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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 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 Street
Birmingham, 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 Place
Pensacola, Florida 32520
(850) 444-6111001-11229
    
    Mississippi Power Company
    
    64-0205820(A Mississippi Corporation)
2992 West Beach
Gulfport, 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, 2007The Southern Company
    
    Par Value $5 Per Share
    
    
    756,427,551Alabama Power Company
    
    Par Value $40 Per Share
    
    
    15,750,000Georgia Power Company
    
    Without Par Value
    
    
    9,261,500Gulf Power Company
    
    Without Par Value
    
    
    1,792,717Mississippi Power Company
    
    Without Par Value
    
    
    1,121,000Southern Power Company
    
    Par Value $0.01 Per Share
    
    
    1,000
  2




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INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2007
 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 CompaniesCondensed 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 CompanyCondensed Statements of Income
    
    
    
    34Condensed Statements of Comprehensive Income
    
    
    
    34Condensed Statements of Cash Flows
    
    
    
    35Condensed Balance Sheets
    
    
    
    36Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    
    38Georgia Power CompanyCondensed Statements of Income
    
    
    
    52Condensed Statements of Comprehensive Income
    
    
    
    52Condensed Statements of Cash Flows
    
    
    
    53Condensed Balance Sheets
    
    
    
    54Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    
    56Gulf Power CompanyCondensed Statements of Income
    
    
    
    70Condensed Statements of Comprehensive Income
    
    
    
    70Condensed Statements of Cash Flows
    
    
    
    71Condensed Balance Sheets
    
    
    
    72Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    
    74Mississippi Power CompanyCondensed Statements of Income
    
    
    
    87Condensed Statements of Comprehensive Income
    
    
    
    87Condensed Statements of Cash Flows
    
    
    
    88Condensed Balance Sheets
    
    
    
    89Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    
    91Southern Power Company and Subsidiary CompaniesCondensed Consolidated Statements of Income
    
    
    
    105Condensed Consolidated Statements of Comprehensive Income
    
    
    
    105Condensed Consolidated Statements of Cash Flows
    
    
    
    106Condensed Consolidated Balance Sheets
    
    
    
    107Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    
    109Notes to the Condensed Financial Statements
    
    
    
    120Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    
    32Item 4.
    
    Controls and Procedures
    
    
    
    32
 3




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INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2007
 PageNumberPART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    
    133Item 1A.
    
    Risk Factors
    
    
    
    133Item 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
    
    
    
    133Item 5.
    
    Other Information
    
    
    
    135Item 6.
    
    Exhibits
    
    
    
    136Signatures
    
    
    
    140
 4




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DEFINITIONS
 TERM
    
    MEANINGAlabama Power
    
    Alabama Power CompanyBMA
    
    Bond Market AssociationClean Air Act
    
    Clean Air Act Amendments of 1990DOE
    
    U.S. Department of EnergyDuke Energy
    
    Duke Energy CorporationECO 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,
and Southern Power for the year ended December 31, 2006 and, with
respect to Gulf Power, Amendment No. 1 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 CompanyMW
    
    MegawattNRC
    
    Nuclear Regulatory CommissionNSR
    
    New Source ReviewPEP
    
    Performance Evaluation PlanPower Pool
    
    The operating arrangement whereby the integrated generating
resources of the traditional operating companies and Southern
Power are subject to joint commitment and dispatch in order to
serve their combined load obligationsPPA
    
    Power Purchase AgreementPSC
    
    Public Service CommissionRate CNP
    
    Alabama Powers certified new plant rate mechanismRate ECR
    
    Alabama Powers energy cost recovery rate mechanismRate NDR
    
    Alabama Powers natural disaster recovery rate mechanismRate RSE
    
    Alabama Powers rate stabilization and equalization rate mechanismSavannah 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 traditional operating companies, Southern
Power, and other subsidiariesSouthern Nuclear
    
    Southern Nuclear Operating Company, Inc.Southern Power
    
    Southern Power Companytraditional operating companies
    
    Alabama Power, Georgia Power, Gulf Power, and Mississippi Powerwholesale revenues
    
    revenues generated from sales for resale
 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, environmental laws including regulation of emissions of sulfur, nitrogen, mercury, carbon,
soot, or particulate matter and other substances, and also changes in tax and other laws and regulations to which
Southern Company and its subsidiaries are subject, as well as changes in application of existing laws and
regulations;
 
    
    current and future litigation, regulatory investigations, proceedings or inquiries, including the pending EPA civil
actions against certain Southern Company subsidiaries, FERC matters, IRS audits, and Mirant matters;
 
    
    the effects, extent, and timing of the entry of additional competition in the markets in which Southern Companys
subsidiaries operate;
 
    
    variations in demand for electricity, including those relating to weather, the general economy 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 by the synthetic fuel operations at Carbontronics Synfuels Investors LP and Alabama Fuel
Products, LLC for the remainder of fiscal year 2007;
 
    
    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, pandemic health events such as an
avian influenza, or other similar occurrences;
 
    
    the direct or indirect effects on Southern Companys business resulting from incidents similar to the August 2003
power outage in the Northeast;
 
    
    the effect of accounting pronouncements issued periodically by standard setting bodies; and
 
    
    other factors discussed elsewhere herein and in other reports (including the Form 10-K) filed by the registrants
from time to time with the SEC.
 Each registrant expressly disclaims any obligation to update any forward-looking statements.
 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 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    3,105,056
    
    
    $
    2,970,387
    
    
    $
    5,848,867
    
    
    $
    5,441,800Wholesale revenues
    
    
    486,877
    
    
    
    439,902
    
    
    
    967,576
    
    
    
    854,771Other electric revenues
    
    
    129,583
    
    
    
    116,095
    
    
    
    250,877
    
    
    
    227,085Other revenues
    
    
    50,412
    
    
    
    65,119
    
    
    
    113,277
    
    
    
    131,107Total operating revenues
    
    
    3,771,928
    
    
    
    3,591,503
    
    
    
    7,180,597
    
    
    
    6,654,763Operating Expenses:Fuel
    
    
    1,457,506
    
    
    
    1,307,650
    
    
    
    2,774,025
    
    
    
    2,356,195Purchased power
    
    
    100,136
    
    
    
    138,843
    
    
    
    164,209
    
    
    
    243,254Other operations
    
    
    586,377
    
    
    
    587,921
    
    
    
    1,151,749
    
    
    
    1,150,373Maintenance
    
    
    289,039
    
    
    
    273,292
    
    
    
    571,034
    
    
    
    556,922Depreciation and amortization
    
    
    310,286
    
    
    
    297,532
    
    
    
    616,630
    
    
    
    596,458Taxes other than income taxes
    
    
    184,527
    
    
    
    179,200
    
    
    
    367,566
    
    
    
    354,203Total operating expenses
    
    
    2,927,871
    
    
    
    2,784,438
    
    
    
    5,645,213
    
    
    
    5,257,405Operating Income
    
    
    844,057
    
    
    
    807,065
    
    
    
    1,535,384
    
    
    
    1,397,358Other Income and (Expense):Allowance for equity funds used during
construction
    
    
    23,597
    
    
    
    10,398
    
    
    
    43,771
    
    
    
    21,925Interest income
    
    
    9,660
    
    
    
    6,237
    
    
    
    20,215
    
    
    
    12,909Equity in losses of unconsolidated subsidiaries
    
    
    (13,567
    )
    
    
    (12,277
    )
    
    
    (20,302
    )
    
    
    (44,852
    )Leveraged lease income
    
    
    9,707
    
    
    
    17,599
    
    
    
    19,569
    
    
    
    35,702Impairment loss on equity method investments
    
    
    
    
    
    
    (15,274
    )
    
    
    
    
    
    
    (15,274
    )Interest expense, net of amounts capitalized
    
    
    (200,231
    )
    
    
    (180,695
    )
    
    
    (394,255
    )
    
    
    (357,070
    )Interest expense to affiliate trusts
    
    
    (22,344
    )
    
    
    (30,640
    )
    
    
    (46,171
    )
    
    
    (61,269
    )Preferred and preference dividends of
subsidiaries
    
    
    (10,130
    )
    
    
    (8,006
    )
    
    
    (20,258
    )
    
    
    (17,021
    )Other income (expense), net
    
    
    (6,015
    )
    
    
    11,598
    
    
    
    (8,946
    )
    
    
    3,168Total other income and (expense)
    
    
    (209,323
    )
    
    
    (201,060
    )
    
    
    (406,377
    )
    
    
    (421,782
    )Earnings Before Income Taxes
    
    
    634,734
    
    
    
    606,005
    
    
    
    1,129,007
    
    
    
    975,576Income taxes
    
    
    205,581
    
    
    
    220,782
    
    
    
    361,165
    
    
    
    328,746Consolidated Net Income
    
    $
    429,153
    
    
    $
    385,223
    
    
    $
    767,842
    
    
    $
    646,830Common Stock Data:Earnings per shareBasic
    
    $
    0.57
    
    
    $
    0.52
    
    
    $
    1.02
    
    
    $
    0.87Diluted
    
    $
    0.56
    
    
    $
    0.52
    
    
    $
    1.01
    
    
    $
    0.87Average number of basic shares of common
stock outstanding (in thousands)
    
    
    755,137
    
    
    
    742,515
    
    
    
    752,698
    
    
    
    742,355Average number of diluted shares of common
stock outstanding (in thousands)
    
    
    759,846
    
    
    
    746,387
    
    
    
    757,596
    
    
    
    746,725Cash dividends paid per share of common stock
    
    $
    0.4025
    
    
    $
    0.3875
    
    
    $
    0.7900
    
    
    $
    0.7600
  8




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 For the Six MonthsEnded June 30,2007
    
    
    2006(in thousands)Operating Activities:Consolidated net income
    
    $
    767,842
    
    
    $
    646,830Adjustments to reconcile consolidated net income
to net cash provided from operating activities Depreciation and amortization
    
    
    732,511
    
    
    
    696,048Deferred income taxes and investment tax credits
    
    
    85,007
    
    
    
    262,870Allowance for equity funds used during construction
    
    
    (43,771
    )
    
    
    (21,925
    )Equity in losses of unconsolidated subsidiaries
    
    
    20,302
    
    
    
    44,852Leveraged lease income
    
    
    (19,569
    )
    
    
    (35,702
    )Pension, postretirement, and other employee benefits
    
    
    21,510
    
    
    
    23,672Stock option expense
    
    
    23,454
    
    
    
    22,186Hedge settlements
    
    
    7,866
    
    
    
    18,502Hurricane Katrina grant proceeds-property reserve
    
    
    60,000
    
    
    
    Other, net
    
    
    (14,026
    )
    
    
    (19,444
    )Changes in certain current assets and liabilities Receivables
    
    
    (122,018
    )
    
    
    (140,438
    )Fossil fuel stock
    
    
    (113,570
    )
    
    
    (120,420
    )Materials and supplies
    
    
    (36,002
    )
    
    
    (42,493
    )Other current assets
    
    
    (69,985
    )
    
    
    (21,734
    )Hurricane Katrina grant proceeds
    
    
    14,345
    
    
    
    Accounts payable
    
    
    (31,681
    )
    
    
    (285,434
    )Accrued taxes
    
    
    (82,875
    )
    
    
    (27,938
    )Accrued compensation
    
    
    (251,073
    )
    
    
    (263,409
    )Other current liabilities
    
    
    26,103
    
    
    
    7,605Net cash provided from operating activities
    
    
    974,370
    
    
    
    743,628Investing Activities:Property additions
    
    
    (1,568,357
    )
    
    
    (1,167,696
    )Investment in restricted cash from pollution control bonds
    
    
    (96,049
    )
    
    
    Nuclear decommissioning trust fund purchases
    
    
    (322,509
    )
    
    
    (384,850
    )Nuclear decommissioning trust fund sales
    
    
    315,629
    
    
    
    377,970Proceeds from property sales
    
    
    28,602
    
    
    
    151,760Investment in unconsolidated subsidiaries
    
    
    (25,185
    )
    
    
    (52,999
    )Cost of removal, net of salvage
    
    
    (40,957
    )
    
    
    (40,328
    )Hurricane Katrina capital grant proceeds
    
    
    10,869
    
    
    
    Other
    
    
    15,877
    
    
    
    (44,691
    )Net cash used for investing activities
    
    
    (1,682,080
    )
    
    
    (1,160,834
    )Financing Activities:Increase (decrease) in notes payable, net
    
    
    (445,605
    )
    
    
    594,563Proceeds Long-term debt
    
    
    2,531,500
    
    
    
    960,125Common stock
    
    
    311,485
    
    
    
    19,652Redemptions Long-term debt
    
    
    (594,387
    )
    
    
    (423,408
    )Long-term debt to affiliate trusts
    
    
    (489,691
    )
    
    
    (67,457
    )Preferred stock
    
    
    
    
    
    
    (14,569
    )Common stock repurchased
    
    
    
    
    
    
    (117
    )Payment of common stock dividends
    
    
    (593,991
    )
    
    
    (564,146
    )Other
    
    
    (9,610
    )
    
    
    (26,648
    )Net cash provided from financing activities
    
    
    709,701
    
    
    
    477,995Net Change in Cash and Cash Equivalents
    
    
    1,991
    
    
    
    60,789Cash and Cash Equivalents at Beginning of Period
    
    
    166,846
    
    
    
    202,111Cash and Cash Equivalents at End of Period
    
    $
    168,837
    
    
    $
    262,900Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $26,926 and $9,151 capitalized for 2007 and 2006, respectively)
    
    $
    391,105
    
    
    $
    423,312Income taxes (net of refunds)
    
    $
    266,273
    
    
    $
    52,153
  9




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 At June 30,
    
    
    At December 31,Assets
    
    2007
    
    
    2006(in thousands)Current Assets:Cash and cash equivalents
    
    $
    168,837
    
    
    $
    166,846Restricted cash
    
    
    96,049
    
    
    
    Receivables Customer accounts receivable
    
    
    1,036,557
    
    
    
    942,821Unbilled revenues
    
    
    379,304
    
    
    
    283,275Under recovered regulatory clause revenues
    
    
    808,805
    
    
    
    516,441Other accounts and notes receivable
    
    
    268,861
    
    
    
    329,619Accumulated provision for uncollectible accounts
    
    
    (23,579
    )
    
    
    (34,901
    )Fossil fuel stock, at average cost
    
    
    793,216
    
    
    
    674,902Materials and supplies, at average cost
    
    
    675,093
    
    
    
    648,127Vacation pay
    
    
    123,058
    
    
    
    121,246Prepaid expenses
    
    
    227,078
    
    
    
    127,908Other
    
    
    200,829
    
    
    
    242,735Total current assets
    
    
    4,754,108
    
    
    
    4,019,019Property, Plant, and Equipment:In service
    
    
    46,192,679
    
    
    
    45,484,895Less accumulated depreciation
    
    
    17,002,815
    
    
    
    16,581,88629,189,864
    
    
    
    28,903,009Nuclear fuel, at amortized cost
    
    
    325,097
    
    
    
    317,429Construction work in progress
    
    
    2,507,133
    
    
    
    1,871,538Total property, plant, and equipment
    
    
    32,022,094
    
    
    
    31,091,976Other Property and Investments:Nuclear decommissioning trusts, at fair value
    
    
    1,122,298
    
    
    
    1,057,534Leveraged leases
    
    
    965,540
    
    
    
    1,138,730Other
    
    
    260,662
    
    
    
    296,484Total other property and investments
    
    
    2,348,500
    
    
    
    2,492,748Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    923,779
    
    
    
    895,446Prepaid pension costs
    
    
    1,568,358
    
    
    
    1,548,983Unamortized debt issuance expense
    
    
    172,378
    
    
    
    171,758Unamortized loss on reacquired debt
    
    
    295,436
    
    
    
    293,016Deferred under recovered regulatory clause revenues
    
    
    522,901
    
    
    
    845,201Other regulatory assets
    
    
    933,226
    
    
    
    935,804Other
    
    
    603,966
    
    
    
    564,498Total deferred charges and other assets
    
    
    5,020,044
    
    
    
    5,254,706Total Assets
    
    $
    44,144,746
    
    
    $
    42,858,449
  10




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 At June 30,
    
    
    At December 31,Liabilities
and Stockholders Equity
    
    2007
    
    
    2006(in thousands)Current Liabilities:Securities due within one year
    
    $
    1,303,192
    
    
    $
    1,416,898Notes payable
    
    
    1,495,196
    
    
    
    1,940,801Accounts payable
    
    
    1,059,866
    
    
    
    1,081,256Customer deposits
    
    
    264,610
    
    
    
    248,781Accrued taxes Income taxes
    
    
    114,271
    
    
    
    110,009Other
    
    
    315,721
    
    
    
    390,716Accrued interest
    
    
    201,795
    
    
    
    183,918Accrued vacation pay
    
    
    152,855
    
    
    
    151,113Accrued compensation
    
    
    195,240
    
    
    
    443,610Other
    
    
    337,959
    
    
    
    385,858Total current liabilities
    
    
    5,440,705
    
    
    
    6,352,960Long-term Debt
    
    
    13,207,639
    
    
    
    10,942,025Long-term Debt Payable to Affiliated Trusts
    
    
    865,982
    
    
    
    1,561,358Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    5,825,941
    
    
    
    5,989,063Deferred credits related to income taxes
    
    
    282,568
    
    
    
    291,474Accumulated deferred investment tax credits
    
    
    491,245
    
    
    
    503,217Employee benefit obligations
    
    
    1,616,061
    
    
    
    1,566,591Asset retirement obligations
    
    
    1,166,455
    
    
    
    1,136,982Other cost of removal obligations
    
    
    1,311,850
    
    
    
    1,300,461Other regulatory liabilities
    
    
    865,278
    
    
    
    793,869Other
    
    
    537,962
    
    
    
    305,255Total deferred credits and other liabilities
    
    
    12,097,360
    
    
    
    11,886,912Total Liabilities
    
    
    31,611,686
    
    
    
    30,743,255Preferred and Preference Stock of Subsidiaries
    
    
    743,929
    
    
    
    744,065Common Stockholders Equity:Common stock, par value $5 per share Authorized  1 billion sharesIssued  June 30, 2007: 756,796,440 Shares; December 31, 2006: 751,863,854 SharesTreasury  June 30, 2007: 368,889 Shares; December 31, 2006: 5,593,691 SharesPar value
    
    
    3,783,982
    
    
    
    3,759,319Paid-in capital
    
    
    1,247,334
    
    
    
    1,096,387Treasury, at cost
    
    
    (9,951
    )
    
    
    (192,309
    )Retained earnings
    
    
    6,799,009
    
    
    
    6,765,219Accumulated other comprehensive loss
    
    
    (31,243
    )
    
    
    (57,487
    )Total Common Stockholders Equity
    
    
    11,789,131
    
    
    
    11,371,129Total Liabilities and Stockholders Equity
    
    $
    44,144,746
    
    
    $
    42,858,449
  11




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Consolidated Net Income
    
    $
    429,153
    
    
    $
    385,223
    
    
    $
    767,842
    
    
    $
    646,830Other comprehensive income (loss):Qualifying hedges:Changes in fair value, net of tax of
$14,996, $7,255, $13,429 and
$14,385, respectively
    
    
    23,839
    
    
    
    11,519
    
    
    
    21,371
    
    
    
    22,911Reclassification adjustment for amounts
included in net income,
net of tax of $1,420, $65, $2,679 and
$306, respectively
    
    
    2,197
    
    
    
    (2
    )
    
    
    4,401
    
    
    
    288Marketable securities:Change in fair value, net of tax of
$1,086, $2,798, $1,904 and
$4,407, respectively
    
    
    1,320
    
    
    
    4,334
    
    
    
    2,627
    
    
    
    6,855Reclassification adjustment for amounts
included in net income,
net of tax of $(361), $-, $(361) and
$-, respectively
    
    
    (573
    )
    
    
    
    
    
    
    (573
    )
    
    
    Pension and other post retirement
benefit plans:Additional prior sevice costs from
amendment to non-qualified pension
plans,
net of tax of $(1,510), $-, $(1,510)
and $-, respectively
    
    
    (2,424
    )
    
    
    
    
    
    
    (2,424
    )
    
    
    Reclassification adjustment for amounts
included in net income,
net of tax of $280, $-, $527 and $-,
respectively
    
    
    404
    
    
    
    
    
    
    
    842
    
    
    
    Total other comprehensive income
    
    
    24,763
    
    
    
    15,851
    
    
    
    26,244
    
    
    
    30,054COMPREHENSIVE INCOME
    
    $
    453,916
    
    
    $
    401,074
    
    
    $
    794,086
    
    
    $
    676,884
  12




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 
 OVERVIEW
   RESULTS OF OPERATIONS
 Net Income
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$44.0
    
    11.4
    
    $121.0
    
    18.7
    Retail Revenues
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$134.7
    
    4.5
    
    $407.1
    
    7.5
   13




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Second Quarter
    
    Year-to-Date2007
    
    2007(in millions)
    
    (% change)
    
    (in millions)
    
    (% change)Retail  prior year
    
    $
    2,970.4
    
    
    
    
    
    
    $
    5,441.8Estimated change in Rates and pricing
    
    
    14.3
    
    
    
    0.5
    
    
    
    32.1
    
    
    
    0.6Sales growth
    
    
    12.6
    
    
    
    0.4
    
    
    
    48.9
    
    
    
    0.9Weather
    
    
    10.9
    
    
    
    0.3
    
    
    
    30.7
    
    
    
    0.6Fuel and other cost recovery
    
    
    96.9
    
    
    
    3.3
    
    
    
    295.4
    
    
    
    5.4Retail  current year
    
    $
    3,105.1
    
    
    
    4.5
    %
    
    $
    5,848.9
    
    
    
    7.5
    %
     Wholesale Revenues
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$47.0
    
    10.7
    
    $112.8
    
    13.2
    14




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 Other Electric Revenues
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$13.5
    
    11.6
    
    $23.8
    
    10.5
    Fuel and Purchased Power Expenses
 Second Quarter 2007
    
    Year-to-Date 2007vs.
    
    vs.Second Quarter 2006
    
    Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Fuel
    
    $
    149.9
    
    
    
    11.5
    
    
    $
    417.8
    
    
    
    17.7Purchased power
    
    
    (38.7
    )
    
    
    (27.9
    )
    
    
    (79.0
    )
    
    
    (32.5
    )Total fuel and purchased power expenses
    
    $
    111.2
    
    
    
    
    
    
    $
    338.8
    Second Quarter
    
    Second Quarter
    
    
    
    
    
    Year-to-Date
    
    Year-to-DateAverage Cost
    
    2007
    
    2006
    
    % change
    
    2007
    
    2006
    
    % change(cents per net KWH)
    
    
    
    
    
    (cents per net KWH)Fuel
    
    
    2.88
    
    
    
    2.68
    
    
    
    7.5
    
    
    
    2.84
    
    
    
    2.57
    
    
    
    10.5Purchased power
    
    
    5.93
    
    
    
    6.16
    
    
    
    (3.7
    )
    
    
    4.95
    
    
    
    5.53
    
    
    
    (10.5
    )
 15




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Maintenance Expense
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$15.7
    
    5.8
    
    $14.1
    
    2.5
    Depreciation and Amortization
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$12.8
    
    4.3
    
    $20.1
    
    3.4
    Allowance for Equity Funds Used During Construction
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$13.2
    
    126.9
    
    $21.9
    
    99.6
    16




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 Equity in Losses of Unconsolidated Subsidiaries
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$1.3
    
    10.5
    
    $(24.6)
    
    (54.7)
   Leveraged Lease Income
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(7.9)
    
    (44.8)
    
    $(16.1)
    
    (45.2)
    Impairment Loss on Equity Method Investments
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(15.3)
    
    (100.0)
    
    $(15.3)
    
    (100.0)
 17




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   Interest Expense, Net of Amounts Capitalized
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$19.5
    
    10.8
    
    $37.2
    
    10.4
   Interest Expense to Affiliate Trusts
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(8.3)
    
    (27.1)
    
    $(15.1)
    
    (24.6)
    Other Income (Expense), Net
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(17.6)
    
    N/M
    
    $(12.1)
    
    N/M
  18




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   Income Taxes
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(15.2)
    
    (6.9)
    
    $32.5
    
    9.9
   FUTURE EARNINGS POTENTIAL
  19




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Environmental Matters
  New Source Review Litigation
  Eight-Hour Ozone Regulations
  Fine Particulate Matter Regulations
  20




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Georgia Multi-Pollutant Rule
  Plant Wansley Environmental Litigation
  Florida Greenhouse Gas Executive Orders
  FERC and State PSC Matters
 Market-Based Rate Authority
 21
    Table of Contents   THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
    Intercompany Interchange Contract
   Retail Fuel Cost Recovery
  22




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 Georgia Power Retail Base Rate Filing
   Mississippi Power Storm Damage Cost Recovery
  Mirant Matters
  23




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 MC Asset Recovery Litigation
  Mirant Securities Litigation
  Southern Company Employee Savings Plan Litigation
  Income Tax Matters
 Leveraged Lease Transactions
  24




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Synthetic Fuel Tax Credits
  Construction Projects
 Integrated Gasification Combined Cycle (IGCC) Project
  25




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 Nuclear
  Other Matters
   ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  New Accounting Standards
 Income Taxes
 26
    Table of Contents   THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Leveraged Leases
  Fair Value Measurement
  Fair Value Option
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
   27




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Capital Requirements and Contractual Obligations
  Sources of Capital
   28




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 Off-Balance Sheet Financing Arrangements
  Credit Rating Risk
  Market Price Risk
   29




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Second Quarter
    
    Year-to-Date2007
    
    2007Changes
    
    ChangesFair Value(in millions)Contracts beginning of period
    
    $
    11
    
    
    $
    (82
    )Contracts realized or settled
    
    
    2
    
    
    
    30New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (45
    )
    
    
    20Contracts at June 30, 2007
    
    $
    (32
    )
    
    $
    (32
    )
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered
into during the period, if any.
 Source of June 30, 2007Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in millions)Actively quoted
    
    $
    (36
    )
    
    $
    (47
    )
    
    $
    11External sources
    
    
    4
    
    
    
    4
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at June 30, 2007
    
    $
    (32
    )
    
    $
    (43
    )
    
    $
    11
   Amounts(in millions)Regulatory assets, net
    
    $
    (36.2
    )Accumulated other comprehensive
income
    
    
    2.2Net income
    
    
    1.8Total fair value
    
    $
    (32.2
    )
   30




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Financing Activities
     31




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##### Table of Contents



PART I
 
 Item 3.     Quantitative And Qualitative Disclosures About Market Risk.
  
 Item 4.     Controls and Procedures.
 (a)
    
    Evaluation of disclosure controls and procedures.
  (b)
    
    Changes in internal controls.
  32




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##### Table of Contents



ALABAMA POWER COMPANY
 33




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##### Table of Contents



ALABAMA POWER COMPANY
 For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    1,093,970
    
    
    $
    1,026,643
    
    
    $
    2,049,743
    
    
    $
    1,828,852Wholesale revenues Non-affiliates
    
    
    156,061
    
    
    
    156,328
    
    
    
    311,183
    
    
    
    302,682Affiliates
    
    
    39,032
    
    
    
    26,098
    
    
    
    81,226
    
    
    
    105,413Other revenues
    
    
    47,029
    
    
    
    40,355
    
    
    
    91,142
    
    
    
    85,184Total operating revenues
    
    
    1,336,092
    
    
    
    1,249,424
    
    
    
    2,533,294
    
    
    
    2,322,131Operating Expenses:Fuel
    
    
    460,909
    
    
    
    419,176
    
    
    
    846,981
    
    
    
    760,943Purchased power Non-affiliates
    
    
    18,070
    
    
    
    32,618
    
    
    
    22,708
    
    
    
    54,704Affiliates
    
    
    76,493
    
    
    
    89,073
    
    
    
    149,207
    
    
    
    145,738Other operations
    
    
    183,741
    
    
    
    176,059
    
    
    
    355,144
    
    
    
    345,072Maintenance
    
    
    97,092
    
    
    
    96,947
    
    
    
    215,854
    
    
    
    206,447Depreciation and amortization
    
    
    117,168
    
    
    
    112,295
    
    
    
    233,111
    
    
    
    222,157Taxes other than income taxes
    
    
    71,531
    
    
    
    65,286
    
    
    
    144,249
    
    
    
    130,943Total operating expenses
    
    
    1,025,004
    
    
    
    991,454
    
    
    
    1,967,254
    
    
    
    1,866,004Operating Income
    
    
    311,088
    
    
    
    257,970
    
    
    
    566,040
    
    
    
    456,127Other Income and (Expense):Allowance for equity funds used during construction
    
    
    8,376
    
    
    
    3,835
    
    
    
    14,962
    
    
    
    9,364Interest income
    
    
    3,613
    
    
    
    3,868
    
    
    
    8,007
    
    
    
    8,042Interest expense, net of amounts capitalized
    
    
    (65,515
    )
    
    
    (59,074
    )
    
    
    (128,647
    )
    
    
    (112,293
    )Interest expense to affiliate trusts
    
    
    (4,060
    )
    
    
    (4,060
    )
    
    
    (8,119
    )
    
    
    (8,119
    )Other income (expense), net
    
    
    (3,966
    )
    
    
    (728
    )
    
    
    (6,890
    )
    
    
    (9,733
    )Total other income and (expense)
    
    
    (61,552
    )
    
    
    (56,159
    )
    
    
    (120,687
    )
    
    
    (112,739
    )Earnings Before Income Taxes
    
    
    249,536
    
    
    
    201,811
    
    
    
    445,353
    
    
    
    343,388Income taxes
    
    
    94,182
    
    
    
    77,634
    
    
    
    166,884
    
    
    
    130,997Net Income
    
    
    155,354
    
    
    
    124,177
    
    
    
    278,469
    
    
    
    212,391Dividends on Preferred and Preference Stock
    
    
    8,182
    
    
    
    6,072
    
    
    
    16,363
    
    
    
    12,144Net Income After Dividends on Preferred and Preference Stock
    
    $
    147,172
    
    
    $
    118,105
    
    
    $
    262,106
    
    
    $
    200,247
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred and Preference Stock
    
    $
    147,172
    
    
    $
    118,105
    
    
    $
    262,106
    
    
    $
    200,247Other comprehensive income (loss):Qualifying hedges:Changes in fair value, net of tax of $1,290, $910,
$1,188 and $2,383, respectively
    
    
    2,121
    
    
    
    1,497
    
    
    
    1,953
    
    
    
    3,920Reclassification adjustment for amounts included in
net income, net of tax of $73, $(1,009), $132
and $(2,015), respectively
    
    
    122
    
    
    
    (1,660
    )
    
    
    218
    
    
    
    (3,314
    )Total other comprehensive income
    
    
    2,243
    
    
    
    (163
    )
    
    
    2,171
    
    
    
    606COMPREHENSIVE INCOME
    
    $
    149,415
    
    
    $
    117,942
    
    
    $
    264,277
    
    
    $
    200,853
  34




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##### Table of Contents



ALABAMA POWER COMPANY
 For the Six MonthsEnded June 30,2007
    
    
    2006(in thousands)Operating Activities:Net income
    
    $
    278,469
    
    
    $
    212,391Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    271,770
    
    
    
    257,676Deferred income taxes and investment tax credits, net
    
    
    30,076
    
    
    
    (6,511
    )Allowance for equity funds used during construction
    
    
    (14,962
    )
    
    
    (9,364
    )Pension, postretirement, and other employee benefits
    
    
    (6,895
    )
    
    
    (3,134
    )Stock option expense
    
    
    4,152
    
    
    
    4,002Tax benefit of stock options
    
    
    968
    
    
    
    184Hedge settlements
    
    
    
    
    
    
    18,006Other, net
    
    
    (3,407
    )
    
    
    (21,463
    )Changes in certain current assets and liabilities Receivables
    
    
    (74,311
    )
    
    
    33,917Fossil fuel stock
    
    
    (22,418
    )
    
    
    (33,100
    )Materials and supplies
    
    
    (13,846
    )
    
    
    (2
    )Other current assets
    
    
    (19,117
    )
    
    
    (6,877
    )Accounts payable
    
    
    (72,137
    )
    
    
    (156,487
    )Accrued taxes
    
    
    38,526
    
    
    
    41,031Accrued compensation
    
    
    (46,154
    )
    
    
    (53,489
    )Other current liabilities
    
    
    10,473
    
    
    
    23,924Net cash provided from operating activities
    
    
    361,187
    
    
    
    300,704Investing Activities:Property additions
    
    
    (555,333
    )
    
    
    (416,892
    )Investment in restricted cash from pollution control bonds
    
    
    (96,049
    )
    
    
    Nuclear decommissioning trust fund purchases
    
    
    (138,263
    )
    
    
    (143,829
    )Nuclear decommissioning trust fund sales
    
    
    138,263
    
    
    
    143,829Cost of removal, net of salvage
    
    
    (21,986
    )
    
    
    (22,296
    )Other
    
    
    (192
    )
    
    
    (14,547
    )Net cash used for investing activities
    
    
    (673,560
    )
    
    
    (453,735
    )Financing Activities:Decrease in notes payable, net
    
    
    (92,703
    )
    
    
    (315,278
    )Proceeds Common stock issued to parent
    
    
    140,000
    
    
    
    40,000Senior notes
    
    
    450,000
    
    
    
    950,000Pollution control bonds
    
    
    246,500
    
    
    
    Gross excess tax benefit of stock options
    
    
    2,160
    
    
    
    368Redemptions Pollution control bonds
    
    
    
    
    
    
    (2,950
    )Senior notes
    
    
    (168,500
    )
    
    
    (196,500
    )Payment of preferred and preference stock dividends
    
    
    (14,698
    )
    
    
    (12,140
    )Payment of common stock dividends
    
    
    (232,500
    )
    
    
    (220,300
    )Other
    
    
    (11,843
    )
    
    
    (21,866
    )Net cash provided from financing activities
    
    
    318,416
    
    
    
    221,334Net Change in Cash and Cash Equivalents
    
    
    6,043
    
    
    
    68,303Cash and Cash Equivalents at Beginning of Period
    
    
    15,539
    
    
    
    22,472Cash and Cash Equivalents at End of Period
    
    $
    21,582
    
    
    $
    90,775Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $7,590 and $3,988 capitalized for 2007 and 2006, respectively)
    
    $
    115,898
    
    
    $
    127,055Income taxes (net of refunds)
    
    $
    135,066
    
    
    $
    122,089
  35




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##### Table of Contents



ALABAMA POWER COMPANY
 At June 30,
    
    
    At December 31,Assets
    
    2007
    
    
    2006(in thousands)Current Assets:Cash and cash equivalents
    
    $
    21,582
    
    
    $
    15,539Restricted cash
    
    
    96,049
    
    
    
    Receivables Customer accounts receivable
    
    
    347,665
    
    
    
    323,202Unbilled revenues
    
    
    118,459
    
    
    
    90,596Under recovered regulatory clause revenues
    
    
    267,412
    
    
    
    32,451Other accounts and notes receivable
    
    
    37,115
    
    
    
    49,708Affiliated companies
    
    
    41,787
    
    
    
    70,836Accumulated provision for uncollectible accounts
    
    
    (8,227
    )
    
    
    (7,091
    )Fossil fuel stock, at average cost
    
    
    180,281
    
    
    
    153,120Materials and supplies, at average cost
    
    
    269,297
    
    
    
    255,664Vacation pay
    
    
    46,528
    
    
    
    46,465Prepaid expenses
    
    
    98,869
    
    
    
    76,265Other
    
    
    27,961
    
    
    
    66,663Total current assets
    
    
    1,544,778
    
    
    
    1,173,418Property, Plant, and Equipment:In service
    
    
    16,354,765
    
    
    
    15,997,793Less accumulated provision for depreciation
    
    
    5,786,309
    
    
    
    5,636,47510,568,456
    
    
    
    10,361,318Nuclear fuel, at amortized cost
    
    
    153,919
    
    
    
    137,300Construction work in progress
    
    
    674,714
    
    
    
    562,119Total property, plant, and equipment
    
    
    11,397,089
    
    
    
    11,060,737Other Property and Investments:Equity investments in unconsolidated subsidiaries
    
    
    49,727
    
    
    
    47,486Nuclear decommissioning trusts, at fair value
    
    
    543,939
    
    
    
    513,521Other
    
    
    36,142
    
    
    
    35,980Total other property and investments
    
    
    629,808
    
    
    
    596,987Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    375,959
    
    
    
    354,225Prepaid pension costs
    
    
    740,336
    
    
    
    722,287Deferred under recovered regulatory clause revenues
    
    
    127,651
    
    
    
    301,048Other regulatory assets
    
    
    275,905
    
    
    
    279,661Other
    
    
    172,407
    
    
    
    166,927Total deferred charges and other assets
    
    
    1,692,258
    
    
    
    1,824,148Total Assets
    
    $
    15,263,933
    
    
    $
    14,655,290
  36




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##### Table of Contents



ALABAMA POWER COMPANY
 At June 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2007
    
    
    2006(in thousands)Current Liabilities:Securities due within one year
    
    $
    750,149
    
    
    $
    668,646Notes payable
    
    
    26,966
    
    
    
    119,670Accounts payable Affiliated
    
    
    178,765
    
    
    
    162,951Other
    
    
    182,684
    
    
    
    263,506Customer deposits
    
    
    64,580
    
    
    
    62,978Accrued taxes Income taxes
    
    
    74,282
    
    
    
    3,120Other
    
    
    71,680
    
    
    
    29,696Accrued interest
    
    
    61,277
    
    
    
    53,573Accrued vacation pay
    
    
    38,645
    
    
    
    38,767Accrued compensation
    
    
    41,045
    
    
    
    87,194Other
    
    
    66,616
    
    
    
    79,907Total current liabilities
    
    
    1,556,689
    
    
    
    1,570,008Long-term Debt
    
    
    4,285,077
    
    
    
    3,838,906Long-term Debt Payable to Affiliated Trusts
    
    
    309,279
    
    
    
    309,279Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    2,076,752
    
    
    
    2,116,575Deferred credits related to income taxes
    
    
    97,056
    
    
    
    98,941Accumulated deferred investment tax credits
    
    
    184,580
    
    
    
    188,582Employee benefit obligations
    
    
    391,542
    
    
    
    375,940Asset retirement obligations
    
    
    491,426
    
    
    
    476,460Other cost of removal obligations
    
    
    607,793
    
    
    
    600,278Other regulatory liabilities
    
    
    407,660
    
    
    
    399,822Other
    
    
    32,698
    
    
    
    35,805Total deferred credits and other liabilities
    
    
    4,289,507
    
    
    
    4,292,403Total Liabilities
    
    
    10,440,552
    
    
    
    10,010,596Preferred and Preference Stock
    
    
    612,271
    
    
    
    612,407Common Stockholders Equity:Common stock, par value $40 per share Authorized  25,000,000 sharesOutstanding  June 30, 2007: 15,750,000 shares December 31, 2006: 12,250,000 shares
    
    
    630,000
    
    
    
    490,000Paid-in capital
    
    
    2,036,009
    
    
    
    2,028,963Retained earnings
    
    
    1,545,851
    
    
    
    1,516,245Accumulated other comprehensive loss
    
    
    (750
    )
    
    
    (2,921
    )Total common stockholders equity
    
    
    4,211,110
    
    
    
    4,032,287Total Liabilities and Stockholders Equity
    
    $
    15,263,933
    
    
    $
    14,655,290
  37




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##### Table of Contents



ALABAMA POWER COMPANY
 
 OVERVIEW
   RESULTS OF OPERATIONS
 Net Income
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$29.1
    
    24.6
    
    $61.9
    
    30.9
  Retail Revenues
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$67.3
    
    6.6
    
    $220.9
    
    12.1
   38




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##### Table of Contents



ALABAMA POWER COMPANY
  Second Quarter
    
    Year-to-Date2007
    
    2007(in millions)
    
    (% change)
    
    (in millions)
    
    (% change)Retail  prior year
    
    $
    1,026.6
    
    
    
    
    
    
    $
    1,828.9Estimated change in Rates and pricing
    
    
    52.5
    
    
    
    5.1
    
    
    
    109.5
    
    
    
    6.0Sales growth
    
    
    0.1
    
    
    
    
    
    
    
    2.0
    
    
    
    0.1Weather
    
    
    9.3
    
    
    
    0.9
    
    
    
    23.4
    
    
    
    1.3Fuel and other cost recovery
    
    
    5.5
    
    
    
    0.6
    
    
    
    85.9
    
    
    
    4.7Retail  current year
    
    $
    1,094.0
    
    
    
    6.6
    %
    
    $
    2,049.7
    
    
    
    12.1
    %
       39




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##### Table of Contents



ALABAMA POWER COMPANY
 Wholesale Revenues  Affiliates
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$12.9
    
    49.6
    
    $(24.2)
    
    (22.9)
    Other Revenues
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$6.7
    
    16.5
    
    $6.0
    
    7.0
   Fuel and Purchased Power Expenses
 Second Quarter 2007
    
    Year-to-Date 2007vs.
    
    vs.Second Quarter 2006
    
    Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Fuel
    
    $
    41.7
    
    
    
    10.0
    
    
    $
    86.0
    
    
    
    11.3Purchased power-non-affiliates
    
    
    (14.5
    )
    
    
    (44.6
    )
    
    
    (32.0
    )
    
    
    (58.5
    )Purchased power-affiliates
    
    
    (12.6
    )
    
    
    (14.1
    )
    
    
    3.5
    
    
    
    2.4Total fuel and purchased
power expenses
    
    $
    14.6
    
    
    
    
    
    
    $
    57.5
  40




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##### Table of Contents



ALABAMA POWER COMPANY
   Second Quarter
    
    Second Quarter
    
    
    
    
    
    Year-to-Date
    
    Year-to-DateAverage Cost
    
    2007
    
    2006
    
    % change
    
    2007
    
    2006
    
    % change(cents per net KWH)
    
    
    
    
    
    (cents per net KWH)Fuel
    
    
    2.41
    
    
    
    2.37
    
    
    
    1.7
    
    
    
    2.36
    
    
    
    2.29
    
    
    
    3.1Purchased power
    
    
    6.14
    
    
    
    5.80
    
    
    
    5.9
    
    
    
    5.36
    
    
    
    5.68
    
    
    
    (5.6
    )
       Other Operations Expense
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$7.7
    
    4.4
    
    $10.1
    
    2.9
 41




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##### Table of Contents



ALABAMA POWER COMPANY
   Depreciation and Amortization
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$4.9
    
    4.3
    
    $11.0
    
    4.9
  Taxes Other than Income Taxes
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$6.2
    
    9.6
    
    $13.3
    
    10.2
  Allowance for Equity Funds Used During Construction
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$4.5
    
    118.4
    
    $5.6
    
    59.8
  42




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##### Table of Contents



ALABAMA POWER COMPANY
 Interest Expense, Net of Amounts Capitalized
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$6.4
    
    10.9
    
    $16.4
    
    14.6
  Dividends on Preferred and Preference Stock
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$2.1
    
    34.7
    
    $4.2
    
    34.7
  Income Taxes
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$16.5
    
    21.3
    
    $35.9
    
    27.4
  FUTURE EARNINGS POTENTIAL
  43




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##### Table of Contents



ALABAMA POWER COMPANY
 Environmental Matters
  New Source Review Litigation
  Eight-Hour Ozone Regulations
  Fine Particulate Matter Regulations
  44




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##### Table of Contents



ALABAMA POWER COMPANY
 FERC and Alabama PSC Matters
 Market-Based Rate Authority
    Intercompany Interchange Contract
 
  Retail Fuel Cost Recovery
  45




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##### Table of Contents



ALABAMA POWER COMPANY
  Natural Disaster Cost Recovery
  Other Matters
   ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  46




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##### Table of Contents



ALABAMA POWER COMPANY
  New Accounting Standards
 Income Taxes
  Fair Value Measurement
  Fair Value Option
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
  Capital Requirements and Contractual Obligations
  47




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##### Table of Contents



ALABAMA POWER COMPANY
  Sources of Capital
   Credit Rating Risk
  Market Price Risk
  48




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##### Table of Contents



ALABAMA POWER COMPANY
   Second Quarter
    
    Year-to-Date2007
    
    2007Changes
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    (361
    )
    
    $
    (32,628
    )Contracts realized or settled
    
    
    1,909
    
    
    
    14,735New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (14,218
    )
    
    
    5,223Contracts at June 30, 2007
    
    $
    (12,670
    )
    
    $
    (12,670
    )
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered
into during the period, if any.
 Source of June 30, 2007Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    (12,606
    )
    
    $
    (15,556
    )
    
    $
    2,950External sources
    
    
    (64
    )
    
    
    (64
    )
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at June 30, 2007
    
    $
    (12,670
    )
    
    $
    (15,620
    )
    
    $
    2,950
   Amounts(in thousands)Regulatory assets, net
    
    
    
    $
    (12,606
    )Accumulated other comprehensive
income
    
    
    
    
    (64
    )Net income
    
    
    
    
    Total fair value
    
    
    
    $
    (12,670
    )
  49




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##### Table of Contents



ALABAMA POWER COMPANY
 
 Financing Activities
      50




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##### Table of Contents



GEORGIA POWER COMPANY
 51




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##### Table of Contents



GEORGIA POWER COMPANY
 For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    1,585,563
    
    
    $
    1,524,943
    
    
    $
    2,997,892
    
    
    $
    2,883,466Wholesale revenues Non-affiliates
    
    
    135,055
    
    
    
    133,709
    
    
    
    278,822
    
    
    
    268,367Affiliates
    
    
    58,826
    
    
    
    88,339
    
    
    
    100,614
    
    
    
    125,542Other revenues
    
    
    64,705
    
    
    
    60,638
    
    
    
    123,991
    
    
    
    114,275Total operating revenues
    
    
    1,844,149
    
    
    
    1,807,629
    
    
    
    3,501,319
    
    
    
    3,391,650Operating Expenses:Fuel
    
    
    650,830
    
    
    
    591,211
    
    
    
    1,244,724
    
    
    
    1,051,935Purchased power Non-affiliates
    
    
    67,670
    
    
    
    84,166
    
    
    
    113,763
    
    
    
    142,964Affiliates
    
    
    179,655
    
    
    
    168,097
    
    
    
    364,197
    
    
    
    385,973Other operations
    
    
    249,538
    
    
    
    251,619
    
    
    
    480,286
    
    
    
    486,803Maintenance
    
    
    136,816
    
    
    
    129,332
    
    
    
    261,258
    
    
    
    257,883Depreciation and amortization
    
    
    127,262
    
    
    
    123,673
    
    
    
    253,411
    
    
    
    247,498Taxes other than income taxes
    
    
    71,610
    
    
    
    73,473
    
    
    
    143,951
    
    
    
    144,730Total operating expenses
    
    
    1,483,381
    
    
    
    1,421,571
    
    
    
    2,861,590
    
    
    
    2,717,786Operating Income
    
    
    360,768
    
    
    
    386,058
    
    
    
    639,729
    
    
    
    673,864Other Income and (Expense):Allowance for equity funds used during
construction
    
    
    14,687
    
    
    
    6,541
    
    
    
    27,866
    
    
    
    12,522Interest income
    
    
    632
    
    
    
    249
    
    
    
    1,107
    
    
    
    574Interest expense, net of amounts capitalized
    
    
    (73,074
    )
    
    
    (63,295
    )
    
    
    (143,661
    )
    
    
    (127,672
    )Interest expense to affiliate trusts
    
    
    (14,006
    )
    
    
    (14,877
    )
    
    
    (28,884
    )
    
    
    (29,755
    )Other income (expense), net
    
    
    301
    
    
    
    3,226
    
    
    
    (3,915
    )
    
    
    1,894Total other income and (expense)
    
    
    (71,460
    )
    
    
    (68,156
    )
    
    
    (147,487
    )
    
    
    (142,437
    )Earnings Before Income Taxes
    
    
    289,308
    
    
    
    317,902
    
    
    
    492,242
    
    
    
    531,427Income taxes
    
    
    100,204
    
    
    
    119,830
    
    
    
    171,184
    
    
    
    199,730Net Income
    
    
    189,104
    
    
    
    198,072
    
    
    
    321,058
    
    
    
    331,697Dividends on Preferred Stock
    
    
    689
    
    
    
    675
    
    
    
    1,378
    
    
    
    2,360Net Income After Dividends on Preferred
Stock
    
    $
    188,415
    
    
    $
    197,397
    
    
    $
    319,680
    
    
    $
    329,337
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred Stock
    
    $
    188,415
    
    
    $
    197,397
    
    
    $
    319,680
    
    
    $
    329,337Other comprehensive income (loss):Qualifying hedges:Changes in fair value, net of tax of
$10,812, $5,423, $9,730
and $11,019, respectively
    
    
    17,140
    
    
    
    8,598
    
    
    
    15,426
    
    
    
    17,464Reclassification adjustment for amounts
included in net income,
net of tax of $31, $(71), $2 and $42,
respectively
    
    
    50
    
    
    
    (114
    )
    
    
    4
    
    
    
    65Marketable securities:Change in fair value, net of tax of $(6),
$(66), $36
and $(163), respectively
    
    
    (7
    )
    
    
    (103
    )
    
    
    58
    
    
    
    (258
    )Total other comprehensive income
    
    
    17,183
    
    
    
    8,381
    
    
    
    15,488
    
    
    
    17,271COMPREHENSIVE INCOME
    
    $
    205,598
    
    
    $
    205,778
    
    
    $
    335,168
    
    
    $
    346,608
  52




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##### Table of Contents



GEORGIA POWER COMPANY
 For the Six MonthsEnded June 30,2007
    
    
    2006(in thousands)Operating Activities:Net income
    
    $
    321,058
    
    
    $
    331,697Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    302,523
    
    
    
    289,092Deferred income taxes and investment tax credits
    
    
    12,347
    
    
    
    14,071Deferred expenses  affiliates
    
    
    21,933
    
    
    
    18,717Allowance for equity funds used during construction
    
    
    (27,866
    )
    
    
    (12,522
    )Pension, postretirement, and other employee benefits
    
    
    6,035
    
    
    
    1,864Other, net
    
    
    12,693
    
    
    
    12,001Changes in certain current assets and liabilities Receivables
    
    
    (46,080
    )
    
    
    (97,319
    )Fossil fuel stock
    
    
    (51,433
    )
    
    
    (81,306
    )Materials and supplies
    
    
    (12,399
    )
    
    
    (27,518
    )Prepaid income taxes
    
    
    (46,479
    )
    
    
    61,863Other current assets
    
    
    2,719
    
    
    
    (11,741
    )Accounts payable
    
    
    814
    
    
    
    (140,821
    )Accrued taxes
    
    
    (60,944
    )
    
    
    44,872Accrued compensation
    
    
    (88,796
    )
    
    
    (86,488
    )Other current liabilities
    
    
    35,025
    
    
    
    6,428Net cash provided from operating activities
    
    
    381,150
    
    
    
    322,890Investing Activities:Property additions
    
    
    (753,046
    )
    
    
    (467,533
    )Nuclear decommissioning trust fund purchases
    
    
    (184,246
    )
    
    
    (241,021
    )Nuclear decommissioning trust fund sales
    
    
    177,366
    
    
    
    234,141Cost of removal, net of salvage
    
    
    (18,042
    )
    
    
    (11,312
    )Change in construction payables, net of joint owner portion
    
    
    20,517
    
    
    
    (9,652
    )Other
    
    
    (6,059
    )
    
    
    (2,002
    )Net cash used for investing activities
    
    
    (763,510
    )
    
    
    (497,379
    )Financing Activities:Increase in notes payable, net
    
    
    79,495
    
    
    
    414,778Proceeds Senior notes
    
    
    850,000
    
    
    
    Capital contributions from parent company
    
    
    269,949
    
    
    
    262,377Pollution control bonds
    
    
    
    
    
    
    10,125Redemptions Senior notes
    
    
    
    
    
    
    (150,000
    )First mortgage bonds
    
    
    
    
    
    
    (20,000
    )Pollution control bonds
    
    
    
    
    
    
    (10,125
    )Capital leases
    
    
    (1,957
    )
    
    
    Long-term debt to affiliate trusts
    
    
    (453,608
    )
    
    
    Preferred stock
    
    
    
    
    
    
    (14,569
    )Payment of preferred stock dividends
    
    
    (1,550
    )
    
    
    (2,037
    )Payment of common stock dividends
    
    
    (344,950
    )
    
    
    (315,000
    )Other
    
    
    (4,664
    )
    
    
    241Net cash provided from financing activities
    
    
    392,715
    
    
    
    175,790Net Change in Cash and Cash Equivalents
    
    
    10,355
    
    
    
    1,301Cash and Cash Equivalents at Beginning of Period
    
    
    16,850
    
    
    
    11,138Cash and Cash Equivalents at End of Period
    
    $
    27,205
    
    
    $
    12,439Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $11,386 and $5,099 capitalized for 2007 and 2006, respectively)
    
    $
    157,693
    
    
    $
    165,771Income taxes (net of refunds)
    
    $
    158,849
    
    
    $
    22,542
  53




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GEORGIA POWER COMPANY
 At June 30,
    
    
    At December 31,Assets
    
    2007
    
    
    2006(in thousands)Current Assets:Cash and cash equivalents
    
    $
    27,205
    
    
    $
    16,850Receivables Customer accounts receivable
    
    
    515,390
    
    
    
    474,046Unbilled revenues
    
    
    179,542
    
    
    
    130,585Under recovered regulatory clause revenues
    
    
    434,873
    
    
    
    353,976Other accounts and notes receivable
    
    
    99,171
    
    
    
    93,656Affiliated companies
    
    
    33,525
    
    
    
    21,941Accumulated provision for uncollectible accounts
    
    
    (8,576
    )
    
    
    (10,030
    )Fossil fuel stock, at average cost
    
    
    443,443
    
    
    
    392,011Materials and supplies, at average cost
    
    
    315,962
    
    
    
    304,514Vacation pay
    
    
    62,071
    
    
    
    61,907Prepaid income taxes
    
    
    107,583
    
    
    
    61,104Other
    
    
    70,931
    
    
    
    85,725Total current assets
    
    
    2,281,120
    
    
    
    1,986,285Property, Plant, and Equipment:In service
    
    
    21,498,606
    
    
    
    21,279,792Less accumulated provision for depreciation
    
    
    8,525,350
    
    
    
    8,343,30912,973,256
    
    
    
    12,936,483Nuclear fuel, at amortized cost
    
    
    171,178
    
    
    
    180,129Construction work in progress
    
    
    1,401,586
    
    
    
    923,948Total property, plant, and equipment
    
    
    14,546,020
    
    
    
    14,040,560Other Property and Investments:Equity investments in unconsolidated subsidiaries
    
    
    60,986
    
    
    
    70,879Nuclear decommissioning trusts, at fair value
    
    
    578,358
    
    
    
    544,013Other
    
    
    36,631
    
    
    
    58,848Total other property and investments
    
    
    675,975
    
    
    
    673,740Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    517,268
    
    
    
    510,531Prepaid pension costs
    
    
    702,399
    
    
    
    688,671Deferred under recovered regulatory clause revenues
    
    
    395,250
    
    
    
    544,152Other regulatory assets
    
    
    620,417
    
    
    
    629,003Other
    
    
    217,694
    
    
    
    235,788Total deferred charges and other assets
    
    
    2,453,028
    
    
    
    2,608,145Total Assets
    
    $
    19,956,143
    
    
    $
    19,308,730
  54




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##### Table of Contents



GEORGIA POWER COMPANY
 At June 30,
    
    
    At December 31,Liabilities
and Stockholders Equity
    
    2007
    
    
    2006(in thousands)Current Liabilities:Securities due within one year
    
    $
    303,059
    
    
    $
    303,906Notes payable
    
    
    812,777
    
    
    
    733,281Accounts payable Affiliated
    
    
    246,546
    
    
    
    238,093Other
    
    
    414,073
    
    
    
    402,222Customer deposits
    
    
    166,457
    
    
    
    155,763Accrued taxes Income taxes
    
    
    173,690
    
    
    
    217,603Other
    
    
    170,362
    
    
    
    275,098Dividends payable to parent
    
    
    172,475
    
    
    
    Accrued interest
    
    
    77,977
    
    
    
    74,643Accrued vacation pay
    
    
    49,485
    
    
    
    49,704Accrued compensation
    
    
    55,258
    
    
    
    141,356Other
    
    
    122,856
    
    
    
    125,494Total current liabilities
    
    
    2,765,015
    
    
    
    2,717,163Long-term Debt
    
    
    5,087,890
    
    
    
    4,242,839Long-term Debt Payable to Affiliated Trusts
    
    
    515,465
    
    
    
    969,073Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    2,860,724
    
    
    
    2,815,724Deferred credits related to income taxes
    
    
    152,052
    
    
    
    157,297Accumulated deferred investment tax credits
    
    
    275,597
    
    
    
    282,070Employee benefit obligations
    
    
    714,979
    
    
    
    698,274Asset retirement obligations
    
    
    644,199
    
    
    
    626,681Other cost of removal obligations
    
    
    432,189
    
    
    
    436,137Other regulatory liabilities
    
    
    276,224
    
    
    
    281,391Other
    
    
    133,526
    
    
    
    80,839Total deferred credits and other liabilities
    
    
    5,489,490
    
    
    
    5,378,413Total Liabilities
    
    
    13,857,860
    
    
    
    13,307,488Preferred Stock
    
    
    44,991
    
    
    
    44,991Common Stockholders Equity:Common stock, without par valueAuthorized  20,000,000 sharesOutstanding  9,261,500 shares
    
    
    398,473
    
    
    
    398,473Paid-in capital
    
    
    3,319,143
    
    
    
    3,039,845Retained earnings
    
    
    2,332,081
    
    
    
    2,529,826Accumulated other comprehensive income (loss)
    
    
    3,595
    
    
    
    (11,893
    )Total common stockholders equity
    
    
    6,053,292
    
    
    
    5,956,251Total Liabilities and Stockholders Equity
    
    $
    19,956,143
    
    
    $
    19,308,730
  55




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##### Table of Contents



GEORGIA POWER COMPANY
 
 OVERVIEW
    RESULTS OF OPERATIONS
 Net Income
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(9.0)
    
    (4.6)
    
    $(9.6)
    
    (2.9)
  Retail Revenues
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$60.7
    
    4.0
    
    $114.4
    
    4.0
   56




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##### Table of Contents



GEORGIA POWER COMPANY
  Second Quarter
    
    Year-to-Date2007
    
    2007(in millions)
    
    (% change)
    
    (in millions)
    
    (% change)Retail  prior year
    
    $
    1,524.9
    
    
    
    
    
    
    $
    2,883.5Estimated change in Rates and pricing
    
    
    (40.1
    )
    
    
    (2.6
    )
    
    
    (84.8
    )
    
    
    (2.9
    )Sales growth
    
    
    6.6
    
    
    
    0.4
    
    
    
    35.5
    
    
    
    1.2Weather
    
    
    10.3
    
    
    
    0.7
    
    
    
    10.0
    
    
    
    0.4Fuel cost recovery
    
    
    83.9
    
    
    
    5.5
    
    
    
    153.7
    
    
    
    5.3Retail  current year
    
    $
    1,585.6
    
    
    
    4.0
    
    
    $
    2,997.9
    
    
    
    4.0
     Wholesale Revenues Non-Affiliates
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$1.4
    
    1.0
    
    $10.4
    
    3.9
   57




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##### Table of Contents



GEORGIA POWER COMPANY
 Wholesale Revenues Affiliates
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(29.5)
    
    (33.4)
    
    $(24.9)
    
    (19.9)
  Other Revenues
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$4.1
    
    6.7
    
    $9.7
    
    8.5
  Fuel and Purchased Power Expenses
 Second Quarter 2007
    
    Year-to-Date 2007vs.
    
    vs.Second Quarter 2006
    
    Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Fuel
    
    $
    59.6
    
    
    
    10.1
    
    
    $
    192.8
    
    
    
    18.3Purchased power  Non-affiliates
    
    
    (16.5
    )
    
    
    (19.6
    )
    
    
    (29.2
    )
    
    
    (20.4
    )Purchased power  Affiliates
    
    
    11.6
    
    
    
    6.9
    
    
    
    (21.8
    )
    
    
    (5.6
    )Total fuel and purchased power expenses
    
    $
    54.7
    
    
    
    
    
    
    $
    141.8
   58




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##### Table of Contents



GEORGIA POWER COMPANY
   Second Quarter
    
    Second QuarterAverage Cost
    
    2007
    
    2006
    
    % change
    
    Year-to-Date 2007
    
    Year-to-Date 2006
    
    % change(cents per net KWH)
    
    
    
    
    
    (cents per net KWH)Fuel
    
    
    2.66
    
    
    
    2.43
    
    
    
    9.5
    
    
    
    2.65
    
    
    
    2.38
    
    
    
    11.3Purchased power
    
    
    6.80
    
    
    
    6.64
    
    
    
    2.4
    
    
    
    6.37
    
    
    
    6.28
    
    
    
    1.4
       Maintenance Expense
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$7.5
    
    5.8
    
    $3.4
    
    1.3
 59




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##### Table of Contents



GEORGIA POWER COMPANY
   Allowance for Equity Funds Used During Construction
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$8.2
    
    124.5
    
    $15.4
    
    122.5
  Interest Expense, Net of Amounts Capitalized
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$9.8
    
    15.4
    
    $16.0
    
    12.5
  Other Income (Expense), Net
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(2.9)
    
    (90.7)
    
    $(5.8)
    
    (306.7)
  Income Taxes
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(19.6)
    
    (16.4)
    
    $(28.5)
    
    (14.3)
  60




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##### Table of Contents



GEORGIA POWER COMPANY
  FUTURE EARNINGS POTENTIAL
  Environmental Matters
  Eight-Hour Ozone Regulations
  Fine Particulate Matter Regulations
  Georgia Multi-Pollutant Rule
  61




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##### Table of Contents



GEORGIA POWER COMPANY
  Plant Wansley Environmental Litigation
  FERC and Georgia PSC Matters
 Market-Based Rate Authority
    Intercompany Interchange Contract
 
 62




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##### Table of Contents



GEORGIA POWER COMPANY
   Retail Fuel Cost Recovery
  Retail Base Rate Filing
   Other Matters
  63




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##### Table of Contents



GEORGIA POWER COMPANY
    ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
 
 New Accounting Standards
 Income Taxes
  64




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##### Table of Contents



GEORGIA POWER COMPANY
 Fair Value Measurement
  Fair Value Option
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
  Capital Requirements and Contractual Obligations
 
 Sources of Capital
  65




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##### Table of Contents



GEORGIA POWER COMPANY
    Credit Rating Risk
  Market Price Risk
   66




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##### Table of Contents



GEORGIA POWER COMPANY
  Second Quarter
    
    Year-to-Date2007
    
    2007Changes
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    3,771
    
    
    $
    (38,003
    )Contracts realized or settled
    
    
    1,037
    
    
    
    13,535New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (26,266
    )
    
    
    3,010Contracts at June 30, 2007
    
    $
    (21,458
    )
    
    $
    (21,458
    )
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered
into during the period, if any.
 Source of June 30, 2007Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    (21,373
    )
    
    $
    (25,713
    )
    
    $
    4,340External sources
    
    
    (85
    )
    
    
    (85
    )
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at June 30, 2007
    
    $
    (21,458
    )
    
    $
    (25,798
    )
    
    $
    4,340
   Amounts(in thousands)Regulatory assets, net
    
    $
    (21,458
    )Accumulated other comprehensive
income
    
    
    Net income
    
    
    Total fair value
    
    $
    (21,458
    )
   67




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##### Table of Contents



GEORGIA POWER COMPANY
 Financing Activities
    68




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##### Table of Contents



GULF POWER COMPANY
 69




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##### Table of Contents



GULF POWER COMPANY
 For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    243,379
    
    
    $
    245,656
    
    
    $
    462,963
    
    
    $
    424,973Wholesale revenues Non-affiliates
    
    
    21,004
    
    
    
    20,344
    
    
    
    44,404
    
    
    
    41,182Affiliates
    
    
    20,813
    
    
    
    15,417
    
    
    
    60,893
    
    
    
    68,025Other revenues
    
    
    13,198
    
    
    
    11,305
    
    
    
    26,367
    
    
    
    21,584Total operating revenues
    
    
    298,394
    
    
    
    292,722
    
    
    
    594,627
    
    
    
    555,764Operating Expenses:Fuel
    
    
    133,049
    
    
    
    120,915
    
    
    
    279,523
    
    
    
    242,156Purchased power Non-affiliates
    
    
    1,955
    
    
    
    4,531
    
    
    
    3,343
    
    
    
    9,327Affiliates
    
    
    10,469
    
    
    
    15,137
    
    
    
    17,510
    
    
    
    22,127Other operations
    
    
    46,963
    
    
    
    46,761
    
    
    
    93,013
    
    
    
    90,251Maintenance
    
    
    19,455
    
    
    
    16,142
    
    
    
    32,657
    
    
    
    30,714Depreciation and amortization
    
    
    21,203
    
    
    
    22,381
    
    
    
    42,300
    
    
    
    44,366Taxes other than income taxes
    
    
    20,283
    
    
    
    19,793
    
    
    
    40,489
    
    
    
    38,682Total operating expenses
    
    
    253,377
    
    
    
    245,660
    
    
    
    508,835
    
    
    
    477,623Operating Income
    
    
    45,017
    
    
    
    47,062
    
    
    
    85,792
    
    
    
    78,141Other Income and (Expense):Interest income
    
    
    1,289
    
    
    
    769
    
    
    
    2,897
    
    
    
    1,550Interest expense, net of amounts
capitalized
    
    
    (10,799
    )
    
    
    (9,785
    )
    
    
    (21,375
    )
    
    
    (19,057
    )Interest expense to affiliate trusts
    
    
    (578
    )
    
    
    (1,147
    )
    
    
    (1,155
    )
    
    
    (2,295
    )Other income (expense), net
    
    
    160
    
    
    
    (347
    )
    
    
    (11
    )
    
    
    (897
    )Total other income and (expense)
    
    
    (9,928
    )
    
    
    (10,510
    )
    
    
    (19,644
    )
    
    
    (20,699
    )Earnings Before Income Taxes
    
    
    35,089
    
    
    
    36,552
    
    
    
    66,148
    
    
    
    57,442Income taxes
    
    
    12,989
    
    
    
    13,689
    
    
    
    24,360
    
    
    
    21,352Net Income
    
    
    22,100
    
    
    
    22,863
    
    
    
    41,788
    
    
    
    36,090Dividends on Preference Stock
    
    
    825
    
    
    
    825
    
    
    
    1,650
    
    
    
    1,650Net Income After Dividends on
Preference Stock
    
    $
    21,275
    
    
    $
    22,038
    
    
    $
    40,138
    
    
    $
    34,440
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preference Stock
    
    $
    21,275
    
    
    $
    22,038
    
    
    $
    40,138
    
    
    $
    34,440Other comprehensive income (loss):Qualifying hedges:Changes in fair value, net of tax of
$1,978, $(191), $2,537 and
$(191), respectively
    
    
    3,149
    
    
    
    (304
    )
    
    
    4,039
    
    
    
    (304
    )Reclassification adjustment for amounts
included in net income,
net of tax of $76, $31, $160 and $63,
respectively
    
    
    122
    
    
    
    50
    
    
    
    255
    
    
    
    100Total other comprehensive income
    
    
    3,271
    
    
    
    (254
    )
    
    
    4,294
    
    
    
    (204
    )COMPREHENSIVE INCOME
    
    $
    24,546
    
    
    $
    21,784
    
    
    $
    44,432
    
    
    $
    34,236
  70




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##### Table of Contents



GULF POWER COMPANY
 For the Six MonthsEnded June 30,2007
    
    
    2006(in thousands)Operating Activities:Net income
    
    $
    41,788
    
    
    $
    36,090Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    44,827
    
    
    
    47,115Deferred income taxes
    
    
    (12,021
    )
    
    
    (9,061
    )Pension, postretirement, and other employee benefits
    
    
    463
    
    
    
    1,480Stock option expense
    
    
    891
    
    
    
    745Tax benefit of stock options
    
    
    199
    
    
    
    68Other, net
    
    
    1,730
    
    
    
    1,429Changes in certain current assets and liabilities Receivables
    
    
    (6,015
    )
    
    
    (9,935
    )Fossil fuel stock
    
    
    (13,473
    )
    
    
    (11,273
    )Materials and supplies
    
    
    (1,517
    )
    
    
    (15,973
    )Prepaid income taxes
    
    
    7,078
    
    
    
    1,446Property damage cost recovery
    
    
    11,440
    
    
    
    11,765Other current assets
    
    
    1,085
    
    
    
    926Accounts payable
    
    
    (7,460
    )
    
    
    7,865Accrued taxes
    
    
    6,470
    
    
    
    17,204Accrued compensation
    
    
    (7,990
    )
    
    
    (12,897
    )Other current liabilities
    
    
    6,149
    
    
    
    6,282Net cash provided from operating activities
    
    
    73,644
    
    
    
    73,276Investing Activities:Property additions
    
    
    (93,207
    )
    
    
    (73,761
    )Cost of removal, net of salvage
    
    
    (6,432
    )
    
    
    (2,159
    )Construction payables
    
    
    (5,993
    )
    
    
    (5,704
    )Other
    
    
    (132
    )
    
    
    (9,404
    )Net cash used for investing activities
    
    
    (105,764
    )
    
    
    (91,028
    )Financing Activities:Increase (decrease) in notes payable, net
    
    
    (96,612
    )
    
    
    48,310Proceeds Senior Notes
    
    
    85,000
    
    
    
    Common stock issued to parent
    
    
    80,000
    
    
    
    Capital contributions from parent company
    
    
    
    
    
    
    21,140Gross excess tax benefit of stock options
    
    
    468
    
    
    
    167Redemptions  Pollution control bonds
    
    
    
    
    
    
    (12,075
    )Payment of preference stock dividends
    
    
    (1,650
    )
    
    
    (1,650
    )Payment of common stock dividends
    
    
    (37,050
    )
    
    
    (35,150
    )Other
    
    
    (996
    )
    
    
    (1,190
    )Net cash provided from financing activities
    
    
    29,160
    
    
    
    19,552Net Change in Cash and Cash Equivalents
    
    
    (2,960
    )
    
    
    1,800Cash and Cash Equivalents at Beginning of Period
    
    
    7,526
    
    
    
    3,847Cash and Cash Equivalents at End of Period
    
    $
    4,566
    
    
    $
    5,647Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $381 and $12 capitalized for 2007 and
2006, respectively)
    
    $
    16,991
    
    
    $
    17,175Income taxes (net of refunds)
    
    $
    27,824
    
    
    $
    16,984
  71




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GULF POWER COMPANY
 At June 30,
    
    
    At December 31,Assets
    
    2007
    
    
    2006(in thousands)Current Assets:Cash and cash equivalents
    
    $
    4,566
    
    
    $
    7,526Receivables Customer accounts receivable
    
    
    67,934
    
    
    
    56,489Unbilled revenues
    
    
    54,133
    
    
    
    38,287Under recovered regulatory clause revenues
    
    
    67,095
    
    
    
    79,235Other accounts and notes receivable
    
    
    8,821
    
    
    
    9,015Affiliated companies
    
    
    5,764
    
    
    
    15,302Accumulated provision for uncollectible accounts
    
    
    (1,090
    )
    
    
    (1,279
    )Fossil fuel stock, at average cost
    
    
    89,509
    
    
    
    76,036Materials and supplies, at average cost
    
    
    36,823
    
    
    
    35,306Property damage cost recovery
    
    
    29,408
    
    
    
    28,771Other regulatory assets
    
    
    13,014
    
    
    
    15,977Other
    
    
    1,992
    
    
    
    14,259Total current assets
    
    
    377,969
    
    
    
    374,924Property, Plant, and Equipment:In service
    
    
    2,653,352
    
    
    
    2,574,517Less accumulated provision for depreciation
    
    
    912,736
    
    
    
    901,5641,740,616
    
    
    
    1,672,953Construction work in progress
    
    
    61,639
    
    
    
    62,815Total property, plant, and equipment
    
    
    1,802,255
    
    
    
    1,735,768Other Property and Investments
    
    
    16,611
    
    
    
    14,846Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    17,191
    
    
    
    17,148Prepaid pension costs
    
    
    70,661
    
    
    
    69,895Other regulatory assets
    
    
    108,146
    
    
    
    110,077Other
    
    
    31,204
    
    
    
    17,831Total deferred charges and other assets
    
    
    227,202
    
    
    
    214,951Total Assets
    
    $
    2,424,037
    
    
    $
    2,340,489
  72




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GULF POWER COMPANY
 At June 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2007
    
    
    2006(in thousands)Current Liabilities:Notes payable
    
    $
    23,834
    
    
    $
    120,446Accounts payable Affiliated
    
    
    52,349
    
    
    
    44,375Other
    
    
    39,533
    
    
    
    49,979Customer deposits
    
    
    24,333
    
    
    
    21,363Accrued taxes Income taxes
    
    
    22,852
    
    
    
    29,771Other
    
    
    20,804
    
    
    
    15,033Accrued interest
    
    
    7,109
    
    
    
    7,645Accrued compensation
    
    
    8,942
    
    
    
    16,932Other regulatory liabilities
    
    
    14,876
    
    
    
    9,029Other
    
    
    25,769
    
    
    
    30,975Total current liabilities
    
    
    240,401
    
    
    
    345,548Long-term Debt
    
    
    739,465
    
    
    
    654,860Long-term Debt Payable to Affiliated Trusts
    
    
    41,238
    
    
    
    41,238Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    237,253
    
    
    
    237,862Accumulated deferred investment tax credits
    
    
    13,797
    
    
    
    14,721Employee benefit obligations
    
    
    76,053
    
    
    
    73,922Other cost of removal obligations
    
    
    167,738
    
    
    
    165,410Other regulatory liabilities
    
    
    48,161
    
    
    
    46,485Other
    
    
    83,106
    
    
    
    72,533Total deferred credits and other liabilities
    
    
    626,108
    
    
    
    610,933Total Liabilities
    
    
    1,647,212
    
    
    
    1,652,579Preference Stock
    
    
    53,886
    
    
    
    53,887Common Stockholders Equity:Common stock, without par valueAuthorized  20,000,000 sharesOutstanding  June 30, 2007: 1,792,717 shares December 31, 2006: 992,717 shares
    
    
    118,060
    
    
    
    38,060Paid-in capital
    
    
    430,126
    
    
    
    428,592Retained earnings
    
    
    175,056
    
    
    
    171,968Accumulated other comprehensive loss
    
    
    (303
    )
    
    
    (4,597
    )Total common stockholders equity
    
    
    722,939
    
    
    
    634,023Total Liabilities and Stockholders Equity
    
    $
    2,424,037
    
    
    $
    2,340,489
  73




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##### Table of Contents



GULF POWER COMPANY
 
 OVERVIEW
   RESULTS OF OPERATIONS
 Net Income
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(0.7)
    
    (3.5)
    
    $5.7
    
    16.5
   Retail Revenues
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    (change in millions)
    (% change)$(2.3)
    
    (0.9)
    
    $38.0
    
    8.9
   74




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##### Table of Contents



GULF POWER COMPANY
  Second Quarter
    
    Year-to-Date2007
    

2007(in millions)
    
    (% change)
    
    (in millions)
    
    (% change)Retail  prior year
    
    $
    245.7
    
    
    
    
    
    
    $
    425.0Estimated change in Rates and pricing
    
    
    0.6
    
    
    
    0.3
    
    
    
    1.2
    
    
    
    0.3Sales growth
    
    
    1.0
    
    
    
    0.4
    
    
    
    4.1
    
    
    
    0.9Weather
    
    
    (4.3
    )
    
    
    (1.8
    )
    
    
    (1.2
    )
    
    
    (0.3
    )Fuel and other cost recovery
    
    
    0.4
    
    
    
    0.2
    
    
    
    33.9
    
    
    
    8.0Retail  current year
    
    $
    243.4
    
    
    
    (0.9
    )
    
    $
    463.0
    
    
    
    8.9
     75




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##### Table of Contents



GULF POWER COMPANY
  Wholesale Revenues  Affiliates
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$5.4
    
    35.0
    
    $(7.1)
    
    (10.5)
    Other Revenues
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$1.9
    
    16.7
    
    $4.8
    
    22.2
  Fuel and Purchased Power Expenses
 Second Quarter 2007
    
    Year-to-Date 2007vs.
    
    vs.Second Quarter 2006
    
    Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Fuel
    
    $
    12.1
    
    
    
    10.0
    
    
    $
    37.3
    
    
    
    15.4Purchased power-non-affiliates
    
    
    (2.5
    )
    
    
    (56.9
    )
    
    
    (6.0
    )
    
    
    (64.2
    )Purchased power-affiliates
    
    
    (4.7
    )
    
    
    (30.8
    )
    
    
    (4.6
    )
    
    
    (20.9
    )Total fuel and purchased power expenses
    
    $
    4.9
    
    
    
    
    
    
    $
    26.7
  76




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##### Table of Contents



GULF POWER COMPANY
   Second Quarter
    
    Second Quarter
    
    
    
    Year-to-Date
    
    Year-to-DateAverage Cost
    
    2007
    
    2006
    
    % change
    
    2007
    
    2006
    
    % change(cents per net KWH)
    
    
    
    
    
    (cents per net KWH)Fuel
    
    
    3.33
    
    
    
    3.19
    
    
    
    4.39
    
    
    
    3.41
    
    
    
    3.09
    
    
    
    10.36Purchased power
    
    
    7.71
    
    
    
    6.23
    
    
    
    23.76
    
    
    
    5.92
    
    
    
    6.42
    
    
    
    (7.79
    )
  Other Operations Expense
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$0.2
    
    0.4
    
    $2.7
    
    3.1
  Maintenance Expense
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$3.4
    
    20.5
    
    $1.9
    
    6.3
  77




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##### Table of Contents

\

GULF POWER COMPANY
 Interest Expense, Net of Amounts Capitalized
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$1.0
    
    10.4
    
    $2.3
    
    12.2
  Interest Expense to Affiliate Trusts
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(0.5)
    
    (49.6)
    
    $(1.1)
    
    (49.7)
  Income Taxes
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(0.7)
    
    (5.1)
    
    $3.0
    
    14.1
   FUTURE EARNINGS POTENTIAL
  78




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##### Table of Contents



GULF POWER COMPANY
 Environmental Matters
  Eight-Hour Ozone Regulations
  Fine Particulate Matter Regulations
  Florida Greenhouse Gas Executive Orders
  Georgia Multi-Pollutant Rule
  79




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##### Table of Contents



GULF POWER COMPANY
 Environmental Remediation
  FERC and Florida PSC Matters
 Market-Based Rate Authority
    Intercompany Interchange Contract
 
  80




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##### Table of Contents



GULF POWER COMPANY
 Retail Fuel Cost Recovery
  Other Matters
    81




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##### Table of Contents



GULF POWER COMPANY
 ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  New Accounting Standards
 Income Taxes
  Fair Value Measurement
  Fair Value Option
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
  82




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##### Table of Contents



GULF POWER COMPANY
  Capital Requirements and Contractual Obligations
 
  Sources of Capital
   Credit Rating Risk
  83




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##### Table of Contents



GULF POWER COMPANY
  Market Price Risk
    Second Quarter
    
    Year-to-Date2007
    
    2007Changes
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    901
    
    
    $
    (7,186
    )Contracts realized or settled
    
    
    44
    
    
    
    3,133New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (3,084
    )
    
    
    1,914Contracts at June 30, 2007
    
    $
    (2,139
    )
    
    $
    (2,139
    )
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered
into during the period, if any.
 Source of June 30, 2007Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    (2,126
    )
    
    $
    (2,927
    )
    
    $
    801External sources
    
    
    (13
    )
    
    
    (13
    )
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at June 30, 2007
    
    $
    (2,139
    )
    
    $
    (2,940
    )
    
    $
    801
  84




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##### Table of Contents



GULF POWER COMPANY
   Amounts(in thousands)Regulatory assets, net
    
    $
    (2,139
    )Accumulated other comprehensive
income
    
    
    Net income
    
    
    Total fair value
    
    $
    (2,139
    )
   Financing Activities
     85




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 86




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    182,145
    
    
    $
    173,145
    
    
    $
    338,269
    
    
    $
    304,509Wholesale revenues Non-affiliates
    
    
    76,702
    
    
    
    66,606
    
    
    
    153,996
    
    
    
    127,928Affiliates
    
    
    9,657
    
    
    
    10,781
    
    
    
    28,572
    
    
    
    22,553Other revenues
    
    
    4,712
    
    
    
    4,388
    
    
    
    9,205
    
    
    
    8,871Total operating revenues
    
    
    273,216
    
    
    
    254,920
    
    
    
    530,042
    
    
    
    463,861Operating Expenses:Fuel
    
    
    122,158
    
    
    
    104,386
    
    
    
    243,917
    
    
    
    182,649Purchased power Non-affiliates
    
    
    1,259
    
    
    
    4,615
    
    
    
    2,213
    
    
    
    9,317Affiliates
    
    
    17,040
    
    
    
    17,381
    
    
    
    29,464
    
    
    
    36,417Other operations
    
    
    43,109
    
    
    
    41,134
    
    
    
    86,956
    
    
    
    78,411Maintenance
    
    
    17,331
    
    
    
    19,360
    
    
    
    31,278
    
    
    
    33,775Depreciation and amortization
    
    
    15,153
    
    
    
    12,002
    
    
    
    29,381
    
    
    
    24,322Taxes other than income taxes
    
    
    15,495
    
    
    
    15,650
    
    
    
    28,338
    
    
    
    29,850Total operating expenses
    
    
    231,545
    
    
    
    214,528
    
    
    
    451,547
    
    
    
    394,741Operating Income
    
    
    41,671
    
    
    
    40,392
    
    
    
    78,495
    
    
    
    69,120Other Income and (Expense):Interest income
    
    
    424
    
    
    
    22
    
    
    
    999
    
    
    
    71Interest expense
    
    
    (4,328
    )
    
    
    (4,221
    )
    
    
    (8,751
    )
    
    
    (8,512
    )Interest expense to affiliate trusts
    
    
    (37
    )
    
    
    (650
    )
    
    
    (686
    )
    
    
    (1,299
    )Other income (expense), net
    
    
    5,105
    
    
    
    1,550
    
    
    
    4,977
    
    
    
    2,493Total other income and (expense)
    
    
    1,164
    
    
    
    (3,299
    )
    
    
    (3,461
    )
    
    
    (7,247
    )Earnings Before Income Taxes
    
    
    42,835
    
    
    
    37,093
    
    
    
    75,034
    
    
    
    61,873Income taxes
    
    
    16,122
    
    
    
    13,894
    
    
    
    28,252
    
    
    
    22,959Net Income
    
    
    26,713
    
    
    
    23,199
    
    
    
    46,782
    
    
    
    38,914Dividends on Preferred Stock
    
    
    433
    
    
    
    433
    
    
    
    866
    
    
    
    866Net Income After Dividends on
Preferred Stock
    
    $
    26,280
    
    
    $
    22,766
    
    
    $
    45,916
    
    
    $
    38,048
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Net Income After Dividends on
Preferred Stock
    
    $
    26,280
    
    
    $
    22,766
    
    
    $
    45,916
    
    
    $
    38,048Other comprehensive income (loss):Qualifying hedges:Changes in fair value,
net of tax of $408, $64, $46
and $204, respectively
    
    
    657
    
    
    
    105
    
    
    
    73
    
    
    
    330COMPREHENSIVE INCOME
    
    $
    26,937
    
    
    $
    22,871
    
    
    $
    45,989
    
    
    $
    38,378
  87




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MISSISSIPPI POWER COMPANY
 For the Six MonthsEnded June 30,2007
    
    
    2006(in thousands)Operating Activities:Net income
    
    $
    46,782
    
    
    $
    38,914Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    34,116
    
    
    
    33,111Deferred income taxes and investment tax credits, net
    
    
    (12,089
    )
    
    
    21,218Plant Daniel capacity
    
    
    (2,829
    )
    
    
    (6,504
    )Pension, postretirement, and other employee benefits
    
    
    3,928
    
    
    
    2,518Stock option expense
    
    
    830
    
    
    
    850Tax benefit of stock options
    
    
    238
    
    
    
    49Hurricane Katrina grant proceeds-property reserve
    
    
    60,000
    
    
    
    Other, net
    
    
    (15,859
    )
    
    
    (9,188
    )Changes in certain current assets and liabilities Receivables
    
    
    16,671
    
    
    
    41,243Fossil fuel stock
    
    
    (23,319
    )
    
    
    5,629Materials and supplies
    
    
    (880
    )
    
    
    61Prepaid income taxes
    
    
    19,666
    
    
    
    36,262Other current assets
    
    
    (764
    )
    
    
    (5,959
    )Hurricane Katrina grant proceeds
    
    
    14,345
    
    
    
    Hurricane Katrina accounts payable
    
    
    5,440
    
    
    
    (41,638
    )Other accounts payable
    
    
    (9,313
    )
    
    
    (51,837
    )Accrued taxes
    
    
    (2,669
    )
    
    
    (11,342
    )Accrued compensation
    
    
    (13,420
    )
    
    
    (14,117
    )Over recovered regulatory clause revenues
    
    
    
    
    
    
    (22,354
    )Other current liabilities
    
    
    (77
    )
    
    
    465Net cash provided from operating activities
    
    
    120,797
    
    
    
    17,381Investing Activities:Property additions
    
    
    (56,089
    )
    
    
    (91,231
    )Cost of removal, net of salvage
    
    
    7,113
    
    
    
    (4,040
    )Construction payables
    
    
    (408
    )
    
    
    (11,028
    )Hurricane Katrina capital grant proceeds
    
    
    10,869
    
    
    
    Other
    
    
    527
    
    
    
    (1,472
    )Net cash used for investing activities
    
    
    (37,988
    )
    
    
    (107,771
    )Financing Activities:Increase (decrease) in notes payable, net
    
    
    (774
    )
    
    
    115,128Proceeds
 Gross excess tax benefit of stock options
    
    
    478
    
    
    
    36Redemptions
 Long-term debt to affiliate trusts
    
    
    (36,082
    )
    
    
    Capital contributions from parent company
    
    
    (3
    )
    
    
    (2,378
    )Payment of preferred stock dividends
    
    
    (866
    )
    
    
    (866
    )Payment of common stock dividends
    
    
    (33,650
    )
    
    
    (32,600
    )Net cash provided from (used for) financing activities
    
    
    (70,897
    )
    
    
    79,320Net Change in Cash and Cash Equivalents
    
    
    11,912
    
    
    
    (11,070
    )Cash and Cash Equivalents at Beginning of Period
    
    
    4,214
    
    
    
    14,301Cash and Cash Equivalents at End of Period
    
    $
    16,126
    
    
    $
    3,231Supplemental Cash Flow Information:Cash paid during the period for Interest
    
    $
    9,046
    
    
    $
    15,471Income taxes (net of refunds)
    
    $
    (270
    )
    
    $
    (42,560
    )
  88




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MISSISSIPPI POWER COMPANY
 At June 30,
    
    
    At December 31,Assets
    
    2007
    
    
    2006(in thousands)Current Assets:Cash and cash equivalents
    
    $
    16,126
    
    
    $
    4,214Receivables Customer accounts receivable
    
    
    45,769
    
    
    
    42,099Unbilled revenues
    
    
    27,171
    
    
    
    23,807Under recovered regulatory clause revenues
    
    
    39,427
    
    
    
    50,778Other accounts and notes receivable
    
    
    4,597
    
    
    
    5,870Insurance receivable
    
    
    6
    
    
    
    20,551Affiliated companies
    
    
    16,731
    
    
    
    23,696Accumulated provision for uncollectible accounts
    
    
    (662
    )
    
    
    (855
    )Fossil fuel stock, at average cost
    
    
    65,998
    
    
    
    42,679Materials and supplies, at average cost
    
    
    28,807
    
    
    
    27,927Prepaid income taxes
    
    
    2,365
    
    
    
    22,031Other regulatory assets
    
    
    34,490
    
    
    
    42,391Other
    
    
    11,110
    
    
    
    15,091Total current assets
    
    
    291,935
    
    
    
    320,279Property, Plant, and Equipment:In service
    
    
    2,070,209
    
    
    
    2,054,151Less accumulated provision for depreciation
    
    
    855,381
    
    
    
    836,9221,214,828
    
    
    
    1,217,229Construction work in progress
    
    
    54,354
    
    
    
    40,608Total property, plant, and equipment
    
    
    1,269,182
    
    
    
    1,257,837Other Property and Investments
    
    
    10,106
    
    
    
    4,636Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    9,031
    
    
    
    9,280Prepaid pension costs
    
    
    35,863
    
    
    
    36,424Other regulatory assets
    
    
    64,274
    
    
    
    61,086Other
    
    
    26,540
    
    
    
    18,834Total deferred charges and other assets
    
    
    135,708
    
    
    
    125,624Total Assets
    
    $
    1,706,931
    
    
    $
    1,708,376
  89




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MISSISSIPPI POWER COMPANY
 At June 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2007
    
    
    2006(in thousands)Current Liabilities:Securities due within one year
    
    $
    1,095
    
    
    $
    Notes payable
    
    
    50,603
    
    
    
    51,377Accounts payable Affiliated
    
    
    34,804
    
    
    
    24,615Other
    
    
    53,472
    
    
    
    73,236Customer deposits
    
    
    9,240
    
    
    
    8,676Accrued taxes Income taxes
    
    
    23,106
    
    
    
    4,171Other
    
    
    27,560
    
    
    
    50,346Accrued interest
    
    
    2,455
    
    
    
    2,332Accrued compensation
    
    
    10,538
    
    
    
    23,958Plant Daniel capacity
    
    
    2,830
    
    
    
    5,659Other regulatory liabilities
    
    
    20,023
    
    
    
    11,386Other
    
    
    24,367
    
    
    
    28,880Total current liabilities
    
    
    260,093
    
    
    
    284,636Long-term Debt
    
    
    247,765
    
    
    
    242,553Long-term Debt Payable to Affiliated Trusts
    
    
    
    
    
    
    36,082Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    225,435
    
    
    
    236,202Deferred credits related to income taxes
    
    
    15,648
    
    
    
    16,218Accumulated deferred investment tax credits
    
    
    15,870
    
    
    
    16,402Employee benefit obligations
    
    
    96,063
    
    
    
    92,403Other cost of removal obligations
    
    
    87,467
    
    
    
    82,397Other regulatory liabilities
    
    
    85,907
    
    
    
    22,559Other
    
    
    36,214
    
    
    
    56,324Total deferred credits and other liabilities
    
    
    562,604
    
    
    
    522,505Total Liabilities
    
    
    1,070,462
    
    
    
    1,085,776Preferred Stock
    
    
    32,780
    
    
    
    32,780Common Stockholders Equity:Common stock, without par value Authorized  1,130,000 sharesOutstanding  1,121,000 shares
    
    
    37,691
    
    
    
    37,691Paid-in capital
    
    
    308,549
    
    
    
    307,019Retained earnings
    
    
    256,777
    
    
    
    244,511Accumulated other comprehensive income
    
    
    672
    
    
    
    599Total common stockholders equity
    
    
    603,689
    
    
    
    589,820Total Liabilities and Stockholders Equity
    
    $
    1,706,931
    
    
    $
    1,708,376
  90




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 
 OVERVIEW
   RESULTS OF OPERATIONS
 Net Income
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$3.5
    
    15.4
    
    $7.9
    
    20.7
   Retail Revenues
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$9.0
    
    5.2
    
    $33.8
    
    11.1
 91




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##### Table of Contents



MISSISSIPPI POWER COMPANY
    Second Quarter
    
    Year-to-Date2007
    
    2007(in millions)
    
    (% change)
    
    (in millions)
    
    (% change)Retail  prior year
    
    $
    173.1
    
    
    
    
    
    
    $
    304.5Estimated change in Rates and pricing
    
    
    1.3
    
    
    
    0.8
    
    
    
    6.3
    
    
    
    2.1Sales growth
    
    
    4.9
    
    
    
    2.8
    
    
    
    7.2
    
    
    
    2.3Weather
    
    
    (4.4
    )
    
    
    (2.5
    )
    
    
    (1.5
    )
    
    
    (0.5
    )Fuel and other cost recovery
    
    
    7.2
    
    
    
    4.1
    
    
    
    21.8
    
    
    
    7.2Retail  current year
    
    $
    182.1
    
    
    
    5.2
    %
    
    $
    338.3
    
    
    
    11.1
    %
       Wholesale Revenues  Non-Affiliates
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$10.1
    
    15.2
    
    $26.1
    
    20.4
 92
    Table of Contents   MISSISSIPPI POWER COMPANY
   Wholesale Revenues  Affiliates
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(1.1)
    
    (10.4)
    
    $6.0
    
    26.7
   Fuel and Purchased Power Expenses
 Second Quarter 2007
    
    Year-to-Date 2007vs.
    
    vs.Second Quarter 2006
    
    Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Fuel
    
    $
    17.8
    
    
    
    17.0
    
    
    $
    61.3
    
    
    
    33.5Purchased power-non-affiliates
    
    
    (3.4
    )
    
    
    (72.7
    )
    
    
    (7.1
    )
    
    
    (76.2
    )Purchased power-affiliates
    
    
    (0.3
    )
    
    
    (2.0
    )
    
    
    (7.0
    )
    
    
    (19.1
    )Total fuel and purchased power expenses
    
    $
    14.1
    
    
    
    
    
    
    $
    47.2
   93




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##### Table of Contents



MISSISSIPPI POWER COMPANY
    Second Quarter
    
    Second Quarter
    
    
    
    
    
    Year-to-Date
    
    Year-to-DateAverage Cost
    
    2007
    
    2006
    
    % change
    
    2007
    
    2006
    
    % change(cents per net KWH)
    
    
    
    
    
    (cents per net KWH)Fuel
    
    
    3.71
    
    
    
    3.44
    
    
    
    7.8
    
    
    
    3.63
    
    
    
    3.31
    
    
    
    9.7Purchased power
    
    
    4.14
    
    
    
    4.34
    
    
    
    (4.6
    )
    
    
    3.77
    
    
    
    4.36
    
    
    
    (13.5
    )
      Other Operations Expense
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$2.0
    
    4.8
    
    $8.5
    
    10.9
  94




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##### Table of Contents



MISSISSIPPI POWER COMPANY
   Maintenance Expense
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(2.0)
    
    (10.5)
    
    $(2.5)
    
    (7.4)
   Depreciation and Amortization
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$3.2
    
    26.3
    
    $5.1
    
    20.8
   95




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Taxes Other than Income Taxes
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(0.2)
    
    (1.0)
    
    $(1.5)
    
    (5.1)
  Total Other Income and (Expense)
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$4.5
    
    135.3
    
    $3.8
    
    52.2
   Income Taxes
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$2.2
    
    16.0
    
    $5.3
    
    23.1
  FUTURE EARNINGS POTENTIAL
  96




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  Environmental Matters
  FERC and Mississippi PSC Matters
 Market-Based Rate Authority
    Intercompany Interchange Contract
 
  97




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Retail Regulatory Matters
      98




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Fuel Cost Recovery
  Other Matters
   ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  New Accounting Standards
 Income Taxes
  99




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  Fair Value Measurement
  Fair Value Option
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
  Capital Requirements and Contractual Obligations
  100




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Sources of Capital
   Off-Balance Sheet Financing Arrangements
  Credit Rating Risk
  101




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Market Price Risk
    Second Quarter
    
    Year-to-Date2007
    
    2007Changes
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    6,643
    
    
    $
    (6,360
    )Contracts realized or settled
    
    
    (1,138
    )
    
    
    359New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (4,242
    )
    
    
    7,264Contracts at June 30, 2007
    
    $
    1,263
    
    
    $
    1,263
 
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered
into during the period, if any. Source of June 30, 2007Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    (1,066
    )
    
    $
    (3,712
    )
    
    $
    2,646External sources
    
    
    2,329
    
    
    
    2,329
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at June 30, 2007
    
    $
    1,263
    
    
    $
    (1,383
    )
    
    $
    2,646
  102




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  Amounts(in thousands)Regulatory assets, net
    
    $
    (66
    )Accumulated other comprehensive
income
    
    
    1,089Net income
    
    
    240Total fair value
    
    $
    1,263
   Financing Activities
  103




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##### Table of Contents



SOUTHERN POWER COMPANY
AND SUBSIDIARY COMPANIES
 104




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Operating Revenues:Wholesale revenues Non-affiliates
    
    $
    98,053
    
    
    $
    62,915
    
    
    $
    179,170
    
    
    $
    114,612Affiliates
    
    
    143,925
    
    
    
    129,947
    
    
    
    253,427
    
    
    
    217,270Other revenues
    
    
    2,040
    
    
    
    777
    
    
    
    3,913
    
    
    
    1,586Total operating revenues
    
    
    244,018
    
    
    
    193,639
    
    
    
    436,510
    
    
    
    333,468Operating Expenses:Fuel
    
    
    58,779
    
    
    
    40,245
    
    
    
    86,145
    
    
    
    54,504Purchased power Non-affiliates
    
    
    11,181
    
    
    
    12,684
    
    
    
    22,211
    
    
    
    26,655Affiliates
    
    
    36,840
    
    
    
    26,362
    
    
    
    68,127
    
    
    
    45,769Other operations
    
    
    21,555
    
    
    
    16,792
    
    
    
    42,444
    
    
    
    34,299Maintenance
    
    
    8,205
    
    
    
    5,519
    
    
    
    13,503
    
    
    
    11,404Depreciation and amortization
    
    
    18,302
    
    
    
    15,864
    
    
    
    36,696
    
    
    
    30,571Taxes other than income taxes
    
    
    4,316
    
    
    
    3,800
    
    
    
    8,027
    
    
    
    7,461Total operating expenses
    
    
    159,178
    
    
    
    121,266
    
    
    
    277,153
    
    
    
    210,663Operating Income
    
    
    84,840
    
    
    
    72,373
    
    
    
    159,357
    
    
    
    122,805Other Income and (Expense):Interest expense, net of
amounts capitalized
    
    
    (20,458
    )
    
    
    (20,656
    )
    
    
    (41,352
    )
    
    
    (40,998
    )Other income (expense), net
    
    
    1,185
    
    
    
    899
    
    
    
    1,103
    
    
    
    3,302Total other income and (expense)
    
    
    (19,273
    )
    
    
    (19,757
    )
    
    
    (40,249
    )
    
    
    (37,696
    )Earnings Before Income Taxes
    
    
    65,567
    
    
    
    52,616
    
    
    
    119,108
    
    
    
    85,109Income taxes
    
    
    25,713
    
    
    
    20,795
    
    
    
    47,218
    
    
    
    33,388Net Income
    
    $
    39,854
    
    
    $
    31,821
    
    
    $
    71,890
    
    
    $
    51,721
 
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Net Income
    
    $
    39,854
    
    
    $
    31,821
    
    
    $
    71,890
    
    
    $
    51,721Other comprehensive income (loss):Qualifying hedges:Changes in fair value, net
of tax of $509, $1,048,
$(71) and
$969, respectively
    
    
    769
    
    
    
    1,625
    
    
    
    (122
    )
    
    
    1,503Reclassification
adjustment for amounts
included in net income,
net of tax of $1,249,
$1,125, $2,405 and
$2,237, respectively
    
    
    1,921
    
    
    
    1,736
    
    
    
    3,958
    
    
    
    3,468Total other
comprehensive income
    
    
    2,690
    
    
    
    3,361
    
    
    
    3,836
    
    
    
    4,971COMPREHENSIVE INCOME
    
    $
    42,544
    
    
    $
    35,182
    
    
    $
    75,726
    
    
    $
    56,692
  105




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 For the Six MonthsEnded June 30,2007
    
    
    2006(in thousands)Operating Activities:Net income
    
    $
    71,890
    
    
    $
    51,721Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    43,874
    
    
    
    37,395Deferred income taxes and investment tax credits, net
    
    
    32,770
    
    
    
    22,753Deferred revenues
    
    
    (29,872
    )
    
    
    (24,929
    )Mark-to-market adjustments
    
    
    (1,115
    )
    
    
    (3,124
    )Accumulated deferred billings on construction contract
    
    
    30,195
    
    
    
    7,320Accumulated deferred costs on construction contract
    
    
    (8,901
    )
    
    
    (3,561
    )Other, net
    
    
    786
    
    
    
    840Changes in certain current assets and liabilities Receivables
    
    
    (55,286
    )
    
    
    (7,141
    )Fossil fuel stock
    
    
    (2,928
    )
    
    
    (369
    )Materials and supplies
    
    
    (7,853
    )
    
    
    (719
    )Other current assets
    
    
    (432
    )
    
    
    7,274Accounts payable
    
    
    16,458
    
    
    
    (27,505
    )Accrued taxes
    
    
    7,007
    
    
    
    6,904Accrued interest
    
    
    281
    
    
    
    114Net cash provided from operating activities
    
    
    96,874
    
    
    
    66,973Investing Activities:Property additions
    
    
    (88,930
    )
    
    
    (94,294
    )Change in construction payables, net
    
    
    (4,096
    )
    
    
    (359
    )Sale of property to affiliate
    
    
    
    
    
    
    15,674Other
    
    
    (1,405
    )
    
    
    (279
    )Net cash used for investing activities
    
    
    (94,431
    )
    
    
    (79,258
    )Financing Activities:Increase in notes payable, net
    
    
    16,374
    
    
    
    54,861Redemptions  Other long term debt
    
    
    (1,209
    )
    
    
    (200
    )Payment of common stock dividends
    
    
    (44,900
    )
    
    
    (38,850
    )Other
    
    
    (26
    )
    
    
    Net cash provided from (used for) financing activities
    
    
    (29,761
    )
    
    
    15,811Net Change in Cash and Cash Equivalents
    
    
    (27,318
    )
    
    
    3,526Cash and Cash Equivalents at Beginning of Period
    
    
    29,929
    
    
    
    27,631Cash and Cash Equivalents at End of Period
    
    $
    2,611
    
    
    $
    31,157Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $7,382 and $48 capitalized for 2007 and
2006, respectively)
    
    $
    33,510
    
    
    $
    33,891Income taxes (net of refunds)
    
    $
    16,681
    
    
    $
    4,767
  106




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 At June 30,
    
    
    At December 31,Assets
    
    2007
    
    
    2006(in thousands)Current Assets:Cash and cash equivalents
    
    $
    2,611
    
    
    $
    29,929Receivables Customer accounts receivable
    
    
    32,166
    
    
    
    16,789Other accounts receivable
    
    
    1,046
    
    
    
    125Affiliated companies
    
    
    73,933
    
    
    
    26,215Fossil fuel stock, at average cost
    
    
    13,984
    
    
    
    11,056Materials and supplies, at average cost
    
    
    19,858
    
    
    
    19,877Prepaid service agreements  current
    
    
    23,827
    
    
    
    30,280Other prepaid expenses
    
    
    8,698
    
    
    
    5,878Other
    
    
    3,438
    
    
    
    2,006Total current assets
    
    
    179,561
    
    
    
    142,155Property, Plant, and Equipment:In service
    
    
    2,478,512
    
    
    
    2,434,146Less accumulated provision for depreciation
    
    
    255,579
    
    
    
    219,6542,222,933
    
    
    
    2,214,492Construction work in progress
    
    
    294,667
    
    
    
    260,279Total property, plant, and equipment
    
    
    2,517,600
    
    
    
    2,474,771Deferred Charges and Other Assets:Prepaid long-term service agreements
    
    
    67,772
    
    
    
    51,615OtherAffiliated
    
    
    4,306
    
    
    
    4,473Other
    
    
    17,955
    
    
    
    17,929Total deferred charges and other assets
    
    
    90,033
    
    
    
    74,017Total Assets
    
    $
    2,787,194
    
    
    $
    2,690,943
  107




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 At June 30,
    
    
    At December 31,Liabilities
and Stockholders Equity
    
    2007
    
    
    2006(in thousands)Current Liabilities:Securities due within one year
    
    $
    
    
    
    $
    1,209Notes payable
    
    
    140,126
    
    
    
    123,752Accounts payable Affiliated
    
    
    49,413
    
    
    
    33,205Other
    
    
    12,879
    
    
    
    16,453Accrued taxes Income taxes
    
    
    
    
    
    
    393Other
    
    
    12,135
    
    
    
    2,183Accrued interest
    
    
    30,130
    
    
    
    29,849Other
    
    
    1,817
    
    
    
    4,840Total current liabilities
    
    
    246,500
    
    
    
    211,884Long-term Debt
    
    
    1,296,972
    
    
    
    1,296,845Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    141,580
    
    
    
    106,016Deferred capacity revenues  Affiliated
    
    
    9,632
    
    
    
    36,313OtherAffiliated
    
    
    8,201
    
    
    
    8,958Other
    
    
    27,982
    
    
    
    5,423Total deferred credits and other liabilities
    
    
    187,395
    
    
    
    156,710Total Liabilities
    
    
    1,730,867
    
    
    
    1,665,439Common Stockholders Equity:Common stock, par value $.01 per share Authorized
 1,000,000 sharesOutstanding  1,000 shares
    
    
    
    
    
    
    Paid-in capital
    
    
    854,930
    
    
    
    854,933Retained earnings
    
    
    238,285
    
    
    
    211,295Accumulated other comprehensive loss
    
    
    (36,888
    )
    
    
    (40,724
    )Total common stockholders equity
    
    
    1,056,327
    
    
    
    1,025,504Total Liabilities and Stockholders Equity
    
    $
    2,787,194
    
    
    $
    2,690,943
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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 
 OVERVIEW
   RESULTS OF OPERATIONS
 Net Income
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$8.1
    
    25.2
    
    $20.2
    
    39.0
  Wholesale Revenues  Affiliates and Wholesale Revenues  Non-Affiliates
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$49.1
    
    25.5
    
    $100.7
    
    30.3
  109




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
   Other Revenues
 Second Quarter 2007 vs.
Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$1.2
    
    162.5
    
    $2.3
    
    146.7
  Fuel and Purchased Power Expenses
 Second Quarter 2007
    
    Year-to-Date 2007vs.
    
    vs.Second Quarter 2006
    
    Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Fuel
    
    $
    18.5
    
    
    
    46.1
    
    
    $
    31.6
    
    
    
    58.1Purchased power-non-affiliates
    
    
    (1.5
    )
    
    
    (11.8
    )
    
    
    (4.4
    )
    
    
    (16.7
    )Purchased power-affiliates
    
    
    10.5
    
    
    
    39.7
    
    
    
    22.4
    
    
    
    48.8Total fuel and purchased power expenses
    
    $
    27.5
    
    
    
    
    
    
    $
    49.6
  Other Operations Expense
 Second Quarter 2007 vs.
Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$4.8
    
    28.4
    
    $8.1
    
    23.7
  110




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
   Maintenance Expense
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$2.7
    
    48.7
    
    $2.1
    
    18.4
  Depreciation and Amortization
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$2.4
    
    15.4
    
    $6.1
    
    20.0
   Taxes Other than Income Taxes
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$0.5
    
    13.6
    
    $0.5
    
    7.6
 111




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
  Interest Expense, Net of Amounts Capitalized
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(0.2)
    
    (1.0)%
    
    $0.4
    
    0.9%
  Other Income (Expense), Net
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$0.3
    
    31.8
    
    $(2.2)
    
    (66.6)
   Income Taxes
 Second Quarter 2007 vs. Second Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$4.9
    
    23.6
    
    $13.8
    
    41.4
  112




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 FUTURE EARNINGS POTENTIAL
  FERC Matters
 Market-Based Rate Authority
    Intercompany Interchange Contract
  113




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
  Integrated Gasification Combined Cycle (IGCC) Project
  Power Sales Agreements
    Other Matters
  114




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
    ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
 
 New Accounting Standards
 Income Taxes
  115




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 Fair Value Measurement
  Fair Value Option
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
  Capital Requirements and Contractual Obligations
   116




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 Sources of Capital
   Credit Rating Risk
  117




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 Market Price Risk
     Second Quarter
    
    Year-to-Date2007
    
    2007Changes
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    (32
    )
    
    $
    1,850Contracts realized or settled
    
    
    (263
    )
    
    
    (1,641
    )New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    3,066
    
    
    
    2,562Contracts at June 30, 2007
    
    $
    2,771
    
    
    $
    2,771
  Source of June 30, 2007Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    620
    
    
    $
    416
    
    
    $
    204External sources
    
    
    2,151
    
    
    
    2,151
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at June 30, 2007
    
    $
    2,771
    
    
    $
    2,567
    
    
    $
    204
  118




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
  Amounts(in thousands)Net Income
    
    $
    1,569Accumulated other comprehensive loss
    
    
    1,202Total fair value
    
    $
    2,771
   Financing Activities
  119




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 
 Registrant
    
    Applicable NotesSouthern Company
    
    A, B, C, E, F, G, H, I, J, K, LAlabama Power
    
    A, B, F, G, I, J, LGeorgia Power
    
    A, B, F, G, H, I, K, LGulf Power
    
    A, B, F, G, IMississippi Power
    
    A, B, D, F, G, ISouthern Power
    
    A, B, F, I
 120




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 NOTES TO THE CONDENSED FINANCIAL STATEMENTS:
 (A)
    
    INTRODUCTIONThe 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, 2006 have been derived from the
audited financial statements of each registrant. In the opinion of each registrants
management, the information regarding such registrant furnished herein reflects all
adjustments necessary to present fairly the results of operations for the periods ended June
30, 2007 and 2006. Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with accounting principles generally accepted in
the United States have been condensed or omitted pursuant to such rules and regulations,
although each registrant believes that the disclosures regarding such registrant are
adequate to make the information presented not misleading. Disclosure which would
substantially duplicate the disclosure in the latest 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)
    
    CONTINGENCIES AND REGULATORY MATTERSSee Note 3 to the financial statements of Southern Company, the traditional operating
companies, and Southern Power in Item 8 of the Form 10-K for information relating to various
lawsuits and other contingencies.ENVIRONMENTAL MATTERSNew Source Review LitigationSee 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 civil actions brought by the EPA alleging that Alabama
Power and Georgia Power had violated the NSR provisions of the Clean Air Act and related
state laws with respect to certain of their respective coal-fired generating facilities.
The plaintiffs appeal against Alabama Power was stayed by the U.S. Court of Appeals for the
Eleventh Circuit pending the U.S. Supreme Courts decision in a similar case against Duke
Energy. On April 2, 2007, the U.S. Supreme Court issued an opinion in the Duke Energy case.
On April 26, 2007, the plaintiffs filed a motion to vacate and remand the U.S. District
Court for the Northern District of Alabamas decision in the Alabama Power case based on the
Supreme Courts decision in Duke Energy. On June 7, 2007, the Eleventh Circuit declined the
plaintiffs request and instead issued a brief stay of appeal to allow the plaintiffs to
file a motion for relief from judgment with the District Court in light of the Supreme
Courts decision in Duke Energy. On July 23, 2007, the plaintiffs filed such a motion. If
the District Court grants the motion, the Eleventh Circuit will remand the case back to the
District Court for further proceedings. If the motion is denied, the Eleventh Circuit will
retain jurisdiction over the case and the appeal will move forward. The final resolution of
these claims is dependent on these appeals and possible further court action and, therefore,
cannot be determined at this time.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 Plant Wansley Environmental LitigationSee Note 3 to the financial statements of Southern Company and Georgia Power under
Environmental Matters  Plant Wansley Environmental Litigation in Item 8 of the Form 10-K
for additional information on litigation involving alleged violations of the Clean Air Act
at four of the units at Plant Wansley. On June 18, 2007, the U.S. District Court for the
Northern District of Georgia approved a settlement between the parties resolving all
remaining issues and dismissed the case. There was no material impact on the financial
statements of Southern Company or Georgia Power.Environmental RemediationDuring the second quarter 2007, Gulf Power increased its estimated liability for
environmental remediation projects by $12.8 million as a result of changes in the costs
estimates to remediate substation sites. These projects have been approved by the Florida
PSC for recovery through the environmental cost recovery clause; therefore, there was no
impact on Gulf Powers net income as a result of these revised estimates. See Note 3 to the
financial statements of Gulf Power under Environmental Matters  Environmental
Remediation in Item 8 of the Form 10-K for additional information.MIRANT MATTERSMirant was an energy company with businesses that included independent power projects and
energy trading and risk management companies in the U.S. and selected other countries. It
was a wholly-owned subsidiary of Southern Company until its initial public offering in
October 2000. In April 2001, Southern Company completed a spin-off to its shareholders of
its remaining ownership, and Mirant became an independent corporate entity. In July 2003,
Mirant filed for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code. See
Note 3 to the financial statements of Southern Company under Mirant Matters  Mirant
Bankruptcy in Item 8 of the Form 10-K for information regarding Southern Companys
contingent liabilities associated with Mirant, including guarantees of contractual
commitments, litigation, and joint and several liabilities in connection with the
consolidated federal income tax return.MC Asset Recovery LitigationSee Note 3 to the financial statements of Southern Company under Mirant Matters  MC Asset
Recovery Litigation in Item 8 of the Form 10-K for information regarding a suit between MC
Asset Recovery, a special purpose subsidiary of Reorganized Mirant, and Southern Company.
On March 28, 2007, MC Asset Recovery filed a Fourth Amended Complaint. Among other things,
the Fourth Amended Complaint adds a claim under the Federal Debt Collection Procedure Act
(FDCPA) to avoid certain transfers from Mirant to Southern Company and withdraws the breach
of fiduciary duty claim the court struck as a result of Southern Companys motion for
summary judgment. MC Asset Recovery claims to have standing to assert violations of the
FDCPA and to recover property on behalf of the Mirant debtors estates. The ultimate
outcome of this matter cannot be determined at this time.Mirant Securities LitigationSee Note 3 to the financial statements of Southern Company under Mirant Matters  Mirant
Securities Litigation in Item 8 of the Form 10-K for information regarding a class action
lawsuit that several Mirant shareholders (plaintiffs) originally filed against Mirant and
certain Mirant officers in May 2002. In November 2002, Southern Company, certain former and
current senior officers of Southern Company, and 12 underwriters of Mirants initial public
offering were added as defendants. On March 24, 2006, the plaintiffs filed a motion for
reconsideration requesting that the court vacate that portion of its July 14, 2003 order
dismissing the plaintiffs claims based upon Mirants alleged improper energy trading and
marketing activities involving the California energy market. On March 6, 2007, the court
granted
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)


plaintiffs motion for reconsideration, reinstated the California energy market claims, and
granted in part and denied in part defendants motion to compel certain class certification
discovery. On March 21, 2007, defendants filed renewed motions to dismiss the California
energy claims on grounds originally set forth in their 2003 motions to dismiss, but which
were not addressed by the court. The ultimate outcome of this matter cannot be determined
at this time.Southern Company Employee Savings Plan LitigationSee Note 3 to the financial statements of Southern Company under Mirant Matters  Southern
Company Employee Savings Plan Litigation in Item 8 of the Form 10-K for information related
to the pending settlement of a class action complaint filed under ERISA in June 2004, and
amended in December 2004 and November 2005, on behalf of a purported class of participants
in or beneficiaries of The Southern Company Employee Savings Plan at any time since April 2,
2001 and whose plan accounts included investments in Mirant common stock. On June 12, 2007,
the U.S. District Court for the Northern District of Georgia issued a preliminary approval
of the December 2006 settlement agreement and set a fairness hearing for August 2007. If
approved, there will be no material impact on Southern Companys financial statements.
Pending final settlement approval, the ultimate outcome of this matter cannot now be
determined.FERC MATTERSMarket-Based Rate AuthoritySee Note 3 to the financial statements of Southern Company, the traditional operating
companies and Southern Power under FERC Matters  Market-Based Rate Authority in Item 8
of the Form 10-K for information regarding the proceedings initiated by the FERC in December
2004 to assess Southern Companys generation dominance within its retail service territory
and in May 2005 to determine whether Southern Company satisfies the other three parts of the
FERCs market-based rate analysis: transmission market power, barriers to entry, and
affiliate abuse or reciprocal dealing.In late June and July 2007, hearings were held in the December 2004 proceeding and Southern
Company anticipates a decision in November 2007. On June 21, 2007, the FERC issued an order
terminating the May 2005 proceeding, based upon its final approval of the settlement in the
IIC proceeding discussed below.In addition, on June 21, 2007, the FERC issued its final rule regarding market-based rate
authority. The FERC generally retained its current market-based rate standards. The impact
of this order and its effect on the generation dominance proceeding cannot now be
determined.Intercompany Interchange ContractSee Note 3 to the financial statements of Southern Company, the traditional operating
companies and Southern Power under FERC Matters  Intercompany Interchange Contract in
Item 8 of the Form 10-K for information regarding the proceeding initiated by the FERC in
May 2005 to examine (1) the provisions of the IIC among Alabama Power, Georgia Power, Gulf
Power, Mississippi Power, Savannah Electric, Southern Power, and SCS, as agent, under the
terms of which the Power Pool is operated, and, in particular, the propriety of the
continued inclusion of Southern Power as a party to the IIC, (2) whether any parties to the
IIC have violated the FERCs standards of conduct applicable to utility companies that are
transmission providers, and (3) whether Southern Companys code of conduct defining Southern
Power as a system company rather than a marketing affiliate is just and reasonable.On April 19, 2007, the FERC approved, with certain modifications, the compliance filing
submitted by Southern Company on November 6, 2006. The compliance plan largely involves
functional separation
 123




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 and information restrictions related to marketing activities conducted on behalf of Southern
Power. Implementation of the plan is not expected to have a material impact on the
financial statements of Southern Company or the traditional operating companies. Southern
Powers cost of implementing the compliance plan, including the modifications, is expected
to average approximately $9 million annually.INCOME TAX MATTERSLeveraged Lease TransactionsSee Note 3 to the financial statements of Southern Company under Income Tax Matters in
Item 8 of the Form 10-K. The IRS challenged Southern Companys deductions related to three
international lease transactions (so-called SILO or sale-in-lease-out transactions), in
connection with its audits of Southern Companys 2000 through 2003 tax returns. In the
third quarter 2006, Southern Company paid the full amount of the disputed tax and the
applicable interest on the SILO issue for tax years 2000  2001 and filed a claim for refund
which has now been denied by the IRS. The disputed tax amount is $79 million and the related
interest is approximately $24 million for these tax years. This payment, and the subsequent
IRS disallowance of the refund claim, closed the issue with the IRS and Southern Company has
initiated litigation in the U.S. District Court for the Northern District of Georgia for a
complete refund of tax and interest paid for the 2000  2001 tax years. The estimated
amount of disputed tax and interest for tax years 2002 and 2003 is approximately $83 million
and $15 million, respectively. The tax and interest for these tax years was paid to the IRS
in the fourth quarter 2006. Southern Company has accounted for both payments in 2006 as
deposits. For tax years 2000 through 2006, Southern Company has claimed $284 million in tax
benefits related to these SILO transactions challenged by the IRS. The ultimate impact on
Southern Companys net income will be dependent on the outcome of pending litigation, but
could be significant, and potentially material. Southern Company believes these
transactions are valid leases for U.S. tax purposes and the related deductions are
allowable. Southern Company is continuing to pursue resolution of these matters through
administrative appeals or litigation; however, the ultimate outcome of these matters cannot
now be determined.Effective January 1, 2007, Southern Company adopted both FASB Interpretation No. 48 (FIN
48), Accounting for Uncertainty in Income Taxes and FASB Staff Position No. FAS 13-2 (FSP
13-2), Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to
Income Taxes Generated by a Leveraged Lease Transaction. FIN 48 requires companies to
determine whether it is more likely than not that a tax position will be sustained upon
examination by the appropriate taxing authorities before any part of the benefit can be
recorded in the financial statements. It also provides guidance on the recognition,
measurement, and classification of income tax uncertainties, along with any related interest
and penalties. FSP 13-2 amends FASB Statement No. 13, Accounting for Leases requiring
recalculation of the rate of return and the allocation of income whenever the projected
timing of the income tax cash flows generated by a leveraged lease is revised with
recognition of the resulting gain or loss in the year of the revision. FSP 13-2 also
requires that all recognized tax positions in a leveraged lease must be measured in
accordance with the criteria in FIN 48 and any changes resulting from FIN 48 must be
reflected as a change in an important lease assumption as of the date of adoption. In
adopting these standards, Southern Company concluded that a portion of the SILO tax benefits
were uncertain tax positions, as defined in FIN 48. Accordingly, Southern Company also
concluded that there was a change in the projected income tax cash flows and, as required by
FSP 13-2, recalculated the rate of return and allocation of income under the
lease-in-lease-out (LILO) and SILO transactions.The cumulative effect of the initial adoption of FIN 48 and FSP 13-2 was recorded as an
adjustment to beginning retained earnings. For the LILO transaction settled with the IRS in
February 2005, the cumulative effect of adopting FSP 13-2 was a $17 million reduction in
beginning retained earnings. With respect to Southern Companys SILO transactions, the
adoption of FSP 13-2 reduced beginning retained earnings by $108 million and the adoption of
FIN 48 reduced beginning retained earnings by an additional $15 million. The adjustments to
retained earnings are non-cash charges and those related to
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)


FSP 13-2 will be recognized as income over the remaining terms of the affected leases. Any
future changes in the projected or actual income tax cash flows will result in an additional
recalculation of the net investment in the leases and will be recorded currently in income.Synthetic Fuel Tax CreditsSouthern Company has an investment in an entity that produces synthetic fuel and receives
tax credits under Section 45K (formerly Section 29) of the IRC. In accordance with Section
45K of the IRC, these tax credits are subject to limitation as the annual average price of
oil (as determined by the DOE) increases over a specified, inflation-adjusted dollar amount
published in the spring of the subsequent year. Southern Company, along with its partners
in this investment, has continued to monitor oil prices. Reserves against tax credits
earned in 2007 of $7.3 million have been recorded in the first six months of 2007 due to
projected phase-outs of the credits in 2007 as a result of current and projected future oil
prices.PROPERTY TAX DISPUTESee Note 3 to the financial statements of Georgia Power and Gulf Power under Property Tax
Dispute in Item 8 of the Form 10-K for information on the property tax dispute with Monroe
County, Georgia. The administrative appeals and notices of arbitration have been expanded
to include tax year 2006. The appeals remain stayed pending the outcome of the related
litigation. On March 30, 2007, the Georgia Court of Appeals reversed the trial court and
ruled that the Monroe County Board of Tax Assessors (Monroe Board) had exceeded its legal
authority and remanded the case for entry of an injunction prohibiting the Monroe Board from
collecting taxes based on its independent valuation of Plant Scherer. On July 16, 2007, the
Georgia Supreme Court agreed to hear the Monroe Boards requested review of this decision.
The suit could impact all co-owners. Georgia Power and Gulf Power could be subject to total
taxes through June 30, 2007 of up to $20.4 million and $3.9 million, respectively, plus
penalties and interest. In accordance with Gulf Powers unit power sales contract for Plant
Scherer, such property taxes would be recoverable from the customer. The ultimate outcome
of this matter cannot currently be determined.(C)
    
    SEGMENT AND RELATED INFORMATIONSouthern Companys reportable business segment is the sale of electricity in the Southeast
by the traditional operating companies and Southern Power. The All Other column includes
parent Southern Company, which does not allocate operating expenses to business segments.
Also, this category includes segments below the quantitative threshold for separate
disclosure. These segments include investments in synthetic fuels and leveraged lease
projects, telecommunications, and energy-related services. Southern Powers revenues from
sales to the traditional operating companies were $144 million and $253 million for the
three month and six months ended June 30, 2007, respectively, and $130 million and $217
million for the three month and six months ended June 30, 2006, respectively. All other
intersegment revenues are not material. Financial data for business segments and products
and services are as follows:
 Electric UtilitiesTraditionalOperating
    
    
    
    
    
    
    
    
    
    
    
    
    
    AllCompanies
    
    Southern Power
    
    Eliminations
    
    Total
    
    Other
    
    Eliminations
    
    Consolidated(in millions)Three
Months Ended June 30, 2007:Operating revenues
    
    $
    3,658
    
    
    $
    245
    
    
    $
    (182
    )
    
    $
    3,721
    
    
    $
    98
    
    
    $
    (47
    )
    
    $
    3,772Segment net income (loss)
    
    
    383
    
    
    
    40
    
    
    
    
    
    
    
    423
    
    
    
    6
    
    
    
    
    
    
    
    429Six Months Ended June 30, 2007:Operating revenues
    
    $
    6,952
    
    
    $
    437
    
    
    $
    (322
    )
    
    $
    7,067
    
    
    $
    199
    
    
    $
    (85
    )
    
    $
    7,181Segment net income (loss)
    
    
    667
    
    
    
    72
    
    
    
    
    
    
    
    739
    
    
    
    30
    
    
    
    (1
    )
    
    
    768Total assets at June 30, 2007
    
    $
    40,197
    
    
    $
    2,787
    
    
    $
    (145
    )
    
    $
    42,839
    
    
    $
    1,994
    
    
    $
    (688
    )
    
    $
    44,145
 125




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)


Electric UtilitiesTraditionalOperating
    
    
    
    
    
    
    
    
    
    
    
    
    
    AllCompanies
    
    Southern 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 December 31, 2006
    
    $
    38,825
    
    
    $
    2,691
    
    
    $
    (110
    )
    
    $
    41,406
    
    
    $
    1,933
    
    
    $
    (481
    )
    
    $
    42,858
 Products and Services
 Electric Utilities RevenuesPeriod
    
    Retail
    
    Wholesale
    
    Other
    
    Total(in millions)Three months Ended June 30, 2007
    
    $
    3,105
    
    
    $
    487
    
    
    $
    129
    
    
    $
    3,721Three months Ended June 30, 2006
    
    
    2,971
    
    
    
    440
    
    
    
    116
    
    
    
    3,527Six months Ended June 30, 2007
    
    $
    5,849
    
    
    $
    968
    
    
    $
    250
    
    
    $
    7,067Six months Ended June 30, 2006
    
    
    5,442
    
    
    
    855
    
    
    
    227
    
    
    
    6,524
 (D)
    
    MISSISSIPPI POWER RETAIL REGULATORY MATTERSSee Note 3 to the financial statements of Mississippi Power under Retail Regulatory Matters
  Environmental Compliance Overview Plan in Item 8 of the Form 10-K for information on
Mississippi Powers annual environmental filing with the Mississippi PSC. In February 2007,
Mississippi Power filed with the Mississippi PSC its annual ECO Plan evaluation for 2007.
Mississippi Power requested an average increase for retail customers
of 86 cents per 1,000
KWH. This increase represents approximately $7.5 million in annual revenues for Mississippi
Power. On April 13, 2007, the Mississippi PSC approved Mississippi Powers ECO Plan as
filed. The new rates became effective in May 2007.In April 2007, the Mississippi PSC issued an order allowing Mississippi Power to defer
approximately $10.4 million of certain reliability related maintenance costs beginning
January 1, 2007 and recover them over a four-year period beginning January 1, 2008. These
costs relate to system upgrades and improvements that are now being made as a follow-up to
the emergency repairs that were made subsequent to Hurricane Katrina. As of June 30, 2007,
Mississippi Power had incurred and deferred approximately $4.7 million of such costs, which
are included in Other Regulatory Assets on the Condensed Balance Sheets herein.See Note 3 to the financial statements of Mississippi Power under Retail Regulatory Matters
  Storm Damage Cost Recovery in Item 8 of the Form 10-K for information regarding storm
restoration costs in connection with Hurricane Katrina and a financing order issued by the
Mississippi PSC that authorized the issuance of $121.2 million of storm restoration bonds
under a state bond program. The storm restoration bonds were issued by the Mississippi
Development Bank on June 1, 2007 on behalf of the State of Mississippi. On June 1, 2007,
Mississippi Power received a grant payment of $85.2 million from the State of Mississippi
representing recovery of $25.2 million in retail storm restoration costs incurred or to be
incurred and $60.0 million to increase Mississippi Powers property damage reserve. The
funds received related to previously incurred storm restoration expenditures have been
accounted for as a government grant and have been recorded as a reduction to the regulatory
asset that was recorded as the storm restoration expenditures were incurred, in accordance
with FASB Statement No. 71 (SFAS No.71), Accounting for the Effects of Certain Types of
Regulation. The funds received for storm restoration expenditures to be incurred were
recorded as a regulatory liability. Mississippi Power will receive the bond proceeds as
expenditures are incurred to construct a new storm operations center.
 126




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)


The funds received with respect to the $25.2 million grant were funded through the
Mississippi Development Banks issuance of tax-exempt bonds. Due to the tax-exempt status
to the holders of bonds for federal income tax purposes, the use of the proceeds is limited
to expenditures that qualify under the IRC. Prior to the receipt of the proceeds from the
tax-exempt bonds in June 2007, management of Mississippi Power represented to the
Mississippi Development Bank that all expenditures to date qualify under the IRC. Should
Mississippi Power use the proceeds for non-qualifying
expenditures, it could be required to return that portion of the
proceeds received from the tax-exempt bond issuance that was applied
to non-qualifying expenditures. Management expects that all future
expenditures will also qualify and that no proceeds will
be required to be returned.In order for the State of Mississippi to repay the bonds issued by the Mississippi
Development Bank, the State of Mississippi has established a system restoration charge that
will be charged to all retail electric utility customers within Mississippi Powers service
area. This charge will be collected by Mississippi Power through the retail customers
monthly statement and remitted to the State of Mississippi on a monthly basis. The system
restoration charge is the property of the State of Mississippi. Mississippi Powers only
obligation is to collect and remit the proceeds of the charge.(E)
    
    COMMON STOCKFor Southern Company, the only difference in computing basic and diluted earnings per share
is attributable to exercised options and outstanding options under the stock option plan.
See Note 8 to the financial statements of Southern Company in Item 8 of the Form 10-K for
further information on the stock option plan. The effect of the stock options was
determined using the treasury stock method. Shares used to compute diluted earnings per
share are as follows (in thousands):
 Three months
    
    Three months
    
    Six months
    
    Six monthsEnded
    
    Ended
    
    Ended
    
    EndedJune 30,2007
    
    June 30,
2006
    
    June 30,
2007
    
    June 30,
2006As reported shares
    
    
    755,137
    
    
    
    742,515
    
    
    
    752,698
    
    
    
    742,355Effect of options
    
    
    4,709
    
    
    
    3,872
    
    
    
    4,898
    
    
    
    4,370Diluted shares
    
    
    759,846
    
    
    
    746,387
    
    
    
    757,596
    
    
    
    746,725
 (F)
    
    FINANCIAL INSTRUMENTSSee Note 6 to the financial statements of Southern Company, the traditional operating
companies, and Southern Power under Financial Instruments in Item 8 of the Form 10-K. At
June 30, 2007, the fair value gain/(loss) 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
    
    $
    (36.2
    )
    
    $
    (12.6
    )
    
    $
    (21.5
    )
    
    $
    (2.1
    )
    
    $
    
    
    
    $
    Accumulated other
comprehensive
income (loss)
    
    
    2.2
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    1.1
    
    
    
    1.2Net income (loss)
    
    
    1.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    1.6Total fair value
    
    $
    (32.2
    )
    
    $
    (12.7
    )
    
    $
    (21.5
    )
    
    $
    (2.1
    )
    
    $
    1.3
    
    
    $
    2.8
  127




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
     Cash Flow Hedges
 Weighted
    
    
    
    Fair ValueVariable
    
    Average
    
    Hedge
    
    Gain (Loss)Notional
    
    Rate
    
    Fixed Rate
    
    Maturity
    
    June 30, 2007Amount
    
    Received
    
    Paid
    
    Date
    
    (in millions)Alabama Power*
    
    $100 million
    
    3-month LIBOR
    
    
    6.15
    %
    
    November 2017
    
    $
    Alabama Power*
    
    $100 million
    
    3-month LIBOR
    
    
    6.15
    %
    
    December 2017
    
    
    0.1Georgia Power*
    
    $300 million
    
    3-month LIBOR
    
    
    5.75
    %
    
    July 2037
    
    
    4.1Georgia Power**
    
    $400 million
    
    Floating
    
    
    3.85
    %
    
    December 2007
    
    Georgia Power
    
    $100 million
    
    3-month LIBOR
    
    
    5.10
    %
    
    December 2017
    
    
    4.3Georgia Power
    
    $225 million
    
    3-month LIBOR
    
    
    5.26
    %
    
    March 2018
    
    
    7.1Georgia Power
    
    $100 million
    
    3-month LIBOR
    
    
    5.12
    %
    
    June 2018
    
    
    4.2Georgia Power
    
    $14 million
    
    BMA Index
    
    
    2.50
    %
    
    December 2007
    
    
    0.1Gulf Power
    
    $80 million
    
    3-month LIBOR
    
    
    5.10
    %
    
    July 2018
    
    
    3.5


*
    
    Interest rate collar showing rate cap**
    
    Interest rate collar with variable rate based on one-month LIBOR (showing rate cap)  128




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
  Southern Company
    
    $
    (16.5
    )Alabama Power
    
    
    (0.8
    )Georgia Power
    
    
    (1.4
    )Gulf Power
    
    
    (0.6
    )Southern Power
    
    
    (13.8
    )
 (G)
    
    RETIREMENT BENEFITSSee Note 2 to the financial statements of Southern Company, Alabama Power, Georgia Power,
Gulf Power, and Mississippi Power in Item 8 of the Form 10-K. Components of the pension
plans and postretirement plans net periodic costs for the three- and six-month periods
ended June 30, 2007 and 2006 are as follows (in millions):
 Southern
    
    Alabama
    
    Georgia
    
Gulf
    
    MississippiPENSION PLANS
    
    Company
    
    Power
    
    Power
    
    Power
    
    PowerThree Months Ended
June 30, 2007Service cost
    
    $
    36
    
    
    $
    8
    
    
    $
    12
    
    
    $
    1
    
    
    $
    1Interest cost
    
    
    80
    
    
    
    20
    
    
    
    32
    
    
    
    3
    
    
    
    3Expected return on plan assets
    
    
    (121
    )
    
    
    (36
    )
    
    
    (48
    )
    
    
    (5
    )
    
    
    (4
    )Recognized net (gain)/loss
    
    
    9
    
    
    
    2
    
    
    
    3
    
    
    
    1
    
    
    
    1Net amortization
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    5
    
    
    $
    (5
    )
    
    $
    (1
    )
    
    $
    
    
    
    $
    1Six Months Ended
June 30, 2007Service cost
    
    $
    73
    
    
    $
    17
    
    
    $
    25
    
    
    $
    3
    
    
    $
    3Interest cost
    
    
    161
    
    
    
    41
    
    
    
    63
    
    
    
    7
    
    
    
    7Expected return on plan assets
    
    
    (241
    )
    
    
    (73
    )
    
    
    (97
    )
    
    
    (11
    )
    
    
    (9
    )Recognized net (gain)/loss
    
    
    19
    
    
    
    5
    
    
    
    7
    
    
    
    1
    
    
    
    1Net amortization
    
    
    3
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    15
    
    
    $
    (9
    )
    
    $
    (1
    )
    
    $
    
    
    
    $
    2Three 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
    
    
    $
    2
 129




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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, 2007Service cost
    
    $
    7
    
    
    $
    2
    
    
    $
    2
    
    
    $
    1
    
    
    $
    1Interest cost
    
    
    26
    
    
    
    7
    
    
    
    11
    
    
    
    1
    
    
    
    1Expected return on plan assets
    
    
    (13
    )
    
    
    (5
    )
    
    
    (6
    )
    
    
    (1
    )
    
    
    (1
    )Net amortization
    
    
    10
    
    
    
    3
    
    
    
    5
    
    
    
    1
    
    
    
    Net cost (income)
    
    $
    30
    
    
    $
    7
    
    
    $
    12
    
    
    $
    2
    
    
    $
    1Six Months Ended
June 30, 2007Service cost
    
    $
    14
    
    
    $
    4
    
    
    $
    5
    
    
    $
    1
    
    
    $
    1Interest cost
    
    
    53
    
    
    
    14
    
    
    
    23
    
    
    
    2
    
    
    
    2Expected return on plan assets
    
    
    (26
    )
    
    
    (10
    )
    
    
    (13
    )
    
    
    (1
    )
    
    
    (1
    )Net amortization
    
    
    20
    
    
    
    6
    
    
    
    10
    
    
    
    1
    
    
    
    1Net cost (income)
    
    $
    61
    
    
    $
    14
    
    
    $
    25
    
    
    $
    3
    
    
    $
    3Three 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
    
    
    $
    3
 (H)
    
    EFFECTIVE TAX RATESSouthern Companys effective tax rate decreased in the six months ended June 30, 2007 as
compared to 2006, largely due to the impact of synthetic fuel tax
credits net of reserves, as well as
increases in certain state tax credits and AFUDC equity recorded by Georgia Power. See Note
5 to the financial statements of Southern Company and Georgia Power in Item 8 of the Form
10-K for information on each companys effective income tax rate.Southern Company recorded synthetic fuel tax credits as of the six months ended June 30,
2007 that are $28.2 million less than the synthetic fuel tax credits recorded for the same
period in 2006, which resulted in an increase in income tax expense. The increase in income
tax expense was offset by a $34 million reduction to tax credit reserves during the same
period in 2007 as compared to 2006. See Note (B) herein for additional information
regarding the production of synthetic fuel tax credits in 2007. The impact of the reduction
in synthetic fuel tax credits and these reserves is a decrease in Southern Companys
effective tax rate for the six months ended June 30, 2007 as compared to the same period in
2006.In connection with its construction program, Georgia Power recorded increases of
approximately $8.2 million and $15.4 million in AFUDC equity, which is not taxable, during
the three months and six months ended June 30, 2007, as compared to the prior year. Georgia
Power also recorded certain state income tax credits, which together with the increased
AFUDC equity, resulted in a lower effective
 130




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 income tax rate for the three and six months ended June 30, 2007 when compared to the same
periods in 2006.In September 2006, Georgia Power filed its 2005 income tax returns, which included certain
other state income tax credits. Georgia Power has also filed similar claims for the years
2001 through 2004. The Georgia Department of Revenue has not responded to these claims. If
Georgia Power prevails, such claims could have a significant, and possibly material, effect
on Georgia Powers net income. On July 24, 2007, Georgia Power filed a complaint in the
Superior Court of Fulton County to recover the credits claimed for the years 2002 through
2004. If Georgia Power is not successful, payment of the related state tax credits could
have a significant, and possibly material, effect on Georgia Powers cash flow. The
ultimate outcome of this matter cannot now be determined.(I)
    
    ADOPTION OF FIN 48On January 1, 2007, Southern Company, the traditional operating companies, and Southern
Power adopted FIN 48, which requires companies to determine whether it is more likely than
not that a tax position will be sustained upon examination by the appropriate taxing
authorities before any part of the benefit can be recorded in the financial statements. It
also provides guidance on the recognition, measurement, and classification of income tax
uncertainties, along with any related interest and penalties. Prior to adoption of FIN 48,
Southern Company had unrecognized tax benefits of approximately $65 million, which included
approximately $62 million for Georgia Power. As of adoption, an additional $146 million of
unrecognized tax benefits were recorded, which resulted in a total balance of $211 million.
The $146 million is associated with a tax timing difference which was recorded by
reclassifying a deferred tax liability to an unrecognized tax benefit. Of the total $211
million unrecognized tax benefits, $65 million would impact Southern Companys effective tax
rate if recognized, which includes $62 million for Georgia Power. For the first six months
of 2007, the total amount of unrecognized tax benefits increased by $23 million, resulting
in a balance of $234 million as of June 30, 2007. Of the $23 million increase in
unrecognized tax benefits, $12 million would impact Southern Companys effective tax rate if
recognized.Southern Company classifies interest on tax uncertainties as interest expense. The net
amount of interest accrued as of adoption was $24 million. The impact of adopting FIN 48 on
Southern Companys financial statements was a reduction to beginning 2007 retained earnings
of approximately $15 million. The other registrants retained earnings balances were not
impacted by the adoption of FIN 48. Net interest accrued for the six months ended June 30,
2007 was $1.6 million.Southern Company files a consolidated federal income tax return. The IRS has audited and
closed all tax returns prior to 2004. Southern Company also files income tax returns in
various states. The audits for these returns have either been concluded, or the statute of
limitations has expired, for years prior to 2002.Southern Company has initiated litigation in the U.S. District Court for the Northern
District of Georgia for a refund of taxes and interest paid related to several SILO
transactions. It is possible that a settlement of the litigation could occur within the
next 12 months. In addition, certain tax-related state statutes of limitation will expire
and certain state tax examinations will be concluded prior to June 30, 2008. Southern
Company does not anticipate that the unrecognized tax benefits will significantly change as
a result of these occurrences. See Note (B) herein for additional information regarding the
implementation of FIN 48 and current litigation concerning deductions related to the SILO
transactions.(J)
    
    ALABAMA POWER RETAIL REGULATORY MATTERSAlabama Power has established fuel cost recovery rates approved by the Alabama PSC. Alabama
Powers under recovered fuel costs as of June 30, 2007 totaled $375 million as compared to
$301 million at December 31, 2006. As a result of the increasing level of under recovered
fuel costs, on June 18, 2007, the Alabama PSC ordered Alabama Power to increase its Rate ECR
factor to 3.1 cents per KWH from 2.4 cents per KWH, effective with billings beginning July
2007 for the 30-month period ending December 2009. This change represents on average an
increase of approximately $7.37 per month for a
 131




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 customer billing of 1,000 KWH. This increase is intended to permit the recovery of energy
costs based on an estimate of future energy costs, as well as the collection of the existing
under recovered energy costs by the end of 2009. During the 30-month period, Alabama Power
will be allowed to include a carrying charge associated with the under recovered fuel costs
in the fuel expense calculation. In the event the application of this increased Rate ECR
factor results in an over recovered position during this period, Alabama Power will pay
interest on any such over recovered balance at the same rate used to derive the carrying
costs. As a result of the order, Alabama Power classified $128 million of the under
recovered regulatory clause receivable as deferred charges and other assets in the Condensed
Balance Sheet as of June 30, 2007 herein.As of December 31, 2006, Alabama Power had a deficit balance in the deferred natural
disaster reserve account of approximately $16.8 million. In June 2007, Alabama Power fully
recovered its prior storm costs related to Hurricanes Dennis and Katrina. As a result
customer rates decreased by $1.73 per month per residential customer account and $4.29 per
month per non-residential customer account beginning with July 2007 billings. Alabama Power
continues to collect a monthly Rate NDR charge to establish and maintain a target reserve
balance of $75 million for future storms. At June 30, 2007, Alabama Power had accumulated a
balance of $19.1 million in the target reserve for future storms, which is included in the
balance sheets under Other Regulatory Liabilities. See Note 3 to the financial statements
of Alabama Power under Retail Regulatory Matters  Natural Disaster Cost Recovery in Item
8 of the Form 10-K for additional information.(K)
    
    GEORGIA POWER RETAIL REGULATORY MATTERSOn June 29, 2007, Georgia Power filed a request to increase retail base rates with the
Georgia PSC. The request includes an increase effective January 1, 2008 of approximately
$406.7 million, or 5.98%, in retail revenues, based on a future test year ending July 31,
2008 and a proposed retail return on common equity of 12.5%. The majority of the increase in
retail revenues is being requested to cover the costs of environmental compliance and
continued investment in new generation, transmission, and distribution facilities to support
growth and ensure reliability. The remainder of the increase would include recovery of
higher operation, maintenance, and other investment costs to meet the rising demand for
electricity.Georgia Power is currently operating under a three-year retail rate order that expires
December 31, 2007. Under the terms of the existing order, earnings are evaluated annually
against a retail return on common equity range of 10.25% to 12.25%. Two-thirds of any
earnings above the 12.25% return are applied to rate refunds, with the remaining one-third
retained by Georgia Power. The order required Georgia Power to file a general rate case by
July 1, 2007. Georgia Power expects the Georgia PSC to issue a final order in this matter
on December 20, 2007. In addition to the traditional test period request, Georgia Power
filed information for a three-year rate plan option that includes additional increases of
approximately $191 million, or 2.65%, and $45 million, or 0.61%, in retail revenues
effective January 1, 2009 and 2010, respectively, to cover the costs of additional
environmental controls and certified PPAs. The final outcome of this matter cannot now be
determined. See Note 3 to the financial statements of Southern Company and Georgia Power
under Georgia Power Retail Regulatory Matters and Retail Regulatory Matters  Rate
Plans, respectively, in Item 8 of the Form 10-K for additional information.(L)
    
    NUCLEAR FUEL DISPOSAL COST LITIGATIONSee Note 1 to the financial statements of Southern Company, Alabama Power and Georgia
Power under Nuclear Fuel Disposal Costs in Item 8 of the Form 10-K for information
regarding the litigation brought by Alabama Power and Georgia Power against the DOE for
breach of contracts related to the disposal of spent nuclear fuel. On July 9, 2007, the
U.S. Court of Federal Claims awarded Georgia Power a total of $30 million, based on its
ownership interests, and awarded Alabama Power $17.3 million, representing all of the
direct costs of the expansion of spent nuclear fuel storage facilities from 1998 through
2004. The DOE has 60 days from the date of the order to file an appeal. The final
outcome of this matter cannot be determined at this time, but no material impact on net
income is expected. No amounts have been recognized in the financial statements as of
June 30, 2007.
 132




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
 Southern Company
  Nominees
    
    Shares For
    
    Shares WithheldJuanita Powell Baranco
    
    
    573,601,497
    
    
    
    11,269,320Dorrit J. Bern
    
    
    572,368,547
    
    
    
    12,502,270Francis S. Blake
    
    
    571,005,192
    
    
    
    13,865,625Thomas F. Chapman
    
    
    574,151,272
    
    
    
    10,719,545H. William Habermeyer, Jr.
    
    
    574,072,951
    
    
    
    10,797,866Donald M. James
    
    
    568,522,602
    
    
    
    16,348,215J. Neal Purcell
    
    
    574,310,091
    
    
    
    10,560,726David M. Ratcliffe
    
    
    572,071,967
    
    
    
    12,798,850William G. Smith, Jr.
    
    
    574,105,180
    
    
    
    10,765,637Gerald J. St. Pé
    
    
    571,645,018
    
    
    
    13,225,799
  133




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders. (Continued)
 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
  Georgia Power
  Gus H. Bell, III
    
    Jimmy C. TallentRobert L. Brown, Jr.
    
    D. Gary ThompsonRonald D. Brown
    
    Richard W. UsseryAnna R. Cablik
    
    William Jerry VereenMichael D. Garrett
    
    E. Jenner Wood, IIIDavid M. Ratcliffe
  Gulf Power
  C. LeDon Anchors
    
    William A. PullumWilliam C. Cramer, Jr.
    
    Winston E. ScottFred C. Donovan, Sr.
    
    Susan N. Story
  134




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders. (Continued)
 Mississippi Power
  Roy Anderson, III
    
    Christine L. PickeringTommy E. Dulaney
    
    George A. SchloegelWarren A. Hood, Jr.
    
    Philip J. TerrellRobert C. Khayat
    
    Anthony J. TopaziAubrey B. Patterson, Jr.
  Southern Power
  William P. Bowers
    
    G. Edison Holland, Jr.Thomas A. Fanning
    
    David M. Ratcliffe
  
 Item 5. Other Information.
 Termination of Material Definitive Agreements
  135




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##### Table of Contents



Item 6. Exhibits.
 (4) Instruments Describing Rights of Security Holders, Including Indentures
 Georgia Power
 (c)1
    
    -Twenty-Ninth Supplemental Indenture to
Senior Note Indenture dated as of June
12, 2007, providing for the issuance of
the Series 2007B Senior Notes.
(Designated in Form 8-K dated June 4,
2007, File No. 1-6468, as Exhibit 4.2.)(c)2
    
    -Thirtieth Supplemental Indenture to
Senior Note Indenture dated as of June
21, 2007, providing for the issuance of
the Series 2007C Senior Notes.
(Designated in Form 8-K dated June 18,
2007, File No. 1-6468, as Exhibit 4.2.)(c)3
    
    -Thirty-First Supplemental Indenture to
Senior Note Indenture dated as of July
17, 2007, providing for the issuance of
the Series 2007D Senior Notes.
(Designated in Form 8-K dated July 10,
2007, File No. 1-6468, as Exhibit 4.2.)Gulf Power(d)1
    
    -Fourteenth Supplemental Indenture to
Senior Note Indenture dated as of June
12, 2007, providing for the issuance of
the Series 2007A Senior Notes.
(Designated in Form 8-K dated June 5,
2007, File No. 0-2429, as Exhibit 4.2.)(10) Material ContractsSouthern Power(f)1
    
    -Amendment dated May 8, 2007 to
Cooperative Agreement between the DOE
and SCS dated as of February 22, 2006.
(Southern Power requested confidential
treatment for certain portions of this
document pursuant to an application for
confidential treatment sent to the SEC.
Southern Power omitted such portions
from the filing and filed them
separately with the SEC.)(f)2
    
    -Amendment Number One dated July 6, 2007
to 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.(24) Power of Attorney and ResolutionsSouthern Company(a)1
    
    -Power of Attorney and resolution.
(Designated in the Form 10-K for the
year ended December 31, 2006, 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, 2006, File No.
1-3164 as Exhibit 24(b) and
incorporated herein by reference.)
 136




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Item 6. Exhibits. (continued)Georgia Power(c)1
    
    -Power of Attorney and resolution.
(Designated in the Form 10-K for the year
ended December 31, 2006, 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, 2006, 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, 2006, 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, 2006, File No. 333-98553
as Exhibit 24(f) 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.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.
 137




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Item 6. Exhibits. (continued)(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.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.
 138




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Item 6. Exhibits. (continued)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.
 139




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THE SOUTHERN COMPANY
 
 SIGNATURES
   By
    
    David M. Ratcliffe Chairman, President and Chief Executive Officer
(Principal Executive Officer)By
    
    Thomas A. Fanning
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)Date: August 6, 2007
 140




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ALABAMA POWER COMPANY
 SIGNATURES
   By
    
    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 6, 2007
 141




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GEORGIA POWER COMPANY
 SIGNATURES
   By
    
    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 6, 2007
 142




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GULF POWER COMPANY
 SIGNATURES
   By
    
    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 6, 2007
 143




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MISSISSIPPI POWER COMPANY
 SIGNATURES
   By
    
    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 6, 2007
 144




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SOUTHERN POWER COMPANY
 SIGNATURES
   By
    
    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 6, 2007
 145