order with the Mississippi PSC on
July 3, 2006 for restoration costs under the state bond program, including the property
damage reserve funding and the construction of the storm operations center. The final
outcome of these matters cannot now be determined.(J)
    
    See Note 5 to the financial statements of Southern Company and Alabama Power in Item
8 of the Form 10-K for information on each companys effective income tax rate. In
accordance with an Alabama PSC-approved accounting order to restore the natural disaster
reserve, Alabama Power returned approximately $27.7 million of excess deferred income
taxes to its retail customers in 2005. The impact of this entry was a significantly lower
effective income tax rate for the six months ended June 30, 2005 when compared to the six
months ended June 30, 2006 for Alabama Power and Southern Company. For additional
information on Alabama Powers accounting order, see Note 3 to the financial statements of
Southern Company and Alabama Power under Storm Damage Recovery and Natural Disaster
Cost Recovery, respectively, in Item 8 of the Form 10-K.Southern Company has recorded reserves associated with a potential phase out of its
synthetic fuel tax credits of $39.7 million in 2006. The impact of these reserves is an
increase in Southern Companys effective tax rate for the six months ended June 30, 2006 as
compared to the same period in 2005.(K)
    
    See Note 1 to the financial statements of Southern Company and Gulf Power under Storm
Damage Reserves and Property Damage Reserve, respectively, and Note 3 to the financial
statements of Southern Company and Gulf Power under Storm Damage Cost Recovery and
Retail Regulatory Matters  Storm Damage Cost Recovery, respectively, in Item 8 of the
Form 10-K for information on how Gulf Power maintains a reserve for property damage to
cover the cost of damages from major storms to its transmission and distribution facilities
and the cost of uninsured damages to its generation facilities and other property, and the
impact of recent hurricanes on that reserve. In September 2004, Hurricane Ivan hit the
Gulf Coast of Florida and Alabama and caused significant damage to Gulf Powers service
area. In July and August 2005, Hurricanes Dennis and Katrina, respectively, hit the Gulf
Coast of the United States also causing significant damage within Gulf Powers service
area. As a result, Gulf Power has a deficit balance in the reserve at June 30, 2006 of
$41.2 million.In July 2006, the Florida PSC issued its order approving a stipulation and settlement
between Gulf Power and several consumer groups that resolved all matters relating to Gulf
Powers request for recovery of incurred costs for storm recovery activities, the
replenishment of Gulf Powers property damage reserve, and the related request for
permission to issue $87.2 million in securitized storm recovery bonds. The
 122




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 order provides for an extension of the storm recovery surcharge currently being collected by
Gulf Power for an additional 27 months, expiring in June 2009, in lieu of the requested
issuance of storm recovery bonds.According to the stipulation, the funds resulting from the extension of the current
surcharge will first be credited to the unrecovered balance of storm recovery costs
associated with Hurricane Ivan until these costs have been fully recovered. The funds will
then be credited to the property reserve for recovery of the storm recovery costs of $53.3
million associated with Hurricanes Dennis and Katrina that were previously charged to the
reserve. Should revenues collected by Gulf Power through the extension of the storm
recovery surcharge exceed the storm recovery costs associated with Hurricanes Dennis and
Katrina, the excess revenues will be credited to the reserve.The annual accrual to the reserve of $3.5 million and Gulf Powers limited discretionary
authority to make additional accruals to the reserve will continue as previously approved by
the Florida PSC. As part of the March 2005 agreement regarding Hurricane Ivan costs that
established the existing surcharge, Gulf Power agreed that it would not seek any additional
increase in its base rates and charges to become effective on or before March 1, 2007. The
terms of the stipulation do not alter or affect that portion of the prior agreement.According to the order, in the case of future storms, if Gulf Power incurs cumulative costs
for storm recovery activities in excess of $10 million during any calendar year, Gulf Power
will be permitted to file a streamlined formal request for an interim surcharge. Any
interim surcharge would provide for the recovery, subject to refund, of up to 80% of the
claimed costs for storm recovery activities. Gulf Power would then petition the Florida PSC
for full recovery through an additional surcharge or other cost recovery mechanism.(L)
    
    See Note 3 to the financial statements of Southern Company under Plant Franklin
Construction Project and Note 2 to the financial statements of Southern Power under Plant
Franklin Unit 3 Construction Project in Item 8 of the Form 10-K for information on the
suspension of construction activities. On May 6, 2006, Southern Power signed a PPA with
Progress Ventures, Inc. for 621 MW of capacity from Plant Franklin. The PPA term is from
2009 through 2015. To provide this capacity, Southern Power expects to complete
construction of Franklin Unit 3 at a total cost of approximately $351 million, of which
$172 million has been spent as of June 30, 2006. Construction is expected to be complete
in 2008.On May 31, 2006, Southern Power acquired all of the outstanding membership interests of
DeSoto County Generating Company, LLC (DeSoto) from Progress Genco Ventures LLC, a
subsidiary of Progress Energy, Inc. The results of DeSotos operations have been included
in Southern Powers consolidated financial statements since that date. Southern Powers
acquisition of the membership interests in DeSoto was pursuant to an agreement dated May 8,
2006 for an aggregate purchase price of $79.2 million. The total purchase price
was allocated to property, plant, and equipment and materials and supplies based on a
preliminary assessment. Southern Power is in the process of obtaining third-party
valuations of certain intangible assets; thus, the allocation of the
purchase price is subject to future refinement. The impact of these
refinements is not known at this time. DeSoto owns a dual-fired generating plant near Arcadia,
Florida with a nameplate capacity of 340 MW. The plants capacity and associated energy is
sold under PPAs with Florida Power & Light Company that expire
in 2007. This acquisition is in accordance with Southern
Powers overall regional growth strategy.Southern Power revised its depreciation rates in March 2006. This change in estimate arises
from changes in useful life assumptions of certain components of plant in service based on
an engineering study completed in the first quarter of 2006. Depreciation rates by
generating facility increased from a range of 2.5% to 2.9% to a range of 2.7% to 3.8%.
These changes increase depreciation expense and reduce net income. As a result of these
changes, net income was decreased by $0.9 million and $1.2 million for the second quarter
and year-to-date 2006, respectively. The expected total impact on
Southern Powers net income for 2006 is a
decrease of $3.2 million.
 123




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 (M)
    
    Southern Companys reportable business segment is the sale of electricity in the
Southeast by the retail operating companies and Southern Power. Net income and total
assets for discontinued operations are included in the Reconciling Eliminations column.
The All Other column includes parent Southern Company, which does not allocate operating
expenses to business segments. Also, this category includes segments below the
quantitative threshold for separate disclosure. These segments include investments in
synthetic fuels and leveraged lease projects, telecommunications, and energy-related
services. Southern Powers revenues from sales to the retail operating companies were $130
million and $217 million for the three months and six months ended June 30, 2006,
respectively, and $110 million and $222 million for the three months and six months ended
June 30, 2005, respectively. All other intersegment revenues are not material. Financial
data for business segments and products and services are as follows:
 Electric UtilitiesRetailOperating
    
    Southern
    
    
    
    
    
    
    
    
    
    All
    
    ReconcilingCompanies
    
    Power
    
    Eliminations
    
    Total
    
    Other
    
    Eliminations
    
    Consolidated(in millions)Three Months Ended June 30, 2006:Operating revenues
    
    $
    3,489
    
    
    $
    193
    
    
    $
    (155
    )
    
    $
    3,527
    
    
    $
    103
    
    
    $
    (38
    )
    
    $
    3,592Segment net income (loss)
    
    
    362
    
    
    
    32
    
    
    
    
    
    
    
    394
    
    
    
    (7
    )
    
    
    (2
    )
    
    
    385Six Months Ended June 30, 2006:Operating revenues
    
    $
    6,453
    
    
    $
    333
    
    
    $
    (262
    )
    
    $
    6,524
    
    
    $
    207
    
    
    $
    (76
    )
    
    $
    6,655Segment net income (loss)
    
    
    601
    
    
    
    52
    
    
    
    
    
    
    
    653
    
    
    
    (6
    )
    
    
    
    
    
    
    647Total assets at June 30, 2006
    
    $
    37,082
    
    
    $
    2,369
    
    
    $
    (128
    )
    
    $
    39,323
    
    
    $
    1,989
    
    
    
    (511
    )
    
    $
    40,801Three Months Ended June 30, 2005:Operating revenues
    
    $
    3,026
    
    
    $
    149
    
    
    $
    (126
    )
    
    $
    3,049
    
    
    $
    102
    
    
    $
    (31
    )
    
    $
    3,120Segment net income (loss)
    
    
    332
    
    
    
    25
    
    
    
    
    
    
    
    357
    
    
    
    29
    
    
    
    1
    
    
    
    387Six Months Ended June 30, 2005:Operating revenues
    
    $
    5,723
    
    
    $
    302
    
    
    $
    (259
    )
    
    $
    5,766
    
    
    $
    198
    
    
    $
    (57
    )
    
    $
    5,907Segment net income (loss)
    
    
    598
    
    
    
    48
    
    
    
    
    
    
    
    646
    
    
    
    61
    
    
    
    3
    
    
    
    710Total assets at December 31, 2005
    
    $
    36,335
    
    
    $
    2,303
    
    
    $
    (179
    )
    
    $
    38,459
    
    
    $
    1,751
    
    
    
    (333
    )
    
    $
    39,877
 Products and Services
 Electric Utilities RevenuesPeriod
    
    Retail
    
    Wholesale
    
    Other
    
    Total(in millions)Three Months Ended June 30, 2006
    
    $
    2,971
    
    
    $
    440
    
    
    $
    116
    
    
    $
    3,527Three Months Ended June 30, 2005
    
    
    2,555
    
    
    
    385
    
    
    
    109
    
    
    
    3,049Six Months Ended June 30, 2006
    
    $
    5,442
    
    
    $
    855
    
    
    $
    227
    
    
    $
    6,524Six Months Ended June 30, 2005
    
    
    4,824
    
    
    
    732
    
    
    
    210
    
    
    
    5,766
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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
 See the Notes to the Condensed Financial Statements herein for information regarding certain
legal and administrative proceedings in which Southern Company and its reporting subsidiaries are
involved.
 
 Item 1A. Risk Factors.
 See Item 1A. RISK FACTORS in Part 1 of the Form 10-K for the year ended December 31, 2005 for
a discussion of the risk factors of Southern Company and the subsidiary registrants. For the
quarter
ended June 30, 2006, there have been no material changes to these risk factors.
 
 Item 4. Submission of Matters to a Vote of Security Holders.
 Southern CompanySouthern Company held its annual meeting of shareholders on May 24, 2006. Each nominee for
director of Southern Company received the requisite plurality of votes for election. The
vote tabulation was as follows:
 Nominees
    
    Shares For
    
    Shares WithheldJuanita Powell Baranco
    
    
    552,588,106
    
    
    
    10,799,892Dorrit J. Bern
    
    
    553,345,486
    
    
    
    10,042,512Francis S. Blake
    
    
    547,359,073
    
    
    
    16,028,925Thomas F. Chapman
    
    
    535,100,191
    
    
    
    28,287,807Donald M. James
    
    
    529,771,092
    
    
    
    33,616,906Zack T. Pate
    
    
    553,654,462
    
    
    
    9,733,536J. Neal Purcell
    
    
    553,624,682
    
    
    
    9,763,316David M. Ratcliffe
    
    
    551,492,644
    
    
    
    11,895,354William G. Smith, Jr.
    
    
    551,787,664
    
    
    
    11,600,334Gerald J. St. Pé
    
    
    549,575,443
    
    
    
    13,812,555
 In addition, at the annual meeting, shareholders were asked to vote for the ratification of
the appointment of auditors. The vote tabulation was 552,349,715 shares for, 5,319,789
shares against, and 5,718,494 shares abstaining. As a result of this vote, the audit
appointment was ratified. Shareholders were also asked to vote to approve the 2006 Omnibus
Incentive Compensation Plan. The vote tabulation was 343,902,796 shares for, 45,697,372
shares against, and 11,891,033 shares abstaining. As a result of this vote, the 2006
Omnibus Incentive Compensation Plan was approved.
 125




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders. (Continued)
 Alabama PowerAlabama Power held its annual meeting of common shareholders and preferred shareholders on
April 28, 2006, and the following persons were elected to serve as directors of Alabama
Power:
 Whit Armstrong
    
    Robert D. PowersDavid J. Cooper, Sr.
    
    David M. RatcliffeJohn D. Johns
    
    C. Dowd RitterPatricia M. King
    
    James H. SanfordJames K. Lowder
    
    John C. Webb, IVCharles D. McCrary
    
    James W. WrightMalcolm Portera
 All 9,250,000 of the shares of Alabama Powers common stock outstanding on the record date
were owned by Southern Company and were voted in favor of the nominees for directors. None
of the shares of preferred stock or Class A preferred stock were voted.In addition, at the annual meeting, shareholders were asked to vote for a proposed
amendment to Alabama Powers Articles of Incorporation, which would increase the authorized
common stock from 15,000,000 shares to 25,000,000 shares, and would create a new class of
securities to be issued by Alabama Power to be called preference stock. The vote
tabulation was 9,250,000 shares for, 0 shares against, and 0 shares abstaining. As a
result of this vote, the amendment was approved.Georgia PowerBy written consent, in lieu of the annual meeting of the sole shareholder of Georgia Power,
effective
May 17, 2006, the following persons were elected to serve as directors of Georgia Power:
 Gus H. Bell, III
    
    David M. RatcliffeRobert L. Brown, Jr.
    
    D. Gary ThompsonRonald D. Brown
    
    Richard W. UsseryAnna R. Cablik
    
    William Jerry VereenMichael D. Garrett
    
    E. Jenner Wood, III
 By written consent, in lieu of a special meeting of the sole shareholder of Georgia Power,
effective May 22, 2006, the sole shareholder approved (1) an amendment to the Charter of
Georgia Power to amend and restate the terms of the Charter and establish a new series of
Class A preferred stock designated as the 6 1/8% Series Class A Preferred Stock,
Non-Cumulative, Par Value $25 Per Share and (2) the merger agreement between Georgia Power
and Savannah Electric and the merger of Savannah Electric into Georgia Power pursuant to
the merger agreement.All of the 7,761,500 outstanding shares of Georgia Powers common stock were owned by
Southern Company and were voted in favor of the nominees for directors, the amendment to
the Charter, and the merger agreement and merger.
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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders. (Continued)
 Gulf PowerBy written consent, in lieu of the annual meeting of stockholders of Gulf Power, effective
June 27, 2006, the following persons were elected to serve as directors of Gulf Power:
 C. LeDon Anchors
    
    William A. PullumWilliam C. Cramer, Jr.
    
    Winston E. ScottFred C. Donovan, Sr.
    
    Susan N. Story
 All of the 992,717 outstanding shares of Gulf Powers common stock are owned by Southern
Company and were voted in favor of the nominees for directors. None of the shares of
preference stock were entitled to vote.Mississippi PowerMississippi Power held its annual meeting of common shareholders and preferred shareholders
on May 17, 2006, and the following persons were elected to serve as directors of
Mississippi Power:
 Tommy E. Dulaney
    
    George A. SchloegelWarren A. Hood, Jr.
    
    Philip J. TerrellRobert C. Khayat
    
    Anthony J. TopaziAubrey B. Patterson, Jr.
 All of the 1,121,000 outstanding shares of Mississippi Powers common stock are owned by
Southern Company and were voted in favor of the nominees for directors. None of the shares
of preferred stock were voted.Southern PowerBy written consent, in lieu of the annual meeting of stockholders of Southern Power,
effective April 12, 2006, the number of directors constituting the board of directors was
set at four and the following persons were elected to serve as directors of Southern Power:
 William P. Bowers
    
    G. Edison Holland, Jr.Thomas A. Fanning
    
    David M. Ratcliffe
 All of the 1,000 outstanding shares of Southern Powers common stock are owned by Southern
Company and were voted in favor of the nominees for directors.
 
 Item 5. Other Information.
 Southern Company, Alabama Power, Georgia Power, Gulf Power, and Mississippi PowerOn May 24, 2006, at Southern Companys annual meeting of shareholders, Southern Companys
shareholders approved the Southern Company 2006 Omnibus Incentive Compensation Plan (Plan).
See Item 4 above. Executive officers of Southern Company, Alabama Power, Georgia Power,
Gulf Power, and Mississippi Power will be eligible to participate in the Plan. A summary
of the material terms of the Plan is included on pages 13 through 17 of Southern Companys
Definitive Proxy Statement on Schedule 14A, filed with the SEC on April 13, 2006, and is
incorporated by reference herein. The full text of the Plan is attached hereto as Exhibits
10(a)1, 10(b)1, 10(c)1, 10(d)1, and 10(e)1, and is incorporated by reference herein.
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##### Table of Contents



Item 6. Exhibits.
 (3) Articles of Incorporation and By-Laws
 Georgia Power
 (c)1
    
    
    
    Amendment to Charter of Georgia Power, dated June 27, 2006, which amended and
restated the terms of the Charter and established the Georgia Power 6 1/8% Series
Class A Preferred Stock. (Designated in Form 8-K dated June 27, 2006, File No.
1-6468, as Exhibit 3.1.)
 (4) Instruments Describing Rights of Security Holders, Including Indentures
 Alabama Power
 (b)1
    
    
    
    Thirty-Sixth Supplemental Indenture to Senior Note Indenture dated as of June 14,
2006. (Designated in Form 8-K dated June 7, 2006, File No. 1-3436, as Exhibit 4.2.)
 Georgia Power
 (c)1
    
    
    
    Senior Note Indenture dated as of March 1, 1998 between Savannah Electric and The
Bank of New York, as Trustee, and indentures supplemental thereto through December 9,
2004 (Designated in Form 8-K of Savannah Electric dated March 9, 1998, File No.
1-5072, as Exhibits 4.1 and 4.2, in Form 8-K of Savannah Electric dated May 8, 2001,
File No. 1-5072, as Exhibits 4.2(a) and 4.2(b), in Form 8-K of Savannah Electric
dated March 4, 2002, File No. 1-5072, as Exhibit 4.2, in Form 8-K of Savannah
Electric dated November 4, 2002, File No. 1-5072, as Exhibit 4.2, in Form 8-K of
Savannah Electric dated December 10, 2003, File No. 1-5072, as Exhibits 4.1 and 4.2
and in Form 8-K of Savannah Electric dated December 2, 2004, File No. 1-5072, as
Exhibit 4.1).(c)2
    
    
    
    Eighth Supplemental Indenture, dated as of June 30, 2006, and effective as of July
1, 2006, between Georgia Power and The Bank of New York, as Trustee. (Designated in
Form 8-K dated June 27, 2006, File No. 1-6468, as Exhibit 4.2.)
 (10) Material Contracts
 Southern Company
 (a)1
    
    
    
    Southern Company 2006 Omnibus Incentive Compensation Plan, effective January 1,
2006.(a)2
    
    
    
    Form of Award Agreement under Southern Company 2006 Omnibus Incentive Compensation
Plan, effective January 1, 2006.
 Alabama Power
 (b)1
    
    
    
    Southern Company 2006 Omnibus Incentive Compensation Plan, effective January 1,
2006. See Exhibit 10(a)1 herein.(b)2
    
    
    
    Form of Award Agreement under Southern Company 2006 Omnibus Incentive Compensation
Plan, effective January 1, 2006. See Exhibit 10(a)2 herein.
 128




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Item 6. Exhibits. (continued)
 Georgia Power
 (c)1
    
    
    
    Southern Company 2006 Omnibus Incentive Compensation
Plan, effective January 1, 2006. See Exhibit 10(a)1
herein.(c)2
    
    
    
    Form of Award Agreement under Southern Company 2006
Omnibus Incentive Compensation Plan, effective January
1, 2006. See Exhibit 10(a)2 herein.(c)3
    
    
    
    1997 Deferred Compensation Plan for Directors of
Savannah Electric, Amended and Restated effective
October 26, 2000 (Designated in Savannah Electrics Form
10-K for the year ended December 31, 2000, File No.
1-5072, as Exhibit 10(f)18).Gulf Power(d)1
    
    
    
    Southern Company 2006 Omnibus Incentive Compensation
Plan, effective January 1, 2006. See Exhibit 10(a)1
herein.(d)2
    
    
    
    Form of Award Agreement under Southern Company 2006
Omnibus Incentive Compensation Plan, effective January
1, 2006. See Exhibit 10(a)2 herein.Mississippi Power(e)1
    
    
    
    Southern Company 2006 Omnibus Incentive Compensation
Plan, effective January 1, 2006. See Exhibit 10(a)1
herein.(e)2
    
    
    
    Form of Award Agreement under Southern Company 2006
Omnibus Incentive Compensation Plan, effective January
1, 2006. See Exhibit 10(a)2 herein.Southern Power(f)1#
    
    
    
    Multi-Year Credit Agreement dated as of July 7, 2006
by and among Southern Power, the Lenders (as defined
therein), Citibank, N.A., as Administrative Agent, and
The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch,
as Initial Issuing Bank.(f)2*#
    
    
    
    Purchase and Sale Agreement by and between Progress
Genco Ventures, LLC and Southern Power Company  DeSoto
LLC dated May 8, 2006. (Designated in Form 8-K dated
May 31, 2006, File No. 333-98553, as Exhibit 2.1.)(f)3
    
    
    
    Assignment and Assumption Agreement between Southern
Power Company  Desoto LLC and Southern Power effective
May 24, 2006. (Designated in Form 8-K dated May 31,
2006, File No. 333-98553, as Exhibit 2.2.)(f)4*#
    
    
    
    Purchase and Sale Agreement by and between Progress
Genco Ventures, LLC and Southern Power Company  Rowan
LLC dated May 8, 2006.(f)5
    
    
    
    Assignment and Assumption Agreement between Southern
Power Company  Rowan LLC and Southern Power effective
May 24, 2006.
 129




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Item 6. Exhibits. (continued)
 (24) Power of Attorney and Resolutions
 Southern Company
 (a)1
    
    
    
    Power of Attorney and resolution. (Designated in
the Form 10-K for the year ended December 31, 2005,
File No. 1-3526 as Exhibit 24(a) and incorporated
herein by reference.)Alabama Power(b)1
    
    
    
    Power of Attorney and resolution. (Designated in
the Form 10-K for the year ended December 31, 2005,
File No. 1-3164 as Exhibit 24(b) and incorporated
herein by reference.)Georgia Power(c)1
    
    
    
    Power of Attorney and resolution. (Designated in
the Form 10-K for the year ended December 31, 2005,
File No. 1-6468 as Exhibit 24(c) and incorporated
herein by reference.)Gulf Power(d)1
    
    
    
    Power of Attorney and resolution. (Designated in
the Form 10-K for the year ended December 31, 2005,
File No. 0-2429 as Exhibit 24(d) and incorporated
herein by reference.)Mississippi Power(e)1
    
    
    
    Power of Attorney and resolution. (Designated in
the Form 10-K for the year ended December 31, 2005,
File No. 001-11229 as Exhibit 24(e) and incorporated
herein by reference.)Southern Power(f)1
    
    
    
    Power of Attorney and resolution. (Designated in
the Form 10-K for the year ended December 31, 2005,
File No. 333-98553 as Exhibit 24(g) and incorporated
herein by reference.)(31) Section 302 CertificationsSouthern Company(a)1
    
    
    
    Certificate of Southern Companys Chief Executive
Officer required by Section 302 of the Sarbanes-Oxley
Act of 2002.(a)2
    
    
    
    Certificate of Southern Companys Chief Financial
Officer required by Section 302 of the Sarbanes-Oxley
Act of 2002.Alabama Power(b)1
    
    
    
    Certificate of Alabama Powers Chief Executive
Officer required by Section 302 of the Sarbanes-Oxley
Act of 2002.(b)2
    
    
    
    Certificate of Alabama Powers Chief Financial
Officer required by Section 302 of the Sarbanes-Oxley
Act of 2002.
 130




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##### Table of Contents



Item 6. Exhibits. (continued)
 Georgia Power
 (c)1
    
    
    
    Certificate of Georgia Powers Chief Executive
Officer required by Section 302 of the Sarbanes-Oxley
Act of 2002.(c)2
    
    
    
    Certificate of Georgia Powers Chief Financial
Officer required by Section 302 of the Sarbanes-Oxley
Act of 2002.Gulf Power(d)1
    
    
    
    Certificate of Gulf Powers Chief Executive Officer
required by Section 302 of the Sarbanes-Oxley Act of
2002.(d)2
    
    
    
    Certificate of Gulf Powers Chief Financial Officer
required by Section 302 of the Sarbanes-Oxley Act of
2002.Mississippi Power(e)1
    
    
    
    Certificate of Mississippi Powers Chief Executive
Officer required by Section 302 of the Sarbanes-Oxley
Act of 2002.(e)2
    
    
    
    Certificate of Mississippi Powers Chief Financial
Officer required by Section 302 of the Sarbanes-Oxley
Act of 2002.Southern Power(f)1
    
    
    
    Certificate of Southern Powers Chief Executive
Officer required by Section 302 of the Sarbanes-Oxley
Act of 2002.(f)2
    
    
    
    Certificate of Southern Powers Chief Financial
Officer required by Section 302 of the Sarbanes-Oxley
Act of 2002.(32) Section 906 CertificationsSouthern Company(a)
    
    
    
    Certificate of Southern Companys Chief Executive
Officer and Chief Financial Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002.Alabama Power(b)
    
    
    
    Certificate of Alabama Powers Chief Executive
Officer and Chief Financial Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002.Georgia Power(c)
    
    
    
    Certificate of Georgia Powers Chief Executive
Officer and Chief Financial Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002.
 131




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##### Table of Contents



Item 6. Exhibits. (continued)
 Gulf Power
 (d)
    
    
    
    Certificate of Gulf Powers Chief Executive Officer
and Chief Financial Officer required by Section 906 of
the Sarbanes-Oxley Act of 2002.Mississippi Power(e)
    
    
    
    Certificate of Mississippi Powers Chief Executive
Officer and Chief Financial Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002.Southern Power(f)
    
    
    
    Certificate of Southern Powers Chief Executive
Officer and Chief Financial Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002.
 
 Notes:*
    
    Southern Power has requested confidential treatment for certain
portions of this document pursuant to an application for
confidential treatment sent to the SEC. Southern Power has omitted
such portions from this filing and filed them separately with the
SEC.#
    
    Omits schedules and exhibits. Southern Power agrees to provide
supplementally the omitted schedules and exhibits to the SEC upon
request. 132




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THE SOUTHERN COMPANY
 
 SIGNATURES
  THE SOUTHERN COMPANYBy
    
    David M. RatcliffeChairman, President and Chief Executive Officer(Principal Executive Officer)By
    
    Thomas A. FanningExecutive Vice President, Chief Financial Officer and Treasurer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)Date: August 3, 2006
 133




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ALABAMA POWER COMPANY
 SIGNATURES
  ALABAMA POWER COMPANYBy
    
    Charles D. McCraryPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Art P. BeattieExecutive Vice President, Chief Financial Officer and Treasurer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)Date: August 3, 2006
 134




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GEORGIA POWER COMPANY
 SIGNATURES
  GEORGIA POWER COMPANYBy
    
    Michael D. GarrettPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Cliff S. ThrasherExecutive Vice President, Chief Financial Officer and Treasurer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)Date: August 3, 2006
 135




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GULF POWER COMPANY
 SIGNATURES
  GULF POWER COMPANYBy
    
    Susan N. StoryPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Ronnie R. LabratoVice President and Chief Financial Officer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)Date: August 3, 2006
 136




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MISSISSIPPI POWER COMPANY
 SIGNATURES
  MISSISSIPPI POWER COMPANYBy
    
    Anthony J. TopaziPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Frances V. TurnageVice President, Treasurer and Chief Financial Officer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)Date: August 3, 2006
 137




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SOUTHERN POWER COMPANY
 SIGNATURES
  SOUTHERN POWER COMPANYBy
    
    Ronnie L. BatesPresident and Chief Executive
Officer
(Principal Executive Officer)By
    
    Michael W. SouthernSenior Vice President and Chief Financial Officer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)Date: August 3, 2006
 138