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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 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 StreetBirmingham, Alabama 35291(205) 257-10001-6468
    
    Georgia Power Company
    
    58-0257110(A Georgia Corporation)241 Ralph McGill Boulevard, N.E.Atlanta, Georgia 30308(404) 506-65260-2429
    
    Gulf Power Company
    
    59-0276810(A Florida Corporation)One Energy PlacePensacola, Florida 32520(850) 444-6111001-11229
    
    Mississippi Power Company
    
    64-0205820(A Mississippi Corporation)2992 West BeachGulfport, Mississippi 39501(228) 864-1211333-98553
    
    Southern Power Company
    
    58-2598670(A Delaware Corporation)30 Ivan Allen Jr. Boulevard, N.W.Atlanta, Georgia 30308(404) 506-5000




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Indicate by check mark whether the registrants (1) have filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrants were required to file such reports), and (2) have been
subject to such filing requirements for the past 90 days. Yes þ No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
 LargeAccelerated
    
    Accelerated
    
    Non-acceleratedRegistrant
    
    Filer
    
    Filer
    
    FilerThe Southern Company
    
    
    XAlabama Power Company
    
    
    
    
    
    
    
    
    
    
    XGeorgia Power Company
    
    
    
    
    
    
    
    
    
    
    XGulf Power Company
    
    
    
    
    
    
    
    
    
    
    XMississippi Power Company
    
    
    
    
    
    
    
    
    
    
    XSouthern Power Company
    
    
    
    
    
    
    
    
    
    
    X
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act.) Yes o No þ
 Description of
    
    Shares OutstandingRegistrant
    
    Common Stock
    
    at September 30, 2007The Southern Company
    
    Par Value $5 Per Share
    
    
    759,478,801Alabama 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
 September 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
    
    
    36Condensed Statements of Comprehensive Income
    
    
    36Condensed Statements of Cash Flows
    
    
    37Condensed Balance Sheets
    
    
    38Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    40Georgia Power CompanyCondensed Statements of Income
    
    
    56Condensed Statements of Comprehensive Income
    
    
    56Condensed Statements of Cash Flows
    
    
    57Condensed Balance Sheets
    
    
    58Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    60Gulf Power CompanyCondensed Statements of Income
    
    
    77Condensed Statements of Comprehensive Income
    
    
    77Condensed Statements of Cash Flows
    
    
    78Condensed Balance Sheets
    
    
    79Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    81Mississippi Power CompanyCondensed Statements of Income
    
    
    97Condensed Statements of Comprehensive Income
    
    
    97Condensed Statements of Cash Flows
    
    
    98Condensed Balance Sheets
    
    
    99Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    101Southern Power Company and Subsidiary CompaniesCondensed Consolidated Statements of Income
    
    
    116Condensed Consolidated Statements of Comprehensive Income
    
    
    116Condensed Consolidated Statements of Cash Flows
    
    
    117Condensed Consolidated Balance Sheets
    
    
    118Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    120Notes to the Condensed Financial Statements
    
    
    131Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    34Item 4.
    
    Controls and Procedures
    
    
    34
  3




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INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 2007
 PageNumberPART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    147Item 1A.
    
    Risk Factors
    
    
    147Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    InapplicableItem 3.
    
    Defaults Upon Senior Securities
    
    InapplicableItem 4.
    
    Submission of Matters to a Vote of Security Holders
    
    InapplicableItem 5.
    
    Other Information
    
    InapplicableItem 6.
    
    Exhibits
    
    
    148Signatures
    
    
    152
 4




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DEFINITIONS
 TERM
    
    MEANINGAFUDC
    
    Allowance for funds used during constructionAlabama Power
    
    Alabama Power CompanyALJ
    
    Administrative law judgeBMA
    
    Bond Market AssociationClean Air Act
    
    Clean Air Act Amendments of 1990DOE
    
    U.S. Department of 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 CompanyIGCC
    
    Integrated coal gasification combined cycleIIC
    
    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, population and business growth (and declines), and the effects of energy conservation
measures;
 
    
    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, droughts,
pandemic health events such as an avian influenza, or other similar occurrences;
 
    
    the direct or indirect effects on Southern Companys business resulting from incidents
similar to the August 2003 power outage in the Northeast;
 
    
    the effect of accounting pronouncements issued periodically by standard setting bodies; and
 
    
    other factors discussed elsewhere herein and in other reports (including the Form 10-K)
filed by the registrants from time to time with the SEC.
 Each registrant expressly disclaims any obligation to update any forward-looking statements.
 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 Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    4,085,704
    
    
    $
    3,853,423
    
    
    $
    9,934,571
    
    
    $
    9,295,223Wholesale revenues
    
    
    563,233
    
    
    
    506,326
    
    
    
    1,530,809
    
    
    
    1,361,097Other electric revenues
    
    
    130,590
    
    
    
    120,001
    
    
    
    381,467
    
    
    
    347,086Other revenues
    
    
    52,516
    
    
    
    69,628
    
    
    
    165,793
    
    
    
    200,735Total operating revenues
    
    
    4,832,043
    
    
    
    4,549,378
    
    
    
    12,012,640
    
    
    
    11,204,141Operating Expenses:Fuel
    
    
    1,738,693
    
    
    
    1,625,046
    
    
    
    4,512,718
    
    
    
    3,981,241Purchased power
    
    
    281,489
    
    
    
    239,891
    
    
    
    445,698
    
    
    
    483,145Other operations
    
    
    651,127
    
    
    
    603,346
    
    
    
    1,802,876
    
    
    
    1,753,719Maintenance
    
    
    260,449
    
    
    
    236,647
    
    
    
    831,483
    
    
    
    793,569Depreciation and amortization
    
    
    311,939
    
    
    
    300,104
    
    
    
    928,569
    
    
    
    896,562Taxes other than income taxes
    
    
    206,763
    
    
    
    186,631
    
    
    
    574,329
    
    
    
    540,834Total operating expenses
    
    
    3,450,460
    
    
    
    3,191,665
    
    
    
    9,095,673
    
    
    
    8,449,070Operating Income
    
    
    1,381,583
    
    
    
    1,357,713
    
    
    
    2,916,967
    
    
    
    2,755,071Other Income and (Expense):Allowance for equity funds used during construction
    
    
    28,050
    
    
    
    11,847
    
    
    
    71,821
    
    
    
    33,772Interest income
    
    
    11,638
    
    
    
    12,748
    
    
    
    31,853
    
    
    
    25,657Equity in losses of unconsolidated subsidiaries
    
    
    (410
    )
    
    
    (133
    )
    
    
    (20,712
    )
    
    
    (44,985
    )Leveraged lease income
    
    
    12,359
    
    
    
    16,787
    
    
    
    31,928
    
    
    
    52,489Impairment loss on equity method investments
    
    
    
    
    
    
    (695
    )
    
    
    
    
    
    
    (15,969
    )Interest expense, net of amounts capitalized
    
    
    (220,090
    )
    
    
    (185,189
    )
    
    
    (614,345
    )
    
    
    (542,259
    )Interest expense to affiliate trusts
    
    
    (12,696
    )
    
    
    (30,550
    )
    
    
    (58,867
    )
    
    
    (91,819
    )Preferred and preference dividends of subsidiaries
    
    
    (10,451
    )
    
    
    (9,120
    )
    
    
    (30,709
    )
    
    
    (26,141
    )Other income (expense), net
    
    
    17,271
    
    
    
    (30,154
    )
    
    
    8,325
    
    
    
    (26,986
    )Total other income and (expense)
    
    
    (174,329
    )
    
    
    (214,459
    )
    
    
    (580,706
    )
    
    
    (636,241
    )Earnings Before Income Taxes
    
    
    1,207,254
    
    
    
    1,143,254
    
    
    
    2,336,261
    
    
    
    2,118,830Income taxes
    
    
    445,259
    
    
    
    405,269
    
    
    
    806,424
    
    
    
    734,015Consolidated Net Income
    
    $
    761,995
    
    
    $
    737,985
    
    
    $
    1,529,837
    
    
    $
    1,384,815Common Stock Data:Earnings per share-Basic
    
    $
    1.00
    
    
    $
    0.99
    
    
    $
    2.03
    
    
    $
    1.86Diluted
    
    $
    1.00
    
    
    $
    0.99
    
    
    $
    2.02
    
    
    $
    1.85Average number of basic shares of common
stock outstanding (in thousands)
    
    
    758,308
    
    
    
    742,884
    
    
    
    754,568
    
    
    
    742,532Average number of diluted shares of common
stock outstanding (in thousands)
    
    
    762,392
    
    
    
    747,560
    
    
    
    759,182
    
    
    
    746,983Cash dividends paid per share of common stock
    
    $
    0.4025
    
    
    $
    0.3875
    
    
    $
    1.1925
    
    
    $
    1.1475
  8




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  For the Nine MonthsEnded September 30,2007
    
    
    2006(in thousands)Operating Activities:Consolidated net income
    
    $
    1,529,837
    
    
    $
    1,384,815Adjustments to reconcile consolidated net income
to net cash provided from operating activities Depreciation and amortization
    
    
    1,108,475
    
    
    
    1,059,567Deferred income taxes and investment tax credits
    
    
    102,314
    
    
    
    344,062Allowance for equity funds used during construction
    
    
    (71,821
    )
    
    
    (33,772
    )Equity in losses of unconsolidated subsidiaries
    
    
    20,712
    
    
    
    44,985Leveraged lease income
    
    
    (31,928
    )
    
    
    (52,489
    )Pension, postretirement, and other employee benefits
    
    
    75,303
    
    
    
    74,033Stock option expense
    
    
    26,011
    
    
    
    25,045Hedge settlements
    
    
    15,151
    
    
    
    18,006Hurricane Katrina grant proceeds-property reserve
    
    
    60,000
    
    
    
    Other, net
    
    
    10,454
    
    
    
    47,060Changes in certain current assets and liabilities Receivables
    
    
    (426,107
    )
    
    
    (460,092
    )Fossil fuel stock
    
    
    (57,624
    )
    
    
    (136,720
    )Materials and supplies
    
    
    (55,191
    )
    
    
    (56,559
    )Other current assets
    
    
    (2,808
    )
    
    
    61,019Hurricane Katrina grant proceeds
    
    
    14,345
    
    
    
    Accounts payable
    
    
    (3,951
    )
    
    
    (319,564
    )Accrued taxes
    
    
    303,781
    
    
    
    185,626Accrued compensation
    
    
    (148,274
    )
    
    
    (162,455
    )Other current liabilities
    
    
    (1,342
    )
    
    
    (42,382
    )Net cash provided from operating activities
    
    
    2,467,337
    
    
    
    1,980,185Investing Activities:Property additions
    
    
    (2,469,059
    )
    
    
    (2,112,780
    )Investment in restricted cash from pollution control bonds
    
    
    (96,052
    )
    
    
    Distribution of restricted cash from pollution control bonds
    
    
    44,550
    
    
    
    Nuclear decommissioning trust fund purchases
    
    
    (538,049
    )
    
    
    (572,932
    )Nuclear decommissioning trust fund sales
    
    
    531,169
    
    
    
    566,052Proceeds from property sales
    
    
    31,333
    
    
    
    148,427Investment in unconsolidated subsidiaries
    
    
    (34,550
    )
    
    
    (57,116
    )Cost of removal, net of salvage
    
    
    (65,601
    )
    
    
    (53,605
    )Hurricane Katrina capital grant proceeds
    
    
    10,869
    
    
    
    Other
    
    
    25,908
    
    
    
    (66,517
    )Net cash used for investing activities
    
    
    (2,559,482
    )
    
    
    (2,148,471
    )Financing Activities:Increase (decrease) in notes payable, net
    
    
    (656,348
    )
    
    
    788,744Proceeds Long-term debt
    
    
    3,081,500
    
    
    
    1,075,845Common stock
    
    
    414,498
    
    
    
    30,804Preferred and Preference Stock
    
    
    150,000
    
    
    
    Redemptions Long-term debt
    
    
    (904,270
    )
    
    
    (550,176
    )Long-term debt to affiliate trusts
    
    
    (695,376
    )
    
    
    (67,457
    )Preferred stock
    
    
    
    
    
    
    (14,569
    )Common stock repurchased
    
    
    
    
    
    
    (117
    )Payment of common stock dividends
    
    
    (898,766
    )
    
    
    (851,991
    )Other
    
    
    (31,432
    )
    
    
    (26,811
    )Net cash provided from financing activities
    
    
    459,806
    
    
    
    384,272Net Change in Cash and Cash Equivalents
    
    
    367,661
    
    
    
    215,986Cash and Cash Equivalents at Beginning of Period
    
    
    166,846
    
    
    
    202,111Cash and Cash Equivalents at End of Period
    
    $
    534,507
    
    
    $
    418,097Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $44,229 and $16,604 capitalized for
2007 and 2006, respectively)
    
    $
    600,634
    
    
    $
    638,380Income taxes (net of refunds)
    
    $
    388,634
    
    
    $
    245,941
  9




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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  At September 30,
    
    
    At December 31,Assets
    
    2007
    
    
    2006(in thousands)Current Assets:Cash and cash equivalents
    
    $
    534,507
    
    
    $
    166,846Restricted cash
    
    
    51,502
    
    
    
    Receivables Customer accounts receivable
    
    
    1,360,586
    
    
    
    942,821Unbilled revenues
    
    
    370,541
    
    
    
    283,275Under recovered regulatory clause revenues
    
    
    919,771
    
    
    
    516,441Other accounts and notes receivable
    
    
    318,377
    
    
    
    329,619Accumulated provision for uncollectible accounts
    
    
    (26,336
    )
    
    
    (34,901
    )Fossil fuel stock, at average cost
    
    
    732,345
    
    
    
    674,902Materials and supplies, at average cost
    
    
    701,243
    
    
    
    648,127Vacation pay
    
    
    123,505
    
    
    
    121,246Prepaid expenses
    
    
    167,974
    
    
    
    127,908Other
    
    
    181,839
    
    
    
    242,735Total current assets
    
    
    5,435,854
    
    
    
    4,019,019Property, Plant, and Equipment:In service
    
    
    46,565,693
    
    
    
    45,484,895Less accumulated depreciation
    
    
    17,213,524
    
    
    
    16,581,88629,352,169
    
    
    
    28,903,009Nuclear fuel, at amortized cost
    
    
    336,477
    
    
    
    317,429Construction work in progress
    
    
    2,896,405
    
    
    
    1,871,538Total property, plant, and equipment
    
    
    32,585,051
    
    
    
    31,091,976Other Property and Investments:Nuclear decommissioning trusts, at fair value
    
    
    1,146,615
    
    
    
    1,057,534Leveraged leases
    
    
    976,928
    
    
    
    1,138,730Other
    
    
    259,147
    
    
    
    296,484Total other property and investments
    
    
    2,382,690
    
    
    
    2,492,748Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    932,382
    
    
    
    895,446Prepaid pension costs
    
    
    1,577,648
    
    
    
    1,548,983Unamortized debt issuance expense
    
    
    183,947
    
    
    
    171,758Unamortized loss on reacquired debt
    
    
    289,820
    
    
    
    293,016Deferred under recovered regulatory clause revenues
    
    
    354,548
    
    
    
    845,201Other regulatory assets
    
    
    912,102
    
    
    
    935,804Other
    
    
    654,172
    
    
    
    564,498Total deferred charges and other assets
    
    
    4,904,619
    
    
    
    5,254,706Total Assets
    
    $
    45,308,214
    
    
    $
    42,858,449
  10




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  At September 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2007
    
    
    2006(in thousands)Current Liabilities:Securities due within one year
    
    $
    1,721,312
    
    
    $
    1,416,898Notes payable
    
    
    1,284,453
    
    
    
    1,940,801Accounts payable
    
    
    1,102,793
    
    
    
    1,081,256Customer deposits
    
    
    269,420
    
    
    
    248,781Accrued taxes Income taxes
    
    
    363,065
    
    
    
    110,009Other
    
    
    423,928
    
    
    
    390,716Accrued interest
    
    
    199,325
    
    
    
    183,918Accrued vacation pay
    
    
    154,857
    
    
    
    151,113Accrued compensation
    
    
    299,306
    
    
    
    443,610Other
    
    
    298,181
    
    
    
    385,858Total current liabilities
    
    
    6,116,640
    
    
    
    6,352,960Long-term Debt
    
    
    13,095,389
    
    
    
    10,942,025Long-term Debt Payable to Affiliated Trusts
    
    
    721,651
    
    
    
    1,561,358Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    5,853,662
    
    
    
    5,989,063Deferred credits related to income taxes
    
    
    278,043
    
    
    
    291,474Accumulated deferred investment tax credits
    
    
    485,259
    
    
    
    503,217Employee benefit obligations
    
    
    1,682,419
    
    
    
    1,566,591Asset retirement obligations
    
    
    1,184,590
    
    
    
    1,136,982Other cost of removal obligations
    
    
    1,318,417
    
    
    
    1,300,461Other regulatory liabilities
    
    
    893,507
    
    
    
    793,869Other
    
    
    565,054
    
    
    
    305,255Total deferred credits and other liabilities
    
    
    12,260,951
    
    
    
    11,886,912Total Liabilities
    
    
    32,194,631
    
    
    
    30,743,255Preferred and Preference Stock of Subsidiaries
    
    
    766,302
    
    
    
    744,065Common Stockholders Equity:Common stock, par value $5 per share Authorized  1 billion sharesIssued   September 30, 2007: 759,863,967 Shares; December 31, 2006: 751,863,854 SharesTreasury   September 30, 2007: 385,166 Shares; December 31, 2006: 5,593,691 SharesPar value
    
    
    3,799,320
    
    
    
    3,759,319Paid-in capital
    
    
    1,340,344
    
    
    
    1,096,387Treasury, at cost
    
    
    (10,571
    )
    
    
    (192,309
    )Retained earnings
    
    
    7,256,378
    
    
    
    6,765,219Accumulated other comprehensive loss
    
    
    (38,190
    )
    
    
    (57,487
    )Total Common Stockholders Equity
    
    
    12,347,281
    
    
    
    11,371,129Total Liabilities and Stockholders Equity
    
    $
    45,308,214
    
    
    $
    42,858,449
  11




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Consolidated Net Income
    
    $
    761,995
    
    
    $
    737,985
    
    
    $
    1,529,837
    
    
    $
    1,384,815Other comprehensive income (loss):Qualifying hedges:Changes in fair value, net of tax of $(7,342), $(18,019), $6,087, and
$(3,634), respectively
    
    
    (11,667
    )
    
    
    (28,556
    )
    
    
    9,704
    
    
    
    (5,645
    )Reclassification adjustment for amounts included in net income,
net of tax of $1,548, $(646), $4,227, and $(340), respectively
    
    
    2,369
    
    
    
    1,059
    
    
    
    6,770
    
    
    
    1,347Marketable securities:Change in fair value, net of tax of $1,094, $365, $2,998, and
$4,772, respectively
    
    
    2,130
    
    
    
    866
    
    
    
    4,757
    
    
    
    7,721Reclassification adjustment for amounts included in net income,
net of tax of $(127), $-, $(488), and $-, respectively
    
    
    (201
    )
    
    
    
    
    
    
    (774
    )
    
    
    Pension and other post retirement benefit plans:Additional
prior service costs from amendment to non-qualified
pension plans,
net of tax of $-, $-, $(1,510), and $-, respectively
    
    
    
    
    
    
    
    
    
    
    (2,424
    )
    
    
    Reclassification adjustment for amounts included in net income,
net of tax of $263, $-, $790, and $-, respectively
    
    
    422
    
    
    
    
    
    
    
    1,264
    
    
    
    Total
other comprehensive income (loss)
    
    
    (6,947
    )
    
    
    (26,631
    )
    
    
    19,297
    
    
    
    3,423COMPREHENSIVE INCOME
    
    $
    755,048
    
    
    $
    711,354
    
    
    $
    1,549,134
    
    
    $
    1,388,238
  12




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   
 OVERVIEW
   RESULTS OF OPERATIONS
 Net Income
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$24.0
    
    3.3
    
    $145.0
    
    10.5
   Retail Revenues
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$232.3
    
    6.0
    
    $639.3
    
    6.9
   13




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Third Quarter
    
    Year-to-Date2007
    
    2007(in millions)
    
    (% change)
    
    (in millions)
    
    (% change)Retail  prior year
    
    $
    3,853.4
    
    
    
    
    
    
    $
    9,295.2Estimated change in Rates and pricing
    
    
    89.6
    
    
    
    2.3
    
    
    
    121.9
    
    
    
    1.3Sales growth
    
    
    3.3
    
    
    
    0.1
    
    
    
    52.2
    
    
    
    0.6Weather
    
    
    23.5
    
    
    
    0.6
    
    
    
    54.2
    
    
    
    0.6Fuel and other cost recovery
    
    
    115.9
    
    
    
    3.0
    
    
    
    411.1
    
    
    
    4.4Retail  current year
    
    $
    4,085.7
    
    
    
    6.0
    %
    
    $
    9,934.6
    
    
    
    6.9
    %
     Wholesale Revenues
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$56.9
    
    11.2
    
    $169.7
    
    12.5
   14




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Other Electric Revenues
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$10.6
    
    8.8
    
    $34.4
    
    9.9
   Fuel and Purchased Power Expenses
 Third Quarter 2007
    
    
    Year-to-Date 2007vs.
    
    
    vs.Third Quarter 2006
    
    
    Year-to-Date 2006(change in millions)
    
    
    (% change)
    
    
    (change in millions)
    
    
    (% change)Fuel
    
    $
    113.6
    
    
    
    7.0
    
    
    $
    531.5
    
    
    
    13.3Purchased power
    
    
    41.6
    
    
    
    17.3
    
    
    
    (37.4
    )
    
    
    (7.8)Total fuel and purchased power expenses
    
    $
    155.2
    
    
    
    
    
    
    $
    494.1
    15




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Third Quarter
    
    Third Quarter
    
    
    
    
    
    Year-to-Date
    
    Year-to-DateAverage Cost
    
    2007
    
    2006
    
    % change
    
    2007
    
    2006
    
    % change(cents per net KWH)
    
    
    
    
    
    (cents per net KWH)Fuel
    
    
    3.01
    
    
    
    2.83
    
    
    
    6.4
    
    
    
    2.90
    
    
    
    2.67
    
    
    
    8.6Purchased power
    
    
    8.67
    
    
    
    10.45
    
    
    
    (17.0)
    
    
    
    7.75
    
    
    
    8.25
    
    
    
    (6.1)
  Other Operations and Maintenance Expenses
 Third Quarter 2007
    
    
    Year-to-Date 2007vs.
    
    
    vs.Third Quarter 2006
    
    
    Year-to-Date 2006(change in millions)
    
    
    (% change)
    
    
    (change in millions)
    
    
    (% change)Other operations
    
    $
    47.8
    
    
    
    7.9
    
    
    $
    49.2
    
    
    
    2.8Maintenance
    
    
    23.8
    
    
    
    10.1
    
    
    
    37.9
    
    
    
    4.8Total other
operations and
maintenance
expenses
    
    $
    71.6
    
    
    
    
    
    
    $
    87.1
   Depreciation and Amortization
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$11.8
    
    3.9
    
    $32.0
    
    3.6
    16




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Taxes Other than Income Taxes
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$20.2
    
    10.8
    
    $33.5
    
    6.2
    Allowance for Equity Funds Used During Construction
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$16.3
    
    136.8
    
    $38.0
    
    112.7
    Equity in Losses of Unconsolidated Subsidiaries
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$0.3
    
    208.3
    
    $(24.3)
    
    (54.0)
   17




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Leveraged Lease Income
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(4.4)
    
    (26.4)
    
    $(20.6)
    
    (39.2)
    Impairment Loss on Equity Method Investments
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(0.7)
    
    N/M
    
    $(16.0)
    
    N/M
    Interest Expense, Net of Amounts Capitalized
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$34.9
    
    18.8
    
    $72.0
    
    13.3
  18




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   Interest Expense to Affiliate Trusts
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(17.9)
    
    (58.4)
    
    $(32.9)
    
    (35.9)
    Other Income (Expense), Net
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$47.5
    
    157.3
    
    $35.3
    
    130.8
   Income Taxes
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$40.0
    
    9.9
    
    $72.4
    
    9.9
 19




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   FUTURE EARNINGS POTENTIAL
  Environmental Matters
  New Source Review Litigation
  20




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Eight-Hour Ozone Regulations
  Fine Particulate Matter Regulations
  Georgia Multi-Pollutant Rule
  Plant Wansley Environmental Litigation
  21




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 Florida Greenhouse Gas Executive Orders
  FERC and State PSC Matters
 Market-Based Rate Authority
    Intercompany Interchange Contract
  22




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Retail Fuel Cost Recovery
  Georgia Power Retail Base Rate Filing
   23




---



##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 Mississippi Power Storm Damage Cost Recovery
  Mirant Matters
  MC Asset Recovery Litigation
  Mirant Securities Litigation
  24




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Southern Company Employee Savings Plan Litigation
  Income Tax Matters
 Leveraged Lease Transactions
  25




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Synthetic Fuel Tax Credits
  Georgia State Income Tax Credits
  IRC Section 199 Domestic Production Deduction
  Construction Projects
 Integrated Gasification Combined Cycle (IGCC) Project
  26




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   Nuclear
  Other Matters
   27




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  New Accounting Standards
 Income Taxes
  Leveraged Leases
  Fair Value Measurement
  28




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 Fair Value Option
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
    Capital Requirements and Contractual Obligations
  Sources of Capital
  29




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   Off-Balance Sheet Financing Arrangements
  Credit Rating Risk
   30




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
 Market Price Risk
    Third Quarter
    
    Year-to-Date2007
    
    2007Changes
    
    ChangesFair Value(in millions)Contracts beginning of period
    
    $
    (32
    )
    
    $
    (82
    )Contracts realized or settled
    
    
    32
    
    
    
    62New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (22
    )
    
    
    (2
    )Contracts at September 30, 2007
    
    $
    (22
    )
    
    $
    (22
    )
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered into
during the period, if any.
 Source of September 30, 2007Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in millions)Actively quoted
    
    $
    (22
    )
    
    $
    (25
    )
    
    $
    3External sources
    
    
    
    
    
    
    1
    
    
    
    (1
    )Models and other methods
    
    
    
    
    
    
    
    
    
    
      -Contracts at September 30, 2007
    
    $
    (22
    )
    
    $
    (24
    )
    
    $
    2
  31




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
  Amounts(in millions)Regulatory assets, net
    
    $
    (21.7
    )Accumulated other comprehensive income
    
    
    0.5Net income
    
    
    (0.4
    )Total fair value
    
    $
    (21.6
    )
    Financing Activities
     32




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##### Table of Contents



THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
   33




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##### Table of Contents



PART I
 
 Item 3. Quantitative And Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
     34




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##### Table of Contents



ALABAMA POWER COMPANY
 35




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##### Table of Contents



ALABAMA POWER COMPANY
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    1,394,539
    
    
    $
    1,333,021
    
    
    $
    3,444,282
    
    
    $
    3,161,873Wholesale revenues Non-affiliates
    
    
    160,832
    
    
    
    167,066
    
    
    
    472,015
    
    
    
    469,748Affiliates
    
    
    35,400
    
    
    
    29,138
    
    
    
    116,626
    
    
    
    134,551Other revenues
    
    
    44,427
    
    
    
    43,182
    
    
    
    135,569
    
    
    
    128,366Total operating revenues
    
    
    1,635,198
    
    
    
    1,572,407
    
    
    
    4,168,492
    
    
    
    3,894,538Operating Expenses:Fuel
    
    
    506,933
    
    
    
    521,507
    
    
    
    1,353,914
    
    
    
    1,282,450Purchased power Non-affiliates
    
    
    71,622
    
    
    
    66,690
    
    
    
    94,330
    
    
    
    121,394Affiliates
    
    
    100,054
    
    
    
    88,407
    
    
    
    249,261
    
    
    
    234,145Other operations
    
    
    201,495
    
    
    
    182,508
    
    
    
    556,639
    
    
    
    527,580Maintenance
    
    
    88,135
    
    
    
    81,287
    
    
    
    303,989
    
    
    
    287,734Depreciation and amortization
    
    
    118,403
    
    
    
    114,052
    
    
    
    351,514
    
    
    
    336,209Taxes other than income taxes
    
    
    72,503
    
    
    
    59,692
    
    
    
    216,752
    
    
    
    190,635Total operating expenses
    
    
    1,159,145
    
    
    
    1,114,143
    
    
    
    3,126,399
    
    
    
    2,980,147Operating Income
    
    
    476,053
    
    
    
    458,264
    
    
    
    1,042,093
    
    
    
    914,391Other Income and (Expense):Allowance for equity funds used during construction
    
    
    9,600
    
    
    
    3,921
    
    
    
    24,562
    
    
    
    13,285Interest income
    
    
    4,935
    
    
    
    4,931
    
    
    
    12,942
    
    
    
    12,973Interest expense, net of amounts capitalized
    
    
    (65,918
    )
    
    
    (61,786
    )
    
    
    (194,565
    )
    
    
    (174,079
    )Interest expense to affiliate trusts
    
    
    (4,059
    )
    
    
    (4,059
    )
    
    
    (12,178
    )
    
    
    (12,178
    )Other income (expense), net
    
    
    (13,067
    )
    
    
    (7,866
    )
    
    
    (19,957
    )
    
    
    (17,599
    )Total other income and (expense)
    
    
    (68,509
    )
    
    
    (64,859
    )
    
    
    (189,196
    )
    
    
    (177,598
    )Earnings Before Income Taxes
    
    
    407,544
    
    
    
    393,405
    
    
    
    852,897
    
    
    
    736,793Income taxes
    
    
    152,956
    
    
    
    149,379
    
    
    
    319,840
    
    
    
    280,376Net Income
    
    
    254,588
    
    
    
    244,026
    
    
    
    533,057
    
    
    
    456,417Dividends on Preferred and Preference Stock
    
    
    8,504
    
    
    
    6,072
    
    
    
    24,867
    
    
    
    18,216Net Income After Dividends on Preferred and Preference Stock
    
    $
    246,084
    
    
    $
    237,954
    
    
    $
    508,190
    
    
    $
    438,201
 
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred and Preference Stock
    
    $
    246,084
    
    
    $
    237,954
    
    
    $
    508,190
    
    
    $
    438,201Other comprehensive income (loss):Qualifying hedges:Changes in fair value, net of tax of $(932), $(2,049), $256, and $334, respectively
    
    
    (1,533
    )
    
    
    (3,369
    )
    
    
    420
    
    
    
    551Reclassification adjustment for amounts included in net income, net of tax of $74, $(854), $206, and $(2,869), respectively
    
    
    121
    
    
    
    (1,406
    )
    
    
    339
    
    
    
    (4,720
    )Total other comprehensive income (loss)
    
    
    (1,412
    )
    
    
    (4,775
    )
    
    
    759
    
    
    
    (4,169
    )COMPREHENSIVE INCOME
    
    $
    244,672
    
    
    $
    233,179
    
    
    $
    508,949
    
    
    $
    434,032
  36




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##### Table of Contents



ALABAMA POWER COMPANY
  For the Nine MonthsEnded September 30,2007
    
    
    2006(in thousands)Operating Activities:Net income
    
    $
    533,057
    
    
    $
    456,417Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    410,695
    
    
    
    391,422Deferred income taxes and investment tax credits, net
    
    
    10,545
    
    
    
    17,157Allowance for equity funds used during construction
    
    
    (24,562
    )
    
    
    (13,285
    )Pension, postretirement, and other employee benefits
    
    
    6,941
    
    
    
    8,795Stock option expense
    
    
    4,533
    
    
    
    4,518Tax benefit of stock options
    
    
    1,051
    
    
    
    267Hedge settlements
    
    
    
    
    
    
    18,006Other, net
    
    
    11,465
    
    
    
    (8,383
    )Changes in certain current assets and liabilities Receivables
    
    
    (168,447
    )
    
    
    (144,475
    )Fossil fuel stock
    
    
    (17,123
    )
    
    
    (37,858
    )Materials and supplies
    
    
    (30,412
    )
    
    
    (13,683
    )Other current assets
    
    
    7,624
    
    
    
    33,980Accounts payable
    
    
    (53,611
    )
    
    
    (152,179
    )Accrued taxes
    
    
    213,510
    
    
    
    134,349Accrued compensation
    
    
    (23,986
    )
    
    
    (34,658
    )Other current liabilities
    
    
    17,130
    
    
    
    32,894Net cash provided from operating activities
    
    
    898,410
    
    
    
    693,284Investing Activities:Property additions
    
    
    (822,818
    )
    
    
    (618,568
    )Investment in restricted cash from pollution control bonds
    
    
    (96,049
    )
    
    
    Distribution of restricted cash from pollution control bonds
    
    
    44,550
    
    
    
    Nuclear decommissioning trust fund purchases
    
    
    (201,523
    )
    
    
    (206,480
    )Nuclear decommissioning trust fund sales
    
    
    201,523
    
    
    
    206,480Cost of removal, net of salvage
    
    
    (33,194
    )
    
    
    (28,089
    )Other
    
    
    (12,930
    )
    
    
    (19,054
    )Net cash used for investing activities
    
    
    (920,441
    )
    
    
    (665,711
    )Financing Activities:Decrease in notes payable, net
    
    
    (119,670
    )
    
    
    (315,278
    )Proceeds Common stock issued to parent
    
    
    140,000
    
    
    
    40,000Senior notes
    
    
    450,000
    
    
    
    950,000Pollution control bonds
    
    
    246,500
    
    
    
    Preference Stock
    
    
    150,000
    
    
    
    Gross excess tax benefit of stock options
    
    
    2,324
    
    
    
    530Redemptions Pollution control bonds
    
    
    
    
    
    
    (2,950
    )Senior notes
    
    
    (168,500
    )
    
    
    (196,500
    )Payment of preferred and preference stock dividends
    
    
    (22,875
    )
    
    
    (18,210
    )Payment of common stock dividends
    
    
    (348,750
    )
    
    
    (330,450
    )Other
    
    
    (14,822
    )
    
    
    (21,469
    )Net cash provided from financing activities
    
    
    314,207
    
    
    
    105,673Net Change in Cash and Cash Equivalents
    
    
    292,176
    
    
    
    133,246Cash and Cash Equivalents at Beginning of Period
    
    
    15,539
    
    
    
    22,472Cash and Cash Equivalents at End of Period
    
    $
    307,715
    
    
    $
    155,718Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $12,455 and $5,652 capitalized for
2007 and 2006, respectively)
    
    $
    176,842
    
    
    $
    174,568Income taxes (net of refunds)
    
    $
    157,501
    
    
    $
    165,266
  37




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##### Table of Contents



ALABAMA POWER COMPANY
  At September 30,
    
    
    At December 31,Assets
    
    2007
    
    
    2006(in thousands)Current Assets:Cash and cash equivalents
    
    $
    307,715
    
    
    $
    15,539Restricted cash
    
    
    51,499
    
    
    
    Receivables Customer accounts receivable
    
    
    488,928
    
    
    
    323,202Unbilled revenues
    
    
    109,336
    
    
    
    90,596Under recovered regulatory clause revenues
    
    
    278,288
    
    
    
    32,451Other accounts and notes receivable
    
    
    57,179
    
    
    
    49,708Affiliated companies
    
    
    30,128
    
    
    
    70,836Accumulated provision for uncollectible accounts
    
    
    (8,721
    )
    
    
    (7,091
    )Fossil fuel stock, at average cost
    
    
    170,063
    
    
    
    153,120Materials and supplies, at average cost
    
    
    285,863
    
    
    
    255,664Vacation pay
    
    
    46,642
    
    
    
    46,465Prepaid expenses
    
    
    41,236
    
    
    
    76,265Other
    
    
    21,988
    
    
    
    66,663Total current assets
    
    
    1,880,144
    
    
    
    1,173,418Property, Plant, and Equipment:In service
    
    
    16,444,682
    
    
    
    15,997,793Less accumulated provision for depreciation
    
    
    5,869,903
    
    
    
    5,636,47510,574,779
    
    
    
    10,361,318Nuclear fuel, at amortized cost
    
    
    145,290
    
    
    
    137,300Construction work in progress
    
    
    838,421
    
    
    
    562,119Total property, plant, and equipment
    
    
    11,558,490
    
    
    
    11,060,737Other Property and Investments:Equity investments in unconsolidated subsidiaries
    
    
    50,325
    
    
    
    47,486Nuclear decommissioning trusts, at fair value
    
    
    549,526
    
    
    
    513,521Other
    
    
    29,780
    
    
    
    35,980Total other property and investments
    
    
    629,631
    
    
    
    596,987Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    378,893
    
    
    
    354,225Prepaid pension costs
    
    
    749,158
    
    
    
    722,287Deferred under recovered regulatory clause revenues
    
    
    69,168
    
    
    
    301,048Other regulatory assets
    
    
    270,877
    
    
    
    279,661Other
    
    
    207,923
    
    
    
    166,927Total deferred charges and other assets
    
    
    1,676,019
    
    
    
    1,824,148Total Assets
    
    $
    15,744,284
    
    
    $
    14,655,290
  38




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##### Table of Contents



ALABAMA POWER COMPANY
 At September 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2007
    
    
    2006(in thousands)Current Liabilities:Securities due within one year
    
    $
    978,244
    
    
    $
    668,646Notes payable
    
    
    
    
    
    
    119,670Accounts payable Affiliated
    
    
    172,113
    
    
    
    162,951Other
    
    
    207,241
    
    
    
    263,506Customer deposits
    
    
    65,941
    
    
    
    62,978Accrued taxes Income taxes
    
    
    195,292
    
    
    
    3,120Other
    
    
    96,926
    
    
    
    29,696Accrued interest
    
    
    65,770
    
    
    
    53,573Accrued vacation pay
    
    
    38,645
    
    
    
    38,767Accrued compensation
    
    
    62,993
    
    
    
    87,194Other
    
    
    60,003
    
    
    
    79,907Total current liabilities
    
    
    1,943,168
    
    
    
    1,570,008Long-term Debt
    
    
    4,285,242
    
    
    
    3,838,906Long-term Debt Payable to Affiliated Trusts
    
    
    206,186
    
    
    
    309,279Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    2,056,588
    
    
    
    2,116,575Deferred credits related to income taxes
    
    
    96,114
    
    
    
    98,941Accumulated deferred investment tax credits
    
    
    182,579
    
    
    
    188,582Employee benefit obligations
    
    
    411,073
    
    
    
    375,940Asset retirement obligations
    
    
    499,197
    
    
    
    476,460Other cost of removal obligations
    
    
    612,755
    
    
    
    600,278Other regulatory liabilities
    
    
    439,806
    
    
    
    399,822Other
    
    
    36,769
    
    
    
    35,805Total deferred credits and other liabilities
    
    
    4,334,881
    
    
    
    4,292,403Total Liabilities
    
    
    10,769,477
    
    
    
    10,010,596Preferred and Preference Stock
    
    
    634,646
    
    
    
    612,407Common Stockholders Equity:Common stock, par value $40 per share Authorized  25,000,000 sharesOutstanding  September 30, 2007: 15,750,000 shares December 31, 2006: 12,250,000 shares
    
    
    630,000
    
    
    
    490,000Paid-in capital
    
    
    2,036,633
    
    
    
    2,028,963Retained earnings
    
    
    1,675,690
    
    
    
    1,516,245Accumulated other comprehensive loss
    
    
    (2,162
    )
    
    
    (2,921
    )Total common stockholders equity
    
    
    4,340,161
    
    
    
    4,032,287Total Liabilities and Stockholders Equity
    
    $
    15,744,284
    
    
    $
    14,655,290
  39




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##### Table of Contents



ALABAMA POWER COMPANY
   
 OVERVIEW
   RESULTS OF OPERATIONS
 Net Income
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$8.1
    
    3.4
    
    $70.0
    
    16.0
  40




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##### Table of Contents



ALABAMA POWER COMPANY
 Retail Revenues
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$61.5
    
    4.6
    
    $282.4
    
    8.9
    Third Quarter
    
    Year-to-Date2007
    
    2007(in millions)
    
    (% change)
    
    (in millions)
    
    (% change)Retail  prior year
    
    $
    1,333.0
    
    
    
    
    
    
    $
    3,161.9Estimated change in Rates and pricing
    
    
    61.5
    
    
    
    4.6
    
    
    
    171.0
    
    
    
    5.4Sales growth
    
    
    (2.6
    )
    
    
    (0.2
    )
    
    
    (0.5
    )
    
    
    0.0Weather
    
    
    10.8
    
    
    
    0.8
    
    
    
    34.2
    
    
    
    1.0Fuel and other cost recovery
    
    
    (8.2
    )
    
    
    (0.6
    )
    
    
    77.7
    
    
    
    2.5Retail  current year
    
    $
    1,394.5
    
    
    
    4.6
    %
    
    $
    3,444.3
    
    
    
    8.9
    %
     41




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##### Table of Contents



ALABAMA POWER COMPANY
    Wholesale Revenues  Affiliates
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$6.3
    
    21.5
    
    $(17.9)
    
    (13.3)
    Other Revenues
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$1.2
    
    2.9
    
    $7.2
    
    5.6
   42




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##### Table of Contents



ALABAMA POWER COMPANY
 Fuel and Purchased Power Expenses
 Third Quarter 2007
    
    
    Year-to-Date 2007vs.
    
    
    vs.Third Quarter 2006
    
    
    Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Fuel
    
    $
    (14.6
    )
    
    
    (2.8)
    
    
    $
    71.5
    
    
    
    5.6Purchased power-non-affiliates
    
    
    4.9
    
    
    
    7.4
    
    
    
    (27.1
    )
    
    
    (22.3)Purchased power-affiliates
    
    
    11.7
    
    
    
    13.2
    
    
    
    15.1
    
    
    
    6.5Total fuel and purchased power expenses
    
    $
    2.0
    
    
    
    
    
    
    $
    59.5
     Third Quarter
    
    Third Quarter
    
    
    
    
    
    Year-to-Date
    
    Year-to-DateAverage Cost
    
    2007
    
    2006
    
    % change
    
    2007
    
    2006
    
    % change(cents per net KWH)
    
    
    
    
    
    (cents per net KWH)Fuel
    
    
    2.35
    
    
    
    2.41
    
    
    
    (2.5
    )
    
    
    2.35
    
    
    
    2.34
    
    
    
    0.4Purchased power
    
    
    7.57
    
    
    
    7.43
    
    
    
    1.9
    
    
    
    6.30
    
    
    
    6.41
    
    
    
    (1.7
    )
   Non-affiliates
  43




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##### Table of Contents



ALABAMA POWER COMPANY
   Affiliates
    Other Operations and Maintenance Expenses
 Third Quarter 2007
    
    Year-to-Date 2007vs.
    
    vs.Third Quarter 2006
    
    Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Other operations
    
    $
    19.0
    
    
    10.4
    
    
    $
    29.0
    
    
    5.5Maintenance
    
    
    6.8
    
    
    8.4
    
    
    
    16.3
    
    
    5.6Total other operations and maintenance expenses
    
    $
    25.8
    
    
    
    
    
    $
    45.3
   44




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##### Table of Contents



ALABAMA POWER COMPANY
  Taxes Other than Income Taxes
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$12.8
    
    21.5
    
    $26.1
    
    13.7
  Allowance for Equity Funds Used During Construction
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$5.7
    
    144.8
    
    $11.3
    
    84.9
  Interest Expense, Net of Amounts Capitalized
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$4.1
    
    6.7
    
    $20.5
    
    11.8
  Other Income (Expense), Net
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$5.2
    
    66.1
    
    $2.4
    
    13.4
 45




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##### Table of Contents



ALABAMA POWER COMPANY
   Dividends on Preferred and Preference Stock
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$2.4
    
    40.1
    
    $6.7
    
    36.5
  Income Taxes
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$3.6
    
    2.4
    
    $39.5
    
    14.1
   FUTURE EARNINGS POTENTIAL
  46




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##### Table of Contents



ALABAMA POWER COMPANY
  Environmental Matters
  New Source Review Litigation
  Eight-Hour Ozone Regulations
  Fine Particulate Matter Regulations
  47




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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
  48




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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
  49




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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
  50




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##### Table of Contents



ALABAMA POWER COMPANY
  Capital Requirements and Contractual Obligations
   Sources of Capital
   51




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##### Table of Contents



ALABAMA POWER COMPANY
 Credit Rating Risk
  Market Price Risk
    Third Quarter
    
    
    Year-to-Date2007
    
    
    2007Changes
    
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    (12,670
    )
    
    $
    (32,628
    )Contracts realized or settled
    
    
    10,510
    
    
    
    25,245New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (5,795
    )
    
    
    (572
    )Contracts at September 30, 2007
    
    $
    (7,955
    )
    
    $
    (7,955
    )
  Source of September 30, 2007Valuation PricesTotal
    
    
    MaturityFair Value
    
    
    Year 1
    
    
    1-3 Years(in thousands)Actively quoted
    
    $
    (7,956
    )
    
    $
    (8,921
    )
    
    $
    965External sources
    
    
    1
    
    
    
    1
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at September 30, 2007
    
    $
    (7,955
    )
    
    $
    (8,920
    )
    
    $
    965
 52




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##### Table of Contents



ALABAMA POWER COMPANY
   Amounts(in thousands)Regulatory assets, net
    
    $
    (7,956
    )Accumulated other comprehensive income
    
    
    Net income
    
    
    1Total fair value
    
    $
    (7,955
    )
 -
 Financing Activities
    53




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##### Table of Contents



ALABAMA POWER COMPANY
     54




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##### Table of Contents



GEORGIA POWER COMPANY
 55




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##### Table of Contents



GEORGIA POWER COMPANY
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    2,143,511
    
    
    $
    2,001,938
    
    
    $
    5,141,403
    
    
    $
    4,885,404Wholesale revenues Non-affiliates
    
    
    127,810
    
    
    
    135,647
    
    
    
    406,632
    
    
    
    404,014Affiliates
    
    
    107,451
    
    
    
    78,249
    
    
    
    208,065
    
    
    
    203,791Other revenues
    
    
    64,965
    
    
    
    59,471
    
    
    
    188,956
    
    
    
    173,746Total operating revenues
    
    
    2,443,737
    
    
    
    2,275,305
    
    
    
    5,945,056
    
    
    
    5,666,955Operating Expenses:Fuel
    
    
    786,021
    
    
    
    698,703
    
    
    
    2,030,745
    
    
    
    1,750,638Purchased power Non-affiliates
    
    
    168,358
    
    
    
    145,495
    
    
    
    282,121
    
    
    
    288,459Affiliates
    
    
    196,700
    
    
    
    186,669
    
    
    
    560,897
    
    
    
    572,642Other operations
    
    
    258,865
    
    
    
    258,055
    
    
    
    739,151
    
    
    
    744,858Maintenance
    
    
    129,812
    
    
    
    116,320
    
    
    
    391,070
    
    
    
    374,203Depreciation and amortization
    
    
    128,268
    
    
    
    125,352
    
    
    
    381,679
    
    
    
    372,850Taxes other than income taxes
    
    
    87,708
    
    
    
    82,701
    
    
    
    231,659
    
    
    
    227,431Total operating expenses
    
    
    1,755,732
    
    
    
    1,613,295
    
    
    
    4,617,322
    
    
    
    4,331,081Operating Income
    
    
    688,005
    
    
    
    662,010
    
    
    
    1,327,734
    
    
    
    1,335,874Other Income and (Expense):Allowance for equity funds used during construction
    
    
    17,846
    
    
    
    7,802
    
    
    
    45,712
    
    
    
    20,324Interest income
    
    
    1,436
    
    
    
    1,039
    
    
    
    2,543
    
    
    
    1,613Interest expense, net of amounts capitalized
    
    
    (81,796
    )
    
    
    (65,770
    )
    
    
    (225,457
    )
    
    
    (193,442
    )Interest expense to affiliate trusts
    
    
    (6,798
    )
    
    
    (14,878
    )
    
    
    (35,682
    )
    
    
    (44,633
    )Other income (expense), net
    
    
    11,291
    
    
    
    7,772
    
    
    
    7,376
    
    
    
    9,666Total other income and (expense)
    
    
    (58,021
    )
    
    
    (64,035
    )
    
    
    (205,508
    )
    
    
    (206,472
    )Earnings Before Income Taxes
    
    
    629,984
    
    
    
    597,975
    
    
    
    1,122,226
    
    
    
    1,129,402Income taxes
    
    
    229,862
    
    
    
    214,102
    
    
    
    401,046
    
    
    
    413,832Net Income
    
    
    400,122
    
    
    
    383,873
    
    
    
    721,180
    
    
    
    715,570Dividends on Preferred Stock
    
    
    689
    
    
    
    1,790
    
    
    
    2,067
    
    
    
    4,150Net Income After Dividends on Preferred Stock
    
    $
    399,433
    
    
    $
    382,083
    
    
    $
    719,113
    
    
    $
    711,420
 
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred Stock
    
    $
    399,433
    
    
    $
    382,083
    
    
    $
    719,113
    
    
    $
    711,420Other comprehensive income (loss):Qualifying hedges:Changes in fair value, net of tax of $(4,686), $(10,765),
$5,044,
and $254, respectively
    
    
    (7,430
    )
    
    
    (17,066
    )
    
    
    7,996
    
    
    
    398Reclassification adjustment for amounts included in net
income,
net of tax of $73, $(236), $75, and $(194), respectively
    
    
    116
    
    
    
    (373
    )
    
    
    120
    
    
    
    (308
    )Marketable securities:Change in fair value, net of tax of $71, $(296), $107,
and $(459), respectively
    
    
    112
    
    
    
    (471
    )
    
    
    170
    
    
    
    (729
    )Total
other comprehensive income (loss)
    
    
    (7,202
    )
    
    
    (17,910
    )
    
    
    8,286
    
    
    
    (639
    )COMPREHENSIVE INCOME
    
    $
    392,231
    
    
    $
    364,173
    
    
    $
    727,399
    
    
    $
    710,781
  56




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##### Table of Contents



GEORGIA POWER COMPANY
  For the Nine MonthsEnded September 30,2007
    
    
    2006(in thousands)Operating Activities:Net income
    
    $
    721,180
    
    
    $
    715,570Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    458,522
    
    
    
    439,197Deferred income taxes and investment tax credits
    
    
    34,267
    
    
    
    35,865Deferred expenses  affiliates
    
    
    (19,460
    )
    
    
    (19,721
    )Allowance for equity funds used during construction
    
    
    (45,712
    )
    
    
    (20,324
    )Pension, postretirement, and other employee benefits
    
    
    35,337
    
    
    
    32,140Other, net
    
    
    14,382
    
    
    
    4,989Changes in certain current assets and liabilities Receivables
    
    
    (211,971
    )
    
    
    (213,235
    )Fossil fuel stock
    
    
    1,827
    
    
    
    (76,805
    )Materials and supplies
    
    
    (22,605
    )
    
    
    (43,252
    )Prepaid income taxes
    
    
    42,047
    
    
    
    62,164Other current assets
    
    
    7,450
    
    
    
    (786
    )Accounts payable
    
    
    (1,122
    )
    
    
    (162,226
    )Accrued taxes
    
    
    25,779
    
    
    
    151,042Accrued compensation
    
    
    (62,643
    )
    
    
    (56,274
    )Other current liabilities
    
    
    31,179
    
    
    
    8,272Net cash provided from operating activities
    
    
    1,008,457
    
    
    
    856,616Investing Activities:Property additions
    
    
    (1,214,093
    )
    
    
    (781,134
    )Nuclear decommissioning trust fund purchases
    
    
    (336,526
    )
    
    
    (366,452
    )Nuclear decommissioning trust fund sales
    
    
    329,646
    
    
    
    359,572Cost of removal, net of salvage
    
    
    (28,811
    )
    
    
    (18,363
    )Change in construction payables, net of joint owner portion
    
    
    48,074
    
    
    
    (13,133
    )Other
    
    
    (11,553
    )
    
    
    (7,328
    )Net cash used for investing activities
    
    
    (1,213,263
    )
    
    
    (826,838
    )Financing Activities:Increase (decrease) in notes payable, net
    
    
    (166,951
    )
    
    
    371,480Proceeds Senior notes
    
    
    1,400,000
    
    
    
    Capital contributions from parent company
    
    
    270,250
    
    
    
    265,777Pollution control bonds
    
    
    
    
    
    
    125,845Redemptions Senior notes
    
    
    (300,000
    )
    
    
    (150,000
    )First mortgage bonds
    
    
    
    
    
    
    (20,000
    )Pollution control bonds
    
    
    
    
    
    
    (125,845
    )Capital leases
    
    
    (2,073
    )
    
    
    (270
    )Long-term debt to affiliate trusts
    
    
    (453,608
    )
    
    
    Preferred stock
    
    
    
    
    
    
    (14,569
    )Payment of preferred stock dividends
    
    
    (2,255
    )
    
    
    (2,126
    )Payment of common stock dividends
    
    
    (517,425
    )
    
    
    (472,500
    )Other
    
    
    (24,662
    )
    
    
    (1,621
    )Net cash provided from (used for) financing activities
    
    
    203,276
    
    
    
    (23,829
    )Net Change in Cash and Cash Equivalents
    
    
    (1,530
    )
    
    
    5,949Cash and Cash Equivalents at Beginning of Period
    
    
    16,850
    
    
    
    11,138Cash and Cash Equivalents at End of Period
    
    $
    15,320
    
    
    $
    17,087Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $19,181 and $8,177 capitalized for
2007 and 2006, respectively)
    
    $
    229,282
    
    
    $
    226,368Income taxes (net of refunds)
    
    $
    254,742
    
    
    $
    177,486
  57




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##### Table of Contents



GEORGIA POWER COMPANY
  At September 30,
    
    
    At December 31,Assets
    
    2007
    
    
    2006(in thousands)Current Assets:Cash and cash equivalents
    
    $
    15,320
    
    
    $
    16,850Receivables Customer accounts receivable
    
    
    670,600
    
    
    
    474,046Unbilled revenues
    
    
    188,036
    
    
    
    130,585Under recovered regulatory clause revenues
    
    
    526,227
    
    
    
    353,976Other accounts and notes receivable
    
    
    95,370
    
    
    
    93,656Affiliated companies
    
    
    49,521
    
    
    
    21,941Accumulated provision for uncollectible accounts
    
    
    (10,273
    )
    
    
    (10,030
    )Fossil fuel stock, at average cost
    
    
    390,183
    
    
    
    392,011Materials and supplies, at average cost
    
    
    326,938
    
    
    
    304,514Vacation pay
    
    
    62,306
    
    
    
    61,907Prepaid income taxes
    
    
    19,057
    
    
    
    61,104Other
    
    
    42,300
    
    
    
    85,725Total current assets
    
    
    2,375,585
    
    
    
    1,986,285Property, Plant, and Equipment:In service
    
    
    21,745,564
    
    
    
    21,279,792Less accumulated provision for depreciation
    
    
    8,614,032
    
    
    
    8,343,30913,131,532
    
    
    
    12,936,483Nuclear fuel, at amortized cost
    
    
    191,186
    
    
    
    180,129Construction work in progress
    
    
    1,559,280
    
    
    
    923,948Total property, plant, and equipment
    
    
    14,881,998
    
    
    
    14,040,560Other Property and Investments:Equity investments in unconsolidated subsidiaries
    
    
    61,706
    
    
    
    70,879Nuclear decommissioning trusts, at fair value
    
    
    597,089
    
    
    
    544,013Other
    
    
    36,883
    
    
    
    58,848Total other property and investments
    
    
    695,678
    
    
    
    673,740Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    523,012
    
    
    
    510,531Prepaid pension costs
    
    
    709,115
    
    
    
    688,671Deferred under recovered regulatory clause revenues
    
    
    285,381
    
    
    
    544,152Other regulatory assets
    
    
    601,613
    
    
    
    629,003Other
    
    
    296,054
    
    
    
    235,788Total deferred charges and other assets
    
    
    2,415,175
    
    
    
    2,608,145Total Assets
    
    $
    20,368,436
    
    
    $
    19,308,730
  58




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##### Table of Contents



GEORGIA POWER COMPANY
 At September 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2007
    
    
    2006(in thousands)Current Liabilities:Securities due within one year
    
    $
    432,400
    
    
    $
    303,906Notes payable
    
    
    566,330
    
    
    
    733,281Accounts payable Affiliated
    
    
    239,813
    
    
    
    238,093Other
    
    
    439,132
    
    
    
    402,222Customer deposits
    
    
    169,317
    
    
    
    155,763Accrued taxes Income taxes
    
    
    183,303
    
    
    
    217,603Other
    
    
    236,235
    
    
    
    275,098Accrued interest
    
    
    87,135
    
    
    
    74,643Accrued vacation pay
    
    
    49,485
    
    
    
    49,704Accrued compensation
    
    
    82,897
    
    
    
    141,356Other
    
    
    98,974
    
    
    
    125,494Total current liabilities
    
    
    2,585,021
    
    
    
    2,717,163Long-term Debt
    
    
    5,207,764
    
    
    
    4,242,839Long-term Debt Payable to Affiliated Trusts
    
    
    515,465
    
    
    
    969,073Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    2,891,790
    
    
    
    2,815,724Deferred credits related to income taxes
    
    
    149,349
    
    
    
    157,297Accumulated deferred investment tax credits
    
    
    272,361
    
    
    
    282,070Employee benefit obligations
    
    
    764,125
    
    
    
    698,274Asset retirement obligations
    
    
    654,295
    
    
    
    626,681Other cost of removal obligations
    
    
    428,084
    
    
    
    436,137Other regulatory liabilities
    
    
    268,606
    
    
    
    281,391Other
    
    
    139,556
    
    
    
    80,839Total deferred credits and other liabilities
    
    
    5,568,166
    
    
    
    5,378,413Total Liabilities
    
    
    13,876,416
    
    
    
    13,307,488Preferred Stock
    
    
    44,990
    
    
    
    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
    
    
    3,320,650
    
    
    
    3,039,845Retained earnings
    
    
    2,731,514
    
    
    
    2,529,826Accumulated other comprehensive loss
    
    
    (3,607
    )
    
    
    (11,893
    )Total common stockholders equity
    
    
    6,447,030
    
    
    
    5,956,251Total Liabilities and Stockholders Equity
    
    $
    20,368,436
    
    
    $
    19,308,730
  59




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##### Table of Contents



GEORGIA POWER COMPANY
   
 OVERVIEW
   RESULTS OF OPERATIONS
 Net Income
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$17.3
    
    4.5
    
    $7.7
    
    1.1
   Retail Revenues
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$141.6
    
    7.1
    
    $256.0
    
    5.2
   60




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##### Table of Contents



GEORGIA POWER COMPANY
  Third Quarter 2007
    
    Year-to-Date 2007(in millions)
    
    (% change)
    
    (in millions)
    
    (% change)Retail  prior year
    
    $
    2,001.9
    
    
    
    
    
    
    $
    4,885.4Estimated change in Rates and pricing
    
    
    28.0
    
    
    
    1.4
    
    
    
    (56.8
    )
    
    
    (1.2
    )Sales growth
    
    
    1.7
    
    
    
    0.1
    
    
    
    37.2
    
    
    
    0.8Weather
    
    
    10.5
    
    
    
    0.5
    
    
    
    20.5
    
    
    
    0.4Fuel cost recovery
    
    
    101.4
    
    
    
    5.1
    
    
    
    255.1
    
    
    
    5.2Retail  current year
    
    $
    2,143.5
    
    
    
    7.1
    
    
    $
    5,141.4
    
    
    
    5.2
     Wholesale Revenues  Non-Affiliates
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(7.8)
    
    (5.8)
    
    $2.6
    
    0.6
  61




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##### Table of Contents



GEORGIA POWER COMPANY
    Wholesale Revenues  Affiliates
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$29.3
    
    37.3
    
    $4.3
    
    2.1
    Other Revenues
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$5.5
    
    9.2
    
    $15.3
    
    8.8
  62




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##### Table of Contents



GEORGIA POWER COMPANY
 Fuel and Purchased Power Expenses
 Third Quarter 2007
    
    
    Year-to-Date 2007vs.
    
    
    vs.Third Quarter 2006
    
    
    Year-to-Date 2006(change in millions)
    
    
    (% change)
    
    
    (change in millions)
    
    
    (% change)Fuel
    
    $
    87.3
    
    
    
    12.5
    
    
    $
    280.1
    
    
    
    16.0Purchased power  non-affiliates
    
    
    22.9
    
    
    
    15.7
    
    
    
    (6.3
    )
    
    
    (2.2)Purchased power  affiliates
    
    
    10.0
    
    
    
    5.4
    
    
    
    (11.8
    )
    
    
    (2.1)Total fuel and purchased power expenses
    
    $
    120.2
    
    
    
    
    
    
    $
    262.0
     Third Quarter
    
    Third Quarter
    
    
    
    Year-to-Date
    
    Year-to-DateAverage Cost
    
    2007
    
    2006
    
    % change
    
    2007
    
    2006
    
    % change(cents per net KWH)
    
    
    
    
    
    (cents per net KWH)Fuel
    
    
    2.77
    
    
    
    2.52
    
    
    
    9.9
    
    
    
    2.69
    
    
    
    2.43
    
    
    
    10.7Purchased power
    
    
    7.61
    
    
    
    7.31
    
    
    
    4.1
    
    
    
    7.25
    
    
    
    7.04
    
    
    
    3.0
   63




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##### Table of Contents



GEORGIA POWER COMPANY
 Non-affiliates
    Affiliates
    Other Operations and Maintenance Expenses
 Third Quarter 2007
    
    
    Year-to-Date 2007vs.
    
    
    vs.Third Quarter 2006
    
    
    Year-to-Date 2006(change in millions)
    
    
    (% change)
    
    
    (change in millions)
    
    
    (% change)Other operations
    
    $
    0.8
    
    
    
    0.3
    
    
    $
    (5.7
    )
    
    
    (0.8)Maintenance
    
    
    13.5
    
    
    
    11.6
    
    
    
    16.9
    
    
    
    4.5Total other
operations and
maintenance
expenses
    
    $
    14.3
    
    
    
    
    
    
    $
    11.2
  64




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##### Table of Contents



GEORGIA POWER COMPANY
  Allowance for Equity Funds Used During Construction
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$10.0
    
    128.7
    
    $25.4
    
    124.9
  Interest Expense, Net of Amounts Capitalized
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$16.0
    
    24.4
    
    $32.1
    
    16.6
  Interest Expense to Affiliate Trusts
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(8.1)
    
    (54.3)
    
    $(8.9)
    
    (20.1)
  65




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##### Table of Contents



GEORGIA POWER COMPANY
 Other Income (Expense), Net
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$3.5
    
    45.3
    
    $(2.3)
    
    (23.7)
  Income Taxes
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$15.8
    
    7.4
    
    $(12.8)
    
    (3.1)
  FUTURE EARNINGS POTENTIAL
  Environmental Matters
  66




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##### Table of Contents



GEORGIA POWER COMPANY
 Eight-Hour Ozone Regulations
  Fine Particulate Matter Regulations
  Georgia Multi-Pollutant Rule
  Plant Wansley Environmental Litigation
  67




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##### Table of Contents



GEORGIA POWER COMPANY
 FERC and Georgia PSC Matters
 Market-Based Rate Authority
    Intercompany Interchange Contract
 
  Retail Fuel Cost Recovery
  68




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##### Table of Contents



GEORGIA POWER COMPANY
  Retail Base Rate Filing
   Other
  Other Matters
  69




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##### Table of Contents



GEORGIA POWER COMPANY
      ACCOUNTING POLICIES
 Application of Critical Accounting Policies and Estimates
  70




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##### Table of Contents



GEORGIA POWER COMPANY
 New Accounting Standards
 Income Taxes
  Fair Value Measurement
  Fair Value Option
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
  Capital Requirements and Contractual Obligations
 
 71




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##### Table of Contents



GEORGIA POWER COMPANY
  Sources of Capital
    Credit Rating Risk
   72




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##### Table of Contents



GEORGIA POWER COMPANY
  Market Price Risk
    Third Quarter
    
    Year-to-Date2007
    
    2007Changes
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    (21,458
    )
    
    $
    (38,003
    )Contracts realized or settled
    
    
    19,859
    
    
    
    33,394New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (9,557
    )
    
    
    (6,547
    )Contracts at September 30, 2007
    
    $
    (11,156
    )
    
    $
    (11,156
    )
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered
into during the period, if any.
 Source of September 30, 2007Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    (11,158
    )
    
    $
    (12,095
    )
    
    $
    937External sources
    
    
    2
    
    
    
    2
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at September 30,
2007
    
    $
    (11,156
    )
    
    $
    (12,093
    )
    
    $
    937
  73




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##### Table of Contents



GEORGIA POWER COMPANY
  Amounts(in thousands)Regulatory assets, net
    
    $
    (11,158
    )Accumulated other comprehensive income
    
    
    Net income
    
    
    2Total fair value
    
    $
    (11,156
    )
   Financing Activities
       74




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GEORGIA POWER COMPANY
  75




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##### Table of Contents



GULF POWER COMPANY
 76




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##### Table of Contents



GULF POWER COMPANY
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    325,864
    
    
    $
    317,591
    
    
    $
    788,827
    
    
    $
    742,564Wholesale revenues Non-affiliates
    
    
    20,892
    
    
    
    22,994
    
    
    
    65,296
    
    
    
    64,176Affiliates
    
    
    13,297
    
    
    
    19,323
    
    
    
    74,190
    
    
    
    87,348Other revenues
    
    
    16,503
    
    
    
    13,122
    
    
    
    42,870
    
    
    
    34,706Total operating revenues
    
    
    376,556
    
    
    
    373,030
    
    
    
    971,183
    
    
    
    928,794Operating Expenses:Fuel
    
    
    150,665
    
    
    
    165,774
    
    
    
    430,188
    
    
    
    407,930Purchased power Non-affiliates
    
    
    7,110
    
    
    
    5,837
    
    
    
    10,453
    
    
    
    15,164Affiliates
    
    
    36,737
    
    
    
    28,814
    
    
    
    54,247
    
    
    
    50,941Other operations
    
    
    53,987
    
    
    
    47,210
    
    
    
    147,000
    
    
    
    137,461Maintenance
    
    
    16,491
    
    
    
    13,238
    
    
    
    49,148
    
    
    
    43,952Depreciation and amortization
    
    
    21,540
    
    
    
    22,313
    
    
    
    63,840
    
    
    
    66,679Taxes other than income taxes
    
    
    25,027
    
    
    
    23,333
    
    
    
    65,516
    
    
    
    62,015Total operating expenses
    
    
    311,557
    
    
    
    306,519
    
    
    
    820,392
    
    
    
    784,142Operating Income
    
    
    64,999
    
    
    
    66,511
    
    
    
    150,791
    
    
    
    144,652Other Income and (Expense):Interest income
    
    
    1,295
    
    
    
    1,938
    
    
    
    4,192
    
    
    
    3,488Interest expense, net of amounts capitalized
    
    
    (10,968
    )
    
    
    (10,031
    )
    
    
    (32,343
    )
    
    
    (29,088
    )Interest expense to affiliate trusts
    
    
    (577
    )
    
    
    (1,148
    )
    
    
    (1,732
    )
    
    
    (3,443
    )Other income (expense), net
    
    
    150
    
    
    
    (324
    )
    
    
    139
    
    
    
    (1,221
    )Total other income and (expense)
    
    
    (10,100
    )
    
    
    (9,565
    )
    
    
    (29,744
    )
    
    
    (30,264
    )Earnings Before Income Taxes
    
    
    54,899
    
    
    
    56,946
    
    
    
    121,047
    
    
    
    114,388Income taxes
    
    
    19,911
    
    
    
    21,544
    
    
    
    44,271
    
    
    
    42,896Net Income
    
    
    34,988
    
    
    
    35,402
    
    
    
    76,776
    
    
    
    71,492Dividends on Preference Stock
    
    
    825
    
    
    
    825
    
    
    
    2,475
    
    
    
    2,475Net Income After Dividends on Preference Stock
    
    $
    34,163
    
    
    $
    34,577
    
    
    $
    74,301
    
    
    $
    69,017
 
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preference Stock
    
    $
    34,163
    
    
    $
    34,577
    
    
    $
    74,301
    
    
    $
    69,017Other comprehensive income (loss):Qualifying hedges:Changes in fair value, net of tax of $(976), $(1,382), $1,561, and
$(1,573), respectively
    
    
    (1,554
    )
    
    
    (2,201
    )
    
    
    2,485
    
    
    
    (2,505
    )Reclassification adjustment for amounts included in net income,
net of tax of $54, $31, $214, and $94, respectively
    
    
    87
    
    
    
    51
    
    
    
    342
    
    
    
    151Total
other comprehensive income (loss)
    
    
    (1,467
    )
    
    
    (2,150
    )
    
    
    2,827
    
    
    
    (2,354
    )COMPREHENSIVE INCOME
    
    $
    32,696
    
    
    $
    32,427
    
    
    $
    77,128
    
    
    $
    66,663
  77




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##### Table of Contents



GULF POWER COMPANY
  For the Nine MonthsEnded September 30,2007
    
    
    2006(in thousands)Operating Activities:Net income
    
    $
    76,776
    
    
    $
    71,492Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    67,644
    
    
    
    70,691Deferred income taxes
    
    
    (11,540
    )
    
    
    6,392Pension, postretirement, and other employee benefits
    
    
    1,809
    
    
    
    2,783Stock option expense
    
    
    1,022
    
    
    
    880Tax benefit of stock options
    
    
    268
    
    
    
    118Other, net
    
    
    3,099
    
    
    
    3,513Changes in certain current assets and liabilities Receivables
    
    
    (18,793
    )
    
    
    (53,771
    )Fossil fuel stock
    
    
    (19,667
    )
    
    
    (26,151
    )Materials and supplies
    
    
    (1,521
    )
    
    
    (3,909
    )Prepaid income taxes
    
    
    7,177
    
    
    
    (603
    )Property damage cost recovery
    
    
    19,467
    
    
    
    19,285Other current assets
    
    
    1,735
    
    
    
    909Accounts payable
    
    
    7,500
    
    
    
    14,621Accrued taxes
    
    
    31,826
    
    
    
    12,972Accrued compensation
    
    
    (5,217
    )
    
    
    (8,794
    )Other current liabilities
    
    
    2,890
    
    
    
    6,918Net cash provided from operating activities
    
    
    164,475
    
    
    
    117,346Investing Activities:Property additions
    
    
    (164,217
    )
    
    
    (108,524
    )Cost of removal, net of salvage
    
    
    (7,890
    )
    
    
    (3,349
    )Construction payables
    
    
    (6,354
    )
    
    
    (4,212
    )Other
    
    
    (232
    )
    
    
    (9,543
    )Net cash used for investing activities
    
    
    (178,693
    )
    
    
    (125,628
    )Financing Activities:Increase (decrease) in notes payable, net
    
    
    (94,881
    )
    
    
    57,241Proceeds Senior Notes
    
    
    85,000
    
    
    
    Common stock issued to parent
    
    
    80,000
    
    
    
    Capital contributions from parent company
    
    
    
    
    
    
    21,140Gross excess tax benefit of stock options
    
    
    646
    
    
    
    240Redemptions  Pollution control bonds
    
    
    
    
    
    
    (12,075
    )Payment of preference stock dividends
    
    
    (2,475
    )
    
    
    (2,475
    )Payment of common stock dividends
    
    
    (55,575
    )
    
    
    (52,725
    )Other
    
    
    (1,104
    )
    
    
    (287
    )Net cash provided from financing activities
    
    
    11,611
    
    
    
    11,059Net Change in Cash and Cash Equivalents
    
    
    (2,607
    )
    
    
    2,777Cash and Cash Equivalents at Beginning of Period
    
    
    7,526
    
    
    
    3,847Cash and Cash Equivalents at End of Period
    
    $
    4,919
    
    
    $
    6,624Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $619 and $59 capitalized for 2007 and 2006, respectively)
    
    $
    24,875
    
    
    $
    25,412Income taxes (net of refunds)
    
    $
    25,659
    
    
    $
    36,164
  78




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GULF POWER COMPANY
  At September 30,
    
    
    At December 31,Assets
    
    2007
    
    
    2006(in thousands)Current Assets:Cash and cash equivalents
    
    $
    4,919
    
    
    $
    7,526Receivables Customer accounts receivable
    
    
    89,608
    
    
    
    56,489Unbilled revenues
    
    
    47,141
    
    
    
    38,287Under recovered regulatory clause revenues
    
    
    69,406
    
    
    
    79,235Other accounts and notes receivable
    
    
    14,304
    
    
    
    9,015Affiliated companies
    
    
    2,587
    
    
    
    15,302Accumulated provision for uncollectible accounts
    
    
    (1,655
    )
    
    
    (1,279
    )Fossil fuel stock, at average cost
    
    
    95,703
    
    
    
    76,036Materials and supplies, at average cost
    
    
    36,827
    
    
    
    35,306Property damage cost recovery
    
    
    24,341
    
    
    
    28,771Other regulatory assets
    
    
    11,699
    
    
    
    15,977Other
    
    
    2,186
    
    
    
    14,259Total current assets
    
    
    397,066
    
    
    
    374,924Property, Plant, and Equipment:In service
    
    
    2,660,350
    
    
    
    2,574,517Less accumulated provision for depreciation
    
    
    916,031
    
    
    
    901,5641,744,319
    
    
    
    1,672,953Construction work in progress
    
    
    97,467
    
    
    
    62,815Total property, plant, and equipment
    
    
    1,841,786
    
    
    
    1,735,768Other Property and Investments
    
    
    16,709
    
    
    
    14,846Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    17,212
    
    
    
    17,148Prepaid pension costs
    
    
    71,027
    
    
    
    69,895Other regulatory assets
    
    
    105,113
    
    
    
    110,077Other
    
    
    21,687
    
    
    
    17,831Total deferred charges and other assets
    
    
    215,039
    
    
    
    214,951Total Assets
    
    $
    2,470,600
    
    
    $
    2,340,489
  79




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##### Table of Contents



GULF POWER COMPANY
  At September 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2007
    
    
    2006(in thousands)Current Liabilities:Securities due within one year
    
    $
    41,238
    
    
    $
    Notes payable
    
    
    25,565
    
    
    
    120,446Accounts payable Affiliated
    
    
    47,426
    
    
    
    44,375Other
    
    
    47,485
    
    
    
    49,979Customer deposits
    
    
    24,628
    
    
    
    21,363Accrued taxes Income taxes
    
    
    47,870
    
    
    
    29,771Other
    
    
    24,764
    
    
    
    15,033Accrued interest
    
    
    9,982
    
    
    
    7,645Accrued compensation
    
    
    11,715
    
    
    
    16,932Other regulatory liabilities
    
    
    6,743
    
    
    
    9,029Other
    
    
    26,557
    
    
    
    30,975Total current liabilities
    
    
    313,973
    
    
    
    345,548Long-term Debt
    
    
    739,577
    
    
    
    654,860Long-term Debt Payable to Affiliated Trusts
    
    
    
    
    
    
    41,238Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    233,252
    
    
    
    237,862Accumulated deferred investment tax credits
    
    
    13,335
    
    
    
    14,721Employee benefit obligations
    
    
    77,401
    
    
    
    73,922Other cost of removal obligations
    
    
    170,432
    
    
    
    165,410Other regulatory liabilities
    
    
    47,164
    
    
    
    46,485Other
    
    
    84,098
    
    
    
    72,533Total deferred credits and other liabilities
    
    
    625,682
    
    
    
    610,933Total Liabilities
    
    
    1,679,232
    
    
    
    1,652,579Preference Stock
    
    
    53,886
    
    
    
    53,887Common Stockholders Equity:Common stock, without par valueAuthorized  20,000,000 sharesOutstanding  September 30, 2007: 1,792,717 shares December 31, 2006: 992,717 shares
    
    
    118,060
    
    
    
    38,060Paid-in capital
    
    
    430,498
    
    
    
    428,592Retained earnings
    
    
    190,694
    
    
    
    171,968Accumulated other comprehensive loss
    
    
    (1,770
    )
    
    
    (4,597
    )Total common stockholders equity
    
    
    737,482
    
    
    
    634,023Total Liabilities and Stockholders Equity
    
    $
    2,470,600
    
    
    $
    2,340,489
  80




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##### Table of Contents



GULF POWER COMPANY
 
 OVERVIEW
   RESULTS OF OPERATIONS
 Net Income
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(0.4)
    
    
    (1.2
    )
    
    $
    5.3
    
    
    
    7.7
   Retail Revenues
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$8.3
    
    
    2.6
    
    
    $
    46.2
    
    
    
    6.2
   81




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##### Table of Contents



GULF POWER COMPANY
  Third Quarter
    
    Year-to-Date2007
    
    2007(in millions)
    
    (% change)
    
    (in millions)
    
    (% change)Retail  prior year
    
    $
    317.6
    
    
    
    
    
    
    $
    742.6Estimated change in Rates and pricing
    
    
    0.8
    
    
    
    0.4
    
    
    
    2.0
    
    
    
    0.3Sales growth
    
    
    1.1
    
    
    
    0.3
    
    
    
    5.1
    
    
    
    0.7Weather
    
    
    2.9
    
    
    
    0.9
    
    
    
    1.7
    
    
    
    0.2Fuel and other cost recovery
    
    
    3.5
    
    
    
    1.0
    
    
    
    37.4
    
    
    
    5.0Retail  current year
    
    $
    325.9
    
    
    
    2.6
    
    
    $
    788.8
    
    
    
    6.2
      82




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##### Table of Contents



GULF POWER COMPANY
 Wholesale Revenues  Non-Affiliates
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(2.1)
    
    
    (9.1
    )
    
    $
    1.1
    
    
    
    1.7
    Wholesale Revenues  Affiliates
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(6.0)
    
    
    (31.2
    )
    
    $
    (13.1
    )
    
    
    (15.1
    )
    Other Revenues
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$3.4
    
    
    25.8
    
    
    $
    8.2
    
    
    
    23.5
  83




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##### Table of Contents



GULF POWER COMPANY
 Fuel and Purchased Power Expenses
 Third Quarter 2007
    
    
    Year-to-Date 2007vs.
    
    
    vs.Third Quarter 2006
    
    
    Year-to-Date 2006(change in millions)
    
    
    (% change)
    
    
    (change in millions)
    
    
    (% change)Fuel
    
    $
    (15.1
    )
    
    
    (9.1)
    
    
    $
    22.3
    
    
    
    5.5Purchased power-non-affiliates
    
    
    1.3
    
    
    
    21.8
    
    
    
    (4.7
    )
    
    
    (31.1)Purchased power-affiliates
    
    
    7.9
    
    
    
    27.5
    
    
    
    3.3
    
    
    
    6.5Total fuel and purchased power expenses
    
    $
    (5.9
    )
    
    
    
    
    
    $
    20.9
   Third Quarter
    
    Third Quarter
    
    
    
    
    
    Year-to-Date
    
    Year-to-DateAverage Cost
    
    2007
    
    2006
    
    % change
    
    2007
    
    2006
    
    % change(cents per net KWH)
    
    
    
    
    
    (cents per net KWH)Fuel
    
    
    3.44
    
    
    
    3.55
    
    
    
    (3.1
    )
    
    
    3.42
    
    
    
    3.26
    
    
    
    4.9Purchased power
    
    
    13.08
    
    
    
    17.94
    
    
    
    (27.1
    )
    
    
    9.41
    
    
    
    9.67
    
    
    
    (2.7
    )
   Non-affiliates
    84




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##### Table of Contents



GULF POWER COMPANY
 Affiliates
    Other Operations and Maintenance Expenses
 Third Quarter 2007
    
    
    Year-to-Date 2007vs.
    
    
    vs.Third Quarter 2006
    
    
    Year-to-Date 2006(change in millions)
    
    
    (% change)
    
    
    (change in millions)
    
    
    (% change)Other operations
    
    $
    6.8
    
    
    
    14.4
    
    
    $
    9.5
    
    
    
    6.9Maintenance
    
    
    3.3
    
    
    
    24.6
    
    
    
    5.2
    
    
    
    11.8Total other
operations and
maintenance
expenses
    
    $
    10.1
    
    
    
    
    
    
    $
    14.7
   Depreciation and Amortization
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(0.8)
    
    
    (3.5
    )
    
    $
    (2.8
    )
    
    
    (4.3
    )
  85




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##### Table of Contents



GULF POWER COMPANY
 Taxes Other than Income Taxes
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$1.7
    
    
    7.3
    
    
    $
    3.5
    
    
    
    5.6
  Interest Expense, Net of Amounts Capitalized
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$0.9
    
    
    9.3
    
    
    $
    3.2
    
    
    
    11.2
  Interest Expense to Affiliate Trusts
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(0.6)
    
    
    (49.7
    )
    
    $
    (1.7
    )
    
    
    (49.7
    )
  Other Income (Expense), Net
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$0.5
    
    
    146.3
    
    
    $
    1.3
    
    
    
    111.4
  86




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##### Table of Contents



GULF POWER COMPANY
 Income Taxes
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(1.6)
    
    
    (7.6
    )
    
    $
    1.4
    
    
    
    3.2
   FUTURE EARNINGS POTENTIAL
  Environmental Matters
  Eight-Hour Ozone Regulations
  87




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##### Table of Contents



GULF POWER COMPANY
 Fine Particulate Matter Regulations
  Florida Greenhouse Gas Executive Orders
  Georgia Multi-Pollutant Rule
  Environmental Remediation
  88




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##### Table of Contents



GULF POWER COMPANY
 FERC and Florida PSC Matters
 Market-Based Rate Authority
    Intercompany Interchange Contract
 
  Retail Fuel Cost Recovery
  89




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##### Table of Contents



GULF POWER COMPANY
  Other
  Other Matters
    90




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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
  91




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##### Table of Contents



GULF POWER COMPANY
 Fair Value Option
  FINANCIAL CONDITION AND LIQUIDITY
 Overview
  Capital Requirements and Contractual Obligations
 
  Sources of Capital
  92




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##### Table of Contents



GULF POWER COMPANY
  Credit Rating Risk
   Market Price Risk
   93




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##### Table of Contents



GULF POWER COMPANY
  Third Quarter
    
    Year-to-Date2007
    
    2007Changes
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    (2,139
    )
    
    $
    (7,186
    )Contracts realized or settled
    
    
    1,910
    
    
    
    5,043New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (1,739
    )
    
    
    175Contracts at September 30, 2007
    
    $
    (1,968
    )
    
    $
    (1,968
    )
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered
into during the period, if any. Source of September 30, 2007Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    (1,968
    )
    
    $
    (2,183
    )
    
    $
    215External sources
    
    
    
    
    
    
    
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at September 30,
2007
    
    $
    (1,968
    )
    
    $
    (2,183
    )
    
    $
    215
   Amounts(in thousands)Regulatory assets, net
    
    $
    (1,968
    )Accumulated other comprehensive income
    
    
    Net income
    
    
    Total fair value
    
    $
    (1,968
    )
   94




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##### Table of Contents



GULF POWER COMPANY
 Financing Activities
    
  95




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 96




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Operating Revenues:Retail revenues
    
    $
    221,790
    
    
    $
    200,873
    
    
    $
    560,059
    
    
    $
    505,382Wholesale revenues Non-affiliates
    
    
    93,750
    
    
    
    76,523
    
    
    
    247,746
    
    
    
    204,451Affiliates
    
    
    13,657
    
    
    
    29,541
    
    
    
    42,229
    
    
    
    52,094Other revenues
    
    
    3,826
    
    
    
    3,810
    
    
    
    13,031
    
    
    
    12,681Total operating revenues
    
    
    333,023
    
    
    
    310,747
    
    
    
    863,065
    
    
    
    774,608Operating Expenses:Fuel
    
    
    146,864
    
    
    
    147,979
    
    
    
    390,781
    
    
    
    330,628Purchased power Non-affiliates
    
    
    5,960
    
    
    
    5,793
    
    
    
    8,173
    
    
    
    15,110Affiliates
    
    
    27,506
    
    
    
    8,851
    
    
    
    56,970
    
    
    
    45,268Other operations
    
    
    46,264
    
    
    
    43,204
    
    
    
    133,220
    
    
    
    121,615Maintenance
    
    
    14,941
    
    
    
    16,122
    
    
    
    46,219
    
    
    
    49,897Depreciation and amortization
    
    
    15,302
    
    
    
    10,586
    
    
    
    44,683
    
    
    
    34,908Taxes other than income taxes
    
    
    16,651
    
    
    
    15,997
    
    
    
    44,989
    
    
    
    45,847Total operating expenses
    
    
    273,488
    
    
    
    248,532
    
    
    
    725,035
    
    
    
    643,273Operating Income
    
    
    59,535
    
    
    
    62,215
    
    
    
    138,030
    
    
    
    131,335Other Income and (Expense):Interest income
    
    
    538
    
    
    
    2,831
    
    
    
    1,537
    
    
    
    2,902Interest expense
    
    
    (4,593
    )
    
    
    (3,644
    )
    
    
    (13,344
    )
    
    
    (12,156
    )Interest expense to affiliate trusts
    
    
    
    
    
    
    (649
    )
    
    
    (686
    )
    
    
    (1,948
    )Other income (expense), net
    
    
    184
    
    
    
    (1,291
    )
    
    
    5,161
    
    
    
    1,202Total other income and (expense)
    
    
    (3,871
    )
    
    
    (2,753
    )
    
    
    (7,332
    )
    
    
    (10,000
    )Earnings Before Income Taxes
    
    
    55,664
    
    
    
    59,462
    
    
    
    130,698
    
    
    
    121,335Income taxes
    
    
    20,781
    
    
    
    22,391
    
    
    
    49,033
    
    
    
    45,350Net Income
    
    
    34,883
    
    
    
    37,071
    
    
    
    81,665
    
    
    
    75,985Dividends on Preferred Stock
    
    
    433
    
    
    
    433
    
    
    
    1,299
    
    
    
    1,299Net Income After Dividends on Preferred Stock
    
    $
    34,450
    
    
    $
    36,638
    
    
    $
    80,366
    
    
    $
    74,686
 
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Net Income After Dividends on Preferred Stock
    
    $
    34,450
    
    
    $
    36,638
    
    
    $
    80,366
    
    
    $
    74,686Other comprehensive income (loss):Qualifying hedges:Changes in fair value, net of tax of $(200), $106, $(154), and
$310, respectively
    
    
    (322
    )
    
    
    171
    
    
    
    (249
    )
    
    
    501COMPREHENSIVE INCOME
    
    $
    34,128
    
    
    $
    36,809
    
    
    $
    80,117
    
    
    $
    75,187
  97




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MISSISSIPPI POWER COMPANY
  For the Nine MonthsEnded September 30,2007
    
    
    2006(in thousands)Operating Activities:Net income
    
    $
    81,665
    
    
    $
    75,985Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    51,809
    
    
    
    50,835Deferred income taxes and investment tax credits, net
    
    
    (5,806
    )
    
    
    34,853Plant Daniel capacity
    
    
    (4,244
    )
    
    
    (9,756
    )Pension, postretirement, and other employee benefits
    
    
    6,877
    
    
    
    4,527Stock option expense
    
    
    935
    
    
    
    957Tax benefit of stock options
    
    
    253
    
    
    
    71Hurricane Katrina grant proceeds-property reserve
    
    
    60,000
    
    
    
    Other, net
    
    
    (14,443
    )
    
    
    (3,583
    )Changes in certain current assets and liabilities Receivables
    
    
    (2,501
    )
    
    
    24,714Fossil fuel stock
    
    
    (18,687
    )
    
    
    4,591Materials and supplies
    
    
    22
    
    
    
    (387
    )Prepaid income taxes
    
    
    4,822
    
    
    
    34,764Other current assets
    
    
    915
    
    
    
    (3,718
    )Hurricane Katrina grant proceeds
    
    
    14,345
    
    
    
    Hurricane Katrina accounts payable
    
    
    3,309
    
    
    
    (42,418
    )Other accounts payable
    
    
    (14,032
    )
    
    
    (43,375
    )Accrued taxes
    
    
    (9,897
    )
    
    
    11,601Accrued compensation
    
    
    (7,236
    )
    
    
    (8,703
    )Over recovered regulatory clause revenues
    
    
    
    
    
    
    (26,188
    )Other current liabilities
    
    
    (716
    )
    
    
    (1,682
    )Net cash provided from operating activities
    
    
    147,390
    
    
    
    103,088Investing Activities:Property additions
    
    
    (84,383
    )
    
    
    (106,490
    )Cost of removal, net of salvage
    
    
    6,274
    
    
    
    (2,866
    )Construction payables
    
    
    3,327
    
    
    
    (11,069
    )Hurricane Katrina capital grant proceeds
    
    
    10,869
    
    
    
    Other
    
    
    (90
    )
    
    
    (2,138
    )Net cash used for investing activities
    
    
    (64,003
    )
    
    
    (122,563
    )Financing Activities:Increase in notes payable, net
    
    
    8,939
    
    
    
    83,283Proceeds  Gross excess tax benefit of stock options
    
    
    508
    
    
    
    90Redemptions  Long-term debt to affiliate trusts
    
    
    (36,082
    )
    
    
    Capital contributions from parent company
    
    
    (3
    )
    
    
    (2,378
    )Payment of preferred stock dividends
    
    
    (1,299
    )
    
    
    (1,299
    )Payment of common stock dividends
    
    
    (50,475
    )
    
    
    (48,900
    )Net cash provided from (used for) financing activities
    
    
    (78,412
    )
    
    
    30,796Net Change in Cash and Cash Equivalents
    
    
    4,975
    
    
    
    11,321Cash and Cash Equivalents at Beginning of Period
    
    
    4,214
    
    
    
    14,301Cash and Cash Equivalents at End of Period
    
    $
    9,189
    
    
    $
    25,622Supplemental Cash Flow Information:Cash paid during the period for Interest
    
    $
    13,098
    
    
    $
    23,257Income taxes (net of refunds)
    
    $
    48,048
    
    
    $
    (43,365
    )
  98




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MISSISSIPPI POWER COMPANY
  At September 30,
    
    
    At December 31,Assets
    
    2007
    
    
    2006(in thousands)Current Assets:Cash and cash equivalents
    
    $
    9,189
    
    
    $
    4,214Receivables Customer accounts receivable
    
    
    56,712
    
    
    
    42,099Unbilled revenues
    
    
    26,026
    
    
    
    23,807Under recovered regulatory clause revenues
    
    
    45,850
    
    
    
    50,778Other accounts and notes receivable
    
    
    3,766
    
    
    
    5,870Insurance receivable
    
    
    7,942
    
    
    
    20,551Affiliated companies
    
    
    20,423
    
    
    
    23,696Accumulated provision for uncollectible accounts
    
    
    (868
    )
    
    
    (855
    )Fossil fuel stock, at average cost
    
    
    61,366
    
    
    
    42,679Materials and supplies, at average cost
    
    
    27,905
    
    
    
    27,927Prepaid income taxes
    
    
    17,209
    
    
    
    22,031Other regulatory assets
    
    
    32,212
    
    
    
    42,391Other
    
    
    9,635
    
    
    
    15,091Total current assets
    
    
    317,367
    
    
    
    320,279Property, Plant, and Equipment:In service
    
    
    2,097,877
    
    
    
    2,054,151Less accumulated provision for depreciation
    
    
    869,166
    
    
    
    836,9221,228,711
    
    
    
    1,217,229Construction work in progress
    
    
    51,758
    
    
    
    40,608Total property, plant, and equipment
    
    
    1,280,469
    
    
    
    1,257,837Other Property and Investments
    
    
    9,807
    
    
    
    4,636Deferred Charges and Other Assets:Deferred charges related to income taxes
    
    
    8,901
    
    
    
    9,280Prepaid pension costs
    
    
    35,580
    
    
    
    36,424Other regulatory assets
    
    
    67,023
    
    
    
    61,086Other
    
    
    23,758
    
    
    
    18,834Total deferred charges and other assets
    
    
    135,262
    
    
    
    125,624Total Assets
    
    $
    1,742,905
    
    
    $
    1,708,376
  99




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 At September 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2007
    
    
    2006(in thousands)Current Liabilities:Securities due within one year
    
    $
    1,116
    
    
    $
    Notes payable
    
    
    60,316
    
    
    
    51,377Accounts payable Affiliated
    
    
    26,296
    
    
    
    24,615Other
    
    
    61,495
    
    
    
    73,236Customer deposits
    
    
    9,533
    
    
    
    8,676Accrued taxes Income taxes
    
    
    4,016
    
    
    
    4,171Other
    
    
    39,542
    
    
    
    50,346Accrued interest
    
    
    2,094
    
    
    
    2,332Accrued compensation
    
    
    16,722
    
    
    
    23,958Plant Daniel capacity
    
    
    1,415
    
    
    
    5,659Other regulatory liabilities
    
    
    19,540
    
    
    
    11,386Other
    
    
    24,410
    
    
    
    28,880Total current liabilities
    
    
    266,495
    
    
    
    284,636Long-term Debt
    
    
    247,479
    
    
    
    242,553Long-term Debt Payable to Affiliated Trusts
    
    
    
    
    
    
    36,082Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    231,754
    
    
    
    236,202Deferred credits related to income taxes
    
    
    15,397
    
    
    
    16,218Accumulated deferred investment tax credits
    
    
    15,604
    
    
    
    16,402Employee benefit obligations
    
    
    97,781
    
    
    
    92,403Other cost of removal obligations
    
    
    90,127
    
    
    
    82,397Other regulatory liabilities
    
    
    88,753
    
    
    
    22,559Other
    
    
    35,598
    
    
    
    56,324Total deferred credits and other liabilities
    
    
    575,014
    
    
    
    522,505Total Liabilities
    
    
    1,088,988
    
    
    
    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
    
    
    308,694
    
    
    
    307,019Retained earnings
    
    
    274,402
    
    
    
    244,511Accumulated other comprehensive income
    
    
    350
    
    
    
    599Total common stockholders equity
    
    
    621,137
    
    
    
    589,820Total Liabilities and Stockholders Equity
    
    $
    1,742,905
    
    
    $
    1,708,376
  100




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 
 
 OVERVIEW
   RESULTS OF OPERATIONS
 Net Income
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(2.1)
    
    (6.0)
    
    $5.7
    
    7.6
   101




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Retail Revenues
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$20.9
    
    10.4
    
    $54.7
    
    10.8
    Third Quarter
    
    Year-to-Date2007
    
    2007(in millions)
    
    (% change)
    
    (in millions)
    
    (% change)Retail  prior year
    
    $
    200.9
    
    
    
    
    
    
    $
    505.4Estimated change in Rates and pricing
    
    
    (1.1
    )
    
    
    (0.5
    )
    
    
    5.6
    
    
    
    1.1Sales growth
    
    
    3.2
    
    
    
    1.5
    
    
    
    10.3
    
    
    
    2.0Weather
    
    
    (0.7
    )
    
    
    (0.3
    )
    
    
    (2.2
    )
    
    
    (0.4
    )Fuel and other cost recovery
    
    
    19.5
    
    
    
    9.7
    
    
    
    41.0
    
    
    
    8.1Retail  current year
    
    $
    221.8
    
    
    
    10.4
    %
    
    $
    560.1
    
    
    
    10.8
    %
      102




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  Wholesale Revenues  Non-Affiliates
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$17.3
    
    22.5
    
    $43.2
    
    21.2
    Wholesale Revenues  Affiliates
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(15.8)
    
    (53.8)
    
    $(9.9)
    
    (18.9)
   103




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  Fuel and Purchased Power Expenses
 Third Quarter 2007
    
    
    Year-to-Date 2007vs.
    
    
    vs.Third Quarter 2006
    
    
    Year-to-Date 2006(change in millions)
    
    
    (% change)
    
    
    (change in millions)
    
    
    (% change)Fuel
    
    $
    (1.1
    )
    
    
    (0.8)
    
    
    $
    60.2
    
    
    
    18.2Purchased power-non-affiliates
    
    
    0.2
    
    
    
    2.9
    
    
    
    (6.9
    )
    
    
    (45.9)Purchased power-affiliates
    
    
    18.6
    
    
    
    210.8
    
    
    
    11.7
    
    
    
    25.9Total fuel and purchased power expenses
    
    $
    17.7
    
    
    
    
    
    
    $
    65.0
     Average Cost
    

Third
Quarter2007
    
    Third
Quarter2006
    
    % change
    
    Year-to-Date2007
    
    Year-to-Date2006
    
    % change(cents per net KWH)
    
    
    
    
    
    (cents per net KWH)Fuel
    
    
    3.94
    
    
    
    3.58
    
    
    
    10.1
    
    
    
    3.74
    
    
    
    3.42
    
    
    
    9.4Purchased power
    
    
    6.15
    
    
    
    5.34
    
    
    
    15.2
    
    
    
    4.71
    
    
    
    4.56
    
    
    
    3.3
   Non-affiliates
  104




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##### Table of Contents



MISSISSIPPI POWER COMPANY
   Affiliates
    Other Operations and Maintenance Expenses
 Third Quarter 2007
    
    
    Year-to-Date 2007vs.
    
    
    vs.Third Quarter 2006
    
    
    Year-to-Date 2006(change in millions)
    
    
    (% change)
    
    
    (change in millions)
    
    
    (% change)Other operations
    
    $
    3.1
    
    
    
    7.1
    
    
    $
    11.6
    
    
    
    9.5Maintenance
    
    
    (1.2
    )
    
    
    (7.3)
    
    
    
    (3.7
    )
    
    
    (7.4)Total other
operations and
maintenance
expenses
    
    $
    1.9
    
    
    
    
    
    
    $
    7.9
  105




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  Depreciation and Amortization
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$4.7
    
    44.5
    
    $9.8
    
    28.0
   Total Other Income and (Expense)
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(1.1)
    
    (40.6)
    
    $2.7
    
    26.7
   106




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Income Taxes
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$(1.6)
    
    (7.2)
    
    $3.6
    
    8.1
  FUTURE EARNINGS POTENTIAL
  Environmental Matters
  Eight-Hour Ozone Regulations
  FERC and Mississippi PSC Matters
 Market-Based Rate Authority
  107




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##### Table of Contents



MISSISSIPPI POWER COMPANY
    Intercompany Interchange Contract
 
  Retail Regulatory Matters
   108




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##### Table of Contents



MISSISSIPPI POWER COMPANY
    
 
 109




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  Fuel Cost Recovery
  Other Matters
 
   110




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##### Table of Contents



MISSISSIPPI 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
  111




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##### Table of Contents



MISSISSIPPI POWER COMPANY
  Capital Requirements and Contractual Obligations
  Sources of Capital
   112




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Off-Balance Sheet Financing Arrangements
  Credit Rating Risk
   Market Price Risk
    Third Quarter
    
    Year-to-Date2007
    
    2007Changes
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    1,263
    
    
    $
    (6,360
    )Contracts realized or settled
    
    
    1,515
    
    
    
    1,874New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (2,673
    )
    
    
    4,591Contracts at September 30, 2007
    
    $
    105
    
    
    $
    105
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered
into during the period, if any. 113




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##### Table of Contents



MISSISSIPPI POWER COMPANY
 Source of September 30, 2007Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    (866
    )
    
    $
    (2,353
    )
    
    $
    1,487External sources
    
    
    971
    
    
    
    971
    
    
    
    Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at September 30, 2007
    
    $
    105
    
    
    $
    (1,382
    )
    
    $
    1,487
   Amounts(in thousands)Regulatory assets, net
    
    $
    (568
    )Accumulated other comprehensive income
    
    
    566Net income
    
    
    107Total fair value
    
    $
    105
   Financing Activities
   114




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##### Table of Contents



SOUTHERN POWER COMPANY
AND SUBSIDIARY COMPANIES
 115




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##### Table of Contents



SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Operating Revenues:Wholesale revenues Non-affiliates
    
    $
    159,951
    
    
    $
    104,097
    
    
    $
    339,121
    
    
    $
    218,709Affiliates
    
    
    185,310
    
    
    
    163,764
    
    
    
    438,737
    
    
    
    381,034Other revenues
    
    
    2,490
    
    
    
    2,170
    
    
    
    6,403
    
    
    
    3,756Total operating revenues
    
    
    347,751
    
    
    
    270,031
    
    
    
    784,261
    
    
    
    603,499Operating Expenses:Fuel
    
    
    115,669
    
    
    
    62,989
    
    
    
    201,814
    
    
    
    117,493Purchased power Non-affiliates
    
    
    28,291
    
    
    
    16,412
    
    
    
    50,502
    
    
    
    43,067Affiliates
    
    
    42,350
    
    
    
    48,403
    
    
    
    110,477
    
    
    
    94,172Other operations
    
    
    27,267
    
    
    
    17,810
    
    
    
    69,711
    
    
    
    52,109Maintenance
    
    
    4,872
    
    
    
    4,333
    
    
    
    18,375
    
    
    
    15,737Depreciation and amortization
    
    
    18,424
    
    
    
    16,943
    
    
    
    55,120
    
    
    
    47,514Taxes other than income taxes
    
    
    3,670
    
    
    
    3,838
    
    
    
    11,697
    
    
    
    11,299Total operating expenses
    
    
    240,543
    
    
    
    170,728
    
    
    
    517,696
    
    
    
    381,391Operating Income
    
    
    107,208
    
    
    
    99,303
    
    
    
    266,565
    
    
    
    222,108Other Income and (Expense):Interest expense, net of
amounts capitalized
    
    
    (19,602
    )
    
    
    (19,503
    )
    
    
    (60,954
    )
    
    
    (60,501
    )Other income (expense), net
    
    
    (2,029
    )
    
    
    (2,216
    )
    
    
    (926
    )
    
    
    1,086Total other income and (expense)
    
    
    (21,631
    )
    
    
    (21,719
    )
    
    
    (61,880
    )
    
    
    (59,415
    )Earnings Before Income Taxes
    
    
    85,577
    
    
    
    77,584
    
    
    
    204,685
    
    
    
    162,693Income taxes
    
    
    34,139
    
    
    
    31,713
    
    
    
    81,357
    
    
    
    65,101Net Income
    
    $
    51,438
    
    
    $
    45,871
    
    
    $
    123,328
    
    
    $
    97,592
 
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Net Income
    
    $
    51,438
    
    
    $
    45,871
    
    
    $
    123,328
    
    
    $
    97,592Other comprehensive income (loss):Qualifying hedges:Changes in fair value, net
of tax of $(548),
$(3,929), $(619), and
$(2,960), respectively
    
    
    (827
    )
    
    
    (6,019
    )
    
    
    (949
    )
    
    
    (4,516
    )Reclassification
adjustment for amounts
included in net income,
net of tax of $1,357,
$422, $3,762, and
$2,659, respectively
    
    
    2,062
    
    
    
    2,806
    
    
    
    6,020
    
    
    
    6,274Total other
comprehensive income (loss)
    
    
    1,235
    
    
    
    (3,213
    )
    
    
    5,071
    
    
    
    1,758COMPREHENSIVE INCOME
    
    $
    52,673
    
    
    $
    42,658
    
    
    $
    128,399
    
    
    $
    99,350
  116




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 For the Nine MonthsEnded September 30,2007
    
    
    2006(in thousands)Operating Activities:Net income
    
    $
    123,328
    
    
    $
    97,592Adjustments to reconcile net income
to net cash provided from operating activities Depreciation and amortization
    
    
    66,791
    
    
    
    57,802Deferred income taxes and investment tax credits, net
    
    
    19,289
    
    
    
    7,786Deferred revenues
    
    
    24,083
    
    
    
    32,433Mark-to-market adjustments
    
    
    875
    
    
    
    (100
    )Accumulated deferred billings on construction contract
    
    
    45,293
    
    
    
    10,066Accumulated deferred costs on construction contract
    
    
    (15,979
    )
    
    
    (5,314
    )Other, net
    
    
    3,575
    
    
    
    (134
    )Changes in certain current assets and liabilities Receivables
    
    
    (57,504
    )
    
    
    (2,236
    )Fossil fuel stock
    
    
    (3,974
    )
    
    
    (496
    )Materials and supplies
    
    
    (287
    )
    
    
    4,116Other current assets
    
    
    (1,439
    )
    
    
    40,296Accounts payable
    
    
    19,630
    
    
    
    (39,327
    )Accrued taxes
    
    
    43,334
    
    
    
    10,371Accrued interest
    
    
    (11,722
    )
    
    
    (14,812
    )Net cash provided from operating activities
    
    
    255,293
    
    
    
    198,043Investing Activities:Property additions
    
    
    (149,623
    )
    
    
    (457,313
    )Change in construction payables, net
    
    
    (1,682
    )
    
    
    1,415Sale of property to affiliate
    
    
    
    
    
    
    15,674Other
    
    
    (7,557
    )
    
    
    (10,963
    )Net cash used for investing activities
    
    
    (158,862
    )
    
    
    (451,187
    )Financing Activities:Increase (decrease) in notes payable, net
    
    
    (33,848
    )
    
    
    216,268Proceeds  Capital contributions
    
    
    76
    
    
    
    105,000Redemptions  Other long term debt
    
    
    (1,209
    )
    
    
    (200
    )Payment of common stock dividends
    
    
    (67,350
    )
    
    
    (58,275
    )Other
    
    
    (24
    )
    
    
    (366
    )Net cash provided from (used for) financing activities
    
    
    (102,355
    )
    
    
    262,427Net Change in Cash and Cash Equivalents
    
    
    (5,924
    )
    
    
    9,283Cash and Cash Equivalents at Beginning of Period
    
    
    29,929
    
    
    
    27,631Cash and Cash Equivalents at End of Period
    
    $
    24,005
    
    
    $
    36,914Supplemental Cash Flow Information:Cash paid during the period for Interest (net of $11,771 and $2,709 capitalized for 2007 and 2006, respectively)
    
    $
    61,484
    
    
    $
    64,786Income taxes (net of refunds)
    
    $
    31,064
    
    
    $
    16,057
  117




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 At September 30,
    
    
    At December 31,Assets
    
    2007
    
    
    2006(in thousands)Current Assets:Cash and cash equivalents
    
    $
    24,005
    
    
    $
    29,929Receivables Customer accounts receivable
    
    
    31,044
    
    
    
    16,789Other accounts receivable
    
    
    260
    
    
    
    125Affiliated companies
    
    
    70,181
    
    
    
    26,215Fossil fuel stock, at average cost
    
    
    15,030
    
    
    
    11,056Materials and supplies, at average cost
    
    
    18,484
    
    
    
    19,877Prepaid service agreements  current
    
    
    35,834
    
    
    
    30,280Other prepaid expenses
    
    
    2,671
    
    
    
    5,878Other
    
    
    1,416
    
    
    
    2,006Total current assets
    
    
    198,925
    
    
    
    142,155Property, Plant, and Equipment:In service
    
    
    2,478,998
    
    
    
    2,434,146Less accumulated provision for depreciation
    
    
    274,222
    
    
    
    219,6542,204,776
    
    
    
    2,214,492Construction work in progress
    
    
    328,868
    
    
    
    260,279Total property, plant, and equipment
    
    
    2,533,644
    
    
    
    2,474,771Deferred Charges and Other Assets:Prepaid long-term service agreements
    
    
    81,177
    
    
    
    51,615OtherAffiliated
    
    
    4,222
    
    
    
    4,473Other
    
    
    22,026
    
    
    
    17,929Total deferred charges and other assets
    
    
    107,425
    
    
    
    74,017Total Assets
    
    $
    2,839,994
    
    
    $
    2,690,943
  118




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 At September 30,
    
    
    At December 31,Liabilities and Stockholders Equity
    
    2007
    
    
    2006(in thousands)Current Liabilities:Securities due within one year
    
    $
    
    
    
    $
    1,209Notes payable
    
    
    89,904
    
    
    
    123,752Accounts payable Affiliated
    
    
    53,469
    
    
    
    33,205Other
    
    
    14,410
    
    
    
    16,453Accrued taxes Income taxes
    
    
    25,713
    
    
    
    393Other
    
    
    14,553
    
    
    
    2,183Accrued interest
    
    
    18,127
    
    
    
    29,849Other
    
    
    2,794
    
    
    
    4,840Total current liabilities
    
    
    218,970
    
    
    
    211,884Long-term Debt
    
    
    1,297,036
    
    
    
    1,296,845Deferred Credits and Other Liabilities:Accumulated deferred income taxes
    
    
    128,874
    
    
    
    106,016Deferred capacity revenues  Affiliated
    
    
    61,037
    
    
    
    36,313OtherAffiliated
    
    
    7,943
    
    
    
    8,958Other
    
    
    39,506
    
    
    
    5,423Total deferred credits and other liabilities
    
    
    237,360
    
    
    
    156,710Total Liabilities
    
    
    1,753,366
    
    
    
    1,665,439Common Stockholders Equity:Common stock, par value $.01 per share Authorized  1,000,000 sharesOutstanding  1,000 shares
    
    
    
    
    
    
    Paid-in capital
    
    
    855,008
    
    
    
    854,933Retained earnings
    
    
    267,273
    
    
    
    211,295Accumulated other comprehensive loss
    
    
    (35,653
    )
    
    
    (40,724
    )Total common stockholders equity
    
    
    1,086,628
    
    
    
    1,025,504Total Liabilities and Stockholders Equity
    
    $
    2,839,994
    
    
    $
    2,690,943
  119




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 
 OVERVIEW
   RESULTS OF OPERATIONS
 Net Income
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$5.5
    
    
    12.1
    
    
    $
    25.7
    
    
    
    26.4
  Wholesale Revenues  Affiliates and Wholesale Revenues  Non-Affiliates
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$77.4
    
    
    28.9
    
    
    $
    178.2
    
    
    
    29.7
  120




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
   Other Revenues
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$0.3
    
    
    14.7
    
    
    $
    2.6
    
    
    
    70.5
  Fuel and Purchased Power Expenses
 Third Quarter 2007
    
    
    Year-to-Date 2007vs.
    
    
    vs.Third Quarter 2006
    
    
    Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Fuel
    
    $
    52.7
    
    
    
    83.6
    
    
    $
    84.3
    
    
    
    71.8Purchased power-non-affiliates
    
    
    11.9
    
    
    
    72.4
    
    
    
    7.5
    
    
    
    17.3Purchased power-affiliates
    
    
    (6.1
    )
    
    
    (12.5
    )
    
    
    16.3
    
    
    
    17.3Total fuel and purchased power expenses
    
    $
    58.5
    
    
    
    
    
    
    $
    108.1
  121




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 Other Operations and Maintenance Expenses
 Third Quarter 2007
    
    
    Year-to-Date 2007vs.
    
    
    vs.Third Quarter 2006
    
    
    Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)Other operations
    
    $
    9.5
    
    
    
    53.1
    
    
    $
    17.6
    
    
    
    33.8Maintenance
    
    
    0.5
    
    
    
    12.4
    
    
    
    2.7
    
    
    
    16.8Total other operations
and maintenance
expenses
    
    $
    10.0
    
    
    
    
    
    
    $
    20.3
   Depreciation and Amortization
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$1.5
    
    8.7
    
    $
    7.6
    
    
    16.0
   122




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 Interest Expense, Net of Amounts Capitalized
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$0.1
    
    0.5
    
    $
    0.5
    
    
    0.7
   Other Income (Expense), Net
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$0.2
    
    8.4
    
    $
    (2.0)
    
    
    (185.3)
   Income Taxes
 Third Quarter 2007 vs. Third Quarter 2006
    
    Year-to-Date 2007 vs. Year-to-Date 2006(change in millions)
    
    (% change)
    
    (change in millions)
    
    (% change)$2.4
    
    7.6
    
    $
    16.3
    
    
    25.0
  FUTURE EARNINGS POTENTIAL
  123




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
  FERC Matters
 Market-Based Rate Authority
    Intercompany Interchange Contract
   124




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 Integrated Gasification Combined Cycle (IGCC) Project
   Power Sales Agreements
    125




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
  Environmental Matters
  Florida Greenhouse Gas Executive Orders
  Other Matters
    126




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
 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
  127




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
  Capital Requirements and Contractual Obligations
   Sources of Capital
   128




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
  Credit Rating Risk
 
  Market Price Risk
    129




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SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
  Third Quarter
    
    Year-to-Date2007
    
    2007Changes
    
    ChangesFair Value(in thousands)Contracts beginning of period
    
    $
    2,771
    
    
    $
    1,850Contracts realized or settled
    
    
    (1,916
    )
    
    
    (3,557
    )New contracts at inception
    
    
    
    
    
    
    Changes in valuation techniques
    
    
    
    
    
    
    Current period changes (a)
    
    
    (1,449
    )
    
    
    1,113Contracts at September 30, 2007
    
    $
    (594
    )
    
    $
    (594
    )
 (a)
    
    Current period changes also include the changes in fair value of new contracts entered into
during the period, if any.
 Source of September 30, 2007Valuation PricesTotal
    
    MaturityFair Value
    
    Year 1
    
    1-3 Years(in thousands)Actively quoted
    
    $
    579
    
    
    $
    556
    
    
    $
    23External sources
    
    
    (1,173
    )
    
    
    (75
    )
    
    
    (1,098
    )Models and other methods
    
    
    
    
    
    
    
    
    
    
    Contracts at September
30, 2007
    
    $
    (594
    )
    
    $
    481
    
    
    $
    (1,075
    )
   Amounts(in thousands)Net Income
    
    
    
    
    
    $
    (514
    )Accumulated other comprehensive loss
    
    
    
    
    
    
    (80
    )Total fair value
    
    
    
    
    
    $
    (594
    )
   Financing Activities
  130




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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, H, IMississippi Power
    
    A, B, D, F, G, ISouthern Power
    
    A, B, F, I
 131




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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
September 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 had violated the NSR provisions of the Clean Air Act and related state laws with
respect to certain of its 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. The U.S. District Court for
the Northern District of Alabama has issued an order indicating a willingness to re-evaluate
its previous decision in light of the Supreme Courts Duke Energy opinion. The Eleventh
Circuit is now considering whether to proceed with the appeal or remand the case to the
District Court for further proceedings, and if so, whether to vacate the District Courts
original judgment in favor of Alabama Power. The final resolution of these claims cannot be
determined at this time.
 132




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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 cost
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 the post-bankruptcy corporation that adopted
the name Mirant Corporation, 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
 133




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 marketing activities involving the California energy market. On March 6, 2007, the court
granted plaintiffs motion for reconsideration, reinstated the California energy market
claims, and granted in part and denied in part defendants motion to compel certain class
certification discovery. 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. On July 27, 2007, certain defendants, including
Southern Company, filed motions for reconsideration of the courts denial of a motion
seeking dismissal of certain federal securities laws claims based upon, among other things,
certain alleged errors included in financial statements issued by Mirant. 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 August 14,
2007, the U.S. District Court for the Northern District of Georgia issued a final order and
judgment approving the December 2006 settlement agreement. The deadline for appeal expired
with no appeal filed. There was no material impact on the financial statements of Southern
Company. This matter is now concluded.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 briefs to
the presiding ALJ were filed in August and September. Southern Company anticipates an
initial decision from the ALJ in November 2007 on the issues that were set for hearing. The
ultimate outcome of this generation dominance proceeding cannot now be determined, but an
adverse decision by the FERC in a final order could result in total refunds of approximately
$19.7 million, plus interest. The potential refunds include $3.9 million for Alabama Power,
$5.8 million for Georgia Power, $0.8 million for Gulf Power, $8.4 million for Mississippi
Power, and $0.7 million for Southern Power, in each case plus interest.On June 21, 2007, the FERC issued an order terminating the May 2005 proceeding pertaining to
the other three parts of the market-based rate analysis. 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
 134




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 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 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 $8 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 and 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
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
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 was a change in the timing of 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
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 $37.6 million have been recorded in the first nine months of 2007 due to
projected phase-outs of the credits in 2007 as a result of current and projected future oil
prices. Additionally, the credits discussed above are not allowed under IRC Section 45K for
any production after December 31, 2007.Georgia State Income Tax CreditsIn September 2007, 2006, and 2005, Georgia Power filed its 2006, 2005, and 2004 income tax
returns, respectively, which included state income tax credits for activity through Georgia
ports. Georgia Power has also filed additional similar claims for the years 2002 through 2004. The
Georgia Department of Revenue has not responded to these claims. On July 24, 2007, Georgia
Power filed a complaint in the Superior Court of Fulton County to recover the credits
claimed for the years 2002 through 2004. If Georgia Power prevails, these claims could have
a significant, and possibly material, positive effect on Southern Companys and Georgia
Powers net income. If Georgia Power is not successful, payment of the related state tax
could have a significant, and possibly material, negative effect on Southern Companys and
Georgia Powers cash flow. The ultimate outcome of this matter cannot now be determined.INTEGRATED GASIFICATION COMBINED CYCLE (IGCC) PROJECTSee Note 4 to the financial statements of Southern Power under IGCC in Item 8 of the Form
10-K for additional information regarding the development by Southern Power and the Orlando
Utilities Commission (OUC) of an IGCC project in Orlando, Florida at OUCs Stanton Energy
site. On March 29, 2007, Southern Powers Board of Directors approved the continuation and
the completion of the design, engineering, and construction of the gasifier portion of the
IGCC project. In April 2007, OUC approved its portion of the cost increase, subject to the
DOEs approval of the additional funding. On May 8, 2007, SCS, as agent for Southern Power,
and the DOE entered into an amendment to the February 2006 cooperative agreement to increase
the DOEs funding for the gasifier portion of the IGCC project by $58.75 million. Southern
Power is evaluating the potential impacts of proposed federal and state legislation
and regulations on the IGCC project. Specifically, there is an ongoing assessment of the
State of Floridas governors executive orders concerning future emissions restrictions and
the rules and regulations necessary for implementation of such orders. As of October 31,
2007, Southern Powers share of actual and committed costs related to the gasifier portion
of the IGCC project was approximately $45 million. These costs will increase as the project
continues. The ultimate impact
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 on Southern Companys and Southern Powers financial statements will be dependent on the
evaluation and application of the State of Floridas governors executive orders and any
other legislation or regulations, but could be significant and possibly material. The
ultimate outcome of this matter cannot now be determined.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. In April 2007, the
Monroe Board filed a petition with the Georgia Supreme Court requesting review of the
decision of the Georgia Court of Appeals. On July 16, 2007, the Georgia Supreme Court
agreed to hear the Monroe Boards requested review of this decision. The Georgia Supreme
Court heard oral arguments regarding the matter on October 15, 2007. The suit could impact
all co-owners. Georgia Power and Gulf Power could be subject to total taxes through
September 30, 2007 of up to $21.7 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.GULF POWER RIGHT OF WAY LITIGATIONSee Note 3 to the financial statements of Gulf Power under Right of Way Litigation in Item
8 of the Form 10-K for information on the lawsuits related to the telecommunication use of
rights of way. In September 2007, Gulf Power and its co-defendant in the Gadsden County
litigation reached a proposed settlement agreement with the plaintiffs that, if approved by
the trial court, will resolve all outstanding claims against Gulf Power in both the Gadsden
County litigation and the 2001 telecommunications company litigation. If so approved, the
settlement will have no material impact on Gulf Powers financial statements. Pending final
settlement approval, the ultimate outcome of this matter cannot now 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 $185 million and $439 million for the
three months and nine months ended September 30, 2007, respectively, and $164 million and
$381 million for the three months and nine months ended September 30, 2006, respectively.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 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 September 30, 2007:Operating revenues
    
    $
    4,660
    
    
    $
    347
    
    
    $
    (227
    )
    
    $
    4,780
    
    
    $
    95
    
    
    $
    (43
    )
    
    $
    4,832Segment net income (loss)
    
    
    714
    
    
    
    51
    
    
    
    
    
    
    
    765
    
    
    
    (4
    )
    
    
    1
    
    
    
    762Nine Months Ended September 30, 2007:Operating revenues
    
    $
    11,612
    
    
    $
    784
    
    
    $
    (549)
    
    
    $
    11,847
    
    
    $
    294
    
    
    $
    (128
    )
    
    $
    12,013Segment net income (loss)
    
    
    1,381
    
    
    
    123
    
    
    
    
    
    
    
    1,504
    
    
    
    26
    
    
    
    
    
    
    
    1,530Total assets at September 30, 2007
    
    $
    41,210
    
    
    $
    2,840
    
    
    $
    (196
    )
    
    $
    43,854
    
    
    $
    1,889
    
    
    $
    (435
    )
    
    $
    45,308Electric UtilitiesTraditionalOperating
    
    
    
    
    
    
    
    
    
    
    
    
    
    AllCompanies
    
    Southern Power
    
    Eliminations
    
    Total
    
    Other
    
    Eliminations
    
    Consolidated(in millions)Three Months Ended September 30, 2006:Operating revenues
    
    $
    4,422
    
    
    $
    270
    
    
    $
    (213
    )
    
    $
    4,479
    
    
    $
    106
    
    
    $
    (36
    )
    
    $
    4,549Segment net income (loss)
    
    
    691
    
    
    
    46
    
    
    
    
    
    
    
    737
    
    
    
    1
    
    
    
    
    
    
    
    738Nine Months Ended September 30, 2006:Operating revenues
    
    $
    10,875
    
    
    $
    603
    
    
    $
    (475)
    
    
    $
    11,003
    
    
    $
    313
    
    
    $
    (112
    )
    
    $
    11,204Segment net income (loss)
    
    
    1,292
    
    
    
    98
    
    
    
    
    
    
    
    1,390
    
    
    
    (5
    )
    
    
    
    
    
    
    1,385Total assets at December 31, 2006
    
    $
    38,825
    
    
    $
    2,691
    
    
    $
    (110
    )
    
    $
    41,406
    
    
    $
    1,933
    
    
    $
    (481
    )
    
    $
    42,858Products and Services
 Electric Utilities RevenuesPeriod
    
    Retail
    
    Wholesale
    
    Other
    
    Total(in millions)Three Months Ended September 30, 2007
    
    $
    4,086
    
    
    $
    563
    
    
    $
    131
    
    
    $
    4,780Three Months Ended September 30, 2006
    
    
    3,853
    
    
    
    506
    
    
    
    120
    
    
    
    4,479Nine Months Ended September 30, 2007
    
    $
    9,935
    
    
    $
    1,531
    
    
    $
    381
    
    
    $
    11,847Nine Months Ended September 30, 2006
    
    
    9,295
    
    
    
    1,361
    
    
    
    347
    
    
    
    11,003
 (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 September 30,
2007, Mississippi Power had incurred and deferred approximately $7.4 million of such costs,
of which $1.4 million is included in current assets as other
regulatory assets and $6.0 million is included in long-term
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
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 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. On October 9, 2007,
Mississippi Power received an additional grant payment of $17.6 million for expenditures
incurred to date for construction of a new storm operations center. 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, 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 further grant payments of up to $18.4 million as
expenditures are incurred to construct a new storm operations center.The funds received with respect to certain of the grants 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 and October 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. Mississippi Power began
collecting the system restoration charge on June 20, 2007 and remitted the first payment to
the State of Mississippi on July 17, 2007.See Note 3 to the financial statements of Mississippi Power under Retail Regulatory Matters
  Performance Evaluation Plan in Item 8 of the Form 10-K for information regarding
Mississippi Powers PEP. In September 2007, the Mississippi PSC staff and Mississippi Power
entered into a stipulation that includes adjustments to expenses which, if approved by the
Mississippi PSC, would result in a one time credit to retail customers of approximately $1.1
million. In anticipation of that approval, Mississippi Power recognized a regulatory
liability and decreased retail revenues as of September 30, 2007. The final outcome of this
matter cannot now be determined.See Note 3 to the financial statements of Mississippi Power under Retail Regulatory Matters
  System Restoration Rider in Item 8 of the Form 10-K for information regarding Mississippi
Powers recovery of costs associated with property damage. As of September 30, 2007,
Mississippi Power has estimated retail rate refunds or credits of approximately $4.2 million
related to the System Restoration Rider (SRR). Of this amount, $2.4 million was recorded as
a regulatory liability in the fourth quarter 2006 and $1.8 million was recorded as an
increase in the regulatory liability in the first nine months of 2007. Mississippi Power is
awaiting guidance from the Mississippi PSC regarding the disposition of these items. The
final outcome of this matter cannot now be determined.Mississippi Power is undergoing a feasibility assessment of a proposed IGCC project in
Kemper County, Mississippi. In December 2006, the Mississippi PSC approved Mississippi
Powers request for
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 accounting treatment of the costs associated with Mississippi Powers generation resource
planning, evaluation, and screening activities. The Mississippi PSC gave Mississippi Power
the authority to create and recognize a regulatory asset for such costs. As of September
30, 2007, Mississippi Power has incurred $7.3 million in costs related to these activities.
Of this amount, $1.7 million has been expensed in 2007 in other operations and maintenance
expenses. This represents the wholesale portion of such costs that would not qualify as
capital expenditures. The remaining balance of $5.6 million is included in regulatory
assets on the Condensed Balance Sheets herein. The final outcome of this matter cannot now
be determined.(E)
    
    COMMON STOCKFor Southern Company, the only difference in computing basic and diluted earnings per share
is attributable to exercised options and outstanding options under the stock option plan.
See Note 8 to the financial statements of Southern Company in Item 8 of the Form 10-K for
further information on the stock option plan. The effect of the stock options was
determined using the treasury stock method. Shares used to compute diluted earnings per share are as follows (in thousands):
  Average Common Stock SharesThree Months
    
    Three Months
    
    Nine Months
    
    Nine MonthsEnded
    
    Ended
    
    Ended
    
    EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006As reported shares
    
    
    758,308
    
    
    
    742,884
    
    
    
    754,568
    
    
    
    742,532Effect of options
    
    
    4,084
    
    
    
    4,676
    
    
    
    4,614
    
    
    
    4,451Diluted shares
    
    
    762,392
    
    
    
    747,560
    
    
    
    759,182
    
    
    
    746,983
 For the nine months ended September 30, 2007, 13.2 million common stock shares were issued
(of which 5.2 million shares pertain to treasury shares that were re-issued) resulting in
net proceeds of $414 million. The increase in common shares during this period consisted of
6.0 million shares issued upon the exercise of stock options while the remaining portion of
the increase was for issuances to meet requirements associated with Southern Companys
various other stock plans.(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
September 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
    
    $
    (21.7
    )
    
    $
    (8.0
    )
    
    $
    (11.1
    )
    
    $
    (2.0
    )
    
    $
    (0.6
    )
    
    $
    Accumulated other
comprehensive income
(loss)
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    (0.1
    )Net income (loss)
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    (0.5
    )Total fair value
    
    $
    (21.6
    )
    
    $
    (8.0
    )
    
    $
    (11.1
    )
    
    $
    (2.0
    )
    
    $
    0.1
    
    
    $
    (0.6
    )
 For the three months and nine months ended September 30, 2007, the unrealized loss
recognized in income for derivative energy contracts that are not hedges was $2.2 million
and $0.7 million, respectively, for Southern Company, was $2.1 million and $1.0 million,
respectively, for Southern Power, and was immaterial for the traditional operating
companies. For the three months and nine months ended September 30, 2006, the unrealized
amounts recognized in income was a loss of $3.5 million and a gain of $0.2 million,
respectively, for Southern Company, was a loss of $2.8 million and a
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 gain of $0.1 million, respectively, for Southern Power, and was immaterial for the
traditional operating companies.The amounts reclassified from other comprehensive income to fuel expense and revenues for
the three- and nine-month periods ending September 30, 2007 and 2006 were immaterial for
each registrant. Additionally, no material ineffectiveness has been recorded in net income
for the three and nine months ended September 30, 2007 and 2006. The amounts expected to be
reclassified from other comprehensive income to fuel expense and revenue for the next
twelve-month period ending September 30, 2008 is also immaterial for each registrant.During 2006 and 2007, Southern Company entered into derivative transactions to reduce its
exposure to a potential phase-out of certain income tax credits related to synthetic fuel
production in 2007. In accordance with Section 45K of the IRC, these tax credits are
subject to limitation as the annual average price of oil increases. At September 30, 2007,
the fair value of all derivative transactions related to synthetic fuel production was a
$39.3 million net asset. For the three and nine months ended September 30, 2007, the fair
value gain recognized in income to mark the transactions to market was $23.6 million and
$23.4 million, respectively. For the three and nine months ended September 30, 2006, the
fair value loss recognized in income for similar derivative transactions was $23.3 million
and $19.4 million, respectively.At September 30, 2007, Southern Company had $1.1 billion notional amount of interest rate
derivatives
outstanding with net fair value loss of $1.0 million as follows:Cash Flow Hedges
 Weighted
    
    
    
    Fair ValueVariable
    
    Average
    
    Hedge
    
    Gain (Loss)Notional
    
    Rate
    
    Fixed Rate
    
    Maturity
    
    September 30, 2007Amount
    
    Received
    
    Paid
    
    Date
    
    (in millions)Alabama Power*
    
    $100 million
    
    3-month LIBOR
    
    
    6.15
    %
    
    November 2017
    
    $
    (1.1
    )Alabama Power**
    
    $100 million
    
    3-month LIBOR
    
    
    6.15
    %
    
    December 2017
    
    
    (1.3
    )Georgia Power***
    
    $400 million
    
    Floating
    
    
    3.85
    %
    
    December 2007
    
    
    (0.0
    )Georgia Power
    
    $225 million
    
    3-month LIBOR
    
    
    5.26
    %
    
    March 2018
    
    
    (0.6
    )Georgia Power
    
    $100 million
    
    3-month LIBOR
    
    
    5.12
    %
    
    June 2018
    
    
    1.0Georgia Power
    
    $14 million
    
    BMA Index
    
    
    2.50
    %
    
    December 2007
    
    
    0.1Georgia Power
    
    $50 million
    
    3-month LIBOR
    
    
    5.37
    %
    
    February 2019
    
    
    (0.1
    )Gulf Power
    
    $80 million
    
    3-month LIBOR
    
    
    5.10
    %
    
    July 2018
    
    
    1.0
 
 *
    
    Interest rate collar showing rate cap**
    
    Interest rate collar showing rate cap. Subsequent to September 30, 2007, this hedge was
terminated.***
    
    Interest rate collar with variable rate based on one-month LIBOR (showing rate cap) The amount reclassified from other comprehensive income to interest expense for the three
and nine-month periods ending September 30, 2007 was a loss of $3.9 million and $11.2
million, respectively, for Southern Company, was a loss of $3.4 million and $9.9 million,
respectively, for Southern Power, and was immaterial for the traditional operating
companies. For the comparative three and nine-month periods in 2006, the amount was a gain
of $2.3 million and $7.6 million, respectively, for Alabama Power, was a loss of $3.0 million
and $8.9 million, respectively, for Southern Power, and was immaterial for all other
registrants. No material ineffectiveness has been recorded in net income for any of the
periods reported.
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 For the next twelve-month period ending September 30, 2008, the following table reflects the
estimated pre-tax losses that will be reclassified from other comprehensive income to
interest expense (in millions):
 Southern Company
    
    $
    (15.4
    )Alabama Power
    
    
    (0.2
    )Georgia Power
    
    
    (1.7
    )Gulf Power
    
    
    (0.5
    )Southern Power
    
    
    (13.0
    )
 (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 nine-month periods
ended September 30, 2007 and 2006 are as follows (in millions):
 Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    MississippiPENSION PLANS
    
    Company
    
    Power
    
    Power
    
    Power
    
    PowerThree Months Ended
September 30, 2007Service cost
    
    $
    37
    
    
    $
    9
    
    
    $
    13
    
    
    $
    2
    
    
    $
    2Interest cost
    
    
    81
    
    
    
    20
    
    
    
    31
    
    
    
    4
    
    
    
    4Expected return on plan assets
    
    
    (120
    )
    
    
    (36
    )
    
    
    (49
    )
    
    
    (5
    )
    
    
    (5
    )Net amortization
    
    
    12
    
    
    
    3
    
    
    
    5
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    10
    
    
    $
    (4
    )
    
    $
    
    
    
    $
    1
    
    
    $
    1Nine Months Ended
September 30, 2007Service cost
    
    $
    110
    
    
    $
    26
    
    
    $
    38
    
    
    $
    5
    
    
    $
    5Interest cost
    
    
    242
    
    
    
    61
    
    
    
    94
    
    
    
    11
    
    
    
    11Expected return on plan assets
    
    
    (361
    )
    
    
    (109
    )
    
    
    (146
    )
    
    
    (16
    )
    
    
    (14
    )Net amortization
    
    
    34
    
    
    
    9
    
    
    
    13
    
    
    
    1
    
    
    
    1Net cost (income)
    
    $
    25
    
    
    $
    (13
    )
    
    $
    (1
    )
    
    $
    1
    
    
    $
    3Three Months Ended
September 30, 2006Service cost
    
    $
    38
    
    
    $
    9
    
    
    $
    13
    
    
    $
    2
    
    
    $
    2Interest cost
    
    
    75
    
    
    
    19
    
    
    
    29
    
    
    
    3
    
    
    
    3Expected return on plan assets
    
    
    (113
    )
    
    
    (34
    )
    
    
    (46
    )
    
    
    (5
    )
    
    
    (4
    )Net amortization
    
    
    10
    
    
    
    3
    
    
    
    4
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    10
    
    
    $
    (3
    )
    
    $
    
    
    
    $
    
    
    
    $
    1Nine Months Ended
September 30, 2006Service cost
    
    $
    114
    
    
    $
    28
    
    
    $
    40
    
    
    $
    5
    
    
    $
    5Interest cost
    
    
    225
    
    
    
    57
    
    
    
    88
    
    
    
    10
    
    
    
    10Expected return on plan assets
    
    
    (341
    )
    
    
    (104
    )
    
    
    (138
    )
    
    
    (15
    )
    
    
    (14
    )Net amortization
    
    
    32
    
    
    
    9
    
    
    
    10
    
    
    
    1
    
    
    
    2Net cost (income)
    
    $
    30
    
    
    $
    (10
    )
    
    $
    
    
    
    $
    1
    
    
    $
    3
 142




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 Southern
    
    Alabama
    
    Georgia
    
    Gulf
    
    MississippiPOSTRETIREMENT PLANS

   
    Company
    
    Power
    
    Power
    
    Power
    
    PowerThree Months Ended
September 30, 2007Service cost
    
    $
    6
    
    
    $
    1
    
    
    $
    3
    
    
    $
    
    
    
    $
    Interest cost
    
    
    27
    
    
    
    7
    
    
    
    12
    
    
    
    1
    
    
    
    2Expected return on plan assets
    
    
    (13
    )
    
    
    (4
    )
    
    
    (7
    )
    
    
    
    
    
    
    Net amortization
    
    
    9
    
    
    
    2
    
    
    
    4
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    29
    
    
    $
    6
    
    
    $
    12
    
    
    $
    1
    
    
    $
    2Nine Months Ended
September 30, 2007Service cost
    
    $
    20
    
    
    $
    5
    
    
    $
    8
    
    
    $
    1
    
    
    $
    1Interest cost
    
    
    80
    
    
    
    21
    
    
    
    35
    
    
    
    3
    
    
    
    4Expected return on plan assets
    
    
    (39
    )
    
    
    (14
    )
    
    
    (20
    )
    
    
    (1
    )
    
    
    (1
    )Net amortization
    
    
    29
    
    
    
    8
    
    
    
    14
    
    
    
    1
    
    
    
    1Net cost (income)
    
    $
    90
    
    
    $
    20
    
    
    $
    37
    
    
    $
    4
    
    
    $
    5Three Months Ended
September 30, 2006Service cost
    
    $
    7
    
    
    $
    2
    
    
    $
    3
    
    
    $
    
    
    
    $
    Interest cost
    
    
    24
    
    
    
    6
    
    
    
    11
    
    
    
    1
    
    
    
    1Expected return on plan assets
    
    
    (12
    )
    
    
    (4
    )
    
    
    (6
    )
    
    
    
    
    
    
    Net amortization
    
    
    11
    
    
    
    3
    
    
    
    5
    
    
    
    
    
    
    
    Net cost (income)
    
    $
    30
    
    
    $
    7
    
    
    $
    13
    
    
    $
    1
    
    
    $
    1Nine Months Ended
September 30, 2006Service cost
    
    $
    22
    
    
    $
    6
    
    
    $
    8
    
    
    $
    1
    
    
    $
    1Interest cost
    
    
    74
    
    
    
    20
    
    
    
    33
    
    
    
    3
    
    
    
    4Expected return on plan assets
    
    
    (36
    )
    
    
    (13
    )
    
    
    (19
    )
    
    
    (1
    )
    
    
    (1
    )Net amortization
    
    
    32
    
    
    
    8
    
    
    
    17
    
    
    
    1
    
    
    
    1Net cost (income)
    
    $
    92
    
    
    $
    21
    
    
    $
    39
    
    
    $
    4
    
    
    $
    5
 (H)
    
    
    EFFECTIVE TAX RATESSouthern Companys effective tax rate was 34.1% for the nine months ended September 30,
2007, as compared to 34.2% for the same period in 2006. The effective tax rate decreased
due to additional AFUDC equity recorded by Georgia Power and Gulf Power and by the increase
in the IRC Section 199 domestic production deduction. These decreases were offset by a
reduction in synthetic fuel tax credits net of reserves. See Note 5 to the financial
statements of Southern Company, Georgia Power, and Gulf Power in Item 8 of the Form 10-K for information
on each companys effective income tax rate.In connection with its construction program, Georgia Power recorded an increase of
approximately $25.4 million in AFUDC equity, which is not taxable, during the nine months
ended September 30, 2007, as compared to the prior year. Georgia Power also recorded
certain federal deductions and state income tax credits, which together with the increased
AFUDC equity, resulted in a lower effective income tax rate of 35.7% for the nine months
ended September 30, 2007 when compared to 36.6% in the same period in 2006. See Note (B)
herein for additional information regarding the pending litigation associated with the state
tax credits.In connection with its construction program, Gulf Power recorded an increase of
approximately $1.3 million in AFUDC equity, which is not taxable, during the nine months
ended September 30, 2007, as compared to the prior year. Gulf Power also had an increase in
the deduction created by the American Jobs Creation Act of 2004 as discussed below, which
together with the increased AFUDC equity,
 143




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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 resulted in a lower effective income tax rate of 36.6% for the nine months ended September
30, 2007 when compared to 37.5% in the same period in 2006.The American Jobs Creation Act of 2004 created a tax deduction for the portion of income
attributable to United States production activities as defined in IRC Section 199. The
deduction is equal to a stated percentage of the taxpayers qualified production activities.
The percentage is phased in over the years 2005 through 2010 with a 3% rate applicable to
the years 2005 and 2006, a 6% rate applicable for years 2007 through 2009, and a 9% rate
applicable for all years after 2009. This increase from 3% in 2006 to 6% in 2007 resulted
in an additional $13 million in tax deductions in 2007 compared to 2006.Southern Company recorded net synthetic fuel tax credits as of the nine months ended
September 30, 2007 that are $16.2 million less than the net synthetic fuel tax credits
recorded for the same period in 2006. See Note (B) herein for additional information
regarding the production of synthetic fuel tax credits in 2007. The impact of the reduction
in net synthetic fuel tax credits is an increase in Southern Companys effective tax rate
for the nine months ended September 30, 2007 as compared to the same period in 2006.(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 nine months
of 2007, the total amount of unrecognized tax benefits increased by $39.7 million, resulting
in a balance of $250.7 million as of September 30, 2007. Of the $39.7 million increase in
unrecognized tax benefits, $23.1 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, which resulted in a reduction to
beginning 2007 retained earnings of approximately $15 million, net of tax. The other
registrants retained earnings balances were not impacted by the adoption of FIN 48. Net
interest accrued for the FIN 48 liability as of September 30, 2007 was $30.3 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.It is reasonably possible that the amount of the unrecognized benefit with respect to
certain of Southern Companys unrecognized tax positions will significantly increase or
decrease within the next twelve months. The possible settlement of the SILO litigation
or the Georgia state tax credits litigation or the conclusion or settlement of federal or
state audits could impact the balances significantly. At this time, an estimate of the
range of reasonably possible outcomes cannot be determined. See Note (B) herein for
additional information regarding the implementation of FIN 48 and current litigation
concerning deductions related to the SILO transactions and the Georgia state tax credits.
 144




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 (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 September 30, 2007 totaled $307 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 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 $69 million of the under recovered regulatory clause
receivable as deferred charges and other assets in the Condensed Balance Sheet as of
September 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 September 30, 2007, Alabama Power had
accumulated a balance of $23.1 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 MATTERSGeorgia 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.On 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 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 operations, maintenance, and other investment costs to meet the rising demand for
electricity. Hearings on Georgia Powers direct testimony were held in early October. In
direct testimony filed on October 22, 2007, the Georgia PSC staff proposed certain
adjustments to Georgia Powers general rate case that indicates a $21 million revenue
surplus. Georgia Power disagrees with the majority of the staffs proposed adjustments.
Hearings on Georgia PSC staffs and intervenors direct testimony will be held in early
November. Georgia Powers rebuttal hearings will occur later the same month. 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 $189
million, or 2.62%, and $41 million, or 0.56%, 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
 145




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##### Table of Contents



NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
 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 government 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. In August 2007, the government filed a motion for reconsideration, which was denied on November 1, 2007.
The government has 60 days in which 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 September 30, 2007.
 146




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  147




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Item 6. Exhibits.
 (3) Articles of Incorporation and By-Laws
 Alabama Power(b)1
    -
    Articles of Amendment to the Articles
of Incorporation of Alabama Power dated
September 18, 2007. (Designated in Form
8-K dated September 12, 2007, File No.
1-3164, as Exhibit 4.5.)(b)2
    -
    Articles of Amendment to the Articles
of Incorporation of Alabama Power dated
October 17, 2007. (Designated in Form
8-K dated October 15, 2007, File No.
1-3164, as Exhibit 4.5.)Georgia Power(c)1
    -
    Amendment to the Charter of Georgia
Power, dated October 9, 2007.
(Designated in Form 8-K dated October 3,
2007, File No. 1-6468, as Exhibit 4.5.)Gulf Power(d)1
    -
    Amendment to the amended and restated
Articles of Incorporation of Gulf Power,
dated October 17, 2007. (Designated in
Form 8-K dated October 16, 2007, File No.
0-2429, as Exhibit 4.5.)(4) Instruments Describing Rights of Security Holders, Including IndenturesAlabama Power(b)1
    -
    Thirty-Ninth Supplemental Indenture to
Senior Note Indenture dated as of October
18, 2007, providing for the issuance of
the Series 2007C Senior Notes.
(Designated in Form 8-K dated October 11,
2007, File No. 1-3164, as Exhibit 4.2.)Georgia Power(c)1
    -
    Thirty-Second Supplemental Indenture to
Senior Note Indenture dated as of August
30, 2007, providing for the issuance of
the Series 2007E Senior Notes.
(Designated in Form 8-K dated August 23,
2007, File No. 1-6468, as Exhibit 4.2.)(10) Material ContractsSouthern Company(a)1
    -
    Form of Restricted Stock Award
Agreement.Alabama Power(b)1
    -
    Form of Restricted Stock Award
Agreement. See Exhibit 10(a)1 herein.Georgia Power(c)1
    -
    Form of Restricted Stock Award
Agreement. See Exhibit 10(a)1 herein.
 148




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##### Table of Contents



Item 6. Exhibits. (continued)
 Gulf Power(d)1
    -
    Form of Restricted Stock Award Agreement. See Exhibit 10(a)1 herein.Mississippi Power(e)1
    -
    Form of Restricted Stock Award
Agreement. See Exhibit 10(a)1 herein.(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.)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.
 149




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##### Table of Contents



Item 6. Exhibits. (continued)
 Alabama Power(b)1
    -
    Certificate of Alabama Powers Chief
Executive Officer required by Section 302
of the Sarbanes-Oxley Act of 2002.(b)2
    -
    Certificate of Alabama Powers Chief
Financial Officer required by Section 302
of the Sarbanes-Oxley Act of 2002.Georgia Power(c)1
    -
    Certificate of Georgia Powers Chief
Executive Officer required by Section 302
of the Sarbanes-Oxley Act of 2002.(c)2
    -
    Certificate of Georgia Powers Chief
Financial Officer required by Section 302
of the Sarbanes-Oxley Act of 2002.Gulf Power(d)1
    -
    Certificate of Gulf Powers Chief
Executive Officer required by Section 302
of the Sarbanes-Oxley Act of 2002.(d)2
    -
    Certificate of Gulf Powers Chief
Financial Officer required by Section 302
of the Sarbanes-Oxley Act of 2002.Mississippi Power(e)1
    -
    Certificate of Mississippi Powers
Chief Executive Officer required by
Section 302 of the Sarbanes-Oxley Act of
2002.(e)2
    -
    Certificate of Mississippi Powers
Chief Financial Officer required by
Section 302 of the Sarbanes-Oxley Act of
2002.Southern Power(f)1
    -
    Certificate of Southern Powers Chief
Executive Officer required by Section 302
of the Sarbanes-Oxley Act of 2002.(f)2
    -
    Certificate of Southern Powers Chief
Financial Officer required by Section 302
of the Sarbanes-Oxley Act of 2002.(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.
 150




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##### Table of Contents



Item 6. Exhibits. (continued)
 Alabama Power(b)
    -
    Certificate of Alabama Powers Chief
Executive Officer and Chief Financial
Officer required by Section 906 of the
Sarbanes-Oxley Act of 2002.Georgia Power(c)
    -
    Certificate of Georgia Powers Chief Executive Officer and
Chief Financial Officer required by Section 906 of the
Sarbanes-Oxley Act of 2002.Gulf Power(d)
    -
    Certificate of Gulf Powers Chief Executive Officer and
Chief Financial Officer required by Section 906 of the
Sarbanes-Oxley Act of 2002.Mississippi Power(e)
    -
    Certificate of Mississippi Powers
Chief Executive Officer and Chief
Financial Officer required by Section 906
of the Sarbanes-Oxley Act of 2002.Southern Power(f)
    -
    Certificate of Southern Powers Chief
Executive Officer and Chief Financial
Officer required by Section 906 of the
Sarbanes-Oxley Act of 2002.
 151




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THE SOUTHERN COMPANY
 
 SIGNATURES
  THE SOUTHERN COMPANYBy
    
    David M. RatcliffeChairman, President and Chief Executive Officer(Principal Executive Officer)By
    
    Thomas A. FanningExecutive Vice President and Chief Financial Officer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
  152




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ALABAMA POWER COMPANY
 SIGNATURES
  ALABAMA POWER COMPANYBy
    
    Charles D. McCraryPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Art P. BeattieExecutive Vice President, Chief Financial Officer and Treasurer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
  153




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GEORGIA POWER COMPANY
 SIGNATURES
  GEORGIA POWER COMPANYBy
    
    Michael D. GarrettPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Cliff S. ThrasherExecutive Vice President, Chief Financial Officer and Treasurer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
  154




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GULF POWER COMPANY
 SIGNATURES
  GULF POWER COMPANYBy
    
    Susan N. Story 
President and Chief Executive Officer
(Principal Executive Officer)By
    
    Ronnie R. Labrato 
Vice President and Chief Financial Officer
(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
  155




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MISSISSIPPI POWER COMPANY
 SIGNATURES
  MISSISSIPPI POWER COMPANYBy
    
    Anthony J. TopaziPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Frances V. TurnageVice President, Treasurer and Chief Financial Officer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
  156




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##### Table of Contents



SOUTHERN POWER COMPANY
 SIGNATURES
  SOUTHERN POWER COMPANYBy
    
    Ronnie L. BatesPresident and Chief Executive Officer(Principal Executive Officer)By
    
    Michael W. SouthernSenior Vice President and Chief Financial Officer(Principal Financial Officer)By
    
    /s/ Wayne Boston(Wayne Boston, Attorney-in-fact)
  157